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

John Davis - Stifel Nicolaus David Katz - Telsey Group Jason Kreyer - Craig-Hallum Capital Group David Hargreaves - Stifel Financial.

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

Thank you, Denise 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..

Thank you, Mark and good afternoon everyone and thank you for joining us. This afternoon we reported 2016 third quarter revenues of $222.2 million and adjusted EBITDA of $51.6 million.

In our games segment, the key drivers of our performance in the quarter included the continued strong interest in and demand for our core HDX cabinet as well as continued strength in sales of our three reel mechanical slot machine.

This is a classic slot product that we haven't talked much about but it continues to resonate with our casino players and performs well for our customers. In the third quarter, our unit sales increased over 30% year-over-year to 783 units, which included our 200 machine sale to the Alberta Gaming and Liquor Commission.

In addition our installed base increased by 139 units when compared to the prior year period and by 108 units on a sequential basis. Within the installed base, we experienced continued softness in the daily win per unit metric, primarily as a result of the continued reduction of third-party Class III units in Oklahoma.

Randy will provide more details, but it is important to point out that we expect to see this trend of declining daily win per unit to continue into the fourth quarter and in 2017 as we work through the remaining removals of the third-party Class III units from our installed base.

Our current expectation is that the majority of these remaining units will be removed from our installed base by the end of the first half of 2017. We have a strategy to address this declining daily win per unit and I'll discuss that with you shortly.

In our payments business revenues were up 7.2% year-over-year and segment adjusted EBITDA was up 16.4% as we continue to see increases in total cash to the floor and benefits from a stabilize level of kiosk and compliance sales relative to the first half of the year.

This is the second consecutive quarter of year-over-year double-digit adjusted EBITDA growth for our payment segment since our first challenging quarter of this year. Stepping back, the significant take away from the quarter is that we continue to execute successfully on our key initiatives.

This is helping us deliver operating results that are in line with our expectations and leading to increased ability for our company. I'm very pleased with how our team members have come together to embrace and execute our operating objectives. We're establishing a foundation that will position Everi into 2017 and beyond.

I would like to reiterate what I said on the second quarter conference call. We are still in the early stages but we're off to an excellent start and I'm confident that we will continue to make progress.

Now before I turn the call over to Randy to discuss our third-quarter results in more detail I would like to take a few minutes to review our progress against our five strategic priorities as well as our efforts to drive future revenue and adjusted EBITDA growth.

We've noted on last several call that our first priority is to increase our product library by producing new games that improve our customer's profitability. Our first step in achieving this goal was our introduction of a new video cabinet to enable us to create new games with enhanced graphics and sound features.

I think the results that we've achieved to date with our new Core HDX cabinet, demonstrates our initial success in this regard. Through the end of the third quarter, we've sold just over 1,200 new core HDX units. In addition, Core HDX games also represent a solid number of the new installations and refresh units that we placed in our installed base.

As of September 30, 2016, approximately 10% of our installed base are games on our core HDX cabinet. Now as most of you know G2E was held in Las Vegas at the end of September and it is the principal trade show for our industry.

This year's show represented our company's largest and most diverse offering of games and payment solutions in our history I'm very pleased with the feedback and interest that we received from our customers.

I believe the customers were impressed with the commitment we demonstrated to supporting our Core HDX cabinet with the new games and game features that we debuted at G2E, while at the same time maintaining our pipeline of new game products for our player HD cabinets in the field.

Beyond Core, we also received very positive feedback for new products such as our Jackpot Jump series of premium progressive games and the Super Jackpot series progressive, which is a mechanical reel bank solution.

I believe these new products prove to our customers that we are now leveraging our larger game development teams to develop new games and products that will add value to their slot floors. Jackpot Jump is an excellent example of our approach to enhancing the value of our tournament solution while it's in revenue mode.

By adding new Jackpot functionality to existing banks of games, we expect that our customers will benefit from increased revenue. In addition this will provide the company with the opportunity for new revenues from our established tournament customer base.

We also received widespread interest in our other tournament innovation, including the Fruit Ninja branded skill-based tournament game. Now this purely skill-based functionality demonstrated to our customers the thoughtful approach that we're taking with game content development.

Fruit Ninja tournament enables everyone of our existing tournament customers to test player interest in skill-based gaming options today by making it available as an out of revenue tournament future our customers don't have to wait for regulatory approvals to test the promise that skill-based gaming can offer.

Of course we've also developed a standalone version of a fruit ninja gambling game with some unique features for our casino operators. The standalone version also provides players added reward for their skill and bonus rounds.

It also incorporates features that will allow our casino operators to toggle the skill-based aspects up or down or eliminate them entirely so that the game can be marketed and sold in jurisdictions that are not ready for skill-based gaming.

We expect these new features and games to be well received by players and our casino customers following their approval and commercial release, which should be ongoing throughout 2017. We are also very conscious of the need to create new features for every game that are already in the field.

We know that we must continue to innovate in order to preserve our customer's commitment to our solutions and to also benefit the future results of our installed base of leased games. We continuously innovate and supply new content to support the over 13,000 units in our installed base, which generated share of revenue or fixed daily feed to Everi.

