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Global Cash Access Holdings, Inc. (NYSE:GCA)

Q1 2008 Earnings Call

May 8, 2008 5:00 pm ET

Executives

Scott Betts - President, Chief Executive Officer and Director

George Gresham - Executive Vice President & Chief Financial Officer

Mark LaBay – Senior Vice President of Finance

Lisa Yi – Treasury Manager

Analysts

Christopher Mammone – Deutsche Bank North America

Analyst for Liz Grausam – Goldman Sachs & Co.

Tien-Tsin Huang – J.P. Morgan

James Kayler – Bank of America Securities

Daniel Perlin – Wachovia Securities

Kristin Duncan – Bear Stearns

Analyst for Craig Maurer - Calyon Securities

David Cohen – Midwood Capital Partners

Operator

Welcome to the first quarter 2008 Global Cash Access earnings conference call. (Operator Instructions) I would now like to turn the presentation over to Lisa Yi, Treasury Manager.

Lisa Yi

Thank you and welcome everyone to the Global Cash Access first quarter 2008 earnings conference call. Joining me on today’s call are Chief Executive Officer, Scott Betts; Chief Financial Officer, George Gresham; and Senior Vice President of Finance, Mark LaBay.

On today’s call, Scott will give an overview of the company’s progress and the outlook for the fiscal year. Then George will provide more details on our financial performance in Q1. Following our prepared comments, we’ll be happy to take questions.

If during this call, we use any non-GAAP financial measures and references, we approach the appropriate GAAP financial reconciliations to our website at www.globalcashaccess.com.

And now, the replay of today’s call will posted on our website around 1:00 pm Pacific Time and will remain there for approximately two months. As we begin, let me remind everyone today’s discussion contains forward-looking statements based on the environment as we currently see it and as such, includes risks and uncertainties. For factors that could cause actual results to differ materially from those described in our forward-looking statements, we refer you to our SEC filings and specifically to the Form 10-K that we filed on March 17, 2008 and the risk factors set forth therein. So with that, let me now hand it over to Scott.

Scott Bettss

Well, last week marks my 6-month anniversary at GCA. I can’t tell you how pleased I am to be have this conversation under much more normal circumstances than existed during the past two calls.

Since the last time we spoke on February 28, we’ve had an opportunity to step back and get a clear look at the state of our business and formulate our objectives and plans for this year and beyond. Let me start by giving you an overview of how we see the business today.

First, let me state that our balance, I’m satisfied with the business performance we achieved in the first quarter. We have made great stride against the objectives we outlined in our last call, specifically, the Certegy Gaming Services integration is going very well. We continue to win business and in general, our customer relationships remain strong. Looking out over the next 18-24 months, we are well positioned with regards to the stability of our revenues. Among the top ten customers representing 40% of base revenue for credit card cash advance and ATM, the waited average term remaining on our contracts is 23 months, nearly two years.

We do believe that the events of the last six months are behind us and our business performance has turned the corner. Yes, our consolidated revenue and operating income for Q1 are both down somewhat from previous years, but almost every measures out versus the results from Q4.

Considering the head wounds we’ve faced when the macro economy, as well as, the gaming sector in particular, the continued hang over effect from the investigation conducted in the fourth quarter of last year and the discontinuance of Arriva, I remain confident in the strength of our fundamentals.

Looking at the entire year ahead, I’m even more encouraged about our outlook. We maintain a conservative view of this sector for the balance of 2008. It appears to us that gaming will continue to be down at least 3-4% over the prior year. Despite this, we’re expecting continued strength of our performance as we progress across 2008. We currently expect revenue, EBIT, EPS from continuing operations, cash EPS, all to grow substantially in 2008 compared to 2007. We believe performance against these expectations will put the company in outstanding position for the future.

Let me get into greater depth regarding our operating priorities and our longer-term strategic initiatives. As I always do, I would like to update you on several topics we covered in our last call, specifically, the Arriba shutdown and the Certegy Gaming Services acquisition.

As it relates to Arriba, as you can see from our earnings release, we have classified Arriba as a discontinued operation. The portfolio is currently being marketed for sale. However, given the liquidity in the market for such asset, or lack thereof, we have also made operational plans for an orderly wind down of the portfolio and we are executing on that plan now. We have adjusted the receivables in the portfolio to what we believe to be fair market value as of March 31, 2008, and necessitating the recognition of a $5.5 million pretax charge.

