Everi Holdings Inc (EVRI) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and fiscal year 2009 Global Cash Access earnings conference call. My name is Jasmine, and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Lisa Yi, Treasury Manager. Please proceed.

Thank you, Jasmine, and welcome everyone to GCA's fourth quarter and fiscal year 2009 earnings conference call. Joining me on today's call are Chief Executive Officer, Scott Betts, and Chief Financial Officer, George Gresham. On today's call Scott will give an overview of the Company's progress, and George will provide more details on our financial performance in the fourth quarter. Following these comments we will be happy to take questions. A few important items before I turn it over to Scott. First we have posted our news release and updated financial statements to our investor website at www.gcainc.com, for anyone who needs access to that information.

Also during this call if we use any non-GAAP financial measures or references, we will put up the appropriate GAAP financial reconciliation on our website. Finally, a replay of today's call will be posted on our website around 5pm Pacific Time, and will remain there for approximately two weeks.

As we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such it does include 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 10, 2009 and the risk factors set forth therein, and in our Form 10-Qs filed with the SEC. With that, let me now hand it over to Scott.

Good morning, and welcome to our call. First let me start with a broad overview of our results. As we put 2009 behind us, the domestic gaming industry has gone through two consecutive years of significant contraction and difficult economic conditions. In fact, using GCA's same store data as a surrogate, which includes the Native American casino volumes, the industry contracted 23%, compared to the industry's peak in 2007, and over 10% in the past year. During this tough period we have been able to outperform the domestic gaming industry, primarily through the aggressive deployment of capital, to add acquisitions and performing stock buy backs. Over this two-year period we have integrated two integrations, and are preparing to close a third one this year.

We have completed $112 million of equity purchases, repurchasing 15.4 million shares. Given this backdrop and our dependency on the overall segment trends, as well as our focused two-prong strategy to strengthen our Company and continue to deliver cash EPS growth through this down cycle, we are relatively satisfied with our progress in 2009, and how we are positioned going into 2010. For 2009 we ended the year with essentially flat revenue of $668 million, down a very slight 0.6% from 2008. And importantly, this is still 11% higher than our 2007 revenue. We were able to again grow cash EPS 7% to $0.71 in 2009, and over the past two years cash EPS has grown 25%. We continue to be disciplined on our costs, as demonstrated by our reducing pro forma operating expenses by 12% in 2009 versus 2008. This is not to say we still don't face significant challenges, primarily same store trends.

We were a bit surprised and disappointed with the significant fall-off in gaming activity in the fourth quarter, which dramatically suppressed our results in Q4. From a same store perspective this was one of the toughest quarters of the last two years. While overall declines in our same store numbers were 12.2% for the quarter, this number was driven by a disproportionate fall-off in both regional and Native American jurisdictions. Declines in these regions ranged from 12% to 28%, with the largest, California, being down 28%. We simply had no reason to predict this as of our October call. Fortunately we are seeing some recovery in the run rates in the first 54 days of this quarter. The industry dynamic continues to negatively affect our gross margins as well as our EBITDA growth. This area is a priority for us in the coming year. We believe our ability to now concentrate on developing and deploying new products will help us regain some of this lost margin over the next several years.

A few other significant accomplishments in 2009. We have substantially resolved all of the regulatory and other material legal issues we have been dealing with over the last two years. Second, we completed the conversion to a new platform, which was an enormous task. And we are now positioned to leverage this platform to deliver new and improved products and service levels. Importantly, we resigned or extended all of the Top 20 Cash Access contracts that were up for renewal in 2009. After having struggled a bit internationally, we have made significant inroads in Canada, signing three properties in Alberta, Edgewater Casino in British Columbia, and expect to close an additional significant operator in British Columbia shortly. We believe these signs will increase our revenue in Canada by 50% in 2010, making Canada clearly our biggest international jurisdiction. So as I look back over the last two years we have managed to grow the Company's top line and maintain that level through 2009, and we have delivered cash EPS growth in each consecutive year, despite the gaming industry's declines.

