Global Cash Access Holdings Q4 2007 Earnings Call Transcript

Mar. 7.08 | About: Everi Holdings (EVRI)

Global Cash Access Holdings, Inc. (GCA) Q4 2007 Earnings Call February 28, 2008 2:00 PM ET

Executives

Scott H. Betts – President, Chief Operating Officer, Secretary & Director

Kathryn S. Lever – Executive Vice President & General Counsel

Steve Lazarus – Executive Vice President – Domestic Sales

Kurt Sullivan – Executive Vice President – Check Services & Central Credit

Mark LaBay – Vice President & Controller

George Gresham – Executive Vice President & Chief Financial Officer

Mari Ellis – Executive Vice President of Technology & Development

Udai Puramsetti – Executive Vice President of Operations

Analysts

Analyst for James Kissane – Bear Sterns

Tien-Tsin Huang – J.P. Morgan

Analyst for Daniel Perlin – Wachovia Capital Markets, LLC

James Taylor – Banc of America Securities

[Reiche Parik] – KBC Financial

Analyst for Greg Smith – Merrill Lynch Christopher Mammone – Deutsche Bank Securities

Paul Carpenter – Semaphore

Rachel Matthews – Cardinal Capital Management

Operator

Good ladies and gentlemen and welcome to the fourth quarter 2007 Global Cash Access earnings conference call. My name is Tawanda and I will be your coordinator for today. (Operator Instructions) We will facilitate a question and answer session towards the end of this call. As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Scott Betts, president and chief executive officer, please precede sir.

Scott H. Betts

Good morning everyone and thank you for joining us. I trust that everyone has seen the press releases for this morning’s call, so let’s take care of some housekeeping first. I’d like to remind everyone that during the course of this conference call and the Q&A we may make forward-looking statements on matters such as financial trends, customer contract, the recruitment and retention of key personnel, new products, development of business in new and existing markets, plans for existing products, acquisitions and their anticipated benefits, and industry trends. You can identify forward-looking statements by the use of words like: estimate, expect, intend, project, plan, goal or forecast. Because such statements deal with future events, they are subject to various risks and uncertainties that may cause actual results to differ materially from the results contemplated by the forward-looking statements. For factors that could cause actual results to differ materially from those described in our forward-looking statements we refer you to our SEC filing and specifically to the Form 10Q that we filed on January 30, 2008 and the risk factors set forth therein. I’d like you to refer you to today’s press release and 8K for the reconciliation of GAAP to non-GAAP measures and a reconciliation of actual to adjusted items. Joining me here at GCA this morning are the members of our senior management team including Katie Lever our general counsel, Steve Lazarus EVP of sales, Kurt Sullivan EVP of our central credit and check services business, and Mark LaBay VP of finance and some other new members that I will introduce shortly.

A lot has transpired since our previous earnings call in November. While we have successfully met the significant challenges posed by our internal investigation and getting our third quarter filings squared away at the end of last month, it has left us a bit behind where I’d hope to be at this point. So let me level said expectations for this call, we will be requesting, from the SEC, an extension to the time for filing of Form 10K, and we currently expect to file by March 17th. As a result the financial statements that are included here are preliminary and subject to changes based on the finalization of various processes, most notably the completion of our external audit. So the financial statement included in our release today are preliminary and unaudited and could be subject to changes based on the results of this audit process.

Now before we get into the major part of the call I’d like to take a moment to comment on the events that have happened since our prior earnings call. The internal investigation that commenced on November 9th, two days after our third quarter earnings call was formally completed on December 21st. As we have previously discussed, this internal investigation did not result in any findings of fraud, intentional misconduct, nor did it result in any adjustment to our historical financial statements. So I’m happy to say that this is by and large behind us. While we did incur substantial one-time cost to complete this investigation, it’s critical to note we didn’t lose any key employees during this period, we didn’t lose any customers over this event, and as you will hear we stayed focused on the business agenda and accomplished a lot over that same period of time. To wrap this up, we’ve spoken with all the affected accounts and have reached closure on most of them, and we expect to have a timely conclusion with all our customers shortly.