We also provide game refresh options to many of our customers who have purchased an additional approximately 15,000 units. At G2E this year we demonstrated some very unique new hardware features that can be integrated with our existing sold or leased games already on the casino floor to enhance the game performance.

Some product options like our new foundation signed packages and our game crown help attract players to our games or game banks, while other features provide additional game play enhancements such as our new Tower 370 Top Box Wheel option. We've designed these products to refresh our Player HD and Player SLX cabinets.

The key takeaway beyond the names and features of all these new products and I'll highlight our new licensed products in a moment as well is the phenomenal new advancements that we continue to make in enhancing our overall games and product portfolio.

We're being thoughtful in our development process and based on widely positive customer feedback at G2E, I believe our game development teams are producing some of the best games and features that our company has ever released.

Now given the sensory overload that electronic gaming machines can cause for anybody who is walking the show floor G2E it certainly can seem at times like games are always on center stage. I do not want my discussion of our game offerings today to diminish in any way the product advancements that we are also making in our payments business.

At G2E our newest payment solutions were also very well received by the show attendees and our customers.

Our casino customers who come to expect that we will be the market leader with both innovative payments technology and in the development of solutions that provide patron access to funds and the ability to easily move those funds around the casino floor.

Our goal is to help our customers operate at peak efficiency and I think G2E further exemplified our continuing commitment to meeting this goal. Some of the highlights of our efforts in making casino floors more efficient include the Cash Club Wallet, Jackpot Express and the Everi ID Gateway.

The Cash Club Wallet is an extension of our cash club payments platform and our exchange kiosks that offer and eMobile or a mobile eWallet solution. This product can be rolled out to the existing footprint of cash club and kiosks that already reside on the floors of hundreds of casino operators.

Jackpot Express provides a full end-to-end jackpot and tax form processing solution through a kiosk or a mobile device. This includes preparation of the Form W-2G and Form 1042S, which are required to report taxable winnings to the internal revenue service.

These features allow for more rapid customer service to patrons directly at the gaming machine as well as automating and changing what is currently a very manual labor intensive process into a seamless paperless process for casino staff.

Everi ID is an enhancement to our compliance product that provides for a Know Your Customer feature and an information gateway that is integrated across all of our payments product offerings, including Everi compliance, cash club, central credit and our new eWallet.

Now we expand our product library, our next priority is to increase our distribution capabilities. We continue to make solid progress with our new game approval process, which has been tailored to ensure that games move more efficiently from the testing phase to the trial phase and on to the revenue phase.

As previously mentioned, in the third quarter, we had a sale of 200 units to the Alberta Gaming and Liquor Commission. We have delivered and placed the majority of the participation units that we will also install at facilities in the province this year. Our efforts in Canada are very encouraging.

Currently Canada represents approximately 10% of the total North American electronic gaming machine install base. To date we have only placed approximately one half of 1% of the total games in the Canadian provinces. We believe that Canada will offer us a meaningful opportunity for expansion in both unit sales and least game placements.

Of the 10 Canadian provinces, Everi currently has jurisdictional licenses to operate in six and we expect to obtain two additional licenses in the first half of 2017. The remaining two provinces represent less than 3,000 total installed units and we will look to expand into those markets as specific customer opportunities arise.

We continue to submit product through the regulatory bodies in these new markets, which upon approval will allow us to sell quickly into these jurisdictions. We had previously announced that we received our jurisdictional license approvals in West Virginia, Colorado and most recently in Missouri.

We also now have approved content for sale or placement in each of those jurisdictions. During the third quarter we had initial sales in West Virginia and Colorado and have seen our installed base grow as a result of approximately 60 new unit placements in Colorado.

Subsequent to the end of the third quarter, we've had our first game sales in Missouri and expect to close the quarter with several more units that are currently on trial, converting to sale. Additionally, we expect to close on our first Missouri tournament sale, which will be configured our core HDX cabinets.

We believe that we're well-positioned to capitalize on the potential for new revenue in these markets during the 2017 capital cycle. Our third priority is our enterprise-wide cost analysis with an eye towards operating efficiencies and cost containment.

We continue to make progress identifying areas where we can right size our cost structure and we’re beginning to implement these measures. Now one notable item that will occur in the fourth quarter of 2016 is our decision to consolidate all of our gaming machine manufacturing operation to our Austin facility.

This will help reduce manufacturing costs in 2017 and allows greater focus on achieving efficiencies in our processes, which will ultimately improve future margins. In the fourth quarter there will be one time cash and non-cash charges as we exit our Las Vegas manufacturing operations, which Randy will describe for you in more detail.

We have also recently created a dedicated gaming operations team within the company. It is focused on using the key drivers of our gaming operations business to increase efficiency and win per unit per day in our deployment strategy within our installed base.

This group evaluates the unit placements on the gaming floor including the saturation of games in our installed base along with analytics regarding the daily performance of installed games to develop an actionable plan. This plan has been implemented to stabilize and improve the daily win per unit at our customer's locations.

We believe that these efforts along with some additional new product strategies like our Tower 370, our game crown, our foundation sign packages and our new licensed and non-licensed game content will help us improve our productivity with customers.

