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Multimedia Games, Inc. (NASDAQ:MGAM)

F3Q 2012 Earnings Call

July 31, 2012 9:00 am ET

Executives

Jerome R. Smith – Senior Vice President, Chief Compliance Officer, General Counsel and Corporate Secretary

Patrick J. Ramsey – President, Chief Executive Officer, Director

Adam D. Chibib – Chief Financial Officer, Senior Vice President

Analysts

Todd Eilers – Roth Capital Partners LLC

Steve Altebrando – Sidoti & Company LLC

David O. Ehlers – Las Vegas Investment Advisors

Steven Henry Neren – Brill Securities, Inc.

Operator

Good day ladies and gentlemen, and welcome to Multimedia Games Third quarter 2012 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder this conference call is being recorded.

I’d now like to hand the conference over to Mr. Jerry Smith. Sir, you may begin

Jerome R. Smith

Thank you. Good morning. I'm Jerry Smith, General Counsel and Chief Compliance Officer of Multimedia Games. Today’s call and webcast contains certain statements about future events and expectations which are characterized as forward-looking statements within the meaning of the applicable securities laws including without limitation the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current belief, assumptions and expectations of our future economic performance taking into account information currently available to us.

Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial condition to be materially different from the expectations of such results, performance or financial condition. Please refer to the Risk Factors section in todays and our other recent SEC filings for description of certain of these risks and uncertainties. The company does not undertake and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Today’s call and webcast may include non-GAAP financial measures such as EBITDA, free cash flow, cash generation, net cash position and net capital expenditures, all within the meaning of Regulation G. A reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the company’s press release and 8-K filed today and posted on our website www.multimediagames.com, in the investor relations section.

Financial and operating metrics provided during today’s call and webcast maybe approximated. Please refer to the company’s financial statements as provided in today’s SEC filings and earnings release for more definitive numbers.

Now I’d like to turn the call over to our President and CEO, Patrick Ramsey.

Patrick J. Ramsey

Thank you Jerry and good morning everyone, thank you for joining us on this call. With me this morning are Jerry Smith, our General Counsel; Adam Chibib, our Chief Financial Officer; and Joaquin Aviles, the Vice President of Technology. Mick Roemer, our Senior Vice President of Sales has joined us telephonically from Las Vegas.

This morning we reported revenue of $40.5 million for our third fiscal quarter of 2012, compared with $33.4 million in the same quarter of 2011, reflecting 21.2% growth. In addition, we reported significant increases in both EBITDA and EPS, as EBITDA grew from $14.8 million last year to $19.2 million this year, reflecting year-over-year growth of 29% and EPS grew from $0.10 last year to $0.25 this year.

We are quite proud of the financial results and we believe that the release this morning demonstrates Multimedia Games’ progress and the success we’ve had in achieving our strategic initiatives.

The stability we have established in our core businesses as well as our ability to grow our company profitably remained evident in our results. As well, we are feeling more confident as we have established our ability to create successful products for entering the new markets against formidable competition.

In fact, we have recently surpassed 10,000 games in our recurring revenue footprint and this critical component of our business has continued to grow each quarter for almost two years. In a moment, I’ll provide comments on the four key strategic initiatives we laid out a year ago, and Adam will provide some detailed perspective on the financial results and guidance.

But first, I’ll like to discuss an important overarching achievement of our team throughout this year. Given the levels of revenue growth and our transition to being a profitable company, we feel we’re making a profound transition in our business, which has some very important implications. Almost all of these implications are very exciting for us, with exceptions of our company prospectively paying significant taxes for the first time in many years, as is evidenced in the earnings guidance we issued for 2013 along with our results today.

There are two commonly known absolutely unavoidable requirements in life and we are all through packed with the other one. In all seriousness, we want to make sure we continue to be clear about this dynamic game business outlook and Adam will talk more about it in a moment.

So let me begin by discussing the key strategic initiatives. Our first initiative has been to increase MGAM’s footprint in the U.S. and to this end we are increasingly successful. As I mentioned, we crossed a major milestone this quarter as our installed base exceeded 10,000 units for the first time in two and half years. This was driven by the introduction of new Class II and Class III games in our core markets as well as new markets.

In particular, we have accelerated placements of our new premium High Rise Games of which we had 97 games played at similar level last quarter. We are particularly excited about this product given the performance on the casino floors to-date, expanding power within our install base and strictly what it represents, our first foray into the premium participation segments.

