Mark LaBay - SVP, Strategic Development and Investor Relations Michael Rumbolz - CEO, President and Director Randy Taylor - CFO and EVP.

John Davis - Stifel, Nicolaus & Company David Katz - Telsey Advisory Group George Sutton - Craig-Hallum Capital Group David Hargreaves - Stifel.

Welcome to the Everi Holdings, Inc. First Quarter 2017 Earnings Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mark Labay, Senior Vice President, Strategic Development and Investor Relations..

Thank you, Ebony 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'd 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 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 requires us to comply with the consolidated secured leverage ratio that includes performance metrics substantially similar to adjusted EBITDA.

For a full reconciliation of these non-GAAP measures to GAAP results, please see our earnings press release and related 8-K, both of which have been filed with the SEC and are available on our corporate website within the section captioned Investors.

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 our 2017 first quarter results and announced the completion of the refinancing of our senior secured debt.

I'm extremely pleased that we have finished this refinancing transaction since it's yet another step toward improving our cash flow for debt repayment as well as improving our financial flexibility. Both Randy and I will talk more about this debt transaction a bit later.

With respect to our first quarter operating results, we reported revenues of $237.5 million and adjusted EBITDA of $54.2 million. Our quarterly revenues were at the upper end of the range that we provided when we previewed the quarter's result on April 10 and our quarterly adjusted EBITDA was slightly above the range given.

The key takeaway from our first quarter is the consistency with which we're executing against our strategic priorities. We've made steady progress for 4 consecutive quarters since implementing our operating initiatives.

This progress is certainly visible in our financial results, but I can tell you that it's also notable in many areas that are not as visible to analysts and shareholders.

These areas include the progress that we've made in the way we work and engage with our customers across both business segments, in our game developing initiatives, in our product approval processes, in manufacturing and assembly and in our cost-containment efforts.

Many of the most -- may be in fact, the most important progress that we've made over the last year, is the change in our company culture.

I believe that we've established a spirit of collaboration and created an environment where employees know our company-wide goals and understand how their individual contributions lead to the achievement of those goals.

I said on our fourth quarter call 2 months ago that the steady execution against our strategic initiatives has brought stability to the organization and that is certainly true.

But what is also true is that across the company our team members have executed in a manner that has significantly strengthened our platform to achieve consistent, long term success and growth. You can see the effects of their hard work in the financial results that we've achieved over the last several quarters.

Now let me review a few highlights that are key from our first quarter and some of the more recent developments. I'll start with our Payments segment which clearly had a very strong quarter, particularly as you look at the year-over-year performance.

Now while this was an excellent quarter, there really was not any one singular part of the business that stands out on its own as the key driver. In fact, our performance was more of a result of our execution upon our broad base of strategic initiatives.

We remain a beneficiary of positive macroeconomic trends in our economy, such as higher regional groSmart Safe gaming revenue which has translated into continued same-store growth. We've also benefited from new casino openings, such as the recent opening of National Harbor and from our ability to win new business, as a result of competitive takeouts.

We also saw benefits from the expansion of our services into new markets, such as the introduction of ATM services in 29 properties across Canada. Compliance revenue in the first quarter of 2017 was the highest quarterly total in the company's history. We've made a lot of progress in building awareness and demand for our compliance solutions.

I expect to see continued strength in our performance on a year-over-year basis throughout 2017 since our second quarter pipeline for new compliance installations remains strong. Our commitment to continually innovate in our product suite and focus on our customers' needs, has enabled Everi to maintain its payments market leadership position.

We believe this combination is powerful and positions our Payments segment to continue to achieve growth in the future. Turning now to our Games segment. We had an excellent quarter of unit sales as we sold over 1,000 games while holding average selling price at approximately $17,000 per unit.

This was a direct reflection of the work of our game development teams. We're continuing to raise the bar on the level of innovation and entertainment in our games which is helping to drive more engagement with the slot player.

This is what our customer casinos want us to do and I think we're on the right track to continue to develop new games that casino patrons want to play. We've talked over the last several quarters about the challenges related to our third-party Class III games primarily located with one customer in Oklahoma.

While I won't go into all the details, again I will say, that even as we've removed over 900 of these units since the end of the first quarter of 2016, we've still grown our overall installed base on a year-over-year basis. Our Class II installed base and our non-Oklahoma installed base both grew nearly 8% year-over-year.

