Everi Holdings Inc (EVRI) 2018 Q2 法說會逐字稿

Good day, and welcome to the Everi Holdings Inc. Second Quarter 2018 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, Strategic Development and Investor Relations. Please go ahead, sir.

Thank you, James, and welcome to the call. Joining me today are Mike Rumbolz, our President and Chief Executive Officer; Randy Taylor, our Chief Financial Officer; Dean Ehrlich, our Games business leader; and Darren Simmons, our Payments business leader.

Before we begin, I'd like to remind everyone that safe harbor disclaimer in our public filings covers this call and our webcast. Some of the comments we made during this call contain forward-looking statements and assumptions that are subject to risks and uncertainties, including but not limited 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 only as of 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 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.

This year, to assist in understanding the comparability of our reported 2018 revenue and cost of revenue amounts, we will be reporting non-GAAP adjusted revenue and related measures for the prior year periods on a comparable basis, assuming adoption of the new revenue recognition rules under 606.

Beginning for all periods after July -- January 1, 2018, we're now required to net certain amounts as reductions of revenues that had previously been recorded as cost of revenues under ASC 605. For a reconciliation of these adjusted amounts to the reported equivalent in our Form 10-Q, please refer to our earnings release. For more information regarding these adjustments, please see our Form 10-Q for the quarter.

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

Finally, this call is also being webcast. A link to the webcast has been included 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. Thank for joining us.

This afternoon, we reported that 2018 second quarter revenue on a comparable basis increased 16% to $118.7 million, and our adjusted EBITDA rose 10% to $59.5 million. This represents our highest-ever quarterly adjusted EBITDA since we completed the acquisition of Multimedia Games in late 2014. We also reported our second consecutive profitable quarter with net income of $1.5 million or $0.02 per diluted share. As you will see, these strong financial results were driven by growth across our entire business.

Turning to the highlights for the second quarter. We, again, generated growth in all of our key performance indicators. Our sale of 1,108 games in the second quarter set a new record for quarterly unit sales since our acquisition of the Games business. Also, our installed base of 14,201 units at quarter-end was up 77 units from the first quarter. And year-to-date, the installed base has grown organically by 905 units from the end of 2017.

Along with the growth in the installed base, our daily win per unit rose year-over-year for the third consecutive quarter. The $2.42 increase in daily win per unit represents our highest-ever year-over-year increase in this metric.

The 2018 second quarter was also the 9th consecutive quarter in which we generated year-over-year revenue and adjusted EBITDA growth for our FinTech business. Both transaction volumes and dollars processed continue to increase. In addition, the functionality of our integrated product set combined with our competitive positioning continues to lead the industry.

We're generating consistent growth in both segments, and our results validate the investment strategy and the product road map that we implemented as these investments are now clearly delivering the returns that we targeted.

Our Games segment continues to build upon the operational achievements of our last 2.5 years. Gaming operations revenues were at record levels, up $6 million or almost 17% from the prior year.

Our install base ended the quarter at 14,201 units as we continued to expand our footprint in higher-yielding markets. While this growth, in more profitable locations, has been responsible for incremental gains in our daily win per unit and total gaming operations revenue, the most significant portion of our growth has been generated from the success of our premium units. This includes, in particular, those units connected to our Wide-Area Progressive platform.

For us, the most encouraging component of our gaming operations growth is related to the return on our investments in refreshing the older cabinet styles in our installed base. Although this growth has driven some of the incremental quarterly CapEx spend, the improvements we are seeing from the new cabinets and new game content have provided noticeable increases in our yield. We now have roughly 1,250 E43 units deployed throughout our installed base, which includes both premium Wide-Area Progressive and nonpremium content.

The best indicator of the success of our Games strategy is reflected in the benefit to daily win performance on a same-store basis for the nonpremium Games segment. This is the area where we have seen some truly impressive returns. The yield on these cabinets with our newest game titles has generated an over 200% increase when compared to the former Player HD units that were replaced.