Experiences like the one we’ve gone through can be terribly straining on our organization, however, these sorts of experiences also show you the true quality of the people that you have chosen to associate with. Unequivocally this experience has reinforced my confidence in and respect for the company and its people. Everyone here who was impacted by this cooperated fully and professionally, while managing to carry out their real work effectively and on time. So my message here is simple, it’s not just that the investigation finding, or lack of findings that I’m happy about, I’m also happy to have learned what I have about the GCA organization. That’s really all I want to say on this subject, it’s behind us so let’s look forward to the business.

I’d first like to review what we said on the last earnings call, and what we’ve accomplished against those objectives. First, I stated I’d focus on filling the talent needs as well as stabilizing the organization and I’m happy to report that the assembly of the company’s senior management team is now complete. I’m excited today to announce the hiring of a new chief financial officer, George Gresham, has both recently joined the company and joins us on today’s call as well. He was previously CFO of eFunds and is clearly a very accomplished and experienced professional in the electronic payments industry. We expect his strong track record of disciplined approach to all phases of the business in the financial area as well as his international experience will be a huge asset to GCA and we all welcome George today. Additionally, Mari Ellis has recently joined the company as EVP of technology and development. She brings a wealth of experience from First Data, American Express, Citibank, and most recently Blackhawk. She has an exceptional background in technology, business development and new product innovation. She will be responsible for all information reporting systems as well as assuring we have the most effective platform, network and hardware strategy in place. Mari’s deepest experience in the product development area will be key to delivering on our product innovation strategy. Similarly, Udai Puramsetti’s recent promotion and new roll of EVP of operations will strengthen our focus on delivering high quality customer service and managing costs across the operation, both areas I’m very passionate about. So the teams’ in place and I look forward to working closely with them over the coming year.

The second area we discussed on the call was the Arriva program. We have conducted a strategic review of the Arriva business over the past several months in light of the worsening credit environment and the high operating expense, we’ve made a hard decision to exit this business. We incurred an operating loss of approximately $5.5 million in 2007. While the exact plan and impact on the business is still being developed, we are considering several possible exit strategies for the Arriva business, ranging for a co-branded joint venture with an existing card issuer to a complete shutdown of this portion of our operation. We’ll work quickly to find the best solution for the company, for our customers as well as for our card holders. We expect to have our plans for departing the Arriva business finalized in the second quarter, including financial impact to operations.

The third topic we discussed prior to earnings call was growth initiatives. Obviously the lead story here is our announcement that we’ve signed an agreement to acquire Certegy Gaming Services or CGS. GCA will acquire all of CGS’s issued shares of stock for an issue price of $25 million and CGS will become a wholly owned subsidiary. In addition, GCA will replace CGS’s cash currently held at ATM machines and cages located at its customer premises. We expect we’ll gain approximately 100 employees as a result of this acquisition, most of whom will continue their employment in CGS’s in-casino booth operations. The closing of this acquisition is scheduled for April 1st subject to customary and other closing conditions. Initially we expect this acquisition to add roughly $100 million in revenue annually, and about $6.9 million in EBITDA with our expected synergies. We also expect this acquisition to be accretive to cash EPS in the first year. I believe this acquisition of CGS is a great fit for our company, it will add to our cash access ATM and check businesses and provide us access to key customers. This will also help us maintain scale necessary to advance our product innovation efforts, support our commitment to continue to meet the needs of our customers and provide the growth and cross selling opportunities we expect. We also see this move as essential for us to continue to compete effectively in the highly competitive electronics payments market, with as many players, several of whom are much larger than we are.

With respect to our ongoing core business, we continue to win contracts and our pipeline remains healthy and robust. On our EDITH product we have concrete progress to report here as well, we have received certification from the GLI for Bally’s SDS system. This is an important step in the roll out of EDITH in the Native American casino markets. Since receiving this certification we’re entering phase two field testing at Foxwoods Resort Casino with further roll out expected in the second and third quarter of 2008. We’re moving forward on equipment suppliers and plan to submit an upgraded software version to GLI to include other ticketing systems later in the year. We are now executing our strategy of gaining experience in the Native American markets as a precursor to the approval for a wider roll out of EDITH in non travel casinos.

