International Game Technology PLC
Q3 2013 Earnings Call Transcript

Published: 24 Jul 2013

[Operator:]

Welcome to International Game Technology's Third Quarter Fiscal Year 2013 Results Conference Call. [Operator Instructions] This call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Kate Pearlman, Vice President of Investor Relations and Treasury. Thank you. You may begin.

[Kate Pearlman:]

Thank you. Good afternoon, and welcome to IGT's Third Quarter Fiscal Year 2013 Earnings Conference Call. Leading our call today will be Patti Hart, our Chief Executive Officer; and John Vandemore, our Chief Financial Officer. Before we begin, I'd like to remind listeners that our discussion today will contain forward-looking statements concerning matters such as our expected financial and operational performance, including our guidance for fiscal 2013; our expectations for the economy in general and the gaming industry in particular; the expected impact of the DoubleDown acquisition; and our strategic, operational and product plans. Actual results may differ materially from the results predicted, and the reported results should not be considered as indicative of future performance. Potential risks and uncertainties that could cause our business and financial results to differ materially from our forward-looking statements are included in our filings with the SEC, including our most recent Annual Report on Form 10-K and our most recent quarterly report on Form 10-Q. All information discussed on this call is as of today, July 23, 2013, and IGT does not intend and undertakes no obligation to update this information to reflect future events or circumstances. In addition, on today's call, we'll discuss certain non-GAAP financial measures, including adjusted earnings per share from continuing operations, adjusted operating income and adjusted earnings per share from continuing operations guidance. Reconciliations of these non-GAAP measures to the GAAP measures we consider most comparable can be found in today's earnings release, which is posted on IGT's Investor Relations website, igt.com/investors, and included as Exhibit 99.1 to the Form 8-K we furnished today to the SEC. We'd also like to remind you to download the IGT Investor Relations app, where you will be able to access our earnings release and other information about the company. Finally, all references to 2013 or 2013 year refer to our fiscal year 2013. And now, I'll turn the call over to IGT's Chief Executive Officer, Patti Hart.

[Patti S. Hart:]

Thanks, Kate, and welcome to everyone. We are pleased today to report that our business delivered another quarter of solid operating results, demonstrating that our strategy is working as we engage players with our premium content across both the traditional land-based and interactive channels. Our list of accomplishments this quarter is lengthy, but I'd like to draw your attention to 3 notable areas. First, our machine sales activity contributed substantially this quarter, particularly in North America, as we continued to capture significant market share in the Canadian replacement cycle. We also secured a considerable portion of the Illinois market, as we benefited from shipments resulting from robust demand for our VLT product. Second, our continued focus on IGT's social gaming business at DoubleDown resulted in another remarkable quarter of growth. DoubleDown marked a significant milestone recently as it surpassed Zynga Poker as the top-grossing social casino game on Facebook. We are generating monetization rates at DoubleDown that, frankly, are the envy of the industry, nearly double that of our nearest competitor. This performance is propelled by our best-in-class IGT content, along with a purposeful approach to player conversion and retention. And DoubleDown's mobile platform has gained substantial traction, recently ranking as the top-grossing social casino app ever on iPad. Looking forward, we are excited about the growth opportunities at DoubleDown with new products in new markets and through enhancement of our mobile platform. Finally, for the third consecutive quarter, we announced an increase in our dividend, a demonstration of our commitment to a balanced and measured approach to the allocation of capital. This marks the 41st consecutive quarter that IGT has paid a dividend. And further, we invested $60 million in research and development, continuing our long tradition of product and technology innovation. Before I turn the call over to John, I'd like to take a moment to celebrate another recent achievement at IGT. As I have previously mentioned, the competition for talent is fierce. It has always been our goal to be a best-in-class employer, one that attracts and retains the highest quality talent. Our hard work was acknowledged this quarter when Seattle Business Magazine declared DoubleDown in a virtual tie for first place in their Best Companies to Work For competition. Our employees around the globe create value for our shareholders every day through the many initiatives that they are driving forward. Thanks to our Seattle-based employees for the big win and to the entire IGT team for delivering another outstanding quarter. We are really looking forward to G2E this year and the opportunity to showcase our new product lineup and once again exhibit our commitment to IGT's rich legacy of creating the most engaging games and the most advanced technology in the industry. With that, I'll ask John to cover the financial details.