Our plan, when we initiated this refresh process, was not to just replace an existing unit and hold the floorspace, but rather to develop and manufacture games that grow our daily win per unit. We believe the increase in yield that we are achieving is proving this capital replacement strategy is a success.

We've initially focused on refreshing the older units in the nonpremium base with Games that are developed for our Core HDX and our E43 cabinets. While we will continue to address this segment, we're also now addressing some of the older premium Games in our installed base. These include Games that were originally designed for the Player HD high-rise cabinet and which will now be upgraded to our new cabinets, including our E5527 premium cabinet.

This new premium cabinet will also feature some of our newest branded themes, including The Brady Bunch, Felix the Cat and Fruit Ninja, among others. We do not expect that we will replace all of our older [cell] cabinets in either the premium or the nonpremium segments.

We're now approaching approximately 70% of our entire refresh process. Once this is completed, we expect that our run rate of CapEx needed to maintain our existing installed base, will decline from its current levels.

At the same time, we will continue to be in a position to maintain and improve the benefits that we're seeing in our yield. This represents a more recent strategic priority and one that we expect will continue to provide lift in overall game performance.

As we move into the latter part of the year, we see excitement building and demand increasing for the launch of our 2 newest platforms, the Empire Arena and Renegade. We believe these will bring entirely new levels of entertainment for our premium and our WAP unit placements.

At last year's G2E, we demonstrated new products that have directly led to the progress that we are seeing today. We had several of the most-talked-about products at the show. In just about 2 months, we'll be back at G2E, and we're excited to further demonstrate the significant strides that we continue to make in raising the level of entertainment that our Games provide for players.

Our growth in unit sales and in our installed base, along with the improvement in daily win per unit, are all being driven by the success we're having with our new gaming cabinets and our new Games. The newer Core HDX and E43 cabinets represent the majority of our unit sales each quarter, while our market-leading, player-classic mechanical real cabinets account for approximately 20% of total sales.

With these new video platforms, we've been able to introduce new features and functionality in both our gameplay and themes, and we're now seeing how well the players are responding to this increased level of entertainment. In particular, many of our more recent titles are in high demand, including Fu Xuan, Fire Fortunes and Lightning Zap.

And before I turn to a discussion of the key highlights of the FinTech segment, I want to review a disclosure from this afternoon's press release. Beginning with this quarter, the business segment that we formerly refer to as Payments will now be referred to as Financial Technology Solutions or FinTech for short. The Payments reference has become too narrow a description to capture the breadth of our product in financial services as well as in other information and technology areas.

Financial Technology Solutions more accurately reflects the software and the applications that we've developed around our financial service products. It also better describes our other integrated products and product extensions that improve our customers' operating efficiencies and provide the ability to make proactive and informed decisions around patron behaviors, such as the AML compliance product.

Our products do more than just dispense cash from an ATM, something that is evident in the scale of our operations and our dominant market position in the domestic casino industry. As we continue to further evolve our product portfolio, FinTech will be an even more appropriate description of the solutions that we will be providing for our customers.

Now turning to our FinTech segment. The growth that we are achieving is equally as notable as the growth in our Games segment. Adjusted EBITDA in the quarter of $25.8 million is one of the highest quarters in the last 10 years and was only 2% lower than quarter 1 in 2018.

As a reminder, our first quarter of the year is generally our most profitable quarter for FinTech. Due to the number of holidays and big events, such as New Year's Day, Martin Luther King Day, Presidents' Day, the Super Bowl, March Madness and, of course, the start of tax refund season.

Growth in our FinTech business remains broad based with healthy levels of net positive renewals; wins from competitive bidding processes; new casino wins, including the Hard Rock in Atlantic City; and continued growth in our ATM services in Canada. We also continue to benefit from positive momentum in gross gaming revenue generated by our customers as well as the health of the macroeconomy. This has resulted in gains in same-store transactions and total dollars processed. We've now had 15 consecutive quarters of growth in same-store transactions and dollars processed.

