Everi Holdings Inc (EVRI) 2017 Q2 法說會逐字稿

Good day, and welcome to the Everi Holdings Inc. Second Quarter 2017 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mark Labay, Senior Vice President, Strategic Development and Investor Relations. Please go ahead, sir.

Thank you, and welcome to the call. Joining me today are President and Chief Executive Officer, Mike Rumbolz; Executive Vice President and Chief Financial Officer, Randy Taylor; Executive Vice President and Payments Business Leader, Julie Lim; and Executive Vice President and Games Business Leader, Dean Ehrlich.

Before we begin, I'd like to remind everyone that the Safe Harbor disclaimer in our public documents covers this call and our webcast. 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 of our corporate website. These events could cause actual results to differ materially from those described in our forward-looking statements, and they should not be considered an indication of future performance.

We do not intend and assume no obligation to update any forward-looking statements. 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 adjusted EBITDA margin. We referenced these non-GAAP measures because management uses them, in part, to manage the business and to enhance investor understanding of the underlying trends in our business and to provide better comparability between periods in different years. We also make certain compensation decisions based, in part, on our operating performance as measured by adjusted EBITDA and our credit facility requires us to comply with a consolidated secured leverage ratio that includes performance metrics similar to adjusted EBITDA.

For a reconciliation of these non-GAAP measures to GAAP results, please see our earnings press release and related Form 8-K, both of which have been filed with the SEC and are available on our corporate website within the section captioned Investors.

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

With that, I'm pleased to introduce our President and Chief Executive Officer, Mike Rumbolz.

Thank you, Mark, and good afternoon, everyone, and thank you for joining us. Now before I begin today, I would like to welcome Julie and Dean and thank them for being with us on the call. I believe that this was a good time for us to have them here with us, since this is the time of year that many of you have expressed interest in what you should expect to see from Everi at G2E.

Turning to the business at hand, though, this afternoon, we reported solid 2017 second quarter results, which include revenue of $242.2 million and adjusted EBITDA of $54.1 million. This represents year-over-year revenue growth of 13% and year-over-year adjusted EBITDA growth of 6%. Based on the continued momentum in our business and the strength of our operating results for the first half of 2017, together with our expectations for these to continue as we progress through the second half of 2017, this afternoon, we raised our outlook for full year adjusted EBITDA to a higher range of $209 million to $212 million.

The progress that we're making in the business and our improved financial performance over the last 5 quarters is partly as a result of the increased investments that we've made in our operations, but is primarily a testament to our team's efforts and ongoing success in executing against a defined set of strategic operating initiatives.

Across the organization, our team of dedicated employees continues to do the day-to-day work that benefits the business in the near term and sets us up for both medium and longer-term success.

Our employees recognize the value that is created by focusing on the details. Seemingly small changes in our procurement, manufacturing and assembly processes have led to enhanced efficiencies and reduced costs. Improved collaboration among game designers and hardware and platform specialists have led to unique new features and new product segments within our games. Better understanding of our Payments customers' operations has opened up a dialogue leading to a new opportunity for expanding our engagement with our casino customers. This day-to-day focus is a clear example of how we are working in every possible way to improve our business. This method continues to prove its effectiveness through our operating results.

Now even though I believe that we're only in the early stages of achieving the wide-scale success that this company is capable of, it is clear to me that the changes that we've made in our business over the last 15 months have established a very solid foundation for continued growth.

I'll start my review of the Payments segment by indicating that just as it did in the first quarter, Payments is performing at a very high level. We had an extremely strong quarter, specifically as you look at the year-over-year performance. Importantly, the growth that we are achieving in the business, including a year-over-year increase of over 17% in the adjusted EBITDA, is not dependent on any one singular growth driver. In fact, our Payments segment performance is resulting from our execution upon a broad base of strategic initiatives as well as the overall positive growth trends that the gaming industry is experiencing in North America.

Some of the factors that drove the year-over-year improvement this quarter include: the ongoing positive macroeconomic trends which fuel same-store growth; our ability to win new business at casinos that opened in the second half of 2016 and early 2017; our solid track record of retaining contract renewals as well as winning new business as the result of competitive takeouts; and increases in surcharge and service fees charged to patrons. We've also seen incremental gains from our Everi compliance sales. As we indicated back on our 2016 fourth quarter call, the work that we completed throughout 2016 to educate our customers on the value and benefit of our compliance products set us up to achieve solid revenue growth in 2017 as customers' annual capital budgets were refreshed. In fact, compliance-related revenue was up 52% in the first half of the year compared to the first half of 2016. This provides more proof that our focus is yielding tangible results.

