Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarter ended September 30, 2016



o	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 000-55119

AP GAMING HOLDCO, INC.

(Exact name of registrant as specified in its charter)



Delaware		46-3698600
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

5475 S. Decatur Blvd., Ste #100 Las Vegas, NV 89118

(Address of principal executive offices) (Zip Code)

(702) 722-6700

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes o No x*

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 4, 2016, there were 100 shares of the Registrant’s Class A common stock, $.01 par value per share, and 15,035,479 shares of the Registrant’s Class B common stock, $.01 par value per share, outstanding.

*The Company does not have any public stockholders. Accordingly, it does not maintain an investor relations website where Interactive Data Files would be posted.

Table of Contents

TABLE OF CONTENTS



	PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (unaudited)

	CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2016 AND DECEMBER 31, 2015	1

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015	2

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015	3

	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	4

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26

ITEM 4.	CONTROLS AND PROCEDURES	27

	PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	28

ITEM 1A.	RISK FACTORS	28

ITEM 6.	EXHIBITS	29

	SIGNATURES	30

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AP GAMING HOLDCO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)

(Unaudited)



	September 30, 2016			December 31, 2015
Assets
Current assets
Cash and cash equivalents	$	23,150		$	35,722
Restricted cash	100			100
Accounts receivable, net of allowance of $1,305 and $113, respectively	23,306			23,653
Inventories	9,479			7,087
Prepaid expenses	2,963			4,642
Deposits and other	2,612			2,440
Total current assets	61,610			73,644
Property and equipment, net	63,534			66,699
Goodwill	251,700			253,851
Deferred tax asset	37			37
Intangible assets	247,237			290,356
Other assets	24,351			26,560
Total assets	$	648,469		$	711,147

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable and accrued liabilities	$	28,242		$	23,030
Current maturities of long-term debt	6,980			6,919
Total current liabilities	35,222			29,949
Long-term debt	539,731			533,290
Deferred tax liability - noncurrent	8,691			15,347
Other long-term liabilities	27,565			32,024
Total liabilities	611,209			610,610
Commitments and contingencies (Note 14)
Stockholders’ equity
Preferred stock at $0.01 par value; 100,000 shares authorized, no shares issued and outstanding	—			—
Common stock at $0.01 par value; 30,000,100 shares authorized; 100 Class A Shares issued and outstanding at September 30, 2016 and December 31, 2015, and 14,931,529 Class B Shares issued and outstanding at September 30, 2016 and December 31, 2015.	149			149
Additional paid-in capital	177,276			177,276
Accumulated deficit	(136,217		)	(75,077		)
Accumulated other comprehensive loss	(3,948		)	(1,811		)
Total stockholders’ equity	37,260			100,537
Total liabilities and stockholders’ equity	$	648,469		$	711,147

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AP GAMING HOLDCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(amounts in thousands, except per share data)

(unaudited)



	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Revenues
Gaming operations	$	38,877		$	36,808		$	117,093		$	80,160
Equipment sales	2,331			1,297			6,968			3,036
Total revenues	41,208			38,105			124,061			83,196
Operating expenses
Cost of gaming operations⁽¹⁾	6,711			7,258			19,627			16,065
Cost of equipment sales⁽¹⁾	698			206			4,244			545
Selling, general and administrative	12,970			13,804			36,654			28,752
Research and development	6,675			5,060			16,517			9,368
Write downs and other charges	1,852			4,249			2,153			15,458
Depreciation and amortization	19,419			20,545			60,527			41,100
Total operating expenses	48,325			51,122			139,722			111,288
Loss from operations	(7,117		)	(13,017		)	(15,661		)	(28,092		)
Other expense (income)
Interest expense	14,903			14,886			44,151			27,164
Interest income	(12		)	(32		)	(51		)	(58		)
Other expense	392			2,485			6,314			3,484
Loss before income taxes	(22,400		)	(30,356		)	(66,075		)	(58,682		)
Income tax benefit	1,165			7,077			4,935			29,017
Net loss	(21,235		)	(23,279		)	(61,140		)	(29,665		)
Foreign currency translation adjustment	(208		)	(759		)	(2,137		)	(942		)
Total comprehensive loss	$	(21,443	)	$	(24,038	)	$	(63,277	)	$	(30,607	)

Basic and diluted loss per common share:
Basic	$	(1.42	)	$	(1.56	)	$	(4.09	)	$	(2.42	)
Diluted	$	(1.42	)	$	(1.56	)	$	(4.09	)	$	(2.42	)
Weighted average common shares outstanding:
Basic	14,932			14,932			14,932			12,240
Diluted	14,932			14,932			14,932			12,240

(1) Exclusive of depreciation and amortization

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AP GAMING HOLDCO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Nine months ended September 30,
	2016			2015
Cash flows from operating activities
Net loss	$	(61,140	)	$	(29,665	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	60,527			41,100
Accretion of contract rights under development agreements and placement fees	3,538			307
Amortization of deferred loan costs and discount	2,617			1,619
Provision for bad debts	1,274			65
Imputed interest income	—			(18		)
Loss on disposition of assets	558			836
Impairment of assets	4,606			3,805
Benefit for deferred income tax	(6,374		)	(29,452		)
Changes in assets and liabilities that relate to operations:
Accounts receivable and notes receivable	(556		)	3,145
Inventories	1,121			886
Prepaid expenses	1,673			(1,177		)
Deposits and other	165			5,622
Other assets, non-current	673			(1,150		)
Accounts payable and accrued liabilities	16,579			10,402
Net cash provided by operating activities	25,261			6,325
Cash flows from investing activities
Business acquisitions, net of cash acquired	—			(375,547		)
Collection of notes receivable	—			323
Purchase of intangible assets	(1,311		)	(5,101		)
Software development and other expenditures	(4,929		)	(4,495		)
Proceeds from disposition of assets	87			28
Purchases of property and equipment	(21,817		)	(12,094		)
Net cash used in investing activities	(27,970		)	(396,886		)
Cash flows from financing activities
Borrowings under the revolving facility	—			11,500
Repayments under the revolving facility	—			(21,500		)
Proceeds from issuance of debt	—			369,400
Payment of placement fee obligations	(3,525		)	—
Payments on debt	(5,168		)	(3,359		)
Payment of previous acquisition obligation	(1,125		)	(10,000		)
Repurchase of shares issued to management	—			(1,277		)
Proceeds from issuance of common stock	—			77,425
Proceeds from employees in advance of common stock issuance	—			579
Payment of deferred loan costs	—			(3,837		)
Net cash (used in) provided by financing activities	(9,818		)	418,931
Effect of exchange rates on cash and cash equivalents	(45		)	(95		)
(Decrease) increase in cash and cash equivalents	(12,572		)	28,275
Cash and cash equivalents, beginning of period	35,722			10,680
Cash and cash equivalents, end of period	$	23,150		$	38,955

Supplemental cash flow information:
Cash paid during the period for interest	$	29,340		$	20,044
Cash paid during the period for taxes	$	922		$	440
Non-cash investing and financing activities:
Financed purchase of property and equipment	$	1,588		$	2,663
Interest payable added to debt principal	$	7,490		$	310

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

AP Gaming Holdco, Inc. (the “Company,” “AP Gaming,” “we,” “us,” or “our”) is a leading designer and supplier of gaming products and services for the gaming industry. The Company is a leader in the Class II Native American and Mexican gaming jurisdictions and has expanded its product lines to include Class III Native American, commercial and charity jurisdictions. We supply electronic gaming machines (“slot machines”), server-based systems and back-office systems that are used by casinos and various gaming locations. Over the past two years, the Company has significantly broadened and diversified its product portfolio through both organic development and strategic acquisitions. We launched a new table products division in mid-2014 to provide live felt table games to casino operators. Through the acquisition of Cadillac Jack (defined in Note 2) on May 29, 2015, we greatly expanded our games library and slot machine offerings. The Company also acquired online developer Gamingo Limited in June 2015, further expanding its offerings to include interactive products such as social casino games, available to play on desktop and mobile devices.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain disclosures required by generally accepted accounting principles (“GAAP”) are omitted or condensed in these condensed consolidated financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) that are necessary to state fairly the Company's financial position, results of operations and cash flows for the interim periods have been made. The interim results reflected in these condensed consolidated financial statements are not necessarily indicative of results to be expected for the full fiscal year. The accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain amounts in the consolidated financial statements for the previous years have been reclassified to be consistent with the current year presentation. These reclassifications had no effect on the previously reported net loss.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make decisions based upon estimates, assumptions, and factors considered relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of the estimates and assumptions. Accordingly, actual results could differ materially from those anticipated.

Revenue Recognition

Gaming Operations

Gaming operations revenue is earned by providing customers with gaming machines, gaming machine content licenses, back-office equipment and linked progressive systems, which are collectively referred to as gaming equipment, under participation arrangements. The participation arrangements convey the right to use the equipment (i.e. gaming machines and related integral software) for a stated period of time and are accounted for as operating leases. Under these arrangements, the Company retains ownership of the gaming equipment installed at customer facilities and receives either revenue based on a percentage of the win per day generated by the gaming equipment or a daily fee. The majority of the Company’s leases require the Company to provide maintenance throughout the entire term of the lease. In some cases, a performance guarantee exists that, if not met, requires the Company to replace or remove the gaming machines from the customer’s floor. Whether contractually required or not, the Company develops and provides new gaming titles throughout the life of the lease. Certain arrangements require a portion of the facility’s win per day to be set aside to be used to fund facility-specific marketing,

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

advertising, promotions and service. These amounts are offset against gaming revenue. Gaming operations revenue is also earned from the licensing of table game content and is earned and recognized on a fixed monthly rate. Our social gaming products earn revenue from the sale of virtual coins or chips, which is recorded when the purchased coins or chips are used by the customer.

Equipment Sales

Revenues from the stand-alone product sales or separate accounting units are recorded when:


•	Pervasive evidence of an arrangement exists;


•	The sales price is fixed and determinable;


•	Delivery has occurred and services have been rendered; and


•	Collectability is reasonably assured.

Equipment sales are generated from the sale of gaming machines and licensing rights to game content software that is installed in the gaming machine, parts, and other ancillary equipment. Also included within the deliverables are delivery, installation and training, all of which occur within a few days of arriving at the customer location. Gaming equipment sales do not include maintenance beyond a standard warranty period. The recognition of revenue from the sale of gaming devices occurs as title and risk of loss have passed to the customer and all other revenue recognition criteria have been satisfied. As the combination of game content software and the tangible gaming device function together to deliver the product’s essential functionality, revenue from the sale of gaming devices is recognized under general revenue recognition guidance.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of deposits held at major banks and other marketable securities with original maturities of 90 days or less.

Restricted Cash

Restricted cash amounts represent funds held in escrow as collateral for the Company’s surety bonds for various gaming authorities and funds held to ensure the availability of funds to pay wide-area progressive jackpot awards.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts related to accounts receivable deemed to have a high risk of collectability. The Company reviews the accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company analyzes historical collection trends and changes in the customers’ payment patterns, customer concentration, and credit worthiness when evaluating the adequacy of the allowance for doubtful accounts. A large percentage of receivables are with Native American tribes, and the Company has concentrations of credit risk with several tribes. The Company includes any receivable balances that are determined to be uncollectible in the overall allowance for doubtful accounts. Changes in the assumptions or estimates reflecting the collectability of certain accounts could materially affect the allowance for accounts receivable.