Additionally, our Oklahoma installed base is only down by just over 400 units even though we removed more than 900 third-party Class III units from the market. We expect to have 1 more quarter of impact from these removals, with the last 234 units to be removed in the current quarter or early in the third quarter.

However, we do expect to replace all of these units with our own Class II games. We continue to expect our installed base at year-end 2017, will exceed the 2016 year-end installed base. One of the critical factors driving this view is the late February introduction of Jackpot Lockdown, our first Class II Wide-Area Progressive.

The link was introduced with 2 of our more popular mechanical reel titles to strong initial player and customer reaction and it has recently been expanded to additional casinos. Late this quarter, we will add Casablanca, our first video reel game with licensed content to this link, adding yet another level of excitement and engagement.

And in the third quarter, we expect to debut our Penn & Teller game for the Jackpot Lockdown Wide-Area Progressive. This introduction of our new WAP games is important as it meets the demand we know exists in Class II markets, while at the same time, it further evolves our Games portfolio and our capabilities.

In late March, we also introduced our first participation games that are based on licensed content, with Smokin' Hot Stuff and our second licensed game, Richie Rich which went live in casinos in early April.

Now while it's still a little too early to truly gauge our performance, we're pleased with the results so far and we will be expanding both of these games to additional casinos over the next several quarters. Another highlight for our leased footprint is the introduction of Jackpot Jump which is a new premium linked local area progressive.

We currently have over 40 games installed utilizing this technology and we have a robust order pipeline for Jackpot Jump that extends through the second and the third quarters. We continue to expand our capabilities as a full-service gaming equipment provider.

New products, such as Jackpot Lockdown Wide-Area Progressive, the Core HDX cabinet with dedicated game content, our new licensed games and Jackpot Jump along with some of the newer products that we'll be bringing to market over the next year or so will more fully demonstrate our game development capabilities.

Now finally, before I turn the call over to Randy for a more detailed review of the first quarter results, our updated 2017 outlook and a deeper dive into our refinancing activities, I'd like to provide a few comments on the debt refinancing.

And I especially want to congratulate Randy and his team since they spent a great deal of time in the months leading up to this transaction, evaluating our opportunities as well as the expected benefits. I could not be more pleased with the outcome and I believe that this is terrific for Everi.

This refinancing lowers our annual interest expense, extends maturities of a large portion of our debt and provides the additional financial flexibility around the minimum adjusted EBITDA we need to generate in order to remain in compliance with our new leverage covenant.

Clearly, our recent track record of focusing and executing upon our operating priorities is a major contributing factor in the confidence that the market has shown in us. Our goal has been to drive improved cash flow and this refinancing is a key part of obtaining that objective.

We expect to make additional progress in this regard in 2017 and with more significant progress to follow in 2018. With that I'll turn the call over to Randy..

Thank you, Mike and good afternoon, everyone. Before I talk about the financial results and key operating metrics for the quarter, I would like to briefly discuss the debt refinancing. This morning we completed the refinancing of our outstanding senior secured notes and first lien term loan.

We repaid the senior secured notes that had a $335 million principal balance outstanding as well as the former term loan that had an outstanding balance of approximately $462.3 million. I'm extremely pleased with the value proposition that we have been able to deliver for our stakeholders through this transaction.

We set out with several key objectives in mind and achieved those objectives. We lowered our annual interest expense which will lead to improved cash flow generation to focus on deleveraging. We also illuminated concerns related to our secured leverage covenant.

And we have extended the maturity of our senior secured debt which bolsters our capital structure.

After repaying the former outstanding senior secured debt obligations along with the associated fees and expenses for this transaction, we now have an $820 million first lien term loan with a maturity date in May 2024 and a $35 million revolving credit facility with a maturity date in May 2022.

Both have a springing maturity feature that would accelerate the maturity to 3 or 4 months inside the existing senior unsecured notes if these notes have not been refinanced before their stated maturity in January 2022. Term loans carried interest rate based on LIBOR plus 450 basis points, with a 1% LIBOR floor.

This represents a 75 basis-point reduction from the former term loan variable rates and almost 175 basis-point benefit to the current fixed rate provided by the senior secured notes. Based upon our current rates, we expect this rate reduction will result in approximately $8 million of annual cash interest savings.

Part of the negotiation of the new credit agreement, we increased our maximum covenant compliance ratio by approximately 1 full term to 5x adjusted EBITDA through September 30, 2018 and amended our definition of consolidated adjusted EBITDA to now add back to that income interest expense paid as part of our vault cash arrangement.