As of April 22, 2008, we are no longer originating any new business in Arriba. On a go-forward basis, whether the portfolio is sold or wound down, we do not believe this business will have a material impact on our financial performance, and Arriba is now behind us.

I am very pleased with the integration results of the CGS portfolio. We last reported we believe this would contribute about $100 million in revenue annually to GCA and about $6.9 million of EBITDA, inclusive of Certegy. We continue to believe these results are achievable and we expect to slightly over-deliver our Certegy expectations by about a $0.5 million.

Since the acquisition closed on April 1, we’ve been very aggressive in the integration with over 75% of locations and volumes already transitioned to our systems and operations, and over 80% of the Certegy’s being realized. I am very pleased with the efforts of our associates, especially our field account management group, to have performed so well on this important project. Since Certegy Gaming Services will be fully integrated in the GCA operational and financial system shortly, we will not be reporting the results of this acquisition separately from our core business on a go-forward basis.

We also discussed in our last call on our attention to focus on margin improvements and cost containment. In the near term, our initiatives will focus on optimizing our service delivery capabilities to our customers while minimizing costs. This means a tactical focus on cost control, both through initiatives such as vendor management and renegotiation as well as process improvement and redesign. We are executing on this defined list of objectives and have clear deliverables that will be reflected in the numbers for the year that we will share with you shortly.

For a perspective and given where we are, that we are in May already, we are targeting delivers slightly less than $1 million in savings in ’08 and a bit more than that in ’09. We’re also initiating a longer-term program to reengineer our data platform and operational processes in order to maximize efficiency, minimize costs, optimize business control and leverage the scalability potential of our organization. This back office initiative will certainly improve our ability to service our customers in a cost effective manner but as importantly, it will serve as an operational and technical platform for our future product initiatives.

In all frankness, today we live with a legacy system that are inefficient and result in duplicate efforts, a high degree of complexity and the inability to turn data into information. We believe that it is imperative that this system get rationalized and organized so that we can: better serve our customers, reduce our costs associated with that service, gain greater business insight into our operations, and dynamically deliver products to the marketplace in a flexible and expedited approach.

In summary, this initiative will improve effectiveness, lower costs and deliver products more effectively. But before I leave this topic, let me assure you this is not some wealthy year, multi-million dollar technical black hole. This initiative will be largely completed with an 18-month at the outside with interim deliverables along the way. Its costs will impact 2008 only modestly and it will be accretive in 2009 through cost savings alone.

I’d like to emphasize this last part of our product delivery. I’ve talked in the past about the importance of [inaudible] innovation to our long-term growth in the stabilization of margins. Our future development will focus on the unique ability that we have to take the next step in helping our customers build their business through enhanced patron experience in our devices to better match the casino brand, leveraging our database and our ability to enhance data collection and usage to the benefit of our customers, and importantly, bring new payment and player tracking solutions that leverage our touch points with existing casino programs and systems. More on this in the future calls as we start to execute on this strategy.

Finally, on corporate governance, I’m pleased to announce the appointment of Patrick Olson to our Board of Directors. Patrick is a Managing Director of BlackRock Private Equity Firm and was an investment banker with Merrill Lynch for eight years prior to that. More information on Patrick’s appointment will be contained in the 8-K that we will file over the next few days.

I’m also pleased to announce that Miles Kilburn, the Chair of our Audit Committee, has been appointed to Sole Chairman of our Board of Directors. We believe that having the Chair of our Audit Committee with and independent Director serving as Chairman of the Board of Directors is a good corporate governance practice.

And finally, one of our founders, Karim Maskatiya has resigned from the Board of Directors and is positioned as Coach Chairman of the Board in order to pursue personal interest. Karim feels he can better pursue these in a manner that is in the best interest of the company and their stockholders by resigning from the Board. I’d like to take a moment and publically thank Karim for his considerable contributions to this company.

I’d like to leave you with the following thought before I hand it over to George. First, we have a great team of associates from top to bottom in the company. We have a customer franchise that is second to none. Our competitors seem to be losing leverage in this market downturn.