Our newer products, such as AML compliance solutions and Jackpot Xpress, continue to gain traction as customers recognize the unique benefits our innovations bring to their operations. These fully integrated solutions offer a better experience for gaming patrons and simultaneously improve our customers' operating efficiency while reducing their operating costs.

As with our Games business, G2E in early October will be a great showcase for our FinTech product evolution, including the latest version of our Cash Club e-wallet. Our e-wallet product, which is in the midst of a successful pilot with a large customer, assists our Gaming customers' patrons by allowing them to seamlessly move financial values across the entire gaming ecosystem, including sports wagering where it is available. This is a developing technology and one that is an extremely high priority on our product road map as we position our offerings to address near- and long-term opportunities both on and off the casino floors.

Given the consistent growth that we're achieving in Games and FinTech combined with our progress in expending our existing products into new markets, it is very evident that our focused investments in our product and technology capabilities continue to grow our share of casino floorspace, and we are delivering solid returns for our shareholders. With the strong performance across our business segments through the first half of this year, this afternoon, we raised our expectation for full year adjusted EBITDA to a range of $228 million to $231 million.

Our improving outlook, combined with the series of actions that we've taken over the last 16 months to strengthen our capital structure and lower our annual cash interest expense is establishing the foundation for Everi to begin to deliver accelerating free cash flow. This is a critical priority for us. And as free cash flow grows over time, we expect to prioritize it to reduce outstanding debt. In fact, at our Analyst Day next month, we will provide additional insights on the factors in our operations that impact our free cash flow.

Now before turning the call over to Randy, I want to again mention a new event for our company. Our first-ever Analyst Day will take place September 26 at our Chicago office. We will be sending formal invitations to this event very shortly. My expectation is that our discussion surrounding our vision, product road map and the key financial drivers of our business will serve as a catalyst for our equity valuation. If you have interest in attending or would just like some more details, please get in touch with us or with JCIR, our outside Investor Relations firm. Their contact information is included at the end of our earnings release issued today.

And with that, I'd like to turn the call over to Randy.

Thank you, Mike, and good afternoon, everyone. Please note that the following discussion of our results is based on the comparable revenues and cost of revenues as reported in our press release.

The second quarter 2018 total revenues were $118.7 million comprised of $66 million from Games and $52.7 million from FinTech. Games revenues increased approximately 20% year-over-year, and our FinTech revenue increased approximately 12% year-over-year. Adjusted EBITDA for the second quarter of 2018 increased by $5.4 million, or 10%, to an all-time record $59.5 million. Adjusted EBITDA for the Games segment was $33.7 million compared to $29.2 million a year ago, while adjusted EBITDA for the FinTech segment was $25.8 million compared to $24.9 million last year.

In our Games segment, gaming operations revenue increased $6.3 million year-over-year to $43.7 million. This includes $4.8 million in revenue from our New York Lottery operations. On a year-over-year basis, our installed base increased 1,259 units to 14,201, while daily win per unit increased by 9% or $2.42 to $29.49.

Within the installed base, premium unit placements rose approximately 36% or 733 units year-over-year. This includes 512 WAP units at quarter-end, which is up 109 units from the first quarter. We expect the installed base at the end of the third quarter will be relatively flat compared to the installed base at the end of the second quarter. But we continue to expect growth in the second half of the year to reach our full year guidance of between 8% and 10% growth.

Because of the growth we have experienced in premium unit placements and the benefits we are generating from refreshing the legacy installed base, we continue to expect increased daily win per unit on a year-over-year basis in both the third and fourth quarters.

Revenues from electronic Games sales were $22.3 million for the second quarter of 2018, which is up approximately 27% year-over-year. In the quarter, we sold 1,108 units at an ASP of $17,650 compared to 886 units in the second quarter of last year at an ASP of $17,613.

For the full year, we continue to expect unit sales will increase approximately 10%, and we don't expect to see any material change in our average ASP. Unit sales in the second half of the year are typically lower than the first half of the year. With that said, we do expect that unit sales in the third and fourth quarter will show increases over the prior year periods and that our full year growth will result in continued ship share gains. In the second quarter we recorded noncash impairment charges of approximately $2.6 million on Games segment related to the write-down of certain legacy games and associated parts included in inventory and leased assets.

