Mark Labay - Senior Vice President of Strategic Development and Investor Relations Michael Rumbolz - Interim President and Chief Executive Officer Randy Taylor - Executive Vice President and Chief Financial Officer.

David Bain - Sterne Agee CRT George Sutton - Craig-Hallum Capital Group LLC John Davis - Stifel Nicolaus David Katz - Telsey Advisory Group Phil Bernard - Eilers & Krejcik Gaming, LLC James Taylor - Bank of America Merrill Lynch Lawrence Haverty - GAMCO Investors, Inc..

Hello, everyone. Thank you for standing by, and welcome to the Everi Holdings Incorporated Fourth Quarter 2015 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the speakers’ remarks, the call will be opened for a question-and-answer session.

This discussion is being recorded today, Tuesday, March 15, 2016. 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 Interim President and Chief Executive Officer, Mike Rumbolz; and Executive Vice President and Chief Financial Officer, Randy Taylor.

Before we begin, I would like to remind you that the Safe Harbor disclaimer and our public documents including our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, covers this call in a webcast.

Some of the comments to be made during this call contain forward-looking statements and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed.

These risks and uncertainties are included within, but not limited to those contained in our SEC filings, all of which are posted within the Investor Relations section of our corporate website. This call may refer to certain non-GAAP measures such as adjusted EBITDA, adjusted EBITDA margin, cash earnings and cash earnings per share.

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 with the Investor Relations section of our corporate website.

Finally, this call is being webcast, which may be also be accessed within the Investor Relations section of our corporate website, and a replay will be archived. With that, I’m pleased to introduce our Interim President and Chief Executive Officer, Mike Rumbolz..

Thanks, Mark, and good afternoon, everyone, and thank you for joining us. I assumed the leadership role at every four weeks ago with one important objective to leverage our product portfolio, our industry expertise, and our compliance infrastructure to accelerate maximized long-term growth opportunities for the company.

Now, as many of you know, I’ve been in every Board member for the last five years. I’ve also served as CEO of a payments company that was acquired by Global Cash Access. And I spent my entire career prior to that in various leadership roles in the gaming industry.

I’ve watched the industry change over the years and in some ways quite dramatically, as gaming operators constantly look to make their casino operations more profitable and efficient, while providing an ever improved experience for their customers.

Our entire team is focused on positioning Everi to leverage our unique offerings to better serve our casino operations customers and assist them in reaching their goals. To achieve this, I’ve asked our leadership team to align around five key operating principles. First, we will work to increase our product library.

We will advance our new studio assets to be fully equipped in producing new games with the objective of enhancing profitability and efficiency for our customers. Second, we will increase our distribution capabilities to new jurisdictions.

We will thoughtfully prioritize and apply additional discipline to the game approval process to ensure that we can bring our new games, new cabinets, and additional payments and compliance products to market and as many approved jurisdictions as possible.

Third, we will leverage our growing product library and distribution network to reestablish revenue growth by increasing game sales and placements and through the integration of our games and payments products. Fourth, we’re embarking on an enterprise-wide cost analysis with an eye towards operating efficiencies and cost containment.

And finally, we will develop licensed and branded games and develop the market strategy for their introduction to our customer base. To take advantage of these five operating principles, we need to make continued progress with our integration.

We also must ensure that we use all of our industry knowledge, product portfolio, and customer relationships to optimize the profitability and growth of our business. I believe that our ability to combine our scale and expertise in payments with our legacy of success in the game space differentiates Everi in the marketplace today.

We are particularly strong in tribal and Class II markets in our Games business, and we’re working hard to further strengthen our position in this core area. We also plan to deliver new and innovative games from our Payments and Games businesses for all of our customers throughout our portfolios.

I’ve spent a great deal of time with our team members over the last four weeks. And based on their feedback, I believe that our team of approximately 950 employees fully appreciate the direction in which we’re headed and they fully appreciate the things that make us unique. They’re excited and focused on executing on our mission.

At the same time, we’re making certain that our customers are also aware of our goal and our plans to help them optimize their business.

Now, before I turn the call over to Randy to review our fourth quarter financial results, I would like to discuss a couple of key areas of our business that we’re focused on and that I know many of you are focused on as well.

Looking at our newer product offerings, it’s important to note that the pace of new cabinet introductions into the gaming market has accelerated. Last year at G2E one of the new products demonstrated was our Core HDX standard video cabinet. The Core HDX is our first major new base video cabinet in approximately eight years.

It represents a significant improvement in player interaction, lighting effects, and sound capabilities. We also have developed new content that takes full advantage of the cabinet’s enhanced features, and we ensure that our existing library of games is available on this cabinet as well.

As the company had previously discussed, the first Core HDX units came off the production line to begin their trial period late in the fourth quarter of 2015. This trial period typically last 60 to 90 days. The introduction occurred at a slower pace than it was originally anticipated and was a disappointment for all of us.

We believed that in the first quarter of 2016, we would see new revenue generating sales or placements of Core HDX. With the delayed start of trials and given the typical length of those trials, we no longer expect any meaningful positive first quarter impact.

Now that said, we do expect these trials to finish near the end of the first quarter, or early in the second quarter and believe that we may be able to make up for this loss anticipated volume throughout the remainder of 2016.

It is important to know that our early trials of the new games that are designed to take advantage of all the new features on our Core HDX, as well as the trials of our existing library of games on this new cabinet have shown great promise. Some of these trials have shown that Core HDX is performing significantly above casino floor average.

One new title, in particular, has been performing extremely well in our test locations. Our Core HDX cabinet in several of the new games specifically designed for this cabinet’s capabilities are now approved in approximately 50 jurisdictions.