And lastly, we know exactly what needs to be done over the next 18 months to position the company for strong organic growth, both in the US and international markets, leveraging both new customer acquisition and new product initiatives. This is an exciting time for GCA as we take the next step in transforming this company. I thank you for your continued support and for coming along with us.

With that, let me turn it over to George.

George Gresham

Our revenue was down in the first quarter of 2008 by about 3.2% compared to last year’s first quarter. Most of this decline can be seen in our cash advance products, which declined 5.2% from the prior year. About 2.1% of cash advance revenue declined specifically attributable to the loss of the UK business, which represented a little less than $1.7 million in revenue in the first quarter of 2007, almost all of which was in the cash advance products.

Another 1% approximately of cash advance revenue declined as to the previously announced and other customer losses. We also saw a slight decrease of a little less than 1% of the average revenue per cash advance transaction driven by a decline in the average speed per transaction offset largely by an increase in the average transaction size.

ATM revenues were down 1.6% as compared to the prior year quarter. While revenue from one account about offset revenue from loss accounts, we did see declines in the total number of transactions which was not completely offset by increases in the average revenue per transaction.

Our check warranty products grew during the quarter by about 4.5% compared to the prior year quarter. This growth was primarily driven by the addition of new customers during 2007 that were not on board earlier in the year. We have seen increases in the total face amount of check warranted and in the average revenue per transaction, offset somewhat by a slight decline in the average face amount to the check warranted.

Other revenue, consisting largely of central credit, was basically flat compared to the prior year quarter. It’s important to know that this line now excludes Arriba as the revenue and costs associated with Arriba are now classified as discontinued operations.

Overall, our revenue declined about 2% excluding the impact of UK. I want to now switch to gross margin but before I talk about the changes from the prior first quarter, I want to frame this discussion with some general comments. Gross margins have appropriately received a lot of attention over the last couple of years as they have declined, and you have by now noted another decline in the first quarter of 2008.

Some of these declines have been due to the competitive landscape to be sure but some of these declines have also been due to changes in business strategies, product mix or changes in pricing strategies. For example, as you know, GCA has actively entered into site-funded arrangements with our customers over the last couple of years. While this approach has the effect of reducing our margin percentage since we will pay a higher commission to the property, the financial benefit runs through lower interest expense and more operating costs.

Another issue arises when a property raises a surcharge of the ATM and they are entitled to commissions on the increase resulting in margin deterioration but no adverse financial impact to GCA. So it’s at refresher on the imperfect nature of this metric and the acknowledgement that we have certain constraints in the format structure of our financial statements, let’s talk about what happened this quarter with margins.

On a consolidated basis, margins declined from 28.7% from the prior year first quarter to 28% in the first quarter of 2008. Virtually all of this margin erosion is due to the ATM business. In fact, if you exclude the ATM business from the gross margin calculation, the company’s gross margin percent increased about 10 basis points from the prior year first quarter.

The decrease in ATM margins is driven by increased commission and lower high margin interchange revenue and the migration through redemption and site funded devices. This transition can be seen in the decline in our average vault cash balance in the US going in Q1 of 2007 from approximately $280 million compared to about $254 million in the first quarter of 2008.

Operating expenses, excluding non-cash equity compensation, depreciation and amortization, increased almost 15% from the first quarter of 2007. This increase of about $2.3 million is due to increased compensation or related expenses driven mostly by a severance payment to a departed executive and to a much lesser extent to a modest increase in FTE.

An increase in audit and audit related costs due to the significant incremental effort required to produce the company’s Form 10-K host the internal investigation and an increase in legal fees due to the derivative suits as well as other general litigations. Much of the increase in operating expenses, well not directly related to the internal investigation, can be traced to residual issues such as follow on litigation and increased efforts by external auditors and regulators or supplementing staff with [inaudible] in order to manage the workload in Q1 of 2008.

Non-cash compensation expenses decreased primarily due to a lower stock price, resulting in lower valuations at the time of issuance. And depreciation increased due to increase capital expenditures throughout 2007. Net interest expense decreased due to lower average while cash balances and significantly lower LIBOR compared to the prior year quarter.