This provides incremental covenant compliance headroom and also aligns the covenant definition of adjusted EBITDA more closely to the definition we use in our quarterly earnings releases.

Our consolidated secured leverage ratio at March 31, utilizing the new definition in our term loan and the new outstanding term loan balance, will be approximately 3.62x adjusted EBITDA compared to a maximum senior leverage of 5x adjusted EBITDA.

We're also able to retain the ability to reduce the secured debt by up to $50 million cash on hand when calculating the leverage ratio.

These changes to our leverage calculation provides significant cushion going forward as our rolling 12-month adjusted EBITDA through September 2018 needs to be approximately $155 million or greater to remain in compliance with our leverage ratio.

In addition, the leverage ratio reduces by 25 points each year starting December 31, 2018, through December 31,2021 and remained at 4x adjusted EBITDA through the remaining term of our loan.

Finally, with the closing of this transaction, we believe we're better positioned to opportunistically evaluate options to refinance our outstanding senior unsecured notes which mature in January 2022. Now for our first quarter results.

The first quarter 2017 total revenues were $237.5 million, comprised of $55.3 million in Games segment revenues and $182.3 million in Payments segment revenues. Games revenue increased approximately 15% year-over-year and Payments revenue increased approximately 16% year-over-year.

Adjusted EBITDA for the first quarter of 2017 increased $8.4 million or 18.4% to $54.2 million compared to $45.7 million a year ago. The prior-year adjusted EBITDA included an addback of approximately $3.3 million in separation cost related to our former CEO.

Adjusted EBITDA for the Games segment was $30.1 million compared to $28.4 million a year ago and adjusted EBITDA for the Payments segment was $24.1 million compared to $17.3 million last year.

Let me quickly remind everyone that Payments' adjusted EBITDA last year was impacted by approximately $1 million in onetime processing expenses and higher-than-normal chargebacks related to the EMV fraud activity from transactions that occurred before we completed EMV upgrades at all of our locations.

In our Games segment, gaming operations revenue decreased 8% year-over-year to $36.6 million. Year-over-year decline primarily reflects lower daily win per unit of $27.17, compared to $29.10 in the first quarter of 2016. Installed base at March 31 was 13,022 units, up 65 units year-over-year.

The daily win per unit decline continues to be primarily driven by the removals of high-performing third-party Class III units and the replacement of a portion of these units with our Class II units. Partially offsetting the daily win per unit decline is improving yields from both our non-Oklahoma Class II units and proprietary Class III footprint.

We expect the third-party Class III unit removal as well as the potential for the removal of up to an additional 200 Class II units from certain tribal customers in California will continue to impact daily win per unit through the current quarter, with ongoing placements of units outside of Oklahoma partially offsetting the impact.

We expect to see smaller year-over-year declines in daily win per unit going forward before returning to growth either late this year or in early 2018. Introduction of our new Class II WAP and licensed products in the second half of the year should also help to mitigate the decline.

In the first quarter, our installed base increased 65 units year-over-year and declined 242 units on a quarterly sequential basis to 13,022 units. At March 31, we still had 1,032 third-party Class III units installed and expect 234 units will be removed this quarter or at the beginning of the third quarter.

We do expect to replace each of these units with our Class II games. At this time, we do not expect to remove the approximate 800 remaining third-party Class III units from our installed base. These units perform on par with the rest of our installed base in Oklahoma.

Revenues from electronic games sales grew approximately $10.3 million or 123% to $18.7 million for the first quarter 2017.

We sold 1,018 units at an average selling price of 16,966 which compares to the 432 units sold in the first quarter of last year at an average sales price of $17,835 and 920 units sold in Q4 2016 at an average selling price of $17,548.

Although Q1 2016 was an easy comparison due to the timing of the rollout of our new Core HDX cabinet last year, the increase over Q4 2016 supports our position that our video and mechanical games are being well received by our customers.

In addition, while ASP has declined compared to both Q1 and Q4 2016, we have maintained an ASP of just under 17,000 which we believe is at the higher end of the industry level that is publicly reported.

Overall, adjusted EBITDA margin for the Games segment was 54% in the first quarter of 2017, compared to the 59% in the prior-year period, with the prior-year period including a significantly higher mix of higher-margin gaming operations revenue.