Based upon the success we are achieving from the sales and placement of our Core HDX and E43 cabinets, we determine that the carrying value of certain specifically identified legacy items should be reduced to their estimated fair values. These noncash charges are included in operating expenses within the Games segment, and we've added these charge -- these charges back when computing adjusted EBITDA.

Adjusted EBITDA margin for the Games segment was 51.1% in the second quarter of 2018 compared to 53.1% in the second quarter of 2017. The decline in adjusted EBITDA margin primarily relates to higher cost of revenues for our new E43 cabinet and increased SG&A costs.

For our FinTech segment, in the second quarter of 2018, both revenue and adjusted EBITDA grew for the ninth consecutive quarter. The second quarter also marked the 15th consecutive quarter of same-store growth in both transactions and dollars processed. In second quarter of 2018, revenues on a comparable basis increased 12% for cash access services, 29% for equipment sales revenue and 3% for information services and other revenue compared to the prior year quarter.

For 2018, we continue to expect total FinTech revenues on a comparable basis to increase in the mid- to high single digits versus 2017. Adjusted EBITDA margin for the FinTech segment was 48.9% in the 2018 second quarter compared to 52.8% for the second quarter of 2017 with the decline resulting primarily from reduced margin earned on certain larger corporate and foreign kiosk sales as a result -- as well as an increase in SG&A cost.

Moving to the balance sheet, the outstanding principal on our long-term debt was $1.19 billion, and we had no amounts outstanding under our revolving credit facility as of June 30, 2018. The weighted average interest rate on our outstanding debt obligations at June 30 was approximately 5.9%. And during the second quarter, we made $2.1 million in required repayments on our term loan.

As of June 30, 2018, the outstanding balance of our ATM cash utilized by us from bulk cash providers was approximately $225.3 million. Our consolidated secured leverage ratio at quarter-end was 3.4x adjusted EBITDA compared to a maximum senior leverage of 5x. In May, we also successfully repriced our senior secured term loan reducing the interest rate spread by 50 basis points to a new all-in rate of LIBOR plus 3%.

For 2018, we expect interest expense of between $83 million and $87 million, which includes interest on the bulk cash of approximately $8 million; $1.2 million in fees from repricing, $0.2 million in noncash loss on early extinguishment of debt; $2 million of imputed interest on the Player Station Agreement; and $3.4 million in noncash amortization of capitalized debt issuance costs.

In the second quarter, placement fees totaled $5.5 million, and other capital expenditures totaled $31.6 million. Excluding placement fees, Games segment CapEx was $27.9 million and FinTech segment CapEx was $3.7 million.

Games segment capital expenditures related to game and platform design was approximately $8.4 million, and CapEx related to gaming equipment was approximately $16.7 million. This amount includes growth units added into our installed base, equipment upgrades, replacement for existing installed base units and new units placed on trial.

Our trial unit count at quarter-end exceeded 500 units. This volume of trial units is a very encouraging sign for second half performance as the volume of units on trial are typically a good indicator of future placements and/or unit sales. We expect that the total CapEx in the second half of the year will be below first-half levels. We expect full year FinTech segment CapEx will be approximately $15 million. Games segment placement fees will be approximately $21 million. And other Games segment capital expenditures will be approximately $90 million to $93 million.

Of this $90 million to $93 million total, approximately $55 million to $56 million will be related to customer equipment and $28 million to $30 million will be related to capitalized development costs. Remainder of CapEx this year is for general corporate capital expenditures and CapEx related to our New York Lottery business, following the extension of the agreement for 2 years.

As a reminder, our existing placement fee obligation will only impact quarterly CapEx through the third quarter of 2019. Following that, the related unit placements will remain in our installed base for at least another 4.5 years without any additional placement fees.

As Mike highlighted, our Games segment CapEx continues to translate into improved operating results, and we have replaced approximately 70% of the older-style units that we expect to refresh in our installed base. Our operating performance from these activities is demonstrating a clear and solid return. We continue to expect that annual CapEx required to service our existing installed base will come down when compared to our recent run rate.

