Everi Holdings Inc (EVRI) 2010 Q2 法說會逐字稿

Good day, everyone and welcome to the Global Cash Access Holdings Incorporated second quarter 2010 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Jana Brown, Assistant Controller. Please go ahead.

Thank you, Jessica. And welcome everyone to GCA's second quarter 2010 earnings conference call. Joining me on today's conference call is Chief Executive Officer, Scott Betts. On today's call, Scott will give an overview on the Company's progress, and a brief update on our financial performance in the second quarter. Following these comments he 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 Investors 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 5.00 PM 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 are subject to a number of risks and uncertainties. These include statements regarding projected revenue, projected earnings, Harrah's transition, renewal of existing business, addition of new business, product upgrades and new products, cost saving measures, possible uses of free cash flow, including debt retirement and share buyback, acquisition of Western Money Systems, international expansion, and executive recruitment.

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 have filed on March 15, 2010, and our Form 10-Q that we intend to file with the SEC in the next few days, and the risk factors set forth therein.

With that, let me now hand it over to Scott.

Thank you, Jana. And thank you everyone for joining us on our call today. Our first quarter results were in line with our plan and assumption. Revenue was $157.2 million, cash EPS was $0.16 per share, and diluted EPS was $0.09 per share.

As you know, gaming sector performance is the biggest driver to our results. Similar to last year, we are seeing continued softening in same store revenues in June and July, suggesting to us that we are still not out of the woods yet on gaming sector recovery. When we gave guidance for the 2010 year, we had assumed that the same store revenue declines would moderate across the first six months, essentially flatten out by mid-year and then recover modestly in the second half.

Looking at our current segment trends and listening to our customers we now believe that we will continue to see a decline in same store revenue sales for the second half of 2010 also. The rate of decline is certainly slowing down significantly, from the double digit rates that we experienced in 2009, and that is certainly good news.

We saw same store revenues decline 7% in the first half of 2010, and we now believe we will experience continued decline in same store revenues in the mid-single digits for the second half of 2010. Given these updated trends we are lowering our 2010 guidance as you have seen in our earnings release. Just as a note, this adjustment does include the minor impact of the loss of the Harrah's business will have on our 2010 results.

Let me move on now, I know that the loss of the Harrah's business has raised a lot of questions, so let me start out by addressing some of them.

First, we have had a dialogue with Harrah's, and have reviewed the factors that they were willing to share with us as important to their decision. As you would expect, the decision involves a lot of factors, and we take all of that feedback constructively as we do with every customer. While it is disappointing that we did not retain the business, we also understand that Harrah's is a unique entity.

In the final analysis, we believe that Harrah's did not place as much value on GCA's full line of services, and specifically our product innovations, such as 3-In-1, Casino Share Intelligence, or QuikTicket, as we believe many of the other customers do. We certainly will work hard to compete for that business in the future. They are facing a complicated conversion at a difficult time of the year. And it's my experience that they may need additional support in this effort, and we will certainly do all that we can to ensure that that is a smooth transition.

Let me stress a few points before we move on. First, our revised guidance is driven almost entirely by the anticipated continued decline in same-store revenue performance. The anticipated loss of Harrah's business will have a minor impact on our 2010 results of operation.

Second, and this is a very important point, we have been very successful at signing all of our other top ten accounts, or top accounts that have come up over the last year, and we continue to do so on new accounts coming up now. In fact, we have been notified by another of our top ten customers, just last week, that we have been selected to continue as its exclusive provider of cash access solutions. We expect to be completing the contract process over the next few weeks on this customer.

My point is that we see no fundamental shift in our ability to compete. The segment remains competitive as it always has been, there are no guarantees about the future, and all contracts are individual negotiations. We will compete hard to renew our business with MGM, as we will with any other customer. This continues to speak well for our products, our positioning, and most importantly, the employees of this Company.

Third, Harrah's decision does not change our commitment to the investment in innovation. A vast majority of our customers are very supportive of our product program. We are early in the sales cycle, but have already signed and are currently negotiating several CSI contracts, and certainly expect that number of contracts to grow in the second half of 2010.

