Hello, everyone. Thank you for standing by, and welcome to the Everi Holdings 2015 Third Quarter Earnings Conference Call. [Operator Instructions] This discussion is being recorded today, Tuesday, November 3, 2015. And now, 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, and welcome to the call. Joining me today is President and Chief Executive Officer, Ram Chary; and Executive Vice President and Chief Financial Officer, Randy Taylor..

Before we begin, I'd like to remind you 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 as such, we would like to caution against undue reliance on these forward-looking statements. They should not be considered an indication of future performance.

We do not intend and assume no obligation to update any forward-looking 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, adjusted EBITDA margin and cash earnings per share. We reference these non-GAAP measures to enhance investor understanding of the underlying trends in our business and to provide better comparability between periods in different years.

For a full reconciliation of these non-GAAP measures to GAAP results, please see our earnings release and related 8-K, both of which are available within the Investor Relations section of our corporate website..

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

Also included in our Investor Relations section of our corporate website is the investor call supplement that we will refer to on this call today..

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

Thank you, Mark. Good afternoon, everyone, and thank you for joining us. I'm very excited for this, our first earnings call under our new brand and company name of Everi.

On today's call, I will provide an overview of our thoughts on the current business environment and on the key initiatives we are focused on that we expect to continue to drive growth in both our Games and Payments businesses. Briefly, our third quarter results reflect industry unique revenue growth in both our Games and Payments segments.

We generated $208.7 million in revenue and $51.5 million in adjusted EBITDA, and remain on track to achieve our fiscal 2015 adjusted EBITDA guidance of between $200 million and $205 million. Randy will provide an in-depth review of our third quarter financial results in a few minutes..

I want to begin our discussion this afternoon with the high-level perspective on the overall industry opportunity for slot machines in North America and how we are approaching these opportunities.

We expect the market for replacement units will remain relatively flat for the foreseeable future, and we do not believe the current pace for casino operators to replace existing units is changing..

We have had recent success in selling into new and expansionary markets. In 2015, we estimate the total North American market for new and expansionary units represents 10,000 to 15,000 units. Of these opportunities in which we have participated, our shift share has been approximately 8%..

We are also now having success in the execution of our combined sales approach. In mid-August, we secured a comprehensive Games and Payments contract with the Scarlet Pearl Casino Resort. This is a new casino that is expected to open in the fourth quarter.

Our agreements include the sale and placement of multiple slot machine banks, including TournEvent as well as our full suite of Payments products, including our core Cash Access products, integrated kiosks, marketing services and our compliance software solutions. Our shift share of games for this opening is approximately 7%. .

The West Valley Resort, operated by Desert Diamond Casinos & Entertainment in Glendale, Arizona, is another new property win. The property is scheduled to open in December. Desert Diamond has had a long and successful relationship with our Games business.

Historically, we have had only limited success on the payment side of the business with this customer..

In October, we reached a deal with Desert Diamond to place Games and our full suite of Payments products at their new property in Arizona. We don't think that we would have won this new Payments business without the existing Games relationship..

In September, we also secured an expansion of our strategic partnership with Foxwoods Resort Casino. Foxwoods has expanded their Games footprint with Everi and is now showcasing TournEvent on their casino floor..

In September, we announced that we have begun a trial of our games with the Alberta Gaming & Liquor Commission. This customer has been a long term Payments customer, and we were able to leverage this relationship and our long term operating history in the province to secure an opportunity to be a new supplier to the AGLC.

We expect our trial to be successful and lead to Games sales and placements in 2016. This announcement marks an important milestone for our Games business as we enter into a new jurisdiction in Canada..

In the current quarter, we have also closed on our first comprehensive Games and Payments sale on the Las Vegas strip. The Cosmopolitan of Las Vegas is a premier resort destination in the heart of the Las Vegas strip, and they have been a Payments customer since their initial opening.

We have expanded our strategic relationship with the Cosmopolitan and entered into agreements to renew our complete offering of Payments and Payments-related products as well as to introduce Games to this important customer. For Everi, Nevada represents a big opportunity where we today have only a limited penetration on the Games side..

We expect our deep Payments relationships with our large corporate customers to result in future sales of our Games..

Since the completion of our acquisition, we have been focused on the ability to our existing Games library into new markets where Games business has not previously been licensed. The key new markets that we have been targeting include Colorado, West Virginia, Missouri and a number of Canadian provinces.

On our second quarter call, we noted that the pace of the process to garner these new licenses has been slower than we originally anticipated. We are making slow but steady progress as illustrated by our recent success in Alberta..

The unanticipated delays may only represent a deferral of our expansion opportunities in new markets from what we had expected to occur in 2015 into 2016..