On the international front, while relatively small today we continue to see good growth in revenues across the board. In fact, in the first four months of commencing operations in Macau we processed $90 million worth of transaction, which is approximately the equivalent to 50% of annual transaction volume in the former business in the UK. On the subject of the UK, we’re working hard to reestablish our UK business as well. In total we expect our international operations to grow about 10% over the next year, including the growth over the lost UK volume.

Finally, let me comment on our systems and compliance efforts. Throughout the fourth quarter we were able to maintain our schedule of efforts to remediate the material weaknesses in our internal controls, and the result of our SOX[inaudible] testing will be reported in our 10K. This is an important focus for our company in assuring we continue to operate at high standards. So in summary against what we talked about our last earnings call, I feel good about the progress we’ve made addressing this agenda. I also look forward to working with our new employees and customers at Certegy Gaming System. As we look forward to 2008, our attention will now be focused on the following three areas: we’ll continue to address margins through cost structure, pricing strategy and providing new value added services; second, we’ll drive innovation in our products and services; and third, improve the efficiency of our operations and platforms.

So now let’s focus on the fourth quarter. First a quick overview of the overall market trend. As we discussed in our call in November, we had seen the start of a relatively sharp drop off in our customer’s business. Those of you who follow the industry know all too well that gaming revenues reported are off across almost all jurisdictions in the fourth quarter. You will see the negative impact this has had on our run rate. However, we were not hit quite as hard because we derived our revenue from both a transaction as well as a face component. So while the industry as a whole was down in the low to mid single digits, we were up slightly at 1.5%. As we look forward this industry trend will present some real challenges for us in 2008 depending on how the year plays out. I’ll tell you currently in the first quarter, we’re seeing transaction declines in the low single digit range. Our business will always be subject to these industry trends so our strategy is to stay focused on our key initiatives outlined above and strengthen our position for the inevitable rebound of the industry.

Let me turn now to our financial results for the fourth quarter. Obviously we were disappointed in our revenues that were adversely impacted by the continued softness in the industry. The various cost of executive departures and the internal investigation weighed heavily on our income statement as well. Let me try to put these results in context for you. Overall revenue increased a modest 1.5% quarter-over-quarter. As I mentioned earlier the broader gaming industry has recently been in decline and while we are pleased our growth exceeds of the broader industry, we’ve not escaped the impact of these trends. Cash advance and ATM, our most significant source of revenue reflected very much these realities. However, cash advance volumes increased at a rate much greater than revenue and ATM volumes decreased somewhat, while the average revenue per transaction increased. Check services grew at a rate greater than the balance of the portfolio primarily due to the addition of several customers in Q4.

Gross margins for the quarter were 28.2% compared to 29% in the comparable prior quarter. Gross margins were adversely affected by losses at Arriva, somewhat offset by a better than expected collection experiences in our check warranty products and favorable commission trends. Operating expenses were $25.8 million as compared to $16.5 million in the prior equivalent quarter. This increase of $9.3 million compared to the equivalent quarter primarily was driven by about $4.3 million related to the cost of the internal investigation, and $8.7 million related to the exit of certain executives. This $13 million in cost increase was somewhat offset by $2.6 million we were awarded related to the Visa Check Master Money antitrust litigation settlement which was recorded as income and classified with operating expenses. Excluding these sorts of unusual items, operating expenses declined as compared to the prior equivalent quarter.

Depreciation and amortization increased slightly over the prior year quarter due to increased deployment of redemption devises at new and existing customers and interest rate expense decreases due to slightly lower average debt outstandings and interest rates. Our effective tax rate for the quarter was approximately 78% resulting in an annualized rate for 2007 of 41.6% compared to 38.8% for the prior year. The increase in annualized effective rate is due primarily to the non deductibility of the cost associated with the departure of certain former executives.

Rounding out the income statement GAAP net income for the fourth quarter was $0.7 million and GAAP EPS was $0.01 per share, both down from the prior year quarter due to the factors discussed above. Cash earnings per share and adjusted cash earnings per share were $0.07 and $0.16 respectively. A reconciliation of GAAP earnings to cash and adjusted cash earnings is included in our earnings release. On a year-over-year basis revenue was up 9.6% and adjusted cash earnings were up 7.1% from the prior year.