Most importantly, we continue to be getting encouraging feedback from our other customers, based on our new product pipeline. Pricing is always the question, and as always, we are seeing competitive pricing as competition remains strong. However, it is important to remind yourself that even in the current pricing pressure, the decline in our gross margins has been primarily impacted by the continued same-store revenue declines, and patrons continued shift away from credit card cash advance. This trend should reverse itself when we enter into a recovery period. So numerically less than 15% of the decline of our gross margins over the past six months have been due to pricing moves. The vast majority are obviously for the two other factors.

Fourth, we have the remainder of the year to execute plans to ensure that we stay as healthy financially as we can during the challenging economic environment. We anticipate being able to partially offset the loss of revenue from the Harrah's business through cost-savings measures. We are still developing our specific plans but feel our target to offset about half of the earnings impact through cost savings in 2011 is certainly achievable.

We will continue to use our significant cash flow to improve our earnings performance. We are planning to retire another $25 million of our senior subordinated notes over the next several months, and will be assessing the opportunity to either exercise some of the $25 million share buyback that is currently authorized, continue to reduce debt, or some combination over the remainder of the year. This does two things for us. It keeps us on the conservative side of our debt ratio, to ensure that we have the operating flexibility that we want. And it improves our ability to refinance our debt well ahead of our maturity date.

Net we remain committed to our strategy of pursuing innovative products, and we want to be sure that we have the best Company with the best products going forward. We remain focused on resigning and being competitive on all new accounts and account renewals. As I said we believe the number of CSI contracts will continue to grow. We will be launching our previously-announced upgrade to our core QCP Cash Access products, and we intend to continue to leverage our new platform by driving down costs, as well as moving forward with our product initiatives.

We are in the very early stages of the Western Money acquisition, but we continue to be on plan with its integration. And we are already seeing opportunities to make this a growing part of our business. We will also be making modest investments in developing new products in this product line also.

We are also very pleased to receive the approval of QuikTicket from the Nevada Gaming Control Board. We are seeking final concurrence from the card networks, and finalizing some of our commercialization items, and remain on track for a beta test by the end of this year.

Longer term, we believe we will continue to see growth in Canada and new jurisdictions, our key opportunities for us in 2011 and beyond. We will continue to invest in our people and organization, and let me leave this part of my comments by again, recognizing the tremendous work our people have done and continue to do. Their dedication to our brand, and to do what is right for our customers and our Company in the future, is truly the strength of our Company.

This is probably a perfect time for me to give everyone an update on the CFO search. We are well along on this project, and hope to have this concluded by the end of August, and have a new CFO on board. Interest is high, and I have seen some great talent.

So a few more specifics on the financial results from the quarter. Reflecting segment trends, revenue decreased 9.1% compared with last year's second quarter, and about 7.4% on a same store basis. Similar to prior quarters, virtually the entire same store decline was driven by the decline in credit usage. Same store figures for cash advance revenue was negative 15%, ATM was positive 3%, and debit was positive 3%. We also saw a year-over-year and sequential quarter decline in our average cash dispensed per transaction.

On a sequential basis total cash advance revenue was down about 4%., driven by the decrease in debit. ATM revenue decreased 4.7% in the second quarter of 2010 to $81 million, due largely to the decrease in year-over-year transactions of about 5.6%, while revenue per ATM transaction was up modestly, due to slightly higher average surcharges assessed for a transaction.

Our check warranty product continued to decline during the quarter by about 24.6%, compared to the prior year's results from decreased -- and is the result of a decrease in the number of check service transactions, compounded by the decrease in the check service revenue per transaction.

Our gross margins as a percent of revenue were 23.6%, down from the second quarter of 2009, and down from the 24.5% reported in the first quarter of 2010. This decline in margin comes primarily from an increase in interchange costs specific to POS debit interchange. Many of our contracts permit the pass through of interchange increases, and we will be doing so in the second half of this year to recoup this.

We continue to effectively manage our operating expenses, exclusive of depreciation and amortization, operating expenses were down 2.2% to $19.3 million from prior year, driven largely by a reduction in number of employees, and the lower costs associated with our ATM management and servicing. We did incur significant one-time legal expenses, in connection with the licensing requirements for the Western Money acquisition.

In the second quarter of 2010, non-cash equity compensation expense was $2.2 million. We ended the quarter with just about 466 full-time equivalent employees, compared to about 450 at the end of the first quarter of 2010. This reflects the addition of 52 employees in the Western Money acquisition.