For our Payments segment, the first quarter represented the fourth consecutive quarter in which we have grown both revenue and adjusted EBITDA. 16% year-over-year increase in revenue to $182.3 million includes double-digit growth from our cash advance and ATM revenues and a strong quarter for our compliance revenues.

Cash advance and ATM revenue benefited from new casino openings and several new agreements as a result of competitive takeouts. This quarter also marked the 10th consecutive quarter of same-store growth in both transactions and dollars processed.

ATM revenue experienced further growth from surcharge increases initiated by several large corporate casino customers and the expansion of ATM services into Canada for the first time at 29 properties.

When evaluating the year-over-year comparison, it is important to note that for the 2016 first quarter, we were impacted by a shift from signature transactions to PIN-based transaction following the rollout of our end-to-end EMV compliance solutions. This drove lower per transaction fees and resulted in lower revenue.

Beginning the second quarter of last year, the mix of signature and PIN-based transactions normalized. Overall adjusted EBITDA margin for the Payments segment was 13% for the first quarter 2017 compared to 11% for the year-ago quarter.

The main driver of the margin improvement was the increase in cash advancement revenue combined with slightly lower operating expenses, primarily due to the EMV cost incurred in the prior year. Sales and service revenue related to our fully integrated kiosks was flat in the first quarter of 2017 compared to the prior year quarter.

At the same time, compliance revenue grew on a sequential basis for the fourth consecutive quarter. We believe this trend is indicative of growing interest in our compliance solutions as customers increasingly need AML and tax compliance solutions. We move to the balance sheet metrics.

I've already discussed our debt refinancing transaction, but I will mention a few historical metrics at quarter end. Our long term debt was $1.15 billion as of March 31.

During the first quarter, we repaid $2.5 million on our former term loan and in April 2017, we repaid an additional $0.8 million as required under our 2016 excess cash flow sweep under our former credit agreement.

We had no amounts outstanding under our revolving credit facility at March 31, 2017 and we currently have no amounts outstanding under our new revolving credit facility. As of March 31, our outstanding balance of ATM cash utilized by us from our Wells Fargo cash solution agreement was approximately $271 million.

Capital expenditures were approximately $20.2 million for the first quarter 2017.

Games segment capital expenditures were approximately $19 million, of which approximately $9.6 million was associated with the 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 a unit sale.

Also included in the Games capital expenditure was $3 million in placement fees and CapEx for our Payments segments was $1.2 million. This afternoon we updated our outlook for 2017 adjusted EBITDA.

Reflecting the performance in the first quarter which is modestly above our internal expectations, we raised the low end of our full year adjusted EBITDA range by $1 million so that the new range is now $205 million to $209 million. Let me provide a few key additional updates on metrics we're modeling for the second quarter and for the full year.

We expect full year unit sales will grow year-over-year between 12% and 15%. While the first quarter reflects very strong growth compared to the prior-year quarter, it's important to note that this quarter benefited from a sale to the recently opened Ilani Casino in Washington.

Our fully year expectation for unit sales contemplated this large sale and recognized the challenging comparison we faced in the third quarter. As a reminder, in the third quarter 2016, we sold 200 units to a single customer in Canada which was the company's largest order to a single customer in one quarter.

We currently expect second quarter unit sales will be higher than the 819 units sold in the second quarter of 2016. I mentioned earlier that we expect approximately 234 third-party Class III units will be removed from the installed base this quarter or at the start of the third quarter.

We anticipate each of these units will be replaced with our Class II games. We also have the potential to lose up to an additional 200 Class II units from our California installed base over the remainder of this year.

Despite the net impact of these removals, we continue to believe that the installed base at the end of 2017 will be higher than the installed base at the end of 2016.

Expansion of the company's first WAP product to additional locations over the remainder of the year, along with the introduction of new premium games, including our new licensed titles, are expected to help drive improvements in our installed unit count and daily win per unit over the balance of 2017.

Overall, the Payments segment should grow on a year-over-year basis for the balance of 2017.

As the new casino locations from new openings or competitive takeouts begin to lap their initial installation, we would expect to see quarterly growth that is more in line with the growth in gross gaming revenues versus the accelerated growth we achieved in the first quarter.

Reflecting the refinancing, we expect interest expense will be approximately $94 million to $96 million which includes interest on vault cash of $3 million to $4 million and approximately $6 million in noncash amortizations of capitalized interest costs.