Our effective income tax rate increased from about 35% in Q1 of 2007 to 47% and was adversely impacted by the expiration of certain stock options during the quarter. This expiration had the effect of increasing our tax provision by about $700,000 and after this adjustment our effective tax rate would have approximated 41%. As many of you know, GCA is generally not a tax paying position due to the amortization of intangibles that are tax-deductible. This is true in 2008 as it was true in 2007.

Lastly, our share account decreased by about 6.2% or approximately 77 million shares due to the share repurchase program executed towards the end of last year. All this resulting GAAP EPS from continuing operations of about $0.08 per share compared to $0.11 per share in the prior year quarter. Cash EPS defined net income plus the deferred tax intangible amortization divided by shares was $0.15 in the first quarter of 2008 compared to $0.16 in 2007, both having been calculated before discontinued operations.

Let me move on to the balance sheet. We ended the quarter with about $163 million in cash on a GAAP basis. Let me make a couple of points about this cash balance. First, the CGS acquisition closed on April 1, 2008, and we disbursed approximately $85 million on that date, consideration of the purchase price of $25 million and reimbursement for their cash balances used to fund their deployed ATMs.

Second, we have about $11 million of expatriated at non-US jurisdiction. And lastly, we have cash flow from certain settlement activities which is representative to the difference between our settlement assets and liabilities, which at March 31, 2008, was about $33 million. Our revolver was run at March 31 and have a balance of approximately $90 million, $32 million of which has been paid down subsequent to March 31.

Now, let me turn it back to Scott for an overview of our 2008 guidance and wrap up.

Scott Bettss

Over the last few months, we have taken the opportunity to talk with many of you and to consider the best way to report on our business progress. Our principals are straightforward: that clarity and consistency is important in our communication; that management is responsible for the P&L, top to bottom; and cash flow is ultimately the driver of value.

Therefore, we will be giving guidance on revenue, EBITDA and GAAP EPS from continuing operations, as these metrics are clearly understood, reflect the obligations of management to manage performance, top to bottom, and in the case of EBITDA, provide a reasonable cash flow proxy.

Understanding that many of you are accustomed to cash EPS as a measure of our performance, we’ll continue to disclose the data necessary to calculate that figure. However, we will generally not be providing complex reconciliations of our GAAP financial results on a go forward basis. We’ll strive to point out to the investment community these significant events and matters that are material to our financial results that have impacted a particular quarter.

With that said, we currently expect in 2008 revenue will range from $646 million to $664 million; EBITDA will range from $93 million to $100 million; and GAAP EPS from continuing operations will range from $0.42 per share to $0.48 per share, all improvements over 2007. This guidance is based on the following assumptions: That our capital expenditure is generally consistent with that of 2007, that we’ll have an effective full year tax rate of approximately 41%, and fully diluted shares outstanding of $77 million. So with that concludes our prepared remarks and I’d now like to open it to questions and answers.

Question and Answer Session

Operator

(Operator Instructions) Your first question comes from Christopher Mammone - Deutsche Bank.

Christopher Mammone – Deutsche Bank North America

The revenue guidance of 8-11%, what’s your assumption for organic revenue growth for 2008?

George Gresham

Generally, the assumption excluding Certegy Gaming is a slight decline in the organic revenue consistent with what you would have seen in Q1.

Scott Bettss

Let’s call it our assumption on the marketplace.

Christopher Mammone – Deutsche Bank North America

What was the same store sales number in cash advance ATM in the first quarter?

George Gresham

We’re not disclosing that figure.

Christopher Mammone – Deutsche Bank North America

Did you say what the transaction growth rates were in ATM and cash advance in the quarter?

George Gresham

I didn’t quantify them. I gave you general trends in my comments.

Christopher Mammone – Deutsche Bank North America

So, are we just going to have to wait for the 10-Q for that?

George Gresham

That’s right.

Christopher Mammone – Deutsche Bank North America

And, I guess, if you could just comment on the point about the competitors in the current environment. Can you comment on the M&A pipeline?

Scott Bettss

We’re not going to ever comment on specific M&A activities in the future. What we’ve said in the past and that’ll be true in the future is that we’re continuing to look at all opportunities that are available that the company for growth. So, nothing in particular to report today.

