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Investor Presentation Results of operations For the period ended September 30, 2017
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Page 1: Investor Presentations1.q4cdn.com/401000259/files/doc_presentations/2017/3Q17... · 2017. 11. 29. · Games Segment Overview Strong Recurring Revenue Base, Robust Margins • Revenue

Investor Presentation

Results of operations

For the period ended

September 30, 2017

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Disclaimer

2

Forward-Looking Statements; Non-GAAP Financial Measures Throughout this presentation we make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the U.S. Private Securities Litigation Reform Act of 1995. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “believe,” “expect,” “intend,” “estimate,” “project,” “may,” “should,” “will,” “likely,” “will likely result,” “will continue,” “future,” “plan,” “target,” “forecast,” “goal,” “observe,” “seek,” “strategy” and other words and terms of similar meaning. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are often difficult to predict and many of which are beyond our control. Our actual results and financial condition may differ materially from those indicated in forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the following matters: trends in gaming establishment and patron usage of our products; benefits realized by using our products and services; product development, including the release of new game features and additional game and system releases in the future; and regulatory approval; gaming regulatory, card association and statutory compliance; the implementation of new or amended card association and payment network rules; consumer collection activities; future competition; future tax liabilities; future goodwill impairment charges; international expansion; resolution of litigation; dividend policy; new customer contracts and contract renewals; future results of operations (including revenue, expenses, margins, earnings, cash flow and capital expenditures); future interest rates and interest expense; future borrowings; and future equity incentive activity and compensation expense. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, without limitation, expectations regarding our existing and future installed base and win per day; expectations regarding development and placement fee arrangements; expectations regarding customers’ preferences and demands for future gaming offerings; expectations regarding our product portfolio; the overall growth of the gaming industry, if any; our ability to introduce new products and services, including third-party licensed content; gaming establishment and patron preferences; expenditures and product development; changes in gaming regulatory, card association and statutory requirements; unanticipated expenses or capital needs; technological obsolescence; and those other risks and uncertainties discussed in our most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission. Except as required by applicable law, Everi undertakes no obligation to update or publicly revise any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Readers are cautioned not to place undue reliance on forward-looking statements, which are based only on information currently available to Everi and speak only as of the date of this communication. Our actual results and financial condition may differ materially from those indicated in forward-looking statements. Non-GAAP Financial Measures In order to enhance investor understanding of the underlying trends in our business and to provide for better comparability between periods in different years, we are providing in this presentation Adjusted EBITDA and Adjusted EBITDA Margin, which are not measures of our financial performance or position under United States Generally Accepted Accounting Principles (“GAAP”). Accordingly, these measures should not be considered in isolation or as a substitute for, and should be read in conjunction with, our net earnings (loss), operating income (loss), basic or diluted earnings (loss) per share and cash flow data prepared in accordance with GAAP. Everi defines Adjusted EBITDA as earnings (loss) before interest, taxes, depreciation and amortization, non-cash stock compensation expense, goodwill impairment charges, accretion of contract rights, write-down of note receivable and warrant, loss on the sale of aircraft, acquisition and other costs related to mergers and purchase accounting adjustments, separation costs related to the Company’s former CEO, and manufacturing relocation costs less a benefit from one-time legal settlement proceeds. Everi presents Adjusted EBITDA as it uses this measure to manage its business and considers this measure to be supplemental to its operating performance. Everi also makes certain compensation decisions based, in part, on its operating performance, as measured by Adjusted EBITDA; and its credit facility and senior unsecured notes require Everi to comply with a consolidated secured leverage ratio and a consolidated total leverage ratio that include performance metrics substantially similar to Adjusted EBITDA. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenues. A reconciliation of Everi’s most directly comparable GAAP measure to Adjusted EBITDA and Adjusted EBITDA Margin is included in Everi’s earning releases located on Everi’s website at ir.everi.com. Additionally, a reconciliation of each segment’s operating income (loss) to Adjusted EBITDA is also included. On a segment level, operating income (loss) per GAAP, rather than net earnings (loss) per GAAP, is reconciled to Adjusted EBITDA as Everi does not report net earnings (loss) by segment. In addition, Adjusted EBITDA Margin is provided on a segment level. Management believes that this presentation is meaningful to investors in evaluating the performance of Everi’s segments.

