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Global Cash Access, Inc. (NYSE:GCA)

Q3 2007 Earnings Call

November 7, 2007 2:00 pm ET

Executives

Scott Betts - Chief Financial Officer

Udai Puramsetti - Senior Vice President of Finance

Mark LaBay - Vice President and Controller

Kurt Sullivan - Executive Vice President of Central Creditand Check Services

Katie Lever - General Counsel

Steve Lazarus - Executive Vice President of Sales

Analysts

Tien-tsin Huang - JPMorgan

Jim Kissane - Bear Stearns

Chris Mammone - Deutsche Bank

Moshe Katri - Cowen and Company

Elizabeth Grausam - Goldman Sachs

Leo Coll - Citi

David Parker - Merrill Lynch

Operator

Good day, ladies and gentlemen, and welcome to the ThirdQuarter 2007 Global Cash Access Earnings Conference Call. My name is Sean, andI will be your coordinator for today.

At this time all participants are in a listen-only mode. Wewill be facilitating a question and answer session towards the end of thisconference (Operator Instructions).

I would now like to turn the presentation over to your hostfor today's call, Mr. Scott Betts, Chief Financial Officer. Please proceed.

Scott Betts

Thank you, operator. Good morning, everyone, and thank youfor joining us. I trust that everyone has seen the press release of the Company'searnings this morning.

With me today at GCA are several members of the SeniorExecutive Team including Udai Puramsetti our Senior VP of Finance, Mark LaBay,VP and Controller, Kurt Sullivan, EVP of Central Credit and Check Services,Katie Lever, our General Counsel, and Steve Lazarus our EVP of Sales.

As many of you know Kirk Sanford has recently retired fromGCA. Kirk has been a member since GCA's Management team since the Company'sinception over a decade ago, and I would like to start the call by thankingKirk on behalf of the board for his measurable contributions in building GCAinto the gaming industry leading Cash Access provider.

In 2004, I had responsibilities for GCA in my capacity asPresident of First Data Corporation's domestic enterprise payments unit. At thetime GCA was a majority-owned subsidiary of First Data Corporation, and Kirkand I had a chance to work together on numerous occasions during my tenure.

So this is a bit of return home for me and I am honored tohave the opportunity to lead GCA forward into the next phase of growth, and Ilook forward to continuing the legacy of innovation and trust that has builtthis Company in the past.

Over the next several months I am also looking forward tomeeting at length with the members of the analyst community as well as ourvalued shareholder base.

The format of today's earning call will be similar to thatof prior calls. I will start by summarizing the consolidated results ofoperations, our balance sheet and cash flow items, and then I will talk aboutour strategic initiatives and our financial guidance, and then we'll open it toa Q&A.

I would like to remind everyone that during the course ofthe conference call and the Q&A we may make forward-looking statements onmatters such as financial trends, customer contracts, new products and newmarkets.

You can identify forward-looking statements by the use ofwords such as estimate, expectation, intention, projection, goal, or forecast.Because these statements deal with future events, they are subject to variousrisks and uncertainties and actual results could differ materially from theCompany's current beliefs.

Factors that could cause or contribute to such differencesinclude, but are not limited to growth in the gaming revenue in our existingmarkets, the win and loss of various customer contracts, the development by usand acceptance by our customers of new products, the actions of competitors andthe likelihood and timing of gaming expansion in various markets.

For other factors that could cause actual results to differmaterially from those described in our forward-looking statements, we refer youto our SEC filings and specifically to the Form 8-K covering our recentearnings release in the risk factors section of the various SEC filings.

I’d also like to refer to you today's press release and 8-Kfor reconciliation of GAAP to non-GAAP measures and a reconciliation of actualto adjusted items. Let's get to it.

First let's cover our financial results. We had solidresults in Q3 generally in line with our expectations. Revenues were $156.6million, cash EPS was $0.14, and adjusted cash EPS, which excludes stockcompensation and other nonrecurring items was a very strong $0.19.

Revenue growth over the third quarter of last year was 9.6%.Our same-store increase and surcharge revenue for Cash Advance and ATM was 8.7%consistent with our expectations. All of our individual businesses showed solidgrowth.

