Everi Holdings Inc (EVRI) 2015 Q2 法說會逐字稿

Hello, everyone. Thank you for standing by and welcome to the Global Cash Access Holding, Inc. second quarter 2015 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for a question and answer session. This conference call is being recorded today, Tuesday, July 28, 2015. And, now, I would like to turn the conference over to Todd Valli, Vice President of Corporate Finance and Investor Relations. Please go ahead, sir.

Thank you, and welcome to the call. Joining me today is President and Chief Executive Officer, Ram V. Chary; and Executive Vice President and Chief Financial Officer, Randy L. Taylor.

Before we begin, I would like to remind you that the Safe Harbor disclaimer in our public documents covers this call and our webcast and that some of the comments to be made during this call contain forward-looking statements and assumptions that are subject to risks and uncertainties including, but not limited to, those contained in our SEC filings, all of which are posted within the Investor Relations section of our corporate website.

These events could cause actual results to differ materially from those described in our forward-looking statements and, as such, we would like to caution against undue reliance on these forward-looking statements. They should not be considered an indication of future performance. We do not intend and assume no obligation to update any forward-looking statement. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of today.

In addition, this call may refer to certain non-GAAP measures such as adjusted EBITDA and cash earnings per share. We reference these non-GAAP measures to enhance investor understanding of the underlying trends in our business and to provide better comparability between periods in different years. For a full reconciliation of these non-GAAP measures to GAAP results, please see our earnings press release and related 8-K, both of which are available within the Investor Relations section of our corporate website.

Finally, this call is being webcast, which may be also accessed within the Investor Relations section of our corporate website, and a replay of the call will be archived.

With that, I am pleased to introduce our President and Chief Executive Officer, Ram V. Chary.

Thank you, Todd. Good afternoon, everyone, and thank you for joining us on today's call. I will provide an update on the key initiatives and integration activities we've undertaken since completing the acquisition of Multimedia late in 2014 including our recently-implemented accelerated growth-focused investment plan that we detailed in this afternoon's press release. After that, Randy will discuss our 2015 second quarter results in more detail before we open the call to your questions.

I want to start by noting that a little more than six months into the integration of Multimedia we believe the growth in our operating results and the progress we are achieving in further positioning us as the only supplier of both games and payment solutions for the casino industry is an excellent representation of how we expect the future will evolve over the short and intermediate term. We achieved year-over-year revenue growth for the quarter in both our games and payments segments.

For our games business, this year-over-year growth is unique given the current industry landscape. We're all aware of the challenges impacting growth opportunities for slot suppliers including a longer replacement cycle, less new casino openings, and continued capital constraints for a number of operators. Our ability to increase market and ship share in this operating environment is noteworthy and a testament to the excellent work being done by our team. For our payments business the ongoing core cash access momentum reflects both continued improvements in gaming volume as well as the value our solutions bring to customers in helping increase cash to the floor.

First, it's important to highlight that we remain driven to achieve solid revenue results for both our games and payments businesses in the short and intermediate term as on a year-over-year basis, our games segment revenue increased over 9% and our payments segment revenue increased by 5% for the second quarter.

Second, we are undertaking a corporate rebranding initiative that we expect to be in full effect by late next month including a new name and logo mark for the Company as well as a new stock ticker symbol on the New York Stock Exchange. As we continue to focus on providing complete solutions for our gaming operators, there is a fundamental need to rebrand the Company as we better define our broader opportunities to address our customers' casino floor and technology needs. Our new brand will provide us with a unique identity that conveys our intention to be a full-service supplier of casino gaming equipment and payment solutions for our customers. Expenses for the rebranding initiative are anticipated to cost several million dollars in 2015 with the majority being incurred in the second half of the year.

Finally, the full-year results will also be impacted by our decision to accelerate the timing of a range of growth-oriented investments following ongoing customer interactions. Before I share some of the details of what these accelerated investments mean for our company going forward, I want to provide a little more perspective on the current opportunities we are already executing upon.

When we acquired Multimedia we viewed the strategic rationale for the transaction including the opportunity that existed to sell Multimedia's products into our significantly larger payments customer base. Multimedia had clear success as they entered new markets with games that resonated with players. In particular, the Austin-based development team's unique culture was expressed very successfully in the games they developed and their ability to garner a consistent lower single-digit market share. We believe that our ability in the near- and mid-term to introduce these products to our larger customer base is a key attribute that will enable us to build upon the momentum in the games business.

