Everi Holdings Inc (EVRI) 2017 Q3 法說會逐字稿

Good day, and welcome to this Everi Holdings Incorporated Third Quarter 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mark LaBay, Senior Vice President of Strategic Development and Investor Relations. Please go ahead, sir.

Thank you, Shannon, 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; 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 section 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 of only today.

In addition, this call may refer to certain non-GAAP measures, such as adjusted EBITDA and adjusted EBITDA margin. We reference 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 substantially similar to adjusted EBITDA. 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 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.

Thanks, Mark, and good afternoon, everyone, and thank you for joining us. This afternoon, we reported another solid quarter, with 2017 third quarter revenue of $247.3 million and adjusted EBITDA of $53.2 million. This represents year-over-year revenue growth of 11% and adjusted EBITDA growth of 3%.

Now, based on our continued momentum, the strength of our operating results through the first nine months of 2017, and our expectation for continued growth, we expect to report full-year adjusted EBITDA at the high end of our guidance range of $209 million to $212 million. We continued to benefit from the investments and the process changes that we are making in both our games and payments technology development. These investments, combined with our laser focus on customer service, are helping us to regain traction in our installed base footprint and to improve its yield. We're also driving consistent growth in quarterly unit sales and ship share, and we're reinforcing our position as the dominant provider of gaming industry payments solutions.

Now, despite the progress we've made over the last 18 months, we believe that we are still only in the early stages of achieving the wide-scale success which Everi is in a trajectory to reach. We've established a very solid foundation for growth, and believe that we are positioned to consistently grow our financial results, going forward.

Now, with that sentiment serving as the over-arching theme of my remarks this afternoon, I want to take a few moments to highlight some of the distinct successes that we've had to date, and some of our forward expectations within the context of our experience at the recent Global Gaming Expo. It's truly an understatement to say that G2E 2017 was our best showing ever for both our payments and game segments. I went into G2E very optimistic, but our customers are always the real judge and jury. I left there with the feel that, across the board, we not only accomplished our goals, we exceeded many of them.

So let me start this discussion with some of the key highlights from our payments offerings at the show. At G2E, it's easy for attendees to get sensory overload from all of the lights and the sounds that are coming from the newest slot machines, including our own. However, it was clear that our payments products and our demonstrations to customers easily cut through that noise to capture those customers' attention. We have continued to innovate in our payments products because, even though we already have a dominant industry position, we expect to not just maintain our technology leadership, but to extend it.

Through the first nine months of 2017, our payments segment adjusted EBITDA is up nearly 20%, or $11.8 million, compared to the first nine months of 2016. This growth includes same-store revenue growth which, by the way, is outpacing the rate of gross gaming revenue growth, and also from the benefit of new customer wins. In fact, we have secured the payments business for a significant majority of the new casino openings occurring since the beginning of 2016. We are also achieving growth through net positive competitive take-outs, as well as the expansion of our ATM services into Canada for the first time beginning in 2017.

Our same-store growth, our new casino cash access wins, and our competitive take-outs are the result of our ability to offer industry-leading solutions that are more fully integrated throughout our customers' operations. Our payments products help our customers improve their operations by reducing cash and cash handling costs, and they help drive more cash to the casino floor by making the player's experience faster and easier.

At G2E, we demonstrated the next level of payment solution innovation, including the following - our CashClub Wallet, that maximizes patrons' financial transactions by fully integrating the existing payment solutions that exist across the gaming floor. Our e-wallet solution allows players to store funds accessed from multiple payment methods, and easily move those funds in and out of the casino, as well as manage their spending limits. Now, that will support not only our responsible gaming initiatives, but also that of our customers.

Our recycler exchange and cage exchange products remove the need for cash handling from casino staff, which allows for improved and immediate accuracy and verification of currency. This allows the casino staff to focus more of their time on customer service and other cashiering and cage functions. It also helps improve operational efficiencies by reducing overall cash handling labor and training costs.

And we also demonstrated at G2E that we are well-positioned to lead the industry if there is a move to mobile or cashless gaming in the future. While we currently expect gaming to remain largely a cash-based business over at least the next several years, there is increasing conversation around cashless gaming and our customers' exploration of mobile and cashless gaming solutions at casinos.