We believe we have received our jurisdictional licenses in Colorado, West Virginia and Missouri by later this year or early next year. We will then need to have our specific products approved and may have to go through brief trial periods before we can begin to recognize any revenue in these new markets..

Realistically, we believe that these opportunities are more likely to begin to generate revenue in the first half of 2016, with Missouri having the potential to push into the third quarter.

Our entry into each of these new markets will enable us to continue to demonstrate growth in 2016 as well as expanding on our ability to grow our overall shift share opportunity..

Our Everi Games segment is very different from the business that we acquired at the end of last year. We are investing very deeply and broadly in our development engine. While we are several quarters away from realizing meaningful benefits to our financial results, the early indications of success from our investment is encouraging..

First, the positive customer feedback and reception to our showing at G2E was compelling; second, our new Core HDX cabinet was described as the first differentiated cabinet from our organization in many years; third, our tribal customer clients took note of our extended commitment to Class II content; fourth, TournEvent continues to be the category leader, and while a number of competitors are attempting to present like offerings, feedback from our clients continues to reinforce our lead in terms of features and functionality; and finally, we demonstrated our first unique product capability from our Everi Games segment, Everi Bet.

This feature allows gaming clients to dynamically tailor wager denominations to optimize performance on the casino floor..

Several clients described this feature as the best innovation at the show, with our rapid expansion of talent, not only in Chicago and Reno, but also in our Games headquarters in Austin. We expect this to be the first of many special capabilities to be showcased by our Everi Games segment in the future..

As I turn now to the overall Payments landscape, we see a continued strength in debit card usage among customers. In a recent consumer survey published in September, it was noted that 41% of customers surveyed said that debit was their preferred payment form compared to 35% who preferred credit and 24% who preferred cash and other forms of payment.

When looking at these trends in terms of age and income, the preference between debit and credit begins to shift more towards credit as individuals either earn more or are older.

Overall, consumers appear to prefer to use debit when making everyday purchases, credit when shopping online or making discretionary purchases and cash when making small dollar payments. The study also highlights the belief that cash is the safe and anonymous means for exchange..

This is important in gaming, where cash and cash surrogates are the only way to play. .

In our Payments business, we continue to see debit card cash advances as the fastest-growing segment of our Cash Access business in terms of dollars and cash to the floor.

Because gaming is cash-based and ATM transactions are the easiest, most convenient transaction for our patron to complete as compared to other Cash Access transactions, we do not see ATM transactions declining materially in the near term. This transaction type is generally the entry transaction for a patron and carries the lowest patron fee.

As gaming continues to hold on to TGR games and patrons continue to return to gaming, we believe that there are opportunities for low to modest ATM transaction growth..

For our Payments business, the continuing core Cash Access momentum reflects the sustained improvements in gaming volumes across our portfolio as well as the increased cash to the floor driven by our patented technologies..

Another strong area for our Payments business is the growth we are achieving with higher margin products such as our Everi Compliance products and our CentralCredit service. Clients recognize the value of our full suite of integrated products to address all aspects of their Cash Access, compliance and intelligence needs that only Everi can offer..

Before I turn the call over to Randy, there are 2 topics that I would like to address that seem to get a disproportionate focus based on the many calls and meetings that we attend. The first relates to installed base concentration that we have in the State of Oklahoma. Our Class II content is strong and getting stronger.

However, as a part of our acquisition, we inherited several arrangements where we had acquired and placed third party Class II content as a part of our gaming operations installed base. As we evaluated the portfolio during the diligence process and immediately following the close of the acquisition, we knew that these placements could be at risk.

As these placement tranches come up for renewal, we expect to lose some Games on the floor..

That being said, our commitment to Class II content, which is clearly understood and appreciated by our tribal partners as well as to our own proprietary new Class III content should allow us to more than replace these lost game placements over time..

As Randy describes our gaming operations results for the quarter, he will provide further insight to our Class III and Class II installed base..

The second topic relates to some of the current perceptions of our businesses that we believe are in the marketplace based on the questions we get and some of the concerns we hear, frankly, concerns that we don't share.

When we think about the Games business we acquired, it was one that over the course of several years had established a certain level of business in the market. When we consider the Games business today, we know that it is significantly larger in scale.

It is also a significantly different and better business based on the opportunities we have to expand into newer markets and perhaps, most importantly, in terms of the addressable number of clients.

Reflecting these factors and others, Everi games today is driving more revenue and adjusted EBITDA than the prior standalone business delivered in its existence. And we're making needed investments in our Games business to generate additional growth, growth that is happening this year and growth which we expect will accelerate in 2016 and beyond.

