Global Cash Access holdings Inc Q3 2008 Earnings Call Transcript

| About: Everi Holdings (EVRI)

Global Cash Access holdings Inc (GCA) Q3 2008 Earnings Call November 5, 2008 5:00 PM ET


Scott Betts - Chief Executive Officer

George Gresham - Chief Financial Officer

Lisa Yi - Treasury Manager


Rishi Parekh - KBC Financial

Tien-Tsin Huang - JP Morgan

Moshe Katri - Cowen and Company


Good day ladies and gentlemen and welcome to the third quarter Access earnings conference call. My name is Lucie. I will be your coordinator today. (Operator Instructions)

Now at this time I would like to hand the presentation over to your host for today, Ms. Lisa Yi, Treasury Manager. Please proceed ma’am.

Lisa Yi

Thank you and welcome everyone to the GCA’s third quarter 2008 earnings conference call. Joining me on today’s call are Chief Executive Officer, Scott Betts; and Chief Financial Officer, George Gresham.

On today’s call Scott will give an overview of the company’s progress and George will provide more detail on our financial performance in Q3. Scott will close with an update to our outlook for the remainder of the year. Following Scott’s concluding comments, we’ll be happy to take questions.

A few important items before I turn it over to Scott. First, we posted our earnings release and updated financial statements to our Investor website at for anyone who still needs access to that information. Also if during this call we use any non-GAAP financial measures or references, we will put up the appropriate GAAP financial reconciliation on our website and last, a replay of today’s call will be posted on our website around 03:00 pm Pacific Time and will remain there for approximately one month.

As we begin let me remind everyone that today’s discussion contains forward-looking statements based on the environment as we currently see it and as such it does include risks and uncertainties. For factors that could cause actual results to differ materially from those described in our forward-looking statements, we refer you to our SEC filings and specifically to the Form 10-K that we filed on March 17, 2008 and the risk factors set forth therein.

With that, let me now hand it over to Scott.

Scott Betts

Thank you Lisa and welcome everyone. We are very pleased with GCA’s strong results in the third quarter. Revenue was up 19% to $185 million, EBITDA was up 19% to $26.1 million and cash earnings per share from continued operations were up $0.04 to $0.17 per share.

These results were driven by two months of Cash Systems revenue, as well as full quarter revenues from Certegy Gaming Services. These were partially offset by the continued downward trend in the gaming segment. This does reaffirm our strategy of continued growth in these turbulent markets through aggressive integration of the acquisition, as well as costs savings. This contributed to strong earnings growth despite significant one-time integration costs in the quarter.

A quick word on the integration activities. As of this call, substantially all of the integration activities are completed for both CGS and CSI acquisitions. We will continue to deliver growth momentum by staying focused on three main strategies. First, customer retention and new signings; second, costs savings effort and third product innovation.

First, we remain focused on customer retention and new singings. Our customer win-loss ratio year-to-date on a dollar value basis is a healthy 163 index. In other words we signed $1.63 of new revenue for each dollar we’ve lost. So, we’re continuing to build share. Re-signs are strong and we’ve had no significant customer losses in the last two quarters. There are certainly no guarantees in this business, but we are continually providing customers value, we are strengthening our relationships and we feel confident in the strength of our franchise on a going basis.

Internationally, we’re making modest but steady progress. We have signed 20 new international customers that are finalizing the commencement of the UK pilot of our New Casino Direct Services. We’ve installed our system in 15 casinos in the UK and expect to start transactions very soon.

Second, we are aggressively pursuing a cost reduction program. This has been a common theme in most companies and we have received our share of questions on this issue. First, as I address this, it’s important to note that we’re operating in an environment where we are growing the company. Our major focus has been achieving systemic sustainable cost savings across the entire enterprise during the integration of the two acquisitions. In short achieving scale both in our base, as well as from the acquisition.

Given that we are only midway through this process, perhaps the best illustration of our progress is to look at the impact we have already had on total operating expenses. By adding up the total operating cost of the three companies on December 31 ‘07 as a base and then compare that to where we are today. The total operating expenses for the three companies was approximately $103 million during 2007, excluding non-cash expenses.

On a run rate basis exiting the quarter, we’ve eliminated approximately $20 million of operating costs already. So, we’re making significant progress. We intend to achieve more as we fine-tune the operations post integration and benefit from the one-time integration costs rolling off, as well as full impact of employee reductions and CSI.