Before this initiative becomes the accepted standard, however, there will need to be an acceptance phase from both our casino customers as well as their patrons, and as well as the gaming regulators. Now, we've advanced our solutions, including our CashClub Wallet, to ensure our position as the partner of choice who will best support our customers in these efforts. We recently went live with our first CashClub Wallet customer, and we're excited for this product's long-term potential.

We also continue to lead the industry in the availability of compliance solutions. Since this is a growing area of importance for our customers, we worked through the latter half of 2015 and throughout 2016 to make certain that our customers fully understood the advantages of our solutions. Now, this has allowed us to gain significant momentum with our compliance solution sales.

Year-to-date, every compliance revenue is up 34% compared to the first nine months of 2016. This provides further evidence that our focus on innovation is translating to growing results. Now, we don't expect to maintain the same rate of revenue growth from our payments segment in the fourth quarter that we've achieved so far this year. However, we do expect to continue to grow as we further separate ourselves from our competitors.

Let me turn now to the game segment. In our game segment, we had another solid quarter of execution in Q3 and, as I highlighted with payments, our technology investments are helping grow the business today while better positioning to accelerate growth, going forward. Our success over the last 18 months is notable, and it includes growing unit sales as we benefit from favorable customer reaction to our core HDX cabinet, our classic mechanical reel cabinet, as well as our new game content across all platforms. We now expect unit sales to increase around 20% this year, which is up from our earlier expectations.

We debuted new, innovative games for the Core HDX cabinet at G2E this year with unique new features that we believe further diversifies our for-sale offerings for this cabinet. As a result of both the lessons learned from the success of our Core HDX cabinet and by listening to our customers' feedback, we made the decision to introduce a new for-sale cabinet at G2E, the E43. The E43 cabinet directly addresses our customers' request for a single-screen base cabinet in a for-sale solution. The E43 was introduced at G2E with five game themes to very favorable customer response, and we expect that it will be commercially available beginning in the fourth quarter. We also have a full roadmap of games being developed for the E43, with plans to introduce multiple new titles each quarter.

Now, our ability to continue innovating in Class II is a significant driver of the 12% year-over-year growth in our Class II installed base. Our Class II innovation was also a significant factor in our ability to secure a long-term placement agreement for 4,300 units, representing nearly a third of our total installed base. Looking ahead, our Class II expertise has also helped us secure one of the largest percentages of floor share at the new Four Winds Casino Resort in South Bend, Indiana, which is scheduled to open early next year. In total, we will have approximately 400 Class II units at this 1,800-unit property.

We've also continued to make significant strides with growing the size of our installed base and improving our daily win per unit. In the third quarter, our installed base increased 273 games on a quarterly sequential basis, our largest increase in 13 quarters. And the 1% year-over-year decline in daily win per unit was the smallest decline recorded in seven quarters. Now, while we were down for the quarter, we actually recorded our first quarterly sequential increase in our daily win per unit since the first quarter of 2016.

Our conclusion from all of these indicators is that we are clearly moving in the right direction. We're moving past the impact related to third-party Class III game removals, and we believe the fourth quarter will demonstrate even more growth in the installed base. Our trajectory continues on a positive trend, and we expect to end the year with a higher installed base than at the end of 2016. Additionally, we expect daily win per unit will approximate the daily win per unit in the prior year fourth quarter.

A significant contributing factor to the momentum that we're seeing in our gaming operations segment is from our premium games. Our installed base of higher-yielding premium games is up over 30% year-over-year and 15% on a quarterly sequential basis. A large part of this growth is due to the recent introduction of our Class II Jackpot Lockdown Wide-Area Progressive, which includes two licensed titles on our Empire MPX cabinet, Penn & Teller and Casablanca.

Of our almost 300 Class II Wide-Area Progressive games, over 25% of them are either Penn & Teller or Casablanca-themed games, and we continue to add more each day. Both of these titles were also recently introduced as Class III Local-Area Progressive games with major strategic account partners. Between the games already in the field and our future placement backlog, we have commitments for over 70 of these games as Class III placements with just our two initial casino launch partners. Now, while it's still relatively early, both the Class II Wide-Area Progressive and our Class III Local Area Progressive games are performing very well in their early installations.