Over the balance of 2017, we expect our Payments segment will continue to grow on a year-over-year basis. We do face a tougher comparison to prior year revenue in several parts of the Payments business over the second half of the year, and this includes our compliance and kiosk sales, and our cash access business, as we lap new business wins that occurred late in 2016.

We will continue to grow, but we do not expect to see the same mid- to high-double-digit levels that we experienced in the first half of the year.

That said, we expect that the ongoing innovation in our product suite as well as our commitment to customer service will continue to further separate Everi from our competitors. As the payments leader in the gaming industry, we continue to increase our market share, which along with positive gaming revenue trends, has resulted in our continued outperformance in this segment. We believe that we can continue to gain market share and that there are compelling near-term catalysts for further growth in the broader gaming market, including the potential for regulated sports betting across the U.S., an expansion of real money online gaming and regulated wagering on e-sports.

We are closely monitoring recent and ongoing consolidation in the broader payments industry in order to identify and evaluate both internal and external opportunities that will create additional value for our shareholders.

Turning to our Games segment. We had another solid quarter, with revenue and adjusted EBITDA essentially in line with the prior year. An 8% or 67-unit increase in game sales was offset by a decline in our Gaming operations revenue. This decline reflects a slightly lower installed base at the end of the quarter, and a year-over-year decline in the average daily win per unit.

This should be no surprise at this point, that we've been challenged in our Gaming operations business by the ongoing removal of older third-party Class III games from a customer's facilities in Oklahoma. At the end of 2014, just after we completed the acquisition of Multimedia Games, we had 2,340 third-party Class III units with this customer. As of June 30, 2017, we no longer have any third-party Class III units with this customer. Now, while we replaced a large percentage of these units with our own Class II games, we still experienced a net decline of approximately 1,000 games at this large Oklahoma customer. Despite the net loss of 1,000 units since the beginning of 2015, our total installed base has declined by only 400 units. This illustrates our ability to continue to grow across the rest of our portfolio and with the support of our new product introduction, we expect to see increases in our installed base throughout the rest of this year and beyond.

In this afternoon's press release, we highlighted a significant development that I believe removes the uncertainty surrounding potential further pullback in our installed base in Oklahoma, and also further strengthens our foundation for future growth in our installed base.

We recently entered into an agreement with our largest customer in Oklahoma to secure the long-term placement of approximately 4,300 Class II games for a period of just under 7 years. This new agreement replaces multiple placement fee arrangements previously in effect with this customer. A large portion of these placement fee arrangements had a remaining term of less than 1 year. This agreement demonstrates both the level of confidence our customer has in our long-term product roadmap and our ability to deliver a great gaming entertainment experience to their patrons. It also highlights the strength of the partnership that we have with this important long-term customer. With this agreement, almost 1/3 of our installed base is now under a long-term placement arrangement, which provides for greater visibility into future recurring revenue and adjusted EBITDA.

Now Randy will review some of the details around the cash flow implications of these placement fees in just a few moments.

The removal of the third-party Class III units from our installed base in Oklahoma not only put pressure on our installed base unit count, but was also a major factor in the decline in our overall yield, or daily win per unit. The positive news on the daily win per unit front is that the downward decline in our yield has slowed significantly. In fact, the year-over-year decline experienced in the second quarter is at its smallest level in the last 3 quarters. Thirdly, the investments we have made in our development teams and the excellent work being performed by our game designers to create compelling Class II and Class III content has begun to mitigate the financial challenge caused by these unit removals. We're very happy to move past this dynamic, and look forward to returning to growth in our daily win per unit in our installed base.

In the guidance section of our press release this afternoon, we indicated that we expected our installed base to grow in the second half of the year. We also indicated that we expect the revenue generated from the installed base portion of gaming operations in the second half of the year will exceed the revenue generated from the installed base portion of our gaming operations in the first half of the year. This will be the result of continuing our successful rollout of premium products, such as the Wide-Area Progressive and our licensed and branded game content like Casablanca, Penn & Teller, and Fruit Ninja. These initiatives as well as continuing to grow in high-revenue markets, are all expected to drive improvement in our daily win per unit.