Furthermore, our results to-date in 2015 clearly reflect that Everi Payments adjusted EBITDA continues to grow year-over-year since 2013.

Despite perceived concerns about the health of our Payments business, we are demonstrating we can grow Payments while maintaining our discipline on pricing, and we also continue to benefit from the expansion of the average length of our agreements through a focus on selling integrated solutions..

We chose not to renew an agreement with what was our largest revenue customer at the time, and we have grown through that. More recently, we did not renew an agreement with a multi-site customer and we fully expect to continue to grow through this loss of revenue and EBITDA as well.

In fact, looking at our customer list, there is not any one customer that we believe contributes a material level of EBITDA to our results..

Now of course, we value each and every one of our customer relationships, but I hope we can somewhat put to rest that the forward outlook for our Payments business is challenged or even worse. We expect our Payments business will continue to grow, and we expect it will continue to serve as a great source of cash flow for Everi as it always has..

So while we believe that simply executing against our strategy will show that the value of the combination exceeds to some of the parts, we do believe there are misperceptions on each of the individual parts of our business.

We are focused on enhancing the value of our Games and Payments businesses and on enhancing the value of the combined business, and I believe that we have the right plan in place to execute and prove that these misperceptions are just that.

I want to make it very clear that as we continue to move forward with our initiatives, our management team, in concert with our Board of Directors, is committed to evaluating any and all available strategies that we believe would deliver shareholder value above and beyond that which is reflected in our valuation today..

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

Thank you, Ram, and good afternoon, everyone. 2015 third quarter total revenues were $208.7 million comprised of $54 million in revenues from our Games segment, and $154.7 million in revenues from our Payments segment. Games segment revenue increased 7% year-over-year, and Payments segments revenue increased 6% year-over-year..

Adjusted EBITDA increased by $32.4 million to $51.5 million, primarily due to the acquisition of Multimedia in December of last year. Adjusted EBITDA for the Games segment was $32.2 million compared to $28.2 million a year ago and adjusted EBITDA for the Payments segment was $19.3 million compared to $19.1 million in the prior year period.

We define adjusted EBITDA as earnings before taxes, loss on extinguishment of debt, interest, depreciation, amortization, noncash stock compensation, accretion of contract rights, acquisition expenses, other merger-related costs and purchase accounting adjustments..

Our third quarter 2015 cash EPS was $0.23 per share on $65.9 million weighted average diluted shares compared to $0.23 on $66.7 million weighted average diluted shares in the third quarter of 2014..

We define cash earnings as net income plus deferred income tax, amortization, noncash stock compensation, accretion of contract rights, loss and extinguishment of debt, acquisition expenses, other merger-related costs and purchase accounting adjustments..

In our Games segment, gaming operations revenue increased approximately 10% year-over-year to a quarterly record of $43.2 million.

This reflects a higher win per unit per day of $28.96 compared to $28.03 in the prior year quarter as well as $3 million in revenue from our National TournEvent of Champions event with the associated cost, including cost of revenues..

In 2014 period, Multimedia recorded revenue net of cost at $0.7 million for the National TournEvent of Champions..

While our overall installed base at period end decrease by 181 units in the prior year, our premium installed base increased by 212 units as compared to the prior year quarter.

The year-over-year installed base comparison now reflects the reinstallation of 123 units in the quarter that were removed from a location during the renovation that began in the fourth quarter of 2014..

Overall adjusted EBITDA margin for the Games segment was 59.7% for the 2015 third quarter, compared to 55.9% in the prior year period. We define adjusted EBITDA margin as adjusted EBITDA divided by revenue..

Excluding the $4 million gain on the sale of PokerTek assets and the impact of the National TournEvent of Champions on both revenues and cost of revenues, the adjusted EBITDA margins for Q3 2015 would have been approximately 55.7%. Adjusted EBITDA margin is expected to be in the 50% to 55% range in the fourth quarter..

At quarter end, the installed base was comprised of 7,703 units in Oklahoma and 5,445 units outside of Oklahoma. The mix of our installed base was 7,204 Class II units and 5,944 Class III units..

Within Oklahoma, we have 3,921 Class II units and 3,782 Class III units. For reference, we had 3,626 Class II units and 4,569 Class III units in Oklahoma as of Q3 2014. As Ram mentioned, we expect this shift in our installed base with our Oklahoma tribal partners to continue.

As our placement fee contracts expire that include Class III third party units, we would expect to lose a portion of these Class III units. The change in the Class III units from Q3 2014 to Q3 2015 was a decline of 787 units, partially offset by an increase in Class II units, up 295 for a net decrease in Oklahoma of 492 units.