I’d like to highlight a few concrete examples of these interim results achieved already. Again, we’re only part way through these efforts. One of our biggest costs we have is the maintenance and service cost of our ATM fleet. The best way to look at this cost is on a cost per unit basis. Through September we have lowered the cost per unit per month by 16% versus our ‘07 base, while our fleet size has grown by 31%. So, clearly we are scaling this business very, very nicely.

Similarly the single biggest cost we have, which also accounts for the majority of the people in the company is our booth operations. When we started the year we had 11 booth operations staffed was about a 106 employees, with the inclusion of Certegy Gaming Services as well as Cash Systems this has grown to 49 booth locations staffed with about 423 employees, about a fourfold increase.

We’ve been able significantly reduced these costs through better standards and operations. You can see that the average fulltime equivalent employee per booth has been reduced from 9.6 to 8.6 already and the average operating cost per booth has declined 13% compared to prior year’s average. Again, we expect to lower this further in ‘09, as we get more experience. This does bring up an important point on the cost of the booth operation.

This service is very important to a segment in the market and provides a unique service differentiator for GCA, so clearly it’s a strategic advantage for the company. It’s also important to understand that we have several pricing mechanism to recover the booth operating costs.

Because these costs show up on the OpEx line they will have a systemic impact of increasing our operating expense numbers you see on a go forward basis. This impact is significant, it’s about $9 million on an annualized basis, but because these costs are recovered they should taken into consideration when comparing historical expense numbers on an apples-to-apples basis.

Finally, it should be noted that we have delivered on the costs savings project that we identified way back in February. We are expecting to achieve our ‘08 as well as our ‘09 targets from these efforts. They are coming from investment in our back office infrastructure, capturing scale in our vendor contracts, as well as general bill tightening.

Our third strategy is our continued investment in innovation. A question could be asked, why we would invest in a down market. The answer is straightforward; we are not investing in spite of the market, but we are investing in response to the market.

We are focusing on three main areas of innovation, cashless transactions including ticket-out, wagering accounts and PowerCash, we systemically removed the cost of cash. Dynamic messaging and bonusing on our devices, which allow our devices to be seamlessly integrated in to the casino, and dynamic currency conversions.

What makes these products relevant is that they all share some very important traits. First, they lower both our cost as well as our customer’s cost; they improved players experience; they deliver more targeted and hence more efficient marketing in incentive programs; importantly they use existing GCA network and devices, so there is a minimal to no capital requirement for implementation by customers; they allow better support for responsible gaming initiatives, addressing some important issues that we had previously, with EDITH and TODD and they have a positive impact on the entire casino property.

Most importantly they are unique in proprietary GCA, important as we face competition in resigning and they also share common development and integration in the casino systems, so we can maximize our return on the investment.

In today’s environment where our customers seeking efficiencies, opportunities to drive play and strategies to attract and retain customers, we think there couldn’t be a better time to bring these products to market. Innovation drives value, it differentiates our brand and solidified our category leadership, it also stimulates growth and it’s the best anecdote I know for commoditization.

Let me take one example; wagering accounts have been around in part of most slot operating systems for sometime now. Their utilization has been inhibited by the lake of simple intuitive way from players to enroll and use them on the casino floor. We can utilize our self-service key ask and our QCP cage systems to provide a player friendly enrollment system. Once the account is established they can be easily loaded and redeemed on any of our current ATMs or full service key asks and these accounts can easily be used at both tables as well as slot machines.

Additionally, we’ve learned how important messaging and incentive is to drive adoption within the player base. Our new system will facilitate dynamic, real-time message flow and incentive to encourage players to use the wagering accounts. What more impactful way to do this but at the moment of truth, when the players in the casino standing at one of our devices and deciding how much money to get and out of play.

While, these all are in various stages of development were targeting to be in the marketplace within the next six to 18 months from now, depending on the product in the jurisdiction. We will be demonstrating these at the G2E show in a few weeks and invite discussion from customers, regulators and operators.

Lastly, I’ll point out that the financial investment that we’re committing to launch these products is quite modest. You can see how the pieces of either PowerCash and our relationship with strategic partners such as IGT and Bally technologies, as well as other equipment suppliers, puts GCA in a unique propitiatory position to offer these types of integrated products.