Operator

Your next question comes from Analyst for Liz Grausam - Goldman Sachs.

Analyst for Liz Grausam – Goldman Sachs & Co.

Can we get a better sense of like what you see in the market, especially from the customers? Are they having any difficulties in this market environment? Are they pressing for pricing changes?

Scott Bettss

Yes, I think in general, if you’ve watched any of the gaming stocks and listened to their reports, they continue to see a slowdown in the marketplace, pretty much in line with what we’re predicting, 2-4%. That may vary wildly from property to property or jurisdiction to jurisdiction. But in general, that’s where the overall market is trending so it’s certainly putting pressure on their business. From our standpoint, what we provide is cash to the floors and help, really are big enabler to their business, so we’re continuing to do everything we can to support our customers as we go through this. But we haven’t seen any adverse effects as you suggested other than we also trended to the same volume and transaction trend.

Analyst for Liz Grausam – Goldman Sachs & Co.

The $93-100 million EBITDA forecast you gave for 2008, does that include or exclude any one-time charges, or is it mostly continuous based operations?

Mark LaBay

To the extent that you can drive it from GAAP. It’s GAAP. It’s not excluding any events that we’ll be reporting later. The tax rate I would highlight, if you’ve done the math, you can see that we had a 47% tax rate in Q1 and so we assume roughly a 39% tax rate in the balance of the year as the way the math works out. That particular rate has some potential volatility to it related to the same issue that we saw in Q1 with the expiration of certain stock options which in any particular quarter can drive up our tax rate, but with that caveat, the numbers in the guidance that we’re giving you are basically driven on GAAP estimates.

Operator

Your next question comes from Tien-Tsin Huang - J.P. Morgan.

Tien-Tsin Huang – J.P. Morgan

On the 10-Q, are we going to get some of the usual metrics around cash advance volume, ATM volume transaction growth, etc.? Just trying to metrically get prepared for how we should change our model, I suppose.

Mark LaBay

No, you’ll get something roughly consistent with what you’ve got in the past broad strokes of those volume metrics rounded pretty highly.

Tien-Tsin Huang – J.P. Morgan

Okay, so we will get some level of detail on that?

Mark LaBay

Right.

Tien-Tsin Huang – J.P. Morgan

Just some other housekeeping questions then. Just stock comps for the year, I think it’s great to go to GAAP but I’m just curious stock comps for the year. What’s the right measure there?

Mark LaBay

Our guidance, other than the few comments that Scott made in our guidance, you can see our stock comp in Q1. It’s not really expected to significantly vary from that figure.

Tien-Tsin Huang – J.P. Morgan

How about intangibles amortization tied to the Game Cash acquisition?

Mark LaBay

That’s been rolled into the comments that we’ve made around CGS in the past and in the EBITDA contributions from that. So you will see in that particular line an adjustment related to that figure but the portfolio of operations has been just put into our guidance across the entire geography of the P&L.

Tien-Tsin Huang – J.P. Morgan

Okay, and then I guess just feedback in general on Game Cash, or I guess the Certegy, GSBO from the client so far. Any notable trend there?

Mark LaBay

No, the integration has gone extremely well in terms of both the speed and the customer service and the completeness of getting it transitioned over to our service platform. And I think proceeding as we’d expected so we’re pleased with that. We’re pleased with the fact that we’ve been able to realize that Certegy’s to the level that we disclosed here also with no issues. Full speed ahead.

Tien-Tsin Huang – J.P. Morgan

Actually, just one last one, just since we don’t have the Game Cash full P&L yet, the gross profit or the gross margin for the second quarter going forward, how much of an impact can we see there with Game Cash?

Scott Bettss

Their margins are quite a bit smaller than our margins so you’ll see a dilutive effect from the integration on a consolidated basis.

Tien-Tsin Huang – J.P. Morgan

Right, but in terms of the way they allocate cost of revenue versus below that line. Any guidance on how to layer that in?

Scott Bettss

No, I mean, we’re all conformed their reporting to our reporting and so we’ll be reporting consistently but even after that exercise, you’ll see the consolidated margins come down as a result of that.

Operator

Your next question comes from James Kayler - Bank of America Securities.