G2E was an opportunity for us to showcase the output of two key parts of our strategic focus - making great products with new hardware form factors and original content, and listening to and being flexible with our customers to ensure that we can adequately meet their needs. These two points have been keystones in driving our development efforts and have become an important foundation for how we think about future extensions of our entire product portfolio, and how we perpetuate our culture of originality.

Now, at the show, we introduced eight new licensed games and several new hardware innovations to very solid customer feedback. I'm not going to mention all of them here, but I do want to note a few that were truly standouts at the show. In the classic mechanical real gaming market, where we believe we have a market-leading product whose performance excels already, we've added a new three-reel mechanical game with a Willie Nelson branded theme. We expect that this product will resonate well with our players in core markets, particularly in Oklahoma and Texas.

We also debuted the Empire 5527 cabinet. This new cabinet builds on the success of the Empire MPX cabinet and features a 55-inch high monitor mounted on top of another 27-inch wide screen. The E5527 will debut with another new branded theme, the Brady Bunch. Now, there was a great deal of appreciation from our customers that were visiting in the booth for how well we combined the appeal of this iconic brand with the unique capabilities of the E5527 to deliver a game that we expect is going to have a lot of player appeal.

We also introduced Empire Arena, which we featured at the show, with Shark Week as a brand, and it was the highlight with our attendees, as well. Empire Arena combines the E5527 with the next generation of our Nitro Media system to create a very unique product that can seamlessly integrate the action across an entire bank of games and around a circular bank of games. Finally, attendees were also captivated by our Renegade 3600 sign package. It offers a very unique bonus experience through the combination of three 43-inch convex curved monitors and individually controlled LED lighting around each game monitor to create exciting action and very unique and very large secondary bonus events.

Each of these products is a result of our focus not just on investing in innovation, but investing in innovation with a purpose. We were not trying to win headlines at G2E for new and unique innovations that are never going to make it to the market. Instead, we wanted to innovate around solutions that help our customers further engage with their players and add excitement to their casino floors.

We've been successful executing on our strategic plan over the last six quarters, and I fully expect these efforts to position Everi to grow our ship share from today's mid-single digits to double-digit levels over the next several years. We expect this growth to occur without any material change in the average selling price of our cabinets and while we continue to grow our installed base to reach our long-term stated goal of 17,000 units. The common theme from those who visited us at G2E was that the investments we've made in games innovation and development over the last several years is clearly evident in the quality and the diversity of the gaming solutions that we're now delivering.

Okay, so before turning the call over to Randy, I would like to briefly comment on the announcement that we made today related to our capital structure. As a result of the tremendous progress that we've made through the early part of 2017, we were able to leverage the then-favorable credit markets to refinance our previous term loan and our former senior secured notes. With that refinancing transaction, we expected to reduce our annual cash interest expense by approximately $8 million. Now, since then, we have continued to make steady additional progress. We believe that current credit market conditions remain favorable for actions that can further reduce our interest expense and improve our free cash flow. As a result, we intend to pursue a repricing of our term loan, and we're actively evaluating opportunities to refinance our senior unsecured notes.

Our focus is to accelerate free cash flow generation. Success with any repricing or refinancing plans would go a long way toward helping that cause. We view debt reduction as the top priority for our allocation of free cash flow. Achieving this goal will allow us to further reduce interest expense and to continue the cycle of accelerating free cash flow generation.

Today, Everi is well-positioned to make additional progress in the fourth quarter and to grow our financial results into 2018. And I continue to remain optimistic about what the future is holding for our company.

And with that, let me turn the call over to Randy.

Thank you, Mike, and good afternoon, everyone. The third quarter 2017 total revenues were $247.3 million, comprised of $55.4 million in games segment revenues and $191.9 million in payments segment revenues. Payments revenue increased approximately 16% year-over-year, and games revenue was essentially in line with the year-ago period even though the timing of the national Tournament of Champions was not comparable this year. Last year, the entirety of the event occurred in the third quarter, but in the current year, this event occurred at the beginning of the fourth quarter. This will cause approximately $2 million of comparable revenue from the third quarter of 2016 to shift to the fourth quarter in 2017.

