Mark Labay - SVP, Strategic Development & IR Mike Rumbolz - President & CEO Randy Taylor - EVP & CFO.

John Davis - Stifel David Katz - Telsey Group David Hargreaves - Stifel Financial Matthew Gladstone - HPS Investment Partners.

Good day and welcome to the Everi Holdings Second Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time I’d like to turn conference over to Mark Labay, Senior Vice President, Strategic Development and Investor Relations. Please go ahead sir..

Thanks, Don and welcome to the call. Joining me today are 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 everyone that the Safe Harbor disclaimer in our public documents covers this call and our webcast.

Some of the comments to be made during this call contain forward-looking statements and assumptions that are subject to risks and uncertainties, including but not limited to those contained in our SEC filings, all of which are posted within the investor relations section of our corporate website.

These events could cause actual results to differ materially from those described in our forward-looking statements and 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 and adjusted EBITDA margin.

We reference these non-GAAP measures because management uses them in part to manage the business and to enhance investor understanding of the underlying trends in our business and to provide better comparability between periods in different years.

We also make certain compensation decisions based in part on our operating performance, as measured by adjusted EBITDA and our credit facility and outstanding bonds require us to comply with the consolidated secured leverage ratio that include performance metrics substantially similar to adjusted EBITDA.

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 also be accessed within the investor relations section of our corporate website and a replay of the call will be archived. With that, I'm pleased to introduce our President and Chief Executive Officer, Mike Rumbolz..

Thanks, Mark. Good afternoon everyone and thank you for joining us today. This afternoon we reported 2016 second quarter revenues of $214 million and adjusted EBITDA of $51.2 million. The key takeaway from the quarter is the strength we have seen in customer demand for our Core HDX cabinet.

This is further highlighted by high conversion rate from our trials at the end of the first quarter. The increased demand was apparent in both unit sales and in an increase in our installed base. We sold 819 units in our second quarter, up 10% year over year and our install base increased over 200 units sequentially.

On the payment side, we continued to see increases in total cash to the floor and we benefited from higher kiosk sales relative to Q1. As anticipated the first quarter charges and fraud losses that were associated with the implementation of our full end-to-end EMV solution within our payments business were significantly lower in the second quarter.

Overall we are pleased with our performance in Q2 and we are looking forward to the second half of the year with a particular focus on maintaining the pace of our execution on our key initiatives.

While we were able to execute across all of our business lines during the second quarter, we consider this to be just the starting point for what we're trying to accomplish.

A lot of work remains and I am confident that as all of our team members continue to bring the same passion, focus and commitment to execution of our business strategies as they have done since I’ve joined the team, we can continue to make progress against our near, our mid and our long term goals.

Our expectations for several key performance indicators for the balance of the year are unchanged from when we last spoke in May. The initial reception for the Core HDX cabinet has been excellent and the unit count of games currently under trial continues to be strong at the end of the quarter.

As a result, we believe unit sales will increase year over year in both the third and fourth quarters of this year. We also expect our installed base to continue to improve during the second half of the year.

As it relates to our payments business, we believe that the positive trends in cash to the floor and in transaction growth experienced in the first half of 2016 will continue throughout the remainder of the year.

However we expect the growth to be more consistent with the second quarter growth which showed some signs of slowing when compared to the first quarter.

We expect the sales of our higher margin fully integrated kiosks and our compliance products should also contribute higher revenue in our payments business in the second half of the year when compared to the first half.

Overall we still believe there's an opportunity to deliver growth in adjusted EBITDA in the second half of this year compared to the first half. With our third quarter results currently anticipated to be higher than our fourth quarter which reflects the seasonality that occurs in our business.

And looking forward to the second half of the year, I'd like to comment on a few of the underlying assumptions inherent in our expectations. One key to our expectation for the full year is the ongoing reinvigoration of our unit sales volumes. Critical to this is the success that we're achieving with the rollout of our Core HDX cabinet.

And as many of you know this is our first new base video cabinet in nearly eight years. As we saw on the second quarter, reception for Core HDX has been very positive and it is to bring year-over-year increases in our unit sales. Core HDX accounted for approximately 57% of our unit sales in the second quarter.