I'm pleased to say that we are executing on this initiative. We have recently secured commitments with at least four customers who identified our company as both a payments and games solution provider. We also recognized that our larger compliance infrastructure would allow us to gain access to new markets for our games segment at a faster rate and similarly help us to push a larger number of new games through the regulatory approval process. This is being achieved as well and, together with our sale of our games products and services into our payments customer base, has us on track to grow our games segment revenue.

Since the acquisition of Multimedia, we quickly realized there was not enough available game content and on our previous call we mentioned our plan to double the number of development studios from eight to 16 over a 12- to 18-month period. We have begun to execute on this by accelerating the timeline for these eight new studios. In fact, we are already in the process of opening two new studios this year; one in Chicago and one in Reno. We expect these studios to develop in stages and anticipate they will be fully-operational by the end of 2016. For our games business to grow we know that focusing on developing content and working quickly to get these studios operational is in the best interest of our stakeholders even as the investment in the near term impacts our growth expectations for the second half of the year.

With that, let me turn the call over to Randy to review our second quarter 2015 results.

Thank you, Ram, and good afternoon, everyone. Before we move into the results of operations, let me take a few moments to discuss our full-year outlook based on the factors Ram discussed above.

While we continue to build momentum in both our games and payments segments, we are mindful of our current business dynamics and the investments required to achieve growth in the short and long term. Therefore, we have up updated our outlook for full-year guidance, which includes our expectation for adjusted EBITDA of between $200 million to $205 million as compared to our prior expectations for full-year adjusted EBITDA of between $218 million to $228 million.

This update is predicated upon certain key assumptions for the second half of the year. One, an increase in R&D costs related to the acceleration of the game development studios, additional costs associated with the rebranding initiative, double-digit revenue growth in our games segment, and single-digit revenue growth in our payments segment.

Now, for our second quarter results. 2015 second quarter total revenues were $206 million, comprised of $54.9 million in revenues from our games segment and $151.5 million in revenues from our payments segment. Games segment revenues increased 9% year over year and payments segment revenue increased 5% year over year.

Adjusted EBITDA increased by $34.7 million to $52.4 million primarily due to the acquisition of Multimedia in December of last year. Adjusted EBITDA for the games segment was $33.5 million compared to $27.9 million a year ago and adjusted EBITDA for the payments segment was $18.9 million compared to $17.7 million in the prior-year period. We define adjusted EBITDA as earnings before taxes, loss on extinguishment of debt, interest, depreciation, amortization, non-cash stock compensation, accretion of contract rights, acquisition costs and other related to the merger, and purchase accounting adjustments.

Our second quarter 2015 cash EPS was $0.24 per share on 67 million weighted-average diluted shares compared to $0.20 on 67.1 million weighted-average diluted shares in the second quarter of 2014. We define cash EPS as net income plus deferred income tax, amortization, non-cash stock compensation, accretion of contract rights, loss on extinguishment of debt, acquisition costs and other costs related to the merger, and purchase accounting adjustments.

For our games segment, gaming operations revenue increased approximately 8% year over year to a quarterly record $41.4 million. This reflected a 168 unit increase in the installed base including 370 additional higher-yielding premium participation games. The year-over-year installed base comparison also reflected the temporary removal of 123 units at a customer's facility beginning last October to accommodate a renovation at that facility. On a quarterly sequential basis, the installed base rose 163 units inclusive of the addition of 44 higher-yielding premium participation games.

Quarter end, the installed base was comprised of 7,858 units in Oklahoma and 5,477 units outside of Oklahoma. The mix of our installed base was 6,936 class II units and 6,399 class III units. Our average daily win per unit in the second quarter 2015 was $29.30, up from $28.70 in the year-ago period.

Revenues from electronic game sales increased 12% year over year to $13.5 million as we've sold 744 units in Q2 2015 at an average sale price of $16,476 compared to 616 units sold in the second quarter last year at an average sale price of $17,796. Higher priced TournEvent unit sales comprised 29% of unit sales in the June 2015 quarter compared to 35% of unit sales in the June 2014 quarter.

Overall adjusted EBITDA margin for the game segment was 61% for the 2015 second quarter compared to 55.5% last year, primarily driven by lower operating expenses, which included an increase in direct and indirect costs capitalized to inventory and fixed assets. Adjusted EBITDA margin is expected to be in the 50% to 55% range in the second half of the year.