We had about 2,900 floor devices processing on our networks as of June 30. This includes 1,150 redemption devices, and the remainder largely consisting of ATM. This compares to the 2,900 floor devices at the end of the first quarter of which 1,090 were redemption devices.

We continue to use and illustrate cash EPS, a non-GAAP metric, to reflect the fact that GCA is generally not a tax-paying entity, even though the Company reports tax expenses for GAAP purposes. Our cash EPS was $0.16 per share, compared to $0.18 in the second quarter of last year, and our GAAP EPS before discontinuing operation was right on plan at $0.09 per share.

GCA generated $22 million in cash flow from operations during the second quarter of 2010, we completed a $25 million share repurchase, and paid down debt by $25 million in the quarter. Cash available for use in the business is approximately $35 million as of July 31st. We remain in compliance with all of our debt covenants, and our leverage ratio is approximately 2.5 times trailing adjusted EBITDA as of June 30.

The Company's initial guidance for 2010 as I said was based on the stabilization of segment trends in the first half of 2010, and an assumption of a modest improvement in the second half of 2010. Again, results through July now indicate that while the rate of same store declines has slowed significantly, the Company is now forecasting continued declines for the remainder of 2010. For this reason, we are lowering our annual guidance of GAAP EPS to between $0.40 and $0.43 a share, and our cash EPS to between $0.69 and $0.72 a share. Correspondingly, we expect revenues to be down slightly versus last year.

This guidance reflects the following assumptions. Our effective tax rate for the full year of approximately 38%, our cash outlays for capital expenditures remains between $7 million and $9 million. Our fully diluted shares outstanding for the full year of approximately 67.5 million to 68.5 million shares, the loss of the Harrah's contract effective November 2010, and the redemption of an additional $25 million in senior subordinated notes in the fourth quarter of 2010.

I know there will be a lot of questions on what 2011 will look like, but we believe at this point it would be way too premature to be giving any guidance at this time, given the uncertainties in the overall sector trends that impact our business so significantly, but what I can tell you is GCA is doing all we can to strengthen our Company for the recovery that we believe is coming.

So with that, I will turn it back over to the operator, and open it up for questions.

Thank you. (Operator Instructions). And our first question comes from David Bain from Sterne Agee.

Hey, Scott, I know you said it was minor, but could you give us any granularity as to the EPS impact in your new guidance, if any, due to the Harrah's contract? And then also in connection with guidance, the redemption of the $25 million in senior subs, I think that was new versus previous guidance. I guess we can probably plug that in there and do a little work, but if you can give us any back of the envelope math there too, that would be helpful.

When we said it was on the impact of Harrah's, and again, we are still assessing how quickly we can move costs down, but think of that as slightly less than a penny.

Okay. Great.

Okay. And on the $25 million, it is just to again kind of give you all some indication of what we are doing with our available cash. We think it is the right next move for us, both in terms of assuring that we stay well within all of our covenants, and give us the opportunity to do anything we need in the operations moving forward, and also puts us in very good position to refinance our debt well ahead of its maturity date.

So we just thought we would let that out, put that out there. We have some pre notification timings for it, so think about that happening some time in the fourth quarter.

Okay. And then can you review not just the sales process, but maybe the timing and implementation and really even the adoption process of QuikTicket? I mean, how will this differ from the PowerCash installation, in terms of training and marketing to patrons?

Well, it is certainly far less complicated from a customer standpoint to implement QuikTicket than the PowerCash. Essentially the customer doesn't have to do anything. It runs on our system. It runs on our current hardware. There is nothing that they have to do to change their system either. It is just a system upgrade to our processing network. So from that standpoint, it is very straightforward from an implementation standpoint.

We want to get through our beta test this year, as we have said, and we would look to be rolling this out more significantly in early 2011, the sales process would be just like any other product. It would be an addendum to our current contracts as we move the product out to our customers. And it is again, we think a pretty straightforward way to do this, and the conversion would be done very simply, and we certainly would do training for the people in cages, and so forth, just so they are aware of the new transaction, if they should get any questions from their guests, but it is very straightforward compared to the PowerCash.

Okay. And just last one, and then I will let someone else go. But can you give us any kind of data or metrics you think would be interesting to an early adopter or someone that is taking in QuikTicket technology, I mean, how much it could possibly save them in cash handling costs, or security, or on the flip side, any kind of theoretical analysis on how it could potentially augment coin in, or increase hold on the floor?