Cash Advance revenue was up 9.2% driven by an 11.5% growthin the dollar volume of transactions. ATM revenue was up 8.2% driven by a 5.2%increase in the number of transactions and a 2.8% increase in the revenue peraverage transaction.

Similarly, our Check Services revenue grew 14.3% and ourCentral Credit and other business posted a revenue increase of 42.6% largelydue to the recognition of Arriva revenue. Excluding this revenue from Arriva isCentral Credit and other revenue was up 10.2%.

Gross margins for the quarter were 28.1% despite beingadversely affected by the loss from Arriva offset by better than expectedcollection experience in our check warranty products and a favorable commissiontrend from several of our customers that have made the decision to waive feesto their patrons.

In these locations the property will not receive commissionfor those transactions, but GCA still receives our contracted rate. Soexcluding the impact of Arriva, gross margins for the quarter was 29.1%.

Moving further down the income statement, operating expenseswere $21.2 million of which $6.3 million was non-cash compensation expenses,$3.5 million of that non-cash compensation expense was related to the departureof a member of our senior management team.

Excluding the non-cash comp expense, adjusted operatingexpenses were $15 million in the current quarter compared to $13 million lastyear, an increase of 14.8%. I am obviously concerned with the rate of operatingexpense growth that's higher than the rate of revenue growth.

This is something that we will look to address veryseriously over the next several months and look forward to talking to you moreon subsequent calls. Depreciation, amortization increased 21.5% to $3 million.The increase is principally due to the deployment of equipment at a majorcustomer in 2006.

Interest income dipped slightly to $1 million from $1.2million in the comparable 2006 period. Interest expenses declined approximately$1.4 million from the prior period due to the pay down of debt in Q4 of lastyear. Interest on our borrowings was down approximately $1.3 million while ATMinterest was down approximately $100,000.

Tax expense was $4.4 million in the quarter. That's based ona revised estimate of our effective tax rate for the year of 38.4%. Net incomefor the third quarter was $6.9 million. To that we add $4.4 million in deferredtax amortization to arrive at the cash earnings of $11.3 million.

By then adding back the $3.9 million of after tax, non-cashcompensation expenses we get to the adjusted cash earnings of $15.2 million.Using our diluted share count of 81.7 million shares for the quarter producesthe cash EPS of $0.14 and the adjusted cash EPS of 19% as we reported earlier.

Moving onto the balance sheet, the Company's financialposition remains strong. In fact, we're pleased to note Standard & Poor'shas rewarded the Company's financial discipline this quarter by raising ourcorporate credit rating from B minus to B plus with a stable outlook.

The Company had $62.8 million in unrestricted cash atSeptember 30. Our debt was $263.7 million, and our total leverage ratio was 2.4while our senior leverage ratio was 1.0. The average vault cash balance duringthe quarter was $276.9 million. Our capital expenditures including intangibleswere $5.3 million in the third quarter of 2007.

During the quarter we continued to repurchase sharespursuant to our 10-B-5 plan. As of October 31, we had repurchased approximately2.4 million shares for a total purchase price of approximately $27.9 million atan average price of $11.65 per share.

Net we had solid performance across our financial measuresfor the quarter, and now I will move on to talk about our key businessinitiatives.

As usual we continue to have a solid track record ofrenewals and new wins. During the quarter we renewed three contracts. We signedten new customers and lost three existing customers. The pipeline for newbusiness possibilities continues to look promising, and we feel confident inour ability to continue to win additional business.

The migration of our ATM business to redemption kioskscontinues to gain traction. At the end of September we had 635 redemptiondevices active in our 3-in-1 service. That's in addition to 129 additionalmachines in the quarter.

This remains an important initiative and will stay focusedon this. As we stated in the past, the redemption kiosk helps us by loweringthe operating and interest expense associated with the ATM transaction.

With respect to EDITH, we're certainly disappointed by theNevada Gaming Commission's decision on September 20, to reject EDITH and anynew products that employ similar cashless technology.

Although social responsibility was initially believed to bethe greatest regulatory concern, insufficient operator demand was the reasongiven by the Commission at the hearings.