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Industry’s Only Games & Payments Provider

3

The Only Single Source Provider of Engaging Games and Robust Payment Solutions

Games Payments

• Everi is dedicated to providing state-of-the-art video and mechanical reel gaming content and technology solutions, integrated gaming payments solutions and compliance and efficiency software to casino operators

• LTM 3Q17 consolidated revenue of $944.6 million and consolidated Adjusted EBITDA of $210.9(1) million

• Only single source provider of complementary games and payments products

• Strong recurring revenues from substantial base of leased and participation gaming machines plus sales of gaming machines and related equipment

• Games provides the central determinant system for the ~18,500 video lottery terminals installed in the State of New York

• LTM 3Q17 revenue of $220.4 million, Adjusted EBITDA of $117.1(1) million and Adjusted EBITDA Margin of 53.1%(1)

• Provides cash access services (ATM, cash advance and check warranty), equipment for cash access and related services, and other information products (including credit reporting, compliance and marketing solutions)

• Long-term contracts provide base for strong recurring revenues for nearly all Payments revenue

• LTM 3Q17 revenue of $724.2 million, Adjusted EBITDA of $93.8(1) million and Adjusted EBITDA Margin of 13.0%(1)

1) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases located on Everi’s website at ir.everi.com

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Games Segment Overview

Strong Recurring Revenue Base, Robust Margins

• Revenue derived from revenue-sharing arrangements or daily fixed fee lease arrangements

• 13,215 gaming units (8,837 Class II and 4,378 Class III) installed as of September 30, 2017

• Recently entered into long-term placement arrangements covering nearly 50% of total Class II unit installed base for approximately 7 years

• Supplies central determinant system for ~18,500 video lottery terminals ("VLTs") at 11 locations in the State of New York

Expanding Proprietary Class II and Class III Offerings

• Broad portfolio of gaming machine products, including TournEvent and Wide-Area Progressive (“WAP”) games

• New slot themes based on licensed, branded content

$207.0 $214.4 $213.3 $220.4

1.4% 3.6%

-0.5%

5.4%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

2014 2015 2016 LTM 3Q17

Revenue

Revenue Revenue Growth %

4

Note: $ in millions; fiscal year ended December 31

$110.9 $116.0

53.6% 57.3% 54.4% 53.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

$0.0

$25.0

$50.0

$75.0

$100.0

$125.0

$150.0

2014 2015(2) 2016 LTM 3Q17

Adjusted EBITDA(1)

Adjusted EBITDA Adjusted EBITDA Margin %

$117.1

Premier Supplier of Exciting Games Across Multiple Platforms

1) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases located on Everi’s website at ir.everi.com

2) Adjusted EBITDA for 2015 includes a gain of approximately $4.0 million from the sale of certain assets of PokerTek, which was purchased by Multimedia Games in 2014. Excluding this gain, Adjusted EBITDA would have been $118.8 million and Adjusted EBITDA Margin would have been 55.4%.

3) Percentage growth represents growth for LTM 3Q17 versus LTM 3Q16

Gaming Operations,

16% Machine Sales, 7%

Payments Segment,

77%

LTM 3Q17 Consolidated Revenue

$4.0

$118.8

$122.8

(3)

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Payments Segment Overview

Leading provider of gaming payments solutions in North America

Long-term contracts provide significant recurring revenue derived primarily from ATM cash withdrawal, cash advance and check service fees

• Processed 96.3 million transactions totaling $24.4 billion in cash to the floor in LTM 3Q17

Best-in-class provider of secure payments solutions enhanced by fully integrated kiosks, credit reporting services, compliance solutions and casino marketing services

• Allows casinos to reduce labor, coin handling and cage cash while enhancing compliance and security

$585.6 $612.6 $646.2 $724.2

0.5%

4.6% 5.5%

9.2%

-15.0%

-5.0%

5.0%

15.0%

$0.0

$200.0

$400.0

$600.0

$800.0

2014 2015 2016 LTM 3Q17

Revenue

Revenue % Growth

5

1) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases located on Everi’s website at ir.everi.com

2) Percentage growth represents growth from LTM 3Q17 versus LTM 3Q16

$76.0 $77.6 $82.0

$93.8

13.0% 12.7% 12.7% 13.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

2014 2015 2016 LTM 3Q17

Adjusted EBITDA(1)

Adjusted EBITDA Adjusted EBITDA Margin %

Market Leading Provider of Cash Access and Compliance Products and Services

Note: $ in millions; fiscal year ended December 31

Games Segment, 23%

Check Services, 3%

Other, 5%

Cash Advance, 29%

ATM, 40%

LTM 3Q17 Consolidated Revenue

(2)