These tools will also play an integral role in helping us to make informed decisions on how we deploy CapEx to benefit our customers and generate an appropriate return on our own installed base investments. Our fourth strategic priority is the development of games that leverage new licensed and branded properties.

Those of you that met with us G2E know that this is an initiative that we are very passionate about. Our games business has a national footprint covering both commercial and tribal jurisdictions.

One of the product segments within this footprint that we've historically not participated in relates to branded content that immediately resonates with casinos patrons. We think it is critical to address this very important segment of the casino floor.

We will selectively use licensed branded games that can leverage the recognition and familiarity of the brands to increase both customer attraction and timeline device. Branded titles also open up our ability to target more attractive economic and pricing models for our participation games that ultimately drive higher yield.

G2E was our coming-out party for this initiative A highlight for us the show and for a very large number of our native American casino customers was the debut of our wide area progresses, that we expect to introduce into the Class II market in 2017.

The white area progressive jackpot will initially be featured on our license games themes of Casablanca and Penn & Teller and will reside on our new Empire MPX cabinet.

We also expect to provide a wide area progressive on our mechanical spinning reel products called jackpot locked down, driven our experience and overall expertise with Class II game development and our presence in the Class II market we think the Class II wide area progressive will be very well received by our tribal customers and their players.

There is a need in the Class II market right now for more games tied to a wide area progressive.

We know that with their large potential jackpots, white area progressives are very attractive to a broad segment of casino slot players when our Casablanca and Penn & Teller games are approved which we currently anticipate will be in the first half of 2017 will have the only Class II wide area progressives featuring popular branded content.

Our game developers did a terrific job in capturing the essence of the distinctly unique entertainment value of both of these brands while leveraging the advanced features of the new Empire MPX cabinet. They have created truly engaging and entertaining games and we’re very excited to innovate in the Class II product segment.

We look forward to our first placements next year. I earlier mentioned that Fruit ninja will also be available as a skill based tournament game and we will bring out the Fruit ninja standalone premium participation games with those unique skill-based gaming features in 2017 as well.

We should also expect this to debut for license game themes that are based on DreamWorks animation properties. These will be featured on a number of our cabinets including the core HDX, our premium high-rise cabinet, the player HD cabinet and for the first time ever on our three reel mechanical skyline series.

These products should be approved throughout 2017 with our first titles launching in the first quarter. Our final strategic priority is to establish new revenue growth by increasing game sales and placements through the integration of our games and payments products.

at G2E we demonstrated new solutions that offer casinos additional patron value and unique revenue opportunities at their Everi gaming or payments devices as well as across the entire gaming floor.

We demonstrated two new products to a limited number of our customers to get their input and reaction as to how we integrate both our payments and games capabilities for a casino and its patron's benefits. We continue to refine these products and will seek additional comments from our customers as we look to bring these products to the marketplace.

And in conclusion let me say that overall we are pleased with the pace of execution against each of our strategic priorities and with our accomplishments today. We also recognize that we have a great deal of work ahead of us to continue to create value for our customers and our shareholders.

Given the progress that we've achieved over the last two quarters I'm confident that our successful execution will continue. I expect a result of our efforts will benefit every in the fourth quarter and into 2017. With those comments let me turn it over to Randy for some details..

Thank you, Mike and good afternoon everyone. The third quarter 2016 total revenues were $222.2 million comprised the $56.2 million in games segment revenues and $166 million in payments segment revenues. Games revenue increased approximately 4% year-over-year and payments revenue increased approximately 7% year-over-year.

Adjusted EBITDA for the third quarter was $51.6 million compared to $51.5 million a year ago. The prior-year games adjusted EBITDA included a gain of approximately $4 million from the sale of our electronic table games business. Adjusted EBITDA for game segment was $29.2 million compared to $32.2 million a year ago.

Adjusted EBITDA for the payment segment was $22.4 million compared to $19.3 million last year. In our game segment, gaming operations revenue decreased 4% year-over-year to $41.4 million. The prior-year period included $0.2 million of revenue from the operations of PokerTek which we sold the third quarter of 2015.

Year-over-year decline in gaming operations revenue primarily reflects lower daily win per unit of $27.53 compared to $28.96 last year. Partially offset by 139 unit increase in installed base compared to the prior year period.

We report our daily win per unit net of the impact of accretion some of the legacy placement deals that we had in place have new at rates that are slightly higher than the former deals resulting an increase in total accretion of approximately $0.3 million from the prior-year period.

The increased accretion spread across the slightly higher installed base is responsible for approximately $0.22 or 15% of the overall decrease in daily win per unit for the quarter because accretion is added back to our competition for adjusted EBITDA this portion of the daily win per unit variance has no impact on our reported adjusted EBITDA for the quarter.

Remaining decline in the average daily win per unit is primarily the result of the dynamic we had discussed it before which we are managing through the removals of high-performing third-party Class III units which we are in part replacing with our Class II units.

Based on our current expectations the timing and number of third-party class removals and the expected offset as a result replacement of some of these units with our Class II games. We believe this will continue to impact daily win per unit in the fourth quarter and in the first half of 2017.