So suffice it to say the Core HDX will be an important new product for us, as it is introduced into new markets. We also believe that our focused development efforts in Class II are being positively received by our largest customer in Oklahoma. This is evidenced by our recent renewal of certain placement agreements at multiple casino locations.

In February, we renewed placement agreements representing almost 1,600 games of the 2,100 games that were up for renewal. As discussed in the past, the games that we did not renew were older third-party Class III games.

A portion of these games were removed in the fourth quarter of 2015, and we expect the remaining games to be removed sometime in the first quarter of 2016. Randy will provide more details on the new placement agreements and the dynamics of our Oklahoma third-party Class III unit base in just a few minutes.

Now, the renewal of the unit placement agreements demonstrates the constructive nature of our relationship with our largest customer in Oklahoma, we believe that they appreciate our commitment to Class II gaming and our continued reinvestment and development in this portion of our business.

Another key item that I know many of you have been interested in is the search for a permanent CEO, and Id like to provide you with just a brief update. The Board has established a search committee, which has begun the process of finding a permanent CEO.

The search is proceeding and the committee’s objective is to take the necessary time to find the right fit for the company. I’ve been frequently asked, if I’m a candidate in this process and candidly I’ve not yet determined what my answer will be. But I’m 100% committed to leading Everi today.

And I will decide later on in this year whether or not I’m going to be a candidate for that permanent position. But more importantly, we have an extremely talented group of senior executives and team members across our organization that I truly admire and respect.

I have found them to be passionate about the company and committed to helping us achieve our goal. That is and they will always be the most important ingredient to our success. Finally, Randy and I’ve been asked repeatedly about 2016 guidance in our meetings with investors. For the long-term, we are confident that we have the right priorities.

Yet, as I’ve already noted, we do have some challenges overcome, as we sharpen our focus around our five key operating principles. And while we’re still assessing 2016, I think it’s important that we take a conservative view of the year.

We do not expect adjusted EBITDA growth in 2016, and our ability to match 2015’s performance is going to be predicated on driving improvements in the second-half of the year.

It’s also worth noting that 2016 begins with a very difficult first quarter comparison, due to primarily the strong game sales in the March 2015 quarter, as well as the delayed market entry of our Core HDX cabinet.

I think the net of this for us is that, we are dealing with some short-term headwinds, but we have ample opportunities to grow this business. Now, with that let me turn the call over to Randy to review our fourth quarter 2015 results..

Thank you, Mike, and good afternoon, everyone. For the fourth quarter 2015, total revenues were $204.4 million, comprised of $50.5 million in revenues from our Games segment and $153.9 million in revenues from our Payments segment. Games segment revenue increased approximately 5% year-over-year.

Payments segment revenue increased approximately 6% year-over-year. Adjusted EBITDA increased by $21.9 million to $45.9 million, primarily due to the acquisition of Multimedia in December of 2014.

On a pro forma basis, assuming the acquisition had closed at the beginning of the fourth quarter, consolidated adjusted EBITDA would have improved about 8% from $42.7 million in the fourth quarter of 2014. Adjusted EBITDA for the Games segment was $26.5 million compared to $22.8 million a year ago.

And adjusted EBITDA for the Payments segment was $19.4 million compared to $19.9 million in the prior year period.

Defined adjusted EBITDA as earnings before taxes, loss and extinguishment of debt, interest, depreciation, amortization, non-cash stock compensation, accretion of contract rights, goodwill and other asset impairment charges, acquisition expenses, other merger related costs, and purchase accounting adjustments.

Our fourth quarter 2015 cash earnings per share was $0.10 on 66 million weighted average diluted shares compared to $0.23 on 66.4 million weighted average diluted shares in the fourth quarter of 2014.

Defined cash earning as net income plus deferred income tax, amortization, non-cash stock compensation, accretion of contract rights, loss and extinguishment of debt, goodwill and other impairment charges, acquisition expenses, other merger related costs, and purchase accounting adjustments.

Defined cash earnings per share as our cash earnings divided by the weighted average diluted shares common stock outstanding. Our cash EPS formula does not add back depreciation expense that is used as a proxy for our capital expenditures for the period.

Fourth quarter 2015, our depreciation expense increased by approximately $2.8 million, as compared to the average depreciation expense for the first three quarters of 2015.

This is primarily due to nonrecurring charges as a result of changes we made, expected useful lives in certain of our gaming fixed assets, as well as an impairment charge for certain other gaining fixed assets.

The lower quality – the lower quarterly reported net income from the seasonality of the fourth quarter operations, along with an approximate increase of $0.3 million in the amount of cash tax payments made the fourth quarter related to our foreign operations and the incremental charges included in our depreciation expense has resulted in our computed cash EPS for the fourth quarter being significantly lower than reported cash EPS for each of the first three quarters.

In our Games segment, gaming operations revenue was flat year-over-year at $38.3 million. Prior year gaming operations included $0.9 million of revenue for the operations of PokerTek, the assets of which were sold in Q3 2015. Excluding the Q4 2014 revenue from the PokerTek operations, gaming operations revenue increased approximately 2.2%.

This reflects a higher win per unit per day of $27.68 compared to $27.01 in the prior year quarter. Our overall installed base at period end increased by 53 units from the prior year, while our premium installed base increased by 206 units over the prior year quarter.

Year-over-year installed base comparison now fully reflects the reinstallation of 123 units that had been removed from a location during a renovation that began in the fourth quarter of 2014. At the end of the fourth quarter, our installed base was 13,340 units comprised of 7,647 units in Oklahoma and 5,693 units outside of Oklahoma.