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Summary of Recent Financial Performance

6

1) Adjusted EBITDA is a non-GAAP measure. Reconciliations to the most directly comparable GAAP measure for historical periods can be found in applicable earnings releases located on Everi’s website at ir.everi.com

Revenue Adjusted EBITDA(1)

Note: $ in millions Note: $ in millions

$166.0 $191.9

$56.2 $55.4

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

3Q16 3Q17Payments Games

$637.2 $724.2

$209.2 $220.4

$0.0

$300.0

$600.0

$900.0

LTM 3Q16 LTM 3Q17

Payments Games

$22.4 $23.8

$29.2 $29.4

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

3Q16 3Q17Payments Games

$80.4 $93.8

$114.1 $117.1

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

LTM 3Q16 LTM 3Q17

Payments Games

1.4% Y/Y Decline

15.6% Y/Y Growth

5.4% Y/Y Growth

13.7% Y/Y Growth

0.7% Y/Y Growth

6.3% Y/Y Growth

2.6% Y/Y Growth

16.8% Y/Y Growth

$222.2 $247.3

$846.4 $944.6

$51.6 $53.2

$194.5 $210.9

Note: $ in millions

Note: $ in millions

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Key Recent Highlights & Wins

• Sold 817 units in 3Q17, up 4% Y/Y; sixth consecutive quarter of Y/Y unit sales growth

• Sold 2,721 units in first nine months of 2017, up 34% Y/Y

• 3Q17 represented the sixth consecutive quarter of Payments revenue and Adjusted EBITDA growth

• Strong level of new Payments customer wins, including new casino openings and competitive take-outs, drive growth

• Twelfth consecutive quarter of same-store transactions and dollars processed growth

• Recently entered into agreement with largest customer in Oklahoma to consolidate and replace prior placement fee arrangements covering approximately 4,300 Class II units for period of 83 months beginning mid-July 2017

• Everi made $10.0 million cash payment in August 2017 and will pay approximately $5.6 million in placement fees per quarter from January 2018 to July 2019

• Secures placement of approximately 48% of Class II installed base and approximately 32% of total installed base

• Provides for greater visibility into future recurring revenue and Adjusted EBITDA

• Expanded ATM services in Canada at 29 properties in 3 provinces

• Growth in ATM business also includes surcharge increases at several large corporate customers

7

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Key Recent Highlights & Wins (continued)

• Initial 2Q17 launch of Casablanca™ themed game and 3Q17 Penn & Teller themed game on WAP link for Class II markets

• Introduction of additional Class II video and mechanical reel WAP link content featuring licensed brands expected beginning in 1Q18

• Over 230 units WAP-connected titles deployed as of September 30, 2017

• Class III LAP launch of Casablanca™ themed game in July 2017 and Penn & Teller in September 2017 with selected operator partners

• Company won Payments business for the last three major new casino openings (ilani, MGM National Harbor, del Lago Resort & Casino)

• Everi Compliance revenues have increased 34% in first nine months of 2017 compared to the similar year-ago period

• Indicative of growing need for Anti-Money Laundering (“AML”) and tax compliance solutions

8

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Recently Completed Credit Transactions • Refinanced former First Lien Term Loan and Senior Secured Notes in May 2017

• New $820 million Senior Secured Term Loan (the “Term Loan”) resulted in approximately $8.0 million in annualized cash interest savings

• Repriced the Term Loan on November 13, 2017

• Reduced interest rate by 100 basis points to LIBOR + 3.50% and added six months of 101 soft call protection. LIBOR floor remains unchanged at 1.00%.

• Results in approximately $8.2 million of additional annualized cash interest savings based on current interest rates and Term Loan balance outstanding of $818.0 million.

• Maturity date remains May 9, 2024.

• Expected to close on $375 million of new Senior Unsecured Notes on December 5, 2017

• Proceeds and cash on hand will be used to refinance the Company’s existing $350 million 10.0% Senior Unsecured Notes in their entirety, pay early redemption premium and pay associated transaction fees and expenses

• Priced at 7.5%, a 250 basis point reduction from former Senior Unsecured Notes

• Optional redemption of Notes includes Non-Call 3, with first call at 103.75 on December 15, 2020,with subsequent premiums declining ratably to par at December 15, 2022; 40% equity claw-back

• Results in approximately $6.9 million of annualized cash interest savings based upon interest rates in effect on the closing of the refinance transaction