For our payments segment, the 5% year-over-year increase in revenue is primarily due to the increased revenue from ATM transactions. This is the first quarter without a comparison to the Caesar's business as we elected not to renew the contract at the end of March 2014. Overall adjusted EBITDA margin for the payments segment was 12.5% for the June 2015 quarter compared to 12.2% for the June 2014 quarter driven primarily by higher margins in other revenue due to the contribution from our compliance and efficiency software offerings and improved margins from our fully-integrated kiosk sales.

Let me highlight a few other cash transaction metrics. First, same-store cash to floor, our best indicator of industry trends, increased by 8.4% as compared to the same period last year. Second, ATM volume increased for the third consecutive quarter following nearly three years of no such growth. Third, both debit and credit card transactions increased during the quarter. Combined credit and debit cash to floor increased by approximately 8.7% for the second quarter of 2015 while ATM cash to the floor increased by approximately 8.3%.

Moving on to the balance sheet, cash and cash equivalents were $165 million at June 30, 2015. To clarify, our daily cash balance fluctuates significantly due to our large settlement receivables and settlement liabilities and the ultimate timing of when the cash is received from patrons' issuing banks and when we reimburse our casino customers.

Our long-term debt was $1.18 billion at the end of the second quarter reflecting our borrowings to complete the Multimedia acquisition. We repaid $2.5 million on our term loan during the quarter and the Company was in compliance with its debt covenants as of June 30, 2015. You'll recall that in April we refinanced the remaining $335 million of secured senior notes in a private placement thereby reducing the interest rate from 7.75% to 7.25%, which we expect will save approximately $1.7 million in annual interest charges.

Capital expenditures through June 30, 2015 were $32.5 million inclusive of $25.1 million in CapEx for our games segment, of which approximately $13.7 million was associated with game refreshes and related maintenance costs for our installed base. Reflecting some of the accelerated initiatives Ram discussed, we now expect full-year capital expenditures closer to $70 million inclusive of capitalized software costs and contract rights. Our prior forecast range for the full-year capital expenditures was $60 million to $70 million.

We continue to expect full-year depreciation and amortization expense of between $130 million and $135 million, although this estimate could change significantly depending on the Company's final allocation of the Multimedia purchase price to certain depreciable and amortizable assets as well as non-amortizable goodwill.

Regarding our integration activities, we remain on track to achieve our targeted annual run rate of $24 million in cost synergies by the end of the calendar year. As of June 30, 2015 we have achieved approximately $21.6 million in annualized savings.

Finally, I would like to provide an update on the sale of the assets of the PokerTek business to Jackpot Digital, Inc. We signed the agreement to sell the assets at the end of June, but the transaction has not yet closed due to certain conditions that we expect will be completed in the third quarter. These PokerTek assets are not core to our games segment and, therefore, we do not want to spend resources to support these assets going forward. The revenue loss for the remainder of 2015 has been factored into our updated guidance.

With that, I would like to turn the call back to the operator for your questions.

Thank you. (Operator Instructions). David Bain, Sterne Agee.

Great, thank you. Just on guidance, I'm hoping to dissect how much if any of the $18 million to $23 million change is due to an adjustment of revenue outlook. I think you kept the same verbiage for gaming and payments growth.

And then, second from there, hoping to understand a bit more detail on comps, trying to get an idea of the new expected R&D increase versus the previously-expected one.

And maybe, I know you called out some variables in game sales to think about going forward, but gross margins going forward versus historical averages for game ops and for payments would be helpful, anything to think about there.

David, as you saw we were successful in growing our games segment nearly double digits and our payments segment mid-single digits in the second quarter. And what we've reiterated is that we think, as we look at the second half, that we'll continue with those kind of results. So, to your point, we believe, as you look at our year-over-year comps in the third and fourth quarter, we'll be on a similar track.

Relative to some of your detailed questions around pieces of our investment and how much is where relative to what we've discussed in the past, Randy could probably address some of it, but I'd recommend we kind of work with you as a follow-up to try to figure out how to fill in some of those blanks. That might be most effective.

Okay. But, okay, so just to be clear then it sounds like your revenue expectation really hasn't changed from last quarter.

Well, David, I guess what I would say is the original was annual guidance and this is really kind of second half. So, I think that, as you put the second half together, obviously in the first quarter, we were down and then we were close to that 10% or double digits in games so I think there's some impact in there. So, again, we can kind of walk through it, but, you know (inaudible).

