Todd Valli - Ram V. Chary - Chief Executive Officer, President and Director Randy L. Taylor - Chief Financial Officer, Principal Accounting Officer and Executive Vice President.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division Jeffrey Bronchick - Cove Street Capital, LLC.

Hello, everyone. Thank you for standing by, and welcome to the Global Cash Access Holdings Inc. Second Quarter 2014 Earnings Conference. [Operator Instructions] This conference call is being recorded today, Tuesday, August 5, 2014.

And now, I would like to turn the conference over to Todd Valli, Vice President of Corporate Finance and Investor Relations. Please go ahead, sir..

First, we have posted our earnings release to the Investor Relations section of our corporate website at www.gcainc.com. Second, if we use any non-GAAP financial measures for references, we will provide the appropriate GAAP financial reconciliation on our website. Third, a replay of today's call will be posted on our website after 5:00 p.m.

Pacific Time. Fourth, please note that today's discussion contains forward-looking statements based on the environment as we currently see it and are subject to a number of risks and uncertainties.

These include, without limitation, the overall growth of the gaming industry, if any, our ability to replace revenue associated with terminated contracts; margin degradation from contract renewals; our ability to introduce new products and services; our ability to execute on mergers, acquisitions and or to our strategic alliances; our ability to integrate and operate such acquisitions consistent with our forecast; gaming establishment and patron preferences; national and international economic conditions; changes in gaming regulatory, card association and statutory requirements; regulatory and licensing difficulties; competitive pressures; operational limitation; gaming market contraction; changes to tax laws; uncertainty of litigation outcomes; interest rate fluctuations; inaccuracies in underlying operating assumptions; unanticipated expenses or capital needs; technological obsolescence; and employee turnover.

And fifth, for factors that could cause actual results to differ materially from those described in our forward-looking statements, we refer you to our SEC filings and the risk factors set forth therein. With that, I am pleased to introduce our President and Chief Executive Officer, Ram Chary..

Thank you, Todd. Good afternoon, everyone, and thank you for joining us today to discuss our second quarter 2014 financial results. As a company, we continue to transition to a solutions approach in the market. We are delighted that this shift has been embraced by our clients and prospects.

Two recent top 10 client commitments validate our pivot to a solution strategy model. First, we have expanded and extended our relationship with Station Casinos. Over the next 5 years, we will provide them with comprehensive solution set to include not only our Cash Access services but also our integrated kiosk and compliance software solutions.

We are excited to have the opportunity to now showcase our capabilities across the entire Casino footprint. Second, we also recently expanded and extended our relationship with Penn National Gaming to provide a similar comprehensive and long-term solution.

We will deploy our total suite of cash-to-the-floor solutions across Penn's full portfolio of properties and will install our integrated kiosks in Penn's new Hollywood gaming at Mahoning Valley Race Course, which is scheduled to open later this year.

We have also secured the cash before business in all future Penn property locations and will deploy additional integrated kiosks under the extended agreement. In the coming weeks, we expect to announce yet another long-term commitment with a top 10 client, again, to deploy our comprehensive suite.

These recent signings are clear signals that our clients view us as meaningful strategic partners. As a payments partner, exclusive to gaming, we are conscious of the accelerated consolidation in the gaming suppliers space.

While we execute diligently against our established capital allocation approach, we continue to seek opportunistic acquisitions of all sizes that are gaming-relevant and broaden the value proposition for our clients. Even though the solutions transition is taking shape better than we had anticipated, it will take time.

We will continue to forego benefit from onetime product sales in order to establish a more reliable and profitable foundation for our future. This predictability will allow us to take more targeted, long-term investment decisions to match the long-term commitments from our customers.

Unfortunately, we are faced with the consequences of some of our 2013 sales, which did not reflect our higher-value pricing. This is particularly evident in our second quarter results. Furthermore, we, like all gaming-related organizations, faced especially negative regional volume trends in the month of June.

All of this contributed to a second quarter that is not consistent with our go-forward business outlook. Randy will now discuss our second quarter in greater detail..

Thank you, Ram. Good afternoon, everyone. I will start with our 2 primary non-GAAP performance indicators, cash EPS and adjusted EBITDA. Cash EPS is defined as net income plus equity compensation deferred income tax and amortization expenses divided by diluted shares outstanding.