Adjusted EBITDA for the third quarter of 2017 increased $1.6 million, or 3%, to $53.2 million. Adjusted EBITDA for the games segment was $29.4 million compared to $29.2 million a year ago, and adjusted EBITDA for the payments segment was $23.8 million compared to $22.4 million last year.

In our games segment, gaming and operations revenue decreased $2.3 million year-over-year to $39.1 million, with the decline primarily due to the timing of our Tournament of Champions event. There was also a 72-unit year-over-year decline in the total installed base at September 30th to 13,215 units, and a modestly lower daily win per unit of $27.13 compared to $27.53 in the third quarter of 2016 that impacted gaming operations revenue.

Terms of the daily win per unit of $0.40 year-over-year decline is the smallest decline in this metric in seven quarters, and is in line with the expectation we provided on our second quarter call. Daily in per unit is benefiting from increases in our higher-yielding premium footprint, which rose 30%, or 545 units year-over-year. We also continue to grow our non-Oklahoma install base, with these units rising by 482 units year-over-year. These increases, along with the improvement we are beginning to see in yields for our non-premium games will continue to positively impact our daily win per unit. We expect our daily win per unit in the fourth quarter to approximate the amount reported in the prior year quarter.

On a quarterly sequential basis, the install base was up 273 units, benefiting from growth in our install base of premium games, which increased 15%, or 299 units. We expect this will be an ongoing area of growth in terms of installations and daily win per unit, going forward.

Revenues from electronic game sales rose $1.5 million, or 10%, to $16.3 million for the 2017 third quarter. We sold 817 units at an ASP of $17,251 compared to the 783 units sold in the third quarter last year at an ASP of $17,258. The year-over-year increase is notable, as you may recall that last year's third quarter benefited from the sale of 200 units to the Alberta Gaming and Liquor Commission, our largest-ever single-quarter shipment to a customer. Our Core HDX cabinet comprised approximately 55% of unit sales in the quarter, and our ASP has remained above the $17,000 mark. Adjusted EBITDA margin for the game segment was 53% in the third quarter of 2017 as compared to 52% in the third quarter of 2016.

For our payments segment, the third quarter represented the sixth consecutive quarter in which both revenue and adjusted EBITDA grew. The 16% year-over-year increase in revenue to $191.9 million includes double-digit growth from our cash advance and ATM revenues, nearly 8% growth in check services revenue, and another strong quarter for compliance revenues. Cash advance and ATM revenue benefited from new casino openings and several new agreements as a result of competitive take-outs. This quarter also marked the 12th consecutive quarter of 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.

Adjusted EBITDA margin for the payments segment was 12.4% in the 2017 third quarter compared to 13.5% for the third quarter 2016, primarily driven by a higher mix of lower-margin ATM revenues and an increase in selling, general, and administrative expenses. Compliance revenue had another quarter of revenue growth, and through the first nine months of the year, compliance revenue is up 34% compared to the first nine months of 2016. Equipment sales and service revenue related to our fully integrated kiosks were down as last year we benefited from the sale of approximately 40 kiosks to a new commercial casino in Maryland.

Moving to the balance sheet, and reflecting the refinancing completed in May, long-term debt was $1.17 billion, and we had no amounts outstanding under our revolving credit facility as of September 30, 2017. The weighted average interest rate on our outstanding debt obligations was approximately 7%. During the quarter, we paid approximately $2.1 million in required quarterly repayments on our term loan. As of September 30, 2017, the outstanding balance of ATM cash utilized by us from our Wells Fargo cash solutions agreement was approximately $226.6 million. Our consolidated secured leverage ratio at September 30th was 3.6 times adjusted EBITDA compared to a maximum senior leverage of five times.

Mike noted earlier that we are pursuing a repricing of our $820 million first lien term loan that is scheduled to mature in 2024. The earliest we can reprice the term loan to avoid the soft call premium would be November 10th, so if we are successful with these efforts, we would expect this to be a very near-term event. Our first-lien term loan currently carries an interest rate of LIBOR plus 450 basis points with a 1% LIBOR floor. With where we are in the process, I am not currently in a position to speculate on the ultimate reduction in LIBOR spread that we might ultimately achieve, but I would note that every 25 basis points reduction in the interest rate spread that we obtain would equate to approximately $2 million in lower annual cash interest costs and would be additive to the approximately $8 million in cash interest savings we originally projected following the initial refinancing of our former term loan and senior secured notes in May.