In the for-sale category, we sold 543 units into 12 states in the quarter and we continue to expand geographically. We expect progress to continue in this category as we continue to obtain new licenses over time and begin expanding into new markets. Most important we feel our addressable market and our penetration within these markets remain in the early stages of expansion.

Second we continue to progress appraising our own gains in our largest customer facility within the ticket examination. In fact fairly recently, our own games became the largest portion of that footprint as we now have over 2,000 MGAM games at the properties and we have managed to do so, while still focusing on our revenues in that footprint. This has been an important strategic and financial accomplishment for our company.

Third, we’re creating breakage in technologies from TournEvent to Side Action to our High Rise Games through our most recent progressive to some of our newest mechanical wheels in our standard video games. We continue to expand our portfolio to support future growth. In addition, we have a pipeline of new games that should bolster our operation, increasing yield on our installed base within our Class II and Class III markets.

The ultimate goal of our game development is to increase our own returns on capital investments and to help our customers make more money, and we’re determined to do so.

Finally, we’ve been focused on disciplined growth within our increasing financial capability. We plan to continue to invest in our R&D as we believe this is a critical area for us and we will continue looking for ways to deploy our cash and (inaudible) for our shareholders.

With that, I’ll turn it over to Adam for a review of the financial results and some perspective on our 2013 guidance.

Adam D. Chibib

Thank you, Pat. Revenue for our fiscal third quarter totaled $40.5 million, an increase of $7.1 million or approximately 21% year-over-year. The year-over-year revenue growth came from an increase in unit sales and an increase in our gaming operations business in all market except Mexico.

Our fiscal third quarter revenues include the sale of 543 gaming units, with revenues totaling $10.4 million versus 251 units and $4.4 million in revenues in the prior year period. Unit sales occurred in 12 states, with Washington and Florida accounting for 40%of the sales, followed closely by California and Mississippi.

During the quarter, we added Ohio to the list of our states with unit sales, bringing our total number of states with sold units to 18. Gaming operations revenues for our fiscal third quarter totaled $28.4 million, an increase of $3.9 million or approximately 16% year-over-year. The increase in year-over-year gaming operations revenue is attributable to the increase in revenues from our New York Lottery business and the continued growth in our domestic installed participation base.

The increase in gaming operations revenue were partially offset by a reduction in revenue from Mexico, down $1.5 million year-over-year. New York Lottery revenues grew by $1.7 million or approximately 69% year-over-year driven by the opening of Resorts World and Queens and the addition of electronic table games and extended hours at Yonkers Raceway.

Our domestic installed base was 10,149 units at the end of fiscal Q3, an increase of over 12,000 units or approximately 14% over the prior-year period, and an increase of 258 units or approximately 3% on a quarterly sequential basis. As of the end of our fiscal third quarter, the company had 97 High Rise Games in revenue outside of Oklahoma, which is up from 11 units at the end of our fiscal second quarter.

Gross margins for the fiscal third quarter were approximately 83%, which represents a slight improvement over the prior-year period and slightly lower than the 84% recorded in our fiscal second quarter.

Selling, general and administrative expenses for our fiscal third quarter, were $12.1 million, an increase of $1.6 million or approximately 15% from the prior period, and down approximately $1 million or 8% on a quarterly consequential basis. The year-by -year increase in SG&A expenses as related to higher compensation, as we continue to add sales and service personnel throughout the U.S. and higher variable compensation related to commissions and benefits. The sequential decrease in SG&A is attributable to lower promotional and legal fees during the quarter.

Research and development expenses were $4.1 million, an increase of $758,000 or just under 23% from the prior year period and that’s $194,000 or 5% on a quarterly sequential basis. The year-over-year and the quarterly sequential increase in research and development expenses is attributable to higher salary events and expenses as they continue to invest in the training and attracting engineering personnel and most recent games commission cost paid at testing labs were again attributable in an increased number of jurisdictions.

Depreciation and amortization expense for our fiscal third quarter was $9.5 million, a decrease of $697,000 or approximately 7% from the prior year and was consist with the previous quarter. Year-over-year decrease in depreciation and amortization expense is attributable from lower capital expenditures from fiscal 2010 and fiscal 2011.

Income tax expense for the quarter totaled $452,000 with an effective cash tax rate of just under 6%. We expect our cash tax rate for the second half of fiscal 2012 to range from 4% to 7% of pretax income.