Now these growth expectations are based on a number of items, including a larger library of game content for our Core HDX cabinet and the benefits that we're seeing from some of the hardware innovations introduced last year at G2E. It also includes the success we're achieving in our premium games, including our recently introduced Wide-Area Progressive, which now features 3 licensed titles, including the Casablanca video game that was introduced in June. And we'll have a fourth title, Penn & Teller, which will be released later in the third quarter.

As of today, we have over 200 units deployed in our installed base that are connected to our Wide-Area Progressive. While it's still early, I'm very pleased at the performance of our licensed titles, since so far, they have exceeded our internal expectations.

In late July, we launched our Casablanca-themed game into Class III markets, with a targeted introduction at multiple locations of a single, major commercial casino company. This major casino company will provide targeted marketing to their patron base to help us successfully launch these games at their properties. We expect to have a similar launch strategy with Penn & Teller later this quarter, with a second major commercial casino operator. Each casino operator will be the first in their markets to offer these games to the public. The positive outlook for both our gaming operations and gaming equipment sales business is driven by our continuing evolution into a full-service gaming equipment provider. This includes new products, such as the Jackpot Lockdown Wide-Area Progressive, new games for the Core HDX cabinet and our new licensed premium and for-sale games. We expect these and other products to drive full year improvement in unit sales for 2017 of approximately 12% to 15% more than 2016. We also expect the revenue from gaming operations in the second half of the year to increase in comparison to the first half of the year.

As I noted in our Payments segment, at this year's G2E, our Games segment will also debut new games and cabinets that will showcase our level of innovation and ability to provide casinos the highest levels of gaming entertainment for their patrons. We're well positioned for what I expect will be a multiyear path of growth in gaming unit sales, our installed base and daily win per unit.

With that, I'll turn the call over to Randy.

Thank you, Mike, and good afternoon, everyone.

For the second quarter of 2017, total revenues were $242.2 million, comprised of $55.1 million in Games segment revenues and $187.1 million in Payments segment revenues. Games revenue was essentially in line with the year-ago period, and Payments revenue increased approximately 17% year-over-year.

Adjusted EBITDA for the second quarter of 2017 increased $2.9 million or 6% to $54.1 million. Adjusted EBITDA for the Games segment was $29.2 million compared to $30 million 1 year ago, and adjusted EBITDA for the Payments segment was $24.9 million compared to $21.2 million last year.

In our Games segment, gaming operations revenue decreased 3% year-over-year to $37.5 million. The decline primarily reflects lower daily win per unit of $27.07 compared to $28.22 in the second quarter of 2016, as well as a slightly lower installed base at June 30 of 12,942 units, down 237 units year-over-year.

As Mike discussed, the daily win per unit decline was primarily driven by the removal of higher-performing, third-party Class III units and a replacement of a portion of those units with our Class II units. Partially offsetting the daily win per unit decline was an improvement in yields from the ongoing growth of our premium games as well as expansion from installations of both our non-Oklahoma Class II units and Class III units. We expect the pressure on our daily win per unit is largely behind us now. We expect to see a larger benefit from the yielding -- the higher-yielding games in our growing premium installed base footprint and improvements in our nonpremium participation yield, reflecting the benefit of new games and improving performance for certain games due to some unique hardware innovations that we introduced last year. As a result, we expect the daily win per unit for the third quarter will be in line with last year's performance. And in the fourth quarter, we expect the yield to match the prior year or show growth.

Our installed base declined 237 units, year-over-year, and declined 80 units on a quarterly sequential basis to 12,942 units at quarter-end. Of approximately 1,100 third-party Class III games removed over the last year, we replaced almost 70% with our own Class II games; and of approximately 250 such units removed during the quarter, we replaced close to 85% with our own Class II units.

Our remaining 780 third-party Class III units performed on par with the rest of our installed base in Oklahoma. At this time, we do not expect any material removal of these remaining third-party Class III games. Also, our premium game installed base was up 277 units year-over-year and by 165 units on a quarterly sequential basis. We expect this will be an ongoing area of growth in terms of both our installed base and our daily win per unit, going forward.

Revenues from electronic game sales rose $2.1 million or 13% to $17.6 million for the second quarter. We sold 886 units at an average selling price of $17,613 compared to the 819 units sold in the second quarter of last year at an average price of $17,722. Our Core HDX cabinet comprised approximately 70% of unit sales in the quarter, and our average selling price per unit remains at the higher end of the publicly reported industry level.