Moving on to the balance sheet, the company’s financial position remains healthy. The company had $71.1 million in unrestricted cash at December 31st. Our debt was $263.5 million and based upon our adjusted EBITDA of $110.2 million our total leverage ratio was 2.4 while our senior leverage ratio was 1.0. The average vault cash balance during the quarter was $293 million.

Capital expenditures including intangibles were $11 million for the fourth quarter of 2007. During the quarter we continued to repurchase shares pursuant to our 10B1 plan. As of December 31st we have acquired approximately 4.6 million shares for a total price of approximately $41.7 million, at a average price of $9.13 per share. As of February 11th the company had completed its current $50 million share repurchase authorization and acquired approximately 6 million shares

So overall I’m disappointed with our results from the quarter as you would expect given the softness of the industry and the cost associated with the departures of individuals, and our internal investigation, my enthusiasm and optimism for the business could not be higher. We’ve emerged from these challenges a stronger company, we have a stronger team and we are ready to capitalize on a number of opportunities that await us in the market.

Now I’d like to talk a bit about guidance and outlook. It’s clear that the gaming industry is not immune to the issues and events plaguing the broader economy. On our last call we communicated that revenues during the month of October were softer than expected and unfortunately we have seen this weakness persist during the balance of the fourth quarter. In the early part of 2008 we are seeing lower than expected growth in transactions and volume. In this softer gaming environment we will be keenly looking at operating efficiencies, new business and other strategic opportunities to cushion the financial impact of a weakening economy.

As I’ve stated before, our strategy is to stay focused on our key initiatives and get stronger to position ourselves for the inevitable rebound in the industry. So given George’s arrival only a few days ago this market uncertainty and the need to do a much deeper review internally of our operating plan, we’re deferring EPS guidance until our next call. At that time we’ll know what investments well want to make to support our initiatives we’ve spoken about, operational opportunities, we’ll have finalized our Arriva plan and have the integration of Global Gaming Services business well in hand.

So that’s the end of our prepared remarks and operator I’d now ask you to open it up to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Mr. Jim Kissane with Bear Stearns.

Analyst for James Kissane – Bear Sterns

In the quarter what was your breakdown in new signings, renewals and customer losses? Thank you.

Scott H. Betts

We don’t disclose the losses and wins and so forth at a customer level. What I’ll tell you and what I’ll reiterate is what I said in there is we lost no major customers during the quarter because of the investigation or otherwise.

Operator

(Operator Instructions) Your next question comes from the line of Tien-Tsin Huang with J.P. Morgan, please proceed.

Tien-Tsin Huang – J.P. Morgan

I have a few questions I you don’t mind. I’ll start with the CGS acquisition, definitely like that deal. Can you talk about the growth profile and the margin trend in this business to the extent that you can and are there any unusual cost that we should consider that you might need to incur as you integrate or cut over the business?

Scott H. Betts

Yeah, I can’t get that deep into the acquisition on your first part of it, they’re no major cost that we anticipate in the integration or our ability to generate the synergies as we move forward. We obviously like to acquisition for all the reasons you do, it gives us a great opportunity to increase all of our businesses, both check as well as cash advance. It also gives us access to important customer profile and we expect its growth rate and our opportunities to cross sell our products and services to work in synergy with the rest of our businesses over the next couple of years.

Tien-Tsin Huang – J.P. Morgan

Have you talked to some of their major clients to try and get a sense to what kind of revenue attrition you might see, and your ability to retain some of those customers?

Scott H. Betts

We have a high confidence in our ability to retain and maintain the extra relationships that Certegy had as we move it over to our business. We have not, obviously, been able to talk to any of the customers yet, as we just announced it today. Obviously very high on the list of Steve Lazarus work to do over the next week or two.

Tien-Tsin Huang – J.P. Morgan

Good. I guess also, did you, we like the acquisition, I’m just curious, did you contemplate the benefits of buying back stock instead of doing the Fidelity acquisition? Obviously share repurchases by our math would be highly accretive here as well. Maybe you could talk about the reauthorization if there is one down the road.