And then as far as margins, again I can talk a little bit to it. I know one of the things in the release showed games at 41.5%. That was, again, due to some capitalization of costs. I think that that margin will come back up to 45% to 48% going forward. I think the recurring will stay in that 89% to 90% margin.

Okay, great. Okay, and then just finally, can you give us a little color on how the sales process worked with the four orders you mentioned? Is there a defined sales process for cross-selling at this point or were these situational? I guess trying to get a sense as to how quickly we can or really want to ramp the synergy given the current content breadth.

I wouldn't say there's a defined process. As we've described at a high level and it was part of the thesis of the acquisition of Multimedia, we believe that we have a tremendous distribution channel relative to our payments relationships and the landscape that we cover across the North American casino footprint that we have in payments. So, the idea is to leverage that to take a low single-digit share historical organization Multimedia and grow it and grow it aggressively. So, generally speaking, that's the way things go, but that doesn't capture all of those instances. Sometimes they go the other way and I think the important thing is to talk about the new commitments we received as a company as we move forward that identify us a strategic partner in both payments and games.

Okay. Great, thank you.

George Sutton, Craig-Hallum.

Thank you. I wondered if we could -- is there something more tangible to say relative to the strategic position you mentioned with these four customers relative to the gaming side of the equation?

There will be. I think we're at different stages of the commitment process. Some signed, some haven't signed. The ones that are signed we're still working through our ability to communicate the specifics with the client. So, we definitely have those four commitments. As we described, there are at least four. We are optimistic that we'll have more than that. But, there at different stages and, until we can get not just a signed document, but clearance and approval from the clients to describe the commitment they're making to us, that's about all we can say right now.

Okay. There was no discussion relative to your top-10 customer you mentioned on your call last quarter. I wondered if you could give us an update there.

Yes. Still no change. It's not in any different situation than it was. They are internally trying to get their collective heads around the idea that we have a solution offering as opposed to a product offering and we're looking for our strategic partners to commit to long term. And, again, I continue to be respectful. Our management team continues to be respectful in terms of having them digest that, embrace that, and make the right business decision for their organization. So, no specific timeline for it. It's still ongoing.

Okay, lastly, relative to your new branding campaign, I wondered if you could just walk us through the thought process of creating the new brand. Was there some confusion that you heard from customers? Or I'm kind of curious how was the genesis of this and sort of how you came to the conclusion.

Well, I'd kind of walk you through the logic. Neither Global Cash Access nor GCA accurately identifies the creativity and the passion we have around our games business and developing performing slot machines. Correspondingly, Multimedia Games also does not describe the power of our payments offerings and our ability to transform, in aggregate, the casino floor. So, we are looking for a name that's either descriptive enough or generic enough that will allow us to capture the unique positioning we have in the market and the strategic nature of our position with our customers.

We had originally thought that process would take anywhere from 12 to 18 months. We did focus on one of our owned logo marks, one of our own brands in our portfolio where we own the domain and own the trademarks associated with it. So that was one element that clearly accelerated this process for us.

And the other, again, is what we believe to be our longer-term market opportunity. We want to be identified as the most strategic partner in the casino supply space to casino operators. And we thought the faster that we can get along with identifying ourselves with a new brand and a new logo mark and, as I mentioned, a new ticker symbol on the New York Stock Exchange, the sooner people will embrace our go-forward and not necessarily point to our past.

Just to clarify that; you have chosen a brand that will get revealed, I assume, consistent with this announcement.

Yes. Late August. New name for our company, new logo mark, new ticker symbol.

Okay. Thank you.

John Davis, Stifel.

Hey, good afternoon, guys. Quickly, can you talk about, not to beat a dead horse here, but the four executed or commitments from cross-sell opportunities? At a high level, can we talk about size? I mean are they meaningful? Are a couple of them meaningful, a couple of them not? I'm just trying to get a sense for how big of an opportunity this could be down the road.

Well, you know, I can only give the two that's in our qualitative terms. We believe them to be meaningful. They're all meaningful in different ways in that they represent a true cross-sale or true cross-market opportunity or they represent a unique identification by the client of us as a strategic partner. They're of differing sizes. It's probably best for you and the broader market to interpret those commitments once we can describe them in specific terms. But we're excited about them and we believe it's just the beginning of how we will grow our business over the next few years.