Overall, adjusted EBITDA margin for the Games segment was 53% in the 2017 second quarter compared to 55% in the prior year period, with the prior year period having a higher mix of higher-margin gaming operations revenue.

For our Payments segment, the second quarter represented the fifth consecutive quarter which we have grown both revenue and adjusted EBITDA. The 17% year-over-year increase in revenue to $187.1 million includes double-digit growth from our cash advance and ATM revenues, and a strong quarter for the compliance revenues. Cash advance and ATM revenue benefited from new casino openings and several new agreements as a result of competitive takeouts. This quarter also marked the 11th consecutive quarter of same growth -- same-store growth in both transactions and dollars processed. ATM revenue experienced further growth from surcharge increases initiated by several large corporate casino customers and the expansion of ATM services into Canada for the first time at 29 properties. Overall adjusted EBITDA margin for the Payments segment was 13% for both the second quarter of 2017 and 2016.

Compliance revenue had another quarter of solid revenue growth, and sales and service revenue related to our fully integrated kiosks were up slightly in the second quarter of 2017 compared to the prior-year quarter. Compliance revenue for the first half of 2017 is up over 50% from the same period last year, and we believe this is indicative of growing interest in our compliance products, as customers increasingly need AML and tax compliance solutions.

As we move to the balance sheet, reflecting the refinance we completed in May, long-term debt was $1.17 billion and we had no amounts outstanding under our revolving credit facility as of June 30, 2017. Our weighted average interest rate on our outstanding debt obligations at June 30 was approximately 7%. During the second quarter, we had no payments due on our term -- on our new term loan. Beginning with the third quarter of 2017, we will have required quarterly repayments on our term loan of approximately $2.1 million. As of June 30, the outstanding balance of ATM cash utilized by us from our Wells Fargo Cash Solution agreement was approximately $259.2 million.

Let me briefly review the refinancing transaction we completed in the second quarter. As part of that transaction, we refinanced $335 million in aggregate principal on our former senior secured notes, entire outstanding balance under our first lien term loan of approximately $462.3 million and our former $50 million revolving credit facility. We replaced those obligations with an $820 million first lien term loan that matures in May 2024 and a $35 million revolving credit facility that matures in May, 2022. Both have a springing maturity feature that would accelerate the maturity to 3 or 4 months inside of the existing senior unsecured notes, if these notes have not been refinanced before their stated January 2022 maturity date.

The new first lien term loan carries an interest rate of LIBOR plus 450 basis points with a 1% LIBOR floor. This represents a 75-basis point reduction from the former term loan LIBOR spread and an almost 175-basis point benefit to the fixed rate provided by the former senior secured notes. Based upon the interest rates in effect during the second quarter, we expect this rate reduction would result in approximately $8 million of annual cash interest savings.

Our consolidated secured leverage ratio at June 30 was 3.67x adjusted EBITDA compared to a maximum senior leverage of 5x adjusted EBITDA. Our improving financial results and our lower cash interest are expected to drive improved cash flow generation, which we expect to prioritize for leverage reduction. We continue to monitor the debt markets and the trading levels of our debt. Our recent financial results and future expectations of continuing strength in our financial results may provide us with near-term opportunities to further reduce our interest costs under the new term loan, as well as the potential to refinance our unsecured notes at a lower interest rate sometime in the future.

Capital expenditures in the second quarter were approximately $26.5 million. Games segment capital expenditures were approximately $23.8 million, of which approximately $15.7 million was associated with replacement units of our existing installed base, new expansion units into our installed base and trial units not yet converted to either an installed base unit or a sold unit.

CapEx for our Payments segment was $2.7 million for the quarter. For the first half of 2017, CapEx is $46.7 million with Games capital expenditures of $42.8 million, which includes $3 million in placement fees and Payments CapEx of $3.9 million.

As noted in Mike's remarks, we have updated our outlook for 2017 adjusted EBITDA. Our new full year expectation for adjusted EBITDA is now $209 million to $212 million. Let me provide a few key updates on our expectations and certain metrics.

