Light & Wonder (LNW) 21 Feb 192018 Q4 Earnings call transcript

Good day, and welcome to the Scientific Games fourth quarter earnings conference call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Robert Shore. Please go ahead.

Nichole. Thanks,

and we followed fourth With by morning Barry call, and XXXX me discuss are performance, operating a Cottle will today's quarter our results this During Quartieri. Michael question-and-answer period.

Private risks during will differ today materially results XXXX. include under Act statements Our the that Securities involve could call Reform certain contain Litigation statements to discussed call. uncertainties forward-looking from that statements those the and These actual of cause

earnings uncertainties, are For earlier SEC. release website information our risks refer related issued call and morning. this please and regarding posted materials The the this to these our filings to with on

can We will earnings press found as measure non-GAAP non-GAAP of in well discuss each release each Investors the as website. non-GAAP measure certain measure our to description directly section be of a most on reconciliation A our and the in measures. GAAP comparable

Investors accompanying at webcast reminder, be archived a of replay As this the of call A this materials will recorded. being section our and is in scientificgames. website

Now, turn to over let Barry. the me call

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morning, Good everyone. Barry. Thanks,

our and AEBITDA business, Barry or by increased continue despite revenue strong. Gaming As our quarter X% fourth be results $X rose AEBITDA decreased X%. declining noted, X%. to our revenue In Consolidated million X%

machine X,XXX to year XX% XXX The from and or prior units lower as XXX machines opening reflects improved Our X% gaming XXX were featuring large year the million a $XX AEBITDA units, no prior XXX units expansion the decreased basis priced to XXX last globally, shipments for the the the comparable and US We VGTs from Internationally, to with Year-over-year, X,XXX for ago. a decline units expansion, selling large new year Illinois. quarter. due two margin points price greater of included quarter units VLT fewer driven fourth X,XXX down compared Canada, replacement units order down by domestic to units our shipment shipped this mix XXX Domestic the primarily a sales was to Canada UK. including year openings. in in in versus average replacement international year. XX.X%. and units totaled into sold Revenue X,XXX

receive Harbor this shipments first and of of fair space Boston We these the year. quarter expect our Encore the to floor of share majority will at in occur

April the cabinet down as a $XX down year-over-year XL million, in on which sequential accounting XXXX. quarter in was million. million a drive approximately was early new more to WAP on of or operations result of million revenue sale the for TwinStar expense. the $XXX On Wave $X jackpot JXX $X.X New was basis available well recognition revenue the for to basis, making Gaming XX% as are We growth revenue content

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have replace roll of customers. We large a opportunity product the our sold XXX,XXX units as new base previously out well of as to the to existing

revenue maintenance shufflers. year-over-year, contract with through to XXXX Table associated or new increased million expect driven our products global by beyond. revenue strong We XX% our continue and $XX to increase of demand

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launch instant The from instant revenue the Our make was prior comparisons of year. X% games down scheduled ticket year-over-year can $XXX challenging. million for

that Deal, We WONKA lottery million XXXX May, the our WILLY in Deal $XXX success follows XXXX. will and multistate game retail TICKET of or launch exceeded No which next our sales in in instant GOLDEN

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January, New new we for we began and the gaming across with customers. XXXX, launched Zealand During signed successfully sports launched XX betting and our content We in successfully client Board XX powering Racing in Pennsylvania new sites Caesars. sports

we legal on During settlement Tech final matter. the the Shuffle quarter, reached a

as than new the quarter, amount the the represented highly we result, associated and Maryland flow, including long-term development Pennsylvania, accretive lottery quarter, and and million Ladbrokes our Because concession, third the sports restructuring the in refinancing extension XX% in million in settlement and ticket original and other. with a our February cash recorded had million cash agreement the $XX nearly related spend interest was Coral Kansas, CapEx paid of US million activities, in As with $XXX.X sports during $XXX.X Keno nine-year instant for reserved normal This betting and of amount. which a the payments past a million of Shuffle we Tech constricts virtual reversed platform. associated our $XXX.X to of the from overall the judgment of Italy fully higher had unusual the higher XXXX resulting number credit a year seven-year with items excess $XXX

expect cleaner year a a to be We XXXX from cash perspective. much flow

the in effectively For gaming And summary, on year. timing you everyone focused would operating the growth expenditures XXXX, by which we on to of and be firmly could the and the questions. for would deleveraging, we of our that, that our I commitment half sales remind is launches, expect up will lottery with $XXX open be second product continued be within accomplished to stronger In Nichole, a of revenue range line expect business. XXXX million. million and $XXX to results below Based hardware capital the

you. Thank

Instructions] We [Operator will Deutsche first of question Our now ahead. Carlo Santarelli Please go the question-and-answer comes session. begin from Bank.