This past May we indicated the trials of game units were at historically high levels which in the past has proven to be a reliable indicator of potential customer demand for our products. At the end of April, approximately 60% of the units that we had on trial were for the Core HDX and we are converting these trials to revenue.

And trials will always be a part of our business especially with our installed base. However going forward as our game performance has proven we would expect the need to provide trials for our for-sale games should be reduced. It's encouraging that our Core HDX trial unit count remains robust through the end of the second quarter.

We would expect to continue to see strong demand as the cabinet continues to prove its performance to our customers. Another assumption inherent in our expectation for increased quarterly unit sales is our entry into new markets. Early in the second quarter we announced the sale of 200 TournEvent units to the Alberta Gaming and Lottery Commission.

This makes every one of only a handful of slot suppliers to the province. These units are expected to be recognized in the second half of 2016 and our current expectation is for these units to ship late in the third quarter.

We also expect to receive regulatory approval of additional games in Colorado and our initial games in Missouri prior to year end which will further increase our addressable market. Now turning to the installed base. I mentioned that our expectation is for the installed base unit count to continue to rise.

We expect the year end level to be roughly in line with the installed base count at 2015 year end. This expectation is based on the following. First, we have approximately 1900 thirty-party Class III games in our installed base in Oklahoma as of June 30. Our focus is to replace a good portion of these games with our Class II games.

Secondly, any net losses in third-party Class III games should be offset with incremental growth of Class II and Class III games outside of Oklahoma, including new markets such as Alberta. Our installed base did experience a decline in yield when compared to the same period in the prior year for both the first and the second quarters.

This is partly the result of increases in the monthly accretion of placement fees and Randy will provide some more details regarding this accretion. The remaining impact is primarily related to the removal of older third party Class III games and the replacement of only a portion of those games with our Class II games.

In addition, we've seen a decline in the yield from our Class II and Class III games in 2016 when compared to the same period in the prior year. Now a portion of this decline may be attributed to some of our casino customers that are experiencing gaming revenue declines in certain regional markets.

However we're addressing the declining yield related to our games performance in several ways. We are increasing the placement of new Core HDX units. We're converting many of our older games with new games from our development investment efforts and we're increasing the focus of management on our installed base.

As part of this increased focus, we've also added dedicated staff and we're using improved analytical tools to enable us to better analyze and quickly react to improve our games performance.

We're also ensuring that we have maximum coverage with our higher performing games in the field while still managing the composition of titles and game cabinets at individual properties. We expect these efforts will help improve the yield from the large portfolio of games that are in our installed base.

Now in the second quarter we completed over 370 game conversions within the Oklahoma installed base. This is the largest number of conversions completed in Oklahoma during any one quarter. We expect these game conversions will improve our installed base performance and yield when compared to the levels that we experienced in the second quarter.

This is in addition to our accelerated investment in the development of both Class II and Class III games which began in earnest this year and should begin to deliver the results that we are trying to achieve.

We also expect that some of the new games set to debut at G2E in September including our first games based on licensed, highly recognizable brands will benefit our installed base in 2017.

Our ability to recognize a return on the investments that we've made in our Chicago, Reno and Austin development teams will be critical to our ability to sustain growth in our installed base and to improve our yield per unit. Turning to payments.

In the second quarter our same-store cash to floor continued to show growth, although slower than the growth experienced in the first quarter of 2016. This is in despite the choppiness that's been seen in our regional gross gaming revenues. We expect to achieve performance level similar to our second quarter over the second half of the year.

We'll continue to focus on our compliance offerings and sales of our fully integrated kiosks as well. And with that let me turn the call over to Randy. .

continue to see growth in year over year cash to the floor and transactions, same store cash to the floor, our best indicator of industry trends, increased approximately 4.5% year over year. This is the seventh consecutive quarter of growth in both same store transactions and same store dollars to the floor.