Inventories

Inventories consist primarily of parts and supplies that are used to repair and maintain machinery and equipment. Inventories are stated at the lower of cost or market. Cost of inventories is determined using the first-in, first-out (“FIFO”) method for all components of inventory. The Company regularly reviews inventory quantities and updates estimates for the net realizable value of inventories. This process includes examining the carrying values of parts and ancillary equipment in comparison to the current fair market values for such equipment (less costs to sell or dispose). Some of the factors involved in this analysis include the overall levels of the inventories, the current and projected sales levels for such products, the projected markets for such products and the costs required to sell the products, including refurbishment costs. Changes in the assumptions or estimates could materially affect the inventory carrying value.

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Property and Equipment

The cost of gaming equipment, consisting of fixed-base player terminals, file servers and other support equipment as well as other property and equipment, is depreciated over their estimated useful lives, using the straight-line method for financial reporting. Repairs and maintenance costs are expensed as incurred. The Company routinely evaluates the estimated lives used to depreciate assets. The estimated useful lives are as follows:



Gaming equipment	3 to 6 years
Other property and equipment	3 to 6 years

The Company measures recoverability of assets to be held and used by comparing the carrying amount of an asset to future cash flows expected to be generated by the asset. The Company’s policy is to impair, when necessary, excess or obsolete gaming machines on hand that it does not expect to be used. Impairment is based upon several factors, including estimated forecast of gaming machine demand for placement into casinos. While the Company believes that the estimates and assumptions used in evaluating the carrying amount of these assets are reasonable, different assumptions could affect either the carrying amount or the estimated useful lives of the assets, which could have a significant impact on the results of operations and financial condition.

Intangible Assets

The Company reviews its identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment losses are recognized for identifiable intangibles, other than goodwill, when indicators of impairment are present and the estimated undiscounted cash flows are not sufficient to recover the assets’ carrying amount.

When the estimated undiscounted cash flows are not sufficient to recover the intangible asset’s carrying amount, an impairment loss is measured to the extent the fair value of the asset is less than its carrying amount.

Certain trade names have an indefinite useful life and the Company tests these trade names for possible impairment at least annually, on October 1, or whenever events or changes in circumstances indicate that the carrying value may be impaired. We perform a qualitative assessment to determine if it is more likely than not that the fair value of the asset is less than its carrying amount. If we believe, as a result of our qualitative assessment, that it is more likely than not that the fair value of the asset is less than its carrying amount, the quantitative impairment test is required.

Costs of Computer Software

Internally developed gaming software represents the Company’s internal costs to develop gaming titles to utilize on the Company’s gaming machines. Internally developed gaming software is stated at cost and amortized over the estimated useful lives of the software, using the straight-line method. Software development costs are capitalized once technological feasibility has been established and are amortized when the software is placed into service. The computer software we develop reaches technological feasibility when a working model of the computer software is available. Any subsequent software maintenance costs, such as bug fixes and subsequent testing, are expensed as incurred. Discontinued software development costs are expensed when the determination to discontinue is made. Software development costs are amortized over the expected life of the title or group of titles, if applicable, to amortization expense.

On a quarterly basis, or more frequently if circumstances warrant, the Company compares the net book value of its internally developed computer software to the net realizable value on a title or group of title basis. The net realizable value is determined based upon certain assumptions, including the expected future revenues and net cash flows of the gaming titles or group of gaming titles utilizing that software, if applicable.

Goodwill

The excess of the purchase price of an acquired business over the estimated fair value of the assets acquired and the liabilities assumed is recorded as goodwill. The Company tests for possible impairment of goodwill at least annually, on October 1, or when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0”, to

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

determine whether it is more likely than not that the reporting unit’s fair value of goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as the general economic environment, industry and market conditions, changes in key assumptions used since the most recently performed valuation and overall financial performance of the reporting units. If the Company determines that it is more likely than not that a reporting unit’s fair value is less than its carrying value, the Company performs a quantitative goodwill impairment analysis, and depending upon the results of that measurement, the recorded goodwill may be written down and charged to income from operations when its carrying amount exceeds its estimated fair value. As of September 30, 2016, there were no indicators of impairment.

Deferred Financing Costs

Direct and incremental costs incurred and original issue discounts in connection with the issuance of long-term debt are deferred and amortized using the effective interest method over the life of the related loans. Deferred financing costs incurred in connection with the issuance of the Company's revolving credit facilities of $0.2 million and $0.3 million at September 30, 2016 and December 31, 2015, respectively, are presented in other assets on the Condensed Consolidated Balance Sheets. All other deferred financing costs are presented as a direct reduction of long-term debt on the Condensed Consolidated Balance Sheets. See the Recently Issued Accounting Pronouncements section below for details on the presentation change of deferred financing costs.

Acquisition Accounting

The Company applies the provisions of ASC 805, “Business Combinations” (ASC 805), in accounting for business acquisitions. It requires us to recognize separately from goodwill the fair value of assets acquired and liabilities assumed on the acquisition date. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Significant estimates and assumptions are required to value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable. These estimates are inherently uncertain and subject to refinement and typically include the calculation of an appropriate discount rate and projection of the cash flows associated with each acquired asset. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, “Fair Value Measurements” (ASC 820) to its financial assets and liabilities. Fair value is defined as a market-based measurement intended to estimate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC 820 also established a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows:


•	Level 1 - quoted prices in an active market for identical assets or liabilities;


•	Level 2 - quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means; and


•	Level 3 - valuation methodology with unobservable inputs that are significant to the fair value measurement.

The carrying values of the Company’s cash and cash equivalents, restricted cash, receivables and accounts payable approximate fair value because of the short term maturities of these instruments. The fair value of our long-term debt is based on the quoted market prices for similar issues (Level 2 inputs). The estimated fair value of our long-term debt as of September 30, 2016 and December 31, 2015 was $529.6 million and $529.2 million, respectively.

Accounting for Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that included the enactment date. Future tax benefits are recognized to the extent that realization of those benefits is considered more likely than not, and a valuation allowance is established for deferred tax assets which do not meet this threshold.

Contingencies

The Company assesses its exposures to loss contingencies including claims and legal proceedings and accrues a liability if a potential loss is considered probable and the amount can be estimated. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, if the actual loss from a contingency differs from management’s estimate, there could be a material impact on the results of operations or financial position. Operating expenses, including legal fees, associated with contingencies are expensed when incurred.

Foreign Currency Translation

The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars at the period end rate of exchange for asset and liability accounts and the weighted average rate of exchange for income statement accounts. The effects of these translations are recorded as a component of other accumulated comprehensive loss in stockholders’ equity.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued an accounting standards update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which clarifies the principles for recognizing revenue from contracts with customers. The amendment outlines a single comprehensive model for entities to depict the transfer of goods or services to customers in amounts that reflect the payment to which a company expects to be entitled in exchange for those goods or services. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. The ASU may be adopted using either a full retrospective transition method or a modified retrospective transition method and will be adopted by the Company on January 1, 2018. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Compensation—Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. The ASU clarifies the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This ASU requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard on January 1, 2016, did not have a material effect on our financial position, results of operations or cash flows.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern. The ASU requires management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, consolidated in the aggregate, indicate that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. Currently, there is no guidance in U.S. GAAP for management's responsibility to perform an evaluation. Under the update, management's evaluation is to be performed when preparing financial statements for each annual and interim reporting period and based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The amendments in this update are effective for the

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company will adopt this standard in its Annual Report on Form 10-K for the year ended December 31, 2016 , and we do not expect it to have a material effect on our consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement-Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. The presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that were previously classified as extraordinary. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted using either a prospective or retrospective method. The adoption of this standard on January 1, 2016, did not have a material effect on our financial condition, results of operations or cash flows.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 intends to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. In August 2015, the FASB issued ASU 2015-15 which clarifies that the guidance issued in April 2015 does not apply to line-of-credit arrangements. According to ASU 2015-15, line-of-credit arrangements will continue to present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the arrangement. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company adopted the guidance on January 1, 2016, with retrospective application in the accompanying Condensed Consolidated Balance Sheet at December 31, 2015. This change in accounting principle resulted in net deferred financing costs of $7.8 million incurred in connection with the issuance of the Company's long-term debt (excluding revolving credit facilities) at December 31, 2015 being reclassified as a direct reduction of the long-term debt balance. The presentation of the net deferred financing costs incurred in connection with the issuance of the Company's revolving credit facilities as of December 31, 2015, are not affected by the adoption of this new accounting guidance and are included in other assets in the accompanying Condensed Consolidated Balance Sheet.

In July 2015, the FASB issued ASU No. 2015-11, Inventory: Simplifying the Measurement of Inventory. ASU 2015-11 changes the criteria for measuring inventory within the scope of the ASU. Inventory will now be measured at the lower of cost and net realizable value, while the concept of market value will be eliminated. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the provisions of ASU 2015-11 to have a material effect on our financial condition, results of operations or cash flows.

In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 eliminates the requirement to retrospectively apply adjustments made to provisional amounts recognized in a business combination. It requires that an acquirer recognize and disclose adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, which should be calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this ASU 2015-16 should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application permitted for financial statements that have not been issued. The adoption of this standard on January 1, 2016, did not have a material effect on our financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 intends to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is expected to result in a significant portion of our operating leases, where we are the lessee, to be recognized on our Consolidated Balance Sheets. The guidance requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with earlier adoption permitted. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 intends to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the provisions of ASU 2016-15 to have a material effect on our financial condition, results of operations or cash flows.

NOTE 2. ACQUISITIONS

Cadillac Jack

On May 29, 2015, the Company acquired 100% of the equity of Amaya Americas Corporation (“Cadillac Jack”), a leading provider of Class II gaming machines for the North American tribal gaming market, with key regions of operation within Alabama, Mexico, and Wisconsin. This acquisition is expected to create growth opportunities in Class II and Class III jurisdictions and expands the Company’s geographic footprint. The combined management teams are complementary and possess years of combined experience that is expected to allow us to effectively grow and improve our business.

We completed the allocation of the purchase price in the current year and the final fair value of assets acquired and liabilities assumed is the same as that disclosed in Form 10-K for the year ended December 31, 2015. We attribute the goodwill acquired to our enhanced financial scale and geographic diversification, opportunities for synergies, assembled workforce and other strategic benefits. None of the goodwill associated with the acquisition is deductible for income tax purposes and, as such, no deferred taxes have been recorded related to goodwill.

The following unaudited pro forma statements of operations give effect to the Cadillac Jack acquisition as if it had been completed on January 1, 2014. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the acquisition been completed on January 1, 2014. In addition, the unaudited pro forma financial information does not purport to project future operating results. The pro forma statements of operations do not reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the Cadillac Jack acquisition.



	Three months ended September 30,		Nine months ended September 30,
	2015		2015
Revenue	$	38,105	$	116,014
Net loss	$	19,769	$	48,453

Gamingo Limited

On June 15, 2015, the Company purchased 100% of the equity of Gamingo Limited (formerly known as “RocketPlay”, currently known as “AGSi”), a leading gaming company developing social casino titles for mobile devices. With primary offices in San Francisco and Tel Aviv, AGSi’s flagship product, Lucky Play Casino, gives players a casino-quality experience with slots, table games, tournaments, and live events. We completed the allocation of the purchase price in the current quarter and the final fair value of assets acquired and liabilities assumed is the same as that disclosed in Form 10-K for the year ended December 31, 2015.