We have all seen the tremendous uncertainty and volatility in both the gaming market, as well as the stock market and this compels me to make an additional comment about GCA’s business model.

It’s worth reiterating that we are payments processing business and as such we do not have a high fixed costs model and we are not overly leveraged, because we can and are able to control our costs, we are not subject to substantial swings in profitability or liquidity, when we are faced with the type of segment trends that we are dealing with today. This is the significant advantage and should be recognized by those who may see us as a gaming company.

We believe we have a strong strategy moving forward, we are encouraged by the advanced booking news stated recently by several of our larger Las Vegas customers, as well as yesterday’s ballet measures, that passed in Colorado, Missouri and Maryland. It has always been our thesis that this market will return to growth. The important question is, whatever we doing in the meantime.

We expect to sustain growth and grow profitability through the acquisitions and cost reduction efforts. We’ll invest wisely in new product opportunities that have true market impact and continue to focus on signing customers.

So, with that let me turn it over to George, and we’ll go through the financial performance in more detail, and then I will wrap up and we will some Q-and-A; George.

George Gresham

Thanks, Scott. Our revenue was up in the third quarter of 2008 by 19%, compared to last year’s third quarter. During the quarter, we saw same store declines of about 8%, compared to the third quarter of 2007. This decline was more than offset by the revenue contributions from Certegy Gaming Services and Cash Systems. These two acquisitions on a combine basis contributed approximately $45 million in revenue to the quarter. I should clarify that when I make reference to same store figures I’m only speaking to the performance of the cash advance and ATM product lines.

Also like other quarters, lots of the UK cash access business in the prior year had a negative impact on the quarter. This business represented about $1.5 million of revenue in the third quarter of 2007.

Our check warranty product grew during the quarter by about 59%, compared to the prior year quarter due to the acquisitions, but also due to the addition of newer accounts acquired and added to the platform largely in the last quarter of 2007.

Recall that in the first quarter, we reclassified Arriva to discontinued operations and as a result, reclassified prior in current year revenue to that category on the income statement. Previously, those revenues have been included in the other revenue.

Gross margin came in slightly better we expected at about 26.1%, given the integration of Cash Systems. Absence Cash Systems there was no material change in margins in our base business.

As Scott reviewed, we have made significant progress in our integration efforts. During the third quarter of 2008, our operating expenses excluding depreciation and amortization increased by about $1.6 million from the prior year quarter. Included in operating expense was about $2.4 million in non-cash equity compensation expense in the current quarter versus about $6.3 million in the prior year quarter.

The increase in operating expenses is primarily due to the integration of CGS and Cash Systems as the expenses associated with these acquisitions were not included in the prior year period. Three categories of expenses, payroll, ATM servicing and professional services have driven the increase in operating expenses. So, let me comment on each of these.

Payroll represent more than 40% of our total operating expenses in Q3. As Scott mentioned in his comments as result of the acquisitions, we now run 49 booths for our customers, an increase of 38 booths over the prior year quarter. This labor intensive activity has increased our employee account and associated payroll. Providing booth outsourcing to our clients enhances our product differentiation, and establishes barriers to entry.

Our deep experience in managing this sort of operation allows us to manage those booths acquired in the acquisitions in a much more effective manner than our competitors. As we complete our integration of Cash Systems in particular we expect to achieve additional efficiencies.

ATM operations represent the cost of managing ATM portfolio and accounts about 15% of total operating expenses in the third quarter. ATM operating cost per month per device are primarily management of metric related to these costs as it decreased 16%, compared to 2007. This decrease was due to increased scale and process in cost optimization. It does not include the optimizations we believe we can bring to the Cash Systems portfolios; those devices came under our management only recently.

Additionally, as a result of the acquisitions, we have renegotiated two of our larger sounder agreements in order to enhanced our per unit cost structure further. We expect the benefits of these changes will be seen in Q4 2008 and beyond. Excluding site-funded devices the average number of ATMs under management during the third quarter of 2008 was approximately 1,560. This is up from the third quarter of 2007 by about 31%.

Professional services include external legal fees, audit services and licensing cost amongst other costs. While not as significant as the two costs categories I just discussed, these costs have increased on a year-to-date basis by about $2.3 million and on a quarterly basis by approximately $400,000.