to to and for with comments rebid assuming potential the respect tender, end, there's Michael, million just I'm on million Pennsylvania $XXX CapEx $XXX there you the made baked into the something toward restart? that that

the CapEx our that roughly NYX. was at go normal at back When $XXX this addition it's you spend, historically point. that Not and been around look before And mark. million of

are an is strategic for year RFP. NYX amount there that nothing other this function our and normal Pennsylvania of uptick on. is we right budget really for But stand of the working to a we a that the So couple today there's where plus now, in items with

Understood. and And of understand the and you provide of the guys the then, secondly, RFP updates, possibly maybe on you could two status Brazil? that one about of latest on out timing how you kind maybe that think coming

contract I don't At update lottery ahead then ends Brazil and and go will in PA Why hand take to the I Sure. over Barry? actually this point, June. the

waiting RFP, the for now months. still right we're in that So the rerelease expecting of which couple we're of next

the an in and given to and evaluate in of anticipate contract. there responses spend get to be the CapEx go systems able way state the the timing wouldn't do be to we the with RFP, XXXX Pennsylvania through for So much them,

currently right XX be now. due related And The to and decided are March the expected be we're on Brazil, bets to to XX. the evaluating currently winner on on lottery, March opportunity

ahead. comes question SunTrust. Jonas of go next from Please Barry Our

Jeff just is Barry. IPO. in Stantial Hey, I color Could taking is getting guess, and about Yes, credit for then your give thoughts on for the monetization timing, our I multiple? on the this on say your for or actually in potential Thanks appreciate more off you own Social us would questions. words, guys, first more this any you

obviously prevents related obviously -- now. on from where and restrictions before As right mentioned lot the this SEC to that we we a have saying

benefit and to mentioned proceeds obviously the business motivational delever As think a and is to us -- the help pay then value down Social, unlock we I motivation, one from perspective. debt we but our secondarily, of which is a use

a public of as the proceeds I draft confidently on SEC we registration a statement to before, be submitted S-X in would to comment the statement. XX, then number on debt. that to draft registration December one amendment date. and We really We on terms repay used earlier obviously, possible that, Form anticipate the beyond offering XX. mentioned primarily submitted noted can't we to As February We

the only the the and time the recently, submission Yes, submission of the kind down, SEC government between shuts the duration in December then just to I'd thing that, second shuts initial down. unfortunately, in add of when February,

process than review of longer bit government little has that the as that we So a a expected taken result shutdown. -- only was

call notes net are net on the interest on maturities of just just thoughts updated sort then any Could us looking premium? And of extending potentially give the those? that callable. the XX% weighing the And then are at you versus you the savings refinancing how

the I've when wasn't continually December for opportunity Unfortunately time. Sure. before, became the as Look, said around callable look for credit opportunity. right X the XX% the available first we into that right markets

However, markets to continuing and somewhat recovered improvement. since have the show New Year the

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Stifel. Our Boyer next Brad ahead. go question comes from Please of

First is gaming around segment. just sales the North within product American one

that included, the think of last shipment all out quarter Canada into myself when year. of I overlooked modeling us, kind year this fourth

we if customers? could American had any core of with anecdotes conversations us guys demand just can sense a sort kind be and of you 'XX, on you've how of That replacement based sort your are provide look will you So of into thinking North about ahead give Thanks. helpful. you

Yes.

to as what from guys low look say, type make that going you in we're of we year's XXXX year think the be there and and continue say which there's what any couple this at that and of have to 'XX. going think I been what is right -- significant it be it's changes should from from say, I we projections seeing catalyst. I'd when 'XX or we've looking it's a last at, this Eilers 'XX will growth, you're think slow catalyst any growth I seen single-digit So expect that's 'XX sales where to being this to -- a would year the would significant wouldn't I no the years movement into over

in share a be the we a in capture for-sale to what us I share replacement that market XL can a from bit to for growth in things the be market why drive we market perspective that's is driver going think when the 'XX overall around itself. to do market, Wave think the hopefully able that's more key we introduced and and