Looking forward to fiscal 2013, we expect our effective tax rate to range from 36% to 40%.

Net income for our fiscal third quarter was $7.2 million or $0.25 per diluted share compared to net income to $2.8 million or $0.10 per diluted share in the prior year period.

EBITDA for our fiscal third quarter was $19.2 million, an increase of $4.4 million or approximately 29% from the prior year period, and up $900,000 or approximately 5% on a quarterly sequential basis.

We continue to generate cash, even as we invest back into the company, with the expansion of our proprietary unit footprint and continued repurchases of our existing footprint. During the fiscal third quarter, we invested $12.3 million in net capital expenditure to expand and refresh our existing footprint.

We’ve made no share repurchases under our repurchase program. Since the inception of our repurchase program in December 2010, the company has purchased a total of 2.2 million shares at an average price of $5.36 per share.

Our fiscal third quarter end cash balances totaled $68.3 million, an increase of $10.6 million from our fiscal second quarter, and up $19.1 million from the quarter end balance in the prior year period. The company is currently in a net cash position which is defined as total cash in excess of total debt of $33.6 million.

As a result of our strong fiscal third quarter, we have increased our earnings per share target to a range of $0.86 to $0.90 per diluted share. For the full-year, we believe revenues to be in the range of $152 million to $154 million with unit sales in a range of 1,800 to 1,900 units.

Looking forward to fiscal 2013, the company expects revenues to range from $163 million to $170 million with fully diluted earning per share ranging from $0.60 to $0.65. A year-over-year decrease in earnings per share relates to significant increase in our expected federal income tax rate. Our effective cash tax rate for fiscal 2012 on a full-year basis is less than 1% of our pre-tax income and we expect that rate to increase to 36% to 40% for fiscal 2013.

We’ll give additional fiscal 2013 operating metrics on our fiscal fourth quarter conference call in November. We’re pleased with the progress we’ve made with respect to cash flows, unit sales and gaming operations for the quarter.

I’ll now turn the call back to Pat for some additional commentary before we get to Q&A. Pat?

Patrick J. Ramsey

Thank you, Adam. Before we take questions, I want to summarize where we are now that our fiscal year end is only a few months away. One, our current revenue base has continued to grown and diversified throughout this year. It represents over 70% of our company’s revenues, which is quite high in our industry and we believe we have the opportunity to continue growing and improving our returns in this business over time.

Second, we continue to demonstrate our ability to develop and sell games profitably in the traditional top three markets. While our market shares are not large across few markets; we should have the opportunity to grow our shares under more markets over time, which would be meaningful for our company.

Third, the balance sheet is in terrific share. Our financial position, which we all worked so hard to establish, provides ample cash to grow our business with the same discipline we are showing thus far.

We believe the combination of these qualities provides us a stable base then we have much more work to do and room to improve and grow. While the current upward may not always be perfectly straight, we believe the best days for MGAM to lie ahead.

I want to close by offering my admiration and appreciation for the hard work and focus of our entire team and to our customers for their conceding support and confidence. I’d also like to thank our supporters in the investment community for their confidence and look-forward engaging with new members of the community in the future. Specifically with G2E right around the corner, it’s now taking place in early October, we welcome the Indiana Ambassador to our very optimum centric [boot this year] to meet our team and take a look at our products.

Thank you for your attention and we will be happy to take questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Todd Eilers from Roth Capital.

Todd Eilers – Roth Capital Partners LLC

Good morning, guys.

Patrick J. Ramsey

Good morning, Todd.

Todd Eilers – Roth Capital Partners LLC

Congrats on another solid quarter. Three questions here. I want to start off on TournEvent, obviously, it certainly seems like you guys have got a lot of momentum with that product right now. You mentioned that you have 99 casinos and represents roughly 1,500 slots. Can you tell me how many slot machines were sold in Q3 under the TournEvent umbrella?

Patrick J. Ramsey

Yeah, Todd, that was 199 total units or about 37% of unit sold with TournEvent related to units.

Todd Eilers – Roth Capital Partners LLC

Okay, great. And then ASPs look to be really strong in the quarter at about 19,000, I think, it look like a record for you guys and certainly the highest in the industry. I am assuming obviously a lot of that is to do with TournEvent still. How should we kind of look at that going forward? Is that kind of the upper end of the range or do you think we could – it could even get a little bit higher than that?