As we cautiously look towards 2010, we expect a similar year to this past one. Predicting revenue remains challenging as a clear view on segment trends continues be as elusive for us, as it is for our customers. So we are planning a year similar to 2008, with revenues essentially flat or slightly down. If a measurable recovery does happen in this year, as we all hope, that will of course provide upside to our plan. We will be focused on delivering cash EPS to our shareholders. While George will cover specific guidance we expect to deliver growth of $0.01 to $0.02 from operations, and we believe we have an additional upside from potential share buy backs and possible debt reduction that may add another $0.01 to $0.02 in cash EPS.

We continue to be vigilant on costs and expect to deliver year-over-year declines in operating expenses for 2010 also, including the investment in the integration of Western Money acquisition, and our new product programs. So our priorities for 2010, first to control what we can control, which are contract renewals and costs. Second, use our capital to deliver growth through a combination of acquisitions, share buy back, and possible debt reduction. Today we are announcing a new authorization to undertake a share repurchase of up to $25 million.

And very importantly, delivering on our product plan and leveraging the platform work that we have completed. We currently expect to deliver a full product program for this year, starting with the intended launch of our Casino Share Intelligence product next month. This a web-based subscription service, that will allow our customers to view and analyze their share position in various geographies, as well as their share of wallet among any zip code or for any patron. We believe this is a valuable marketing and business intelligence tool that is not available anywhere else.

Second we will follow this with the expected launch of QCP Express around mid-year. We believe this is a significant upgrade to our current QCP Cage product, that will enhance and shorten transaction times, and reduce costs at our customers' cage operations. We continue to progress our ticket out product, and expect to be in beta testing at a customer in the second half of the year. This is slightly later than we said in our last call, reflecting our decision to complete other platform developments that made sense to go ahead of this initiative. Looking out further, we have several other identified projects in development, including dynamic currency conversion, wagering and stored value applications, and several unique opportunities we have jointly identified with our technology partners. While these will probably launch in 2011, they demonstrate our investment in development, and provide some perspective on where we are headed.

Additionally we will be developing plans to leverage the unique capabilities we can exploit, by combining the Western Money kiosk business with our system platform. We believe these products will not only allow us to maintain our leadership role in delivering innovative Best-in-Class products, but will further build our data and analytical product set, provide products that facilitate the move to cashless gaming, and ensure we maintain our position for leadership and innovation. All of this comes under the broad umbrella of focusing on our customers. We firmly believe GCA remains unique by our single focus in gaming. While this may be a bit troublesome in a downturn like this, we believe strongly this is our strength in the long-term. This focus allows us to leverage the strength of our network and data, and provide unique, innovative products for our customers that improve their operations and their profitability.

GCA's real strength is in the diversity and expertise of our management team. We have experts not only in the payments, but in casino operations, marketing, and technology. We know gaming, we know marketing, and we know payments. This allows us to provide customers with a distinct integrated view of how to leverage cash access, database marketing and analytics, across the casino property. We believe this unique position gives us the ability to formulate a vision for the industry, understand our customers' business needs better, and understand the inherent power of integrating payments in our customers' operations better than anyone else can. So with that overview, I will now turn it over to George to provide some detailed discussions of our results and guidance, and of course we will follow that up with a Q&A.

Thank you, Scott. As Scott indicated this was a challenging quarter. Our revenue decreased 15.6% compared to last year's fourth quarter, and 12% on a same store basis. This decrease was driven by the national and regional economic slowdown, which has adversely impacted many of the gaming markets we operate in. Similar to prior quarters virtually the entire same store decline was driven by a decline in credit usage.

In fact the same store figure for cash advance revenue was somewhat over a negative 20%, while ATM was about negative 1%. We also saw a year-over-year and sequential quarter decline in average cash dispensed per transaction. However the sequential decline was very modest, and we have seen the average face per transaction in January 2010 improve modestly. As a result, the decrease in cash advance revenue on a year-over-year basis was approximately negative 23% in the fourth quarter. Our cash advance revenue represented approximately 46% of the combined cash advance in ATM revenue during the fourth quarter of 2009, having decreased from about 51% in the fourth quarter of 2008. On a sequential quarter basis, the relationship between cash advance and ATM was steady at 46%.