James Kayler – Bank of America Securities

I guess now that you guys have been there for six months and have gotten a better feel for the business, just wondering what your view on the balance sheet, particularly, leverage, uses of your free cash flow and stock buybacks is?

Scott Betts

Well, first of all, I guess I’ll reemphasize when we say that we have $163 million in cash of core assets not liquid and available or deployable. Or at least a large proportion of it is not as we speak today. That being said, we continue to work with the Board and look at various uses of cash, including share repurchase, M&A, product investments, debt retirements. All of those options are available for us and we’re actively considering them and as our cash builds, we’ll be coming to conclusions on the approach we’ll take. But we don’t have anything to announce today.

James Kayler – Bank of America Securities

Okay, I guess at this point leverage is kind of in the mid-two’s. Is that safe to say as comfortable there but you don’t really have a view on whether that’s opt-able too high or too low at this point?

Scott Betts

Not a firm view. I mean, we certainly are aware that we can take on much more leverage. So we have that capacity. We’re not necessarily inclined to for the sake of financial reengineering at this point.

James Kayler – Bank of America Securities

Can you give us any update on progress in McHale and then in the UK if there’s been any changes? I know at one point there was some consideration that you would pursue a legal challenge to the new rules there.

Scott Betts

Yes, I would just make a comment on international growth in general. We didn’t talk specifically about that because we wanted to stat focused frankly on some of the bigger issues that were kind of in the past six months and the next six months coming up. We’re continuing to view international as a long-term growth opportunity for the company. The changes in international won’t materially change the numbers this year. So just like we’re doing on everything else, we’re stepping back. We’re taking a look at our strategy in which locations we think we can accelerate but we do see the international as an important growth plank in our strategy moving forward.

We continue to do okay in McHale. New properties are coming up. We’re continuing to process. McHale’s revenue is coming up. This year will be the first full year we’re seeing the revenue from McHale and so we’re going to continue to invest in that region. We see it as a good long-term growth opportunity for the company. We’re made disappointed in obviously having to shut down our UK business last year. We’re continuing to work with regulators over there in a positive context and not one of litigation in trying to sort out and find a solution to the business that both meets the operators and our customers’ needs, as well as, fits within the current regulations.

James Kayler – Bank of America Securities

Is there something structural in Game Cash’s business that made its margins slower than yours or overtime would you be able to bring those margins up closer?

Scott Betts

I think that when we first talked about it and announced it, we did highlight the issue that you should expect what kind of margin impact it will have on the business. You really need to think about it in two buckets. One is just the inherent pricing underneath, which again, as we put all our value added products and services to those customers, we would hope to see those increase slightly. And the other is just a pure mix of their businesses is different than ours. So both of those are impacting it. That’s probably the easiest way to think about it is those two areas.

Operator

Your next question comes from Dan Perlin - Wachovia.

Daniel Perlin – Wachovia Securities

You said $100 million of annualized run rate revenue is what you expect out of Game, and I just want to make sure one, that there was no Game in the quarter, right? You said it closed on April 1, I think.

George Gresham

That’s correct.

Daniel Perlin – Wachovia Securities

And in the K, when you talked about February 28, that was just really the discussion period. It wasn’t the actual closing date so it looks like your implication is kind of down maybe 2-4% organic and then maybe $75 million or so contributing from Game. Is that kind of a fair assumption?

George Gresham

Yes, I guess it’s kind of in the ballpark.

Daniel Perlin – Wachovia Securities

And then is there any differential kind of seasonality in the Game business or will it ramp differently throughout the next three quarters, or should we just basically kind of keep it somewhat even keeled and split it three and three quarters?

Scott Betts

There’s nothing inherently different in their business and ours. In many ways, you need to think about it as a sort of a portfolio purchase of businesses. We’re moving those businesses over to our platform so I’d expect it to just basically perform the same way as you’re used to looking at ours.

Daniel Perlin – Wachovia Securities

And as we allocate it to the segments, I think in the past you’ve said 70/20/10 cash advance, ATM and kind of check cashing. Is that about the right way to allocate this piece of business?