We continue to expect full year unit sales will grow, year-over-year, between 12% and 15%. The unit sales growth of over 50% for the first half of the year benefited, in part, from an easy comparison in the first quarter of 2016 as well as a strong level of sales into a new casino opening in the first quarter of 2017. Our comparison for the second half of the year becomes a little more challenging. First, I want to remind everyone that with the timing of G2E, we typically sell fewer units in the third quarter as compared to the fourth quarter. You should also recall that in the third quarter last year, we sold 200 units to a single customer in Canada which was our largest shipment to a single customer in 1 quarter. The fourth quarter of 2016, we also benefited from the sale of approximately 170 units to several other new casino openings in New York and Maryland. We do not expect to see this level of comparable casino openings in the second half of 2017.

Excluding the impact of the prior year sale to the single customer in Canada and these large new property opening sales in 2016, we would expect our 2017 unit sales in the second half of the year to exceed the 2016 unit sales.

For our Gaming operations, we expect that our installed base will grow sequentially from the ending unit count on June 30. We expect that the amount of our year-over-year decline in daily win per unit will continue to be reduced in the third quarter. And then, for the fourth quarter, we expect that daily win per unit will be in line with or greater than the prior year performance. This would be a significant result for us, as daily win per unit has declined year-over-year for 6 consecutive quarters, primarily due to the impact of the significant removals of higher-performing, third-party Class III units from the installed base. The sequential growth in the installed base, combined with improving daily win per unit from continued growth and expansion of our Wide-Area Progressive and new licensed and branded content like Casablanca and Penn & Teller are expected to drive improved revenue performance. And as a result, total revenue generated from the installed base in the second half of 2017 should exceed the revenue recorded for the first half of the year.

I also want to remind everyone that our annual National TournEvent of Champions event occurred in the third quarter of 2016, but due to the timing of G2E this year, that event will occur in the fourth quarter of 2017. As such, approximately $3 million in revenue from our TournEvent of Champions will be recorded in the fourth quarter of 2017 as compared to the third quarter of 2016. The impact on adjusted EBITDA should not be material to either period.

We expect the Payments segments -- that Payments segment will grow on a year-over-year basis for the balance of 2017. As the new openings or competitive takeouts begin to lap their initial installation, we expect to see the accelerated quarterly growth in revenue that we have been experiencing in the first half of 2017 to begin to slow. With the initial installation of our ATM portfolio into Canada as well as some new property openings late in 2016 and early 2017, we expect to see revenue growth slightly higher than the growth in gross gaming revenues.

The second half of 2017, we expect this revenue growth to be in the mid-single digits, and adjusted EBITDA to be in the lower-single digits as compared to the second half of 2016.

Interest expense for the full year will be approximately $95 million to $97 million, which includes interest on our vault cash of $4 million to $5 million and approximately $6 million in noncash amortization of capitalized interest costs. We have raised the range of our expected full year capital expenditures from the prior range of $85 million to $95 million to a new range of $95 million to $105 million. This change is primarily driven by the $10 million in new placement fees paid in the early part of the third quarter of 2017, pursuant to the new Player station agreement. Additionally, we now expect that CapEx related to refreshment or replacement of units in the installed base is expected to be between $45 million and $48 million in 2017. This increase from previous expectations is due to higher costs incurred to refresh older units, replacement of third-party Class III units and the installation of new WAP units, which includes additional signage and related hardware. Revised CapEx also includes the potential for new unit placements of approximately $3 million occurring late in the fourth quarter of 2017 related to a new casino opening expected in early 2018.

Looking a little farther out on the impact of the newer Player station agreement, we will also begin to make quarterly cash payments to this customer beginning in January 2018 that will total approximately $22.3 million for 2018 and $16.7 million for 2019, following which there will be several years with no additional placement fee payments for these units.

While these placement fees will have an impact on our short-term free cash flow generation, we believe signing a new agreement for 4,300 units for a period of just under 7 years provides stability to our installed base that few competitors can match and provides visibility for a significant source of long-term occurring revenue and adjusted EBITDA.

With that, I'll now turn it back to the operator for questions.

(Operator Instructions) We'll go first to John Davis with Stifel.

I guess, Randy, first, I want to start on the Payments business. I guess, makes sense, we'll start in the top line, so revenue. I think on last quarter's call, you said you expected it to decelerate from 16%. We actually saw a sequential improvement. And now you're calling for fairly substantial deceleration in the back half of the year. So maybe just some color on that, and what's driving that?

