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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 Credit and 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 Third Quarter 2007 Global Cash Access Earnings Conference Call. My name is Sean, and I will be your coordinator for today.

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

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

Scott Betts

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

With me today at GCA are several members of the Senior Executive 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 from GCA. Kirk has been a member since GCA's Management team since the Company's inception over a decade ago, and I would like to start the call by thanking Kirk on behalf of the board for his measurable contributions in building GCA into the gaming industry leading Cash Access provider.

In 2004, I had responsibilities for GCA in my capacity as President of First Data Corporation's domestic enterprise payments unit. At the time GCA was a majority-owned subsidiary of First Data Corporation, and Kirk and 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 to have the opportunity to lead GCA forward into the next phase of growth, and I look forward to continuing the legacy of innovation and trust that has built this Company in the past.

Over the next several months I am also looking forward to meeting at length with the members of the analyst community as well as our valued shareholder base.

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

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

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

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

For other 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 8-K covering our recent earnings 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-K for reconciliation of GAAP to non-GAAP measures and a reconciliation of actual to adjusted items. Let's get to it.

First let's cover our financial results. We had solid results in Q3 generally in line with our expectations. Revenues were $156.6 million, cash EPS was $0.14, and adjusted cash EPS, which excludes stock compensation 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 solid growth.

Cash Advance revenue was up 9.2% driven by an 11.5% growth in 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 per average transaction.

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

Gross margins for the quarter were 28.1% despite being adversely affected by the loss from Arriva offset by better than expected collection experience in our check warranty products and a favorable commission trend from several of our customers that have made the decision to waive fees to their patrons.

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

Moving further down the income statement, operating expenses were $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 departure of a member of our senior management team.

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

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

Interest income dipped slightly to $1 million from $1.2 million 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 last year. Interest on our borrowings was down approximately $1.3 million while ATM interest was down approximately $100,000.

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

By then adding back the $3.9 million of after tax, non-cash compensation 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 produces the cash EPS of $0.14 and the adjusted cash EPS of 19% as we reported earlier.

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

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

During the quarter we continued to repurchase shares pursuant to our 10-B-5 plan. As of October 31, we had repurchased approximately 2.4 million shares for a total purchase price of approximately $27.9 million at an average price of $11.65 per share.

Net we had solid performance across our financial measures for the quarter, and now I will move on to talk about our key business initiatives.

As usual we continue to have a solid track record of renewals and new wins. During the quarter we renewed three contracts. We signed ten new customers and lost three existing customers. The pipeline for new business possibilities continues to look promising, and we feel confident in our ability to continue to win additional business.

The migration of our ATM business to redemption kiosks continues to gain traction. At the end of September we had 635 redemption devices active in our 3-in-1 service. That's in addition to 129 additional machines in the quarter.

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

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

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

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

So our strategy is to aggressively roll out EDITH in these markets as we gain momentum in California, Arizona, and New Mexico, we expect Nevada operators to feel competitive pressure to offer EDITH and that GCA will have a further opportunity to resubmit EDITH for approval.

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

So we will perform a thorough and strategic review of this business quickly, and assess how we're going to operator this business on a go-forward basis. We'll have more to say about this on our next call. For perspective 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 our cumulative charge off totaled approximately $1.9 million.

On September 1, the company's casino customers in the United Kingdom discontinued the provision for the company's Credit Card Cash Advance services. As a result of an interpretive concern arising from the 2005 Gambling Act going into force.

Although, we cannot predict if or when the U.K. Casinos will resume Credit Card Cash Advance services, we do not expect the casinos to do so until the U.K. Gambling Commission or the U.K. Judiciary takes a formal position that the company's Credit Card Cash Advance services do not violate the gambling act.

To be sure this is important as an important issue to us and we will continue to pursue all avenues to say facilitate a favorable resolution. 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 very promising. In late August, the company successfully completed deployment of our Cash Advance and Redemption services solutions at Galaxy Starwood and the Venetian Macau.

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

With this sponsorship deal we're excited about the opportunity to provide our Cash Advance services within casinos in South Africa. One of the world's largest or one of the fastest-growing gaming markets.

So we see both of these markets as being great growth opportunities in the coming years. So in conclusion, I'm excited about the opportunities as we close out 2007 and look forward to 2008. I realize there have 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 that we've talked about here today, and relentlessly pursuing growth opportunities in the coming year.