Okay, thanks. And then, just trying to hammer down and really drill on the lowered EBITDA guidance. The midpoint is down $20 million. I'm just trying -- can we give roughly rebranding, is that $2 million to $3 million, then you've got $6 million to $8 million in for people, $2 million to $3 million for office? Was the jackpot revenue -- I know it's small, but was that previously in the guidance? Because I'm getting like basically that revenue guidance is roughly down $5 million or so just trying to so back of the envelope and I think any detail here would be appreciated.

Yes. Relative to the sale of the PokerTek assets, that revenue was in prior guidance or any prior guidance assumption as it relates to EBITDA. And that would be a change in terms of what we previously communicated. Relative to some of the buckets that led to us taking down guidance on the full year, we did describe our rebranding to be several million dollars is how we described it. Most of that will hit in the second half of the year. As we talked about from a studio content team perspective, we have to make facilities commitments, commitments to hire people. Most of that would be OpEx. There's a little bit of the investment that's CapEx. So, there are a lot of things going into those investment buckets. And, again, that timeline is getting accelerated somewhere between 3X and 4X what we had thought when we started the year. So, those are all contributing factors.

Okay. That makes sense. Maybe just to be clear, ex jackpot coming out, is there any other change in the top-line outlook?

I mean we'd have to walk through that with you relative your model. As you know, we don't provide revenue guidance.

Okay

And so, it's hard for us to bridge to something that might be in your model. But, we're happy to help, John, as you know.

Okay. No, fair enough. And then any comments you can make on 3Q trends, both on the payments and games side? Do things continue to go kind of as expected? It seems like the payments business is solid, but more commentary on the games side. And obviously the industry on the slot side is struggling, but any kind of commentary you can give there, success you've had kind of 3Q to date would be helpful.

Well, as I described in my prepared remarks, we're proud of the fact that we're growing at near double digits in an environment that everyone knows is challenged. And we believe, in the short term, we'll be able to continue to do that.

The exciting thing for us is that we believe there's even a bigger opportunity in the medium to long term and we're pivoting and we're pivoting very significantly towards repositioning in investment so that we can capitalize on that go-forward opportunity. There will come a point that's maybe not this year, but we believe to be in the next few years, where slot machines and casino floors as the cycle has gotten stretched out for replacement from five to six years now to 10 to 12 years, there will come a point where replacement parts become difficult to obtain, machines just won't be worth fixing, and there will be a desperate need for new content and new cabinets. And when that happens, to the extent that we believe there will be some form of an opportunity for that, we want to be ready. And we believe we're unique in the space and that there are not many firms in the space or competitors of ours who are making deepened investments in these places. And so, we feel that our investments will pay off in spades to the extent that we can execute.

Okay. Thanks. And then, one final one for Randy. Just did you guys disclose the CapEx in the quarter? I'm not sure if I missed that.

Yes, I did, John. The CapEx -- well, not in the quarter. I just gave the full year so you just have to back it out. But we gave $32.5 million in total, year to date.

Okay, perfect. Thanks, guys.

Okay.

David Katz, Telsey Group.

Hi, afternoon.

Hi, David.

Hi, David.

So, my question really is around the integration of the two businesses where a part of the philosophy, as I understood it, was to accelerate the proliferation and the licensure opportunities for Multimedia's existing games as they sit today; i.e. selling it to new states. Is there -- I know we've talked about some cross-selling opportunities that we'll hear about in the future. But is there an update on that acceleration or proliferation in that addressable market for Multimedia's games as we sit today in the time since closing on the deal?

Well, I'll describe two things, David. First is that the time we closed the transaction in December of last year we were optimistic that we would very expeditiously push through the slot supplier licensing process and have licenses in jurisdictions where we could offer legacy Multimedia slot product where they'd never been offered before. And we are still very bullish and optimistic that will be the case, but we've not been able to push through the licensing process as fast as we had originally thought. Now, that delay is only by months, not by years. But, in the short term, there's no question that that impacts our ability to receive the benefit of those new jurisdictional opportunities.

The second thing is, as we've had these interactions with the clients, especially the ones in the new jurisdictions, it has become clear to us that there is a much larger market opportunity for us if we had more content. And, as some of these jurisdictions open up, if we had more content, a deeper, wider library, we could probably get that much more sold. And so, that's led us to this repositioning in investment phase. It's led us to make the short-term decisions we have. And we're still as bullish as we've ever been but, frankly, that licensing process through the jurisdictions has taken longer than we thought.