As it relates to ATM revenue, we have continued to see very modest surcharge increases. However, due to the platform conversion completed in September 2009, we are temporarily receiving lower net reverse interchange revenue on ATM transactions. This negatively impacted Q4 revenue, and largely accounted for the difference between the ATM same store decline, and the decline in ATM GAAP revenue of 6%. We expect this will be largely solved by the end of the first quarter removing this issue moving forward.

Our check warranty product declined during the quarter by about 29% compared to the prior year quarter, as a result of the decreases in the number of check services transactions, compounded by a decrease in the check services revenue per transaction. As we discussed in our Q3 2009 earnings call, we did experience some net customer losses, which impacted the cash advance business as well as the check services business. Gross margins as a percentage of revenues were 25.3%, which was modestly down from the 25.5% reported in the fourth quarter 2008, and up from the 24.5% reported in the third quarter of 2009. Gross margin percentage in the quarter on a year-over-year basis was primarily impacted by mix shift from credit to ATM, and was positively impacted sequentially by strong revenue contributions from our casino marketing services and other data services.

This is a key reason we are excited about the prospects of new data services being launched in 2010. This revenue stream comes in at a higher margin than the rest of the portfolio, but can be sporadic from quarter to quarter. In addition to reverse interchange revenue being somewhat lower than expected due to post conversion routing issues I discussed earlier, interchange expense on POS debit transactions is also temporarily higher than pre-conversion rates, also due to network routing. Renewals completed in the fourth quarter were done at prices consistent with historical prices. Operating expenses exclusive of depreciation and amortization were down 22.4% from the prior year. Our operating expenses in the quarter, however, do reflect the receipt of $2.75 million related to the VISA MasterMoney settlement. These proceeds were treated as a reduction in expense. The prior year's fourth quarter operating expenses also included about $400,000 related to this matter that was treated similarly.

Removing the impact of these settlements from each quarter, operating expenses excluding depreciation and amortization decreased by about $2.6 million, or a healthy 12% compared to the prior year. This decrease was primarily driven by lower employee counts and lower ATM management and operating costs. On a sequential basis, operating expenses increased about $1.4 million excluding the impact of the VISA MasterMoney issue. This increase is primarily due to the third quarter operating expenses reflecting the benefit of reduced incentive compensation expense.

You might recall that we reduced our expectation for incentive compensation during the third quarter, and that reduction in accrual positively impacted Q3. As Scott mentioned in the earnings release, we have reached a preliminary settlement of the securities class action suit. The agreed-to terms of this settlement are subject to final court approval, and will be announced at that time. However, we do not expect that the Company's operating results will be adversely impacted by the finalization of this matter. The Company did continue to incur significant legal expenses above our own expectations, in connection with the completion of various legal matters that were substantively completed in Q3 or Q4 of 2009.

In the fourth quarter of 2009, non-cash equity compensation expense was $2.3 million, compared to $2.4 million in the fourth quarter of 2008. We ended the quarter with just less than 455 full-time equivalent employees, of which about 234 were dedicated to booth operations. This compares with about 500 total full time equivalent employees, including about 270 in booth operations at the end of the quarter ending September 30, 2009. We had about 2,900 floor devices processing on our network at December 31st, 2009. This includes about 1,040 redemption devices, with the remainder largely consisting of ATMs. Redemption devices are generally funded and serviced by the property, while GCA generally funds and services the ATM fleet.

Depreciation and amortization decreased by about 10% compared to the prior year quarter, due to the run-off of fully amortized assets. On a year-over-year basis, depreciation and amortization increased largely due to the acquisitions completed in 2008. Net interest expense decreased by about 34%, primarily due to lower interest rates in effect during the quarter compared to the prior year. Our effective income tax rate for the fourth quarter was 38%. As many of you know, GCA is generally not in a tax-paying position, due to the amortization of intangibles that are tax-deductible, but not deductible for book purposes. Our GAAP EPS before discontinued operations was $0.10 versus $0.06 in the fourth quarter last year, up 67%. We use and illustrate cash EPS, a non-GAAP metric, to reflect the fact that GCA is generally not in a tax-paying position, even though the Company reports tax expense for GAAP purposes. The simple way to think about this adjustment is that we simply add back income tax expense to net income for the purposes of cash EPS. We do not make any adjustments for depreciation and amortization in arriving at cash EPS.