Scott H. Betts

We certainly continue to, we do as a team and I do with our board, revaluate the best use of cash for the company long term and we’ll continue to do that in terms of whether or not we start another program of stock repurchase here. With respect to the Certegy Gaming Services acquisition, that’s a unique opportunity that was in front of us, we feel very confident about the acquisition and what it can do to our long term growth so we felt that was the best thing we could do at the time and in the best interest of the company long term.

Tien-Tsin Huang – J.P. Morgan

Very good, I have two more quick questions if I could. Gross margins came in better than expected and I was happy to see that commissions were actually flat. Is this level of gross margin sustainable here as we think about the near to mid-term?

Scott H. Betts

We’re certainly going to work real hard at making that happen, as we talked last time, there is certainly a trend of slightly declining margins year-over-year. That’s an issue with the business, we’re acutely aware of, that’s why it’s the number one objective we’ve got as we look forward to 08 so we’ll be working hard to make sure that happens.

Tien-Tsin Huang – J.P. Morgan

The lower volumes the lower same store should actually ease up the commission pressure, correct?

Scott H. Betts

Yes.

Tien-Tsin Huang – J.P. Morgan

Okay. I guess Arriva, how should we expect it to flow through the P&L going forward as you look to wind down the portfolio and I guess will you also move this to discontinued operations going forward?

Scott H. Betts

Yeah we would, one of the things that you’re just going to have to give me a little bit of a break on is we just don’t know enough. It was so highly depend on how we exit and what strategies we used to exit that, and we’re obviously looking at a range of those based on what’s best for our customers, you know the consumers as well as the company. That’s why I say until we get into the next call we’ll have a lot more definition on how we do that and be able to give you a little more flavor on how that’s going to impact our financials for 08.

Tien-Tsin Huang – J.P. Morgan

Okay. It is safe to say, can we move this to discontinued operations the next time we see the P&L?

George W. Gresham

We still need to consider the implications, the decision the Board level decision related to our announcement today was made very recently. My off the cusp response is it’s unlikely to be a disc op, it’s likely to flow through the statement of operations as a onetime non-cash P&L adjustment. We haven’t quantified the size of that, but you should see that in Q1 possibly Q2 depending on the resolution of various uncertainties around the accounting.

Tien-Tsin Huang – J.P. Morgan

Okay very good. Maybe if I could just sneak in one more, the check losses. We’ve heard I guess Global Payments and FIS had some problems on the check guarantying verification side. What kind of exposure do you have there? If things continue to weaken is there some potential pressure in that business? Thanks.

Scott H. Betts

We see nothing unusual in that business over the last quarter.

Operator

Your next question comes from the line of Mr. Daniel Perlin with Wachovia, please proceed sir.

Analyst for Daniel Perlin – Wachovia Capital Markets, LLC

A couple of questions that are somewhat follow-ups. First, in terms of the gross margins, can we look at the fourth quarter as kind of a pretty good base level meaning now that we’ve gotten the investigation behind us we got sort of the commission issue behind us that this is a pretty good level to think about going forward?

Scott H. Betts

Yeah, that’s probably fair, again I’ll just caution you and give myself a little flexibility when we talk again next time that we’re really pulling together our plans for 08 and what we see including the integration of the Certegy Gaming Service business given that yeah I would look at it that way.

Analyst for Daniel Perlin – Wachovia Capital Markets, LLC

And then when we think about the acquisition, I guess when Fidelity bought it, it was kind of 70% cash advance, 10% ATM, 10% check. Is it still running at about that kind of breakdown?

Scott H. Betts

You said it was 70% cash advance?

Analyst for Daniel Perlin – Wachovia Capital Markets, LLC

Yeah we had in our notes going back to when Certegy bought it I should say it was 70% cash advance, about 10% ATM and about 10% check. I just wanted to see how it sort of changed over three and a half years, four years now?

Scott H. Betts

Call it 60-30-10 right now against those numbers.

Analyst for Daniel Perlin – Wachovia Capital Markets, LLC

Okay. Obviously those will move around a little bit. And then two more questions if I might. The add back for the non-cash stock comp is there any way of backing out the charges from previous management and things like that to kind of get a fourth quarter sort of ongoing run rate? Don’t know if that question made sense?

George Gresham

It’s about 2.4 a quarter going forward right now.