The mix of our installed base by gaming type was 7,425 Class II units, 5,915 Class III units. Of these 5,915 Class III units, 2,554 units were third-party Class III games.

Mike previously discussed, we recently renewed placement fee agreements related to approximately 1,600 units in Oklahoma, and we were unable to renew placement agreements for approximately 500 units. Units did not – the units we did not renew were third-party Class III games.

Approximately, a 100 of these third-party Class III games were removed in Q4 2015, and we expect removals of the approximately 400 remaining third-party Class III games that were not renewed to occur in the first quarter of 2016. We continue to invest in the development of Class II games.

We expect to replace a greater percentage of third-party games that come up for renewal with meaningful Class II content. In short-term, we expect our Oklahoma units to decline, but as our Class II content increases, we still expect our footprint in Oklahoma and other Class II markets to grow over the long-term.

We’d like to provide a little more color on the reduction we have been experiencing in our third-party Class III installed base.

The mid-to-late 2000’s, Multimedia had committed installed base under placement fee agreements with certain tribal customers in an order to immediately participate in the shift taking place in Oklahoma toward Class III games that required an upgrade to their game platform and offerings.

To accelerate their participation in this shift to Class III games, the mid-to-late 2000’s, Multimedia committed to purchasing large quantities of third-party Class III games. Many of these games while aging are still on casino floors today.

Our customers who allowed us to place these third-party games on their casino floors and expectation that Multimedia would develop their own proprietary Class III products and better Class II games to replace these third-party games when the placement agreements expire.

2012 is expected to shift away from third-party Class III units has been occurring. But our growing Class II footprints and our introduction of high-performing Class III premium content games has offset these game losses in Oklahoma. The actual net effect was incremental growth in our installed base above the loss third-party Class III games.

We’re a largest customer in Oklahoma, these devices are still covered under placement agreements. When they’re moved, they often come out in large quantities over a concentrated period of time.

For some historical perspective, as of December 31, 2012, installed base of 11,188 games is comprised of 6,627 of Multimedia’s proprietary Class II ad Class III games, as well as 4,561 third-party Class III games.

On average over the last three years, we have removed between 650 and 700 third-party Class III games per year leaving us with a third-party Class III installed base of 2,554 units at the end of 2015. We expect this trend of third-party Class III unit count reductions continue at a similar pace over the coming years.

But, again, despite this dynamics, the overall installed base have increased not just since the end of 2012, but also in the full-year ended December 31, 2015. While the 2016 removals of third-party games will be concentrated in the first quarter approximately 400 units being removed.

We continue to expect to offset these removals with new placements of Everi’s proprietary Class II and Class III content, both inside and outside of Oklahoma, but expect our year end installed base to be consistent with the current year ending installed base.

I know this is a significant amount of information, but hopefully it’s helpful and provides more insights to our installed base dynamics.

Revenues from electronic game sales increased approximately 27% year-over-year to $12.3 million, as we sold 645 units in Q4 2015 at an average sales price of 16,648, compared to 537 units sold in the fourth quarter of last year at an average sales price of 16,318.

Higher-priced TournEvent unit sales comprised 14% of unit sales in December 2015 order, compared to 30% of unit sales in December 2014 quarter. The increase in average sales price was also positively impacted by the initial sale of certain Core HDX units in the fourth quarter of 2015, but these units have a higher average selling price.

Overall adjusted EBITDA margin for the Games segment was 52.5% for the 2015 fourth quarter, compared to 47.5% in the prior year period. Defined adjusted EBITDA margin as adjusted EBITDA divided by revenue, adjusted EBITDA margin is expected to be in the 50% to 55% range in 2016.

For our Payments segment the 6.4% year-over-year increase in revenues, primarily due to increased ATM transactions, which include the ATM portfolios acquired in Q3 and Q4 of 2015.

Overall adjusted EBITDA margin for the Payments segment was 12.6% for the December 2015 quarter compared to 13.8% for the December 2014 quarter, driven primarily by the increase in ATM transaction, as well as patent litigation costs for approximately $1.5 million in Q4 2015.

Excluding the patent litigation costs, Q4 2015 adjusted EBITDA margin would have been approximately 13.6%. Same-store cash to the floor, our best indicator of industry trends increased by approximately 7%, as compared to same period last year.

This afternoon’s press release, we noted that our quarterly results were impacted by a non-cash impairment charge of $75 million relates to the goodwill of our games reporting unit.

The charge is primarily based upon the limited growth expectations, as a result of capital expenditure constraints in the gaming industry, consolidation and increased competition in the gaming manufacturing space, volatility in the stock market, global and domestic economic uncertainty, and lower than expected operating profits and cash flows in 2015.

Based on these indicators, we revised our estimates and assumptions for the games reporting unit resulted in a goodwill impairment charge. The impairment charge has no impact in our operations, adjusted EBITDA, cash flow, or financial covenant compliance.

Moving onto the balance sheet, our long-term debt was $1.175 billion at year end, reflecting our borrowings incurred to complete the Multimedia acquisition. During the fourth quarter, we repaid $2.5 million on our term loan, and in calendar year 2015, we repaid $10 million on the term loan and $15 million on our senior secured notes.

We expect to repay approximately $15 million on our term loan in April 2016 as required under our credit agreement. The repayment is based on 75% of our 2015 excess cash flow, as defined under our credit agreement, currently we have no amount drawn under our revolving credit facility.

However, as a result of our acquisitions in the third and fourth of two ATM portfolios, the assets of Resort Advantage, along with over $10 million of expected placement fees to be paid Oklahoma casino customers in the first and second quarter of 2016, we expect to drawdown on the revolving credit facility at some point in the second quarter of 2016.