[John Vandemore:]

Thank you, Patti. This quarter's robust results demonstrate our commitment to generating profits and maximizing returns on invested capital. Highlights included increasing consolidated revenues 9% to $579 million, improving adjusted operating income 19% to $154 million and GAAP operating income 29% to $123 million and driving a 43% increase in adjusted earnings per share to $0.33 and a 56% increase in GAAP earnings per share to $0.25. I'd like to begin this quarter's review with product sales, where our continued momentum was reflected in a 39% increase in North American replacement unit shipments. We are confident that we maintained our industry-leading ship share in the replacement market this quarter. A mix of lower-priced VLT units impacted our average sales price, which was down 3% in the quarter, but product margins remained steady at 54%. Our best-performing titles include Triple Red Hot 7s, which is available both in mechanical reel and in our Multi-Layer Display video format, offering a unique, engaging 3D gaming experience. The newly released Sumatran Storm is also a favorite, building upon proven math models from the hit game Siberian Storm and featuring two-level progressive play in video or Multi-Layer Display format. And we're excited about the success of Huevocartoon, a market-attuned game that we originally launched in the Latin American markets and have now introduced in the U.S. where it's generating strong player demand. In our international markets, we drove a 4% increase in revenues due to a lower mix of used machine sales versus the prior year. We remain focused on expanding our localized game play, demonstrated by the strong performance of 2 market-attuned Asian-themed games

[Patti S. Hart:]

Thanks, John. In closing, I'd like to take just a moment and share my perspective on just a couple of things. First is the challenges that we have all been facing in this industry, quite frankly, still exist. We're all well aware of what they are, and for the most part, we have adjusted our businesses to the new normal. However, as we make these adjustments, there are still real, significant areas of potential growth and expansion in this business. It's our responsibility at IGT to uncover those opportunities, to seize them for our benefit and, frankly, for your benefit, the shareholder. And we're doing just that, as evidenced by our outside participation in Illinois, our outside participation in Canada and the market-leading position that we have built in social casino gaming. So at the end of the day, we're doing our job. We are finding the bright spots in an industry that certainly has some headwinds, and we are positioning IGT for success in every instance. And next, our vision is, at IGT, and has been for some time, to lead the convergence of gaming around the globe, not just here in the U.S., but everywhere internationally, extending our content and services to everyone on every device. And we are successfully executing on this plan as we expected. Others are clearly adapting a very similar strategy coming around to the same place and making the same conclusions that we've made, and in fact, have decided to deploy risk and valuable capital towards the same end game. But for us at IGT, the path forward is easy. We will stay the course. We will focus on delivering the vision that we have set for ourselves. And as always, we will work hard every day to stay ahead of the game. With that, I'd like to say thank you very much for your interest in IGT, and also say that I'm looking forward to seeing each and every one of you at G2E in September. So with that, we'd like to take your questions, please.

[Operator:]

[Operator Instructions] And our first question comes from Shaun Kelley with Bank of America.

[Shaun C. Kelley:]

I was wondering if we could start by talking about product sales and what you guys are seeing there. Could you just give us a sense of how much Canada and Illinois meant to the quarter in terms of units? And then maybe in particular for Canada, as you begin to lapse some of those units for next year, could you talk a little bit about some of the opportunities? I think, in the quarter, there are some disclosures around maybe Oregon opening up. What are some of the bigger, lumpier product sales opportunities might be for 2014?

[John Vandemore:]

Sure, Shaun. I'll tackle that. So just to get the stats out of the way. Canada was about 3,300 units for us in the quarter, and Illinois was about 1,300 units. Again, we think in those markets, we took outside share, and we're incredibly proud of the performance of our Canadian operations and our sales force in getting us there. They've done a great job. I think looking forward, it's hard to speculate on specific opportunities. The one you mentioned, the Oregon lottery, is what I would consider kind of normal course replacement activity. And as we move from the tremendous opportunity that the Canadian replacement cycle gave us, we're looking down every road for the next opportunity, Oregon is one. There are other states and there are some new openings planned for the year. The timing of those will obviously vary. But quite frankly, we're running down every opportunity as you would expect us to for next year.

[Shaun C. Kelley:]

That's helpful. And I guess for my follow-up, John, maybe you can just talk a little bit about the drivers that you're seeing on the DoubleDown side. Clearly, I think this quarter, we were actually expecting ARPU to maybe slow a little bit as you guys made some new -- moved into some international markets. And then it turned out the other way around that your bookings were really solid and -- but user growth slowed sequentially, at least. It's only up 6% versus, I think, like close to 20% last quarter. So can you talk about just kind of drivers, what you're seeing or maybe the cadence of some of the new product introduction there and how we should think about that segment for the remainder of the year?