Our interest expense forecast assumes interest rates will rise in 2017 and if such, any increase in LIBOR will impact our new term loan and our vault cash interest. We also expect to record a loss on the early extinguishment of debt in the second quarter related to refinancing.

We continue to estimate 2017 capital expenditures at $85 million to $95 million. CapEx related to the refreshment or replacement of units in the installed base is expected to be between $38 million and $40 million. We also expect to incur between $5 million and $6 million in placement fees.

And CapEx for our Payments segment should be between $9 million and $11 million. With that, I will turn it back to the operator for questions..

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

Maybe we'll start on the Payments business. Mid-teen growth. I don't think you've ever seen that. So Randy, maybe you can talk a little bit about what a normalized growth rate is, understanding, yes, this is all organic, the term wins, the competitive takeaways and the casinos.

But what's the underlying growth? Is it still mid-single? Yes, just kind of help us think about the back half or, I guess, the remainder of 2017?.

Yes, John, I'm not sure exactly what to push you to, but I would still kind of look at what do you think the growth in gross gaming revenues will be? I still think it's probably in the lower to mid-single digits. And the tough part for us is if we continue to see growth in cash access, that will help us because that's a better margin for us.

And so that's -- I don't expect to see anything like we did this quarter. Do I think it will be mid-single? I do. I don't know it'll be much better than, but I kind of expect what I'm seeing. Unless the economy slows down or something else changes, that's what we will be looking at..

Okay, that's helpful. And then on the margin, it remains stubbornly high despite -- I feel like every quarter, talking about it, it's elevated. It's 13% again this quarter. I expected some modest compression with the change in the ATM fees. And that's not all revenues for Everi. So on a core basis, it's up even more than stated.

So maybe talk about some of the puts and takes and maybe how big compliance revenue was in the quarter and how big it can be for the full year?.

Again, the signature still is that the cash advance I think is part of what's driving that better improvement in the margin, John. And again, as you know, we break out the ATM business. Although nice growth, in the lower margin. So if we continue to see the growth more in cash advance, that will be better.

The compliance revenue again, I don't think it's something that's going to wow you. I think if you look at that other category and it's probably primarily still kiosk sales and service, but there's still a fair amount of compliance in there. But it's -- I don't think that's really what's driving the margin.

I really believe right now it's more just the cash advance that we're seeing. Part of that is EMV, Mike talked a little bit about it in his quote that we're seeing better acceptance with the EMV from chip cards. Some of that maybe international customers and in the past they've been declined before but are not now.

So it's a combination that I think, look, I would say, I would still -- when I budget, I budget some compression, but I haven't seen it yet..

Okay, that's helpful. And maybe there's been these kind of flurry of new openings lately. It seems like you guys are clearly taking some chip share, especially on new openings. Can you comment on what's driving that and maybe how much chip shares you've seen, pick up a point or 2 or just kind of any directional color commentary would be helpful..

ell, National Harbor was more than we had anticipated, John. We had kind of budgeted that more like a casino, probably a bigger one of their casinos, that being MGM in the past. But it's done some very nice numbers for us. It's a big contributor. So if you put that and you put Ilani coming out that will be new in this quarter..

Right. But both of them had a real nice chip share, John. And we anticipate that we will continue to increase our chip shares as opposed to our competitors as we produce better products and as we come out with more products in our portfolio that fit into different niches that perhaps the company wasn't in previously.

All of our game development now is in both Class II and Class III which gives us a broader reach across both new casino openings but also in existing casinos..

And we've got a really good job on renewals. Although I still think there's some compression on the ATM side, we've still been doing very well on holding our position as well, John..

Okay. That's helpful. And then maybe quickly on win per day. I appreciate the commentary that should kind of improve or stabilize in the back half for this year And you wouldn't expect year-over-year growth probably until late this year or early next year.

But is that something we can see go back to the year-ago levels? Or are these machines coming out of Oklahoma that profitable, that it's going to get better but it's not going to return to the level that we've seen in the past?.

Well, I think, John, it really all depends. It depends on the mix that we replace with and the -- quite frankly, the reach that we get with our new cabinet, with our new Wide-Area Progressive and that we get with our new licensed and branded games.

And if that breadth is as strong as we think it can be, then we should get back to our previous numbers, if not above..

[Operator Instructions]. And we will move next to David Katz with Telsey Group..

So if you could just talk through the cadence of earnings or EBITDA for the year. I just want to make sure that we're clear from the perspective, that there are some units coming out. There's a sort of a sequential margin change in payments, because of the strength in 1Q versus 2Q.