Based upon the strength of our first half financial and operating results, this afternoon, we raised our outlook for 2018 adjusted EBITDA to a range of $228 million to $231 million from the prior range of $225 million to $230 million. We will also continue to expect to be profitable for the full year.

While I have discussed many of the underlying metrics and other expectations in our 2018 outlook, there are a few other items that may assist you in your modeling. Considering our expectation to be profitable for the full year, you should model fully diluted shares outstanding at no less than 74 million shares, and we would expect fully diluted shares to increase if our stock price increases.

Depreciation expense is expected to be approximately $56 million to $60 million. Amortization expense is expected to be approximately $66 million to $70 million. And finally, we also expect to record an income tax benefit of between $3 million and $5 million for 2018, which includes cash tax payments of approximately $0.5 million.

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

(Operator Instructions) And we'll take our first question today from David Katz with Jefferies.

So look, I wanted to start with kind of the high-level guidance, if that's okay. Because I hear and I've seen the excitement around the rollout of new games and particularly in the premium category. And if I may just put you on the spot for a moment, the guidance is going up by $3 million and, I guess, $1 million at the top end of it. Would it be fair of us to interpret this as some measure of conservatism?

Well certainly, you can interpret it as a measure of comfortableness. One of the things that we try and avoid, David, as you know, is we don't want to get too far over our skis when we're giving guidance. We like to be in a -- at least a safe zone where we feel comfortable, and that's the guidance that we've given today is where we're comfortable.

Got it. And if we look at the FinTech segment for a second and think about both the capital that's put into it as well as the R&D and the corporate allocation, is more of it put into the development and/or the software elements of it? Or is more of it into the hardware elements of it? And I realize that's kind of a high-level question.

Yes, I mean from a capital standpoint, it's a little bit of both, but I would say we're probably transitioning more to software development cost. I mean, we still have hardware associated with our network and how we process transactions. But we're really moving more as our business continues to morph to more compliance in AML and other -- the e-wallet that Mike talked about, to really be more of a development software company, along with our core cash access. And therefore, that's really kind of the increase in the CapEx. Because we have in the past been more like 10 to 12 in the FinTech area, and it really kind of moved that up as we really believe that's where we're headed.

Got it. And if I were to ask, if you look at, say, tuck-in acquisitions potentially to enhance that business segment, are they out there? Are those opportunities that you're getting a chance to look at?

There are. They're possibilities in both the hardware and the software space that we not only are getting the opportunity to look at but are looking at.

Got it. And would it be fair to ask, if any of them are likely within, say, the next 12 months?

You certainly can ask. The problem is even if I want to answer you, I don't think I've got enough of a crystal ball to give you an answer for that.

Okay. Last question from me. The premium units that are listed in the release 2,797 (sic) [2,782], fair to assume that those are not all Class III units, right. Some of those are in the Class II market?

Correct, David. This is Dean.

And if you could just give us an idea as to how accretive those are to your daily win per unit, in a qualitative sense, I assume, is appropriate, that would be helpful. And that's it from me.

Not really able to comment on -- that's a...

I mean, the premium units are higher by a factor than our nonpremium units, but we don't really break that out, David.

(Operator Instructions) We'll now hear from George Sutton with Craig-Hallum.

My first question I think should be directed to Dean. As we think through your go-to-market strategy and what appears to be a growing ship share, I'm just curious if you could bifurcate a few things or trifurcate, maybe. License Games, the WAP offering and your demonstrated daily win per unit that's been growing. As you go to talk to the buyers, how much are each of those coming into play?

I would say, if you think about it directionally, our premium units are always higher win per units for our operators than our standard bread-and-butter offerings. But think of it this way: we have the different swim lanes of products that cover the different product categories. And when you taught to price, your premium products have to garner the responsibility of that, so -- to the operator. So with that, it's commensurate with performance. So the better the performance, usually, it relates to a reoccurring revenue model that is commensurate to that, right. But on your standard base games that you put out into the market, they're fairly sad. I would say, depending on the platform that they purchase, whether it's E43 Core HDX or our Player Classics. I don't know if that answers. Just kind of giving you the whole context of the overall pricing strategy, predicated on whether it's our standard for-sale product or for new product.