I guess -- I think, the one thing was, we just really didn't know how much Ilani would impact us in Q2, John. So we did pick that up in April. Probably didn't factor in how much that would really continue to push the Payments revenue side. So look, I -- we've done our forecasting out through the second half of the year. We will start to lap some of the takeouts we took out last year and some of the properties that come on. So -- and I also think we'll see a little bit -- we won't see quite the growth that we saw in the first half in both compliance and kiosk. So that will offset it a little bit. So look, I think, still mid-to -- maybe push up a little bit higher than mid, but I still think that you will see a deceleration. I'll admit I was wrong, I don't mind being wrong on the low end on a good quarter. But I just don't want people to think that 17% is something that will continue on in the second half of the year.

Okay. That's helpful. And maybe just touch on the margin. I think, again, it continues to defy gravity a little bit. Obviously the margin was really strong in the back half of last year, I think, 13.2% by my math. So will this head back to the 13% range? Or I think, previously, you'd said somewhere between 12% and 13%, but can this hover closer to 13%?

I think it will hover close to 13%. But I think it could come a little under that again. The compliance revenue was strong in the first half. And that's got even a better margin in it, John. So I still think we'll be somewhere between that 12% and 13%. And again, I was surprised at it coming in at 13%, overall. But I still think it will hover somewhere in that neighborhood.

Okay. Mike, maybe talk a little bit about this new agreement, the way I look at it, it's the biggest positive of the quarter. How does the 4,300 units compare to the number of units you have currently with this customer? And what, kind of, drove the change? Obviously, I think, it was probably less than a year ago when you renegotiated this deal, previously, so what drove the extension in the term and also, in the placement fees?

Well, first of all, you should know that the -- somewhere around 4,300 is the number that we settled on after we'd removed all of our Class III and replaced as much as we could with our Class II. So that's -- so I mean, there's no magic to that number. That's the number we settled in at with this customer. Randy actually started negotiating last year with them to try and get the placement arrangement fee to some sort of an annual, sort of, cadence across the multiple agreements that we had. And the customer actually reached out to us this year and offered the 83-month agreement, with the payments laid out on a quarterly basis in the 1.5 years or 1.75 year and then no payments after that. And after, we had several discussions back and forth, and we were happy to take them up on that.

John, the only thing that I would offer is we had help from really our Head of Sales, and he helped a lot -- helped me a lot with this. And I think, to everybody to understand is that normally, you don't get payments, but we were able to structure something, just to try to lock in the 83 months as well as a little bit of an extension of the payments.

Okay. That's helpful. And then, last one for me. Potential refi, Randy, just -- I think you talked a little bit on the call, but just remind me, I think, $350 million, potentially, callable in January. Is there any scenario where we can do that before then and any idea on potential savings on that piece?

We haven't quantified the savings. I would say 2 things. Even the recent $820 million had a 6-month soft call, so that's -- and we closed that deal in early May. And you are right, the $350 million, the first -- the make whole is over and so in January, I think it's 7.5% premium to call them. So we continue to do the numbers and watch the market. It really just depends on what kind of rate can we get if we can do that. So I just didn't want to -- want to make sure everybody realizes that it's the highest thing on my priority. Mike's got me laser-focused. We continue to watch it. And we see what some of our competitors have just recently done in the market so we're watching it.

We'll take our next question from George Sutton with Craig-Hallum.

You did discuss a little bit of the macro tailwind. I wondered if you could get a little more specific in terms of what you're seeing? Obviously, other vendors on calls have suggested the same macro tailwind and also, the cash flows at the casinos are getting a little better, and they're starting to open up the purse strings a little bit. Just wondered if you can go into more detail.

I'm sorry, on the Games side?

On the Games side.

George, let's have -- I'd like Dean to maybe respond to that for you.

I would tell you that customer sentiment is probably pretty lateral than it what it's been for the last year or so. It's kind of leveled out. So the uncertainty of whether capital would be allocated and whether the ebbs and flows would be a bigger range, I think, it's kind of gone away. So I think from that side, it's positive. So as suppliers, we have a pretty meaningful comfort level that we know what the pie kind of looks like overall across purchasable units from our customer base.

Okay. Appreciate that. And also on G2E coming up soon, can you just give us a general sense of what you're going to look like to someone like us looking from the outside relative to last year, at the show?