These increases are primarily due to the residual impact of the investigation that occurred in 2007; increase licensing costs, increased audit fees and increases due to the derivative securities class action suits filled against the company. We are highly focused on this category of cost and expect to management them down overtime.

More broadly speaking operating expenses have increased, as expected due to the acquisitions of CGS and Cash Systems. We continue to incur costs related to both acquisitions, which will ceases once the integrations are complete. The quarterly operating expenses do not reflect the impact of employee reduction to Cash Systems, optimization of booth operations or the renegotiation of vendor contracts reflects scale. Integration efforts are proceeding as plan and we have met all of our planning objective associated with these acquisitions.

EBITDA increased 19% to $26.1 million, compared to the third quarter of 2007 and increased 10%, compare to the second quarter of 2008. The decrease in non-cash compensation expense of approximately $3.9 million is due to investing acceleration in the prior year due to management departures.

Depreciation and amortization increased on the year-over-year over basis due to the acquisitions of CGS and Cash Systems. Our consideration of the appropriate fair values assignable to the Cash Systems acquisition continues and could impact depreciation and amortization in future period.

During the third quarter of 2008 as compared to the third quarter of 2007 our average outstanding debt increased by approximately $32 million, while the average outstanding balance from bulk cash agreements remained about flat in spite of the acquisitions. This increase in overall average interest bearing obligations was offset by decreases in interest rates resulting at a lower net interest expense in this quarter, compared to the prior quarter.

Our effective income tax rate was about 39%. As many of you know GCA is generally not in a tax paying position due to the amortization of intangibles that tax deductible. This is true in 2008 as it was 2007.

Our GAAP EPS before discontinued operations of $0.11 is the same as in the prior year quarter. Cash EPS is a non-GAAP metric; we use to reflect the fact that GCA generally is not in a tax paying position. Even though the company reported tax expense for GAAP purposes, we defined cash EPS as net income before discontinued operations plus the tax effected deferred tax intangible amortization divided by the share count.

The company’s pre-tax amortization deduction for the purpose of this calculation is $45.7 million per year and we tax effect or multiply that figure at the current quarter’s effective tax rate in order to determine the add bank. Cash EPS was $0.17 in the third quarter 2008 up $0.04 or 31% compared to the prior year. Cash EPS has not been adjusted for depreciation, amortization or other tax attributes such as NOLs that may serve to shelter income in the future.

For example and I want to emphasize and highlight this, the company’s actual available deferred tax amortization that is tax deductible on an annual basis is about $52 million per year as disclosed in our Form 10-Q. The difference between the $45.7 million you’re all familiar with and the $52 million relates to another trench of goodwill and this $6 million increment has not historically been included in the cash EPS calculation as the company’s pretax income has not exceeded $45.7 million.

In the future cash EPS will reflect the full tax benefit from this amortization up to the level of the benefit. Before I leave the subject of taxes you’ll see in the guidance, as Scott will summarize for you that our estimated provision for income taxes is increasing in the fourth quarter due to the anticipated expiration of options. That will need to be recognized for tax purposes at the time of expiration.

I want to take a few moments to discuss our liquidity in some greater detail than typical due to the unprecedented market turmoil we have all been observing. Let me start by saying GCA generates ample free cash flow sufficient to run day-to-day operations and is not dependent on the credit markets to fund operational activities on any given day.

Additionally, given the maturities of our various credit facilities we have no need to go to market to either expand or adjust our facilities in the near future. We are in compliance with our various set covenants and expect to remain so under any plausible scenario.

So, with that said, let’s start with the fact that we have generated year-to-date EBITDA of about $71.4 million. That includes $6.7 million of non-cash equity compensation expense and if we add that back we get adjusted EBITDA of about $78 million for the nine-month period.

We have incurred $21 million of net interest expense and have invested $6.9 million in capital assets during this period leaving about $50 million to fund working capital needs and operations before taxes. Since we pay no material income tax, this full amount is available for such purposes.

We do have working capital requirements that impact our cash balances that I will expand on in a few moments, but before I do let’s discuss of our capital structure in the context of this cash flow. At September 30, 2008 we had $296 million of debt on our balance sheet, included in this debt is $45 million outstanding on our $100 million revolver of which $55 million was available at the end of the quarter.