Analyst for Daniel Perlin – Wachovia Capital Markets, LLC

Okay thank you, and then the final questions, and you may not have this data yet. The EBIT by segment. Do you happen to have that given that the K is not due out until I think you said middle of March?

Scott H. Betts

No Matt not yet.

Operator

Your next question comes from the line of Mr. James Taylor with Banc of America Securities, please proceed sir.

James Taylor – Banc of America Securities

I guess first on the Certegy acquisition, was the $6.9 million EBITDA number that you cited, that was after expected synergy, or was that the actual EBITDA?

Scott H. Betts

That includes the synergies.

James Taylor – Banc of America Securities

Okay. I was going to say that would be a very good multiple if that was the actual number. Have you guys finalized the vault cash agreement , I guess with us, with B of A?

Scott H. Betts

Yes.

James Taylor – Banc of America Securities

It obviously included the flexibility for the Certegy cash?

Scott H. Betts

Yes.

James Taylor – Banc of America Securities

And what’s the rate on that?

George Gresham

LIBOR plus 25.

James Taylor – Banc of America Securities

L plus 25, very good. Could you tell us what the receivables are for Arriva right now or just how we should think about when you’re winding the business down if there’s any potential cash costs and how much is on your balance sheet versus how much you sold?

George Gresham

Well, the current receivable balance is close to $16 million as far as cash costs. We don’t expect significant severance in those types related shut down costs. In terms of you know what’s on the balance sheet versus you know what we might move off that plan is still in the works.

James Taylor – Banc of America Securities

Alright very good. Then just finally can you just give us a sense for the size of the Macau opportunity, I guess I’m still trying to get a sense for how much of the cash on the gaming floors there are customers bringing with them, especially from Mainland China? So what sort of, I guess, legal or currency restrictions how that kind of dictates what you can and can’t do and then sort of what your strategy is going forward there?

Scott H. Betts

That’s an obviously a very early business for us, we’re just in that market. I really can’t predict how that’s going to play out. There’s certainly an awful lot of building going on there, awful lot of new properties, we like the fact that we’re there and operating today. We’ll just all have to see how that grows over time. Sorry I can’t be any more specific than that today.

James Taylor – Banc of America Securities

That helpful, just one last thing. Is there a restriction in the bank agreement on the amount of stock you can buy back?

George Gresham

Yes there is.

James Taylor – Banc of America Securities

Are you guys at that limit right now?

George Gresham

Yes.

Operator

Your next question comes from the line of [Reiche Parik] with KBC Financial, please proceed.

[Reiche Parik] – KBC Financial

I was wondering if when you guys are talking about some softness going into the first quarter if you could comment on any regional impacts that you’re seeing? Any place that you’re seeing that are weaker or stronger than others?

Scott H. Betts

I don’t have the breakout by jurisdictions with me right know, I’d suspect you’d see our business pretty much track that of the differences within all of the reporting jurisdictions from a current standpoint.

[Reiche Parik] – KBC Financial

There’s some observers out there that might try to suggest that this is isolated sort of weather impart or that it is largely confined to jurisdictions like Atlantic City. Would that be consistent with what you’ve seen sort of observational?

Scott H. Betts

No we’ve seen it broader than that.

[Reiche Parik] – FBC Financial

Okay. And in terms of contracts historically you’ve been able to give us a sense of what you market share was and what your targets were. It’s probably hard for you to do that internationally, but maybe in the US you could tell us sort of what you think your market share of transactions are and where you think that could go over time?

Scott H. Betts

No I can’t, I have no way of doing that. There’s no recorded number I know that would give me that number.

[Reiche Parik] – FBC Financial

Okay, and are you able to say how much the synergies were that you’re putting into that $6.9 million for the CGS transaction?

Scott H. Betts

No we did not break that out at this time.

Operator

And your next question comes from the line of Greg Smith with Merrill Lynch, please proceed sir.

Analyst for Greg Smith – Merrill Lynch

I was just wondering if you could comment on the UK business, you mentioned that you’re still working on it. It there any possibility that it actually comes back? And what type of efforts are you putting into the whole initiative?

Scott H. Betts

You know we’re continuing to work over there to see what our opportunities are with a business we like, it was a great business for us. You know we’re going to continue to stay close to how things change over there for opportunities we can exploit in the future. It’s really about all I can tell you right now.