I would like to reiterate that GCA does have strong supportfor EDITH from many of the top operators here in Las Vegas. So, the mostimmediate opportunity for EDITH has been in the Native American markets.

So our strategy is to aggressively roll out EDITH in thesemarkets as we gain momentum in California, Arizona, and New Mexico, we expectNevada operators to feel competitive pressure to offer EDITH and that GCA willhave a further opportunity to resubmit EDITH for approval.

We are making excellent progress on this front andinstallations of EDITH at Foxwood are planned to be live in the first quarterof 2008. Moving to our Arriva operations, we continue to perform belowexpectations here. While the original strategic premise may have been valid, wemust recognize and address these issues.

So we will perform a thorough and strategic review of thisbusiness quickly, and assess how we're going to operator this business on ago-forward basis. We'll have more to say about this on our next call. Forperspective at the end of September we had 9,614 accounts. We've done just over$38.8 million in cash advance on Arriva, and as the end of September ourcumulative charge off totaled approximately $1.9 million.

On September 1, the company's casino customers in the UnitedKingdom discontinued the provision for the company's Credit Card Cash Advanceservices. As a result of an interpretive concern arising from the 2005 GamblingAct going into force.

Although, we cannot predict if or when the U.K. Casinos willresume Credit Card Cash Advance services, we do not expect the casinos to do sountil the U.K. Gambling Commission or the U.K. Judiciary takes a formalposition that the company's Credit Card Cash Advance services do not violatethe gambling act.

To be sure this is important as an important issue to us andwe will continue to pursue all avenues to say facilitate a favorableresolution. Just for reference, our year-to-date revenue for the U.K.operations was $4.9 million.

On a more positive note, our prospects in Macau are verypromising. In late August, the company successfully completed deployment of ourCash Advance and Redemption services solutions at Galaxy Starwood and theVenetian Macau.

In addition, GCA will be providing central credit to allmajor operators in Macau except SJM as well as Cash Access services to theGrand Waldo Casino, Rio Casino and the Waldo Casino. Similarly, in South Africayou may have seen our recent announcement related to our new sponsorshipagreement with the ABSA Bank Limited, one of the continent's largest banks.

With this sponsorship deal we're excited about theopportunity to provide our Cash Advance services within casinos in SouthAfrica. One of the world's largest or one of the fastest-growing gamingmarkets.

So we see both of these markets as being great growthopportunities in the coming years. So in conclusion, I'm excited about theopportunities as we close out 2007 and look forward to 2008. I realize therehave been a lot of changes with the company in a very short period of time.

However, I am looking forward to stabilizing the business,refocusing on sales and operations, addressing several of the key issues thatwe've talked about here today, and relentlessly pursuing growth opportunitiesin the coming year.

A few words about our financial guidance. Turning to thatguidance, we are reiterating our recently revised 2007 EPS guidance. Revenuesduring the month of October were softer than expected reflecting the weaknessexperienced in all the major gaming markets.

For the fourth quarter of 2007 our expectation for revenuewill be in the range of $152 million to $157 million, the adjusted diluted cashEPS of approximately $0.18. In the fourth quarter we currently expect to recordapproximately $8.2 million in non cash compensation expenses related toaccelerated vesting of various equity awards for our former CEO.

Additionally, we expect about $800,000 in cash-basedcompensation and cash-based severance expenses made to certain former membersof our management team. It is expected that a significant portion of the awardsfor our former chief executive will not be deductible for U.S. Federal IncomeTax purposes, which could have an adverse effect on our reported effective taxrate for the fourth quarter in the fiscal year.

To be clear, our expectations for results for the fourthquarter exclude any impact from these non-cash charges and the related impactof our effective tax rate. I remind investors that our guidance is based onwhat we know and forecast as of today.

Events may occur and circumstances may change in a way thatwould alter the things that affect our guidance. Factors that affect ourbusiness and therefore our guidance include but are not limited to economicgrowth, interest rates, political development, regulatory development,expansion of gaming in new jurisdictions, the retention and addition of ourcustomers, interchange and other impositions of the card associations, and theproducts and pricing offered by our competitors.