This revolver terminates in December of 2010. It is a syndicated facility led by Banc of America that has 12 participants with participations ranging from 2.5% to 12.5%. This facility provides for overdraft protection should any particular participant become unable to meet its obligations to us. We also have a term loan outstanding at September 30, 2008 in the amount of $98.3 million. This loan amortizes $1 million in principal per year and is due November 2011.

Lastly, we have a non-amortizing senior subordinated note outstanding of $152.7 million, which is due March 2012. Both the revolver and the term loans are tied to 30 day LIBOR while the senior subordinated notes carry 8.75% fixed rate.

Additionally, we maintain $410 million facilities with Banc of America, whereby they provide cash funding for ATMs that we manage. As I mentioned, approximately $300 million was outstanding at September 30 under this facility. This is an off-balance sheet facility as the underlying cash that is being used to fund ATMs is not the property of GCA.

Repayment of this facility comes specifically from the cash deployed in the equipment not from the general cash flows of GCA. The pricing of this facility is also tied to LIBOR. Given the nature and maturities of our debt facilities, we believed our liquidity risk in the current market is very manageable under any number of reasonably possible market changes.

Let me turn back from a moment to working capital. For the most part, our working capital needs are stable and predictable. The most significant balances as they relate to working capital are settlement receivables and settlement liabilities.

If you look at the balance sheet of most payment companies you’ll see that these assets and liabilities often are comparable amount. This is true GCA as well over a long period of time. However, as the company has transitioned a large minority of ATMs to a site-funded model over the last two years, the settlement liability has grown larger than the settlement asset. This is due to the fact that site funded devices result in GCA’s receipt of cash that has been remitted at a later date to the property that is funding the site. In other words, we have a positive flow.

At the end of June the net settlement liability was about $29 million. Since the last day of June was a Monday GCA was holding site funded cash representing principally three days of funding; Friday, Saturday and Sunday. At September 30 the net settlement liability had decreased to $7 million, a $22 million decline.

The site-funded liability represented only a single day of funding at September 30. This decline in the site-funded liability resulted in a negative impact on operating cash flow in the quarter. This single item can result in some volatility to our GAAP operating cash flows from time-to-time depending on the day of the week and accounting period end relative to the timing of our remittance to our site funded customers.

We ended the quarter with $59 million in cash on hand on a GAAP basis. As I have in past quarters, I will point out that a substantial majority of this cash is in booth operations, dedicated to settlement operations or non-US jurisdiction. In summary, we believe we have a very attractive capital position given these turbulent times.

Let me now turn it back to Scott for an overview of our 2008 guidance and wrap up.

Scott Betts

Thanks, George. I know we’ve had a lot of moving parts over the past year, but as I said earlier given that, we couldn’t be more pleased with the position we find ourselves in. While we all eagerly await the segments recovery, we have an incredibly strong franchise and strategies that will deliver real growth opportunities until that happens. We now expect that in 2008 revenue will range from $670 million to $673 million.

We are holding EBITDA targets and tightening up the bottom range to $94 million, so guidance is now $94 million to $96 million. GAAP EPS before discontinued operations will fall towards the low end of the range of our previously issued guidance of $0.39 per share to $0.42. This guidance is based on the following assumptions, that our capital expenditures will approximate those amounts recognized in 2007, the effective tax rate for the full year of approximately 42% and fully diluted shares outstanding of $77 million.

So, with that, that concludes our prepared remarks and I’d like to now open it up to questions. Operator.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Moshe Katri - Cowen & Company.

Moshe Katri – Cowen & Company

Okay, thanks. Can you comment on free cash flow expectations for the year, that’s number one and number two if you look at your operating expenses where you’re doing an exceptional job in bringing it down. Which part of it in your view is discretionary by basis points? Thanks.

Scott Betts

The first part of your question, free cash flow by year, if you go with the traditional definition of operating cash flows less CapEx, as I explained in the scripts there is a lot of variance that can happen in operating cash flow just depending on the day of the week that the particular close is on. If you think of free cash flow in the context of adjusted EBITDA, less interest expense and less CapEx, yes I took you through the nine months and you can infer from our guidance what we would expect that number to be for the fourth quarter and I think pretty readily.