The I look forward, is to roadmap what pretty titles. would we product are Wave we we thing about and just, coming think, add will forward, with in I Q the some really nice fact combined that mid-year have and sales as going Yes. said that that excited our timeframe the XL

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Yes, and then part first take from I perspective. operational it Barry hand over I'll to an the think I'll

operating within that costs the would proposed there Social associated with So no IPO are results impacting segment. be the the

individually our spend what on we're in QX obviously, December, with able in record growing now Yes. enable each to record KPIs healthy all frankly us game. the is are and marketing had a record an games scale operational marketing collectively, yields. perspective continues month being and to we higher return quite do, And, business of right the and from to quarter investment -- month perspective, look, also from Both a -- and nicely within at in that

into so in growth was time to kind well been And the as period. achieve, Xx of able as leaning and before, we've that we mentioned obviously market that

kind And way effective we an the is in function leaning and efficient of can. so it into that from the really of frankly quite business perspective most a operational

that we as So and and higher business to we grow. scale leverage meaning be to get margins over time, expect able continue to drive scale

just fact product services the any call's and if appreciate one for I no that reinterpretation. lastly, the given all around you That's your curious on the Act attorney, Wire of but then breadth had the just me. offering, And guys an thoughts

its at of been and and how actually on opinion gaming DOJ's you worries shows the And, Two right clarification the filed all. XXXX new industry important opinion believe no suits, to already Unfortunately a of understanding No, wrong that the leaves industry the questions opinion. Justice Justice's law new unanswered we law the little is today. practices. opinion got Department that and it obviously look, certain as operates it apply know, not does seeking challenging have new in

domestic continuing alter betting. closely we're to now, to plans sports to as current have and for situation iLottery no it monitor strategy the So relates our iGaming, or

Our Susquehanna. comes Joe question go next from ahead. Please of Stauff

talk guys they're obviously on the premium, Once new And the obviously I ramp are you you're stabilizes. marketing that new and products progressing? gaming of far? you basically now. have You've Can just once products looking they then ops game a on occurs why got two about the ups. think that have follow how then are thus number markets machines first, stabilized it Where they hitting the

cabinets, to after things the frankly segment. And go that when the on and we taking QX, at footprint one-two mentioned the been and I of did we what strong optimization, yields QX. I We've I Yes, going so less a the are on then or product go the or product and is his that and pretty strong our cabinets. deploy lined which have titles obviously is to this basically portfolio kind actually in enables which across look cabinet a think our against one Q got, after single cuts call I up summer making And platform call, In always multiple was we it then as it, content after We've was it Ji products on I and introduce, we a Wave would across WAP on interoperability, launch of Jin notes, win us exist a right that. we the today. quarter-over-quarter sure we the what which call, to grew came new that would at to this, have we XL that past, cabinets Those game. the segments launched space example, in XL in punch can we're that and cabinets last order as floor have you have get way Wave what the an look would their what in have, introducing. in the Bao that had want Xi, premium quite

Now, we're able to JXX launch Jin Ji have Bao Xi on it and cetera. you existing can et

game quarters, back, complement the it to of Fire top as multiple was, in really So the really that deploy a segment marketplace Twin space, a today. the challenge to of leveraged after segment Panther, opportunity and business gone we the that ops organization. in on but Bao Bond nice have bolster the cetera our can with Xi, Ji be XXXX to attack we've side several and across go Jin stepping which that cabinets for et WAP huge titles for us position some that both incredible mentioned IP think an us such premium we've like And in XXXX, as then a I now puts Pink them Frenzy really in