But at the same time, we're talking about some new product hitting the field as we get into the back half in the fourth quarter. And so I'd love just a little clearer picture just to be extra sure in laying it against your full year guidance, please..

Sure. Okay, I'll give it a shot, David. So as we talked, from a Payments standpoint, although you didn't see it last year, Q1 is always our strongest quarter. It has generally been our strongest quarter with the number of holidays and just events, Super Bowl, March Madness that are there. So Q2 is usually a little -- a strong quarter.

Then, you get into Q3, down a little bit. And then Q4 is usually our slowest quarter, more -- from the standpoint of how strong from an EBITDA standpoint. On the Game side, I think it's similar in that, Q2 has been a good quarter for us. Q3, it kind of depends. We had a nice quarter last year because of the sale to Canada.

But as people coming into -- ready to coming to G2E. And so it's hard for us to gauge that this early. But then again, we would assume Q4 from a game ops standpoint will be slower just again because of the holidays that are there in Q4.

So I still look at Q1 being overall our better quarter, Q4 being overall our lighter quarter and then 2 and 3 being kind of a mix. Generally, I think 2 is a little better and 3 is a little bit less than Q2. But they can flip flop just depending on how games sales go. So to that -- so you're talking about cadence.

What we still think the first half is a struggle on the game ops side, so I'm not factoring in any type of change, what we're seeing in the gaming ops in Q2. We hope to be a little bit better that we were in Q1, but it really depends on how the WAP does.

And a lot of it depends on when they take the units out, like say, the 200 and some units may not come out until -- or [indiscernible] may not come out until the third quarter. So I hate to caveat as much, I do, but a lot of it depends on when the customer will remove those units and then we'll replace it with Class III..

Okay. First day at business school, they taught us the answer to all questions is it really depends..

It's like -- that's how I'm modeling it. So I said fourth should be lower. And I know second and third, I don't think will be strong as Q1. They normally are not..

Understand. Can you just talk about a bit of a longer term vision from a product perspective on the gaming side? There is some expectation that you have a couple of games with some traction in both the for sale and the game ops upside.

But what's your vision to expand this as we get into the out year? And I'm certainly not asking you for '18 guidance, but any qualitative inputs would be helpful at this point..

And I'm not sure I can, there's a lot I can add David. But let me say this.

By changing the way we develop Games and by focusing our development teams on what we believe to be the appropriate measures for player engagement and by looking at other companies and what they have done that maybe hasn't worked, I think we're in a better position to bring both Class II and Class III games out, sometimes even virtually simultaneously.

And hit both markets -- and if the game is performing better than we expected, we'll be doing that in both Class II and Class III markets. Unfortunately, if we're not doing as well, it will story on that side.

I mean, it really gets a bit down into the weeds as to how we develop our new games and the kinds of mechanics that we put into the play mechanics that we put into these. But I can tell you, the game development teams have been working tirelessly to bring out games that are more entertaining to the casino customers.

And I think we're starting to hit that on all cylinders. And the question is, it's nice to have a bunch of singles, but if you can hit 2 or 3 doubles and a triple or 2, suddenly you're moving the ball quite a bit for a company our size..

When you say have it working on all cylinders, would you mind just giving me a bit more substance around why you're comfortable with that?.

Yes, sure. I mean we have the example of the Core HDX is the first box the company has put out in as many as 8 years. That can be developed to that has features and functionality on it that wasn't available to our game developers previously.

We have the new Empire box that will be coming out which has even other functionality, that will be different from the Core HDX box.

And as we develop new games and try and use this functionality in a casino environment, we think we can produce things that will be more entertaining and will provide more interaction for the players than perhaps our competition can..

Lastly, if I may. TournEvent has been historically such an important element of the product line. Can you just give us an update on where that product stands, how it's doing and how it's updated, how it's been updated and what kind of traction you're getting with that? Pipeline would be helpful also..

Yes, let me make just a couple of comments. I'll turn it over to Randy to give you sort of the breakdown of where we're at with that.

We continue to look at TournEvent as a key product for us and we continue to develop games both for in-revenue but in particular for out of revenue for the marketing departments and the slot departments to use in what we think is a more engaging way with their slot customers to bring them in for more tournaments.