Patrick J. Ramsey

It’s definitely the upper end of the range, and as our volumes go up, slots will go up, obviously this currently will be a bigger part of that picture. So we do believe this is the higher end of the range and it will come down over time, no question.

Todd Eilers – Roth Capital Partners LLC

Okay. And then another question on game sales, of the 543 games sold in the quarter, can you tell us how many of those were sold to new casino openings?

Patrick J. Ramsey

Yeah, it’s a total of just under 70 were sold to new casino openings, 70 to 80 of those. That’s…

Todd Eilers – Roth Capital Partners LLC

Okay.

Patrick J. Ramsey

I think that’s split between Ohio and Louisiana, with a little in Mississippi.

Todd Eilers – Roth Capital Partners LLC

Okay, great. And then on the gaming op side, of your ending domestic install base, can you tell us how many of those were Class II units?

Patrick J. Ramsey

Yeah, we had just over 4,000 Class II units in that base.

Todd Eilers – Roth Capital Partners LLC

And of the – obviously with strong growth in your domestic install base, so sequentially do you guys added 258 units quarter-over-quarter. Can you give us a sense where a lot of that came from, was that all outside of Oklahoma or did you also see some growth in the Oklahoma market, I guess outside of the Chickasaw. Just a little color there would be helpful?

Patrick J. Ramsey

Yeah. So Oklahoman in total grew the largest in total units, followed closely by California, then Florida, then Washington. So, yes, it was pretty diversified.

Todd Eilers – Roth Capital Partners LLC

Okay, and then I guess a final question, in terms of the new higher – or the premium High Rise product. Can you give us a sense for the performance of that product? How does that stack up against I guess the floor average or I guess, other premium games and I guess it’s still fairly early, but has the performance been fairly consistent, just any color there would also be helpful?

Patrick J. Ramsey

Yeah, I think the only thing that has been consistent about the performance is it strong everywhere. So as a percentage of lower average, it certainly ranges, whether it is Oklahoma or outside of Oklahoma, in a different market. So it is performing well, but for average we’re pretty happy about it, we obviously put out a decent amount of those in the last quarter. So I think that backs it up as the performance was pretty strong. So as a percentage of (inaudible) very, very fast.

Todd Eilers – Roth Capital Partners LLC

Okay. That’s it from me. Thanks guys. Congrats on another strong quarter.

Patrick J. Ramsey

Thanks Todd.

Operator

Thank you. Our next question comes from Steve Altebrando from Sidoti & Company.

Steve Altebrando – Sidoti & Company LLC

Hello, guys, how are you?

Patrick J. Ramsey

Hi, Steve.

Steve Altebrando – Sidoti & Company LLC

So touching on the fiscal ’13 guidance, I mean Nevada should come on line in the back half of the year. I guess qualitatively how much are you baking in for Nevada, just kind of want to get a sense of that range?

Patrick J. Ramsey

Just like we did this year, I think we’re trying to be careful about expectations of entering to new markets. I think if you look at California that was a very strong market that itself took off pretty quickly, much quicker than we expected. For Nevada, we don’t expect too much of our trend to be driven by Nevada in fiscal 2013 just because of the timing of when we get in there and we don’t know what are the capital cycles are going to look like in Nevada. So we are pretty cautious on that driving the plan. So we don’t think it would be too significant portion of our FY’13 plan.

Steve Altebrando – Sidoti & Company LLC

Okay. And that’s helpful. And in terms of – I think you mentioned you are in 18 States do you have a rough percentage of jurisdictions you are now serving another than Nevada? Is there anything material on the horizon over the next say 18 months or so, in terms of new markets?

Patrick J. Ramsey

I think roughly we are serving probably about 40% of the market right now, obviously Nevada will add another 20 points or so. So that will give us up to – close to two-thirds of the market. And then there are some big ones coming up in the next year or two. So obviously, we’ve mentioned Nevada, Illinois, Pennsylvania and New Jersey, Tribe of Michigan. So those are – New Mexico is another one we’ve tried. So there is a host of larger ones coming up, but we’re just cautious about timing and – because we’re still in the licensing stage for lot of those.

Steve Altebrando – Sidoti & Company LLC

Sure, can you talk a little bit about the sales force and if there is plans to add particularly as you move into Nevada?