We may not know if or when these factors may have changed,and we expressly disclaim the obligation to update investors on our guidance orthe factors that contribute to it. So that's the end of my prepared remarks, sooperator I'd like to now open it up to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the lineof Tien-tsin Huang with JPMorgan. Please proceed.

Tien-tsin Huang - JPMorgan

Hi, thanks. Scott, good to hear your voice again.

Scott Betts

Good to hear yours. Thank you for joining us.

Tien-tsin Huang - JPMorgan

A bunch of questions. I will hit a few. First Macau, whatkind of contribution did it have in the quarter, and what should we expect in4Q? Sound like it ramped up enter quarter?

Scott Betts

The contribution was minimal for 3Q. I don't think we'vereally given broadly the expectation for 4Q. We just kept in the model the $1million that we stated for international revenues broadly.

Tien-tsin Huang - JPMorgan

And maybe if you could just give us a sense of what servicesare being used in Macau, what fees are you charging and maybe how they differfrom the U.S.? If you can give us a better feel to try late around thepotential contribution?

Scott Betts

Well, as far as, I don't want to get into specific feeinformation. The business is relatively close to from a margin perspective thecorporate average in the U.S. We can drill down on that maybe on a subsequentcall.

The services, we have announced redemption devices at thetwo major properties. We are also offering Central Credit to all of the majoroperators except SJM as well as of course traditional Cash Advance and ATMservices.

Tien-tsin Huang - JPMorgan

Okay. Got it. And then second question was around the topline. I guess the spread between revenue growth and same store growth has beentrending down in the past few quarters. Does this suggest there is less newbusiness ramping up or is attrition having some impact on the top line? Maybeyou can help us appreciate this trend.

Scott Betts

No. There is no question, and we stated this no the priorcall that we have seen delays in the timing of new business. It is somewhat anart as opposed to a science. Also when we gauge the magnitude of that new business,it is based upon for existing properties we have relatively good data.

For new properties obviously that's something that we haveto make an assessment of based upon input from the property and our ownassessment of the growth in that market. That trend as you've said, that trendhas somewhat weakened. We're watching it very closely in this quarter to assesshow it is going to shake out going into year-end.

Tien-tsin Huang - JPMorgan

I don't know if you disclosed it. What kind of same-store growthdid you see in October and I am just trying to think how we should recast ourthinking on same store growth in 2008?

Scott Betts

I’ll give a little broader color and put that inperspective. We started to see some same store weakness right around the timeof the Labor Day weekend. We looked at the year-over-year comparison of LaborDay weekend '07 to the prior, and it was up I would say up only marginally.

We continue to watch that trend for the month of September,and it was a very gradual decline going into the end of the month. As far asOctober goes, I will broadly just state that we believe the same-store trendwas in the low single-digits.

Tien-tsin Huang - JPMorgan

Okay. Low single-digits. Got you. I am assuming most of thisis just cyclical issues that we're seeing in the economy?

Scott Betts

Yes, we believe so.

Tien-tsin Huang - JPMorgan

Okay. Last one and I will let someone else jump on. I heardyou mention that certain casinos were waiving ATM fees. I understand this helpsmargins.

What kind of impact did it have on reported revenue growthand how should we consider this going forward?

Scott Betts

That's something that might defer to subsequent call. I willmention one particular property in Michigan just to give you a little bit ofassociated color. That was a new property. We were expecting monthly revenuesin the order of anywhere from 800,000 to a million.

The short fall there was in the order of probably 50 to 60%due to waived fees. However, the volumes would lead us to believe that under anormal fee scenario our revenue estimates probably would have been relativelyaccurate.

Tien-tsin Huang - JPMorgan

Right.

Scott Betts

Therefore, you can use some induction to basically see thatoptically that boosts the margin quite a bit and probably would have helped usto bridge some of the short fall in top line revenue.

Tien-tsin Huang - JPMorgan

Got you. Okay. Thank you.

Operator

Your next question comes from the line of Jim Kissane withBear Stearns. Please proceed.