George Gresham

Let me just talk little bit about -- discretionary certainly is subject to anybody’s definition of what that is. I guess a couple of comments, I’ll make on our cost structure is, we happened to be hitting at this time right now sort of midway or parkway through the integration of the two acquisitions. We’re very encouraged about the progress we’re making on a per unit operating standpoint in an environment where we’re growing the number of customers some 30%, we’re growing the amount of our devices out there some 30%.

What I will tell you is, when we sit down and review the year’s performance as well as give guidance and talk about next year we’ll have a much firmer grip on exactly where we are on the cost pieces of it. So, sort of given that environment that we’re growing the company, I would tell you that the discretionary depending on whether you draconian or you’re just ask me what a reasonable business decision is to make would be a relatively small portion of the total expenses.

Moshe Katri – Cowen and Company

Okay and then you said you are in the midway of that integration process. Can you kind of remind us in a number of quarters when do you expect the integration process to kind of get completed?

Scott Betts

We expect that to be totally completed in the fourth quarter. We have already like I said, as of this date, today we have a extensively converted all of our customers on to our platforms; we have firmly got our arms around a lot of the operating costs including the example I gave you around booth operations. However, for the Cash Systems we’ve only owned that portfolio for three months now as of today.

So, we are still get an experience and we are still optimizing a lot of those pieces, a fair chunk of the people cost that were synergies on Cash Systems did not happen until the first part of the October, so they are not in those numbers. So again, if you think about it as predominantly over those two quarters we should be almost entirely completed by the time we sit down and look at the end of the year.

Moshe Katri – Cowen and Company

And just a final question on pricing; got anything in terms of trend on pricing and some of the new signing that you had? Thanks.

Scott Betts

Nothing material. I mean, we continue to price to market; some of them come in with some compression on them, some of them we’ve been able to get some pricing. I guess the biggest thing for me because I look at it on a portfolio basis is a comment George made that extra dilution of the portfolios which we talked about in great detail that the underlying gross margins have not changed in our base business.


Your next question comes from Tien-Tsin Huang - JP Morgan.

Tien-Tsin Huang - JP Morgan

If you look on the expenses to follow-up to Moshe’s questions on pricing; how about opportunity to raise pricing on surcharges? Have you seen any opportunities there?

Scott Betts

You mean on the fees.

Tien-Tsin Huang - JP Morgan

That GCA charges, correct. I was curious to know if there was any opportunities for GCA to optimize the price that you have?

Scott Betts

Yes. We continue to work on that with the customers on a property basis by two ways, one is; as we see across the market and also sharing with them comparatively what’s going in their market so that is always a topic that we work with our customers and in some cases that’s what helping us maintain our gross margin.

Tien-Tsin Huang - JP Morgan

Okay. Good and then on the question about cash advance. Have you seen any increase in turndown rates with bank tightening their credit standards in the aggregate? I’m curious if that’s had any impact on the cash advance side beyond the macros chart that we issue?

Scott Betts

We are seeing disproportionate decline in the credit card cash advance and we think we are seeing some increase in our check cash that offsets that, as well as rise in the ATM volume. So whether that’s being soft regulated by the customers or whether that’s happening in a bank level, it’s a little hard to say right yet.

Tien-Tsin Huang - JP Morgan

But in terms of the implications of that trends were shifting on the margins and outlook, what are your general thoughts about that charge?

Scott Betts

As we look at it, it does not have material impact on our margins; when you look at the cost of credit card transactions and you look at the margins on ATM transactions.

Tien-Tsin Huang - JP Morgan

Okay and then just two more quick ones; I guess, we didn’t get some of the metrics around your transaction growth the processing volume, etc?

Scott Betts

Actually the Q maybe filed right now here, if it’s not filed right now, it will be filed by the end of the call and those metrics will be in their. Ex the check cashing metrics, we’re or not publishing those metrics, but check credit card cash advance and ATM will be on the Q.

Tien-Tsin Huang - JP Morgan

Great. We’ll keep our eye out for that. The last thing it’s glad to see obviously your preserving the earnings outlook, despite the lower revenues. I think that’s great. I’m just curious, I guess confident level in achieving the EPS and I heard a lot about the expenses, but to the extent that revenue followed us further, are there some other leavers to pull on the deal synergy side or just in the aggregate?