You made a reference to higher-volume trial units. Did you give those numbers? If you did, I missed them. I wondered if you could retune...

We were -- we had about just over 500 on trial at the end of the quarter, George. This is Randy.

And I don't remember what that would compare to this time last year?

Not this time last year, but I think we have in the past, probably been more -- have been closer to, I'm going to say, let's say at year-end, closer to around just a little over 300. So that's been a part of our increase, actually, a little bit in the CapEx is those trials are in our capital, and if they will turn to sales, they'll then come out of there. But we probably increased by about 200 units over year-end.

Lastly, and I'm encouraged that you're going to talk about CapEx opportunities at your Analyst Day, but CapEx did remain high, and you separately, in your release, talked about your return on investment being very solid here. Can you just help quantify that for us so that we get a comfort with this return that you believe you're seeing on the capital expenditures?

Look, I'm looking at in a couple different ways, George. Look, I think the significant increase in win per day per unit, if we can hold that win per day per unit, that is going to generate significant additional recurring revenues on -- quarter-after-quarter basis. So we feel like refreshing and putting out new units now to drive that win per day per unit up and that installed base is where we're going to see the return. Obviously, the units have to stay out there. We're very encouraged with the new games we have on there, the new form factors, and that's why we are growing. So I think, we'll give some more insight on that on the Analyst Day, but that's how we're looking at it as, yes, it's a high CapEx for the quarter. I talked about the fact, we expect it to come down, but I think we're still within the guidance we gave at the beginning of the year. And the win per day and the units that we've grown to, we're very happy with.

Next we'll hear from John Davis with Raymond James.

Maybe Mike and/or Dean, just want to talk a little bit about the win per day. You show a nice step-up here to 9% increase year-over-year from, I believe, if I remember correctly, about a 5% increase in the first quarter. So maybe just talk about what's working better. It didn't sound like, Mike, anything in your comments lead me to believe this is onetime and not sustainable. But Dean, maybe just hit on what exactly is working and what the opportunities are, going forward?

Well, I would tell you, our E43 rollout, the 1,250 units that Mike talked about, are newer themes, Mike mentioned Fu Xuan, Fire Fortunes, Lightning Zap, which are standard products, have come out of the gate really strong. And then on the premium side, obviously, with the growth in footprint that he talked about in his prepared comments, we've had a tremendous amount of solid performance as well. And the one I would mention is, that comes right to my mind is Willie Nelson. That's been the leader of the pack as far as premium performance, but the rest of them have followed suit fairly close.

Okay. Any update on ship share. Clearly, you're gaining share. I think you guys have talked about kind of getting to a 10%. I think, you went from 3% to kind of 5% to 6%. Are we above that today? Are we still kind of in that range?

Well, it kind of depends on whose numbers you start using for what -- how many machines were shipped in a given quarter. But using the published numbers that are out there, clearly we're over 6% in some categories. We're probably closer to 7%, depending on who you use as your guide for the total number of shares shipped in the quarter.

Okay. No, that's helpful. One for you, Randy, the Payments EBITDA margin, I think you called out some ForEx kiosk sales that weighed on it. That feels onetime. Anything to kind of add there that also weighed on it and kind of what the outlook is for the back half of the year?