It is important to note that our overall installed base is only down 181 units. Therefore, we have partially offset the Oklahoma unit decline with placements in other markets. Additionally, our overall gaming operations revenue was still up year-over-year in spite of the unit decline..

Again, as Ram suggested, we intend to replace those third party games with meaningful Class II content. So over time, we still expect our footprint in Oklahoma to grow..

Revenues from electronic game sales decreased 4% year-over-year to $10.8 million as we sold 587 units in Q3 2015 at an average sale price of the $15,516 compared to 612 units sold in the third quarter of last year at an average sale price of $16,897..

Higher-priced TournEvent unit sales comprised 11% of unit sales in the September 2015 quarter compared to 22% of the unit sales in the September 2014 quarter. We had expected the Games sales at the Scarlet Pearl to close in Q3 versus Q4, which would have added another 88 games to Q3 2015..

For our Payments segment, the 6% year-over-year increase in revenue is primarily due to the increased kiosk sales and service revenue and increased ATM transactions.

Overall adjusted EBITDA margin for the Payments segment was 12.4% for the September 2015 quarter compared to 13.1% for the September 2014 quarter, driven primarily by lower margin and cash advance in ATM due primarily to higher commissions paid to customers as well as higher surcharge amounts for ATM transaction..

In addition, Q3 2015 operating expenses include approximately $0.7 million in litigation cost to protect the company's 3-in-1 Rollover patent. Excluding these costs, the Q3 adjusted EBITDA margin would have been approximately 12.9%..

Same store cash to the floor, our best indicator of industry trends, increased by 8% as compared to same period last year..

Moving on to the balance sheet, our long term debt was $1.178 billion at the end of the third quarter, reflecting our borrowings to complete the Multimedia acquisition. We repaid $2.5 million on our long term loan during the quarter, and the company was in compliance with its debt covenants as of September 30, 2015.

Our weighted average interest rate on our long term debt was 7.65% for the quarter. In the 3 months ended September 30, 2015, we amortized $1.7 million of capitalized debt issuance cost into interest expense. We expect the quarterly noncash amortization of capitalized interest cost to be approximately $1.7 million in future quarters..

Capital expenditures for the year through September 30, 2015 were approximately $52 million, inclusive of $38 million in CapEx for our Games segment, of which, approximately $24 million was associated with game refreshes and related maintenance cost for our installed base..

In the third and fourth quarter, we acquired certain ATM portfolios for a total amount of approximately $4 million. We expect annual revenue and adjusted EBITDA from these portfolios to be approximately $31 million and $3 million, respectively..

Full year capital expenditures are expected to be approximately $70 million, excluding the purchase of the ATM portfolios..

Additionally, we completed an acquisition of certain software assets and compliance products that we believe will provide value to our existing compliance customer base in terms of new products and enhanced features, and also provides for the addition of certain new compliance contracts, which we included as part of our Everi Compliance offerings..

Total purchase price for this acquisition was approximately $9 million, with a possible earn-out payment based on agreed upon performance criteria. .

Annual revenue and adjusted EBITDA impact for this acquisition are estimated at $3 million and $2 million, respectively. .

We are lowering our expected full year depreciation and amortization expense to between $126 million and $130 million, although its estimate could change depending on the company's final allocation of the Multimedia purchase price to certain depreciable and amortizable assets as well as non-amortizable goodwill..

We expect full year depreciation expense to be between $42 million and $44 million, and amortization expense to be between $84 million and $86 million..

Regarding our integration activities. We remain on track to achieve our targeted annual run rate cost synergies of $24 million by the end of the calendar year. As of September 30, 2015, we have achieved approximately $23 million in annualized savings..

Finally, let me take a few moments to remind you that we are reaffirming our full year adjusted EBITDA guidance of between $200 million to $205 million.

Contemplated in our full year guidance is the additional fourth quarter EBITDA contribution from the acquisitions mentioned above as well as a loss of adjusted EBITDA contribution from an agreement with a multi-site customer, which we expect will transition off our processing platform in November and December.

Annual estimated revenue and adjusted EBITDA related to the loss of this customer is approximately $28 million and $3 million, respectively..

With that, I would like to turn the call back to Ram for some additional comments. .

Before we open the call for your questions, we want to take a few moments to discuss the two supplementary slides that were included with our Form 8-K filed today. And we have made the slides available on our website in order to provide further clarity on our business..

The slide titled Financial Results shows our revenue, operating income, EBITDA and adjusted EBITDA by quarter for 2015. The first 3 columns show our actual results as reported.

If you focus on the adjusted EBITDA line at the bottom, you will see that we delivered a quarterly result of over $50 million in adjusted EBITDA in each of the first 3 quarters this year.