We still expect to continue to place new unit outside of Oklahoma to offset the units loss. There are daily win per unit is still expected to decline from the overall loss of the third party games. We expect to work through the majority of the remaining higher performing third-party games in the first half of 2017.

It should be able to stabilize our daily win per unit in the second half of next year.

Stabilizing our daily win per unit will depend on our ability to realize returns from the investments made in our game development, the execution of our gaming operations team which Mike discussed earlier as well as the ability to place branded content and our Class II wide area progressive in the marketplace.

The third quarter our installed base increased 139 units from the prior year quarter and by a 108 units from June 30, 2016. Our premium installed base increased by 192 units year-over-year and by 31 units from the end of the second quarter.

Revenue from our New York lottery operations increased by approximately $0.1 million year-over-year to $4.6 million. At the end of the third quarter, our installed base was 13,287 units comprised of 7,238 units in Oklahoma and 6,049 units outside of Oklahoma.

Our Oklahoma installed base is down by 465 units year-over-year reflecting the factors which we have discussed previously but down only 35 units on a sequential basis. Our non-Oklahoma installed base is up 604 units year-over-year and 143 units on a quarterly sequential basis. Installed base included 7,908 Class II units and 5,379 Class III units.

Of the Class III units 1,677 were third-party games which represent decline of 222 units sequentially and 877 units since year-end. We expect third-party Class III units to continue to decline in the fourth quarter and throughout the first half of 2017.

We expect approximately 850 third-party Class III games will come out of our installed base during this period.

Our goal is to replace as many of these units with our Class II games is possible we expect to offset these losses outside of Oklahoma in new and existing markets with other customers when our new premium branded content has been commercially introduced and we have obtained the approval and introduction of our Class II wide area progresses we expect to be in a position to see improvements in both our unit count placements and daily win per unit across our portfolio.

We believe our trend of facing games outside of Oklahoma will also continue, these units typically have a higher daily win per unit. Revenue from electronic game sales grew approximately 37% to $14.8 million for the three months ended September 30, 2016.

We showed 783 units at an average price of 17,258 compared to 587 units sold in the third quarter of last year at an average price of 15,516.

Unit sales in ASP benefited from our higher priced core HDX units which made up almost 78% of the third quarter 2016 unit sales with 200 of those core units also being higher-priced tournament units sold to the AGLC, if you want to highlight that this 200 unit sale with the largest quarterly sale of new units to a single customer in our history and as a result there was some volume discounting that impacted adjusted EBITDA margin in the quarter.

Inclusive of the LGC unit sales, the higher price tournament units comprised 29% of unit sales in the third quarter of 2016 compared to 11% of unit sales in the 2015 third quarter. As we enter new markets and complete sales in these markets tournament may make up a larger percentage of the total of the initial total unit sales.

Over time however we would expect to see the percentage of tournament machine sales as a percentage of total sales to decline. We entered the third quarter of 2016 with 350 units on trial, the trial term for these units will end in the fourth quarter at which time they should either convert to a sale.

A lease placement or be removed and offered to other customers. Overall adjusted EBITDA margin for the game segment declined to 51.9% in the 2016 third quarter compared to 59.7% in the prior-year period.

The decrease in adjusted EBITDA margin was primarily due to the impact of a $4 million gain we realized in the third quarter of 2015 from the sale of our former PokerTek operations. As well as the impact of the lower margin Alberta tournament unit sales in the third quarter of 2016.

We expect full year 2016 adjusted EBITDA margin for the game segment to be in the 50% to 55% range. For our payment segment the 7% year-over-year increase in revenue was driven primarily by increased ATM transactions from the acquisition of certain ATM portfolios in the third and fourth quarter of 2015.

We continue to experience same store growth in dollars processed. Additionally we experienced growth in revenue from surcharge increases initiated by several large corporate casino customers. Our overall revenue growth was partially offset for the loss of the customer in the fourth quarter 2015.

Overall adjusted EBITDA for the payment segment was 13.5% for the quarter ended September 2016 compared to 12.4% for the quarter ended September 2015. The main driver of the margin improvement was a reduction in operating expenses primarily due to higher legal fees in the prior-year quarter.

In addition to higher ATM commissions in part due to increased surcharges by certain casino customers as well as the acquired ATM portfolios negatively impacted the adjusted EBITDA margin for the three months ended September 30, 2016. Payments operating results in the third quarter 2016 benefited from several key items.

We continue to see growth in year-over-year cash the floor and transactions. Same-store cash to floor our best indicator of industry trends increased approximately 5% year-over-year this is the eight consecutive quarter of growth in both same store transactions and same store dollars to the floor.

The third quarter 2016 we continue to see the more normalized mix of signature-based transactions compared to PIN-based debit transactions that we referenced on our second quarter call. Although kiosk unit sales were down for the quarter as compared to the prior year period, unit sales did improve compared to Q1.

This is in line with our previously provided guidance. Compliance revenue was up compared to both the prior-year quarter and to Q1 and Q2 of 2016. We are now beginning to see the increased interest in our higher margin compliance solutions that we anticipated earlier in the year.