Intellectual Property Acquisitions

During the quarter ended September 30, 2015, the Company acquired certain intangible assets related to the purchase of table games and table game related intellectual property. Some of the acquisitions were accounted for as an acquisition of a business and the assets acquired and liabilities assumed were measured based on our preliminary estimates of their fair values at the acquisition dates. In the current year, we updated the purchase price allocation, which caused an increase to goodwill of $800,000 and a related decrease to intangible assets. The estimated fair values of assets acquired and liabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis.

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

NOTE 3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):



	September 30, 2016			December 31, 2015
Gaming equipment	$	102,154		$	89,361
Other property and equipment	13,220			14,976
Less: Accumulated depreciation	(51,840		)	(37,638		)
Total property and equipment, net	$	63,534		$	66,699

Gaming equipment and other property and equipment are depreciated over the respective useful lives of the assets ranging from three to six years. Depreciation expense was $6.5 million and $7.4 million for the three months ended September 30, 2016 and 2015, respectively. Depreciation expense was $21.0 million and $16.2 million for the nine months ended September 30, 2016 and 2015, respectively.

NOTE 4. GOODWILL AND INTANGIBLES

There were no accumulated impairments of goodwill as of September 30, 2016. Changes in the carrying amount of goodwill are as follows (in thousands):



	Gross Carrying Amount
Balance at December 31, 2015	$	253,851
Foreign currency adjustments	(2,951		)
Purchase accounting adjustment	800
Balance at September 30, 2016	$	251,700

Intangible assets consist of the following (in thousands):



		September 30, 2016							December 31, 2015
	Useful Life (years)	Gross Value		Accumulated Amortization			Net Carrying Value		Gross Value		Accumulated Amortization			Net Carrying Value
Indefinite lived trade names	Indefinite	$	12,126	$	—		$	12,126	$	12,126	$	—		$	12,126
Trade and brand names	7	13,600		(3,933		)	9,667		13,600		(1,721		)	11,879
Customer relationships	7	165,824		(43,394		)	122,430		170,927		(26,676		)	144,251
Contract rights under development and placement fees	1 - 7	16,488		(4,072		)	12,416		16,311		(548		)	15,763
Gaming software and technology platforms	1 - 5	122,608		(42,820		)	79,788		116,930		(23,735		)	93,195
Intellectual property	10	12,780		(1,970		)	10,810		14,030		(888		)	13,142
		$	343,426	$	(96,189	)	$	247,237	$	343,924	$	(53,568	)	$	290,356

Intangible assets are amortized over their respective estimated useful lives ranging from one to ten years. Amortization expense related to intangible assets was $12.9 million and $13.2 million for the three months ended September 30, 2016 and 2015, respectively. Amortization expense related to intangible assets was $39.5 million and $24.9 million for the nine months ended September 30, 2016 and 2015, respectively.

The Company enters into development agreements and placement fee agreements with certain customers to secure floor space under lease agreements for its gaming machines. Amounts paid in connection with the development agreements are repaid to the Company in accordance with the terms of the agreement, whereas placements fees are not reimbursed. For development agreements in the form of a loan, interest income is recognized on the repayment of the notes based on the stated rate or, if not stated explicitly in the development agreement, on an imputed interest rate. If the stated interest rate is deemed to

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

be other than a market rate or zero, a discount is recorded on the note receivable as a result of the difference between the stated and market rate and a corresponding intangible asset is recorded. The intangible asset is recognized in the financial statements as a contract right under development agreement and amortized as a reduction in revenue over the term of the agreement. Placement fees can be in the form of cash paid upfront or free lease periods and are accreted over the life of the contract and the expense is recorded as a reduction of revenue. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of $1.2 million and $0.2 million for the three months ended September 30, 2016 and 2015, respectively. We recorded a reduction of gaming operations revenue from the accretion of contract rights under development agreements and placement fees of $3.5 million and $0.3 million for the nine months ended September 30, 2016 and 2015, respectively.

NOTE 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following (in thousands):



	September 30, 2016		December 31, 2015
Trade accounts payable	$	6,150	$	4,776
Salary and payroll tax accrual	5,890		5,851
Taxes payable	2,850		2,440
Accrued interest	3,956		8
C2 Gaming contingent consideration	—		1,125
Placement fees payable	4,000		4,525
Accrued other	5,396		4,305
Total accounts payable and accrued liabilities	$	28,242	$	23,030

NOTE 6. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):



	September 30, 2016			December 31, 2015
Senior secured credit facilities:
Term loans, interest at LIBOR or base rate plus 8.25% (9.25% at September 30, 2016), net of unamortized discount and deferred loan costs of $15.9 million and $18.2 million at September 30, 2016 and December 31, 2015, respectively.	$	395,835		$	396,717
Senior secured PIK notes, net of unamortized discount and deferred loan costs of $3.6 million and $3.9 million at September 30, 2016 and December 31, 2015, respectively.	125,905			118,764
Seller notes	19,496			18,902
Equipment long-term note payable and capital leases	5,475			5,826
Total debt⁽¹⁾	546,711			540,209
Less: Current portion	(6,980		)	(6,919		)
Long-term debt	$	539,731		$	533,290

^{(1) Pursuant to the adoption of ASU 2015-03, debt issuance costs of}^{$7.8 million}^{were deducted from the carrying amount of related debt as of December 31, 2015.}

Senior Secured Credit Facilities

On December 20, 2013, the Company entered into our senior secured credit facilities, which consisted of $155.0 million in term loans and a $25.0 million revolving credit facility. On May 29, 2015, the Company entered into incremental facilities for $265.0 million in term loans and on June 1, 2015, the Company entered into an incremental agreement for an additional $15.0 million of incremental revolving commitments. The proceeds of the incremental term loans were used primarily to pay the consideration for the Cadillac Jack acquisition.

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

under the revolving credit facility bear interest at a rate equal to, at the Company’s option, either LIBOR or the base rate plus an applicable margin rate. In addition, on a quarterly basis, the Company is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.

The senior secured credit facilities are guaranteed by AP Gaming Holdings, LLC, the AP Gaming I, LLC’s (the “Borrower”) material, wholly owned domestic subsidiaries (subject to certain exceptions), and are secured by a pledge by AP Gaming Holdings, LLC of the Borrower’s equity interest directly held by AP Gaming Holdings, LLC and a pledge of substantially all of the existing and future property and assets of the Borrower and the subsidiary guarantors, subject to certain exceptions. The senior secured credit facilities require that the Borrower maintain a maximum net first lien leverage ratio set at a maximum of 5.5 to 1 beginning with the first quarter ending June 30, 2014. The senior secured credit facilities contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The senior secured credit facilities also contain customary events of default included in similar financing transactions, including, among others, failure to make payments when due, default under other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments. The Company was in compliance with the covenants of the senior secured credit facilities at September 30, 2016.

Senior secured PIK notes

On May 29, 2015, the Company entered into a note purchase agreement with AP Gaming Holdings, LLC, as subsidiary guarantor (the “Subsidiary Guarantor”), Deutsche Bank AG, London Branch, as purchaser (the “Purchaser”), and Deutsche Bank Trust Company Americas, as collateral agent. Pursuant to the agreement, the Company issued $115.0 million of its 11.25% senior secured PIK notes due 2021 (the “Notes”) at an issue price of 97% of the principal amount thereof to the Purchaser in a private placement exempt from registration under the Securities Act of 1933, as amended. The Notes are secured by the Company’s equity in its subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are unconditionally guaranteed by the Subsidiary Guarantor.

Interest on the Notes will accrue at a rate of 11.25% per annum. The Company may elect to pay interest due on the Notes in cash, by increasing the principal of the outstanding Notes or by issuing new Notes (“PIK interest”) for the entire amount of the interest payment or by paying interest partially in cash and partially in PIK interest. Interest on the Notes will accrue from the the date of issuance and will be payable on the dates described in more detail in the agreement. The Notes will mature on May 28, 2021. The net proceeds of the Notes were used primarily to finance the acquisition of Cadillac Jack.

The Notes contain limitations on additional indebtedness, guarantees, incurrence of liens, investments and distributions, as defined. The Notes also contains customary events of default included in similar transactions, including, among others, failure to make payments when due, acceleration of other material indebtedness, breach of covenants, breach of representations and warranties, involuntary or voluntary bankruptcy, and material judgments.

Seller notes

On December 20, 2013, the Company issued two promissory notes (the “AGS Seller Notes”) to AGS Holdings, LLC, in the amounts of $2.2 million and $3.3 million, to satisfy the conditions set forth in the Equity Purchase Agreement entered into on September 16, 2013 (as subsequently amended and restated on December 3, 2013, the “Acquisition Agreement”). Acquisition Agreement. At September 30, 2016, notes payable related to the AGS Seller Notes totaled $6.8 million, which includes capitalized interest of $1.3 million. The Seller Notes accrue interest on the unpaid principal balance at 8.5% per annum and shall be payable semi-annually in arrears on June 30 and December 31, commencing on June 30, 2014. Any interest accrued and payable on any interest payment date will be paid by capitalizing such interest and adding it to (and thereby increasing) the outstanding principal amount of this AGS Seller Notes. All principal and interest under the AGS Seller Notes is due and payable on June 18, 2021, the maturity date. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the AGS Seller Notes.

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

payable on May 29, 2023. The Amaya Seller Note is required to be prepaid under certain circumstances described in more detail in the note agreement. As of September 30, 2016, there was no requirement to prepay the Amaya Seller Note. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the Amaya Seller Note. The Amaya Seller Note includes certain covenants and events of default that are customary for instruments of this type. At September 30, 2016, the Amaya Seller Note totaled $12.7 million, which includes capitalized interest of $0.7 million.

Equipment Long Term Note Payable and Capital Leases

The Company has entered into a financing agreement to purchase certain gaming devices, systems and related equipment and has entered into leases for servers and equipment that are accounted for as capital leases.

NOTE 7. STOCKHOLDERS’ EQUITY

Common Stock

The Company’s common stock consists of two classes: class A voting common stock (“Class A Shares”) and class B non-voting common stock (“Class B Shares”). The holders of the Class A Shares are entitled to one vote per share on all matters to be voted on by the stockholders of the Company. The holders of the Class A Shares have no economic rights or privileges, including rights in liquidation, and have no right to receive dividends or any other distributions. The holders of the Class B Shares have no right to vote on any matter to be voted on by the stockholders of the Company. Each holder of Class B Shares is entitled to share equally, share for share, dividends declared, as well as any distributions to the stockholders, and in the event of the Company’s liquidation, dissolution or winding up, is entitled to share ratably in any remaining assets after payment of or provision for liabilities and the liquidation on preferred stock, if any.

As of September 30, 2016, 103,950 Class B Shares issued to “Management Holders,” as defined in the Securityholders Agreement dated April 28, 2014 (the “Securityholders Agreement”) were outstanding. The Class B Shares issued to Management Holders are not considered issued for accounting purposes as they contain a substantive performance condition that must be met for the Management Holder to benefit from the ownership of the shares. As a result, shares issued to Management Holders are not considered issued for accounting purposes until such time that the performance condition is met.