However it was the slowest growth attained for that period of time. In our last call we mentioned that our upgraded equipment and patron familiarity with PIN based transactions resulted in a volume shift to PIN based debit transactions and a reduction in signature-based debit transactions.

The second quarter 2016, the shift has appeared to stabilize towards a more normalized historical mix. Processing expenses and chargebacks associated with EMV fraud activity for transactions occurring before we completed our EMV upgrades have also returned to more normalized levels, now that we are fully EMV compliant.

These items resulted in approximately $1 million incremental charges in the first quarter of 2016. Kiosk unit sales were down for the quarter as compared to the prior year due to sales did improve as compared to Q1 which is in line with our guidance. Compliance revenue was consistent with the prior year quarter. Moving on to the balance sheet.

Our long term debt was $1.156 billion as of June 30, 2016. For the second quarter we repaid $16.9 million on our term loan comprised of $2.5 million in required quarterly payments and approximately $14.4 million on our term loan as required under our excess cash flow suite as defined in our credit agreement.

Weighted average interest rate and our long term debt was 7.68% for the second quarter of 2016 and in the three months ended June 30, 2016 we amortized approximately $1.7 million of capitalized debt issuance costs and the interest expense. At the June 30, 2016 we had no amounts outstanding under our revolving credit facility.

We continue to manage our cash flow but as a result of our acquisitions made in 2015 over $11 million in placement fees in 2016, a $14.4 million excess cash flow suite and our increased capital expenditures related to replacement and expansion units for installed base, w e now expect to borrow on our revolving credit facility during the second half of the year.

Company was in compliance with its debt covenants as of the June 30, 2016. Our senior level leverage ratio under the definition of the credit agreement was under four times adjusted EBITDA compared to a maximum senior leverage ratio of 4.5 times adjusted EBITDA.

Our maximum senior leverage ratio under the credit agreement reduces to 4.25 times adjusted EBITDA at December 31, 2016. The definition of adjusted EBITDA in our credit agreement excludes interest expense related to the provision of cash in our ATMs.

For purposes of the computation this interest is treated as an operating expense and therefore is not excluded from the credit agreement definition of adjusted EBITDA. As of June 30, 2016 our outstanding balance of ATM cash utilized by us from Wells Fargo was approximately $262.2 million.

We expect our interest of the Wells Fargo cash solutions agreement to be approximately $3.4 million for the twelve months ended December 31, 2016.

Interest expense will be impacted by any increases in the three months LIBOR although we are able to pass a portion of this cost to certain customers through a reduction in commission payments once LIBOR exceeds the contractual threshold. The second quarter capital expenditures were approximately $33.1 million.

Capital expenditures for our game segment were approximately $30.3 million of which approximately $11.2 million was associated with replacement units for our existing installed base, new expansion units into our installed base and trial units, not yet converted to either a lease or a sale.

In addition, the game segment capital expenditures included $10.2 million in placement fees, approximately $6.8 million capitalized software costs related to the development of our games. We expect the core HDX unit will continue to drive additional lease unit replacements and expansions.

Our capital expenditures should be lower in the third quarters compared to second quarter as we did not expect to pay any material placement fees. Finally, let me provide some color as to how we think about some other modeling metrics for 2016.

We expect total interest expense for 2016 will be approximately $101 million, including interest on the bulk cash of approximately $3.4 million, approximate $6.7 million in non-cash amortization of capitalized interest costs.

Based on new expansion units into our installed base and the continued replacement of games in our installed base as a result of the additional third party Class III games that will be removed and normal replacement of aged equipment in the second half of 2016, we now estimate capital expenditures for the year will exceed $90 million.

It's important to note that we expect to replace a large portion of the third party Class III games removals for our Class II games and our expectation of capital expenditures in excess of $90 million reflects the netting of the proceeds we have received from the sale of the aircraft of approximately $4.6 million and tenant improvement reimbursement for approximately $2 million.

Additionally, this expectation also includes approximate $11 million in placement fees paid in the first half of 2016 and roughly $11 million in capital expenditures related to our payments business for the full year of 2016.

As a result we expect amortization expense of $94 million to $96 million, depreciation expense of $49 million to $53 million in 2016. With that, let me turn the call back to Mike. .