Therefore, in order to achieve our reiterated full year guidance of $200 million to $205 million, we would need to achieve a Q4 result of between $45.5 million and $50.5 million, the entire range being below each of our prior 3 quarters..

I will turn the call back to Randy to review the final slide titled Long Term Debt Analysis. .

Thanks, Ram. This slide provides our expected debt balances at September 31, 2015, maturity dates for the various debt instruments and the current interest rates.

The slide then provides a purely mechanical table that calculates the required adjusted EBITDA for 2015 through 2018 based on our secured leverage ratio under the term loan and secured notes..

The table calculates 2 required adjusted EBITDA amounts. The first calculation assumes the company only pays down the term loan based on the required amortization of 2% per year or $10 million. While the second calculation assumes an additional $15 million of free cash flow was used to pay down the term loan in the first quarter 2016, 2017 and 2018..

As you can see from the table, the 2015 required adjusted EBITDA is the same under both calculations, and is 13% less than the low end of our current guidance range for 2015. We would have to generate less than $19.5 million in adjusted EBITDA in Q4 2015 to be out of compliance with our debt covenant. .

2016, we could sustain an adjusted EBITDA decline from the low end of the 2015 adjusted EBITDA range of 4%, with no free cash flow paydown, and a decline of 6% with $15 million in free cash flow paydown and still remain in compliance with our leverage ratio..

Under the no free cash flow paydown scenario, we would need to generate less than 1% adjusted EBITDA growth in 2017 and 6% growth in 2018 to remain in compliance with the debt covenant. This growth rate is again based in the low end of our adjusted EBITDA range for 2015..

In the $15 million free cash flow paydown scenario, we remain in compliance with our debt covenant without achieving any adjusted EBITDA growth from 2015 through 2018..

Obviously, these scenarios are extreme and purely illustrative as we are intending to show that we are not facing any extreme risk to our ability to remain in compliance with our debt covenant.

Our intention is to grow adjusted EBITDA and utilize our free cash flow to pay down a term loan and we believe we have in place the foundation to achieve these goals..

This slide should provide investors with some sense of the amount of cushion that management has built into the debt covenant to allow us the flexibility to be able to invest in the business as well as make targeted but relatively small acquisitions and still be in compliance with our debt covenants..

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

[Operator Instructions] We'll hear first from David Bain with Sterne Agee. .

Ram and Randy, thank you for your commentary on the installed base. That was helpful. Just to follow-up for a deeper understanding.

Can you help us get a sense as to how many units may come up for renewal over the next 5 quarters? And what percentage utilize the older third party Class III content?.

David, what we said in the past is, look, over the next 5 years, we have our overall Chickasaw group of 5,000 units. So I think we've told how many are Class III versus -- are Class III in that. I'm just not really at a point where I want just to talk about how many are coming up specifically, because one, it's a competitive issue for us.

I don't want something knowing what's out there. I would say, "Look, if you look at the decline or the numbers we gave for the 12 months, previously, I think that's a fair proxy." But again -- and we just don't know how many, if any, we will lose. Because as we can see, we've replaced some of those, we're working on our content.

So I mean, the best way I can do is just say if you look at what happened in the last 12 months, it's a fair proxy. .

Okay. And again, I guess, you expect to replace those over time, just to go, not to nitpick, but the over time comment. I mean, I'm just trying to look at the modeling that's going forward into 2016.

Can you give us a sense as to what you're thinking at this moment in terms of that line item? Do you see it as -- that business, is it a flat business? Is it a stabilizing business by the end of the year?.

David, this is Ram. I've made several comments in my prepared remarks that related to our extended deepening and a more exhaustive commitment to Class II content. And that's coming as we expand our studio content capability and expand the scope of what we address. We're dedicating studios specifically to keep Class II content.

And frankly, that's what our Oklahoma tribal customers want us to do.

They want us to focus on Class II, their compact comes up with a stake in the 2019 time frame and we're committed to doing that and we believe that even as these tranches come up over the next several months or years, we'll be very well-positioned to replace some, if not all, if not more than replace, our losses of Class II content.

And again, as Randy described in his prepared remarks and then further described in answering your question, when we gave a trailing 12 months with a lot of detail in terms of the dynamics we've experienced, probably, the best proxy for you to use going forward. But we don't know. It could be better than that, it could be worse than that. .

Okay. Well, that's fair. Okay. And then quick question on the mix of TournEvent that hit the AHTs [ph] this quarter.

Would you describe this quarter for TournEvent as sort of a one-off? Or was there any reason that you identified that can bleed into forward quarters? Especially outside of new openings? Is the percentage still steady as a mix of your games going forward, in terms of how we should be modeling that game?.