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

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

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

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

Events may occur and circumstances may change in a way that would alter the things that affect our guidance. Factors that affect our business and therefore our guidance include but are not limited to economic growth, interest rates, political development, regulatory development, expansion of gaming in new jurisdictions, the retention and addition of our customers, interchange and other impositions of the card associations, and the products 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 or the factors that contribute to it. So that's the end of my prepared remarks, so operator I'd like to now open it up to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of 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, what kind of contribution did it have in the quarter, and what should we expect in 4Q? Sound like it ramped up enter quarter?

Scott Betts

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

Tien-tsin Huang - JPMorgan

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

Scott Betts

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

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

Tien-tsin Huang - JPMorgan

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

Scott Betts

No. There is no question, and we stated this no the prior call that we have seen delays in the timing of new business. It is somewhat an art 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 have to make an assessment of based upon input from the property and our own assessment of the growth in that market. That trend as you've said, that trend has somewhat weakened. We're watching it very closely in this quarter to assess how 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 growth did you see in October and I am just trying to think how we should recast our thinking on same store growth in 2008?

Scott Betts

I’ll give a little broader color and put that in perspective. We started to see some same store weakness right around the time of the Labor Day weekend. We looked at the year-over-year comparison of Labor Day 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 as October goes, I will broadly just state that we believe the same-store trend was in the low single-digits.

Tien-tsin Huang - JPMorgan

Okay. Low single-digits. Got you. I am assuming most of this is 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 heard you mention that certain casinos were waiving ATM fees. I understand this helps margins.

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

Scott Betts

That's something that might defer to subsequent call. I will mention one particular property in Michigan just to give you a little bit of associated color. That was a new property. We were expecting monthly revenues in 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 a normal fee scenario our revenue estimates probably would have been relatively accurate.

Tien-tsin Huang - JPMorgan

Right.

Scott Betts

Therefore, you can use some induction to basically see that optically that boosts the margin quite a bit and probably would have helped us to 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 with Bear 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 the press release about other members of the management team being terminated.

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

Scott Betts

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

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

Jim Kissane - Bear Stearns

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

Katie Lever

Currently patrons in the U.K. market are receiving cash directly from the on the gaming floor. They have some access to ATM devices and otherwise they can establish a market facility or bring cash into the casino with them.

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

We haven't seen or heard anything on a regulatory perspective that would lead us to believe that there is any other jurisdiction that's going to be taking a similar stand to that which has been taken in the U.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 of credit cards on the casino floor.

Jim Kissane - Bear Stearns

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

You could consistently gain share. Has the competitive environment changed, the pricing environment, the service quality, the functionality 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 very aggressively bidding on deals.

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

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

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

I think it has always been a very competitive market. I think it is going to continue to be a competitive market, but I think I am pretty convinced we've got tools that we should be able to fend for ourselves pretty 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 with Deutsche Bank. Please proceed.

Chris Mammone - Deutsche Bank

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

Scott Betts

I don't think the outlook is necessarily changed. I think as far 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 fourth quarter, I think, we're expecting a relatively similar amount to what we experienced in the third quarter, the difference being that again there is that uncertainty especially going into year end seasonally and in the gaming market in December it is much more difficult to get contracts finalized as people move into the holidays. We want to account for that.

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

Chris Mammone - Deutsche Bank

Okay. And then on gross margins, I guess we're surprised to see 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 expected check warranty expense approximately 300,000 of excess accrual of the Mandalay impact.

And lastly is the benefit that we spoke about of dramatically waived fees at new properties, which has basically an optical effect 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 with Cowen 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 the areas 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 growth rates this company has experienced in the past. I mean that’s really what our focus 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 going to continue to focus is we're going to make sure we've got the right sales focus and the right tools for our sales people to go out and not only sell and win new contracts but get better cross-sell and more products and into more of our customers.

I think this is a processing business and we ought to be getting scale on the operations side of it, so I will make sure that we continue to see that opportunity and realize at that opportunity as we move forward.

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

And then we're going to continue to aggressively look at new growth opportunities and certainly geography is one that comes right at the top of the list. There is obviously we're very excited about what's going on in Macau.

We think South Africa has a lot of opportunity. There is certainly opportunity to win contracts we don't have here in the U.S. So I think 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 of focus 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 some of these to actually be able to expand into some of these initiatives or are you comfortable with the infrastructure have you today?

Scott Betts

I am going to ask for your indulgence in that question at day four, okay? I don't want to duck it. I just want to give you a quality answer. I really don't know. Like I say, I am familiar with the business used to 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 our strategic plan and our business plan for '08, why don't we talk about that on the next call.