Well, certainly, the best metric, and I don't have it with me right now, David, but if you take a look at our -- we have talked about our cost to put money in ATM's, that is probably a pretty good surrogate for what the cost is for dealing with cash and dispensing cash on a casino floor. So I really don't have anything to give you specifically on that. But there are certainly significant opportunities to lower cash on the floor, there is also some significant opportunities --- you know some opportunities that it could potentially positively impact coin in, and those economics for an operator also.

Okay, great, thank you.

Yes, thanks. David.

We will go to Greg Smith from Duncan-Williams.

Yes, Scott, you gave some color on Harrah's that they maybe didn't value some of your products, but it sort of leads to was it then a price issue or were there any sort of service related issues potentially? I am just hoping to get even more color there?

I don't know that I am going to satisfy you on that one. There are always a lot of factors that go into that. They understood what -- what our products were. We felt we gave them a very competitive bid. We obviously don't know what the final pricing was that they got. But as we net through all of what they were at least willing to share with us, I think the biggest take-away for us was that they just did not see the value in the product innovation, and in the proprietary products that we have.

Okay.

We think that is unique. I mean, we certainly hear a very different story from many of our customers.

Then you said in the quarter there were some legal expenses related to I guess Western Money? Can you quantify those?

Yes. It is predominantly our net necessity, to license ourselves at a higher level of licensure across all of the geographies, and I think there is probably about 130 or so jurisdictions that we have to get licensed in, including all the way up through the Board. So there is a fair amount of I will say legal administrative work that has to be done to get that licensing. And we wanted to do that as quickly as possible so that we could again close that transaction in May, so we have incurred some significant external legal fees to just help us through the hump as we get all of that licensing done. That is pretty much, I mean there is always ongoing maintenance of those licenses, but the big slug of it is certainly a one-time event.

Are we talking a few hundred thousand dollars here? I mean it's less than a million, right?

It is probably close to $1 million in total.

Okay. And then just on your check losses, it looks like bad debt's pretty good, just anything unusual going on on the check side?

No. That continues to be run very well.

Okay. Thank you. Appreciate it.

You bet. Thank you.

We will now go to Chris Mammone from Deutsche Bank.

This is [inaudible] for Chris. Just a quick question. Are there any lingering issues with the DSF conversion? We heard that you guys had some issues in the fall. Are those mostly taken care of, or are there still some issues outstanding there?

Yes, our processing performance since the beginning of the year has been very stable. And in fact, we are processing in an uptimes that are better than what we had on our previous supplier for that same period of time.

So do you think that some of the issues from the fall may still be lingering on customer's minds as contracts come up for renewal?

No. I think we had a couple issues in October last year, but like I say, when you look at really December too, but January through June, the platform has been rock steady.

So, as we said last time, those are one-time events and we fixed them and again, the performance is actually over that six-month period of time better than it was on the previous platform that we had.

Great. And then just with respect to the QuikTicket product. Two current networks who will actually allow for ATM transactions to dispense tickets instead of cash?

We are in the process of working with all of the ATM networks on assuring that they understand the nature of that transaction. And that is why we've said we need to -- that is one of the commercialization items we need to get completed before we do our beta tests.

Great. And then once you have that in place, do you think it will impact the [diverse] interchange fee that you collect if no cash is being dispensed on these machines?

No, no.

Alright. Thank you.

Okay.

We will now go to [Evan Hobson Carr] from KeyBanc.

Do you plan on tapping the potential markets such as Italy or Brazil, or do you have any plans on doing so?

We have always said that international is obviously a place that we would look for long term growth. We still maintain a great presence in the EU. Canada has been particularly good. We have almost doubled that business over the last 18 months, and we continue to see some growth in Canada.

We are continuing to focus on developing a strategy that we hope will work in Macau and Singapore, because they are just obviously great markets to go into. It is interesting we actually do have some equipment business in South America that we are getting with Western Money which is great way for us to sort of launch into those markets. But at this point in time from a Cash Access standpoint, we don't have any plans in South America.

Okay. That is helpful. And another question, with Massachusetts, and possibly legalizing gambling, and Ohio on the verge of legalized gambling, do you have plans on tapping those markets?