Jim Kissane - Bear Stearns

Yeah, thanks. Hi, Scott, how are you?

Scott Betts

Hey, Jim, how are you doing?

Jim Kissane - Bear Stearns

Pretty good. You alluded in your comments and also in thepress release about other members of the management team being terminated.

Can you provide just a little more insight into that andgiven the CFO departure, the CEO departure, the common theme around thedepartures over the past few months?

Scott Betts

I think that the common theme you ought to walk away from iswe had a lot of changes over the last three months that we're now at a periodof stability. We're very confident with the management team that we have movingforward.

We think we're in good shape to start addressing both theissues and opportunities that we face in this business and what's sort ofhappened has happened. And I don't think there is any real theme about that. Ithink we're trying to get the Company into a position to move to an area ofhigher growth and I think we've got the right tools and the right people inplace to do that.

Jim Kissane - Bear Stearns

Can you just provide a little more color around what's goingon in the U.K., in terms of how casinos are getting cash onto the floor in theU.K. and is there any risk this could spread to other markets, the concept ofthis regulation?

Katie Lever

Currently patrons in the U.K. market are receiving cashdirectly from the on the gaming floor. They have some access to ATM devices andotherwise they can establish a market facility or bring cash into the casinowith them.

In terms of an expectation as to what would happen in othermarkets, of course we're not count on it what other regulators are going to bedoing in the international marketplace, but we certainly haven't seen or heardin any of the other international markets we operate.

We haven't seen or heard anything on a regulatoryperspective that would lead us to believe that there is any other jurisdictionthat's going to be taking a similar stand to that which has been taken in theU.K.

Jim Kissane - Bear Stearns

But the casinos are not accepting credit cards directly?

Katie Lever

There is prohibition, a perceived prohibition on the use ofcredit cards on the casino floor.

Jim Kissane - Bear Stearns

Okay. And just in terms of the competitive environment, youtalked about three losses in the quarter. I know last quarter you talked aboutI guess a larger loss. Historically we really didn't hear about losses fromGCA.

You could consistently gain share. Has the competitiveenvironment changed, the pricing environment, the service quality, thefunctionality of your competitors changed at all?

Scott Betts

What I will tell you is in the short time I have been here,Jim, this environment is just as competitive as the merchant business was.We've got several competitors out there. People are always looking and veryaggressively bidding on deals.

We're just continue to see that kind of price pressure andthat kind of competitive pressure in the marketplace and I suspect we'll seethat as we move forward. We still do we still win many more than we lose.

We believe and, in fact, know some of our functionalitiesand features and products are superior to our competitors. We have a greatbrand. We need to continue to drive that in the future as we move forward.

And just be doing a better job of letting everybody knowwhat our value proposition is to putting more money on the casino floors andallow patrons to enjoy themselves at our customers casinos, so I think we're ingood shape.

I think it has always been a very competitive market. Ithink it is going to continue to be a competitive market, but I think I ampretty convinced we've got tools that we should be able to fend for ourselvespretty well in the future.

Jim Kissane - Bear Stearns

Great. Good luck, Scott.

Scott Betts

Thank you. Jim.

Operator

Your next question comes from the line of Chris Mammone withDeutsche Bank. Please proceed.

Chris Mammone - Deutsche Bank

Hi thanks. Just going back to the top line. How much of thenew revenues outlook is I guess order of magnitude the new business delay youspoke about in the second quarter versus the U.K. shutdown and also about theunit facilities you cited in the second quarter you as confident those willcome back has your outlook changed there?

Scott Betts

I don't think the outlook is necessarily changed. I think asfar as the U.K. obviously that business was close to about 8 million U.S.equivalent on an annualized basis, so that's obviously a direct contribution.

Chris Mammone - Deutsche Bank

It is a full contribution.

Scott Betts

Yes, it’s a full contribution of the fourth quarter.

As far as the magnitude of new business for the fourthquarter, I think, we're expecting a relatively similar amount to what weexperienced in the third quarter, the difference being that again there is thatuncertainty especially going into year end seasonally and in the gaming marketin December it is much more difficult to get contracts finalized as people moveinto the holidays. We want to account for that.