Moving on to the balance sheet as of September 30, 2016 our long term debt was $1.153 billion and we had no amounts outstanding under our revolving credit facility. During the third quarter will repaid $2.5 million on our term loan.

The weighted average interest rate on our long term debt was 7.68% as of the close of the third quarter and in the three months ended September 30, 2016 we amortized approximately $1.7 million of capitalized debt issuance cost in the interest expense. The company was in compliance with its debt covenants as of September 30.

Our senior leverage under the definition of the credit agreement was under four times adjusted EBITDA as compared to the maximum senior leverage of 4.5 times adjusted EBITDA. Our maximum senior leverage ratio 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 purpose of the competition this interest is treated as an operating expense and therefore is not excluded from the credit agreements definition of adjusted EBITDA.

This interest expense is based upon three month LIBOR and we are able to pass the portion of this cost to certain customers through a reduction in commission payments once LIBOR exceeds the contractual threshold. We have been proactively managing the cash levels and the volume of cash sales in our ATMs to minimize the cost providing cash in our ATMs.

As a result we now expect our interest on the Wells Fargo cash solutions agreement to be approximately $3.1 million for the 12 months ended December 31, 2016. As of December 31, 2016, our outstanding balance of ATM cash utilized by us from Wells Fargo was approximately $212.2 million.

The third quarter capital expenditures were approximately $20.5 million, capital expenditures for our game segment were approximately $19.1 million of which approximately $11.1 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 an installed base unit or unit sale.

Capital expenditures for our game segment reflect a higher percentage of payroll and related development cost being capitalized and the impact of the core HDX unit was continues to drive additional lease unit replacements and expansions as well as an increase in trial units.

Let me provide a few key additional metrics we are modeling for the fourth quarter and full-year. We continue to expect that fourth quarter unit sales will exceed unit sales in a year ago period. We also expect our installed base will be relatively flat to modestly higher at quarter end compared installed base at September 30.

This is within our expectation that the yearend install base will be in line with 2015 yearend install base by the declines we had in Q1. Ability to manage any third party Class III unit removals replacement of our Class II games as I mentioned earlier as well as our further expansion outside of Oklahoma drive this expectation.

Our payments business should continue to benefit from the ongoing improvement in cash to the floor and overall second half Kiosk sales should be above the first half of the year sales.

In addition as Mike noted earlier, the plan consolidation of our manufacturing operations will result expenditures in other non-cash base expense accruals are approximately 750,000 in the fourth quarter.

These expenses are primarily related to early lease termination costs, severance costs and expense to move existing inventory and manufacturing assets to our Austin facility. The resulting savings in 2017 and on annualized basis is expected to approximate $1 million.

We expect total interest expense for 2016 will be approximately $100 million including interest on both cash of approximately $3.1 million and approximately $6.7 million in non-cash amortization of capitalized interest costs.

Based on new unit placed into our installed base continued replacement of third-party Class III games in our installed base and the normal replacement of aged equipment in the fourth quarter we expect capital expenditures for the year will exceed $90 million.

This is important to note that we expect to replace a large portion of third-party Class III games removals with our Class II games and our expectation of capital expenditures and excess of $90 reflects the netting of the proceeds we have received from the sale of the aircraft of approximately $4.6 million and tenant improvement reimbursements of approximately $2 million.

Additionally this expectation continue to include approximately $11 million in placement fees paid in the first half of 2016 and roughly $10 million in capital expenditures related to our payments business. As a result we expect the amortization expense of $94 million $95 million and depreciation expense of $49 million to $51 million in 2016.

Finally I wanted to mention that we are in the process of completing our budget for 2017 well you not have any guidance to provide related to about two 2017, if you want to make note of our expectation of realizing a positive impact from the investments we made in our business our focus on rightsizing the cost structure of our business operations and our execution against our stated strategic priorities.

This positive impact should occur in spite of the headwinds we have mentioned related to third-party Class III removals and the declining daily win per unit. We will provide our full-year guidance for 2017 in the first quarter of next year. With that I will now turn the call back to the operator..

Thank you. [Operator Instructions] And we’ll take our first question from John Davis of Stifel. Please go ahead..

Hey, good afternoon guys.

First one to hit on the payments business so I guess revenue and EBITDA margin were better than are expecting Randy and Mike maybe if you could just touch on what drove the better revenue growth and as the margin better margin all the kiosk sales or is there anything else going on account what would you expect going forward?.

So again John I think that the revenue increase still you're seeing the impact of one the ATM portfolios. Two, that we acquired last year to just the same store growth continues to be there. We saw little bit of uptick even in the cash advance side, even though we had lost the major customer last year.

So those things really drove, it's really the ATM the drive the major revenue growth. On the margin they said, I think part of it is managing expenses as well as, really the compliance and kiosks, margins in the quarter. So, I think all of those it really contributed to an overall better margin for the payments for the quarter..

Okay. So on a go-forward basis you guys still think between 2012 and 2013 or….

Yes, I still think between '12 and '13 is the right answer, look it was very big quarter from that margin standpoint, but I still think that maybe it's a little bit on the higher end of '12 but that I'll be a 13.5 every quarter going forward. We still see -- that is still competitive as new conference come up and we're always pushed on margin..