Thank you, Randy. Okay, before we open up the call for your questions, I'd like to briefly review the progress that we continue to make on our five previously identified strategic priorities that we believe are going to drive both future growth and our revenues as well as our EBITDA.

Our first priority is to increase our product library by producing new games that engage patrons and enhance the profitability for our customers. The key trade show for our industry is G2E and it's occurring next month in Las Vegas. Now I'm not going to preview the full list of games and solutions that we intend to debut at G2E.

But suffice it to say that I fully expect that this will be our best show ever. We will debut more titles that will take full advantage of the unique features of our Core HDX cabinet and to give you some perspective on that we currently have approvals for nine games that are native to the Core HDX cabinet.

Meaning that these games are designed specifically to take advantage of the full capabilities of the Core HDX and we will be debuting six new native titles at G2E this year. These fifteen games are in addition to the library of 132 existing games that have been approved for the Core HDX cabinet.

We will also premiere several branded titles for the first time in our history. We've identified one of these titles recently with the announcement of our new partnership with Penn & Teller for a game based on their special blend of comedy and magic and we’re extremely excited to debut this machine.

We're also excited for our other new branded games that are going to be first appearing at G2E.

As previously discussed, we're also bringing to G2E some new innovations for our TournEvent solution, including the next evolution of operator efficiency tools for running TournEvents as well as the first of its kind new game that offers new skill based elements while it’s in tournaments mode.

We will also unveil Nitro, our next generation media system with the bolt-on bonus ability that leverages our TournEvent technology. We expect these tournament product innovations will continue to position TournEvent as the premier tournaments solution of choice for casino operators.

We also believe that these innovations are going to provide the opportunity for incremental sales into our existing TournEvent customers. We also will continue to update our payment segment offerings including check redemption and Everi giving module for integrated kiosks and our Everi stored value card.

These products will continue to affirm that Everi is the best in class payments provider to the gaming industry. Our next priority is to increase our distribution capabilities and in this regard we're making solid progress with our new game approval process to ensure that our games move more effectively from the trial phase to the revenue phase.

Our products are now approved in West Virginia and Colorado and we expect them to be approved in Missouri very soon. As I mentioned previously we're also utilizing increased analytics in our gaming operations business.

We believe that these efforts together with some additional strategies will help us to use our new game content and new branded titles to improve productivity with our customers. We're collecting real time performance data and using visualization tools to assist in tracking performance on our games.

Our new analytical tools are very innovative and provide us with an excellent way to evaluate our games. Currently we have thirty nine customer locations representing a significant percentage of our installed base where we use these tools and we expect to continue to add more locations and devices in the coming quarters.

Third priority is our enterprise wide cost analysis with an eye toward operating efficiencies and cost containment. We continue to make progress with identifying areas where we can rightsize our cost structure and we're beginning to implement these measures.

We've made initial progress in enhancing manufacturing and supply chain efficiencies and reduced some of our call center operations. Another area that we're making progress in is converting returns units from our installed base or new units of all product lines into sales in secondary and tertiary markets.

We are also developing new cabinet products that can operate with our existing legacy cabinet inventory to provide an exciting refresher to these cabinets. We will continue to analyze the best ways to manage our inventory of cabinets on all of our product lines to ensure that we maximize their value.

Our fourth strategic priority is the development of games that leverage new licensed and branded properties .With the national footprint of jurisdictions we believe that the selective use of licensed branded games can leverage the recognition and the familiarity of the brand to increase both customer attraction as well as time on device.

Branded titles also open up our ability to target more attractive pricing models for our participation games that will ultimately drive our yield higher. I've already talked about our plans to roll out these new games at G2E, so hopefully many of you will be on hand to see them.

Our final strategic priority is to reestablish revenue growth by increasing game sales and placements through the integration of our games and payments products. We are working on methods to give casinos additional patron value and unique revenue opportunities at their Everi gaming devices as well as across the gaming floor.