Yes, I think it's important to view this past quarter as a one-off. We think as a percentage of what we sell overall, it won't change from our historical tracks going forward. In other words, it's not a good forward forecast in terms of how that dynamic is changing. It was a one-off quarter, pre-G2E, pre-event.

Clearly, our Games sales is lighter than we would have expected. But again, our Games sales were better on a size comparative basis in the space. So it's not a good proxy going forward. We expect that to returns to similar composition that we've had in the past. .

Our next question comes from David Katz with Telsey Advisory Group. .

I do appreciate all of the detail around the installed base. But I want to make sure that I'm capturing the forest and not getting lost in the trees. In terms of the installed base that you have, what you described, I think, is a number of different moving parts.

If we just from a qualitative perspective, look at next year or, say, the next 5 quarters and what that installed base is in terms of total units in different categories and the yield per unit per day, can that, in aggregate -- should that, in aggregate, grow? And maybe I should really just be focusing on the total revenue generation of the whole installed base.

But how would you characterize how you would look at the next bunch of quarters for that installed base and what it can do?.

Yes. Two things, again, as Randy described in his prepared remarks, David, we gave considerable amount of detail around our Class II and Class III installed base, both inside and outside of Oklahoma and how those dynamics have shifted.

As we previously described, I think that's the best proxy we have for the next 12 or even 15 months, to specifically address your question. And you see the dynamics. You see how we're increasing certain parts of that installed base that will continue to increase.

We're replacing, we're increasing our Class II installed base in certain instances and we're losing that third party Class III content, which is something we've expected and continue to expect. All of those dynamics we don't know in net what that will do to our installed base.

We showed in the last 12 months trailing that we've had a slight decrease overall when you net all of those things. That's, again, probably the best we could say about what we think the next 12 months will look like. But it could be considerably better than that and it could be worse than that.

Relative to your comment on the business, yes, I think looking at gaming operations revenue is really the best way to look at it, because that's how you blend in performance and per day performance, and make sure you include that in the mix, which ultimately leads to our profitability.

I mean, some important points along those lines is when you look at our gaming operations revenue over the last 9 months in the year-to-date basis. I mean, we were at a record high in overall revenue. We’re at 8% year-over-year increase.

Our total Games segment revenue for those 9 months is at an all-time high and our Games adjusted EBITDA is at an all-time high relative to the legacy organization. So those are the dynamics that matter the most in terms of assessing our profitability and our growth. .

Great. And just one more thing, with respect to the profitability levels and specifically, on Games sales, where -- how should we think about what you think is a good run rate or a normalized level for those because I presume there's still a fair amount of noise in there that may or may not endure. .

Well, we've been as transparent as we can be in terms of disclosing our ASP and showing those comparisons. I think you'll see that the compression we're experiencing, which is consistent in the space is far less than any other competitor, which we feel good about.

We feel it's important as we invest in that portion of our business because we expect to get a disproportionate return on better content and better games going forward. So there's no question we're getting some compression. We'll continue to see some compression.

Again, from an industry perspective, we think that compression will be less than what you see elsewhere. .

We'll now hear from George Sutton with Craig-Hallum. .

Ram, you mentioned the customer feedback that you got at G2E. My feedback, if you would like it, was that the compliance offering was extremely well-received. And I was just curious if you could broaden out the discussion on that offering.

How significant can that be? You talked about it being higher margin, how much higher margin is it to the extent that you can talk about it? And then also relative to G2E and beyond, your branding campaign, can you just give us an update of how much has been spent? And how you think that has gone?.

Yes, on your first question relative to compliance, we're very excited about it. As Randy described, we've done another smaller acquisition to increase our compliance capability. What we did showcase and demonstrate at the show was a very high-traffic, high-volume set of demonstrations so the clue, there's a lot of client demand.

I think the two things to temper relative to our growth expectations is, one, we're going through pretty extensive education process relative to our client base and having them understand and appreciate the change to their operations that our software enhancement can afford them.

Once they get through that process, I think that the demand for our products and our capabilities will be very significant. But that's taking time, so that pipeline is not necessarily an overnight pipeline switch to turn on. Second, the absolute magnitude in dollars of revenue of what those opportunities are, are relatively smaller.

That being said, it is infinitely more profitable than the rest of our Payments business in terms of what those margins look like. And all those factors have to get taken into consideration when we think about the growth. But on the incremental basis, it's a much more profitable business for us.

And then your second comment relative to -- or question relative to rebranding. We estimate that, that rebranding total will be about $2 million. That's significantly less than we had anticipated even 90 days ago.