Okay. No that's helpful and may be next if I could just skip over to the yield, I guess I totally appreciate the impact of the third-party games, but if you were to kind of ex out the third-party on a core basis are you seeing any improvement in yield or just think from the new core HDX, hopefully that would be a positive tailwind.

So once we get rid of these games, we can actually see stabilized positive trends, any comments there will be helpful?.

Yes, I think what we’re seeing that the best improvement is Class II outside of Oklahoma. We have seen improvement there.

We still have big footprint in Oklahoma and still have -- with a big footprint in place we’ve significant amount of machines you have a little bit of saturation issues to be aware, but I think we have seen a nice improvement outside and that's why we continued to focus on, and focus on inside Oklahoma because it's our big footprint, but continue to want to place outside of Oklahoma as well..

Okay. And then maybe more of a housekeeping clarification question, I think Kiosk have 1,677 Class III units third-party units in Oklahoma. You said it was down 222 units from last quarter and you expect it to be down another 850 by the midpoint of next year.

I'm just trying to foot that with the 1600 or 1700 and only losing 850 by midpoint, did I miss something or can you clarify that?.

What I would clarify is that, we know that we have a certain amount that are going to come out primarily with certain customers and not all the customer have gone to out those classroom. So it's a subset of that.

So I think the remaining will be under a 1,000 will be a very small amount, but we’ve not had as much pressure to pull into other ones out other than the 850 that we really then identified..

Okay. So the 1700 units are going way it's really just the 850, okay. That’s perfect. .

That’s correct. That we’ve been told so far. So that’s correct..

Okay and then maybe just to hit on guidance just a little bit on my math it looks like, full year is going to be somewhere call it north of 194 and 195 just want to confirm that in terms of EBITDA and then comment on positive impact from investments I assume obviously when asking for detailed 2017 guidance here but I assume that means you guys think you can grow EBITDA in 2017 just to clarify.

.

Yes, well John I mean we wouldn’t made the investments and we certainly wouldn't have brought out the variety of new products and features that we exhibited at G2E we didn't think those would ultimately grow EBITDA for us and we’re still working on our 2017 budget and were as we build that up and get a better feel for it.

We think in the first quarter of next year will be a able to give a better feel to everybody as to what we think it will be in terms of guidance for next year. .

Okay and last one for me Canada, the two new licenses could you just give a relative size of the market that those two licenses [indiscernible] versus I think you gave a size of the two that you're not getting kind of the near-term but just that will take you to roughly what percent of the market would you have there as far as licensed. .

It’s about 30,000 machines in those two markets combined so it’s – sized,.

Okay that's it for me. Thanks guys. .

Yes, thanks John..

And we’ll take our next question from David Katz of Telsey Group. Please go ahead. .

Hi, evening all or afternoon all so, Mike you went through a fair amount of new product much of which we did see a G2E what kind of testing results or measurements do you have or feedback either qualitative or quantitative on some of that new product that would give us some color around your comfort that they're going to gain some traction.

Obviously, you’re not going to about 1,000 but, just talking through some of the feedback that you might have or some measurements would really help..

And it will be David as I know you’re aware, it will be anecdotal and at this point principally qualitative because we don't have enough field information to give any quantitative guidance on how we think they're going to do, but I can tell you that we had significant customer interest in a variety of these products.

To the point with respect to at least one of them that we have started receiving great pushback on how we’re going to price and how we model that pricing into the marketplace whether it be a lease or whether it's going to be an outright sale.

And you don't start seeing that kind of pushback on either devices or features unless you know that your customers are very excited about the prospects and would much prefer to own than lease it from you.

And we receive that kind of feedback throughout the show on a on a variety of different products and features and I frankly think that from my experiences at decades of G2E's and other tradeshows, we receive the kind of feedback that I think is qualitatively the feedback that you want to get from your customers because you're never going to -- you just don't make sales off the floor, you don’t sign contracts on the floor as you get expressions of interest and we received significant expressions of interest.

So I felt very good about it..

Right and one of the observations around Fruit Ninja within the tournament model, in terms of how you are, at least your rack rate pricing on something like that are you anywhere near a point where you can start to push back on price?.

Yes, we haven’t introduced those two -- the pricing models yet to the customer base and part of the way that you will do is you'll set your pricing, you’ll talk to some of your customers and we have our first customer advisory board starting next month, I am sorry, later this month to come in and look at what we're thinking at and give us their views and these are all people that are experienced in the industry and understand the needs of both their casinos, but also the manufactures who supply them.

And we’ll start getting that feedback and then we'll start finalizing what our pricing look like throughout the end of the of the year and then we'll start with that pricing in 2017..

Got it. And just going back to the decision to consolidate into Austin and I have been to that facility in Austin. So I think I might know the answer as to why you would choose to consolidate in there rather than Las Vegas where no other companies do their manufacturing..