Using our combined products, assets, our touch points we can provide a variety of innovative solutions and will be displaying a few of these products to our best customers at G2E. Now over the last several months our entire team has done an outstanding job in making consistent progress against our initiatives.

Given our execution in the second quarter, our ongoing progress to date and our outlook for the balance of the year and beyond, I'm confident that we've implemented the right strategies to create value for our customers and for our shareholders. Now with that I'd like to turn this back over to Don to take any questions. .

[Operator Instructions] And we will take our first question from John Davis with Stifel..

Hi Mike, I was wondering if you could clarify the outlook a little bit.

I know you said there was no change, but it seems like the language around what you expect for the back half, it was my understanding prior kind of guidance, follow up with the second half would be better than first half, I think the language now says it believes there is opportunity to be better, if you just clarify that.

And I don't know if that is getting to do with, second quarter maybe being a little bit ahead of plan, any comments there will be helpful..

Well, part of it is the choppiness that we're seeing out there in the market. I mean, if we saw the consistent growth throughout all of our gaming markets, then I think you’d hear us as being probably a bit stronger in that but it's still our belief that our second half is going to be better than our first half. .

Okay, that's helpful. And then maybe Randy, talk a little bit about the payments EBITDA margin expansion I think is up 80 basis points year over year.

Was there any EMV benefit or the way I think about it is the higher surcharge should actually -- would actually lower the margin because the casino operator would get all the incremental surcharge, maybe just walk through the mechanics of the EBITDA margin improvement year over year?.

You're right, John, that that really goes the other way. I mean really one we did see some of the shift back so the margin on the cash advantage signature and mix with the words here whether that would come back as normalized better, so that’s a better overall margin for us.

And really we had the kiosks which were better than the first quarter and then really we just saw some savings on the expense side. That improved it and then as I talked about, we didn't have -- we had a million in fraud costs in Q1 that we didn't have in Q2. So I knew there'd be a lift.

I would say probably little bit more than I anticipated and part of that really was some savings on the expense side. .

So there's no – you guys have passed through any EMV fees or anything that would benefit the incremental to both the top point and the margin. .

No, no, we don't. .

And then finally for me – Randy, maybe on CapEx, if I look at this year kind of call it a core run rate with $95 million if you back out the aircraft sale.

Should we expect that's a trend down next year and kind of what do you think of the more normalized CapEx level, and you're looking at roughly, just call it, somewhere between $190 million and $200 million.

Those are my numbers of adjusted EBITDA this year, on a core basis, $95 million of CapEx coupled with $95 million of interest expense, cash interest expense, doesn’t leave a whole lot of free cash flow, so is there – you expect a down next year and how we think about that?.

I mean, John, you're exactly right. We've been -- the success of the Core HDX really has accelerated some of the replacements, if people want to refresh their installed base, passing them to want to, and as I said before we have to manage that.

I would expect it to come down a little in 2017, haven’t put my budget together yet, haven’t really pulled everything together. But we would expect that to come down but we still have some of those third party games that will come out over the next twelve to eighteen months, that also puts pressure on us.

So it's both of those that say I don't know how much ’17 will come down, I think ’17 will still be, both in 2016 and into ’17 will be a challenge to manage that CapEx because we've been so successful so far and want to -- we're doing – as Mike talked about just the yield is very important to us.

So we also look at the yield and look at it, we have to put more Core HDX that will help the yield but I don't want to just replace, I want it to remain -- so I don't have everything pulled together yet for next year but I would say it's going to be probably more than I want but I don't think it'll be high as high as ‘16. .

And then maybe one more if I can. On the ASP, it looked like it was up nicely despite a pretty significant decline in the percentage of TournEvent units, and I know you said it was largely driven by Core HDX.

Can you maybe give us an idea of Core HDX, what percentage of those cabinets are being sold versus placed and what the price point is -- not actual dollar amount but kind of compare to TournEvent or another cabinet that you offer?.

I think what we gave was, of the units sold about 57% were Core HDX. So hopefully that gives you kind of where we're headed to. But I think on the installed base versus sold, I think it was like about a 60:40, so about 60% being sold, 40% being installed.