We are also evaluating the opportunity to refinance our $350 million of 10% senior unsecured notes due 2022 prior to their January 15th, 2018 early redemption date. We believe the debt markets are currently favorable, and with the continued operating success that we are achieving, we believe this provides a quality opportunity to reprice the term loan and possibly refinance our senior unsecured notes. We expect the debt markets to receive these potential transactions favorably, and could result in meaningful reductions in our weighted average cost of interest. Our goal is to continue to reduce annual cash interest expense, and in the case of the senior unsecured notes, to also extend their maturities past that of the existing term loan. While there is no certainty that either of these transactions will be successfully completed, if we are able to complete either of these, or both, we believe we will be better positioned to allocate our growing free cash flow to reduce leverage in future periods.

Capital expenditures in the third quarter were approximately $36.4 million. Games segment capital expenditures were approximately $32.4 million, of which approximately $15.1 million was associated with replacement units for our install base, new expansion units into our installed base, and trial units not yet converted to either an installed base unit or a sold unit. There were also $10.1 million in placement fees paid in the third quarter of 2017.

Payments segment CapEx was $4.1 million for the quarter. For the first nine months of 2017, CapEx was $83.2 million, with games capital expenditures of $75.2 million inclusive of $13.1 million in placement fees and payments CapEx of $8 million. As noted in Mike's earlier remarks, while our outlook for 2017 adjusted EBITDA has not changed from a range of $209 million to $212 million, we now expect to be at the high end of this range for the full year.

Let me provide a few key updates on our expectations and certain metrics. Based upon our 2,721 units sold through the first nine months of 2017 and our current visibility for the fourth quarter, we now expect full-year unit sales will grow approximately 20% over the 2,954 reported in 2016. This compares to our previous expectations for an increase of 12% to 15%. The fourth quarter does have a challenging comp to last year, as last year's 920 units sold benefited from the sale of approximately 90 units to new casino openings in New York. We do not expect to see a comparable level of new unit sales from new casino openings in the current year fourth quarter, but we do expect to see some benefit from positive momentum generated at G2E.

For gaming operations, we expect that our installed base will grow sequentially, and we expect the installed base at year-end will exceed the [216] year-end installed base of 13,264 units. Having largely overcome the challenging prior-year comparison in daily win per unit during the third quarter, we expect daily win per unit in the fourth quarter will be comparable to the prior year fourth quarter as we continue to benefit from the new placements of premium games, as well as placement of games in markets outside of Oklahoma, which typically have higher yields. As I noted earlier, approximately $2 million of Tournament of Champions revenue will be recorded in the fourth quarter of 2017 compared to the third quarter of 2016.

We have had a fairly conservative view of the growth in payments revenue and adjusted EBITDA for the last several calls. And while we will continue to maintain that conservative viewpoint, we do need to increase our outlook slightly to match the trends that we have been experiencing. Because of the additional revenue generated from the Canadian ATM portfolio we acquired, and the steady performance of our same-store locations across our payments products, we expect the payments segment revenue will grow in the low double-digits, and adjusted EBITDA will grow in the mid-single digits on a year-over-year basis in the fourth quarter.

As new openings and competitive take-outs begin to lap their initial installations, we expect the accelerated quarterly revenue growth that we have seen through the first nine months of 2017 will begin to slow in the fourth quarter. Our expectation for full-year interest expense is approximately $95 million to $96 million, which includes interest on bulk cash of $4 million to $5 million and approximately $6 million in noncash amortization of capitalized interest costs. Because we cannot be certain of the timing at which we will close, nor ability to close, either the proposed repricing of the term loan and the potential refinancing of the senior unsecured notes, this new range does not reflect any potential interest savings, nor any potential loss on the early extinguishment of debt that could occur as a result of these transactions.