Patrick J. Ramsey

Yeah, every time we break into a new territory, it makes sense from a covered perspective. We will add new sales and service personnel. So we will add folks in Nevada, we are also looking to add folks in both the southeast and northeast as well. So obviously, I don’t give geographical expands that make sense for sales and service personnel, which certainly more than pay for themselves on a very low cost basis and we will continue to do that throughout the year.

Steve Altebrando – Sidoti & Company LLC

Okay, and then in the installs of the High Rise product, it seems to be running ahead of pace, is it giving you more confidence in the phase of the roll out or is it just a matter of I guess casinos you are targeted in is getting momentum earlier than you anticipated?

Patrick J. Ramsey

Yeah, I mean it’s really we’ve been at it really one quarter. I mean just in the end of our second quarter we put out a couple, and then we’re really one quarter into it. I’d say we feel really good as the performance looks good and it’s all over. Although we have 97 units out there pretty well dispersed geographically. So we are getting some good feedback, but we’re going to keep pushing and we keep producing our product line in order to support its growth.

Steve Altebrando – Sidoti & Company LLC

Okay, and just last few, I’m backing into some, but I am not sure if it’s correct, but it looks like a little bit of a sequential growth decline in yield and with the High Rise maybe that was only out for a partial of the quarter, just starters. A little bit surprising, if you can comment on that? And then also in terms with the installed base picking up sequentially, is it your sense that you’re displacing competition or kind of growing participation base?

Adam D. Chibib

I will take the first half of that question. So as we talk about in the March quarter, Oklahoma was record strong in the March quarter end. And so I think we – all that’s really changed from the March quarter to the June quarter with Oklahoma was not quite strong year-over-year. I think we are up 8% to 9% in the March quarter year-over-year in total revenue, but I’m pretty consistent win per unit was up significantly. I think that strictly overseeing and happening in our June quarter as the Oklahoma market came back down to its low end versus the unusual high that we had in the March quarter.

Steve Altebrando – Sidoti & Company LLC

Okay.

Patrick J. Ramsey

I will add on to that a little bit, you mentioned you are a little surprised because of the High Rise Games. High Rise Games was 97 at quarter end, so that it came on through out the quarter; it’s 97 out of 10,100. So it’s not going to drive the year as we’re moving.

Steve Altebrando – Sidoti & Company LLC

Right, okay. And then just – to get a sense of displacing competition there?

Patrick J. Ramsey

Yeah, I mean it’s tough for us to specifically address who and kind of how I think, but by virtue of the fact that we’re growing and we’re becoming bigger on floors, we are displacing our competitors I don’t know.

Steve Altebrando – Sidoti & Company LLC

Okay. Thanks guys.

Adam D. Chibib

Thank you.

Patrick J. Ramsey

Thanks, Steve.

Operator

Thank you. Our next question comes from David Ehlers from Las Vegas Investment.

David O. Ehlers – Las Vegas Investment Advisors

Yeah, good morning guys and another nice quarter.

Patrick J. Ramsey

Good morning, David.

David O. Ehlers – Las Vegas Investment Advisors

Let me ask you, you report your High Rise Games is 99 and it was outside of Oklahoma.

Patrick J. Ramsey

That’s correct.

David O. Ehlers – Las Vegas Investment Advisors

What is the reason for not wanting to flip that people now would be increasing – what the actual number is in Oklahoma?

Patrick J. Ramsey

Well, I think it’s a little bit misleading for us to report that in our – for our premium games. If we include Oklahoma because we have a different arrangement in Oklahoma, we sort of work with our customer there and working on the yield of that footprint, and so – it’s just a whole different revenue share and a whole different arrangement in Oklahoma. But I think it’s a little bit misleading to call those premium participation games, within the Chickasaw footprint. But your point is right although we have to deploy other High Rise being – they’re driving our yield in our core market in Oklahoma.

David O. Ehlers – Las Vegas Investment Advisors

Now I'd assume that most of those games are being put out on file for the first 30 days?

Adam D. Chibib

Units from a quarter to a quarter end, those were all revenue units. So we do have other units on trial, and typically the trial goes…

David O. Ehlers – Las Vegas Investment Advisors

The 99 units is all revenue unit?

Adam D. Chibib

Correct, that's correct.