[John Vandemore:]

Yes, let me start reversed, and that I think we're incredibly proud of the new products that we've rolled on to, both the mobile and the desktop platform, as well as getting into new languages. We're now in German, French, Spanish and Italian. I think those markets will develop perhaps a little bit slower than we thought, though my comment last period was in anticipation of multiple quarters. As we enter new markets, we do expect that there may be some downward pressure on ARPU as DAU picks up, and we did see a pickup in DAU. I think the positive surprise for us this quarter is that it didn't damage our ARPU and actually, we're seeing incredibly strong conversion rates continue in our domestic markets. Over time, I still expect that there may be some pressure on that ARPU number as we further penetrate the international market. But we didn't see that materializing this quarter, which was a great surprise. I think it's a testimony, I think, to the job our team up in Seattle was doing to really focus on that which is the most profitable from a growth perspective. We're not going to chase the active users to go and monetize well. We want to be balanced. And I think where we're really leading the industry is with that focus and focus on elements like churn, minimizing churn and converting users to paying users, and I'm really focusing on those paying users and making sure they're having a great experience on our site so that they continue to want to monetize with IGT. We're incredibly proud of the performance this quarter and couldn't be happier at where we sit versus kind of the landscape today.

[Operator:]

Our next question comes from Cameron McKnight with Wells Fargo.

[Cameron Philip Sean McKnight:]

First question, when we look at implied guidance for the fourth quarter, we come out at roughly $0.29 to $0.35, which, on its face, looks like a big range. Could -- John, perhaps could you talk to some of the potential moving parts in the fourth quarter? And perhaps, there are a couple of things that could fall, perhaps, in the first quarter or the first quarter that are keeping that range relatively wide.

[John Vandemore:]

Yes. I think, last quarter we talked about the fact that there can be some lumpiness to some of the orders and the timing thereof. I think the other aspect of the marketplace that we see today is incredibly short buying cycles, so shorter decision-making on replacement demand. And then the third I'd point you to is in the international markets. It's almost every quarter that we have to deal with some change in the landscape on the international markets. The encouraging sign for us is that we continue to see great demand for our product. But the allowance of our product into certain markets has been alternatively wide open in one quarter and then almost completely closed the next. And that has a pretty dramatic effect on our ability to pinpoint when we think the sales will occur in certain international jurisdictions. Again, great underlying demand, but timing the actual occurrence of the sale transaction is a bit difficult, given the backdrop of those wide range of potential outcomes.

[Cameron Philip Sean McKnight:]

Okay, got it. And then as a follow-up, Patti, you mentioned at the end of your prepared remarks that you and IGT want to lead the convergence of gaming. I mean, over the past 6 months, we've started seeing a fair amount of consolidation in the industry, and this is something that's been spoken about for the last 8 or 9 years. I mean, broadly speaking, how do you see the industry structure changing over the next, say, 5 years?

[Patti S. Hart:]

Yes. I mean, I think it is a very interesting time in the industry. I think we have, I think, been pretty solidly in the same camp for the last several years, which is really moving IGT to being a global gaming ecosystem that is ubiquitous across platforms and devices, where scale and breadth of product and broad distribution of content will matter. And I think you're finding others catching up to our thinking a bit in that area, where the broad-based reach really begins to matter from a scale advantage perspective. So I don't think surprising that we're seeing some of the movement that we're seeing. To a great degree, we believe that really affirms the strategy that we have communicated and now been executing against for many years. So we're several years ahead, I think, of others when we really think about where the business is going. And with the headwinds that the marketplace is challenged with, as we all see every day, not new news, the scale does matter and the reach matters. And so not surprised. I don't think we're surprised to see it. It doesn't really change our direction or our strategy as a company. I think, again, it just -- it reaffirms what we have believed to be true all along.

[Operator:]

Our next question comes from Carlo Santarelli with Deutsche Bank.

[Carlo Santarelli:]

Just on the technical issue that John mentioned with respect to the buyback in the quarter, could you guys provide a little bit of clarity on that?