Cash EPS was $0.20 on weighted average diluted shares of 67.1 million for Q2 2014 as compared to $0.21 on weighted average diluted shares of 67 million for Q2 2013. Cash EPS was $0.42 on weighted average diluted shares of 67.2 million for year-to-date 2014 as compared to $0.40 on weighted average diluted shares of 67.4 million for year-to-date 2013.

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock compensation expenses. Adjusted EBITDA was $17.7 million for Q2 2014 as compared to $19.1 million for Q2 2013. Adjusted EBITDA was $37 million for year-to-date today 2014 as compared to $37.1 million for year-to-date 2013.

Now for our segment information. Cash advance revenues, operating income and operating margin were $57.6 million, $15.7 million and 27% for Q2 2014 and were $119.6 million, $33.8 million and 28% for year-to-date 2014.

This represented a 1% revenue increase in the quarter and a 3% increase in the 6-month period, primarily due to an increase in the aggregate dollar amount processed. The loss of the Caesars' contract negatively impacted both the quarter and year-to-date cash advance revenues by approximately $4 million.

Excluding the effects of the Caesars' contract, cash advance revenues would have increased by approximately $4.3 million and $7.7 million or 8% and 7%, respectively for Q2 2014 and year-to-date 2014 as compared to the prior periods. The operating margins have remained relatively consistent with the prior periods.

ATM revenues, operating income and operating margin were $69.7 million, $6.1 million and 9% for Q2 2014 and were $143 million, $12.3 million and 9% for year-to-date 2014.

This represented a 4% revenue decrease in both the quarter and the 6-month period, primarily due to the loss of the Caesars' contract and lower transaction volume at our same-store locations, partly offset by new customers.

The Caesars' contract accounted for approximately $7.3 million of the ATM revenue decline in both the quarter and the 6-month period.

Excluding the effects of the Caesars' contract, ATM revenues would have increased by approximately $4 million and $2.1 million or 5% and 1%, respectively for Q2 2014 and year-to-date 2014 as compared to the prior periods. ATM operating margins also remained relatively consistent with the prior periods.

Check services revenues, operating income and operating margin were $5.4 million, $2.8 million and 52% for Q2 2014, and were $10.6 million, $5.7 million and 53% for year-to-date 2014. This represents a 3% revenue decrease in the quarter and a 7% decrease for the 6-month period, primarily due to a decrease in transaction volume and lost business.

Check services operating income decreased by $0.6 million for Q2 2014 and $1.1 million for year-to-date 2014, primarily due to the decline in revenues and increase in warranty costs as a percentage of revenues.

Our other segment which consists primarily of kiosk sales, kiosk parts and services, Central Credit operations and NEWave compliance, audit and data services, reported revenues, operating income and operating margin of $12.3 million, $4.5 million and 37% for Q2 2014, and $22.2 million, $8.5 million and 38% for year-to-date 2014.

Other revenues decreased by 7% in the quarter, primarily due to a decline in kiosk sales, parts and service revenue and an increase in solution-integrated kiosks sales, which generate no upfront revenue, but the cost of the kiosk is included in the cost of revenues for the cash advance and ATM segments over the term of the contracts, partially offset by the revenue from our NEWave compliance part [ph] and data services offerings.

Other revenues increased by 10% on a year-to-date basis due to higher kiosk sales and the results from our NEWave products and services. Other operating income decreased by $1.9 million in the quarter and $1.3 million during the 6-month period, primarily due to lower margins on kiosk sales.

Overall, operating margins were also negatively impacted in both periods due to the lower margins from the kiosk sales.

Corporate operating expenses increased by $1.5 million or 8% for Q2 2014 and $3 million or 9% for the 6 months ended June 30, 2014, as compared to the same period in 2013, primarily due to higher noncash stock compensation expenses related to our 2014 equity awards and the vesting of certain equity grants for terminated executives.

A few other company metrics to note. Same-store cash-to-floor, our best indicator of industry trends increased approximately 2% for Q2 2014, as compared to Q2 2013, due to both credit and debit card transactions of the Cash Access segment. Combined credit and debit cash-to-floor was up 8% for Q2 2014.

ATM same-store cash-to-floor and transaction volumes decreased by less than 1% and approximately 3% respectively for Q2 2014 as compared to Q2 2013. Our balance sheet perspective. Cash and cash equivalents were $162 million as of June 30, 2014.

Please note that our daily cash balance fluctuates significantly due to our large settlement receivables and settlement liabilities and the ultimate timing of when the cash is received from the patrons' issuing bank and when we reimburse our casino customers.