Absolutely. Absolutely. And again, I think the first, and I may have this wrong, but I think I recall that the first casino in Ohio will probably be later in 2011. And then they will obviously be rolling out from there. Those licenses are -- at least two of them are with current customers, so that is a good positive for us. And we are going to obviously we stay very close to that, and the operators who are granted license both in Ohio, Massachusetts, really any jurisdiction as they come up, and we certainly expect to get at least a fair share of those new jurisdictions as they open up.

Alright. Thank you.

You bet. Thank you.

We will now go to David Parker from Lazard Capital Markets.

Thank you, good afternoon, Scott. I just was hoping you could talk a little bit more about gross margins, in the past they have been impacted by the shift away from the credit card cash advance. This quarter you mentioned the interchange pass through, can you just provide some more color around that, and then also do you anticipate them staying below that 25% level that we hit this quarter, or 24%?

Yes, let me talk about the interchange first. As you know, some of the networks have made some interchange changes in the second quarter. We are certainly going through and making those changes on our system and assessing the impact of those, as I mentioned our contracts, many, many of our contracts allow us to pass through interchange, and so we will be doing that in the second half of the year, as soon as we can practically get that done, and frankly give our customers the lead time that they deserve on a notification like that. So that is that piece of it, okay.

When we look at the actual shift in -- and this a more longer term trend, in terms of our gross margin compression, what I said is pricing from new contracts and renewed contracts is certainly less than 15%, okay? With the remainder due to just the decline in the segments.

And if you want to look at that as we have been very good at managing our costs on the way down, but there certainly is when you are in such a long, protracted issue that we are, there certainly is a little bit of reverse leverage going on there. And the other is really just the drying up of the credit card cash advance, and moving to debit and ATM. So if you thought about those as sort of 50/50 on the remaining you would be pretty close.

So it sounds like we should anticipate a bounce back there, they should be stable, but down at this level for a while?

Yes, the one thing again, we are certainly --- you know had hope when we gave guidance earlier in the year that we would start to see a flattening to a modest recovery in the second half of the year. I think if you are trying to --- again trying to look, maybe this is a little bit of looking for a silver lining, but certainly the halving of the decline rate from 2009 levels to what we are seeing in the first half of this year is encouraging.

The other thing that is encouraging is we are seeing no more divergence of the credit card decline from the rest of the transaction, so we are not seeing that continuing to erode further than the decline of transactions in total. So certainly that has stabilized. So, yes, you would expect that when we do get to a recovery period, obviously we have tremendous leverage on the way up, in terms of same store growth and as the economy and unemployment rates improve, you would expect people's use of credit to open up also.

Okay. And then in your comments regarding Harrah's, and their deconversion, you mentioned that they might need some services to help them through that process. Can you just talk about that deconversion process and how complicated it might be, or what might be some of the road blocks?

Again on an individual device basis or a property basis, it is not tremendously difficult, but there has to be new communication lines put in. The equipment gets changed out. The services get changed out. They are going to have to have training and so forth. I just want to say that we understand that, and we are certainly going to support that transition in any way that we need to.

It also tends to be at a difficult time of the year where a lot of processors are frankly in lockdown, because of the holiday season, and those types of things. So we will do whatever we can to ensure that they get through that transition. They have got a lot of properties to go through. So I would be -- it would be kind of shocking to think that can happen in a day.

Okay, great. And then just final question is, with the challenges remaining in the gaming industry overall, do you anticipate any cost control measures from a headcount perspective, or from discretionary spend perspective that you might implement going forward?

We certainly continue to manage that very well. I mean if you actually run the math on the numbers I gave you, we are actually down on head count on an equal, on kind of a comparative basis. We added 52 people with Western Money, so we continue to manage aggressively, and have over the last two years. Our total operating expense was down 2%. So I think that is sort of indicative of our ability to manage our costs. And we are going to continue to do that. We gave some indication of what we think the magnitude of that might be when we have stated that our target is to offset about half of the earnings loss from Harrah's.

Thanks, Scott.

Okay. Thank you.

We will now go to Tien-Tsin Huang from JPMorgan.

Hi, Scott.

Hi, how are you doing?

I am all right. I am all right. Most of my questions have been addressed here. I guess the conversion to follow-up on David's question, are they just going to simply cut over to the new provider, or put new providers on December 1? Or is there a chance that gets pushed out at this stage?