Alright. And just to get a little more specificity around that, and you said months and not years, help us set our expectations for the remainder of this year. Should we expect to hear about, either through you or from our own work, about any new markets that become available to you?

You will. I would say, in rough terms, there are about a half dozen new jurisdictions where our games our currently on trial. Typically, those trials are 90 days. Most of those have only happened in recent weeks and months. So, I would say in the second half of the year we're very optimistic that we will be able to close and demonstrate the value of those new jurisdictions.

Alright. And then, if I can just go back to the cost side one more time, if we're essentially it looks like adding just about $18 million or $20 million in for the back half or basically the last three quarters of this year. But, at the same time, we're capturing a run rate of $24 million of synergies, which obviously isn't a full $24 million it's ramped in. Can you just add some specificity around what that synergistic capture is coming out of or into or what we realistically should be thinking about for the next couple quarters on that?

Well, the best way to describe our synergy target and achievement is that they're an annualized run rate, as you described, and we believe we're on track for the $24 million by the end of this calendar year. A different way of saying the same thing is that, as you approach 2016, we will realize $24 million of P&L benefit from the synergy actions that we took throughout this calendar year.

But the flipside is the investments we're making. They'll have a fairly significant full-year run rate as well. Only a portion of that will get realized in this calendar year in 2015. At the same time, only a portion of the $24 million will get realized this year. So, you're dealing with partial run rates as calendar year and full run rates more than likely next calendar year. And so, the reduction in our guidance as it impacts our short-term profitability attempts to balance those things.

So, if I'm hearing correctly, the cost impact is going to roll throughout next year or impact a good portion of next year as well?

Well, our new studio build-outs in Reno and Chicago and the added investments we're making in Austin will be part of an ongoing run rate and cost of us doing business. They will not be one-time. They'll be additive in terms of our ongoing run rate. The portion of our second half investments that will not be repeatable that will be one-time in nature do relate to our rebranding. The rebranding spending and investment is really a 2015 spend that won't recur next year.

And that was described as several million dollars, I believe.

Correct. And I think when you and others have a chance to see the full extent of our rebranding from our name to logo mark to new colors to represent our logo, I think you'll see the extensive nature of that effort and we believe that it will be a worthwhile investment as we grow our company.

Right. And just finally, not to drag it on too long, but if we were to evaluate your level of conservatism in formulating your guidance from 90 days ago to today on whatever scale you're comfortable with, 1 to 5 or anything else, are you -- do you believe you're more or less or the same level from where you were 90 days ago?

Well, I would answer it this way. When we entered the year, we issued our guidance with all the knowledge that we had in terms of how we were going to execute this year. There really have just been two meaningful changes to that. One, which is a smaller impact, is that we are tracking ahead of our synergy objectives, which is a positive. The much larger impact that goes the other way is that we didn't anticipate investing as much as we are as quickly as we are to ramp up our content capacity.

And so, there's no question that if we did not take a medium- to long-term view and tried to execute and be done by the end of the year and call it the finish line, our previously-issued guidance is something we absolutely could have achieved. But, given that we're in this for the long haul, we're in this to really grow this business over the next few years and be that strategic partner to our clients, we've made these changes. And so, our newly-issued guidance range reflects everything we know about right now about our second half.

Okay. Thanks very much. I'll give someone else a chance.

(Operator Instructions). Matthew Gladstone, Highbridge.

I know you mentioned $21.6 million of realized synergies and then $24 million to be achieved by the end of the year. Can you give a little clarity on how much of that $21.6 million was flowing through the P&L for this quarter? And then, whether or not you guys still feel that you're on track? I know you announced $30 million as the full run rate by I guess two years out at deal close. Do you still think you can achieve that? Are you higher on that number? Where do you stand with relation to that $30 million?

When we identified the synergy opportunity, that $30 million, at the time of doing the acquisition, we came up with it with a very high level of granularity and detail, a lot of specificity around the actions that it would take to achieve those numbers. Clearly, because of the detail that went into it and the planning that went into it, we're executing well against that number. At the same time, it was so detailed and so specific there isn't really meaningful upside against that number. So, the $30 million will not change. Our run rate relative to achieving against that $30 million is clearly ahead of track, but the $30 million won't change.