Scott Betts

Yes, we gave you those rough figures when we were first looking at the business and at this point in time, that’s probably the best. Obviously, one of the reasons we wanted to aggressively get the integration done is to get that business back on our platform and we’ll continue to push for cross sell and get any advantages we can with those customers overtime. So, I think that was just general guidance that we gave in the beginning and is probably pretty close for what we are right now.

Daniel Perlin – Wachovia Securities

Okay, and are there any contracts within Game that are coming up for renewal or that needed to be renegotiated at the time, given the change of control?

Scott Betts

It’s kind of a normal portfolio if you’ll look at it in terms of their average contracts were roughly the same as ours and we’ve always used three years as the pretty good number for that. So you’d expect contracts to come up for renewal. We were aware and had pretty good visual inside into contracts that were sort of coming up during the transition and what the state of those were, and we feel pretty comfortable with it. There are no major surprises there as we move forward.

Daniel Perlin – Wachovia Securities

I didn’t actually get the stock comp for the quarter. Can you just repeat that?

George Gresham

Yes, I realize that it’s not just customers. It’s about $2 million.

Daniel Perlin – Wachovia Securities

Okay, about $2 million and that should run somewhat commensurate with that number for the rest of the year per quarter?

George Gresham

Yes, roughly.

Daniel Perlin – Wachovia Securities

And then the $1 million savings, that was just ’08, right? And you said was going to ramp up into ’09?

George Gresham

You know, it’ll be a little bit less than that kind of given where we are in getting all the programs for the planks but I just wanted to give you a plus or minus feel for what’s included in the numbers that we gave you.

Daniel Perlin – Wachovia Securities

Can you just give us what we may refer to maybe like the unrestricted cash balance instead of the $163 million? What’s a real cash number we should really think about as our base?

George Gresham

At the end of March, you can think of it as, I’m going to give you a pretty big range, but you can think of it between $30-50 million.

Operator

Your next question comes from Kristin Duncan - Bear Stearns.

Kristin Duncan – Bear Stearns

I may have a couple questions. On the first, can you please detail the cash flow in the quarter and the second one is how much stock did you repurchase and kind you remind us how much is left? Thank you.

George Gresham

The stock repurchase program has been fully executed. I think about $9 million worth of stock was repurchased in Q1. Nine million shares, I’m sorry.

Mark LaBay

$9 million. 1.4 million shares.

George Gresham

Okay, and cash flow from ops, I don’t have yet. We will be disclosing that in our 10-Q and that’s filed on Monday.

Operator

Your next question comes from Analyst for Craig Maurer - Calyon Securities.

Analyst for Craig Maurer - Calyon Securities

Just actually wanted to get a little color around the cost of revenues line and how we should think about that for modeling purposes for the rest of the year.

Scott Betts

Well, I guess I don’t have much to add on top of whatever comments we’ve made about our 2008 guidance at this point.

Analyst for Craig Maurer - Calyon Securities

Do you think it’s fair to say a little bit?

Scott Betts

I think the only thing I’ll add to that is the comments that George outlined in terms of gross margins. There are a lot of moving parts to that and I think that pretty well summarizes a lot of the things you’re going to see in the changes in the comp figures.

Analyst for Craig Maurer - Calyon Securities

Are you going to be disclosing your op ex a little bit more detail on them? I know there are a few items that go into that obviously. Is that something you’ve thought about? Can you give a little more detail on them?

George Gresham

Well, in the Q we’ll be discussing op ex and the context of the MBNA, of course, and we’ll be giving a little bit more clarity around specifically what’s changing but those items I inventoried, if you think about the dollar delta year over year, it’s a little north of $2 million. Those four items I inventoried represent at grossly all of that $2 million delta.

Analyst for Craig Maurer - Calyon Securities

And I guess this is more of a macro question but with all the bad news coming out of the casinos, I know when we’ve spoken in the past, you’ve mentioned that you guys are obviously leveraged to that but not to the same extent. So if you see a 5% up, you guys are not going to move up 5% but do you think that’s going to be the same going into the rest of ’08? Is that something you feel comfortable with that you’re going to have a little bit less sensitivity to what’s going on in the casinos in terms of at least swings in percentages?