GCA generated over $32 million in cash flow from operations during the fourth quarter of 2009, and about $91 million for the year. Additionally, we completed our previous 25 million share repurchase authorization during the fourth quarter. We ended the quarter with just shy of 85 million of cash on hand. We remain in compliance with all of our debt covenants, and our leverage ratio is approximately 2.5 times trailing adjusted EBITDA. As we look towards 2010, we expect revenue will be approximately flat to slightly down from the revenue reported in 2009. GAAP EPS is expected to be flat to slightly better than the $0.45 reported in 2009. And cash Earnings Per Share are expected to be $0.02 to $0.04 better than the $0.71 reported in 2009. This assumes the gaming markets in which we operate remain somewhat challenged in the first half of 2010, and begin to recover modestly in the second half of 2010.

The foregoing expectations reflect the following assumptions, an effective tax rate for the full year of approximately 38%, cash outlays for capital expenditures are approximately $7 million to $9 million, fully diluted shares outstanding for the full year of approximately 69 million to 71 million, and the acquisition of Western Money Systems will close towards the middle of the year. This concludes our prepared remarks. We would now like to open it up for questions.

(Operator Instructions). Your first question comes from the line of Chris Mammone with Deutsche Bank. Please proceed.

Thanks. Good afternoon, guys. Let's see. I guess on the same store trends, I know that at least when you did report third quarter results, you were able to cite a few underlying metrics that you were at least optimistic showing some signs of stabilization. So maybe could you parse out sort of how that progressed month to month in the quarter, and maybe give some more detail on how that progressed, and why you think things really fell off the cliff?

Yes. What we had seen in I guess the fourth week of October when we did our third quarter release was some stabilization with respect to metrics, such as the average face per credit card transaction, or the relationship between credit and total transactions, which were two keys to the equation. Obviously we didn't have revenue for October at that point in time. But then subsequent to that we saw further weakness in November, with further weakness in December. Not only with respect to recognized revenue, but those underlying metrics as well. And as Scott mentioned and I mentioned in my script, although we are very early into the year, we have seen some very modest improvement in those metrics that I just made reference to, particularly the average cash dispensed per credit transaction. So we saw December become basically the worst month of the year, which was not within our expectations set at the end of October.

Okay. And then I think just picking up your guidance commentary sort of assuming challenging first half, modest recovery in the second half, could you maybe be more specific on what you're defining as modest? I know last year what you were hoping was, I think you were hoping for a second half recovery that never materialized. So I guess maybe help us understand what exactly you are assuming first half versus second half?

Yes. I mean, I want to avoid being specific to quarters. But in general what you see in the back half of the year relative to the first half would include incremental revenue from Western Money, some very modest amounts of revenue associated with some product deployments. But you also see if you just look at Q1 and Q2 of 2009, and where we are emerging from in Q4 of 2009, you see that you have to expect some year-over-year declines in the first half of the year. And we expect that trend to moderate in the back half of the year. So not only do we pick up some new revenue from actions that we have implemented, we're basically expecting very low positive single-digit growth in gaming in the back half of the year. Which is informed not only by the very early trends we see in January, but also conversations with our customers, and what we believe their expectations to be, with respect to conference bookings and deployments they are making around those timeframes as well.

Okay. That is helpful. Maybe I will just ask one more then I will give someone else a turn. But I think you mentioned on the ticket out product, the new timing being probably a little later on in the year than what you would have disclosed earlier. I mean, is there anything, is one of the reasons for that delay anything around sort of the expected regulatory approvals? Has that expectation changed? Could you just give an update on that part of the process?