I would tell you, we're going to -- I'm very optimistic. I mean, I believe that this is going to be one of our best showings that we've had as a company, right? And -- for a couple reasons. You're going to see new hardware form factors, both on the product sales side and on the premium side. You're just going to see much more elaborate hardware, I would say, than you've seen in years past. We know how good last year was, without spilling too much, because obviously, you have to get to the show and see it. And we're not going to disclose everything on the call but I would tell you in the greatest amount of confidence that we are going to have an outstanding show this year.

Perfect. Randy, given the consolidation you've done of your manufacturing, can you give us any sense of limitations or potential incremental benefits that you get as you start to scale up your gaming units?

Look, George, we're not concerned about the consolidation. We believe we have plenty of capacity in Austin, where we manufacture or I would say, assemble. And so I'm not concerned, and I don't think Dean -- Dean would say the same thing. I don't want to speak for him but I don't think we have any concern. We think we can meet whatever demand comes our way. We can add shifts. We haven't even gotten to that point and so I hope that to be a problem we have very soon.

Right. Got you. Randy, at the beginning of the Q&A, you started to apologize for a good quarter. You never need to apologize for a good quarter.

I didn't mean to, if I did. I was apologizing for being beat up that I was too low in my projection for the next quarter. So I didn't mean it that way. I think it's a fantastic quarter. Just that -- I'm never -- I'm always wrong. So it doesn't make any difference.

(Operator Instructions) We'll take our next question from David Katz from Telsey Group.

So I think, in your commentary, Mike, you may have mentioned that there's a couple of hundred of the Class II progressive games out there. Can you give us a little bit of perspective around how accretive those are to the installed base? And how well they're earning so far?

Actually, I'm going to turn that over to Dean with the caution that we -- as you know, David, we never reveal the actual dollar amounts that these are doing. But we certainly can give you some idea of the scale difference between units that are on our Wide-Area Progressive.

Yes, a qualitative answer would be great.

Trying to think how to frame this thing without getting in too much trouble here. But I would say Wide-Area Progressive, on a same-store basis that we have out there, is about a 3:1 to a standard bread-and-butter game that's at a similar location. That's the best I can do for you without throwing much more. But I'll give you a little bit of color behind it. It's exceeded our expectations. The longevity so far, I mean, it's been out for almost 3 months, and it's holding on. The legs are there. We haven't seen any degradation yet from that standpoint, and we're really just starting to get into the meat of the launch right now. And if it plays true throughout the rest of the installation universe, then we should be feeling pretty good about it.

Right. And can I ask the same question around the premium Class IIIs that you're putting out there?

Those are a little early in the cycle, I think, David, for us to give you -- I mean, I think we're happy with the numbers right now. But I wouldn't want to base the little time we've had them out in the market as any kind of a projection. It's been a couple of weeks, is all they've been out at this point. And we haven't started really the targeted marketing campaigns on -- that will be coming on later in the quarter on both of our licensed brands. And I would expect that provides -- should provide an even greater [amount to them].

David, that's in response to the Empire Cabinet being launched, which is what our Class II Wide-Area Progressive, first relicensed brand on that particular line.

So I hear. Randy, where are those 10% notes trading currently?

They're like at 108, I think. So they're in that 107 to 108. So they're trading right in there at the premium. So....

Hanging in the balance.

I think everybody's thinking a lot in that direction.

Right. And if you were at my desk, looking at your model, and thinking about what a CapEx notion could be for next year, is there anything in this year's that's sort of onetime-ish in nature, or vice versa? What issues should I be thinking about for CapEx for next year?

So I would say 2 things. One, and I kind of laid out that with the placement fees, the way that staggers out, it's a big number in '18 of about $20 million. And our number this year, we've got about $20 million, let's say $22 million, we've got about $13 million. So there's kind on a delta of $10 million. But I will also say that look, we placed all the third-party games at this major customer. So I expect that will come down. So I'm expecting some of the normal maintenance to come down some. So I, again, haven't done our budgets for next year, not really giving you what that is. But I think you've got one delta going the one way, and I think we have some other items going the other way. But look, if the WAPs take off and everything starts performing well, all bets are off. But that's what I look at, the high-level pluses and minuses.

And we'll take our next question from Todd Eilers with Eilers & Krejcik Gaming.

Wanted to ask a follow-up on the Chickasaw agreement. You guys -- obviously, the number of games ex the third-party removal stays the same, obviously, extended the term. And did you guys give -- or maybe you could say, what the total amount of placement fees are for that agreement, including the up -- the $10 million plus the additional quarterly payments?