Class B Shares that are held by a Management Holder are subject to repurchase rights (the “Repurchase Rights”), as outlined in Section 6 of the Securityholders Agreement, that are contingent on the Management Holder’s termination. The Repurchase Rights enable the Company to recover the Class B Shares issued to Management Holders without transferring any appreciation of the fair value of the stock to the Management Holder upon certain terminations of the Management Holder’s employment prior to a “Qualified Public Offering”, as defined in the Securityholders Agreement. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering for “Cause”, as defined in the Securityholders Agreement, or is terminated by such Management Holder without “Good Reason”, as defined in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for the lesser of original cost and fair market value. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering other than as described above and in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for fair market value.

NOTE 8. WRITE DOWNS AND OTHER CHARGES

The Condensed Consolidated Statements of Operations and Comprehensive Loss include various non-routine transactions or consulting and transaction-related fees that have been classified as write downs and other charges. During the three months ended September 30, 2016, the company recognized $1.9 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition, write-down of long-lived assets of $1.3 million related to older generation gaming machines, and losses from the disposal of assets of $0.2 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition.

During the nine months ended September 30, 2016, the Company recognized $2.2 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition, write-down of long-lived assets of $1.3 million related to aged

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gaming machines, and losses from the disposal of assets of $0.6 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition.

During the three months ended September 30, 2015, the Company recognized $4.2 million in write-downs and other charges driven by acquisition related charges of $3.2 million. The Company also recognized write offs related to prepaid royalties of $0.7 million and losses from the disposal of assets of $0.3 million.

During the nine months ended September 30, 2015, the Company recognized $15.5 million in write-downs and other charges primarily related to acquisition charges of $10.9 million. The Company also recognized an impairment to intangible assets of $2.3 million related to game titles and write offs related to prepaid royalties of $1.3 million, losses from the disposal of assets of $1.2 million and the impairment of long-lived assets of $0.2 million, partially offset by a benefit from the partial write-down of the C2 acquisition contingent consideration of $0.4 million that is described in Note 2.

NOTE 9. BASIC AND DILUTED INCOME (LOSS) PER SHARE

The Company computes net income (loss) per share in accordance with accounting guidance that requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). Basic EPS is computed by dividing net income (loss) for the period by the weighted average number of shares outstanding during the period. Basic EPS excludes Class B Shares issued to Management Holders until the performance condition or termination event is considered probable (see Note 7). Until such time, the Class B Shares issued to Management Holders will be included in the calculation of diluted EPS using the treasury stock method and are treated as stock options. Diluted EPS is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares that were outstanding during the period. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive. Potentially dilutive common shares include stock options and restricted stock (see Note 11).

There were no potentially dilutive securities for the three and nine months ended September 30, 2016.

Excluded from the calculation of diluted EPS for three and nine months ended September 30, 2016, are 50,000 restricted shares and 0.3 million stock options, as such securities were anti-dilutive.

NOTE 10. BENEFIT PLANS

The Company has established a 401(k) defined contribution plan (the “401(k) Plan”) for its employees. The 401(k) Plan allows employees to contribute up to 15% of their pretax earnings, and the Company may match a percentage of the contributions on a discretionary basis. The expense associated with the 401(k) Plan for the three months ended September 30, 2016 and 2015, was $0.2 million and $0.2 million, respectively. The expense associated with the 401(k) Plan for the nine months ended September 30, 2016 and 2015, was $0.7 million and $0.4 million, respectively.

On April 28, 2014, the Board of Directors of the Company approved the 2014 Long-Term Incentive Plan (“LTIP”). Under the LTIP, the Company is authorized to grant nonqualified stock options, rights to purchase Class B Shares, restricted stock, restricted stock units and other awards settleable in, or based upon, Class B Shares to persons who are directors and employees of and consultants to the Company or any of its subsidiaries on the date of the grant. The LTIP will terminate ten years after approval by the Board. Subject to adjustments in connection with certain changes in capitalization, the maximum number of Class B Shares that may be delivered pursuant to awards under the LTIP is 1,250,000. As of September 30, 2016, approximately 220,000 shares remain available for issuance.

NOTE 11. SHARE-BASED COMPENSATION

Stock Options

The Company has granted stock awards to eligible participants under the LTIP. The stock awards include options to purchase the Company’s Class B Shares. These stock options include a combination of service and market conditions, as further described below. In addition, these stock options include a performance vesting condition, a Qualified Public Offering (see Note 7), which is not considered to be probable as of September 30, 2016. As a result, no share-based compensation expense for stock options has been recognized and none will be recognized for these stock awards until the performance condition is considered to be probable. When the performance condition is considered probable, the stock awards will vest in accordance with the underlying service and market conditions.

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The Company calculated the grant date fair value of stock options that vest over a service period using the Black Scholes model. For stock options that contain a market condition related to the return on investment that the Company’s stockholders achieve, the options were valued using a lattice-based option valuation model. The assumptions used in these calculations are noted in the following table. Expected volatilities are based on implied volatilities from comparable companies. The expected time to liquidity is based on management’s estimate. The risk-free rate is based on the U.S. Treasury yield curve for a term equivalent to the estimated time to liquidity. There were no options granted in the three months ended September 30, 2016.



	Nine Months Ended September 30, 2016
Option valuation assumptions:
Expected dividend yield	—%
Expected volatility	55%
Risk-free interest rate	1.67%
Expected term (in years)	6.3

A summary of the changes in stock options outstanding during the nine months ended September 30, 2016, is as follows:



	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Contract Term (years)	Aggregate Intrinsic Value
Options outstanding as of December 31, 2015	765,375	$12.46
Granted	227,600	$16.98
Canceled	(117,875)	$15.25
Options outstanding as of September 30, 2016	875,100	$13.26	8.4	$	3,457,748

Restricted Stock

No restricted stock was granted, canceled or forfeited during the nine months ended September 30, 2016.

NOTE 12. RESTRUCTURING

We recorded no employee termination and restructuring costs during the nine months ended September 30, 2016. Employee termination and restructuring costs are classified in selling, general and administrative as well as research and development expense and have been recorded for the following restructuring plans.

Cadillac Jack Integration Plan

In June 2015, we took actions to reduce the staff in all of our locations and to streamline our operations and cost structure. The Company has also entered into retention agreements with certain employees that will be paid upon the completion of their service period.

The following table summarizes the change in our restructuring accruals for the nine months ended September 30, 2016 (in thousands), which is included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets:



	December 31, 2015		Charge to expense		Cash paid		September 30, 2016
Accrued severance	$	37	$	—	$	37	$	—
Total	$	37	$	—	$	37	$	—

NOTE 13. INCOME TAXES

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AP GAMING HOLDCO INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

September 30, 2016, was primarily due to an increase in our valuation allowance on deferred tax assets. The Company's effective income tax rate for the three months ended September 30, 2015, was a benefit of 23.3%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the three months ended September 30, 2015, was primarily due to changes in our valuation allowance on deferred tax assets, net.

The Company’s effective income tax rate for the nine months ended September 30, 2016, was a benefit of 7.5%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the nine months ended September 30, 2016, was primarily due to an increase in our valuation allowance on deferred tax assets. The Company’s effective income tax rate for the nine months ended September 30, 2015, was a benefit of 49.5%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the nine months ended September 30, 2015, was primarily due to the income tax benefit recorded from the reversal of our valuation allowance on deferred tax assets as a result of the net deferred tax liabilities assumed in the Cadillac Jack acquisition.

NOTE 14. COMMITMENTS AND CONTINGENCIES

The Company is subject to federal, state and Native American laws and regulations that affect both its general commercial relationships with its Native American tribal customers, as well as the products and services provided to them. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. If a potential loss from any claim or legal proceeding is considered reasonably possible, the Company discloses an estimate of the possible loss or range of possible loss, or a statement that such an estimate cannot be made. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to their pending claims and litigation and may revise their estimates. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial condition.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements.” Forward-looking statements include any statements that address future results or occurrences. In some cases you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “would,” “should,” “could” or the negatives thereof. Generally, the words “anticipate,” “believe,” “continue,” “expect,” “intend,” “estimate,” “project,” “plan” and similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained elsewhere in this Quarterly Report on Form 10-Q as well as those discussed under “Item 1. Business” and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year-ended December 31, 2015 are forward-looking statements. These forward-looking statements include statements that are not historical facts, including statements concerning our possible or assumed future actions and business strategies. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which could cause our actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. Given the risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements are made only as of the date of this Quarterly Report. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments unless required by federal securities law. New factors emerge from time to time, and it is not possible for us to predict all such factors.

Unless the context indicates otherwise, or unless specifically stated otherwise, references to the “Company”, “AP Gaming”, “we,” “our” and “us” refer to AP Gaming Holdco, Inc. and its consolidated subsidiaries.

Overview

We are a leading designer and supplier of gaming products and services for the gaming industry. The Company is a leader in the Class II Native American and Mexican gaming jurisdictions and has expanded its product lines to include Class III Native American, commercial and charity jurisdictions. We supply electronic gaming machines (“slot machines”), server-based systems and back-office systems that are used by casinos and various gaming locations. Over the past 24 months, the Company has significantly broadened and diversified its product portfolio through both organic development and strategic acquisitions. We launched a new table products division in mid-2014 to provide live felt table games to casino operators. Through the acquisition of Cadillac Jack (defined below) on May 29, 2015, we greatly expanded our games library and slot machine offerings. The Company also acquired online developer AGSi (as defined below) in June 2015, expanding its offerings to include interactive products such as social casino games, available to play on desktop and mobile devices.

As of September 30, 2016, we had approximately 20,300 slot machine units installed under revenue sharing or fee per day agreements, approximately 10,500 of which are attributable to the inclusion of Cadillac Jack. The majority of our systems are used by Native American gaming operators in both Class II and Class III jurisdictions as well as commercial casinos in Mexico. We currently derive a substantial portion of our gaming revenues from lease agreements whereby we place slot machines and systems at a customer’s facility in return for either a share of the revenues that these machines and systems generate or a daily fee, which we collectively refer to as “participation agreements” and as our “participation model.”

Impact of Acquisitions

On May 29, 2015, we acquired 100% of the equity of Amaya Americas Corporation (“Cadillac Jack”), a leading provider of Class II gaming machines for the North American tribal gaming market, with key regions of operation including Alabama, Mexico, and Wisconsin. Our consolidated results of operations include the impact of this acquisition and the related transaction costs, as well as the results of operations of Cadillac Jack, from the date of acquisition through September 30, 2016.

On June 15, 2015, the Company purchased 100% of Gamingo Limited (“AGSi”), a leading gaming company developing social casino titles for mobile devices. With primary offices in San Francisco and Tel Aviv, AGSi’s flagship product, Lucky Play Casino, gives players a casino-quality experience with slots, table games, tournaments, and live events. The results of operations from AGSi have been included in our consolidated results from the date of acquisition through September 30, 2016.