The company was in compliance with debt covenants as of December 31, 2015, we have one maintenance covenant under our credit agreement related to our senior leverage ratio.

At year end, our senior leverage ratio under the definition in the credit agreement was under four times adjusted EBITDA, as compared to a maximum senior leverage of 4.7 times adjusted EBITDA.

Our maximum senior leverage ratio allowed under the credit agreement is reduced to 4.25 times adjusted EBITDA by December 31, 2016 and has further step downs in future years, as detailed in our credit agreement.

The purpose of this covenant computation, our credit agreement provides for up to $50 million in cash as a reduction to our outstanding secured debt when computing our leverage ratio. As of December 31, 2015, our reported cash balance was $102 million, excess of the $50 million cash reduction limit.

Based on our historical cash balances and the operations for our Payments segment, we would expect our cash balance at quarter end in future periods, but also be in excess of $50 million. Our weighted average interest rate on our long-term debt was 7.65% for the fourth quarter of 2015.

The three months ended December 31, 2015, we amortized $1.7 million of capitalized debt issuance costs into interest expense. For the year, capital expenditures, excluding the purchase of certain ATM portfolios were approximately $76.2 million.

Our capital expenditures for our Games segment were approximately $53.7 million, up which approximately $33.5 million was associated with game refreshes and maintenance costs for our installed base.

Capital expenditures for our Games segment also reflect a higher percentage of payroll and related development costs being capitalized in the new development studios and the introduction of the Core HDX in the fourth quarter, which resulted in an additional leased units being replaced by the new cabinet.

In addition, during Q4, the company acquired an aircraft for a purchase price of approximately $6 million. In connection with the leadership change in February, the company is now in the process of selling this aircraft and expects to complete the sale in late Q1 or Q2.

Depreciation expense for the fourth quarter was $13.5 million and amortization expense was $22.5 million. Regarding our integration activities for 2015, we had an annual run rate cost synergy target of $24 million. Our actual run rate synergies through year-end totaled approximately $25 million.

We continue to expect to achieve the full $30 million in run rate synergies by the end of 2016. Mike previously discussed, we do not anticipate adjusted EBITDA growth in 2016 and in order to meet our – meet or exceed 2015 adjusted EBITDA, we will need to drive performance improvement, primarily in the second-half of the year.

Our overall outlook considers the following items among other factors. The sustained macro benefits experienced by the consumer, such as low unemployment and gas prices to continue to benefit the recent positive trends seen in gross gaming revenue.

We continue to expect to generate revenue from game sales or placements in Alberta, Colorado, and West Virginia this year. We also expect to receive our jurisdictional license for Missouri by the end of Q2 2016. We expect to generate sales of placement of games there before the end of the year.

We expect our overall installed base of gaming units will continue to be impacted by the loss of third-party Class III games in Oklahoma. These losses should continue to be offset by new placements of our Class II and Class III content, both inside Oklahoma and outside in other markets.

As a result, we expect our overall installed base to be relatively stable for 2016, but do expect a negative impact in our installed base in the first-half of the year. Overall unit sales increased modestly in 2016, as we continue to introduce fresh content, roll out our new Core HDX video cabinet and enter more markets.

However, this increase would be skewed towards the second-half of the year, as we anticipate lower unit sales in Q1 due to trials of Core HDX in both new and existing jurisdictions. Our new products like EveriBet could provide a lift in our unit sales.

This product was introduced at G2E in 2015 and allows operators to dynamically tailor weighted denominations to optimize performance on their casino floor. Now I have three game titles approved that incorporate the functionality of EveriBet and the fourth title is pending approval near the end of Q1 or early Q2 in 2016.

Our product roadmap provides for more than 40 EveriBet supported games being approved by the end of 2016, the date we have approval, at least, one EveriBet supported games in nearly 50 jurisdictions across North America.

We must continue to invest to provide innovation and enhancement to TournEvent’s design and game content to ensure that it remains the industry’s slot tournament leader.

While we must continue to develop innovative and differentiated content, 2016 will continue to be a year of transition with measured investment continuing in our game content development and further expansion of our hardware options.

Now I have fully functioning game development teams across our three locations; Austin, Chicago and Reno, which we believe is sufficient to support the production of Class II games for our tribal customers, as well as Class III games and games with licensed content for G2E 2016.

We will be carefully managing any further expansion of our development talent along with the associated investment, while maintaining our financial objectives and capital expenditure targets. We continue to position the company to realize tangible benefits in 2017 from our current investments.

Our Payments business should continue to benefit from the expected improvements in gross gaming revenue for 2016, we expect a decline in the sale of our integrated kiosk in 2016, based on the penetration of these units in our current customer base.

We believe enhanced payment products like our compliance suite can provide new revenue opportunities, improvements in our core cash access products, provide additional opportunities for revenue growth, and drive cost reductions. We’re the casino industry’s first vendor to achieve full end-to-end EMV compliance.

The first payments provider in the gaming space will offer an innovative EMV chip solution for signature transactions on ATMs and integrated kiosk, providers us with a competitive advantage, as we can ensure that customers are prepared to accept this new technology at their properties, while mitigating our exposure to fraud losses.

Our outlook does not include any benefits from potential placements in the Alabama charity bingo market, Class II unit placements in Brazil, or any other international expansion.

Based on our historical level of placements in the Alabama charity bingo market prior to their closing and our expertise in the Class II space, we believe that both of these exciting potential – both of these are exciting potential opportunities. However, we do not believe Brazil is likely to be commercially viable in 2016.