Yes. It's -- overall, it's about $59 million. But the issue is you had some unamortized piece. So we get credit for a piece of that. So if we take the dollars that we're paying out now, again, it's about the $22.3 million plus the $16.7 million and the $10 million is $49 million, but to get to the full period, we had some placement fees already in place. So in general, we've always said that it's about -- it's the same as we've always said in the past, which is about 2,000 per unit per year.

Okay. That's helpful. And then, are there any material changes to the rate on this -- on the new agreement?

No. It's basically consistent with what we've had before. Just a longer extended period of time.

And then, how does this new arrangement impact, if at all, the accretion of contract rights? Do we need to, maybe, be modeling in an increase or decrease there? How should we be thinking about that?

It should be pretty close. It should be pretty close, because we had, as Mike said, pretty much renewed the full complement that we had at the end of the June. So it will be fairly close to that number. Or you take that $59 million number over 83 months, and it will get you pretty close to the same thing on a monthly basis.

Okay. Perfect. And wanted to ask on Games sales, can you say how many TournEvent sales you had, or what percent was for the quarter?

I thought I had it in the release. Sorry, we didn't show how many TournEvent was? Give me a second.

We had started to, as you know, Todd, we started to back away from broadcasting TournEvent sales as a percentage of our overall sales, only because we have such a -- a much larger mix of products now that it's becoming less important as a singular product.

It's still double-digits. It's less than 20, but more than 10. How's that? Somewhere in that neighborhood. Again, I'm trying -- to Mike's point, I don't want people to focus on just TournEvent, because we're not anymore. But I would say, it's in that range, double-digit for the quarter.

Okay, that's helpful. And then also wanted to ask, in the last couple of quarters you guys had mentioned your mechanical real product being a good sales driver for you, has that continued in -- through the second quarter? And I don't know, if you can kind of share maybe how much of that kind of represents of your overall sales?

I think what I said was, about 70% of our sales this quarter were the Core HDX. And I think, the majority of that -- the remaining would be our mechanical product, primarily. So I still think it's a very good product for us. I don't know if you have any other color to add to it.

What I would say is that the development pipeline is significant to that, right? So we expect the -- our mechanical to be equally as big of a part as it's been, and to continue that way. But Todd, as you know, depending on the jurisdiction, stronger in certain ones versus others. So as buying cycles for those respective places come up, it can ebb and flow a little bit. But directionally and strategically, it's a big part of our arsenal in terms of the -- selling products.

Our next question will come from David Hargreaves with Stifel.

So you had some great increases in volume in cash advances. In the past, you've given us some idea of what the trend is that you're seeing in terms of customer access and if there's any regional variations that you're seeing out there? Anything you could tell us about what spend looks like?

Look, I would say, David, it's pretty much across the board. I mean, we saw increases in the same-store, and obviously with the additions we had. But in ATM and all cash advance, so I think, it's in general, running kind towards what gross gaming revenues are. And that looks like people are opening up their wallets a little bit more, and are taking out more cash. And so, it's been consistent. We've obviously, again, benefited from some of the, like National Harbor and a couple of wins that we had, and Ilani. But even on top of that, our same-store numbers show that it's growing overall. So it just seems like they're taking -- patrons are taking out money across the board.

Just eyeballing it myself, it looks a little stronger than the actual monthly numbers we're seeing. I'm just wondering how I'm reading it wrong.

Part of it -- you have to remember, we have certain customers in each of the regional markets. And there's some customers that we don't have in the regional markets. In some cases, what you're looking at is us having the strongest customers in that market, that may have in fact grown at the expense of some of their competition.

And I would think -- and I would say, that look, I think customers don't take it out just for gaming. So I think if you just look at the gaming side, they take out their cash for the other amenities on the casino floor. So that's at a resort or wherever they are at, so again, it's -- again, we know -- that they do correlate, I just can't tell you whether it's all based on just gross gaming revenue growth.

If there are no further questions at this time, I'd like to turn things back to Randy Taylor for closing marks.

Thank you. I'd like to thank everybody for joining us on the call this afternoon. We also look forward to seeing many of you at G2E. And we will give a further update on Q3 in November. Talk to you soon. Thanks.

This concludes today's call. Thank you for your participation. You may now disconnect.