But we've seen a very good – that’s again part of the whole CapEx issue is how will that continue to play out. But there's been a really nice conversion to actual sales.

So right now it's been a higher percentage and a lot of that really depends on any story, units with them or poppers or things of that nature but there's a screen that can go on top, that can also add to the price of that. So yes, it’s been helpful on ASP standpoint so far. .

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

I know you've gone through a couple of these things before. But I may just dig a little deeper and if I'm being repetitious I apologize. But you did say that the back half of this year you expect to be just a little bit stronger than the front half.

And I'm looking at it on an EBITDA basis, right, and if we're at $97 million of EBITDA so far through two. Orders we’re expecting the back half to be right a little bit stronger than that and I think Mike, you said 3Q higher than 4Q. Should I be thinking about this on an -- those comments on an EBITDA basis or revenue basis or how did –.

That was my intention, David. You had it right that my intentions, on an EBITDA basis. And that's the way that we've seen the seasonality worked out in this business, as we've had both the games as well as the payment together. .

And going down just a little bit farther with that, with respect to that, within the two segments of the business, is there -- again I'm sorry if I missed it but is there any trend within payments versus games as we look at that back half?.

I think it's pretty much the same, David. The payment – the trend is really our cash to the floor transactions in the fourth quarter are generally lighter and that also impacts gaming ops.

So whether that the unit sales are actually -- I know generally Q3 can be able bit better -- I mean can be a little worse than Q4 in unit sales, I don't know how that's going to work out, that’s just for Core HDX we got out there but I would say on gaming ops and payments, you do see some seasonality in fourth quarter.

Christmas time and in those time periods. .

Now just following up on the prior question and a topic that's been discussed a little bit throughout the quarter.

In terms of where your covenants are, I recognize that the logic can be considered a little bit circular as to whether having a solid quarter is a good opportunity to loosen some of those covenants, or versus waiting until you need them when their cost could be higher.

Can you just give us your thoughts about or what your latest thoughts are about, how you're collectively thinking about that?.

Well, David, I can tell you that I mean we've discussed this clearly and we've also had some discussions with lenders. As you know it's a very delicate dance and it's one that -- as the debtors you want to try and hit the -- you want to hit it out of the park at exactly the right time.

And as a lender you're going to push back and you get as much as you possibly can no matter what the timing is. So we continue to have those discussions internally and we may have a few of them externally. But at this point there's nothing that we're in a position that we would announce. .

We’ll go next to David Hargreaves with Stifel Financial..

I was hoping you guys could help us, in looking at EBITDA for the six months was off a few percent but cash from operations was off quite a bit more. And I think there's some large line items. Perhaps you could talk a little bit about the difference between the two. .

I am not sure, David, are you talking about cash from operations –.

What is the settlement liabilities line that's in the cash flow just to get more to the point?.

So again the settlement liabilities are -- on the payment side we settled the money -- well basically have at the casino location the patron has received their funds. We've now processed it, the cashes come to us and yet we then owe that money back to the casino.

So that’s the settlement liability, that's why there's big swings there in that cash flow.

So depending on the day of the month that the quarter closes it will depend on how big the settlement liabilities are because we close on a Monday then you'll have Friday, Saturday and Sunday where you -- where the money will have gone out we will in most cases settle because we settle daily with the networks but we won't settle with the casino customers until a few days afterwards, so that will fluctuate.

.

And could you give us an idea -- you referenced placement fees, how do those work?.

The placement fees are with certain customers, we have placement agreements where we essentially pay a fee upfront to place the unit on the floor, and that’s in the past been anywhere from probably on an average of five to seven years and it's on average been probably around $10,000 but it depends on the agreement and it depends on the customer – $10,000 per unit, excuse me.

And so as those agreements come up and those are paid, then you have your unit on the floor for a period of time. So in most cases in your install base, it’s a month a month.

So the customer can have you come take your unit back, in some of our cases with certain customers we have placement fee arrangement where we have the unit locked up for a period of time, and that fee is basically treated as a intangible but the accretion of it is that offset the revenues, it’s almost like you're buying part of your revenue upfront.