Analyst for Greg Smith – Merrill Lynch

Okay, and then we understand that tough industry trends you’ve seen slowing same store sales growth. Do you have any new contracts that are coming up that are going to begin ramping in the next quarter or two that could help your growth be better than the 2% that we saw on the top line this quarter?

Scott H. Betts

To the extent that major contracts come on or get signed, we’ll always evaluate whether or not we even want to announce those. Again, we’re very pleased with our ability to maintain our customer base through this last quarter, continue to sell and be aggressive in the market place and I’d just have you think about it as we’re going to be doing about what we’ve been doing in the past.

Analyst for Greg Smith – Merrill Lynch

Okay. And then we’ve seen LIBOR come down. How does that affect your 2008 numbers with all the cash that you have in your ATMs?

George Gresham

As LIBOR goes down interest expense goes down.

Analyst for Greg Smith – Merrill Lynch

Can you quantify that?

George Gresham

We give you the average balance, you can look at our average balances per quarter whenever you think LIBOR is going to go down times our average balance is probably your best model.

Analyst for Greg Smith – Merrill Lynch

Can you remind us what the average balances were?

George Gresham

I think we said in this call 292 is your average in the fourth quarter, I don’t have the other quarters in front of me to tell you. But in all of our filings in our Qs and MD&A we typically have been reporting that number so you can go back to look at it.

Analyst for Greg Smith – Merrill Lynch

Okay great. Last question, on the Q that you filed recently, on the front cover you had 83 million shares. Did you actually issue shares from the end of December to the end of January or what’s the discrepancy there?

George Grisham

[Inaudible] of treasury stocks that we have with restrictive stocks and common stocks out there.

Analyst for Greg Smith – Merrill Lynch

So the 83 includes that.

George Gresham

Yes. And the option exercises that happen from time to time would also be in that number there.

Operator

Your next question comes from the line of Christopher Mammone – Deutsche Bank Securities, please proceed sir.

Christopher Mammone – Deutsche Bank Securities

I know it’s a relatively smaller part of the overall pie, but just wondering if you’re seeing some of the same types of slowing conditions in international markets that you’re in today? And I guess as a follow up to that should we expect you to enter any new international markets in 08?

Scott H. Betts

No on your first question, we do not see the same similar trend internationally, and you’re right it is a smaller part of our business. We’re going to continue to be smart about where we choose to look at our business opportunities, not only where there are casinos but where there are card basis and where our business model works. So we’ll let you know when we start to enter any new markets.

Christopher Mammone – Deutsche Bank Securities

Okay and then any notable changes in the competitive environment? Recently, I know that [inaudible] recently got GLI approved for the power cash and seems to be gaining some momentum at least in the travel markets. Are you seeing anything competitively?

George Gresham

No, they certainly have, we’re very pleased that we’re in that same process with EDITH right now and in our phase two roll out at Foxwood we expect to continue to move that. I think those are both important initiatives in the market place. But other than that no it’s always been a very competitive business and it’s going to continue to stay a competitive business.

Christopher Mammone – Deutsche Bank Securities

Okay, and maybe just as a last question, with the new CTO on board maybe you get a sense for the new CTO’s early views on what holes may be exists on products today that can be addressed in the future?

Scott H. Betts

You know, we’re in the process of developing a strategy now for really three major areas, not only our information systems, but also our network and operations and hardware part of it and are looking closely to with the right types of platforms and areas where we thing we can enable faster and better innovation. That’s really what the focus is going to be. And again, all these individuals has just recently kind of joined the team so we look forward to laying out our strategy and our plans in more details as we move through the year.

Operator

Your next question comes from the line of Paul Carpenter with Semaphore, please proceed sir.

Paul Carpenter – Semaphore

Can you answer a few strategic questions please. For Arriva could you talk with what EBITDA loss is for that business and if you did decide to shut it down, what you would recoup?

Scott H. Betts

We did mention in the prepared remarks that the operating loss for the year was $5.5 million. As far as what the loss could be again, it’s a function of a number of factors, one the exit strategy, two to the extent we do have to sell receivables, whether they’re current or whether they are call it 90 days and beyond. That’s more of a market driven phenomenon so we hope to have a better range for the next call. Again the receivables liquidation, if it comes to that, is more market driven.