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Business Strategy

We have invested and expect to continue to invest in new business strategies and services, and innovative products and technologies. We intend to pursue the following strategic initiatives as part of our overall business strategy:


1.	Expand and Diversify Our Library of Content

We plan to continue to expand and diversify our library of proprietary content across all platforms - slots, tables and social casino. We will continue our focused efforts to develop games, both internally and through partnerships with third parties, tailored to our current and target markets. As of September 30, 2016, our Company had over 250 active slot machine titles and approximately 20 table game titles in our content library and we expect our current pool of development talent to create more than 50 titles on an annual basis.


2.	Optimize Mix of Game Titles

We plan to improve yield by managing game title mix across our domestic installed base of participation slot machines. We believe that more effective management of the title mix represents an opportunity to generate incremental earnings growth without requiring growth in our installed base of participation gaming machines. In addition, we expect improved game performance will likely drive incremental slot machine placements within our customers’ facilities.


3.	Expand Our Footprint Through Strategic Acquisitions

We are actively seeking acquisition opportunities that will: 1) have a positive effect on long-term earnings growth, 2) generate strong recurring revenue, 3) provide for expansion into new gaming jurisdictions, 4) bolster our library of proprietary content, and 5) diversify our existing product mix. Our acquisitions of Cadillac Jack and AGSi in 2015 are great examples of this strategy.


4.	Focus on Development of Unique Niche Products

With over 1,000 casino facilities throughout the United States as of September 30, 2016, and the slot machine replacement cycle at a cyclical low, we believe the market potential for unique new games and concepts is favorable. We will target the introduction of a small number of niche gaming products to a large number of casinos.


5.	Build Momentum in Class III Markets and Pursue Class II Market Leadership

With the inclusion of Cadillac Jack units, we have a foothold of approximately 3,600 Class III placements in total, which represents approximately 1% of the total U.S. Class III market. We believe significant growth potential exists for our Company to further penetrate this market. Utilizing new, recently-issued gaming licenses, we expect to begin placing and selling Class III products in five new jurisdictions (Nevada, Mississippi, Louisiana, New Jersey and Connecticut) in 2016. We also anticipate growing our presence in Class III markets where we currently operate, such as Oklahoma, Florida and California, by placing additional content from our expanding library of games in these states. In addition, we believe that our existing core Class II product offering is among the strongest in the industry today. We expect to continue gaining market share in existing Class II jurisdictions and are focused on penetrating newly licensed jurisdictions.


6.	Focus on Innovation and New Product Verticals For the Next Generation of Casino Players

In the third quarter of 2014, we began developing table games products through the acquisitions of War Blackjack and other related intellectual property. The extension of our business into table games, as well as our entry into the social casino space through our acquisition of AGSi, demonstrates our commitment to evolving our business to adapt to the preferences of the next-generation gambler. As of September 30, 2016, the Company had approximately 1,200 table game units under lease arrangements. We plan to continue expanding our table games offerings through acquisitions and internal development. We have already introduced our proven land-based casino content into online and mobile formats for social gaming. Our popular land-based slot machine games - such as So Hot, Colossal Diamonds, and Monkey in the Bank, to name a few - have been among the strongest performers in our social casino game catalog.

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Results of Operations

Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015

The following tables set forth certain selected condensed consolidated financial data for the three months ended September 30, 2016 and 2015 (in thousands):



	Three months ended September 30,						$			%
	2016			2015			Change			Change
Consolidated Statements of Operations:
Revenues
Gaming operations	$	38,877		$	36,808		$	2,069		5.6	%
Equipment sales	2,331			1,297			1,034			79.7	%
Total revenues	41,208			38,105			3,103			8.1	%
Operating expenses
Cost of gaming operations	6,711			7,258			(547		)	(7.5	)%
Cost of equipment sales	698			206			492			238.8	%
Selling, general and administrative	12,970			13,804			(834		)	(6.0	)%
Research and development	6,675			5,060			1,615			31.9	%
Write downs and other charges	1,852			4,249			(2,397		)	(56.4	)%
Depreciation and amortization	19,419			20,545			(1,126		)	(5.5	)%
Total operating expenses	48,325			51,122			(2,797		)	(5.5	)%
Loss from operations	(7,117		)	(13,017		)	5,900			(45.3	)%
Other expense (income)
Interest expense	14,903			14,886			17			0.1	%
Interest income	(12		)	(32		)	20			(62.5	)%
Other expense (income)	392			2,485			(2,093		)	(84.2	)%
Loss before income taxes	(22,400		)	(30,356		)	7,956			(26.2	)%
Income tax benefit (expense)	1,165			7,077			(5,912		)	(83.5	)%
Net loss	$	(21,235	)	$	(23,279	)	$	2,044		(8.8	)%

Key Performance Indicators:
Slot install base	20,289			19,141			1,148			6.0	%
Slot revenue per day	$	19.63		$	19.74		$	(0.11	)	(0.6	)%
Slot units sold	66			14			52			371.4	%

Revenues

Gaming Operations. The increase is attributable to a $1.4 million increase in interactive revenue driven by increased product offerings, recurring slot revenue of $0.5 million driven by an increased installed base and table games revenue of $0.2 million for the three months ended September 30, 2016, compared to the prior year period. Current period results have been negatively impacted by $0.8 million relating to foreign currency fluctuations compared to the prior year period.

Equipment Sales. The increase in equipment sales is due to the sale of 66 units in the three months ended September 30, 2016, compared to 14 units in the prior year period. The increase in equipment sales was driven by our newly introduced Icon cabinet.

Operating Expenses

Cost of gaming operations. As a percentage of gaming operations revenue, costs of gaming operations was 17.3% for the three months ended September 30, 2016, compared to 19.7% for the prior year period due to improved game performance and benefits from cost synergies resulting from integration activities.

Costs of Equipment Sales. As a percentage of equipment sales, costs of equipment sales was 29.9% for the three months ended September 30, 2016, compared to 15.9% due to high margin sales in the prior year period.

Selling, general and administrative. As a percentage of total revenues, selling, general and administrative expense decreased to 31.5% for three months ended September 30, 2016, compared to 36.2% for the prior year period. The decrease is

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primarily due to decreased professional fees of $2.6 million and employee compensation and related costs of $1.9 million due to benefits from cost synergies resulting from integration activities and increased revenues. The decreases were offset by the resolution of a $2.0 million customer liability related to the Cadillac Jack acquisition, and increased sales and marketing expenses of $1.0 million.

Research and development. The increase in research and development costs is primarily due to increased investment in R&D personnel and development in new products. As a percentage of total revenues, research and development expense was 16.2% for three months ended September 30, 2016, compared to 13.3% for the prior year period.

Write downs and other charges. During the three months ended September 30, 2016, the company recognized $1.9 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition, write-down of long-lived assets of $1.3 million related to older generation gaming machines, and losses from the disposal of assets of $0.2 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition.

Depreciation and amortization. The decrease was due to assets acquired from Cadillac Jack valued in purchase accounting that had a life of one year. These assets were fully depreciated as of June 30, 2016 and therefore had no depreciation for three months ended September 30, 2016.

Other Expense (Income)

Other expense. The amount in the current quarter relates primarily to the effect of foreign currency fluctuation on trade payables and receivables denominated in foreign currencies.

Income Taxes

The Company's effective income tax rate for the three months ended September 30, 2016, was a benefit of 5.2%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the three months ended September 30, 2016, was primarily due to an increase in our valuation allowance on deferred tax assets. The Company's effective income tax rate for the three months ended September 30, 2015, was a benefit of 23.3%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the three months ended September 30, 2015, was primarily due to changes in our valuation allowance on deferred tax assets.

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Nine Months Ended September 30, 2016 compared to the Nine Months Ended September 30, 2015

The following tables set forth certain selected condensed consolidated financial data for the nine months ended September 30, 2016 and 2015 (in thousands):



	Nine months ended September 30,						$			%
	2016			2015			Change			Change
Consolidated Statements of Operations:
Revenues
Gaming operations	$	117,093		$	80,160		$	36,933		46.1	%
Equipment sales	6,968			3,036			3,932			129.5	%
Total revenues	124,061			83,196			40,865			49.1	%
Operating expenses
Cost of gaming operations	19,627			16,065			3,562			22.2	%
Cost of equipment sales	4,244			545			3,699			678.7	%
Selling, general and administrative	36,654			28,752			7,902			27.5	%
Research and development	16,517			9,368			7,149			76.3	%
Write downs and other charges	2,153			15,458			(13,305		)	(86.1	)%
Depreciation and amortization	60,527			41,100			19,427			47.3	%
Total operating expenses	139,722			111,288			28,434			25.5	%
Loss from operations	(15,661		)	(28,092		)	12,431			(44.3	)%
Other expense (income)
Interest expense	44,151			27,164			16,987			62.5	%
Interest income	(51		)	(58		)	7			(12.1	)%
Other expense (income)	6,314			3,484			2,830			81.2	%
Loss before income taxes	(66,075		)	(58,682		)	(7,393		)	12.6	%
Income tax benefit (expense)	4,935			29,017			(24,082		)	(83.0	)%
Net loss	$	(61,140	)	$	(29,665	)	$	(31,475	)	106.1	%

Key Performance Indicators:
Slot install base	20,289			19,141			1,148			6.0	%
Slot revenue per day	$	20.11		$	21.20		$	(1.09	)	(5.1	)%
Slot units sold	205			80			125			156.3	%

Revenues

Gaming Operations. The increase in gaming operations is attributable to the inclusion of Cadillac Jack and AGSi for the nine months ended September 30, 2016, compared to the prior year period. The inclusion of Cadillac Jack, increased our slot installed base by approximately 10,500 units. The remaining increase in revenues was driven by improved game performance and an increase in the install base of our Big Red slot machine that runs on our Colossal platform, which has historically been our best performing game as well as the addition of new product offerings. Slot revenue per day decreased in total, which is primarily attributable to the inclusion of Cadillac Jack’s Mexico install base, which generates lower revenues per day than the Company’s historical install base has returned. Current period results have been negatively impacted by $2.7 million relating to foreign currency fluctuations compared to the prior year period.

Equipment Sales. The increase in equipment sales is due to the sale of 205 units in the nine months ended September 30, 2016, compared to 80 units in the prior year period.

Operating Expenses

Cost of gaming operations. The increase is attributable to the inclusion of Cadillac Jack and AGSi for the nine months ended September 30, 2016, compared to the prior year period. As a percentage of gaming operations revenue, costs of gaming operations was 16.8% for the nine months ended September 30, 2016 compared to 20.0% for the prior year period due to improved game performance and benefits from cost synergies resulting from integration activities.

Cost of Equipment Sales. The increase in cost of equipment sales is attributable to the increase in slot units sold. Cost of equipment sales as a percentage of sales increased compared to the prior year period due to the sale of older generation gaming

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machines in secondary markets. These gaming machines were previously leased to customers and sold at substantially lower average selling prices.

Selling, general and administrative. The increase is primarily due to the inclusion of Cadillac Jack and AGSi for the nine months ended September 30, 2016, compared to the prior year period offset by decreased professional fees related to prior year acquisitions. As a percentage of total revenues, selling, general and administrative expense decreased to 29.5% for nine months ended September 30, 2016, compared to 34.6% for the prior year period due to benefits from cost synergies resulting from integration activities and increased revenues.

Research and development. The increase in research and development costs is primarily due to the inclusion of Cadillac Jack and AGSi compared to the prior year period. As a percentage of total revenues, research and development expense was 13.3% for nine months ended September 30, 2016, compared to 11.3% for the prior year period.