Scott Betts

What I’ll tell you us we’ve obviously been very aggressive at the integration of both of these acquisition; I mean most of the time people talk about 9 or 12 months integration period. So, we’re continuing to obviously push on those. We think there’s potentially some upside, so we have to obviously look at all of our costs; it’s the only place that we can gain some leverage if the top line falls below that, but we’re quite confident in the range that we’ve given right now, looking at any kind of projection that we see and we obviously already have October in the bag, so.


Your next question comes from Chris Mammone - Deutsche Bank.

Unidentified Participant

Hi, thanks this is [inaudible] following in for Chris. I just had a couple of questions; can you comment on what you were seeing in terms of geographic trend in transaction volumes? Do you think the downward you hit geographies equally across the board or are there pockets better or worst hit and others that are acting more resilient?

Scott Betts

I can’t get into a lot of granular detail on that but, what I will say there is significant variation between same-store trend by geography. There are some geographies; Pennsylvania, Florida, Oklahoma, who are actually increasing right now and that’s due to customer expansion and new opportunities that customers have.

Beyond that there’s sort of plus and minus, there are geographies like Colorado smoking bans and things like that have hurt them more significantly than other local markets. The Las Vegas jurisdiction is down significantly as travel and designation kind of things impact that, but many of our customers in Southern California are doing better from sort of a locals market, so it various quite significantly from geography to geography.

Unidentified Participant

Great, thanks and also could you comments on what you were seeing in terms of international brand; is the slowdown impacting some of the international markets where you still have the presence?

Scott Betts

We see some slight decline in the Macau business as these have been tightened up a little bit, but its not significant; we are maintaining our business and we’ve are involved in several current RFP process’s there. So, we hope to be filing some new business there. We’ve recently sign new customers in Europe to keep that business going and we are very pleased actually be starting or following it up back in the U.K in the fourth quarter. So, those will all be positive growth opportunities for us.


Your next question comes from the line of Rishi Parekh - KBC Financial.

Rishi Parekh - KBC Financial

Hi, you guys were teasing us a little bit mentioning EDITH and TODD could you talk little bit about what’s happening with that; are the regulators warming up to the product or --?

Scott Betts

Let me make a couple of points on EDITH and TODD okay. We certainly learned a lot in that, in the process of developing those two products. As they were originally conceived, we are not going to be going to market with either EDITH and TODD. When we talk about ticket out, we think we are taking a more intuitive approach.

I don’t know how familiar you are with Edith and TODD, but they were essentially standalone devices that were in close proximity to the slot machines or the slot bank. We think the better approach to take nowadays is to do ticket out either on our ATMs or on our full service kiosk. One is its very intuitive because a larger percentage of those machines are doing ticket redemption, so ticket-out is very intuitive from a player standpoint.

We think importantly it also gives us some advantage in the fact that it provides some physical separation and also provides an important choice for the consumer as to whether they want get a ticket or to get cash and we think in our initial conversations and we believe that that’s going to help out of some of the issues that we had from a regulatory and a responsible gaming that came up with the old EDITH and TODD products.

Rishi Parekh - KBC Financial

What would you say the advantages are then? So it’s not as quite as close, but you’re still using debit technology, so you’ve got the higher limits, the daily limits and I guess you feed it directly into the machine, but what are the other benefits over?

Scott Betts

Well. I mean it maintains all the benefits we had before, which is taking cash transaction off the floor okay, which lowers both our cash handling cost as well as our customers. It also offers the opportunity to do it without any incremental cost of equipment or wiring or networking that we would had do as a standalone.

We are going to drive these through our current devices and our current infrastructure, so that’s going to both lower the capital requirement for our customers and our operating cost and we think that combined with the ability now to also dynamically message and incent consumers on our screens okay, it will be a huge advantage to drive in adoption from a players standpoint, okay. I mean, we did not have the capability with either the EDITH or the TODD products.

Rishi Parekh - KBC Financial

You said some trials going on at some facilities are they still happening or --?

Scott Betts


Rishi Parekh - KBC Financial


Scott Betts

No they are not.


And there are no further questions in queue at this time. I would like to turn the call back over to management for closing remarks.

Scott Betts

Well, we thank you all for listening to the call. We are very encouraged about the future of the company and we appreciate your support and we’ll talk to you in about a quarter. Thanks.


Thank you for your participation in today’s conference. This concludes the presentation. Have a great day.

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