Borrowings were $96 million at the end of the quarter, and our leverage ratio was approximately 1.3x. Capital expenditures were $7.5 million for the 6 months ended June 30, 2014, which was consistent with the prior year period of $7.2 million.

We purchased approximately 0.5 million shares of our common stock for $3.7 million in Q2 2014 and have repurchased an additional 0.4 million shares for $3.5 million from July 1 through August 1 under our share repurchase program.

Since its inception through last Friday, we have repurchased 3.8 million shares of our common stock for $28 million, with $12 million remaining for future stock repurchases under the program. We completed the share repurchases with cash on hand and we intend to continue to use cash on hand for share repurchases.

Finally, the company's full year 2014 guidance of cash EPS between $0.87 and $0.91 on diluted shares are approximately 67.1 million and adjusted EBITDA of between $76 million and $79 million remains unchanged. We also expect 2014 capital expenditures to be within a range of $15 million to $18 million. That concludes this portion of the call.

Now back to Ram..

Thank you, Randy. We will now turn the call back to the operator for questions..

[Operator Instructions] We'll go first to George Sutton with Craig-Hallum..

I'm curious if you could give us an update of how those negotiations have been going from a margin perspective. I know the suite offering is obviously intended to try to build up your margin opportunity particularly, relative to some of the deals you've signed in '13..

George, they've been going very well. I mean, from my perspective, historically, and, especially, in recent months and recent years, as a company we have not done a good job in differentiating ourselves, differentiating our capabilities and receiving the corresponding margin benefit.

So to the extent that we're doing that now, they're going very well..

You -- when we look at the expense levels for Q2, I'm curious, how much potential costs remain that you can remove from the system as a result of the Caesars' loss? Is that included -- all included in Q2 or would more of that show up in Q3?.

I don't think there'll be a lot of additional expenses to take up. There'll still be some savings in Q3 and Q4 relating to some of the administrative expenses associated with maintenance and so forth. But I think your run rate will be -- I don't think it'll be much different than Q2.

I think the cutoff was pretty abrupt and, therefore, a lot of that was seen in the quarter..

And then, lastly for me. When you announced the suite sale, one of the things you mentioned was there really weren't a lot of renewals coming up.

So I'm curious, have these newer renewals and expansions, have they been proactive on your part in terms of negotiations?.

They have been proactive on our part, but as you can see, they're very well received by our clients. And considering the value the clients receive in the short-term and the long-term and the ability for us to invest in them for the long-term, the overall value proposition has been very attractive to them..

[Operator Instructions] We move on to Ben Claremon with Cove Street Capital..

It's Jeff Bronchick and Ben. Can you just help us with the one of the thoughts in regard to "passing" or not effectively bidding or whatever, competitively bidding on the Caesars is like, why bother with somebody who is not going to subscribe to this solution rather than product. And the reality is, it's barely profitable anyway.

How does that sort of -- well, you've talked about jive with the year-over-year to -- it seems like it was a lot more profitable than maybe we had thought.

Can you explain how that stays and fits in with today's numbers?.

Yes. I don't -- we don't draw that conclusion at all, and that isn't a fact. I wouldn't say it's a lot more profitable than you or we had anticipated. There were some specific drivers that led to our second quarter results.

One we mentioned was previously committed one-off product sales that we had committed pricing that were executed on by contractual commitment in the second quarter. So that was part of it. Part of it was broader volume declines, as we've discussed.

But relative to Caesars in particular, I don't know that we have experienced very much, if any, profit decline associated with it..

Got it. Well, we've seen a number of whatever, the gambling racks, whatever, have noted sort of a mini pickup in -- Vegas traffic in, whatever, wholesale room occupancy, et cetera, et cetera. What -- are you seeing, in your opinion, any of that on the floor? And it does not look like it. Maybe comment on some -- generally on that..

Yes. Our Las Vegas volumes are consistent with all of those dynamics you've described. We've seen some nice pickup and we're seeing healthy volumes. For us, from a U.S. perspective, our regional footprint represents the majority of our business. And as I mentioned, our regional volumes are not what our Las Vegas volumes have been in recent months..

[Operator Instructions] And there are no further questions at this time. Mr. Valli, I'll turn the call back to you for closing remarks..

Thank you, Carrie Anne, and thank you, everyone, for joining our second quarter 2014 earnings conference call. Have a wonderful afternoon..

Again, that will conclude today's conference. Thank you, all, for joining us..