And then again, like I said, we did mention that the revenuetrend in the early part of the month has dipped and so the complements of thosefactors are really driving our expectation.

Chris Mammone - Deutsche Bank

Okay. And then on gross margins, I guess we're surprised tosee year-over-year pick up there, especially given the Mandalay contract reset.Can you drill down a little bit more on the gross margin?

Scott Betts

Absolutely. I will name a couple factors in particular.There was approximately 300,000 of positive variance from lower than expectedcheck warranty expense approximately 300,000 of excess accrual of the Mandalayimpact.

And lastly is the benefit that we spoke about ofdramatically waived fees at new properties, which has basically an opticaleffect of boosting the margin.

Chris Mammone - Deutsche Bank

Okay. That's all I had for right now. Thanks.

Scott Betts

Thanks, Chris.

Operator

Your next question is from the line of Moshe Katri withCowen and Company. Please proceed.

Moshe Katri - Cowen and Company

Hey, actually it’s Moshe Katri with Cowen. Welcome Scott.Can you talk about your vision for Global Cash, maybe talk about some of theareas of focus whether it is expense control, some of the initiatives overseas,are you planning to do anything differently down the road? Thanks.

Scott Betts

I hope we continue to grow the Company, the kind of growthrates this company has experienced in the past. I mean that’s really what ourfocus is. I think, we've got a lot of areas and a lot of opportunities there.

Certainly coming out of the blocks where I said we're goingto continue to focus is we're going to make sure we've got the right salesfocus and the right tools for our sales people to go out and not only sell andwin new contracts but get better cross-sell and more products and into more ofour customers.

I think this is a processing business and we ought to begetting scale on the operations side of it, so I will make sure that wecontinue to see that opportunity and realize at that opportunity as we moveforward.

That's critically important to us. There should be a hugecompetitive advantage to us at our size and share versus our competitors, so weneed to make sure that we're getting everything we can out of that.

And then we're going to continue to aggressively look at newgrowth opportunities and certainly geography is one that comes right at the topof the list. There is obviously we're very excited about what's going on inMacau.

We think South Africa has a lot of opportunity. There iscertainly opportunity to win contracts we don't have here in the U.S. So Ithink the fundamentals are pretty straight forward in growing this business,and we're going to make sure we got the right discipline and right kind offocus moving forward to make sure we capitalize on those.

Moshe Katri - Cowen and Company

Do you need to invest more in the business to generate someof these to actually be able to expand into some of these initiatives or areyou comfortable with the infrastructure have you today?

Scott Betts

I am going to ask for your indulgence in that question atday four, okay? I don't want to duck it. I just want to give you a qualityanswer. I really don't know. Like I say, I am familiar with the business usedto be one of the businesses I had, so I kind of know a lot of the fundamentals,but until I have had some time to do the right kind of work to put together ourstrategic plan and our business plan for '08, why don't we talk about that onthe next call.

Moshe Katri - Cowen and Company

And assuming that the environment does get continue to getworse, looking into 2008, can you talk about some of the possible actions youcan take to cut back or cut down on costs or expense control?

Scott Betts

Again, I hope to give you complete outlook into what thoseplans look like. Frankly, whether the trend continues or not we're lookingaggressively at our costs. I can say I have a very firm belief these arescalable businesses and we ought to be able to leverage that. I just don't knowenough that I want to say on this call because I want to make sure I give you agood answer on that.

Moshe Katri - Cowen and Company

Okay. And that's fair enough. Given the management changesin the business during the past in the Company just recently, have you beencommunicating with your top 10 customers and are they comfortable with what'sgoing on? Is there anything, do you have a comment on that?

Scott Betts

Yes, I have a comment on what my approach is going to be,and again, I think one of the important things, and I hope that everybody takesaway from this call is we're really about getting into a part where we're nowstabilized, we think we have the right people in the right places.

We're excited about the business. We have a big show comingup next week here in Las Vegas, it will be a great opportunity. I am going tobe there and make sure I meet with all the top customers I possibly can. I amcertainly spending time with the both the management team and the employees here,internally to make sure we get the things behind us behind us and get everybodyfocused on the future so, and here so far I don't see any issues at all withthat.