No. It isn't. The change is, in our last call in October we were just finishing the conversion to the new platform. And while that conversion is completed, there is some opportunity for us to increase functionality on that platform. And it made sense to get some of that work done prior to doing the ticket out program. And that is entirely the change as we have just been able to get a clearer focus on how we are going to sequence through the products, not only our Casino Share Intelligence products coming out at the end of this quarter. Some time around the mid-year, end of the second quarter we have a QCP Express product coming out. It just made sense to slot it in in that order.

We still are essentially where we were last time. We have GLI approval for that product on the Western Money devices and certain slot systems, which would allow us to go into GLI jurisdictions like California. We are continuing to work in Nevada, have not got approval yet, but don't see, there is nothing also negative in that. So it is really just a matter of us getting a clear view on our technology sequence, and making sure we are going through that in the most efficient way.

So will the beta tests be happening in California?

It can, yes, absolutely. Yes.

Okay. Thanks, guys.

Your next question comes from the line of David Bain with Sterne Agee. Please proceed.

Great, thanks. I know it may be a little bit early, but can you guys discuss the potential economic models for some of the new products like ticket out? Or is that something that will be determined later on, or after beta trial results?

Yes. We certainly don't have anything to -- specific to announce with that. And when we actually announce the launch of the products we will be able to talk about that a little more specifically. I think, as I kind of stepped through all of the products that I mentioned, on our Casino Share Intelligence product, the one thing that unlike Casino Marketing Services, which kind of does tend to be a little bit sporadic, in terms of how it comes, we are doing that as a monthly subscription product. So as we sell that, it will contribute steady revenues. And of course they come in as all of our data and analytical services come in at fairly high margins. So that is going to be a subscription pricing model for that.

With any ad hoc or additional analytics that are done, that are requested by the customers it will be done on a one-off basis. So we will be able to provide both of those services as we move forward. QCP Express is primarily an upgrade to our current products, which its primary benefit will be customer retention, and over time the ability to continue to get slightly better margins than our competitors do. When we get to the ticket out product, we expect to be able to have incremental margins on a per transaction basis, for transactions that are done as a ticket out, versus as cash dispensed at the point of sale. But that pricing is yet to be determined.

Okay. And then you mentioned that Western Money would be at a low level to your guidance. I don't know if you can be any more specific than that, or if we can even say that it would be at the same level it was previous to the acquisition and for the second half of this year? Or is that going to be different because they are utilizing your network now in terms of sales force?

Dave, I am not quite sure I am totally clear on your question. But what I had said about Western Money was, and what it says in our guidance, is simply that the transaction is assumed to close mid-year. Western Money is performing at least as well, in fact somewhat better, than our original expectations when we entered into the agreement with Western Money. So that hasn't changed at all with respect to our guidance. But Western Money is relative to GCA a small company.

Right.

So we do believe it will be accretive to cash flow and GAAP earnings. But it is a modest amount of revenue that is being contributed in the back half of the year.

And two more quick ones. If we can get an update on the potential move of ticket exchange into the installed base of ATMs on the floor from a technology standpoint? Is that something that can happen in the next year? And then I was just going to ask if there was any seasonality to Central Credit, or is it just sporadic, because it looks like 4Q '08 also had a little bit of a bump there?

Can you repeat the first question? In terms of --?

In terms of ticket exchange, the kiosk basically for Western Money, I have read and I have talked to some folks that they are trying to merge that technology into the ATMs on the floor. I don't know if that is true or viable, or what. So I was kind of wondering how you guys felt about that? And then I was asking about the Central Credit, in terms of how to model that going forward.

Yes. I think from a Western Money standpoint, I mean, up to this currently, and in the past, we have, just as we have other manufacturers, do deliver our ATM products and services on Western Money kiosks also, okay, providing full-service capability on those ticket redemption kiosks, just like we do other manufacturers. So that is already in the market place. And we obviously would continue to do that. Where we see some advantages obviously as we move forward is the ability to fully integrate sort of the technology platforms, which would give us better monitoring of the devices in which we think we will deliver better service numbers also. As well as of course obviously what we said strategically when we did the acquisition is we control that technology platform, which really helps us seamlessly deliver products like ticket out, wagering accounts or stored value kind of applications, and things like that in the future.