We don't know. We will certainly have our individuals stay close to their project managers, in terms of how they are doing that transition. We do that with all of our customers. So they really haven't expressed to us what their plans are to get through that conversion.

Do you discuss who won the contract? Is it the usual suspects or someone new?

It is the usual suspects.

Okay. Just two more. Just the central credit revenues were quite strong sequentially. What is driving that, and is it sustainable?

It is just continued sales on central credit in our customers. I mean, just contract wins.

Okay. So it shouldn't be considered a one-timer then, right? I assume that continues --?

Yes.

-- at this level? And just lastly, I know you commented briefly on the MGM renewal, have you changed your approach on handling that, on that particular renewal given what you have learned so far from Harrah's?

Well, first of all, I'm surprised I am into the fifth or sixth question before somebody asked me about that.

I am sorry, I'll be the bad guy.

You are never a bad guy Tien-Tsin. Look, we are certainly acutely aware of the competitive nature of the category. You can certainly anticipate what competitors' reactions are to all of this. I don't know what to tell you. We always take a look at everything that is going on, and we are as competitive as we possibly can be to win business, and we think that the value that we have and the value we can offer MGM and all our customers is significant. We are going to continue to push that, and we again, I guess I make the statement, I don't see any fundamental difference in our ability to compete today than we had three weeks ago.

Okay. Good. Just I guess one more. The ATM side, it does seem like the declines are obviously becoming smaller. I am curious, can we start to actually start to see positive revenue growth here in the second half of the year? The comparisons do get easier. (inaudible).

Yes, if you actually look where we are guiding, you could back these numbers back out easy enough. So we are actually assuming that revenue in the second half is slightly lower than revenue in our first half. Okay?

So again, we are just trying to get the best handle that we can on what we see the trends being, and be as objective and open with you all, in terms of where we see guidance at this point in time. We have assumed that there would be no recovery. Could we possibly go slightly positive in one of those months, because we had a couple of months that were really, really down in 2009, but I think that is more a math exercise than it is sort of the underlying trends.

We have assumed that that will continue to decline, but continue to, I guess decline and the rate of decline, but it will still be down below a year ago, and second half will be slightly lower than the first half.

Okay, perfect. That is helpful, Scott. Thanks a lot.

Thank you.

We will now go to Matthew Kempler, Sidoti & Company.

I wanted to follow-up on the question from earlier, I guess. Regarding the Harrah's loss, does this make you rethink at all in your strategy about how you present the value of your products since you are saying that here is a company that didn't value it as others do?

I think obviously the more time that goes by, the more certain we are of our products, and obviously once you are in beta test you have more to show, and tell people than you do where we are right now. So you always wish you were six months ahead of where you really are, right, in terms of new products.

But no, we think we have got a very good handle on what we believe the value of our new products are, things like CSI have been -- are very robust, in terms of what we are able to show our customers. Ticket Out is, one, it's very intuitive for customers to understand what the advantage of those are.

We do have data that we share on 3-In-1 and some other pieces. I think the issue is more like I say on the receptivity of the message, and whatever the individual pressures are that our customers are under, and how they make decisions. As get further and further on and these products are in more and more installations, you get more and more data that makes it a little bit easier. But we are pretty confident in our value proposition that we have moving forward with these products.

Okay. And are you aware of if there are maybe any specific features or services that your competitors had offered that GCA doesn't currently provide?

There are slight differences between all of our products, and again, if you are kind of going back to our product program, we also are doing a significant upgrade to our core QCP which is our cage products in the second half of this year. So we are making sure that we bring along our core products along with the new products that we think are meaningful to the industry.

Okay. And then I know you are still formulating the plan, but if you are successful in offsetting roughly half of the earnings impact from Harrah's in 2011, roughly even with a range, what do you estimate that earnings impact would be at this point?

We are not going to disclose that. We don't disclose the profitability of the contracts, the individual contracts.

Okay. And then otherwise I guess it sounded like the devices were roughly flat sequentially, and were net properties under management also flat sequentially?

Yes.

As you look out to maybe the end of this year, excluding Harrah's, do you expect growth in properties and devices or do you think that it will kind of hold the line?

We are always confident and optimistic as we go forward to win contracts. We are certainly an RFP for new properties, as well as re-signing current ones. So we would expect to be as successful as we have been in the past at that. We don't see any major changes.