Write downs and other charges. During the nine months ended September 30, 2016, the Company recognized $2.2 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition, write-down of long-lived assets of $1.3 million related to older generation gaming machines, and losses from the disposal of assets of $0.6 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition.

During the nine months ended September 30, 2015, the Company recognized $15.5 million in write-downs and other charges primarily related to acquisition charges of $10.9 million. The Company also recognized an impairment of intangible assets of $2.3 million related to game titles and write offs related to prepaid royalties of $1.3 million, losses from the disposal of assets of $1.2 million and the impairment of long-lived assets of $0.2 million, partially offset by a benefit from the partial write-down of the C2 acquisition contingent consideration of $0.4 million that is described in Note 2.

Depreciation and amortization. The increase in depreciation and amortization is primarily due to the inclusion of assets acquired from Cadillac Jack and AGSi, for the nine months ended September 30, 2016, compared to the prior year period.

Other Expense (Income)

Interest expense. The increase is primarily attributed to the increase in the principal amounts outstanding under the senior secured credit facilities and senior secured PIK notes for the nine months ended September 30, 2016, compared to the prior year period. The proceeds of the incremental term loans and PIK notes were used primarily to pay the consideration for the Cadillac Jack acquisition.

Other expense. The increase in other income was primarily due to the inclusion of Cadillac Jack and AGSi, for the nine months ended September 30, 2016, compared to the prior year period. The amount in the current year mainly relates to the change in the balance of the tax indemnification receivable recorded in connection with the acquisition of Cadillac Jack. To a lesser extent, the balance also includes the effect of foreign currency fluctuation on trade payables and receivables denominated in foreign currencies.

Income Taxes

The Company's effective income tax rate for the nine months ended September 30, 2016, was a benefit of 7.5%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the nine months ended September 30, 2016, was primarily due to an increase in our valuation allowance on deferred tax assets. The Company's effective income tax rate for the nine months ended September 30, 2015, was a benefit of 49.5%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the nine months ended September 30, 2015, was primarily due to the income tax benefit recorded from the reversal of our valuation allowance on deferred tax assets as a result of the net deferred tax liabilities assumed in the Cadillac Jack acquisition.

LIQUIDITY AND CAPITAL RESOURCES

We expect that primary ongoing liquidity requirements for the year ended December 31, 2016, will be for capital expenditures of between $20 million and $30 million, working capital, debt servicing, game development and other customer

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acquisition activities. We expect to finance these liquidity requirements through a combination of cash on hand and cash flows from operating activities.

Part of our overall strategy includes consideration of expansion opportunities, underserved markets and acquisition and other strategic opportunities that may arise periodically. We may require additional funds in order to execute on such strategic growth, and may incur additional debt or issue additional equity to finance any such transactions. We cannot assure you that we will be able to obtain such debt or issue any such additional equity on acceptable terms or at all.

As of September 30, 2016, we had $23.2 million in cash and cash equivalents and $40.0 million available under our revolving credit facility. Based on our current business plan, we believe that our existing cash balances, cash generated from operations and availability under the revolving credit facility will be sufficient to meet our anticipated cash needs for at least the next twelve months. As of September 30, 2016, we were in compliance with the required covenants of our debt instruments, including the maximum net first lien leverage ratio.

Our future cash requirements could be higher than we currently expect as a result of various factors. Our ability to meet our liquidity needs could be adversely affected if we suffer adverse results of operations, or if we violate the covenants and restrictions to which we are subject under our debt instruments. Additionally, our ability to generate sufficient cash from our operating activities is subject to general economic, political, regulatory, financial, competitive and other factors beyond our control. Our business may not generate sufficient cash flow from operations, and future borrowings may not be available to us under our existing credit facility in an amount sufficient to enable us to pay our service or repay our indebtedness or to fund our other liquidity needs, and we may be required to seek additional financing through credit facilities with other lenders or institutions or seek additional capital through private placements or public offerings of equity or debt securities.

Indebtedness

Senior Secured Credit Facilities

The term loans will mature on December 20, 2020, and the revolving credit facility will mature on December 20, 2018. The term loans require scheduled quarterly payments in amounts equal to 0.25% of the original aggregate principal amount of the term loans, with the balance due at maturity. Borrowings under the term loans bear interest at a rate equal to, at the Company’s option, either LIBOR or the base rate, subject to an interest rate floor plus an applicable margin rate. Borrowings under the revolving credit facility bear interest at a rate equal to, at the Company’s option, either LIBOR or the base rate plus an applicable margin rate. In addition, on a quarterly basis, the Company is required to pay each lender under the revolving credit facility a commitment fee in respect of any unused commitments thereunder at a rate of 0.50% per annum.

Senior secured PIK notes

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Purchaser in a private placement exempt from registration under the Securities Act of 1933, as amended. The Notes are secured by the Company’s equity in its subsidiary AP Gaming, Inc., subject to certain limitations including those imposed by gaming laws, and are unconditionally guaranteed by the Subsidiary Guarantor.

Seller notes

On May 29, 2015, the Company issued a promissory note to Amaya Inc. (the “Amaya Seller Note”) with an initial principal amount of $12.0 million to satisfy the conditions set forth in the Cadillac Jack Stock Purchase Agreement (the “Stock Purchase Agreement”). The Amaya Seller Note accrues interest on the unpaid principal amount at 5.0% per annum and is payable semi-annually on June 30 and December 31 (and on May 29, 2023, the maturity date of the note), commencing on June 30, 2015. All interest accrued and payable on any interest payment date will be paid by capitalizing such interest and adding it to (and thereby increasing) the outstanding principal amount of the Amaya Seller Note. All principal under the note is due and payable on May 29, 2023. The Amaya Seller Note is required to be prepaid under certain circumstances described in more detail in the note agreement. As of September 30, 2016, there was no requirement to prepay the Amaya Seller Note. The Company may prepay from time to time all or any portion of the outstanding principal balance due under the Amaya Seller Note. The Amaya Seller Note includes certain covenants and events of default that are customary for instruments of this type. At September 30, 2016, the Amaya Seller Note totaled $12.7 million, which includes capitalized interest of $0.7 million.

Equipment Long Term Note Payable and Capital Leases

The following table summarizes our historical cash flows (in thousands):



	Nine months ended September 30,
	2016			2015
Cash Flow Information:
Net cash provided by operating activities	$	25,261		$	6,325
Net cash used in investing activities	(27,970		)	(396,886		)
Net cash (used in) provided by financing activities	(9,818		)	418,931
Effect of exchange rates on cash and cash equivalents	(45		)	(95		)
Net increase in cash and cash equivalents	$	(12,572	)	$	28,275

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Operating activities

The Company has historically produced a loss from operations, which is primarily due to the capital nature of the business and the resulting depreciation and amortization expense. For the nine months ended September 30, 2016, net cash provided by operating activities was $25.3 million compared to net cash provided of $6.3 million for the nine months ended September 30, 2015, representing an increase of $18.9 million. The increase is primarily due to an increase as a result of changes in net working capital and a $17.0 million increase in income from operating activities excluding non-cash expenses. In the prior year we incurred transaction related expenses for the Cadillac Jack and AGSi acquisitions.

Investing activities

Net cash used in investing activities for the nine months ended September 30, 2016, was $28.0 million compared to $396.9 million for the nine months ended September 30, 2015, representing an decrease of $368.9 million. The decrease was primarily due to decreases in business acquisitions, net of cash, purchases of intangible assets of $3.8 million offset by increases in the purchase of property and equipment of $9.7 million and software development expenditures of $0.4 million. In the prior year, we conducted two significant business acquisitions as described in our Annual Report on Form 10-K for the year ended December 31, 2015.

Financing activities

Net cash used in financing activities for the nine months ended September 30, 2016, was $9.8 million compared to cash provided by financing activities of $418.9 million for the nine months ended September 30, 2015. The decrease was primarily due to the decreases in proceeds from debt issuances of $369.4 million, proceeds from the issuance of common stock of $77.4 million, increases in the payment of placement fee obligations of $3.5 million offset by decreases in the net pay down of the revolving credit facility of $10.0 million and decreases in the payment for previous acquisition payments of $8.9 million. The funds received from the 2015 issuance of common stock were used, in addition to the proceeds from the issuance of long-term debt, to fund the business acquisitions described above.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

A description of our critical accounting policies can be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2015. There were no material changes to those policies during the nine months ended September 30, 2016.

Recently Issued Accounting Standards

See related disclosure at Item 1—“Notes to Condensed Consolidated Financial Statements”, Note 1 “Description of the Business and Summary of Significant Accounting Policies.”

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rates. Our primary exposure to market risk is interest rate risk associated with our long-term debt, which accrues interest at variable rates. Certain of our debt instruments accrue interest at LIBOR or the base rate, at our election, subject to an interest rate floor plus an applicable margin rate. In the normal course of business, we are exposed to fluctuations in interest rates as we seek debt and equity capital to sustain our operations. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes. As of September 30, 2016, approximately 30% of our debt were fixed-rate instruments. As of September 30, 2016, the three month LIBOR rate was lower than 1%, with our term loans having a LIBOR floor of 1%, our variable debt is essentially at a fixed rate until the LIBOR rate exceeds 1%.

Foreign currency risk. We are exposed to foreign currency exchange rate risk that is inherent to our foreign operations. We currently transact business in Mexico using the local currency. Our settlement of inter-company trade balances requires the exchange of currencies, which results in the recognition of foreign currency fluctuations. We expect that certain operations will

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continue to be denominated in foreign currencies. As such, we expect our cash flows and earnings to continue to be exposed to the risks that may arise from fluctuations in foreign currency exchange rates.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of September 30, 2016. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure information is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Changes in Internal Controls

No change in our internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) occurred as of the end of the fiscal quarter covered by this report, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II

ITEM 1. LEGAL PROCEEDINGS.

We are party to various claims and legal actions that arise in the ordinary course of business. We do not believe the outcome of such disputes or legal actions will have a material adverse effect on our financial condition, results of operations, liquidity or capital resources.

ITEM 1A. RISK FACTORS.

"Item 1A.-Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2015, includes a discussion of our risk factors. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

Table of Contents

ITEM 6. EXHIBITS.

(a). Exhibits.



			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	Period Ending	Exhibit	Filing Date

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	X	—	—	—	—

101.IN	XBRL Instance Document	X	—	—	—	—

101.SCH	XBRL Taxonomy Extension Schema Document	X	—	—	—	—

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	X	—	—	—	—

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	X	—	—	—	—

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	X	—	—	—	—

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	X	—	—	—	—

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		AP GAMING HOLDCO, INC.