Well, and you’re right you know from having seen it, we have an excellent manufacturing assembly plant in Austin that has unused capacity and certain is capable of manufacturing everything that we need at least in the near future and the idea of trying to replicate all or part of that in Las Vegas in an area where we do have other manufacturers would be competing with us for the individuals that have experience in and understand how to do this kind of manufacturing assembly.

I just didn't make any sense and I think that's probably best exhibited by the fact that none of the major manufacturers are operating on to U.S. manufacturing facilities present time because they don’t need too.

They can operate out of one just as we can so for us it was, it was a pretty easy move to decide upon and the little more difficult to actually get into place and get done by the end of the year. .

Okay and you do that by the end of the year and that should I apologize if you told us but lot of information the, the margin benefit that you get from that next year is it did you have you measure that from?.

From margin standpoint no David but about a $1 million in the cost savings going forward on an annualized basis. .

Got it.

Last one for me as on the Class II progressive front that is, did I hear correctly that that's going to be in the field by early next year?.

We’ll have some titles in the field by early next year. We anticipate the Class II wider progressive probably second quarter of next year that we'll start introducing it..

I see and what kind of feedback have you gotten on that product because as I recall there is only one other that I -- that was available that I saw at G2E..

Right that's my understanding as well. We have with these two products not only will they be the next wide area progressives in the Class II market. They will be the only ones that are branded with a licensed brand and theme that is recognizable to players.

And frankly we got great feedback on the way that both Penn & Teller and Casablanca played the way their bonus rounds operated and actually use the unique aspects of both Penn & Teller and the film Casablanca to give an entertaining experience to the customer during the bonus rounds as well as during just usual game play.

So yes, I'm very excited about bringing these two markets seeing how they do in Class II?.

Got it. That's it for me. I’ll give someone else a chance..

Thanks David..

And we’ll take our next question from George Sutton of Craig and Hallum..

Hi guys afternoon. It's Jason on for George.

A couple for me and I just wanted to piggyback on one of the earlier questions but given that this coming season will be your first foray into licensed games just wondering if you can give some thoughts specifically on what the reaction was following G2E on the license product and how you expect the pipeline for license and will if you expect to see more license content coming later in here.

As you go forward..

Sure, the feedback was all very positive and in fact a lot of the feedback was around on moving the timing and trying to get the various products with themes on them and licensed themes on them out faster than, frankly that we can do through given all regulatory approvals and everything else that has to be done out and completing all of the development that needs to be done.

So I was very excited about that and I think our customers were excited about the themes.

Frankly depending on how these themes do throughout the course of 2017 were already looking at other brands and other titles that we think are important and that can that also can move the needle for us and so as we deploy these were also going to be looking to, to get more licenses in our portfolio that we can use. .

Perfect. Thanks.

You talked about a lot of different jurisdictions that you've been approved or things where you're looking to become approved and can you would lay out your thoughts on 2017 as far as what you think these could potentially add?.

I don’t think we very quantified we think add, I think what we know we have Missouri coming in and we’ve some of that in the fourth quarter and into that second half the 2017 the new provinces and Canada will be probably be in '17.

So, it’s hard to say exactly what they produce for us but we still think there's -- that’s Greenfield for us and as well as potentially not turn that product..

I guess, let me ask that differently, can you maybe handicap those new jurisdictions and where you see the biggest opportunities..

I would think that Missouri is still our biggest opportunity but the two provinces in Canada probably are turning close to that combined as well.

So they're both still very good opportunities for us and Colorado continues to be something that we make strides in it's a process you start and you continue to bring your product out, but clearly Missouri and the provinces are brand new for us..

Okay.

Last for me Randy, you digging into these daily win rates, can you talk and can you quantify like a floor thinking about what the potential floor would be as some of that product gets moved out?.

Florida is a couple of things, one is it does fluctuate quarter-to-quarter.

Fourth quarter is a lower game ops quarter just because you have Thanksgiving and you've got Christmas there and then generally as you go into the first quarter, you get an uptick so, I can't tell you we’re at 20 whatever and it is going to be 20 and that’s we're at because part of that has just -- it’s a function of the time period that you’re comparing.

What I am really looking at it is that we'll see some decline. We believe we'll offset that with putting new units out there and then we think once those units come out, we'll have -- will hit floor and I really -- when I see the floor as stabilized compared to the prior year quarter.

So it's just not an easy thing for me to and we've always said look generally in Oklahoma, it's a lower win per day per unit. So that more we can place outside of Oklahoma, the better off better off we are or vice versa improve our performance in Oklahoma which we're just as focused as well because it's a big market for us.

So I know you want more clarity it's just hard for me to do because I see a lot of different factors and it's really you got to look at quarter-to-quarter, year-over-year..

And Jason part of what makes it even more difficult for Randy and I have to give you a view on that is, we got a gaming operations unit starting up, it's going to be dedicated to exactly that issue and that is stabilizing it, stopping it from coming down and then ultimately moving it in the other direction.

So between that unit and its use of analytics and new products to try and improve our existing book of machines and the overall issues that you have in the fourth quarter as any operator does when you have those two large holidays it’s just difficult for us to get to a number for you..

I understand but I certainly appreciate the additional color. So thanks for taking the questions.

Sure, no problem. Jason take care..