Okay. Thank you.

Yes.

And we will move to Tim Willi from Wells Fargo.

Good afternoon, Scott. How are you?

I am good, thanks.

Great. I just had one question [not certain if it has been touched on]. But just going back to the contracts and re-pricing and all of these issues, when you think about the receptivity that you have gotten from other customers and the value that you -- irregardless of where the pricing may go on the sort of legacy cash advance products, do you think that you actually can improve the overall revenue take from these customers, and just sort of hypothetically think about how you want to price these new products, and what you are willing to do on the traditional cash advance products, [if you could] walk away from property that equal or potentially greater revenue over the life of a new contract?

I guess it is little bit early for me to actually put the proof on the table, but first of all, we always remain disciplined in our pricing of contracts, in our pricing to get business. So that is always, and we are going to continue to do that. We will be aggressive, we will be competitive, but we will be disciplined.

In terms of new products, like I say we, while it is just handful at this point in time we are in the process of either have signed, or in the process of signing several products on CSI. That is all incremental revenue to us.

In terms of some of the products that are further out, you know, QuikTicket and so forth, again we are relatively confident in our value model, and what we think that is worth to a casino. And so we would expect to be able to get some of that value back to GCA. It may not show up so much and the other point I will make, is it may not show up so much on top line as it should show up in expansion of margins.

Okay, then just a follow-up to that. Have you largely cycled through renegotiating and renewing all of the contracts from the two acquisitions back in 2008? Because I know there is a little bit of noise around revenue growth, et cetera, if you may not renew some people the [delta on a readjust] their pricing and choose to go somewhere else?

Yes, that's true, we talked about that I think in the first quarter call where we said that we did have some higher than historical anticipated losses in those acquired portfolios as we were moving forward. If you think about those as being essentially three-year contracts, we still have got a year or so to go. Cash Systems was closed in August of 2008,Certegy in April. We are just --- we are finishing up those, but we still have got a significant number of contracts that will go for the next year.

Great. And then just last thing on the debt. Is it your intent to probably truly refinance the majority of that debt, or do you think you will take a good chunk of it down before you would be in that position?

I always look at this with three factors. Obviously the first thing is any opportunities that come by to invest in the business, we are going to do. Right? Whether that is another acquisition, or something, if those things come by, that would be our primary and our first order of business, in terms of the use of the cash. I think we believe it is prudent at this point in time to take the next bite out of the debt, repurchasing another $25 million of senior sub. Like I say it does give us a lot more headroom, and does set us up for being more competitive to negotiating -- refinancing of our total debt. The other thing that we always look at is market conditions. And if we can do that, extend our debt out at something at or below what our current blended rate of interest is we will do it.

Great, thanks so much.

You bet. Thanks, Tim.

We will now go to Jeff Bronchick from RCB Investment Management.

Asked and answered. Thank you, Scott.

You bet, thank you.

We will now go to Nick Zamparelli from Chartwell.

Thanks for taking the question. I was wondering if you can help us quantify what you expect, or where you anticipate your total cost savings in 2011 could be?

No, I'm not -- we are not, we're at this point in time putting those plans together. I think any comment on 2011 is going to have to wait for a quarter or two when we have a better look at what we are doing, both in terms of our investment in products, and there are just too many moving parts to do that.

Okay. And just one more quick one. Are you aware of any large bank, ATM competitors that are developing similar technologies to the QuikTicket product?

No, I am not.

Okay.

Am I missing something?

No, just --- (inaudible).

Thanks, Nick. No, I don't.

Thanks.

Our next question comes from [Tom Raphman from Seaport] Asset Management.

Hey, Scott, a couple of questions for you. In terms of the number of machines that are in the Harrah's properties, can you give me that number?

I don't know it off the top of my head.

How about roughly a percentage in terms of total machines?

You know, we said they are 14% of our revenue, so that would be my best -- I just don't know. Honestly, it is just a number I don't have.

Okay. And then what is your plan for those machines?