Scott Betts

I wouldn’t change just sort of the general guidance we’ve given and sort of the general principles of how we see our business tracking with the marketplace. Again, I don’t want to lose sight of the big picture here which is it’s anybody guess a little bit in terms of what we think is going to happen in the marketplace over the rest of the year. Like I’ve said, we’ve taken a cautious approach. We believe that the segment will continue to be down 3-4% in our customer level throughout the year and I wouldn’t expect any of the dynamics underneath that to change significantly but we’re trying to take a cautious view until we can understand what’s going on with the market.

Operator

Your next question comes from David Cohen - Midwood.

David Cohen – Midwood Capital Partners

You gave the weighted average remaining duration on your contract. If you could add some more color on that. Are there any contracts that are significant in, let’s say, more than 5% of revenue that are coming due in the next 12 months?

George Gresham

We don’t specifically get into a lot of the waterfall. You ask me this question almost every time in some shape or form. I wanted to give you some color in terms of how we view the more important issue which I think is stability of our revenue moving forward. That number I gave you obviously has some that are going to go for three years and some that are going to go for significantly less than that but that represents the big chunk of our revenue moving forward and we’re quite happy with the stability and outlook of that from where we stand right now, particularly given sort of the uncertainties of the market right now.

David Cohen – Midwood Capital Partners

And with respect to CGS that EBITDA contribution 2008, did the number you’ve been talking about the $6.9 that is inclusive of Certegy’s and that’s an annual number. You probably don’t get all of Certegy’s in 2008. So can you frame the amount of contribution to your EBITDA guidance that comes from CGS, approximately?

George Gresham

Yes, well, I mean our guidance around the $6.9 really hasn’t changed as Scott’s comments are suggesting that we’re maybe just slightly outperforming our expectations with respect to Certegy. The largest single element of Certegy related to personnel and for the personnel that came on board on April 1, it’s really dedicated to operations. So when we say the 80% of Certegy we’re going to accomplish, we’re saying that virtually on day one, that proportion of Certegy was executed against. So that being said, the roughly $6.9-7 million of EBITDA contribution is still the attributed guidance that we’re stating.

David Cohen – Midwood Capital Partners

And Scott, you made mention of a platform evolution early in the conference call. I guess just trying to understand for the where in the business system, if you will, that that has taken place. For example, in the 10-K you talked about a couple of vendors in particular. I think the related parties that the company’s been working with for a long time. I mean, does it touch them or does it touch your financial systems? What part of the business systems are you touching or is it everything?

Scott Betts

Well, I wouldn’t classify it as everything. I think what you need to take away from that is we’ve had the opportunity over the last three months to really take a deep look at our systems and capabilities and we only want to invest in moving areas that we think are going to give us the most return.

And we found areas that in general I’ve commented on is sort of back office processes and systems, some of which are the ongoing transactional data and business management data that we need to get more control over in terms of, not control from a financial standpoint, but control from being able to mine that data and have a more proactive look at it, to help us manage our business.

There are specific areas that we’ve found that we think we can automate and lower costs in those areas. And there are some that will impact the suppliers that we have both from a processing and a network standpoint. Again, it really is a more targeted effort than that and wouldn’t really be appropriate to kind of go into that kind of detail. That’s basically the approach we’ve taken, that initiative. We are starting to execute that right now.

David Cohen – Midwood Capital Partners

You give a supplemental schedule which reconciled operating income to EBITDA. Let me know if that is different, just in terms of that reconciliation versus what you may have provided in the last quarter. Did you not actually exclude stock based comp previously and now it’s included? Is that accurate?

George Gresham

Yes, well, I mean what we reconciled today is just EBITDA. We didn’t reconcile our stock compensation. So last quarter, you saw EBITDA, adjusted EBITDA, cash earnings, adjusted cash earnings, cash EPI, etc. systematic events. And so, we’re just trying to simplify our communications. So it’s just regular EBITDA there and obviously it’s pretty easy to get from there to adjusted EBITDA which would fall for stock comp.

Operator

That concludes the Q&A Session of today’s conference call.

Scott Betts

I want to thank you all for joining us on the call today and for your continued support. We now have a management team in place here and we’re really quite excited about the business moving forward. I look forward to talking with you all in the next quarter. So, have a good day and thank you.

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Source: Global Cash Access Holdings, Inc. Q1 2008 Earnings Conference Call
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