Paul Carpenter – Semaphore

I have another question about the business that you’re acquiring, Mr. Gresham worked for eFunds which was then acquired by FIS, is that a business that he had some exposure to while his company was acquired by FIS and has that been a reason you bought it or is that an added benefit to you in being able to understand it, because of the historical relationship?

George Gresham

I’ll just answer the first part, as part of the transaction with FIS and eFunds there was no exposure to that business whatsoever, of course due to the FIS enterprises business quite small so it never crossed my desk in any way while I was at eFund.

Paul Carpenter – Semaphore

Do you expect your relationship with them to be any kind of added value in evaluating this business, understating it and growing it, or is it completely different from the eFunds business?

George Gresham

eFunds was engaged in between 2002 and 2004 in businesses very similar to a different sectors and so from that experience it brings some familiarity with respect to that business as well as GCA’s business and I have what I like to think of as a lot of positive relationship with folks over at FIS that should always kind of help business. But really nothing specific to this acquisition and I of course was not an employee at GCA during the time of the negotiation or assessment or evaluation of this acquisition. So I heard about it just a little bit before you did.

Paul Carpenter – Semaphore

Thank you and just one final question. I know you don’t want to detail the amount of synergies that are baked into your evaluation of how much you can get from the business, but can you talk about how quickly you’d expect them to be realized? Is this something that could happen in a quarter or over 12 months, what’s the time frame?

Scott H. Betts

We would expect to have the business fully integrated in three to six months.

Paul Carpenter – Semaphore

And the full synergies available by that time?

Scott H. Betts

Yeah, by and large that’s probably true

Operator

(Operator Instructions) You next question comes from the line of Rachel Matthews with Cardinal Capital Management, please proceed.

Rachel Matthews – Cardinal Capital Management

I just wanted to follow up with some more questions on the CGS acquisition just because I’m not that familiar with their business. But I know you’re giving a $6.9 million in EBITDA and synergies on the $100 million in revenues which implies about a 7% EBITDA margin which is much lower than the company’s margins. I’m just wondering how different is this business? What’s different about it that their margins are much lower?

Scott H. Betts

First and foremost they have a different product mix than we have, that’s the biggest driver to our blended margins. They have a slightly different portfolio of customers than we do, those are the major factors that influence that. As we bring these businesses into ours and our customer relationships are brought into Global Cash we’ll look for opportunities where we can cross sell our full suite of products and services and would expect on like size and types of businesses that the margins on this business will trend to where we are in our base business.

Rachel Matthews – Cardinal Capital Management

How different are the customers? Is it a smaller customer? Are they more Indian Casino? How different are the customers, if you could just quantify that?

Scott H. Betts

I can’t give you a number , what I’ll tell you is that it’s got a fairly different portfolio of products and services at which customers that those product and services are delivered. So that’s really the biggest piece, today I’m not going to go into any kind of by product line comparison of margins.

Rachel Matthews – Cardinal Capital Management

And then finally, what kind of cash flow implications will we see in the first quarter? Obviously the $25 million outflow for the company, but then for the cash that your putting in for the business. Is that a working capital outflow of the other $75 million or where will we see that money coming out?

George Gresham

We’re going to draw that out of the revolver in the first quarter you’ll see just to keep our working capital kind of neutral until we transition all the site funds and ATM funds on to our existing B of A vault cash platform. You’ll see a short term drawdown on the revolver until our leverage go up, until we transition these locations over. But that will be a three to six months transition period [inaudible]. Rachel, just to add to that we paid down the revolver as we plan currently as the leverage comes back up.

Operator

At this time there are no further questions in the cue. I would like to turn the call back over to Mr. Scott Betts for the final remarks.

Scott H. Betts

Thank you all for joining me today, like I said this has been a bit of a strange journey for me over the last three or four months but I remain extremely enthusiastic about the business. I’m very pleased with the talent we have now running the business and I really look forward to talking to you guys as 2008 unfolds. So everybody have a good day and we’ll talk to you in a couple months.

Operator

Ladies and gentlemen than for joining in today’s conference, this concludes the presentation you may now disconnect and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!