Date:	November 14, 2016	By:	/s/ KIMO AKIONA
		Name:	Kimo Akiona
		Title:	Treasurer (Principal Financial and Accounting Officer)

Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2016	Nov. 04, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	AP Gaming Holdco, Inc.
Entity Central Index Key	0001593548
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		15,035,579

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Allowance for trade accounts	$ 1	$ 113
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	100,000	100,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	30,000,100	30,000,100
Common Class A [Member]
Common stock, shares issued	100	100
Common stock, shares outstanding	100	100
Common Class B [Member]
Common stock, shares issued	14,931,529	14,931,529
Common stock, shares outstanding	14,931,529	14,931,529

Stockholders' Equity	9 Months Ended
Stockholders' Equity	Sep. 30, 2016
Equity [Abstract]
Stockholders' Equity	STOCKHOLDERS’ EQUITY Common Stock The Company’s common stock consists of two classes: class A voting common stock (“Class A Shares”) and class B non-voting common stock (“Class B Shares”). The holders of the Class A Shares are entitled to one vote per share on all matters to be voted on by the stockholders of the Company. The holders of the Class A Shares have no economic rights or privileges, including rights in liquidation, and have no right to receive dividends or any other distributions. The holders of the Class B Shares have no right to vote on any matter to be voted on by the stockholders of the Company. Each holder of Class B Shares is entitled to share equally, share for share, dividends declared, as well as any distributions to the stockholders, and in the event of the Company’s liquidation, dissolution or winding up, is entitled to share ratably in any remaining assets after payment of or provision for liabilities and the liquidation on preferred stock, if any. As of September 30, 2016, 103,950 Class B Shares issued to “Management Holders,” as defined in the Securityholders Agreement dated April 28, 2014 (the “Securityholders Agreement”) were outstanding. The Class B Shares issued to Management Holders are not considered issued for accounting purposes as they contain a substantive performance condition that must be met for the Management Holder to benefit from the ownership of the shares. As a result, shares issued to Management Holders are not considered issued for accounting purposes until such time that the performance condition is met. Class B Shares that are held by a Management Holder are subject to repurchase rights (the “Repurchase Rights”), as outlined in Section 6 of the Securityholders Agreement, that are contingent on the Management Holder’s termination. The Repurchase Rights enable the Company to recover the Class B Shares issued to Management Holders without transferring any appreciation of the fair value of the stock to the Management Holder upon certain terminations of the Management Holder’s employment prior to a “Qualified Public Offering”, as defined in the Securityholders Agreement. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering for “Cause”, as defined in the Securityholders Agreement, or is terminated by such Management Holder without “Good Reason”, as defined in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for the lesser of original cost and fair market value. If a Management Holder’s employment is terminated by the Company prior to the consummation of a Qualified Public Offering other than as described above and in the Securityholders Agreement, then the Company shall have the right to repurchase all or any portion of the Class B Shares held by such Management Holder for fair market value.

Write Downs and Other Charges	9 Months Ended
Write Downs and Other Charges	Sep. 30, 2016
Write Downs And Other Charges [Abstract]
Write Downs and Other Charges	WRITE DOWNS AND OTHER CHARGES The Condensed Consolidated Statements of Operations and Comprehensive Loss include various non-routine transactions or consulting and transaction-related fees that have been classified as write downs and other charges. During the three months ended September 30, 2016, the company recognized $1.9 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition, write-down of long-lived assets of $1.3 million related to older generation gaming machines, and losses from the disposal of assets of $0.2 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition. During the nine months ended September 30, 2016, the Company recognized $2.2 million in write-downs and other charges, driven by a $3.3 million impairment of an intangible asset related to a customer contract that will provide less benefit than originally estimated from the Cadillac Jack acquisition, write-down of long-lived assets of $1.3 million related to aged gaming machines, and losses from the disposal of assets of $0.6 million. These charges were offset by a $3.0 million fair value adjustment to a contingent consideration receivable related to the Cadillac Jack acquisition. During the three months ended September 30, 2015, the Company recognized $4.2 million in write-downs and other charges driven by acquisition related charges of $3.2 million. The Company also recognized write offs related to prepaid royalties of $0.7 million and losses from the disposal of assets of $0.3 million. During the nine months ended September 30, 2015, the Company recognized $15.5 million in write-downs and other charges primarily related to acquisition charges of $10.9 million. The Company also recognized an impairment to intangible assets of $2.3 million related to game titles and write offs related to prepaid royalties of $1.3 million, losses from the disposal of assets of $1.2 million and the impairment of long-lived assets of $0.2 million, partially offset by a benefit from the partial write-down of the C2 acquisition contingent consideration of $0.4 million that is described in Note 2.

Basic and Diluted Income (Loss) Per Share	9 Months Ended
Basic and Diluted Income (Loss) Per Share	Sep. 30, 2016
Earnings Per Share [Abstract]
Basic and Diluted Income (Loss) Per Share	BASIC AND DILUTED INCOME (LOSS) PER SHARE The Company computes net income (loss) per share in accordance with accounting guidance that requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). Basic EPS is computed by dividing net income (loss) for the period by the weighted average number of shares outstanding during the period. Basic EPS excludes Class B Shares issued to Management Holders until the performance condition or termination event is considered probable (see Note 7). Until such time, the Class B Shares issued to Management Holders will be included in the calculation of diluted EPS using the treasury stock method and are treated as stock options. Diluted EPS is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period, increased by potentially dilutive common shares that were outstanding during the period. Diluted EPS excludes all potential dilutive shares if their effect is anti-dilutive. Potentially dilutive common shares include stock options and restricted stock (see Note 11). There were no potentially dilutive securities for the three and nine months ended September 30, 2016. Excluded from the calculation of diluted EPS for three and nine months ended September 30, 2016, are 50,000 restricted shares and 0.3 million stock options, as such securities were anti-dilutive.

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets
Cash and cash equivalents	$ 23,150	$ 35,722
Restricted cash	100	100
Accounts receivable, net of allowance of $1,305 and $113, respectively	23,306	23,653
Inventories	9,479	7,087
Prepaid expenses	2,963	4,642
Deposits and other	2,612	2,440
Total current assets	61,610	73,644
Property and equipment, net	63,534	66,699
Goodwill	251,700	253,851
Deferred tax asset	37	37
Intangible assets	247,237	290,356
Other assets	24,351	26,560
Total assets	648,469	711,147
Current liabilities
Accounts payable and accrued liabilities	28,242	23,030
Current maturities of long-term debt	6,980	6,919
Total current liabilities	35,222	29,949
Long-term debt	539,731	533,290
Deferred tax liability - noncurrent	8,691	15,347
Other long-term liabilities	27,565	32,024
Total liabilities	611,209	610,610
Commitments and contingencies (Note 14)
Stockholders’ equity
Preferred stock at $0.01 par value; 100,000 shares authorized, no shares issued and outstanding	0	0
Common stock at $0.01 par value; 30,000,100 shares authorized; 100 Class A Shares issued and outstanding at September 30, 2016 and December 31, 2015, and 14,931,529 Class B Shares issued and outstanding at September 30, 2016 and December 31, 2015.	149	149
Additional paid-in capital	177,276	177,276
Accumulated deficit	(136,217)	(75,077)
Accumulated other comprehensive loss	(3,948)	(1,811)
Total stockholders’ equity	37,260	100,537
Total liabilities and stockholders’ equity	$ 648,469	$ 711,147

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities
Net loss	$ (61,140)	$ (29,665)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	60,527	41,100
Accretion of contract rights under development agreements and placement fees	3,538	307
Amortization of deferred loan costs and discount	2,617	1,619
Provision for bad debts	1,274	65
Imputed interest income	0	(18)
Loss on disposition of assets	558	836
Impairment of assets	4,606	3,805
Benefit for deferred income tax	(6,374)	(29,452)
Changes in assets and liabilities that relate to operations:
Accounts receivable and notes receivable	(556)	3,145
Inventories	1,121	886
Prepaid expenses	1,673	(1,177)
Deposits and other	165	5,622
Other assets, non-current	673	(1,150)
Accounts payable and accrued liabilities	16,579	10,402
Net cash provided by operating activities	25,261	6,325
Cash flows from investing activities
Business acquisitions, net of cash acquired	0	(375,547)
Collection of notes receivable	0	323
Purchase of intangible assets	(1,311)	(5,101)
Software development and other expenditures	(4,929)	(4,495)
Proceeds from disposition of assets	87	28
Purchases of property and equipment	(21,817)	(12,094)
Net cash used in investing activities	(27,970)	(396,886)
Cash flows from financing activities
Borrowings under the revolving facility	0	11,500
Repayments under the revolving facility	0	(21,500)
Proceeds from Issuance of Debt	0	369,400
Payment of placement fee obligations	(3,525)	0
Payments on debt	(5,168)	(3,359)
Payment of previous acquisition obligation	(1,125)	(10,000)
Repurchase of shares issued to management	0	(1,277)
Proceeds from Issuance of Common Stock	0	77,425
Proceeds from employees in advance of common stock issuance	0	579
Payments of Deferred Loan Costs	0	(3,837)
Net cash (used in) provided by financing activities	(9,818)	418,931
Effect of exchange rates on cash and cash equivalents	(45)	(95)
(Decrease) increase in cash and cash equivalents	(12,572)	28,275
Cash and cash equivalents, beginning of period	35,722	10,680
Cash and cash equivalents, end of period	23,150	38,955
Supplemental cash flow information:
Cash paid during the period for interest	29,340	20,044
Cash paid during the period for taxes	922	440
Non-cash investing and financing activities:
Financed purchase of property and equipment	1,588	2,663
Interest payable added to debt principal	$ 7,490	$ 310

Benefit Plans	9 Months Ended
Benefit Plans	Sep. 30, 2016
Compensation and Retirement Disclosure [Abstract]
Benefit Plans	BENEFIT PLANS The Company has established a 401(k) defined contribution plan (the “401(k) Plan”) for its employees. The 401(k) Plan allows employees to contribute up to 15% of their pretax earnings, and the Company may match a percentage of the contributions on a discretionary basis. The expense associated with the 401(k) Plan for the three months ended September 30, 2016 and 2015, was $0.2 million and $0.2 million, respectively. The expense associated with the 401(k) Plan for the nine months ended September 30, 2016 and 2015, was $0.7 million and $0.4 million, respectively. On April 28, 2014, the Board of Directors of the Company approved the 2014 Long-Term Incentive Plan (“LTIP”). Under the LTIP, the Company is authorized to grant nonqualified stock options, rights to purchase Class B Shares, restricted stock, restricted stock units and other awards settleable in, or based upon, Class B Shares to persons who are directors and employees of and consultants to the Company or any of its subsidiaries on the date of the grant. The LTIP will terminate ten years after approval by the Board. Subject to adjustments in connection with certain changes in capitalization, the maximum number of Class B Shares that may be delivered pursuant to awards under the LTIP is 1,250,000. As of September 30, 2016, approximately 220,000 shares remain available for issuance.

Income Taxes	9 Months Ended
Income Taxes	Sep. 30, 2016
Income Tax Disclosure [Abstract]
Income Taxes	INCOME TAXES The Company's effective income tax rate for the three months ended September 30, 2016, was a benefit of 5.2%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the three months ended September 30, 2016, was primarily due to an increase in our valuation allowance on deferred tax assets. The Company's effective income tax rate for the three months ended September 30, 2015, was a benefit of 23.3%. The difference between the federal statutory rate of 35% and the Company's effective tax rate for the three months ended September 30, 2015, was primarily due to changes in our valuation allowance on deferred tax assets, net. The Company’s effective income tax rate for the nine months ended September 30, 2016, was a benefit of 7.5%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the nine months ended September 30, 2016, was primarily due to an increase in our valuation allowance on deferred tax assets. The Company’s effective income tax rate for the nine months ended September 30, 2015, was a benefit of 49.5%. The difference between the federal statutory rate of 35% and the Company’s effective tax rate for the nine months ended September 30, 2015, was primarily due to the income tax benefit recorded from the reversal of our valuation allowance on deferred tax assets as a result of the net deferred tax liabilities assumed in the Cadillac Jack acquisition.