A part of that is discretionary and that as we start to see our third quarter results come together, we draw that back, and we don't think our overall spend on rebranding will exceed, too. .

Okay. And thanks for that. And Ram, relatively to your discussion on the misperceptions that people have about the business and your opportunities, I just want to address 2 things.

You and some others that have obviously made some significant open market purchases during the quarter, I wondered if you could just give us some thoughts around that? And then you also mentioned that the board has looked at shareholder value above and beyond the normal. I'm wondering if you could just broaden out what you mean by that. .

Well, first our open market purchases, I mean, we have clearly demonstrated through our results that the legacy Payments business and the legacy Games business are significantly enhanced from what they were. And they clearly had market value and other value.

We don't believe, and I don't think anyone would believe that in market where our valuation reflects those legacy businesses, leave alone enhancements, Everi Games and Everi Payments, represent today.

On top of that, we're executing on a combination that will be greater than some of the parts when you put the 2 together, and we're clearly miles away from that kind of valuation. So it's just a statement to say if you recognize what we've already accomplished, the value that we're already generating.

Clearly, we're trading at significant discount to what we should, and the management team believes that and sees all the pieces and that's what behind our open market purchases. Relative to my comments about how we, as directors in the company, assess shareholder value, we are very, very committed to our strategy.

We think it's a well-thought-out plan. If we execute against that plan, the shareholder return will come.

I just wanted to make a statement that if the market continues over a long period of time not to recognize our accomplishments in the way that are fair and balanced, as directors, we're going to assess that and if there are other avenues to take to maximize shareholder value, we're going to consider those.

So we're not going to bury our heads in the sand no matter how confident we are about our go-forward opportunity. .

[Operator Instructions] We'll go to John Davis with Stifel. .

Appreciate the comments on the G2E feedback.

But just maybe taking it a step further, how have kind of orders trended post-show? And has the better-than-expected reception been followed through with orders post-show?.

Yes. As you know, our business -- typically, we go through a trial period of anywhere from 90 to 120 days before we could get to a committed order. So we do have a number of trial commitments. We have a number of trials that are in place.

Based on those trials, we're optimistic, but pretty difficult to say how that's going to translate in ultimate orders. .

Okay. And then also to hit on the ASP, maybe to ask it a little bit differently, how much of the decline was mix related, lower TournEvent percentage versus just kind of general industry pricing pressure? A lot of your competitors have been discounting at higher levels than usual.

How much is that impacting your pricing? Is it impacting at all or is most of it just TournEvent mix?.

I don't know if we've empirically calculated the effects of both of those into the mix. What I would tell you is that there's a contribution of a both. Clearly, with an anomaly relative to just a small percentage of our sales being TournEvent, that is a contributing factor. The other factor is the broader market.

But again, I think, in the face of all that market pressure, we're holding up pretty well. .

Okay. And then one quick housekeeping for Randy. I think, you said there was about 700k of patent defense, and I think in the release, you said $2 million for the full year.

Is that something you expect to conclude at the end of this year or something that could be ongoing into '16?.

It's hard to say, John. I would say that some will bleed into '16. It's just hard to say. I mean, there's lot of stuff that's going to happen, I think, in this fourth quarter. That's why I still think it will be about $2 million in total. So if you're thinking -- I do think some will bleed into next year. I just don't know how much. .

Okay. And then also on the investments being made for Games. Can you just give us kind of a progress report or update? How do we stand in Reno and Chicago as far as building teams out? Are we producing content yet? I think you've targeted G2E next year, but just kind of curious how progress is going there. .

We already have had some contributions from the Chicago team relative to what we showed at this year's show. So they're already developing feature functionality and they will be developing and producing unique games to that studio by the early part of next year. So they're well on track. They're very well on their way to being fully staffed up.

In the case of Reno, they're clearly behind on a schedule. They're probably looking at a second quarter time frame in terms of having a mutually exclusive distinct game come out of that content engine. But they're both on track to contribute to our show next year as we had to had expected and had -- and the way we had planned.

So all of that is on track. .

Okay.

And any further thoughts or progress on the potential of a licensed product for the Games of business? Or any update there?.

We believe that we should still pursue a flagship licensed product. And that being one, or at the most, 2, not many or and not dozens for sure, and we are actively pursuing that and actively be in negotiations, and time will tell whether we're successful there or not. .

Okay. And last one for me is just pure math. Obviously, you laid out in the slide deck shows that fourth quarter guidance implies a deceleration.

I just want to make sure there's nothing material that you expect in the fourth quarter and it's more conservatism and just kind of seeing how things play out, but there's nothing we should be aware of as far as a material slowdown?.