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lower maybe just personnel I ASPs to that mix segment, on were the of ask international, due about certainly mix comment out and just was to wondering in you that was shift, that? I particular shift wanted you if if can

one. take Yes, can that I

the primarily So in it are lower an it and say receive like what around market than there international really from UK ASP where sales from typically slightly was stems the Australia. we international units

mix although of UK internationally QX. in the percentage units what drove down consistent, higher number that relatively sold is ASP the shift between were So

ramp us share the just a obviously sense. to particular you Is ramping, makes trying capacity betting or with modest -- to for kind of And it will side strategy? particular. [indiscernible] talk what assume talk it of Okay, build obviously fair about you bit little You're relatively finally, be capacity? can that maybe on can then that kind as on digital you in up

but is platform, I whole to digital to today, up, on digital I and the strategy am be one marketplace of sure the aggregator our content basically of You our broke iGaming goal caught provider enabling service think question, kind I look, you're so not today. sports in leading the the referring number if on on full

continue a to kind Oneida we solution market investing well in business our UK successful. our bringing Europe North lot the a in of the We as from an have incredibly on scalable, to extremely -- we're and a continue and best taking today as of product perspective now. players the -- other decades, share partner frontend across the and in board position most the over of -- marketplace, and in market on position while America, then, reliable, been customizable, -- win we North ourselves a on And compliant Europe we in America, and we've know on solid having we've Caesars that with America, and such UK working there's which which lot marketplace, will really believe deals focus having North of we -- in strong to we leader the the the put continue product become

think North a marketplace today. So the is which nascent we America opportunity, big in the still is sports,

in still investment So, mode.

with and before -- that in kind -- iGaming think it's of to obviously of we market US along opportunity big extremely a I Jersey, one a becomes that, market side. we on around focus, the in others the in three iGaming. have North sports will a mentioned two years -- but and believe that before, to America then, a content on not is important but XX% is New things we in addition side, will about as bear that material, expect We it's is the few And think take XX% platform couple the share with the something that fruit. and it I North America,

these that and positioned. we're form sports, legislation big states to which starting in to opportunity well contemplating starting also legalize extremely As iGaming are is that space, around another they are and

in starts we're as sports outset And third today. and America launch on America also achieved setup the iLottery most the really position in we've that the mentioned then iLottery. we to and solution North leading successful recently We've is adopt that we're just in iLottery leg So, iGaming also launched developed a a that great Pennsylvania North

solution it's up the in nicely capture granted position class and so we've that really those to content been but as be enabling built XXXX those future platform, to scale. are value And this really across three chain investment mode of and of growing as also set world will adopting a a spaces well. all leading markets the in and and in all market through year, starts we And will in it

Mike Craig-Hallum [Operator from Instructions] Group. go ahead. Please of comes Malouf Capital Our next question

Mike. the machines trial for you guys, Hi, Des taking how SciQ and a the my to-date on current bit Could Thanks for was Eric about has with period? this lottery. footprint, Thanks. little I and opportunity is this your if Lauriers into results dive evolved of your could over assessment opportunity talk question. you more wondering the the

sure. Yes,

of before, you thousand instant kind commented retail if market tickets sell down, plus there's to break total at lottery we've for today. addressable SciQ, that the that look As locations XXX

State lottery. to basically them, that's how making Kroger through are they in Ohio, over as actually those, and they in Barry we're excited They perspective, that of program to want sale and a location, have so XXX pilot play locations process exciting they in every we've to the where one see added to with as commented, able is which XX% Walmart high news get then and the going volume the around about we out put units. have From of us State market the roughly And rolling about accordingly. through think just roll those determined which done we've going perspective, Florida of XXX would as is Ohio the from of a to Now, a contract commented, Barry XX,XXX is been out that roughly that SciQ type the where is trial we out represents which to want determinations for locations. more for

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retail instant and think their they about of than cash into then If different and their tickets they you that record reconciling to every sitting labor time the of the it, countdown the the read in revenues therefore, in -- down retailer is to at register amount the no tip a the is there significant that data ticket those till for POS. the that goes counting day, are

additional retailers stimulate help features two SciQ. within will important the benefits the benefit security growth that getting around and the are that So, that items really

David Our go next question from Katz comes ahead. Please of Jefferies.