And of course, we continue to run our national tournament of champion events. But I think you'll be seeing some new innovations, some new games from us at G2E this year when we roll out some changes to TournEvent. But with respect to how it fits to our portfolio, let me turn it to Randy..

David, I'll make a couple of points. I think we would like to continue to focus on not just that we're a TournEvent product. So it's still a very good product for you and for us. And actually for this quarter, it was a -- we had a nice sale of the TournEvent units primarily looking at Ilani. They took some TournEvent units.

So I'm trying to kind of step away as to what percentage of our sales because I think we'll eventually actually be able to sell back into that footprint. I think we're still kind of the leader of that market or that product. And so we did strong in this quarter, but I just don't want people to think that it's all about TournEvent.

I think we got a strong quarter overall, but for this quarter, with the new opening, it was above more than what we've had been seeing in the past quarters. So how that pipeline rolls out, I still think we have a lot of -- we have some room out there.

But we have a lot of customers and we're now down more to the single customers than we've got large corporate customers that have already taken the product.

And so I think we're now more at some point in time coming back with, as Mike talked about all the new products and bells and whistles we can add to that and hopefully at some point in time get them to upgrade to a core product, a Core HDX versus the older wide-body units..

All right. Last question. Just looking at average selling price on Game units, it was a little lower than what I was expecting and it looks like it was down compared to the 17,000 and change we saw from the last year.

Is that a new run rate? Or what happened there exactly?.

Look, I think -- I don't think we're going to be at a much of an excess of the 17,000. It's kind of where I've kind of been thinking about we'd be throughout the year. So I think we had strong ASP last year. The Core had come out. There's a lot of interest in it. We also still have -- we have our mechanical reels that do very well.

But I would say I don't -- I mean -- and we have TournEvent which generally pushes up the ASP a little bit. But I would think that would be more of the run rate than I would be say, hey that's going to change in future periods. I think it's kind of what the normal will be. We're going to continue to have some pressure there.

We're going to continue to be pushing sales. And so I don't think it's going to pop back up, David. I don't think it's going come down from there materially, but I think that's probably kind of where we think we're going to be at..

We're drawing the trend line right around 17,000?.

Yes again, you probably get a little bit of an impact of the larger sale, right, with like the Ilani sales or other bigger sales. There are some types of discounts in there. But I still think that 17,000 is probably the better number..

Our next question will come from George Sutton with Craig-Hallum..

I did get to hear you say, Mike, that doubles and triples are better than singles. So I appreciate that perspective..

Well, I always like to start with the really difficult concepts, George..

So now I know. So I have the normal jurisdictional question.

Any progress that you're seeing there? Any markets you're more excited about relative to a quarter ago?.

I don't know that -- I mean, we're doing well in several markets, better than potentially was anticipated. But I wouldn't say any of them is more of a standout than any other at this point..

And I would say we're wherever we want to be, George, so we're selling everywhere in North America we'd possibly can. We [indiscernible] no new markets to open up other than for looking outside of North America which is very limited..

So I want to ask an earlier question a little differently. There was a question about your long term vision on product, I think. Can I ask it more specifically to G2E this year? Obviously, if I go back 2 years ago, you didn't have a lot there. Last year significant improvement.

As we look out to this year and sort of a walk away that you would expect us to have, what would we be seeing?.

I think you'll be frankly quite impressed with the form factors, the features and functionality that we're putting into, some of our new form factors and the company's ability to execute on player mechanics and show you games that are more entertaining than games that have been -- that have necessarily been put out in the past..

Got you. Lastly, putting my payment guy hat on. The Durbin Amendment, if that ends up getting repealed, that obviously would affect the debit transaction side of your business.

Can you just discuss any preparations you're are making there or what your expectations are there?.

I don't know that there's any preparations I can do there, we generally share -- on the debit side, we share that cost, so it's not all taken by us if those interchange costs go up. I think our view is that I don't -- one, I think it's going to be difficult to see it change.

But if it does, I'm just not sure that the networks want to go back and start changing their rates. I think they've gotten used to this. There were some -- there's some litigation around it in the past. So look, George, it's hard to say, but I think our view is even if something gets passed. They've been functioning this way for a number of years.

They really want to go start messing around with interchange rates on debit transactions. So we don't expect a big impact, if they do change them. It's usually a shared cost on the debit side. It's revenue minus the interchange and then there's a sharing, so it's not all on us. But a portion of it would be us..

Our next question will come from David Hargreaves with Stifel..