We have a great organization here, a lot of talent, the fewcustomers I have had a chance to talk to already really see GCA as a greatexpect moving forward so. I think we're in good shape on that, but it certainlyrequires some attention.

Moshe Katri - Cowen and Company

And finally, can you give us a GAAP EPS number for Q4?

Scott Betts

Yes. We'll come back to you on that. I think there are anumber of items that we're still assessing on the tax side.

Moshe Katri - Cowen and Company

I am saying that because some of the First Call estimatesmoved to GAAP EPS. That's why I'm asking. Thank you very much.

Scott Betts

Okay. We can reconcile that for you. Moshe, Thank you.

Operator

Your next question comes from the line of Elizabeth Grausamwith Goldman Sachs. Please proceed.

Elizabeth Grausam - Goldman Sachs

Hi, Scott it's (inaudible) on behalf of Liz. One questionregarding the cost-cutting initiatives in 4Q. Could you give us a sense of whatkind of cost-cuttings are you planning and where the operating margin can be inthe fourth quarter?

Scott Betts

No, not at this point in time I can't give you thosespecifics.

Elizabeth Grausam - Goldman Sachs

Okay.

Scott Betts

We have internal targets we're looking at and aggressivelygoing after. I will tell you we do have an identified list of opportunitieswe're going after, have people against them, time frames against those. I don'tknow which ones, a majority of those will probably fall out of Q4 into thefollowing year. It just takes time to get some of these things executed, butyou just need to know we're focused on it.

Elizabeth Grausam - Goldman Sachs

Okay. Perfect. And the other thing I have on the stock-basedcompensation side, you said it is around $8.2 million. What percentage of thatwill be regarding Harry's options, sorry, Kirk options?

Scott Betts

Kirk. It is the entire amount.

Elizabeth Grausam - Goldman Sachs

It is the entire amount?

Scott Betts

Yes.

Elizabeth Grausam - Goldman Sachs

Okay. Thank you.

Operator

(Operator Instructions) Your next question comes from theline of Tony Wible with Citi. Please proceed.

Leo Coll - Citi

It is actually Leo Coll sitting in for Tony. Just a quickquestion on a -- could you update us what's going on there and if you canupdate the charge-off numbers you provided on the last few calls? Thanks.

Scott Betts

Okay. Yeah. I think we kind of covered the major metrics inthe -- when we covered the business. Currently as of the end of September wehad a little shy of 10,000 accounts. We had 9,614 accounts. Okay. We've doneabout $38.8 million in cash advances, and cumulatively on the charge-offs we'reat $1.9 million.

Leo Coll - Citi

Okay. Thank you.

Scott Betts

You bet.

Operator

Your next question comes from the line of David Parker withMerrill Lynch. Please proceed.

David Parker - Merrill Lynch

Good afternoon, everyone. I just have a few follow-ups tosome prior questions. First, can you provide us any color on the size of thethree customers that left?

Scott Betts

Yes, we can. One customer has not actually left. We receivednotice of cancellation. The annual revenue impact of that is in the order of$5.5 million to $6 million. That business will be leaving in Q4. The other twocustomers I would categorize the revenue loss as de minimus. I put that in the$100,000, $100,000 category total.

David Parker - Merrill Lynch

And did any of the three provide reasons as to theirdeparture?

Scott Betts

We believe the loss of the larger-size customer was due toprice.

David Parker - Merrill Lynch

Okay. And then, on the management changes, who actually leftand was anybody, was sales impact in any way?

Scott Betts

Sales was not impacted at all. The other departures wereprimarily on the operations side, and several of the main business units.

David Parker - Merrill Lynch

Okay. And then, any status on the CFO search? Any update onthe status?

Scott Betts

I have had this discussion with the Board here. I think,we'll going to introduce got a give me a little time on that one.

David Parker - Merrill Lynch

Okay. So, fair enough. On the Africa deal, what's the actualopportunity in that region and are you expecting any contribution in 2008 fromany wins?