Harrah's owns most of their redemption devices themselves, so they are theirs. On the ATMs, we go through equipment refresh cycles with all of our customers, and obviously the ones that are newer will get redeployed into other locations. The ones that are on end of life will end of life like the remainder, but we don't see that as having a major driver from a financial impact. Okay? If that's -- that I can tell you. We have at least --- we've looked at that. We don't own -- because we only own the ATM devices, it is not going to be a huge issue for us. In fact, we have some pretty significant -- some newer machines in there that we will wind up just redeploying.

And then you will just end -- wherever you put those in, you will get rid of the machines that are in there, the old machines?

Yes. And we do that on a normal basis. That is really what the biggest piece of our capital investment is really in the continued upgrading of the fleet, and end of lifing the ones that are old. So we don't see a big impact on that, or any big write-downs or anything else at this point in time.

And in terms of timing for when you will be able to rebid on Harrah's contracts, do you know that timeframe yet?

No, we don't. I mean, other than participating in the RFP process, we know it's a multi-year contract.

Okay. And then in terms of the CFO process, can you give a little more detail, have you narrowed it down to a few candidates, or just one candidate, and you are renegotiating --- or negotiating the contract?

I am at the tail end of what I hope is the initial interviewing, and over the next week we will be narrowing that down to a couple of candidates, that we will be going deeper with.

Did you use a firm to help you?

Yes, we did.

Can you release the firm's name?

No.

Okay. Then the last question, I might have missed this one. In terms of the bonds that are outstanding, have you looked at a more specific timing for refinancing versus just taking out $25 million at a time?

Yes. And if I wasn't clear on this, I am sorry about that. But yes, we are doing both of those. We are certainly assessing what the market and what the opportunities are for refinancing, and we also think that at least the next traunche that we have talked about in terms of retiring some of that debt is prudent for us to do at this time for both of those reasons, of giving us increased headroom to be able to respond to anything that we need to in the future, as well as putting us in a great position to get the best rates if we refinance.

Alright. So can I take that then the current market conditions aren't the right conditions for you to come with a refinancing?

No, you can take it that we are interested enough in the current market conditions to investigate it.

Okay. Alright. Those are all of my questions. Thank you.

Yes.

And we have time for one final question and our final question comes from Howard Rosencrans from Value Advisories.

My questions have been answered. Thank you very much.

Okay, thank you, Howard.

Then we will go to Bennett Leichman from [Lamco].

Yes, Scott, I think you mentioned earlier that your cash available for operations at July 31 was about $35 million, and in looking at your second quarter release you are showing balance sheet cash of about $62 million at June. Just curious as to what the high level items are that might be driving the month to month cash swing?

It is settlement, is the major driver on that. Okay, in terms of what the settlement obligations are. Secondly, when we talk about that at least when I talk about it, I am interested in cash that I can immediately put to the business. There are cash accounts internationally and so forth, that we conservatively could get at, but I didn't include in that number. Those are really the major factors.

Okay. So --.

And booth cash, I am sorry, the other one is our booth cash, where we have, where we are running basically cages for people, and we have cash that is obviously residing in those booths at any given time.

Okay. So that $35 million number is -- can we think of that as almost like a subset of your balance sheet cash?

Yes.

Okay, is it?

Yes.

So basically, you have the corporate level cash which is available for things like buybacks and debt paydowns versus call it cash that is dedicated to supporting your business at the operating level? Is that fair?

Yes, that is exactly right. And the stuff, the cash used to operate are in those three buckets I gave you.

Okay. Just from a high level standpoint, when we think about your business and the cash that you are reflecting on your balance sheet as of your quarter end dates, is there a minimum level of cash that is needed to support operations at any point in time?

Yes. I mean, again, I don't want this to sound like a flip answer, but it's obviously we need to cover the settlement receivables, we need to have our booth cash to a point where we operate, and we need to also have the cash that we have globally in international accounts.

The thing that swings wildly for us is the settlement accounts, and that really is so dependent on what day of the month that we close on. That is why what I wanted to give is an idea of how much cash we have on hand that is deployable to the business. We gave you that number. You can --- as you know -- another number that we have given you as a rule of thumb is that probably increases about $5 million a month.

Okay. Alright. Thank you very much, Scott.

I hope that is helpful. Thank you.

Okay.

And this is all the time we have for questions. I will turn the conference back over to our presenters for any additional or closing remarks.

No, we don't have any closing remarks. I thank everybody for their attention and their questions today, and make it a good day. Bye-bye.

This concludes today's presentation. Thank you for your participation.