We expect our full-year capital expenditures to exceed the $105 million, which was the top end of our range. This includes approximately $13.1 million in placement fees, and the cost per approximately 400 units that will be placed on revenue share arrangement at a new travel facility in South Bend, Indiana earlier next year. CapEx related to the refreshment and replacement of units in the installed base is expected to be between $52 million and $54 million in 2017.

With that, I will now turn the call back over to the operator for questions.

Yes sir, thank you. (Operator Instructions) John Davis with Stifel.

Maybe just start quickly on the payments business. I think revenue was quite a bit better than we expected, below -- EBITDA was still a little bit better, but also the margin was a little bit lower. Maybe just talk about the dynamics between the higher revenue and the lower margin. I think maybe you mentioned that there were some ATM fee increases on the strip. That may be part of it, but any more detail you could give there would be appreciated.

A couple items, John. Yes, again, the growth was more in ATM than in cash access, so again, that's going to be a lower margin. The business in Canada is just new for us, so we continue to work through that business, and so I would say it's a little bit on the lower margin, as well.

And then, I think, finally, we talked a little bit about some SG&A in the quarter. As we ramped up the revenue side and are performing well, there's probably a little bit more an incentive expense in there overall. But I think from a full year, the margin's going to be pretty close to what it was at '16. It's just kind of a quarterly impact that seems a little bit lower than we would expect.

Can you size the compliance revenue? I think (inaudible) growing 34%. Just roughly, is that 15% of payments revenue? Just any type of ballpark to see how good that business is today?

Yes. Like I say, we've never done that. I would say, look, it's not -- I guess in percentages-wise, I'm thinking it's less than really 5% of our overall revenue of payments, because again, with the revenue from your ATM and cash advance. So again, it's still relatively small on a revenue side, but very still nice on a EBITDA improvement.

Capital structure-wise, is there any thought to either upsizing the bank loan, maybe doing a term B loan, or do you plan to kind of keep the $820 million bank loan [with] the unsecured notes? Are you happy with that structure? There's a potential to basically change that a little bit more favorably towards (inaudible) bank loan? Any comments in there might be helpful.

Yes. I'm not going to comment much on it, John. We're in that process. But I would say, I think in general, we like where we ended up this year with the new term loan and where the covenant sat. So look, anything's possible, but I don't think we're looking dramatically at changing the mix just at this point in time, but it's always possible.

The win per day, I guess you guys will expect that to be (inaudible) in 2018. I just want to make sure that was consistent with your commentary earlier on (inaudible) basis.

Yes. Our expectation is that it's going to be equal to the fourth quarter. So love to see it a little higher than that, but I think right now we're down, like I say, $0.40 in this quarter, and we've been seeing the improvement. So, our expectation is we'll be in line with fourth quarter.

(Operator Instructions) George Sutton with Craig-Hallum.

I notice you did not use the excuse as you could have, relative to hurricanes and the tragedy in Las Vegas. Can you give us any impacts from those specific items?

I would say look, George, the one hurricane hit Houston, obviously very devastating, but we haven't seen -- we've seen some impact into Oklahoma and some into Louisiana, but it's not been anything that I would say is material enough for us to report on. Clearly the one in Florida, very hurtful to some of the casinos we have in Florida, but there's nothing here that -- again, I'm trying to stay away from adding certain things back when things of these type happen all the time. We don't think it had a real material impact on either one of our businesses in the third quarter, so it was just not something I wanted to highlight. I could have, but I didn't want to.

You mentioned a couple times on the payment side competitive take-outs, and obviously there are very few large players that you don't have. I'm assuming when you're talking competitive take-outs, those have been relatively small in this past quarter. There are some larger ones in front of you. Is that a reasonable assumption?

No, I would say there were some that we did in '16 that are helping the '17 growth. I think that we're more pushing towards, George, is that we did pick up -- we got a couple other ones that could happen this year. So it could be somebody that was either a shared floor, or they were up, and we took them over. And so that's really part of the take-out that I'm talking about from '17 over '16, and those can continue to occur as new contracts come up. But I think it's really more things that came up in '16 that we won, or early '17 that we won that are really comparably helping our revenue increase.