So I'd say a couple things. Look, I do think you're going to continue -- or we're going to continue to have some pressure on the sales price in the kiosk. They are -- we've done really well on the numbers sold, John, but I do think there's a little pressure on that. And with a bigger corporate deal and sometimes if we go foreign, just because of their duty taxes and so forth, that price gets pulled down a little bit. So I think -- I still think we'll have a nice margin in there, but it clearly won't be the same as cash access given that everything is netted. So it will have -- it will weigh a little bit there. On the SG&A, there was, I would say, probably about $0.5 million in there that I will kind of consider onetime related to -- really kind of more related to our self-insured medical, which can be lumpy at times, and a little bit basis on what happened last year. So I think -- I don't think you should use this quarter's SG&A, but I think, probably, somewhere in that $19.5 million range for Q3 and Q4. There's a little bit of play between Q3 and Q4 based on G2E. But we're growing. The Payments business continues to perform very well. There's a little price -- a little pressure on salaries and benefits and some incentives, but we're going to continue to work to manage that. But like I said, I wouldn't use the run rate from Q2. I would bring that down a little bit just for a couple of onetimers, but I think at $19.5 million is probably pretty close for the 2 quarters.

Okay. And last one from me. I don't want to steal any thunder from the investment day here, but Mike, I was encouraged by the comments on a potential decline in CapEx. So if we look at your numbers this year, if you exclude the placement fees, you're kind of $104 million to $109 million. $15 million of that is Games -- sorry, is Payments or FinTech, and the other remaining balance is, in one way or another, for the most part, the Games business. Is it reasonable to assume that we could see maybe like a 10% decline over time in that piece, which would bring you kind of below the $100 million mark? Is that a reasonable way to think about it?

Yes, John, I don't think -- I really -- I don't want to unveil before our Analyst Day, but I encourage you to be there so that we can show you exactly where we think this is going to go. Clearly, part of the spend has been higher than you would anticipate, given the need we had to refresh our units out in the installed base and grow the installed base. And that has actually worked extremely well. And so I think those were dollars well spent. But clearly, we recognize going forward that's not going to be the run rate, nor does it have to be the run rate. But we'll walk you through in more detail at Analyst Day exactly where we think that's going to go.

James Kayler with Bank of America has our next question.

Just on the FinTech segment, I just wanted to kind of get a little more granularity on, I guess, what you're seeing in sort of same-store trends versus new-business wins? And it does seem like ATM is growing significantly faster than cash advanced in the quarter. I'm just curious if you're seeing any sort of noticeable shift or if it's just a timing issue?

Yes, same -- well, there's a couple things. Right now that we're reporting net, you really don't see whether part of it is margin. So I'd say, some of it may be margin, but I think the ATMs -- one, you've got new business in Canada, and that's primarily ATMs. So that's where some of the growth is coming from as well as some of the new properties we picked up. We talked a little bit about it. We had -- the Hard Rock and Atlantic City we picked up. That was very small, but we picked up the Hard Rock in Ottawa. So again, I think it's hard for me to draw conclusions just yet, but -- I don't know if it's just first-time users coming into the ATM and that's why they're a little bit more, but I haven't really drawn any conclusions other than, I'm with you, the, let's say, the credit and debit had a little bit lower growth than the ATMs this quarter. But I haven't drawn any conclusions long-term yet.

And then, just on the comments around the balance sheet and deleveraging. I mean, can you just remind us what you -- sort of longer term what you think the sort of optimal level to run the business from a leverage perspective is? Or do I have to wait till the Analyst Day?

I would say that the tough part is there's a dichotomy, which is -- or is a difference which is interesting to hear because this is probably the one place that Mike is more conservative than I am. Look, on a total leverage basis, right, we're just over 5x, let's say, right, or probably -- we're probably approaching maybe getting close to under that but right around there. I think I would like to be in the low 4s, around 4x. I think Mike would like to see us below 4x. So that's -- and obviously, that's going to be attained through both growing our EBITDA as well as paying down debt. But I think long term, Mike would like to see us at 4 under. I think a low 4x, for me, I'd be pretty comfortable -- total debt.

Thank you for your questions. If there are no further questions at this time, I would like to turn things back to Mr. Taylor for closing remarks.

I would like to thank you all for joining us on the call this afternoon. Hopefully, we get to meet with many of you at our Analyst Day or G2E. Following those events, we look forward to discussing further progress of our business when we report our third quarter 2018 results in early November. Thanks for joining.

That does conclude today's conference call. Thank you for your participation. You may now disconnect.