• Pro Forma for the transactions, Consolidated Secured Leverage(1) will be 3.6x and Consolidated Total Leverage(1) will be 5.4x based on LTM 3Q17 Adjusted EBITDA of $210.9(2) million

9

1) Pursuant to the credit agreement governing the Term Loan and the indenture governing the Senior Unsecured Notes, the amount of cash that can be netted against our funded debt for purposes of calculating our Consolidated Secured Leverage Ratio and our Consolidated Total Leverage Ratio is capped at $50.0 million

2) Adjusted EBITDA is a non-GAAP measure. Reconciliations to the most directly comparable GAAP measure for historical periods can be found in applicable earnings releases located on Everi’s website at ir.everi.com

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Pro Forma Capitalization Upon Closing of Senior Unsecured Notes Offering

10

Pro Forma Capitalization ($mm) Pro Forma Credit Statistics ($mm)

1) Based upon 66.9 million shares outstanding and $8.74 closing price as of November 20, 2017.

2) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases located on Everi’s website at ir.everi.com.

3) Interest expense includes the annualized cash paid for interest on outstanding debt obligations at rates in effect at September 30, 2017 and pro forma for the closing of the Senior Unsecured Notes Offering plus annualized estimate of the cash usage fees paid pursuant to the Contract Cash Solutions Agreement. Assumed underlying LIBOR for calculation is 1.33%.

4) Pursuant to the credit agreement governing the Term Loan and the indenture governing the Senior Unsecured Notes, the amount of cash that can be netted against our funded debt for purposes of calculating our Consolidated Secured Leverage Ratio and our Consolidated Total Leverage Ratio is capped at $50.0 million

Pro Forma

9/30/17 At Close

Revolving Credit Facility ($35 million) - -

First Lien Term Loan $818 $818

Secured Debt $818 $818

Senior Unsecured Notes 350 375

Total Debt $1,168 $1,193

Market Capitalization(1) 585 585

Total Capitalization $1,753 $1,778

Pro Forma

9/30/17 At Close

LTM 3Q17 Adjusted EBITDA(2) $211 $211

Adjusted EBITDA/PF Cash Interest Expense 2.4x 2.9x

Consolidated Secured Leverage Ratio(3) 3.6x 3.6x

Consolidated Total Leverage Ratio(4) 5.3x 5.4x

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Extensive Reach and Scale

11

Everi is Now Licensed in Over 200 Jurisdictions and Serves Over 1,000 Gaming Properties Globally

Core Cash Access

Gaming Segment

• Installed base of leased and participation games includes 13,215 units as of September 30, 2017

• Licensed in every major jurisdiction in North America

• Recently expanded Games and Payments presence to multiple provinces in Canada

• Premium game installations, which include WAP and licensed products, have ramped to 18% of installed base

• New WAP platform expected to accelerate further premium installations

Payments Segment

• Market-leading, best-in-class provider of integrated gaming payments solutions in North America

• Processed 96.3 million transactions totaling $24.4 billion in dollar volume in LTM 3Q17

• Standard ATM

• 3-in-1 ATM

• Cash Advance

• Check Warranty

Everi Has Expanded its Footprint and Diversified its Geographic Reach

Equipment/Kiosks

• Fully Integrated 3-in-1 Kiosks

• Jackpot Processing

• Stand-Alone Kiosks

• Mobile Tablets

Information Services

• Central Credit

• Marketing

• Anti-Money Laundering and Tax Compliance Software

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Strong Record of Technology Innovation

12

TournEvent

• Industry leading, award-winning slot tournament system cited as the market’s best slot tournament solution by 61% of respondents(1)

State of New York VLT System

• Developed one-of-a-kind central determinant system for the NY Lottery, which interfaces with, provides outcomes to, and manages approximately ~18,500 VLTs at 11 locations

Wide-area Progressive

• Development of WAP platform to support branded and proprietary game links in the Class II and Class III markets

Game Development Studios

• Strong game development capabilities, with studios in Austin, Chicago and Reno

• Strategically targeting third-party content such as Casablanca, Penn & Teller, Fruit Ninja, Buffy the Vampire Slayer, Willie Nelson, and the Brady Bunch which lend themselves to player recognition and appeal through innovative game play

Premium Products

• Introduced HD dual screens, LCD panels and new top box technology, growing premium cabinets to 18% of installed base

• Developed Everi Bet™, a bet configuration software feature that was named to Casino Journal’s Most Innovative Gaming Technology Products for 2015

Games

1) EILERS-FANTINI Slot Survey – 4Q16.