[John Vandemore:]

Yes. Without tremendous specificity, there were a variety of activities going on in the quarter, and they restricted our ability to buy back shares. It was not in any way reflective of our view of the intrinsic value of our stock, which we still think is attractively priced for repurchase activity. We have about $520 million remaining on our board-authorized repurchase. We continue to target using that authorization over the next 2 to 4 years, which is consistent with what we've said in the past. And we just -- a variety of activities contributed to our inability to repurchase in the quarter.

[Carlo Santarelli:]

And just if I could on that kind of same line of question, I guess, first is, are you still restricted on that? And second is, now with the debt payback and obviously the free cash flow accumulated, it looks like you guys are at about 1.6x net debt-to-EBITDA leverage. Do you feel as if that's the appropriate leverage ratio going forward, especially given peers have taken on incremental leverage and are still getting a premium valuation multiple at this stage? How are you guys kind of juggling that?

[John Vandemore:]

Well, I'll make it a point not to talk about my peers' leverage. I think, generally speaking, we have said that we like to be at about our historical leverage level, which is about 2x. So we're a little underlevered at the moment. That's, in my opinion, the ebb and flow of quarter-over-quarter variations caused in part by the technical restrictions we were under in the quarter and a variety of other factors. So I would expect that as we get back into repurchases, which is certainly our intent as it relates to the remaining authorization, you can see that climb a bit because we are a little bit under where we're at today. I do think we always want to apply a judicious approach to the deployment of capital and ensuring that we maintain as is prudent we feel our investment grade credit rating. That's something we've held on to for quite a while. We feel it advantages us in borrowing costs. It will advantage us on the day we need to deploy capital for a strategic reasons. But it's also, I think, the prudent part of managing what is the industry-leading balance sheet, and it allows us to do things for our customers that others can't, that advantages us on the core business as well. So I think we are a little bit under where we're at, but that is just the normal ebb and flow in my opinion from a kind of quarter-over-quarter activity.

[Carlo Santarelli:]

And John, just -- I'm not sure if you mentioned in there, but are you still currently restricted today?

[John Vandemore:]

We don't comment on exactly where we're at, but I can assure you, we intend to exercise the remainder of our board authorization over the timeframe that we've specified.

[Operator:]

Our next question comes from Joe Greff with JPMC.

[Joseph Greff:]

On the topic of capital deployment gaming ops CapEx is $30 million in the quarter, with $78 million for the year-to-date. How sustainable is that level? And at what point do you need to re-up that to defend or grow the installed base?

[John Vandemore:]

I would say I don't think we look at is as either defensive or offensive measure. I mean, how we look at capital deployment is that we believe there are risk-adjusted returns that are attractive to the company will put the capital at work. We have been very disciplined about that notion. And while it would be easy to, in our opinion, shape yield by deploying a lot of new machines without respect to -- for how they're going to return over the long period, we could do that. But that's not what we think you want us to do. Now again, opportunities to increase our installed base we'll look at with diligence and if they're attractive on a return basis, we'll put them to play, but we're not going to chase yield, and. That's what we -- that's the fortitude we've been demonstrating over the last couple of quarters. Again, this year, I think we're going to be meaningfully under where we were last year. After that, it's really dependent upon market opportunities and conditions. And we'll adjust capital deployment to accommodate that as long as the returns are there for you.

[Joseph Greff:]

And a question for you on North American product sales. We saw broadly June domestic gross gaming revenues were soft. Penn National today on its earnings call indicated July is similar to the soft result we saw in June. What kind of conversations are you having more recently with your slot managers with respect to budget slot spend here in the second half of calendar '13?

[Patti S. Hart:]

Yes. I would say, Joe, again, I mean, we haven't really seen a significant change in the tenor of those conversations, I think very similar to my earlier comments. I mean, you see these things kind of move around in pockets. And the pockets can be geographic, they can be customer-to-customer, they can be in game ops versus our for-sale business. So the pockets kind of move, but the sheer -- that the volume has not picked up as far as the volume of the voice from the customer on concern about their budget. So I would say the volume is there. The people we're hearing from are different than they were a year ago or different than they probably even were a quarter ago. But again, I think it's the nature of the business. It's really looking for those pockets. We used to look for pockets on an annual basis. Now we look for pockets on a quarterly basis because it does kind of move around just that fast. Some are much more closely tied to gross gaming revenue than others. Some are more tied at the regional markets than others. And it's really about focusing our energy and our capital and our time and our discounting and our creative selling on those opportunities that we think are available, and that move the needle to most. And I think that's why you've seen us really hold up our market share and be able to not only grow revenue but grow the profitability from gross margin to operating margin, because we've been very, very opportunistically focused on the marketplace. So I would say no increase in what we're hearing, but shifting in who we're hearing from.