And we’ll take our next question from David Hargreaves from Stifel Financial. Please go ahead. .

Hi, yes nice quarter.

Would you -- if you were to take out the Alberta sale what would average selling price would look like?.

Hard for me to say, David. I don't have it off the top of my head. I don't know that it would have been dramatically different. I think it would've been a little bit lower because there were -- alternative machines. So it would have been slightly lower but I couldn't tell you off top of my head..

So when you say that there was discounting wasn't on the order of double-digit percent type discounting or….

Well, you got to remember it's not only the price but there's also more cost that are associated with the tournament. So if you bring that cost, you bring the price down, the cost doesn’t change. So it impacts on both sides. As because they have more, you got the controllers and you got other items that go into the overall tournament games.

So if you discount a little bit on price it is going to impact margin..

In terms of daily win per unit, I think you said you expected it to be down slightly in Q4.

Should we expect a rate of decline similar to what we saw in this quarter or something little more or little less?.

Again it's hard for me to judge. Again it depends on the timing and how many of the Class, the third party gains come out, when they come out, how they’re performing and also depends on where weak places because, do expect to replace as many of those as we can and we expect to place them outside of there.

So I haven’t really looked at it from that standpoint.

It's looked like an overall that I know that will be down slightly in comparison just hard for me to me -- just take as part of it is we’ve had a number of those come out in the first nine months of this year, were down 877 or third-party games are some of just to grow over issues well so, it’s got a couple of different factors I really can't at this point tell you how much I think it’s going to be a win per day.

.

If we were to go ahead and assume a number like the third quarter that wouldn't be a crazy assumption – is based on we have…..

I would agree.

Yes, I mean we just remember Q4 just make sure you're doing, you're comparing Q4 this year to Q4 last year because it’s always going to be down in comparison and I’m saying David so just make sure when you’re looking at it, you look at the revenues that we drove last year in that quarter and the win per unit in that quarter now that you want to compare to, because fourth quarter will generally be down compared to Q3..

And could you remind me, I apologies I should probably know this, but why they're taking these Class III units out if they're high performing units, it's just that there more expensive and they're focused on cost cutting or….

Well, I’ll walk you through -- better if you asked this question again the major -- one of our major customers in Oklahoma looks at us as a Class II provider. They want us to provide better Class II games.

These third party games are getting older and they're going to use other parties to do the financing for those third party games, they let multimedia do that years ago when they came into the class when there was a change in Oklahoma to go to Class III and multimedia didn't have it.

So they allowed multimedia actually go out and buy games from other suppliers and lease them that was always with the intention that this was just to help multimedia and over time they wanted multimedia to be one of their major Class II providers.

So as these machines got older even though they perform well, they’re looking for a newer stuff and they're not going to look to us to that. They have other relationships that they utilize to put those in.

So, I know it's a little bit frustrating to people but it's just -- it's part of the dynamics of the casino operators that we work with and the partners that we have in those locations and they've made it very clear we need to be focused on Class II.

We need to perform better in Class II and as they want to replace those, they're going to replace them and we won’t be allowed to be the people or the company that does that..

There is a tax saving element too isn’t there changing over to Class II for them?.

Yes, they would rather -- that’s why I love, that’s why they want to Class II to perform better because there's no gaming tax in the Class II, there is in the Class III. So the better the Class II can perform, the more profit they obviously make the type of customers..

Currently how much customer concentration do you have? How bigger your top couple of customers as a percent of revenue for the company?.

We never really provided that detail on a customer-by-customer basis and I will be really frightened look we have a high concentration Oklahoma itself, but customer by customer basis don't really provide the information..

In terms of the Casablanca and Penn & Teller machines which look great by the way, I think when I'd spoken to you guys last you'd said kind of Q1-ish and now it is there been slippage and when you think they’re going to be approve there. Is that….

No, yeah, if somebody said that to you that was a mistake because it's been on schedule all along to be ready for laboratory approvals in the second quarter and we would then start distributing and as we do we'll probably start seeing the benefits of it principally in the third and fourth quarters because we'll be doing a lot of the distribution in the second quarter.

We have other games -- some of our other licensed games from DreamWorks that are going to be in the first quarter and that may have been what someone was referring to. So you'll see, you'll see some of those come out in the first quarter and so we should -- we expect to start seeing those more quickly than we see the wider assets..

And then looking to the Canada opportunity how is it different selling into the Canadian Government because as the government buy the machines or am I right about that and….

In most provinces that's correct, the government buys the machine, In some provinces you have to -- you have to first get your jurisdictional approval and then they approved on a list of selected vendors they can sell in that province and they then let the actual operators that are operating on behalf of the government to select devices in other areas its government itself that’s running the operations, they don't use third parties for purposes of selecting devices and they’ll make the decisions themselves..

Thank you very much. .

Thanks David..

Yes, thanks David..

That concludes today's question-and-answer session. Mr. Randy Taylor, at this time I’d like to turn the conference back over to you for any additional or closing remarks. .

I would just like to thank everybody for joining us this afternoon and we look forward to discussing early next year sometime talk again in '17. Thank you..

Thanks everyone..

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