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Strong Record of Technology Innovation

13

Dedication to Network Infrastructure and Security

• Strategic investments in infrastructure and security make Everi a best-in-class provider of secure payments solutions

• First casino industry payments provider to be fully end-to-end Europay, MasterCard® and Visa® (“EMV”) compliant

Innovative Solutions and Enhancements

• Developed 3-in-1 Rollover ATM technology which drives incremental cash to the casino floor

• UniversalXchange with Universal Integrated Management provides enhanced platform for Everi’s fully integrated kiosk solutions

• Jackpot Xpress™, recognized as one of Casino Journal’s Top 20 Most Innovative Technology Products for 2016, allows for efficient mobile-based slot jackpot processing

• CageXchange™ and RecyclerXchange™ cash management solutions designed to accelerate transaction speed and efficiency, improve cage count accuracy and enhance the overall customer experience

• Everi Cares™ Giving Module creates opportunity for patrons to give to charities while reducing coin handling on the casino floor

Evolving Digital Capacity

• CashClub Wallet™ decentralizes payments throughout the gaming enterprise and offers an enhanced, streamlined player experience and reduced cash footprint for operators

Payments

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Successfully Executing on Business Plan

14

Leveraging Long-Term Customer Relationships Across Games and Payments

2015

Scarlett Pearl

• New customer

• 3Q15

• Cash Access product suite

• 76 games sold and/or leased

Desert Diamond Casinos & Entertainment

• New Payments / existing Games customer

• 3Q15

• Cash Access product suite

• 214 games sold and/or leased

2016

Alberta Gaming & Liquor Commission

• New Games / existing Payments customer

• 3Q16

• 248 games sold and/or leased

MGM National Harbor

• New casino / existing customer

• 3Q16

• Cash Access product suite

• 80 Games sold and/or leased

2017

Ilani

• New customer

• 1Q17

• Cash Access product suite

• 150 Games sold and/or leased

Expanding the Product Offering

• Expansion of Games offering to include new hardware options (e.g. Core HDX and Empire HDX cabinets), licensed and branded premium game content, WAP products and digital / interactive offerings

• New Payments products to complement existing core cash access services including CageXchange™ and RecyclerXchange™ cash management solution, Jackpot Xpress™, CashClub Wallet™ and the Everi Cares™ Giving Module

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2017 Outlook(1)

• 2017 Adjusted EBITDA(2) expected to be at high end of previously provided range of $209 million - $212 million

• Factors in Company’s 2017(3) outlook include: • 2017 unit sales expected to increase approximately 20% Y/Y with unit sales for 4Q17

expected to be comparable with prior year period sales of 920 units

• Installed base at December 31, 2017 is expected to grow Y/Y

• Company expects to continue to benefit from growth in the premium unit installed base, including expected growth in Jackpot Lockdown™ Class II WAP units and new premium licensed brands that will also be offered as Class III LAP games that will be introduced over the remainder of 2017.

• Company does not expect any material additional Class II unit removals from certain California tribal customer facilities in the fourth quarter of 2017.

• Company expects daily win per unit (“DWPU”) in 4Q17 to approximate DWPU from year-ago period and expects revenue from the installed base portion of gaming operations in 4Q17 will exceed the installed base revenue generated in 4Q16

• 4Q17 Payments segment revenue is expected to increase in the low-double digits Y/Y and Adjusted EBITDA(2) is expected to grow in the mid-single digits compared to 4Q16.

15

1) The Company provided this 2017 Outlook in its earnings release dated as of October 30, 2017. The Company’s practice it to provide its outlook, and any applicable updates, in connection with its quarterly earnings releases. This slide reflects our outlook as of October 30, 2017 and, in accordance with our practice, is not intended, and should not be construed, as re-affirming or updating such guidance

2) Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliations to the most directly comparable GAAP measure can be found in applicable earnings releases located on Everi’s website at ir.everi.com

3) The Company provided additional financial metrics for 2017 as part of the Third Quarter earnings press release, which is available on Everi’s website at ir.everi.com

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Investment Highlights

16

Successfully Executing on Business Plan

Experienced and Seasoned Leadership

Extensive Reach and Scale

Highly Differentiated, Complementary Products

Strong Track Record of Technology Innovation

Stable and Diversified Recurring Revenue Business

Powerful, Long-Term Customer Relationships

Significant Barriers to Entry

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Q&A


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