[Operator:]

Our next question comes from Harry Curtis with Nomura Securities.

[Harry C. Curtis:]

A couple of quick questions. So 3,300 units in Canada, when would you expect that to begin -- that order to begin getting close to fulfilled?

[John Vandemore:]

We think our last shipments into -- last meaningful shipments relative to the, if you will, the replacement cycle will conclude next quarter. Again, that's pending timing of orders and customer demand, which is not something we control, but we would expect that significantly taper off after Q4 FY '13, and currently expect that Q4 will be less robust than this quarter was.

[Harry C. Curtis:]

And is it reasonable to think that the pace of replacements in Illinois, is that a fairly sustainable level at 1,300 a quarter?

[John Vandemore:]

Actually, I would not make that conclusion only because last quarter, we saw a sort of significant curtailing of approval activity for end destination points for the machines. So it's actually, to Patti's point again, something we watch quarter-over-quarter. We certainly are targeting that. We're doing everything we can to substantiate a level of demand that is consistent with what you saw this quarter. But again, the quarter before that, we saw a significant contraction in demand. So it's something we watch quarterly and would hope to push at this level, but we can't be assured of and we have to remain nimble on our toes about them.

[Harry C. Curtis:]

Okay. And then just shifting real quickly to game ops. The revenue per day declined again. Can you talk about just the competitive dynamics that you're coming up against with respect to other operators in the game ops segment? Do you find that they're more willing to cut better deals? What's putting pressure on the revenue per day in your view?

[Patti S. Hart:]

Yes. I mean, I would say that the most significant pressure on the yield numbers is gross gaming revenue. I mean, it really is so fundamentally tied to consumer spending. There's a component, clearly, I think, the component of competitiveness that is in this market. I think if you look at our units, I mean, we were flat on units for the quarter, and where we gave up was on yields. But certainly, the decline is not as dramatic as it was previously, in the previous quarter. And we're holding up on margins, which again, is what we were focused on is when you see these gross gaming revenue trends coming and you don't see an end in sight, the focus has to move from the revenue line to profit, which is what we've been doing, judiciously deploying capital, I think, into that market. So I wouldn't say again in this part of the business anything has changed significantly. There is certainly more choice of products that are in the game ops side of our business today than there were several years ago, but we've really been able to hold our share of the floor even with these new competitors coming in. The discounting and the capping, I think, is about at the same level that it has been for the last year or so. And I think everyone now is seeing that gross gaming revenue is really where we're all dealing with pressure.

[Operator:]

Our next question comes from Robin Farley with UBS.

[Robin M. Farley:]

I wonder if you could give us a little bit of color on the ASP in product sales if you exclude the Canadian VLTs, just to get a sense of kind of more of the same-store basis what ASPs look like.

[John Vandemore:]

Yes. I mean, the Canadian and Illinois VLT sales were a heavy influence in the quarter, so that's the most significant downtick. From there, we did have a little bit of mix shift out of our MLD product, which is our higher-priced product. But again, the far-and-away driver of ASP performance was the VLT units.

[Robin M. Farley:]

Okay, great. And just a quick follow-up question. Have you -- I don't think you said anything about the timing of when you may be able to start online operations at New Jersey, what you think that may be?

[Patti S. Hart:]

Yes. I would say, Robin, it really is -- I mean, we're not an operator in the New Jersey model, we're a supplier. So it's really about when the operators will be up and running. So we're lined up behind them. We're purely in a B2B model content-only kind of plugged into whomever's platform. And so our go-to-market, as our go-to-market is in our land-based business is dependent upon on the operators going live. So as you would imagine, we're working with a whole host of folks who are preparing for that market to open, doing it in a B2B model, with a revenue share model that we would have expected with our content being priced at the premium level based on the experience we have outside the United States. So we're sitting back behind the operators, working with them round-the-clock actually getting ready for that market.

[Operator:]

Our next question comes from Edward Williams with BMO Capital Markets.

[Edward S. Williams:]

I just wanted to dive a little bit deeper into interactive for a moment. Can you give us a little bit of color as to what you think is really driving that increase -- that significant increase we're seeing in bookings per daily average user? Then also, can you provide a little bit of color as to how DoubleDown has performed since you launched the platform into multiple languages?