Commitments and Contingencies	9 Months Ended
Commitments and Contingencies	Sep. 30, 2016
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	COMMITMENTS AND CONTINGENCIES The Company is subject to federal, state and Native American laws and regulations that affect both its general commercial relationships with its Native American tribal customers, as well as the products and services provided to them. Periodically, the Company reviews the status of each significant matter and assesses the potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. If a potential loss from any claim or legal proceeding is considered reasonably possible, the Company discloses an estimate of the possible loss or range of possible loss, or a statement that such an estimate cannot be made. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to their pending claims and litigation and may revise their estimates. Such revisions in the estimates of the potential liabilities could have a material impact on the results of operations and financial condition.

Description of the Business and Summary of Significant Accounting Policies - Property and Equipment (Details)	9 Months Ended
	Sep. 30, 2016
Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years
Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	6 years
Gaming Equipment [Member] \| Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years
Gaming Equipment [Member] \| Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	6 years
Other Property and Equipment [Member] \| Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years
Other Property and Equipment [Member] \| Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful lives	6 years

Description of the Business and Summary of Significant Accounting Policies - Narrative (Details) - USD ($) $ in Millions	Sep. 30, 2016	Dec. 31, 2015
Deferred Loan Costs [Line Items]
Fair value of long-term debt	$ 529.6	$ 529.2
Accounting Standards Update 2015-03 [Member] \| Long-term Debt [Member]
Deferred Loan Costs [Line Items]
Deferred financing costs, net		7.8
Revolving Credit Facility [Member] \| Line of Credit [Member] \| Other Assets [Member]
Deferred Loan Costs [Line Items]
Deferred financing costs, net	$ 0.2	$ 0.3

Acquisitions - Narrative (Details) - USD ($) $ in Thousands	9 Months Ended
Acquisitions - Narrative (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 15, 2015	May 29, 2015
Business Acquisition [Line Items]
Increase to goodwill due to purchase price allocation update	$ 800
Cadillac Jack [Member]
Business Acquisition [Line Items]
Business acquisition, percentage of equity interests acquired			100.00%
Gamingo [Member]
Business Acquisition [Line Items]
Business acquisition, percentage of equity interests acquired		100.00%
Intellectual Property Acquisitions [Member]
Business Acquisition [Line Items]
Increase to goodwill due to purchase price allocation update	$ 800

Property and equipment (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Less: Accumulated depreciation	$ (51,840)	$ (37,638)
Total property and equipment, net	63,534	66,699
Gaming Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	102,154	89,361
Other Property and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 13,220	$ 14,976

Goodwill and Intangibles - Changes in Carrying Amount of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Changes in carrying amount of goodwill
Balance at December 31, 2015	$ 253,851
Foreign currency adjustments	(2,951)
Purchase accounting adjustment	800
Balance at September 30, 2016	$ 251,700

Goodwill and Intangibles - Schedule of Intangibles Assets (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, accumulated amortization	$ (96,189)	$ (53,568)
Intangible assets, gross value	343,426	343,924
Intangible assets, net carrying value	$ 247,237	290,356
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	1 year
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	10 years
Trade Names [Member]
Indefinite-lived Intangible Assets [Line Items]
Indefinite-lived intangible assets	$ 12,126	12,126
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	7 years
Finite-lived intangible assets, gross value	$ 13,600	13,600
Finite-lived intangible assets, accumulated amortization	(3,933)	(1,721)
Finite-lived intangible assets, net carrying value	$ 9,667	11,879
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	7 years
Finite-lived intangible assets, gross value	$ 165,824	170,927
Finite-lived intangible assets, accumulated amortization	(43,394)	(26,676)
Finite-lived intangible assets, net carrying value	122,430	144,251
Contract Rights Under Development and Placement Fees [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross value	16,488	16,311
Finite-lived intangible assets, accumulated amortization	(4,072)	(548)
Finite-lived intangible assets, net carrying value	$ 12,416	15,763
Contract Rights Under Development and Placement Fees [Member] \| Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	1 year
Contract Rights Under Development and Placement Fees [Member] \| Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	7 years
Gaming Software and Technology Platforms [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross value	$ 122,608	116,930
Finite-lived intangible assets, accumulated amortization	(42,820)	(23,735)
Finite-lived intangible assets, net carrying value	$ 79,788	93,195
Gaming Software and Technology Platforms [Member] \| Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	1 year
Gaming Software and Technology Platforms [Member] \| Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	5 years
Intellectual Property [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, useful life (years)	10 years
Finite-lived intangible assets, gross value	$ 12,780	14,030
Finite-lived intangible assets, accumulated amortization	(1,970)	(888)
Finite-lived intangible assets, net carrying value	$ 10,810	$ 13,142

Accounts Payable and Accrued Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule of accounts payable and accrued liabilities
Trade accounts payable	$ 6,150	$ 4,776
Salary and payroll tax accrual	5,890	5,851
Taxes payable	2,850	2,440
Accrued interest	3,956	8
C2 Gaming contingent consideration	0	1,125
Placement fees payable	4,000	4,525
Accrued other	5,396	4,305
Total accounts payable and accrued liabilities	$ 28,242	$ 23,030

Long-Term Debt - Narrative (Details)	9 Months Ended
Long-Term Debt - Narrative (Details)	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)	Jun. 01, 2015 USD ($)	May 29, 2015 USD ($)	Dec. 20, 2013 USD ($) note
Debt Instrument [Line Items]
Long-term debt	$ 546,711,000	$ 540,209,000
Senior Secured Credit Facilities [Member]
Debt Instrument [Line Items]
Maximum net first lien leverage ratio	5.50%
Term Loans [Member] \| Senior Secured Credit Facilities [Member]
Debt Instrument [Line Items]
Debt instrument, face amount				$ 265,000,000	$ 155,000,000
Periodic payment, percent of outstanding principal balance	0.25%
Long-term debt	$ 395,835,000	396,717,000
Payment in Kind (PIK) Note [Member]
Debt Instrument [Line Items]
Long-term debt	$ 125,905,000	118,764,000		$ 115,000,000
Debt instrument, stated interest rate (as a percent)	11.25%			11.25%
Debt instrument, issue price (as a percentage of principle amount)				97.00%
Notes Payable, Other Payables [Member]
Debt Instrument [Line Items]
Debt instrument, stated interest rate (as a percent)					8.50%
Notes Payable, Other Payables [Member] \| Promissory Note 2.2 Million [Member]
Debt Instrument [Line Items]
Long-term debt					$ 2,200,000
Notes Payable, Other Payables [Member] \| Promissory Note 3.3 Million [Member]
Debt Instrument [Line Items]
Long-term debt					$ 3,300,000
Notes Payable, Other Payables [Member] \| AGS Seller Notes [Domain]
Debt Instrument [Line Items]
Long-term debt	$ 6,800,000
Number of promissory notes issued \| note					2
Notes payable, capitalized interest	1,300,000
Notes Payable, Other Payables [Member] \| Promissory Note 12.0 Million Amaya [Member]
Debt Instrument [Line Items]
Long-term debt	12,700,000			$ 12,000,000
Debt instrument, stated interest rate (as a percent)				5.00%
Notes payable, capitalized interest	$ 700,000
Revolving Credit Facility [Member] \| Line of Credit [Member] \| Senior Secured Credit Facilities [Member]
Debt Instrument [Line Items]
Credit facility, maximum borrowing capacity			$ 15,000,000		$ 25,000,000
Commitment fee (as a percent)	0.50%
Long-term Debt [Member] \| Accounting Standards Update 2015-03 [Member]
Debt Instrument [Line Items]
Deferred financing costs, net		$ 7,800,000

Stockholders' Equity - Narrative (Details)	Sep. 30, 2016 class vote shares
Class of Stock [Line Items]
Number of classes of common stock \| class	2
Number of votes per share of common stock \| vote	1
Class B common stock issued to management holders [Member]
Class of Stock [Line Items]
Common stock, shares issued \| shares	103,950

Basic and Diluted Income (Loss) Per Share - Narrative (Details)	9 Months Ended
	Sep. 30, 2016 shares
Earnings Per Share [Abstract]
Potentially dilutive securities (in shares)	0
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share (in shares)	50,000
Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share (in shares)	300,000

Benefit Plans (Details) - USD ($) $ in Millions		3 Months Ended		9 Months Ended
Benefit Plans (Details) - USD ($) $ in Millions	Apr. 28, 2014	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum percentage of pretax earnings employee is eligible to contribute under defined contribution plan				15.00%
401(k) defined contribution plan expense		$ 0.2	$ 0.2	$ 0.7	$ 0.4
Long-Term Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Incentive plan period	10 years
Long-Term Incentive Plan [Member] \| Common Class B [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized under incentive plan	1,250,000
Number of shares available for issuance		220,000		220,000

Share-Based Compensation - Assumptions (Details) - Class B common stock issued to management holders [Member] - Stock Option [Member]	9 Months Ended
	Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected dividend yield (as a percent)	0.00%
Expected volatility (as a percent)	55.00%
Risk-free interest rate (as a percent)	1.67%
Expected term	6 years 3 months

Share-Based Compensation - Stock Activity (Details)	3 Months Ended	9 Months Ended
Share-Based Compensation - Stock Activity (Details)	Sep. 30, 2016 USD ($) $ / shares shares	Sep. 30, 2016 USD ($) $ / shares shares
Number of Options
Options outstanding at beginning of period (in shares) \| shares		765,375
Granted (in shares) \| shares	0	227,600
Canceled (in shares) \| shares		(117,875)
Options outstanding at end of period (in shares) \| shares	875,100	875,100
Weighted Average Exercise Price
Options outstanding at beginning of period (in dollars per share) \| $ / shares		$ 12.46
Granted (in dollars per share) \| $ / shares		16.98
Canceled (in dollars per share) \| $ / shares		15.25
Options outstanding at end of period (in dollars per share) \| $ / shares	$ 13.26	$ 13.26
Weighted Average Remaining Contract Term		8 years 4 months 15 days
Aggregate Intrinsic Value \| $	$ 3,457,748	$ 3,457,748

Restructuring - Narrative (Details)	9 Months Ended
Restructuring - Narrative (Details)	Sep. 30, 2016 USD ($)
Restructuring and Related Activities [Abstract]
Restructuring Costs	$ 0

Restructuring (Details) $ in Thousands	9 Months Ended
Restructuring (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Restructuring Reserve [Roll Forward]
December 31, 2015	$ 37
Charge to expense	0
Cash paid	37
September 30, 2016	0
Accrued Severance [Member]
Restructuring Reserve [Roll Forward]
December 31, 2015	37
Charge to expense	0
Cash paid	37
September 30, 2016	$ 0

Income Taxes - Narrative (Details)	3 Months Ended		9 Months Ended
Income Taxes - Narrative (Details)	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Effective income tax rate	(5.20%)	(23.30%)	(7.50%)	(49.50%)
Federal statutory income tax rate	35.00%	35.00%	35.00%	35.00%