Mike, you mentioned you're in the early stages of the trajectory on the gaming side. Given that we're in the middle of the World Series, I wondered if you could put it in the context of innings.

Actually, George, I thought about that and decided not to only because of that game going so late last night. I wasn't sure everybody would be awake. But yes, we're probably in the third or fourth inning at this point. We've got a ways to go to win the game. But I've got every confidence that, right now, we're out on the playing field and we're hitting the ball, and the question is can we start smacking some home runs.

David Hargreaves with Stifel.

I was wondering if you could talk a little bit about your outlook for replacements in the coming year.

You're talking about on the installed base?

Just overall sector-wide, kind of high level.

Why don't we let Dean take that for you?

I think it's going to be flat to a little bit more positive. You know the messaging out there from our customer side has been they're definitely comfortable that they're going to get what they got this current year with maybe (inaudible) amount of upside, but I'd put it at a very small percentage increase, if at all. I would model it probably running as flat to maybe not even 5% more year-over-year. That's just my take on it.

Now, when you say that, I wonder if that's sort of budgeting in the comments from our friends at Caesar's who are saying that they're talking about replacing at 130% of baseline.

I would tell you that, for every Caesar's, there's other strategic accounts that will go less aggressive. So when you blend it all out -- or just across the board. Throughout the years, you always play with the ebbs and flows in terms of some major customers or jurisdictions, or things that occur that go a little bit more aggressive, while others that have went heavy the prior year not going as aggressive. So when you kind of blend it out, that's the thought process.

And David, I would say, look, we're not through our budget process yet. Dean's really pulling together with the sales staff what they can do with some of this new product we've got out there. So I still think we're a little early to tell you what we think. I mean, I don't know if you're looking at installed base, you're looking at game sales, you're looking at -- you're asking a lot of wide question, and I'm not ready at this point in time to tell you that we've really kind of pulled something together for '18.

But we think there's going to be growth in both games and payments. We think it would be higher in games, but until we really pull everything together and finish up the budget, we're not ready yet to determine where that's going to fall.

And I would definitely be cautious on being too cavalier that the floodgates are opening and purchasing that you think is going to come way above and beyond the prior year actually occur. I think that's a tough position to take, and I'm not comfortable taking that position.

What we put in budgets and what we talk about are two different things. If you don't think we're not going to have some aggressive budgets, that's a different story. But we're going to temper it and see how things go next year.

What about potential for any new jurisdictions? It's been a while since we've seen anything get approved.

Don't see much (inaudible). I mean, you've seen Pennsylvania through their legislature draft some expansion language, but I wouldn't anticipate any new U.S. jurisdictions or Canadian jurisdictions at this point.

From our standpoint really in North America, there's no jurisdiction that we can't operate in, or sell to. So we're pretty much there.

Howard Rosenkrantz with [VA].

First of all, just on the compliance stuff, I know you just said it was less than 5% of revenue, so it probably isn't that significant to the mix. Is that one-time-esque, or should you still have a pretty strong continuing stream of that business?

No, it's primarily actually recurring. I mean, there are one-time to get it up there, but clearly there's professional services, as well as a subscription model, Howard, so it should be a recurring revenue source for us.

And more important than that, I wanted to ask about the win per day. You just made a comment that I only caught a piece of, something in line with Q4. But if you could give us a little more perspective, now you're beginning to ship the higher premium units, the Casablanca, the Brady Bunch, Penn & Teller, games you've never really played in the higher-end license. And I'm just wondering what you guys are thinking the momentum is like for those games.

You made a comment earlier also about your share going from low single-digits to double-digits. I guess that was in terms of sales, but I'm more concerned about what you're thinking about in terms of your installed base on your lease units.

Howard, I'm going to have Dean speak to some of the new form factors and some of the new licensed games that we have out there. But what I was trying to convey in my remarks was that we are finally, and quarter sequentially, starting to move the other direction instead of continuing to have quarter-after-quarter comparisons to the prior year where our win per unit per day continues to go down.

And so, as we see that, that's really in my view, and the way I'm looking at it, is sort of a leveling of our win per unit per day, and now it's our obligation to not just grow the installed footprint in our installed base, not only grow that but also grow the win per unit per day.