So those placement fees come up as the contracts come up over time and we have -- we've said in the past we have somewhere around almost 5000, under 5000 with agreements out there. .

And. I was curious when you mentioned your intention to draw on the revolver in the second half, based on what your guidance for CapEx is and interest expense.

It looks like -- I'm not sure that you would have a need to draw on the revolver and I'm just wondering sort of what you expect to draw on that for?.

Well I mean I think, again if you're just looking at pure cash in the balance sheet, again that's where you’ve got to be careful because of the settlement liabilities that are owed. So as I look to, I kind of look at our net cash available which is cash plus settlement receivable minus settlement liabilities.

And so kind of the way we're forecasting out, it really does depend on how the CapEx rolls through and what the second half of the year holds for us.

And we also pay our interest through the end of the year at the end of December because under our credit facility the cash flow suite looks to cash paid, to actually pay interest right up to the end of December. So there can be some bigger interest payments made in the second half of the year. So I still expect to draw some on the facility..

Based on the HDX trials to sales, seems like there's been a very high ratio of trials being translated into sales. And I was wondering if you could give us some idea of performance in the field, how you're doing versus floor averages.

You mentioned the capabilities of these machines and anything you could elaborate on, give us a better understanding, because it sounds like the demand has been really good for them. .

Yeah, the demand has been very good. It's hard to use metrics with respect to conversion rates on trials to sales or trials to leases primarily because it depends on where the devices are being trialed.

I mean if you're trialing in a market that is primarily leased devices, then you would expect that one to convert to a lease versus a market where it’s primarily owned by the customer and then you'd expect it to convert to sales.

So it's kind of hard to break up which way those would flow but I can tell you, there are observers in the industry that will tell you that generally for a new device to be sold it’s going to be one or one and half times, would have to be around 1.5 times the floor average to be a sale.

And if you're going to lease it to them you need closer to 2 times, the average of the floor in order for it to be leased up. .

And then lastly, with the TournEvent being 6% of I believe shipments or sales, that seems a little lower than trend had been. Is this some reflection of IGT’s new tournament product – cutting into your territory - -.

No, we don't believe so that – they really are very different products. And at this point we don't see any kind of what I would call degradation of the value of TournEvent as a result of having spinning wheel tournament products that are trying to compete with us in the marketplace. .

We'll take our next question from Matthew Gladstone with HPS Partners..

Good afternoon. Just on the Core HDX cabinet. Can you guys -- you guys mentioned that you had more trials out there at the end of Q2 than you did at the end of Q1. But perhaps fewer than when we spoke in May.

If you think about the market penetration for that cabinet, like have you guys reached out to most of the customers with whom you’ve done business in the past? Is there still a long runway head of us and as we think into beyond those that are currently on trial, is there a pipeline of either new cabinets that might be coming out at G2E this year or different types of products that could replace some of those sales if those were to saturate the market?.

Yeah, I totally understand your question I think. I don't believe they were anywhere close to a saturation point in the industry at this point.

Clearly our sales force is out there talking to all of our customers, both those that are -- have taken our products and haven't taken our products and trying to get the core on their floor to show them the performance capabilities of the box compared to the rest of the devices on the floor.

But at G2E we expect that we'll be showing the several form factors that will be different and hopefully different ideas and concepts of games and how those games can be portrayed for the players that will get the interest of our customers as well so that in the future we will continue to have TournEvent sales, core HDX sales and new game sales whether they be, whether they be leased products, whether they be products that are designed specifically around a licensed brand or whether they be new products that we're bringing forward.

But at this point I don't see any saturation at all on the core product. End of Q&A.

There are no further questions at this time. So I'd like to turn things back to Mark Labay for closing remarks. .

This is Randy Taylor. I will close with that. Thanks everyone for joining the call. We look forward to meeting hopefully with many of you at G2E in September. So we can discuss our further progress and you can see some of our new products and we will be looking forward to talking about Q3 results. Thank you. .

This concludes today's conference. Thank you for your participation. You may now disconnect..