Scott Betts

I am hesitant to make any sort of projections. We're in theearly stages in that market. The bank sponsorship agreement is a very earlystep to obviously to providing our services to the gaming operators in that market.

I would prefer maybe on the year-end call to give a littlemore guidance to both the magnitude and timing of that market opportunity.

David Parker - Merrill Lynch

Okay. Final question is regarding the EDITH product, are youcurrently receiving any revenue from any customers for this product or is thecustomer in the first quarter of '08 going to be the first revenue and then asyou try to penetrate these native American markets with this product do youhave any anticipation or expectations for revenue contribution in 2008?

Scott Betts

Well, in terms of current revenue we are deployed at a largecasino customer in Southern California. That is our current beta or fieldtrial. The revenue impact is minor, it’s only I put it in the order of 30 or40,000 per quarter.

As far as expectations for '08, again we did say in theprepared remarks that we are optimistic about our deployment at Foxwood in thefirst quarter of '08, and again as we get closer to realization of that goal, Iprefer to match the timing with the revenue assessment.

David Parker - Merrill Lynch

Okay. Great. Thank you, guys.

Scott Betts

Thank you.

Operator

You have a follow-up question from the line of ChrisMammone. Please proceed.

Chris Mammone - Deutsche Bank

Thanks. Just on I guess back to the management. Has -- Iguess have all the operational departures been replaced at this point? Are youstill looking for people to run the various businesses? Do you still have holesto fill?

Scott Betts

I am sorry. You're a little hard to hear. Let me make sure Igot the question right. You're asking us if we feel the slots of the peoplethat recently departed, is that correct?

Chris Mammone - Deutsche Bank

Yeah. Sorry, I just wondered if you're able to gatheranybody from anybody towards internal sources or still holes to fill?

Scott Betts

Yes. We have call the critical positions still filled,obviously except the CFO, and again we've done it with very tenured folks both withinthe Company and with in the industry, and I am very comfortable with the factthat we have all the bases covered here with good talent right now.

Chris Mammone - Deutsche Bank

Okay. Great. And just couple other quick follow-ups. Whatmarket was the larger customer that's leaving in?

Scott Betts

Washington State.

Chris Mammone - Deutsche Bank

Okay. And just on Arriva, are you still expecting that partof the business to be about $0.02 dilutive this year or have your expectationschanged?

Scott Betts

I’m sorry, could you repeat the question?

Chris Mammone - Deutsche Bank

Sorry. Are you still expecting Arriva to be $0.02 dilutiveto the overall business this year or have those expectations changed at all?

Scott Betts

Well, I think a big part that is obviously based on what wesee in the strategic review, given our assessment is going to be how much costwe can take out of that business I don't see it changing in terms of what ourcurrent operating loss run rate is until we make that assessment.

Chris Mammone - Deutsche Bank

Great guys. Thanks. Good luck.

Scott Betts

Thanks, Chris.

Operator

You have a follow-up question from the line of Tien-tsinHuang. Please proceed.

Tien-tsin Huang - JPMorgan

Thanks, Tien-tsin again. Any change in competitiveness fromFidelity with its gaming cash access business being up for sale and I guess, isthis also something that you see will consider buying?

Scott Betts

No, I don't think we have seen major changes incompetitiveness. We've always been fairly competitive, competed pretty hard onthe price line. Would we consider it, I am going to consider every opportunitywe have to grow the business and obviously not going to speculate on potentialdeals here, but we'll look for every way we can to grow the business.

Tien-tsin Huang - JPMorgan

So the door is open. Very good. Thanks.

Scott Betts

Yes.

Operator

Ladies and gentlemen that concludes our Q&A session. Iwould like to turn the call back over to management for closing remarks.

Scott Betts

Okay. I want to thank everybody for joining us on the calland the grace you all gave me and give me a little breather this time. Isuspect we'll have much more detailed conversation at year-end call, and I lookforward to talking to you all. Thanks a lot for joining us today.

Operator

Thank you for your participation in today's conference. Thisconcludes the presentation. You may now disconnect. Good day.

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Source: Global Cash Access Q3 2007 Earnings Call Transcript
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