And is that something though, that can be retrofit into the installed base of ATMs? The current ATMs because then you have the captive base.

Well, it can be installed in the current, it will probably be a conversion and be able to be installed in the current Western Money full-service kiosks, okay? When you talk about can it be installed in an ATM, that would require a fairly extensive amount, because there are no bill readers, there are no ticket printers, and that type of stuff in an ATM today. So it really does fit very nicely in the strategy we have had over the last three years to continue to move from ATMs to full-service kiosks. And George gave some pretty compelling numbers around how many of the full-service kiosks we have out there today. So that is the best way you can think of it. And the predominance of our ATMs tend to be in the smaller accounts. So you would expect a lot of this new technology to first and foremost go to our bigger accounts, and most of those folks are already running full service kiosks.

Okay. Great. Thank you.

On your second question with respect to other income, there are really three activities that constitute that line. The first and majority of the number is Central Credit, which is a subscription, generally a subscription basis revenue stream, which is very consistent from period to period. Then we have two products that have timing characteristics similar to software sales. The first is Casino Marketing Services, where we provide information to our casino clients that allows them to do specific marketing activities. And that is sold as an episode. It is an event. And so that can be lumpy quarter to quarter. But it is probably less than 10% of the total line. And then we have another information service that we call GRS, that also provides information to our clients to help them out in certain ways that also has characteristics similar to a software sale, in the sense that there is an event. And so those latter two items are what result in the variability that you see in the line. Central Credit is stable.

Okay. Thank you.

Your next question comes from the line of Todd Eilers with Roth Capital Partners. Please proceed.

Good afternoon, guys.

Hi.

A couple questions. First, I know that you guys always have large customer contracts up for renewal each year. But I am wondering if you could maybe just highlight some of the more notable ones that you need to defend this year. And then I have one follow-up.

Okay. I mean, we normally don't comment on individual customers in any given year. At this point in time, this year is like any other year where you would expect somewhere around one-third of our Top 10 customers to be up for renewal. And we are pursuing those as aggressively as we did in 2009, and we were very successful at closing the contracts, the cash access contracts that came up in 2009.

And just to refresh everybody's recollection, last quarter we did announce four Top 10 renewals during the year. Obviously we announced Wynn today, which is not in the Top 10, but a premier Lighthouse account. So I guess we will leave it at that. In any given year on any given day we are always working on renewals.

Sure. Okay. That is fair. And last question, just it looked like in Nevada last, or December, I guess the month of December benefited from some high-end baccarat play. Can you maybe give us a sense of how you guys are impacted from I guess a higher-end play like that, versus I guess more of the mass market play?

Yes. Unfortunately very little. That player is typically an international player, typically comes in on the equivalent of what you would think about as a junket operator. They are either given credit at the casino level, or some other ways. And it really, our business really is more about the mass market play if you will, or the floor gaming revenue and traffic that you see in the casinos.

Okay. All right. Thanks, guys.

You bet.

Your next question comes from the line of Greg Smith with Duncan-Williams. Please proceed. Greg Smith with Duncan-Williams, please proceed.

Yes, hi. Can you guys hear me?

We can hear you now, Greg.

Okay. Sorry about that. Just a little unclear what is in the guidance regarding buy backs and debt pay down?

What is in the guidance is $25 million share repurchase which we announced today. We have made comments with respect to the potential for additional capital utilization, which could be debt repurchase, or it could be further share repurchases as we move through the year. But there is no explicit quantification of the implementation of that sort of activity in our guidance. You'll see in the share count range we have given would clearly contemplate the execution of the share repurchase program. But that is where it starts and stops.

Okay. And then if let's say as the year progress things are a little weaker on the top line than maybe we all hoped for are there other areas where you can look to cut costs? Obviously we should get reduced legal expenses and better rates on the processing side of the business, but is there anything else that you could look to potentially offset if things are weaker than expected?