[John Vandemore:]

So I mean, I hate to make it sound trite. I think our focus on not just driving active user participation in the site, but rather converting those users to paying users, and then once paying users, converting them to heavy users of the content by continually bringing them new content. I think that's the one advantage that IGT has that no one can match is that we're continuously bringing new slot content, new game content. We talked about the enhancements to our mobile platform. That was leveraging other content that we have used internationally and some of our fantastic land-based product in the poker arena as well. So for us, I think it's more of a focus on limiting churn, converting users to paying users and retaining paying users and delivering them exciting content on a consistent basis that really drives the average booking per active user up. I think what we've seen so far is tremendous uptake in the new languages with usage. But to be clear, we're just getting into those markets. And I think any new market, be it online or on land, takes some getting used to, some understanding. We have yet to launch into what I would consider to be full-scale marketing in those regions, but it's certainly starting to do so. And as we learn the market, as we learn what entertains players and what converts players to paying users, I think you'll see us gain traction in those markets. But right now, we are focused on in those markets like we are in the domestic markets, giving them content that will appeal to the users we know enjoy IGT games because that's what we're seeing pay off in the U.S. and domestically with English-language customers.

[Patti S. Hart:]

I think it's just important to add some note. I mean, this was a conscious decision. I think we started talking to you all about this 3 or 4 quarters ago, with a conscious decision we made to spend our time and energy and resources to convert players, monetize players and retain players. That has been our focus. We made the decision that with conversion rates being what they are in the industry, spending money to put people in the top end of the funnel was not a very efficient way to make our business model work, that we would focus at the bottom of the funnel on conversion, retention and monetization. And it's about content and stickiness. So the more content and the better your content is, it matters. The stickiness, as far as all the hooks around it, the tournaments, the free play, the social connectivity that exists in that business are critical elements of the people who choose to play those games, and that's what we've been focused on. We did launch video poker into that market which made a difference for us. We've upgraded the poker that we had in the market, and we've done some very good work around tournaments, I believe, in this business. And so really applying those sorts of things and managing customer acquisition costs to those outcomes as opposed to bringing more window shoppers in. We really would like the window shoppers to come inside the store and actually buy something. So that's what we've been focused on.

[Edward S. Williams:]

Okay. And looking into the next quarter or so, in the short term, as you pick up more users from those additional languages, do you expect that bookings per daily average user to go up or down in the kind of near term as compared to the longer-term trends?

[Patti S. Hart:]

It depends if you ask John, if you ask me.

[John Vandemore:]

If you're asking me to hang out again on a quarter. What we know about those markets is they do tend to monetize at a lower rate than domestically. But quite frankly, I think now I'll reserve my forecast until we actually get into the market and really get a lot of data around it. It's reasonable to conclude based on what we know historically, that we could see some pressure on average booking per daily active user. But we're going to try to convert them at a similar level. And we think the characteristics of game play in those markets are very similar from a content appreciation standpoint and certainly have high hopes of maintaining the bookings per user. It's possible they go down, but you'd also see an offset in terms of either paying users or active users in compensation for that.

[Patti S. Hart:]

And I think to -- again, one of the other dynamics going on in the business is at the same time we're launching these languages, our mobile business is growing significantly, and it is monetizing at the same rate as the desktop. So when you -- I mean that is kind of unheard of, actually, in the industry. So we've actually been able to take the product to mobile and monetize, which is why we are the top-grossing app on Facebook -- or on the iPad for this. And so that is also providing some nice tailwinds, I think, for us as we roll these languages out.

[Operator:]

Our next question comes from Todd Eilers with Eilers Research.

[Todd Eilers:]

Two quick questions. One, a follow-up on the interactive and DoubleDown, obviously, strong mobile growth in the quarter. Can you give us a sense for how much mobile currently represents of the total mix? And how -- assuming that this continues to become a larger percentage of the total going forward, how does that change the business model for you going forward, good or bad? And then second question was on the gaming ops. Just at this point in time, relative to last year, how do you feel about the current lineup of premium content that I'm sure we'll see you guys display at G2E here in a couple of months?