The challenges in Alabama also have made the timing and viability of that opportunity difficult to accurately gauge. We’ll continue to pursue game sales in our international markets opportunistically, but our more immediate focus will remain in North America. Finally, let me give some color on how we think about some other modeling metrics.

We expect interest expense for 2016 will be approximately $101 million. This includes our interest on bulk cash and approximately $6.7 million in non-cash amortization of capitalized interest costs. We expect the amortization of these non-cash interest costs to be roughly $1.7 million per quarter throughout 2016.

We expect our capital expenditures to be in the range of $75 million to $80 million. This includes approximately $10 million to $12 million in placement fees and roughly $12 million in capital expenditures related to our Payments business.

We will translate into amortization expense for approximately $90 million to $96 million, depreciation expense for approximately $48 million to $53 million in 2016. With that, I will now turn the call back to the operator for questions..

Thank you. [Operator Instructions] And we’ll take our first question from David Bain with Sterne Agee CRT..

Thank you, and thanks for all that detail.

Can I try and encapsulate the big picture guidance, and if you could provide any color or correct me, just I understand on the revenue front, we’re calling for our unit sales to be slightly above assume pricing, I guess flat mostly due to new jurisdictions, new cabinet introduction, new content introductions, and most of that comes in the second-half of the year, is that correct on unit sales?.

Yes, I think that’s what we’re looking at, David..

Okay..

More skewed to the second-half, not a lot of insight into Q2, but primarily second-half, correct..

And then the installed base we’re looking for that to be flat overall, but then again most of that comes in the second-half and or getting back to flat in revenue.

Should we look at that being slightly down based on the installed cadence, or can that be flat based on new cabinet performance, or how do we look at that?.

I mean, you kind of do have to look at those different dynamics. We are – that’s part of the CapEx increase, as we’re putting out the Core HDX, we expect that to perform better if gross gaming revenues perform better.

It could be flat, I mean, I would say, flat to slightly down is probably the right answer just depending on how quickly we can replace the units to go out. So I think that’s probably appropriate..

And then finally on the top line for me on the portion of the payments, I read into, I guess, flat to up even less Boyd and the kiosk installs in comparison or kiosk comps?.

Yes. I mean, I think, with the – again, if GGR continues its pace with the new portfolios in there, ATMs will be – ATM revenue will be up. Cash advance will be impacted more by the Boyd, but I think, again, flat to up is kind of what we’re looking at on the payment side.

We have some of the compliance product that will help to – we expect will help to somewhat offset some of the kiosk issues..

Okay.

And then finally on the guidance front, I’m sorry, just on the margin front, would segment margins be similar to what we’ve seen in recent trends and also corporate expense?.

Yes, I don’t see much different in the overall margins between the segments, I don’t..

Okay, great. And then finally, I guess, Michael, and I appreciate you touching on the permanency of the CEO role. I mean, you’re aware that investors and analysts have been positive about the prospects of you taking on that role. I would like to reiterate that now.

But is there any more color on the process, or at least, the timing to finalize the process for that?.

Yes, I don’t have – pardon me, David, I don’t have a whole lot more color on the timing of that. I mean, the committee is going about its work and we’re going about the business of the company.

I can tell you that even in the event that I wasn’t going to be throwing my hat in the ring to become permanent, I certainly would intend to be working shoulder to shoulder with the person selected for a period of time to make sure that we make a smooth transition if that’s the way it goes..

Okay..

I’m not leaving anytime soon..

Okay. Okay great. All right. Thank you, guys..

Thank you, David..

Thank you, David..

And we’ll take next question from George Sutton with Craig-Hallum..

Thank you, Mike. Just a kind of follow on the last question, and now that you’ve been in place for a handful of weeks. Can you just give us a big picture sense of what you’ve been surprised by any of the changes that you have made that you felt were fairly obvious.

Just to give us a picture and kind of your early thoughts?.

Well, yes, a couple of things, George. I mean I’m relatively happy with the way we have built out our new studios and with the backfilling that we have done for the studios in Austin. The people that have been brought on have been very high caliber high-quality, and I think we’re going to get those producing very rapidly.

And that as I came into this, I had an expectation it was going to take a lot longer and I have revised that now. I’m probably spending a lot of time certainly in the first weeks getting to understand where we’ve deployed our assets and determined whether we’ve done that in a way that I think is optimal for the company.

Randy and I are spending a lot of time looking at not just budgeting, but also existing costs and our expenses. And that’s going to be a project that’s going to be ongoing, but we’ll be taking up a lot of our time over the next probably two months.

And that will be just really a matter of making certain that we’ve right-sized the company for the amount of business that we’re doing and for the business we anticipate during this year and next year..

Gotcha. You mentioned that you were going into the market and felt that there were things that make you unique in the market.

And I just wanted to make sure what those unique features are that you feel you have?.

Well, I mean, we’re the only game supplier that also supplies payment solutions and compliance solutions to the gaming industry and also operates systems businesses and systems on behalf of customers throughout the country, including probably one of the largest customers system wise in the U.S. in the state of New York.

And those elements are unique to us that none of our competitors have all of those. And to my knowledge, none of our competitors have looked at how all of those areas can integrate to provide overarching solutions for our casinos on their casino floor from end to end on payments through games and back through payments again..

And on that front can – are there any updates you could provide what we’ve been getting sort of on a quarterly basis have been some of the examples of the cross-selling ability in being in both verticals?.

Yes. Well, actually I’m going to let Randy dive, I’ve heard some, I have gone through some anecdotal reviews of some cross sales. And – but there have been two or three examples over the last quarter or two and I’ll leave that to Randy to describe to you. He was here when most of that was occurring..