And part of that solution, you're correct, is getting more of our better license branded products out there. But we have been saying all along, and it's starting to prove itself out, that the whole point is to produce and develop better games, games that people want to play that we can either have for sale, or we can put into our leased footprint. And that's part of where Penn & Teller and Casablanca come in in a Wide-Area Progressive format, but also it's part of why the E43 is going to be a for-sale cabinet, but also going to our format. But I'll let Dean speak to part of our strategies around how we're going to increase that.

Mike, as you said, it's obviously making better product and leveraging all our different technologies, our form factors. And if you take a look at our license portfolio now and ratchet it up, we have about 20 different licenses with third parties that you only see maybe a little more than a half-dozen going out. So between all that, that puts us in a great situation to grow our footprint and get a better win per day overall.

Right. And so what we've said, Howard, really, is that we expect the win per unit per day to start going the other direction. We expect the installed base to continue to grow and become larger. And then, with respect to win per unit per day, I think the exact comment was that we anticipate our fourth quarter this year win per unit per day will be right around the fourth quarter of last year win per unit per day throughout our installed base, and our installed base will grow. Over time, we expect the installed base to grow to 17,000. And then, with respect to sales, we did say that we expect to go from mid-single digits into at least double digits with our ship share per sales.

If we could just take that step one further in terms of that $17,000 number, do you expect a substantial portion of that, could it be 1,000 units, 2,000 units of -- so we're at 13 now, so you've got an increment of 4,000 units, do you believe that 1,000 or 1,500 will be sort of your super-premium, the Brady Bunch and the like, or where do you see the really premium end of your line coming in as a function of that incremental 4,000?

I think it's going to be much higher than that. I mean, if we're going to get to that goal -- and keep in mind, that's a stated long-term goal, right? That's multiple years out. But, at the end of the day, that's the way that we're going to get there, is by taking a premium product line and getting it out to our customer base as aggressively and appropriately as possible.

And currently, we're over 2,000 premium games in our installed base. We're at about 2,348 of those 13,000, Howard.

Yes, I was just referring to the really high-end stuff, because I think you gave out a number on the last conference call. I think you indicated that you have 200 -- I think had 140-ish at the end of the second quarter and 200-ish, again, of these really higher end games. Is that about right?

We used to have just under about 300 of the Wide-Area Progressive -- or Local Area Progressive. That's what I think you're referring to.

Right. And premium games include more than just that, Howard. Our premium games, we're around 2,300 throughout the footprint, and that's growing, as well.

I was just really referring to those, the Whopper or the stuff that you really get a super-premium on. Do you envision that that will be a big part of the incremental 4,000? And I'll let it go there. I apologize for going on.

Yes. I'm not sure, and it's going to depend. I mean, clearly, as we develop games, in particular our licensed and branded games, the whole concept behind development of those games is to develop them so they can, on either Wide-Area Progressive in Class II or Wide-Area in Class III, or Local-Area in Class II or III, do extremely well and command premium pricing.

So yes, our intention is to, in fact, have that become a bigger part of our overall installed base, and how well we do that I think is going to be -- I personally view that as being something that we're going to focus on and do extremely well with. And you can look at, quite frankly, our history and come to your own conclusions to how quickly and how well we've done with that.

[Jay Kunan] with Stifel.

Just wanted to ask if there's anything to report about the New York contract. Where does that stand?

There really isn't anything to report at this point. Dean?

We're in negotiations, obviously. It's coming to an expiration, so we should hear something pretty soon about that.

And I think we'd say look, at this point in time, it's very hard for them to change. We would expect we're going to get some type of extension. We just don't know what, how long. And so I wish we could tell you something, but it's just how the New York government works up in that area. So, Dean and the people working for him have been doing this nonstop. Wish we had answers, but we just really don't at this point.

Ladies and gentlemen, there are no further questions in queue. I'd like to turn the conference back over to management for closing remarks.

I just want to thank everybody for joining us on the call today, and we look forward to discussing further progress in the fourth quarter and for the full year '17. Again, thanks for joining us.

Thanks, everyone.

Thank you, ladies and gentlemen, that does conclude today's conference. We thank you for your participation, and you may now disconnect.