Moshe Katri - Cowen and Company

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

Scott Betts

Again, I hope to give you complete outlook into what those plans look like. Frankly, whether the trend continues or not we're looking aggressively at our costs. I can say I have a very firm belief these are scalable businesses and we ought to be able to leverage that. I just don't know enough that I want to say on this call because I want to make sure I give you a good answer on that.

Moshe Katri - Cowen and Company

Okay. And that's fair enough. Given the management changes in the business during the past in the Company just recently, have you been communicating with your top 10 customers and are they comfortable with what's going 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 takes away from this call is we're really about getting into a part where we're now stabilized, we think we have the right people in the right places.

We're excited about the business. We have a big show coming up next week here in Las Vegas, it will be a great opportunity. I am going to be there and make sure I meet with all the top customers I possibly can. I am certainly 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 everybody focused on the future so, and here so far I don't see any issues at all with that.

We have a great organization here, a lot of talent, the few customers I have had a chance to talk to already really see GCA as a great expect moving forward so. I think we're in good shape on that, but it certainly requires 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 a number 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 estimates moved 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 Grausam with Goldman Sachs. Please proceed.

Elizabeth Grausam - Goldman Sachs

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

Scott Betts

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

Elizabeth Grausam - Goldman Sachs

Okay.

Scott Betts

We have internal targets we're looking at and aggressively going after. I will tell you we do have an identified list of opportunities we're going after, have people against them, time frames against those. I don't know which ones, a majority of those will probably fall out of Q4 into the following year. It just takes time to get some of these things executed, but you just need to know we're focused on it.

Elizabeth Grausam - Goldman Sachs

Okay. Perfect. And the other thing I have on the stock-based compensation side, you said it is around $8.2 million. What percentage of that will 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 the line of Tony Wible with Citi. Please proceed.

Leo Coll - Citi

It is actually Leo Coll sitting in for Tony. Just a quick question on a -- could you update us what's going on there and if you can update 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 in the -- when we covered the business. Currently as of the end of September we had a little shy of 10,000 accounts. We had 9,614 accounts. Okay. We've done about $38.8 million in cash advances, and cumulatively on the charge-offs we're at $1.9 million.

Leo Coll - Citi

Okay. Thank you.

Scott Betts

You bet.

Operator

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

David Parker - Merrill Lynch

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

Scott Betts

Yes, we can. One customer has not actually left. We received notice 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 two customers 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 their departure?

Scott Betts

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

David Parker - Merrill Lynch

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

Scott Betts

Sales was not impacted at all. The other departures were primarily 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 on the 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 actual opportunity in that region and are you expecting any contribution in 2008 from any wins?

Scott Betts

I am hesitant to make any sort of projections. We're in the early stages in that market. The bank sponsorship agreement is a very early step 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 little more guidance to both the magnitude and timing of that market opportunity.

David Parker - Merrill Lynch

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

Scott Betts

Well, in terms of current revenue we are deployed at a large casino customer in Southern California. That is our current beta or field trial. The revenue impact is minor, it’s only I put it in the order of 30 or 40,000 per quarter.

As far as expectations for '08, again we did say in the prepared remarks that we are optimistic about our deployment at Foxwood in the first quarter of '08, and again as we get closer to realization of that goal, I prefer 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 Chris Mammone. Please proceed.

Chris Mammone - Deutsche Bank

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

Scott Betts

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

Chris Mammone - Deutsche Bank

Yeah. Sorry, I just wondered if you're able to gather anybody 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 within the Company and with in the industry, and I am very comfortable with the fact that 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. What market 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 part of the business to be about $0.02 dilutive this year or have your expectations changed?

Scott Betts

I’m sorry, could you repeat the question?

Chris Mammone - Deutsche Bank

Sorry. Are you still expecting Arriva to be $0.02 dilutive to 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 we see in the strategic review, given our assessment is going to be how much cost we can take out of that business I don't see it changing in terms of what our current 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-tsin Huang. Please proceed.

Tien-tsin Huang - JPMorgan

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

Scott Betts

No, I don't think we have seen major changes in competitiveness. We've always been fairly competitive, competed pretty hard on the price line. Would we consider it, I am going to consider every opportunity we have to grow the business and obviously not going to speculate on potential deals 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. I would 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 call and the grace you all gave me and give me a little breather this time. I suspect we'll have much more detailed conversation at year-end call, and I look forward to talking to you all. Thanks a lot for joining us today.

Operator

Thank you for your participation in today's conference. This concludes 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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