Just looking at the timing that you gave for Casablanca and Penn & Teller, I guess I kind of thought they would be coming a little earlier.

I'm wondering if there's anything you would attribute the slippage to?.

Well, no, this is always -- I mean, this is pretty much on our calendar, where it's showing up right now. We expected the Wide-Area Progressive proof of concept in mechanical in the first quarter, the first video attached to the Wide-Area Progressive, with a licensed branded theme on it, that being Casablanca.

I mean, the only question -- and the third one being in the third quarter which is Penn & Teller in video reel. But that's really been sort of the marching orders that we had on how we were going to place these.

If there was any change, it might be that we -- I don't think we were as firm on whether it would be Casablanca or Penn & Teller that would be coming on to the link in the second quarter, but now we know it's Casablanca..

Are there any others we should be watching for?.

There are others, but we haven't announced them yet. And as we get closer then -- and again, to make sure we know which quarters they're going to fall into, we'll announce those..

Since you say that we're going to have increased functionality, the new cabinet, should we -- will that translate into a higher selling price, do you think?.

No, the selling price is always a difficult dance. It depends upon a lot of factors, including our competitor selling price and our customer's appetite for paying for a new box, versus using an old box. So I can't tell you that it will. But obviously, we're trying to stay at the $17,000, right around the $17,000 mark..

Given that these are coming out kind of mid-year ahead the next G2E, should we be thinking that, that might impact demand a little bit? Or how should we think about the timing of when these are coming available? [indiscernible] the best time?.

Well, I mean, on the Wide-Area Progressive, we definitely are anticipating that bringing Casablanca and then Penn & Teller into the mix on the link progressive is going to be creative of more demand. And we think we'll have greater placements as a result of those joining on the Wide-Area.

Jackpot Jump, we expect the demand to also drive more of that product onto the floor. The new form factors in the standalone version and with different themes will be coming on a bit later. So I can't tell yet whether, although clearly, I think once people have seen the boxes and the screens and how they operate, that we should have demand.

But it will depend upon when those games are actually released..

And very cool. And -- so then also which -- I'm looking at contract renewals.

What are the sort of next ones we should be watching out for?.

Well, as we've said in the past, without getting into individual contract renewals, I would say in general 2017 is a little lighter year. But again, every 3 years, we have our contracts are generally 3-year contracts. So I'd say '17 is a little lighter, '18 is probably a little heavier.

But I really don't get into specific contract renewals because one, it allows our competitors to understand what's coming up and I don't want to do that. And two, we've had contracts that we've either gained or lost but still have had nice revenue increases. But I would say is '17 is probably a lighter year and '18 is a little heavier.

But again, there are 3-year in general contracts, so every year, we'd got about 1/3 of our contracts up on the Payments side..

When you say light or heavier, can you give any sort of percentage of -- put it in any sort of percentage term that might help us out or....

No, that's about it. I really don't want to do it. It's hard. It's hard from a standpoint of, look I would say we've been very successful in retaining our contracts. I know people need to model out and there's always risk there.

But look, like I also say in '18, we know there's a contract that comes up that we lost 5 years ago from a big competitor -- of a big customer that we'd like to get back. So it's really give-and-take. So I don't really want to put out a number one way or the other because every day across my desk comes contracts to be signed.

So I would say directionally, I think we have a little bit more in '18 than we do in '17..

Can you provide any kind of reflection or insight as to what happened with the Caesars contract? Because given what we heard about the level of service at their existing provider, it seems like an opportunity. Yes, we thought there might be -- that things might go differently. I'm just wondering if you could help us understand how that went..

I don't know. Maybe you could help us understand. But I will tell you this. We put it where we thought was a very competitive bid. We were in the process and they're very -- we talked about, they're very procurement-driven. And so I think they again went to the lowest provider, cost provider.

And look, again, I think we were -- we had skinnied it down to a very small margin for us because, obviously, it would have been nice to get the Caesars back. But at some point in time, we have to make a profit. So that's kind of where it was, David.

I mean, look we were in the process and that's just how that they're driven and we'll see how it works for them. I think they'd got equipment that needs to be replaced. They've got a lot of things that they need to do. And we thought we gave them a very fair proposal and that's about all I can say really..

At this time, I'd like to turn the conference back over to Mr. Taylor for any additional or closing remarks..

Thank you, everyone, for joining us on the call today. We look forward to talking to everybody at Q2. Have a good day. Thanks..

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