[John Vandemore:]

Yes. So we're not going to be terribly surprised -- precise on our mobile versus desktop other than that one agrees this mobile growth has been fantastic. I'd say vis-à-vis the market, we have an opportunity to grow mobile, continue to grow mobile. I think the additions we made to our platform will propel that. It doesn't really change our model because I think one of the advantages that the DoubleDown Casino offers is the ability to play on mobile and play on desktop with the same bank. And that's what we're seeing active users do. And we want to continue to facilitate that. So I don't -- it won't change our model. I think it just -- it requires that we focus equally on the desktop platform and the mobile platform. And quite frankly, we caught up a lot. On the mobile platform, we're not yet where we want to be, but we'll continue to work towards that. The enhancements we've made, though, have clearly propelled usage, which is demonstrated by that 41% growth sequentially on the mobile platform. I'll let Patti do the G2E lineup question.

[Patti S. Hart:]

Yes, in the G2E lineup. I'd say I've been spending the last 6 weeks or so of my life kind of helping get these games polished up for G2E. And I would say that the MegaJackpot lineup for G2E is as good a MegaJackpot lineup as we've ever had. I think it is an incredibly diverse lineup of products, some of it coming in just plain brands, which everybody looks for and everyone is drawn like a moth to flame to the big new brands, but we've been very focused on things that go beyond the brand. So you can expect to see some very interesting new game mechanics, which I think will be surprising and unexpected in the marketplace; bonus features, some new math in this part of our business and some new display format. So I think we've really taken that part of our business as we march towards G2E away from just trying to parade out the next new brand and really creating a new gaming experience. Protecting some of the currently successful gaming experiences, so we're not a complete departure, but I think really adding new functionality from bonuses to mechanics to display formats that I think you'll be impressed with.

[Operator:]

And our final question comes from Steven Kent with Goldman Sachs.

[Steven E. Kent:]

So, Patti, I just wanted to talk to you and hear your view on international growth opportunities. At your last analyst day, that was one of the trends of what to look for out of IGT over the next few years. I just wanted to hear your update on Europe, Asia, South America, what you're seeing from a competitive front and how much leverage you're getting into those markets just from machine sales and participation gaps.

[Patti S. Hart:]

Yes, I think it's a good question, Steve. I would say a couple of things. First of all, I think, if you just look at the quarter in the international products sales, we had a nice lift, about a 6% increase in our ASPs in the international markets on a combined basis, which I think is a really nice reflection of our focused effort on building relevant product for those markets. So I think we are starting to see some signs of improvement. I think similarly in the game ops side, we've seen a lift on our installed base in the international marketplace. So I think 2 very good early leading indicators that the work and the focus that we've been applying to that marketplace is returning to us. I think if you look beyond this quarter kind of into the future, I would say the 3 markets that you outlined, I would put in, the great opportunity in South America for us if we can tackle the structural issues of really getting product to market there efficiently, effectively for our customers. That is the one pocket in the world where we can run all day and cannot satisfy the demand that the marketplace is delivering to us. So a great market for us. A different problem to solve than there is in other parts of the world. There's not a demand shortage there. It's really the structural issue of getting products into our customers' hands that we're working on. In Asia, great opportunity there for us. I think our early market-attuned games into the Asian marketplace have been met with success. I wouldn't say roaring success. I would say these are kind of nice doubles and triples. We'd like a home run or 2, so I think you'll continue to see us focus on that. We've made great improvements, but we haven't climbed that mountain entirely yet. And we're finding that the market-attuned notion of those games from brands, to math, to bonus rounds, to art, to graphics matter in that market. And so I would say more to come there. As we're working through our portfolio planning for next year, it'll get a nice boost, I think, of investment to move ourselves up that chain. And in Europe, it's just very spotty. It kind of comes and goes in Europe by country and by product type. The VLT part of that business in Europe seems to be growing a bit faster and with more health than a traditional casino business. So we've had to redirect some of our efforts to, I think, taking a stronger position in the VLT markets in Europe. So I would say Europe growing the slowest, the other 2 growing about the same. Different challenges, one is a product challenge; the other one is a route-to-market challenge. And I think we have good plans to address all of them. And I would say I'm still as bullish on the international market as I have been for many years, so.

[Operator:]

At this time, there are no further questions.

[Patti S. Hart:]

Well, thank you. We look forward to seeing everyone in G2E, showing off some good new products, demonstrating our commitment to technology. We appreciate your interest in the company. Thanks very much for signing on today.

[Operator:]

Thank you. That does conclude today's conference. Thank you for your participation, and you may disconnect at this time.