No. Not at all. And again, it's just based upon the volume of meetings and discussions that we've been in as a management team in recent weeks, where people believe, for some reason, the fourth quarter needs to be at an unachievably high level for us to make our now reiterated full year EBITDA guidance.

And it was just our way of specifically laying out the fact that, that's not the case. And that in order to deliver our fourth quarter in the range that we've outlined, we simply need to deliver a quarter that, frankly, is less than any other quarter we've delivered in this fiscal year. .

We'll hear now from Todd Eilers with Eilers Research. .

You had talked about having some strong share of some new opening properties this year, mentioned a handful of those.

Did you book any of those sales in the third quarter or should we expect those to be fourth quarter events?.

A portion of one event was in the third quarter, the majority of it is fourth quarter. .

Okay. And specific to -- I guess, you gave some -- a number or a share for the Scarlet Pearl for the West Valley or the Desert Diamond Arizona property. I don't know if you can give a percentage or a number of games for that one. That would be helpful.

And then also with respect to the type of game there, I believe those might be Class II games, so should we be looking at those as being kind of gaming ops recurring revenue type game placements?.

Let me make sure I caught it all, Todd. I would say about the shift share on Desert Diamond, I think it's going to be comparable to what we gave for Scarlet Pearl. I don't have the exact number on that one. And I'm sorry, your other question on the -- with the pieces, or I'm sorry, I was trying to... .

Yes, the other question was just the type of game. I believe those are going to be Class II games, at least from what I've read.

So I guess, I just wanted to confirm that is that the way you're looking at it? And if so, we should be kind of accounting for those in the gaming ops and installed base and not game sales?.

Not -- I mean, it's Class II. But I'm not going to say that... .

They're gaming ops. They are gaming ops. .

There you go. .

Okay, okay. That's helpful. And then also wanted to ask a question. You mentioned the sale of PokerTek in the quarter, what sort of impact did that have on the business? I guess, you mentioned, I think, it was a $4 million gain.

Where does that show up in the P&L during the quarter?.

In the Games, in operating expenses for the Games segment. Those are reductions in operating expenses in the Games segment. .

Okay.

Is that kind of an offset to operating expenses?.

Yes, it is a net number. It's not like in gross revenues anymore. It's a net gain in operating expenses that shows up as a reduction OpEx. .

Okay. That's helpful. And then last question, just on the gaming ops installed base, again, I'd echo that it's helpful certainly with the additional commentary around the units.

I don't know if you gave it or if you have it, but can you say possibly what the total number of third party games would be in your installed base? Is that a number that you gave or would be willing to share?.

No. At this point, I guess -- again, as I talked before, I'm a little hesitant to call out the exact amount on my third party games in any area. Again, we believe we're going to be able to replace them over time. But like I said we gave the Class III units -- and so at this point, I'm really not looking to call out the third party games. .

Our next question comes from David Hargreaves with Stifel. .

You guys indicated that you were seeing cash to the floor of around 8%. And just following all the different jurisdictions, that seems a little higher than what we see on the commercial side. And I was wondering if you could just give us some color as to certain regions or segments of the market where maybe it's a little bit stronger. .

The regional footprint continues to drive that number. So that's regional versus commercial or destination specific, being the Strip in Las Vegas. It's really the regional number that has considerable amount of balance across the country. That's the one doing it. And frankly, there's a good contribution there from the tribal jurisdictions. .

Tribal jurisdictions? Okay. On the Cash Access side, the revenue growth was quite a bit higher than the EBITDA growth. But it looks like last year, you had a little bit stronger margin. I'm just wondering if last year was -- had some unusual help or what would you say about the flowthrough on the... .

A lot of the growth is coming in our ATM business. And that, by definition, has got a lot lower-margin profile than the composite Cash Access business. And that's creating some of that dynamic. .

And that I -- we mentioned was just the litigation cost on an EBITDA percentage drove that margin down for '15. .

And then lastly, I guess the percentage of TournEvent among your box shipments was, I guess, down a lot from last quarter. Should we expect that to be very lumpy going forward? I guess it's going to be affected by where you have new approvals to sell games and when you... .

I don't know if that was lumpy. I think as those jurisdictions open up for us, we'll return to a more consistent dynamic as we see in the past in terms of percent of the total. I would describe third quarter to be more of an anomaly. .

And ladies and gentlemen, thank you again for your questions. If there are no further questions at this time, I'd like to turn things back over to Mr. Taylor for closing remarks. .

Thank you for joining us on the call this afternoon. We look forward to discussing further progress of our business when we report our fourth quarter and year-end results. .

Thank you. And ladies and gentlemen, once again, that does conclude today's conference. Thank you, all, again for your participation..