Well, as we have gone through the last several years we have made significant progress on our operating expense line as we highlighted in our comments earlier for 2009. We expect them to continue to decline as we go through 2010, even with the added expenses for the integration of Western Money, and our increased spending on development for new products. So we continually manage our costs very tightly here. You can see our headcount has continually trended down as we have become more efficient in what we are doing. So we will continue to look for any areas we can to make sure we are efficient with our spending. There is not a lot of variable expense kind of left in the program, unless you start making some drastic decisions to do things, like slow down or eliminate product development, and those types of things. And it would have to be a pretty severe situation before I think we would want to do that, just because of the long-term importance to both our customers given the environment they are competing in as well as GCA.

Yes, that makes sense. And just lastly the Wynns up in Canada, is there any common theme here? They are a weakened competitor, or just something you have focused on, or ability to offer new products, anything that we can sort of tie that all together with?

Well, we have been relatively strong in Alberta. And we just continue to grow our presence there. So that is just continuing to grow our customer base in Alberta. British Columbia is a new geography basically opening up. And we have got Edgewater Casino today. And we hope to close a second significant operator in British Columbia very shortly, within the next couple weeks.

Greg, we also had some feet dragging with respect to licensing applications, and those sorts of things, as we went through the Arizona exercise. And so as soon as that got lifted, we were able to complete things we had in the pipeline that were sitting there uncompleted.

Okay. Thanks a lot.

Your next question come from the line of Matthew Kempler with Sidoti & Company.

A couple of quick questions here. First did you see any additional fallout in the fourth quarter from the acquisitions you had made in 2008 related to lost customer contracts on the ATM side?

No. I mean, I don't think we are intending to suggest there has been any change from Q3. But you do see the flow-through of some losses that we discussed in Q3 having a full quarter impact in Q4. And some of those losses were within those portfolios.

Okay. But essentially all of the renewals are behind us in terms of the lower-priced contracts?

Oh, well, no. We are only about a year, between a year and a year and a half through all those contracts.

So think about those contracts very similar to our portfolio, are by and large three-year contracts.

Okay. All right. And then you mentioned that on all the Top 20 renewals that came up in 2009 the Company successfully closed. Can you reveal a little bit the pricing pressure that you see when those renewals come up, in general characterize the kind of potential declines in revenue share, and then what the Company's strategy has been to defend against that?

Well, in general, the comments that George made, as we closed those contracts at substantially the same pricing as historical, okay? So there has not been significant pressure on that. If you look across the last couple of years, you know that when we brought on the portfolios from the two acquisitions, that is where we materially see a significant change in our margins, as well as the shift from credit to ATM. So those are really the issues if you take a look at it from a macro level on margin decline. We always look to try to improve margins at renewals. And while we did have some losses we talked about in Q3, we have also been successful at re-signing some of those acquired accounts at higher margins than they had been historically. The credit situation frankly is one that is going to have to improve in the general market place and with consumers before that percentage of credit versus ATM starts to get back to historical levels. And the third thing, which is in our control that we are very focused on, is putting out the products over the next year, and on into the following year, that have real promise of increasing our margins.

Okay.

And just to clarify one comment, when we think about pricing we don't stop at the gross margin line. We think about pricing as it relates top to bottom on the P&L. So we have negotiations that result in business relationship changes, for example a property may install redemption devices for the first time, which impacts our OpEx. And we might increase our commissions to that property in exchange for that transaction. But they all vary. But we believe on the contribution margin line, which we track basically a pre-tax line, pricing has been relatively stable.

Okay. Great. And then the final question, you have your funding line with Bank of America. It comes up for renewal this year. Have negotiations started on that already, and just your thoughts in general on renewing that?

Yes. Bank of America is a very important partner to GCA. We work with them across a number of products that they offer. And we are in constant contact with them. We will work very hard on that issue during this year. We are in that process right now. That process will be vigorous to say the least, over the next two months or so. And so hopefully by our next call we may have some updates on that.

Okay. Thank you.

Your next question comes from the line of Josh Elving with Feltl & Company. Please proceed.

Hi, good afternoon.

Hi.

Most of my questions have been answered. I did have just one or two items that I may have missed. The ATM number under management? What was that number?