I mean, I don’t know that we issued anything new on that George. I mean, clearly, we talked about Alberta that we’re in Alberta now and we have units on trial and that again was a payments-only customer. We haven’t really looked to give any specific on any new deals we continue to focus on our current customer base.

But it’s nothing that I can say has been more than Alberta right now at this point in time versus what we’ve previously provided..

Well, you previously provided the casinothat was a games customer?.

Yes, that we – we’ve already, yes, I mean we talked about, I just think we’ve already talked about Cosmo in the past. And so I don’t have any bigger ones to mention. And I think it’s a more – it’s a lot of blocking and tackling. I know people are looking for one specific big one Alberta, I think, you talked about before and that is so far going well..

Okay. And I found it interesting in your goodwill write-down. One of the reasons you mentioned was increased competition on the gaming side. Obviously, with all the consolidation that occurred, the hope had been that there would be actually less competition, given less number of vendors.

Could you just help me understand the thought process there?.

Well, I would say, look, I agree with you. You would think that as consolidation takes place that it would help. It would allow the ones that remains to have better pricing. But the casino customers continue to hold on to their capital and are very prudent about it. And so it’s still very competitive.

And we don’t see anything material right now that that’s spurring up I mean, their normal replacement that they’ve been doing is not changing, at least, we don’t believe, at least, in the near-term. So I think it will continue to be very competitive from that standpoint..

I understand. Okay, thanks, guys..

Thanks, George..

[Operator Instructions] And we’ll take our next question from John Davis with Stifel..

Hey, guys, good afternoon..

Hey, John..

Quick, maybe Mike and Randy, I just want to hammer on the guide a little bit more and I’m just trying to understand dynamics here. So it seems to me, if you look at both games and – sorry, Games and Payments, you’re looking at flat to slightly up for revenue year-over-year.

But yet no EBITDA growth, despite the compliance acquisitions I think you previously said would add $2 million. So maybe just talk about, it seems to me it’s implying some pretty sharp margin impression.

So I’m just trying to understand maybe some dynamics of what’s going on?.

Well, I would say, look, we are – may within and when those Core HDX get in there, so I guess, what I’m trying to do is get both positive and positive factors as well as other factors. I mean, the kiosks is one that’s going to come down a little bit and we really felt like that that the compliance would help that.

On the payments side, I believe, you’ll see some revenue growth if it’s in ATM, your margin in ATM is much lower than in cash advance. And we know cash advance will struggle because of Boyd that’s and there was a bigger piece there.

So that on the payment side that mix does cause you some compression just because the ATM side is much more thinner margin. So that’s on that side, on the game side, again, we’re investing, so it depends on how quickly we get everything to capitalize and how much of that investment actually hits the P&L, how much of that will be expensed.

So I don’t think we’re talking about right now, at least, what we’re seeing is a very modest upside on the game side unless something happens in one of those jurisdictions we talked about. So I think it’s – that’s kind of where what we’re looking at this point..

We’re – I mean, John, we’re John we’re trying to give you a conservative view of the year. I – Randy went through, I think, a number of bullets of things that could if they break our way make this a better year than we’re suggesting to you right now, but we’re not telling you to hang your head on that.

We want to see those green chutes develop more before we start accepting that as a given..

Okay, I definitely appreciate that. And then, Mike, maybe on the – you said it few times rightsizing the company.

Can you talk specifically, is that holding back slightly on games a bit, investment and being slightly less aggressive there or maybe just expand on those comments maybe?.

Yes, I don’t know there’s less. When I refer to right-size, it’s not so much that any portion of the company that I’ve seen so far is significantly out of whack in any particular direction. What I want to be certain is that, we have concentrated our assets in the areas that are going to be most important to the growth of the company.

And in that regard, it requires a pretty granular review down into the operating units and then down into various levels within those operating units to make sure that the people that are working there have the support and the tools to get their job done.

But also that we have them focused on the right tasks, and if not that, perhaps, we move them to another part of the company or two different tasks. So when I talk about right-size, I mean, I’m not talking about massive layoffs or not or having too many people and not having them in the right place.

I just – I’m suggesting that in our early reviews in the first four weeks, I mean, there are things that I think can be done to improve our efficiencies around here. And Randy and I are going to be going through the entire company over the next few weeks and we’ll be hopefully making improvements..

Okay, that’s helpful. And also maybe just to touch on Alberta for a minute, I think, we in the fourth quarter you had machines on trial.

Was that impacted by the delay in the core HDX cabinet? Should we expect any revenue from Alberta in the first quarter, or is that get pushed with the delay we had?.

It’s going to be somewhat pushed. I mean, the trial has just started in late fourth quarter, early first. So it’s really going to be pushed out of Q1..

Okay. So if you’re kind of thinking it from a high level modeling perspective, if you’re almost be backwards of this year as far as each quarter should get better as we go throughout the year, high level we just think about it first quarter should be fairly weak.

Any kind of build throughout the year, as you get more jurisdictional licenses and get the cabinet to market, where this year we saw kind of the opposite, the first quarter was the strongest than down, is that the right way to think about it?.

Yes, I mean that’s our expectation is that, if the core – again, if it continues to perform, it’s one of those things, it’s new, and so it’s a new kid on the block, but we’re seeing some really good evidence of how it’s performing.

And so one thing, I think, we talked about, I mean, our trials, we do have some of the highest trials we have at the end of this quarter is our expectation. So we got a lot of trials, but I think your expectation that if they perform well, it will ramp, that’s correct..

Correct..

That’s correct..