As far as your question about how much has flowed to the P&L to date, it's very difficult to decompose that. We've got some things that will hit us in the short term, will hit us as benefit later this year. It's really a mixed bag and our tracking of it is more about discretely identifying the actions we need to take to realize it. Once those actions have been completed, we count it as realized in terms of our objectives. That doesn't necessarily speak to how they fall into the P&L.

Got it. And just for clarity, how much have you taken your synergy expected realization up for the full year?

We have not. So, we said $24 million for 2015, the remaining $6 million for 2016. Those are unchanged.

The full delta, then, if I'm correct in the EBITDA forecast, should then just come from the two really discrete line items that you mentioned, which is the R&D spend and then the several million dollars of rebranding costs.

That's correct.

And then just by way of a little clarity, on several are you talking low millions? I mean like $3 million to $5 million. Are you talking high single digits? Like several, I guess, it's kind of hard for me to just grasp my head around.

Well, and I think the challenge for us is that we haven't fully determined that number. There are clearly investments we've made to date relative to all the things I described that go into a rebranding effort. But how much we push in terms of marketing, potential advertising, potential presence at various shows including the annual G2E event in the fall, those are still things to be determined. So, there's still a fairly wide range in terms of what that would actually be and we're just not comfortable narrowing it down at this point.

Great. Well, thank you. And good luck and congrats on the rebranding.

Thank you.

Todd Eilers, Eilers Research.

Hi, guys. Thanks for taking my question. I wondered if we could talk a little bit more about the increased investment in R&D expense. I mean you talked about obviously taking the number of studios up from eight to 16 over the next 12 to 18 months. You mentioned the two studios, Chicago and Nevada. You also mentioned talking with some of your customers it became obvious or clear to you that you needed to increase the amount of content.

So, with all that being said, I guess I'm wondering is it simply just a numbers game in that; hey, we just need to get -- our games our doing well. We just need to get more of the same type of games out there. Or did you, in the process of kind of speaking with your customers and taking a look at the market, are there certain game types or certain segments within the floor that you feel like you need to focus those R&D dollars on? You know, i.e. should we expect more of the increased R&D to be in maybe the premium-leased segment of the floor or possibly class II versus class III or maybe a certain product type within the class III segment? I would just kind of be curious to kind of hear a little bit more color in terms of the focus of the increased R&D dollars going forward. Thanks.

Yes. Great question. Relative to class II, it's been a historical differentiator for our games organization. We believe the market opportunity for us to be the beneficiary of organic growth is disproportionately higher in class II than class III. And, as a result, we are going to deepen our investments in class II. We're going to do some things differently than have been done in the past in our organization. We are going to dedicate specific studios to class II content, which hadn't been done before. And we're going to increase the raw number of class II developers that we have, in general. So, we're going to deepen what we do in class II.

In class III, we are also going to add class III capability similar to class II. I think the distinction is, again, unlike the legacy Multimedia games, we are actively pursuing specific licensed content opportunity, which is something the prior organization did not do. And we're doing that, again, because, while I've come to learn that it's fairly cyclical in terms of operator demand for licensed title, we believe that we're in one of those cycles where there is adequate demand and we can capitalize on that if we do something different than has been done in the past.

So, licensed content is something we're pursuing. A much deeper investment in class II is what we're pursuing. And then, in the class III space, in particular, we're trying to identify new hardware that we think will make a difference there.

Okay, perfect. Thanks, guys.

David Katz, Telsey Group.

Hi. I just wanted to follow that up. When we and your customers arrive at G2E this fall, how much of this will we see? What's it going to look like for us and how different will it be from Multimedia's last year?

Well, I think what you will see that will be a significant difference will be our rebranding. You, at G2E, won't see evidence of the legacy GCA name or brand and you won't see evidence of the legacy Multimedia name or brand. So, that will be a very significant change. Our color scheme will be different. So, just the presence that we have there as a company will be different so that those millions of dollars, our investment, will be very visible to you and anyone else who attends the conference.

Relative to content, whether it be hardware or specific game content, those investments we're making now won't be visible until G2E of 2016. And that just is reflective of the ramp in terms of getting these people onboard, getting the studios structured, and getting content developed through those pipes.

Okay. Thank you.

Thank you for your questions. I would like to turn the call back to Randy Taylor for closing remarks.

Thank you for joining us on this call this afternoon. We look forward to discussing further progress of our business when we report our third quarter results.

Once again, that does conclude today's call. We appreciate your participation.