It was about 2,000, approximately.

Okay. And then just from a very high level perspective, big picture as you look out over the next call it four or five years as the casino market moves to a more and more cashless gaming environment, I think I saw in one of the slides that you had in a recent presentation that you did, that GCA is the only company currently in the process of developing a cashless gaming product. And I missed the, I guess the discussion around that comment. So I just kind of thinking from a high-level perspective, where does competition end up coming from down the road in that sense? And from a market share perspective, your biggest competitor I think probably has maybe 15% of the market. Can you just kind of talk about once we get into a cashless gaming environment, who is going to be there to be competition to you?

Yes. Let me just sort of start out because you kind of jumped to a new state, which I think everybody, including our customers, will tell you they think it's inevitable. We just don't know when. What we do believe is we believe that the sort of the size, the scope, our focus on purely on the casino industry, we think we are certainly in a leadership position, both in terms of thought leadership of how to get there, as well as our capability to get there, which is to be able to successfully marry the financial transaction network with the casino or the slot management systems, which is really what you need to be able to do to do cashless gaming. We think we are certainly more committed to that. We think we certainly have more heft and more ability to move the market place than anyone else does.

Certainly there are a lot of both equipment manufacturers, system manufacturers, table manufacturers, who are starting to talk about that, and have products that will be readily adaptable to our system when it is there. But we think we are right now pretty much out in front of the payment processors, which is really important because you have to physically get, or electronically get true cash loaded onto systems, okay? Or other things like tickets or stored value cards. So again we continue to be very focused on that. We are very committed to it. I think all of the input we have had back from customers in the industry.

And if you simply look around the world at what is happening in other geographies, you conclude that that is the way it is moving. And certainly our size and scale makes being able to work with customers, and with our technology partners, we think an advantage to us. So you never want to just sit back and say there is going to be no competitors out there. But we certainly think we are leading the thought, we are leading the innovation, and we certainly have some first mover advantage right now, which is why we are staying so focused on delivering those products over the next year or so.

Great. Thanks for the thoughts. That's it.

Yes.

(Operator Instructions). Your next question comes from the line of David Parker with Lazard Capital Markets, please proceed.

Thank you, good afternoon. Just during the economic downturn we have seen a number of states that are looking for new sources of revenue, which could come in the form of taxes on gaming. Can you just talk about the new opportunities domestically that you see over the next 12 to 18 months?

Yes. I mean, we certainly hope to at least proportionately and hopefully disproportionately benefit from new jurisdictions and new gaming opportunities that open up. We have had some of those over the last year and a half or so, with Pennsylvania continuing to grow. Pennsylvania has added table games recently. We have seen states like Colorado lift their minimum bets from $5 to $100, and allow gaming 24 hours a day. We have seen that jurisdiction see some growth because of that. And therefore our business does. Ohio is obviously one of the big new jurisdictions on the horizon. We don't think that is going to play into a casino opening before 2011. But again, certainly Penn has two of those four contracts, they are a long time customer of ours. It certainly would be our hope and desire that we are their partners in Ohio. So as all of these jurisdictions continue to open up, while there may be some cannibalization from our standpoint, all of that ought to provide some net new growth for GCA.

Great. Thanks for that, Scott. And then just a quick question for George. The free cash flow that you saw in 2009 was around $85 million. How sustainable is that for 2010 do you think? Or were there some one-time items that we should be aware of? I mean, it is over $1 per share, very attractive, so I am just wondering your thoughts on that?

Well, thanks for that question. There is only one item of a bit unusual character within the operating cash flow. We have talked, in fact in my script I talked about some challenges that resulted in our P&L from the conversion. But one of the real opportunities that resulted from the conversion, was a much higher velocity in collection of our settlement receivables. So if you went back and looked at our settlement receivables over the last four quarters you would see a significant decline subsequent to the conversion, and that decline is sustainable. And we expect those receivables to run a much lower number prospectively. But you are not going to get that same lift again in subsequent years obviously. But that is the only item that contributed incrementally to operating cash flow. The rest of it was normal ops.

Great. Thanks, guys.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.