Okay. And last one from me, Mike, maybe a little bit more high-level maybe on the next four weeks. But in your four weeks, had anything led you believe that obviously we have no growth guide that’s hopefully conservative this year. Anything led you believe that there – the games business isn’t a growth business.

And then everyone trying to ask for 2017 or 2018 guidance, but just high level, do you think you can grow this business over time and still on assets you would like to keep maybe just a commentary there?.

Absolutely John, no, but there’s no – I mean, even from my Board seat, there was no question in my mind that strategically bringing this acquisition into the company was the right thing to do and ultimately will assist us in growing the company in years out.

But as I’ve gotten in here for the last four weeks and I have really started to look at how this has been integrated and how it is developing now? I mean I have just further solidified my view that this is an excellent acquisition for us.

This is the right thing for us to do, and it’s putting us in a unique position within the gaming vending space to provide a lot more value to our customers. So that over time, this is going to be part of the growth engine that we have in the business..

Okay. That’s it from me. Thanks, guys..

Thanks, John..

Thanks, John..

We’ll take our next question from David Katz with Telsey Group..

Hi, afternoon..

Hey, David..

Hi. If we could just talk about the cash flow expectation, I know, Randy, you gave us a ton of pieces and a lot of information. But we look at some of the deleveraging of the debt pay down during the year is relatively modest. Can you just talk about what your expectation is? And I suppose a lot of this is embedded in your cash for ops.

What we can reasonably expect you to accomplish in the next year in that regard?.

Yes, David. I think, look, I think your kind of first statement is accurate. It’s going to be modest right. I mean, further we have $10 million a year required pay down if for if we’re – if we end up being in line or close to what we produced in 2015.

I think that’s what you kind of have to look at, look at that EBITDA, giving kind of the CapEx numbers in the interest, it’s going to – it’s going to not leave a whole lot of additional cash left over for deleveraging. So I don’t see 2016 being major deleveraging year. It’s really got to – it’s got to be build on its into 2017 and out.

So that’s how I look at it..

All right, and I’m sorry.

Did you give us a sense of what CapEx you expect to be in total and I’ll apologize I dropped for a moment for 2016?.

It was a lot of talking so it’s understandable. Yes, I gave CapEx somewhere at $75 million to $80 million. Now, again, that assumes…..

Okay..

That assumes that Core HDX will, if there’s a lot of assumptions in there, because the Core HDX continues to do well. We’ve got a big installed base, and so we’ll have to manage that as we push the installed base out. Obviously there’s open studios, so we gave that and I gave interest that again around that $100 million to $101 million comfort.

So I think I gave the two pieces that will kind of get you there..

Thank you. And just one last one with respect to getting new games into field trials, and I think there was a comment in the press release about more games in field trials at any point in history. Mike, if you could just talk about the process of getting games into the field trial into and out of the field trial process.

And what you’ve observed so far in the 30 days? I think we in the community tend to try and check these things and check in with where the testing is going on et cetera.

And whatever color you can, you’re comfortable giving us around that process, and what you’ve added to it and what you can’t add to it would really be helpful?.

Yes, sure. Well, first, I mean, I’m – I’ve been very pleased with the fact that the sales team has been able to put as many units into the trial process as possible.

On that – in the Games business, a casino taking games on trial has always been extremely important event for manufacturers, because it speaks first to the casino operators faith in the manufacturer’s ability to produce good games, games that will meet or exceed house average, but more importantly for us it’s, because we’re a smallest player.

The more we can get into field trial, the more exposure we get to more casino operators. And that’s – it’s helpful in the universe of casino operators and these slot managers, because they speak with one another and they talk to one another about the products that are on their floor for trial.

And so the word of mouth can be very helpful to you as well.

As I look at the field trials and the kinds of performance that we are witnessing out there, again, I’m very happy to report that we’re looking at very solid results in my view from both the games as well as the ability of our new cabinet to both attract and then lead customers to continue play even on games that they may have played previously, but play it longer, because we’re seeing on average significantly in some cases very significantly and others just significant numbers above house average in those locations that we’re trialing cabinets in the games.

And we’re and I think we’re doing in a fairly good job of both existing games and new games designed specifically for the cabinet, in order to give it really a fair trial for us as well as to where we should be spending our development dollars.

It should – if the new games are not working out well then we probably need to look at getting more of the cabinet out with our traditional games. But, in fact, the new games are doing well.

And so, I think, we’re getting back the report card that says focusing on new game content for the Core HDX is a smart way for us to expand development dollars, if any of that’s helpful to you..

It is.

And just if I can follow it up, I think, what I was also curious about is what you have already or trying to add to that process to accelerate that process in the last four weeks and then the next four months going forward – four years going forward roughly?.

Yes, the last good, good, I like you slipping that in. The last four weeks has been really a matter of reconnecting for me to reconnect with the customers of the company and make sure that I’m listening to what they’re interested in and what their comments are regarding how the company has performed for them, both on the Payments and the Games side.

But going forward, I would hope to be able to get our sales force out there with the – all of the necessary tools – their toolbox to get more of these games on trial in more jurisdictions and on more – on different and varied casino floors and jurisdictions..

Perfect. Thanks very much..

Yes..

We’ll take our next question from Phil Bernard with Eilers & Krejcik..

Hi, guys, thank for taking my call. One quick question on TournEvent sales, it looks like we’re coming off a couple of difficult quarters, maybe a little bit of a commentary on where you expect that to go going forward.

And if not that just maybe a little bit more on – color on what happened in the second-half of 2015 there?.