David O. Ehlers – Las Vegas Investment Advisors

My secondary question is to do with your production rate, in the past it’s about 1,500 units a quarter, has there been any change in there, it looks like you are producing quite at there and you are shipping in excess of that?

Patrick J. Ramsey

For the quarter, obviously, we have got considerable capacity well beyond what we are producing today. But I think you are probably right, in any given quarter we shipped or produced between 1,500 units and 1,800 units. We are running only – running one shift, we work for a little overtime. So I think from a capacity perspective, we’ve got room to grow that and we are comfortable in this range obviously right now without even having to add overtime or extra shifts, and if we’d ever gets to that then we’d actually be very happy about that obviously and – but we can have the capacity to stop our production immediately.

David O. Ehlers – Las Vegas Investment Advisors

Great. My last question is, of the 547 that you sold in this quarter right, presume a lot of those, as they go out on a trial basis.

Adam D. Chibib

Yeah. We’ve got probably always stuff on trial at any given point, and sold units happen in one of three ways, is on trial, and it converted to revenue, it’s on revenue share and it converted to revenue or, it is the new order that's not on trial, or on registration, we have all three that drive sold units at any given quarter. And so to give anyone metric it wouldn’t be too helpful, because we have lot of orders that turn to sales, that have never been trial or on rev share. But obviously customers if they try the product, when it’s on rev share and on trial and that gives them confidence in buying the product.

David O. Ehlers – Las Vegas Investment Advisors

All right, very good. That’s all I have.

Adam D. Chibib

Thanks David.

Patrick J. Ramsey

Thanks David.

Operator

Thank you. (Operator Instructions) Our next question comes from Steven Neren from Brill Securities.

Steven Henry Neren – Brill Securities, Inc.

Hi, good morning. I'm trying to reconcile the sales forecast for next year, I triangulate, it doesn't make any sense especially considering you were about to enter into the Nevada market. You kind of had approval for sometime and I believe you have a number of games, when you've a lot of games at the lab. I also heard some comments from people that they expect to be buyers of your games where as soon as these games are approved. So yes, my question is two-fold; one, when do you expect to see some revenue from Nevada and two, why are you being so conservative, I can understand trying to be realistic, but if you have, you’re entering the marketing which is almost 30% of the country and you’ve had success elsewhere now, when you obviously think your games are playing well. Why were they not include some reasonable forecasts even from Nevada, it looks like you didn’t include anything actually.

Patrick J. Ramsey

No, I’ve been not being reasonable in that we said there is a lot work for us to do to get into Nevada, we haven’t even put units on trial there, so we have to go through several trials, which will take months, and like Adam said and when he spoke we have planned a bit of Nevada revenue in the second half of ’13, just based on product testing. But like we said this year and like we are saying for next year, as we get into new markets, we are pretty cautious about the customer acceptance, how our games play and we also it’s going to take time to build. We’ve learned that in Louisiana, we’ve learned that in Mississippi. We’ve grown at different speeds in different markets then I think taken a bit of a cautious approach this early on and before months before our new fiscal year starts is the most appropriate of this thing.

Steven Henry Neren – Brill Securities, Inc.

So how long before you get approval on the games in the last now, where you can actually begin to selling them.

Adam D. Chibib

That’s the key point that we are not even out of the labs yet, so to kind of speculate on when A) we get out of the lab and B) when we will have first revenues, we believe it’s premature at this point because we are not even out of the model labs yet.

Steven Henry Neren – Brill Securities, Inc.

So let me rephrase then, when okay – how long is the machine, I remember years ago machine was not in the lab more than three months, so maybe it’s changed that of now, but you had…

Adam D. Chibib

And the process can take anywhere now from six months to twelve months and it’s out of – marked out of our control, and so it depends on how quickly the labs knew timing of resource they have as you know they are going from the transmission from being controlling at the Nevada Gaming Commission that are outsourcing some of that, that transition is happening as we're in the labs right now will drop a good impact timing.

Steven Henry Neren – Brill Securities, Inc.

Thank you very much.

Adam D. Chibib

Thank you.

Operator

Thank you. I am showing no further questions at this time. I would like to turn the conference back over to Mr. Ramsey for any closing remarks.

Patrick J. Ramsey

Well, thank you and I look forward to seeing many of you hopefully at G2E in October. Thanks again for joining the call.

Operator

Thank you, and ladies and gentlemen thank you for participating in today’s conference. This concludes the program. You may disconnect and have a wonderful day.

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