This for is on Erik Hellquist David.

additional of any to Just any get color but I wanted James franchise, in on metrics you prepared to the to are well of wanted us remarks, touch give willing as as Bond share? had discussed kind can just kind you know quickly on you detail your

mentioned of, was are say best the have I games in I'd over as earlier, ever. basically They our comparable had WAP -- think, to we on well we casinos. Wonka that think Gamescape, essentially, I terms said, kind XXX that installed game is, performing as XXX quite did over the things Q which

the seeing floor we're three average so times on exceptional. Bond, to is And which two

and that door extremely fact in as yields QX. been with hit the and footprint a right well because got Bond I we've were largely think such we had our able to -- we've for the products coming So in pleased out Bond more which to now, quarter we the is again attributed the franchise over grow

about So, it. again, very we're happy

got AND one here coming I think again. LET two maybe DIE we and or LIVE other titles out

So, with very happy it.

just of give your And sense kind get for kind just you what question you and expect another the target of leverage a pathway profile. Could would on us there? to leverage

are, sheet. objective targets a free cash in say, use but as from, and our our Yes, Company is perspective as our from guidance from really give unfortunately, drive we to and delever balance don't far that I to specifically, Barry should key I order leverage flow to what

below when get we X. X. today, below get So initial where then below target to to X, we let's is given drive going And get is are our leverage

we of, we're But that we to couple want operations pathway the don't take market. have the anything a to times, at an go, initial that's be an based Now perspective. from setting target x on saying, that will of where disclose years we actually at effect and that to

Taylor comes Please America. Bank of question next go Our James of from ahead.

of when Canadian units that to contract to if we was ongoing. expected the impact versus are and in impacted could be like what the of roll what's out, the be run think know about you is then rate sort on guess, first, will service sort which be? that quantify mentioned 'XX, that wondering I 'XX of fees sort help number I just I will system you of

'XX. it I were really sized -- mean, place Yes, larger this would and look I more at significant taking the throughout installations

it's to Canadian $XX year-over-year So around Canadian guess would the would running I'd just say, be start the be million we deals to I say going probably systems. with systems expect that decline downward. -- would in associated somewhere best

quarterly of quarters that quarter. up of the like the maintenance roll fees year. get the some start a collecting From throughout the couple I'd I on with fairly out we're a, say roll the say, it as view However, made throughout of additional going out, the to should will lumpy is throughout continues. that each

of to related but this just the were opportunities around add to to stages mentioned X to Canadian total I of base the have replacement systems, iVIEW addition the think over iVIEW other in with X, still X relates the XXX,XXX, in XX,XXX puts on just and growth earlier, XXX,XXX but is and QX, placements. basically healthy did over installed bringing we've the And deployed -- in existing. our X early it cycle, one it us that as we continued thing We

beyond lot So, to upside what relates in iVIEW it doing still of X we're the as Canada. a

that remarks, should in to and us be cash assume flow there we about one-time years bunch CapEx, a just prepared a your the of you mentioned are cash in NOLs and from interest update? Other that an in just anything will come. could there are And than you then, obviously one Mike, follow-up, for in flow items place if I 'XX perspective be thinking 'XX. give in

Yes.

perspective, I'll flow X%s, the year year. changed But And net LNS from timing for free end Shuffle was matter, billion the the our the course operating as of we So about NOL From then an of of cash perspective, throughout covered one we've the timing senior $XXX the Tech as X.X refinanced kind of X%s, payments accounted answer which roughly interest in payments QX a losses QX, quickly. of end QX. cash in just was more notes QX, the of to flow we cash concession. the listed a the but the free accrued free the almost million. take we for just payment million interest when QX $XX $XXX which additional -- out if of are had you about million you account things, for million cash last the that and of negative of flow a When QX, of payment so $XXX.X couple yet took into the

a to favorably in which QX. $X.X cash those from get sum the exclude those the quite this you we much flow take free three of normalized number, of that number, to kind had items, compares more You million and

anticipate As LNS refinance is, we've that the again timing perspective, payments, XXXX. horizon the use similar only have that's the in very on Shuffle if we impact could anything we that's a look into thing timing cash we're of the XXXX, concession the that of a timing of refinance it's you significant Tech accordingly, type interest seen like able anything The but don't that not have don't could payments. settlement. We to to

prepared be in from to much said I as XXXX, a cleaner expect flow perspective. a would marks, the cash we year So

session. to the turn to question-and-answer any closing I like would our for remarks. back Barry over concludes conference Cottle This

Thanks, us the The next very forward quarter for your you ahead for opportunities much. support. organization call. Thank accomplishments entire our our and everyone, results to today. We you upcoming Look updating during on joining first excited of appreciate is us.

presentation. The conference Thank has for concluded. attending now today's you

disconnect. may You now