I think what I – how I characterize it is, look, we don’t believe that it will be the same percentage as it’s been in the past as we try to roll out other products. We still think it’s a core product for us and we continue to enhance it and put development dollars towards it to continue to make it the and keep it the best product out there.

But I think the percentage in the 30s or where it had been in the past, I don’t think we’ll see that, I think it will be coming down. And we would somewhat expect that, as we develop other base cabinets and other cabinets should be as higher percentage. So I think that’s how I’d look at it..

Got it, got it. And I know we’ve talked a lot about product development and exploring that new markets, you have units on trial in Canada.

Are there maybe two other or few other target markets that you guys are looking at with regards to markets that you see the most opportunity?.

We’re still looking to put trials in Colorado. And I think that’s starting relatively soon as well as Virginia, so both of those are new markets for us. And then really the big one, not the big one, but another important one for us is Missouri.

And we’re hopeful to just get the jurisdictional done before the end of first-half of this year and then get trials there into the second-half of the year..

Great. Thanks guys. That’s it..

Thank you..

Thank you..

We’ll take our next question from James Taylor, Bank of America..

Hey, guys how you’re doing?.

Hey, James, good.

How are you?.

Good, good. Just one follow-up on that. You mentioned in the commentary about the – purchasing the ATM portfolios.

Can you just give us a little more color around, I guess, what portfolios you purchase, were those at existing customers? And I don’t know if you’re giving any metrics around sort of what you paid and then what the revenues and EBITDA or the valuation that you paid for the portfolios?.

Yes, we did, James, that was we talked about it in Q3 and Mark may have to – and I got him here, he may have to remind me, but I’ll take it from memory. So basically, it was couple of our banking customers or really partners that we had worked with that had done this and just within their core business.

And so we were able to work with them to acquire those. And overall, the purchase price of those were somewhere around $4 million maybe a little bit in that neighborhood $4 million plus. And I think the top line was about $30 million, and then the EBITDA we expect it to be about three.

I mean when we talked about it in the third quarter, we thought it would become, it would come close to really offsetting the Boyd loss, but it’s in different buckets, and that’s the thing that I talked a little bit early about was that those – that’s an ATM portfolio, which is going to be a smaller or a lower margin than a cash access.

But again we thought it was a really good deal from our standpoint for those type of dollars. We obviously had to renew the contracts, but we’ve been processing it for a long time and feel comfortable about those customers..

Very good. And I know you gave guidance for CapEx for 2016.

Did you give what the actual CapEx spend was in 4Q?.

In the 4Q, I don’t think I gave the quarter, I just gave the full-year, so I have to go back and I didn’t look at it really from the few quarters..

I come back into that. I mean, I guess, just finally, just one follow-up on the guidance just from a cadence perspective. You called out the first quarter is a tough comp, the second quarter sequentially was actually up last year second quarter versus first quarter.

What is the – is that sort of normal seasonality? Is that the way you would expect this year? I’m just trying to get a sense for sort of our expectations for the first-half of the year?.

Yes. I don’t know that I really look at it that hard. I mean, I don’t know that it’s a seasonality issue. It’s – we had some – we were down a little bit in game sales in Q1 to Q2, but nothing, it was pretty close really. I think it was fairly close in that quarters, but I don’t think it’s a real seasonality issue, I have to go back….

Some of the gaming….

Some of the gaming operations But again, I just think it’s trials. And if we can get the trials to take in Q2, it will be beneficial for us..

Okay, very good. Thank you..

Thanks, James..

Thanks, James..

We’ll take our next question from Larry Haverty with GAMCO..

Yes, Mike, long time..

Yes, it’s been a long time..

I’ve got three questions. One maybe a long day in the East, but I couldn’t find fourth quarter statement of income of the consolidated businesses.

Was it just that I missed it, or was it not released? And if so why wasn’t it not – why was it not released and what are you going to do about getting one out there, because it’s a real matter of convenience, especially for a stock that’s done this?.

It’s in the 10-K. We do quarterly information. We did – we have it in the past in the fourth quarter. I mean, it’s something, I guess, we could look at, but we give quarterly information in the 10-K and that was published today so….

Okay.

Is there a separate quarter in the 10-K?.

Yes, the separate quarter. There’s a quarterly statement in the 10-K that shows the quarters..

Why would you not put that in the release?.

Again, I’d say it’s consistent with what we’ve done in the past. We can most definitely do that in the future..

You are in the 99th percentile when disclosure on that next and that’s 99th percentile the wrong way. Okay.

So second question, of the employees at mass or – and Multimedia game when you took it over, how many still remains?.

Well, the number of employees has actually increased. I mean, as to whether or not there each and every one is exact same body, they aren’t. I mean, there have been a few that have left, and we’ve – it was I mean reference you back, Larry, to my comment about about backfilling.

I mean, we had the higher replacements for some people, but we’ve actually, I think, now on games – on the games side of the business we have more bodies today than we did during the quarter that we acquired..

And then last question in your studies of efficiency, Mike.

Have you at this juncture engaged anyone to help you with them, for example, McKenzie?.

Yes, no, we have not yet, Larry, I mean that’s something….

Does yet mean, it’s – that’s likely?.

Well, it means, it’s something that under consideration. And, yes, if we do it, I doubt that we would announce it very sure..

Okay. That’s a – yes, that’s a good answer. Thanks a million, Mike..

Okay. Thanks Larry..

And it does appear that concludes our question-and-answer session. I’d like to turn things back to Mr. Taylor for any additional or closing remarks..

Thank you for joining us on the call this afternoon. We look forward to discussing for the progress of the business when we report our first quarter 2016 results. Thank you..

Thanks, everyone..

And that does conclude today’s conference. Thank you for your participation..