Scientific Games Corporation
Q3 2021 Earnings Call Transcript

Published: 9 Nov 2021

[Operator:]

Good day and welcome to Scientific Games Third Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I will turn like to turn the conference over to Jim Bombassei. Please go ahead.

[Jim Bombassei:]

Thank you, operator, good morning, everyone. During today's call, we will discuss our third quarter 2021 results and operating performance, followed by a question-and-answer period. With me today are CEO, Barry Cottle; and CFO, Connie James. Our call today will contain certain statements that include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For information regarding these risks and uncertainties, please refer to our earnings release issued earlier this morning, the materials relating to the call posted on our website and our filings with the SEC. We will also discuss certain non-GAAP financial measures. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release as well as the investor section on our website. On September 27th of this year we announced that we had entered into a definitive agreement to sell our Sports Betting business to Endeavor. On our October 27th we announced that we entered into a definitive agreement to sell our Lottery business to Brookfield Business Partners. We expect to complete these transactions during the second quarter of 2022 subject to the applicable regulatory approvals and customary closing conditions. Beginning in the third quarter of 2021, we reflected these businesses at discontinued operations in our consolidated statements of operations and reflected the assets and liabilities of these businesses as held for sale in our consolidated balance sheets for all periods presented. We are reporting our results of continuing operations in three business segments

[Barry Cottle:]

Thanks, Jim. It's great to be speaking to you today. First, I want to welcome Connie as our CFO. She has hit the ground running and is already making a meaningful impact in our organization, as we have successfully executed on a number of significant strategic actions since she took the helm. What an exciting past four months this has been. We are making tremendous progress on our strategic pillars and our vision to become the leading cross-platform game company. We've optimized our portfolio, moving from a holding company to a streamlined content company, singularly focused on building great games, fully cross platform. Importantly, we are achieving our objective to significantly delever our balance sheet, enabling us to be more nimble and invest to grow. To recap our major milestones in the quarter, we have entered into definitive agreements to sell our Lottery and Sports Betting businesses for 7 billion in total consideration. Providing us with net cash proceeds of $5.8 billion that we will use to radically transform our balance sheet and shift us from being a debt-to-an equity story, following their close, which is expected in second quarter of 2022. The great thing is we already have all the pieces in place to execute our vision and drive sustainable growth and profitability with

[Connie James:]

Thanks, Barry. It's great to be with you today and I've had the opportunity to meet some of you and for those whom I haven't, I look forward to connecting soon. First, I want to start by thinking our fantastic team for their commitment, hard work and passion over the last several months. We have world class teams and they have accomplished a tremendous amount on the strategic front all while continuing to successfully execute on the day to day. We have an exciting path ahead about the Scientific Games as we look to unlock significant value. We are seeing our company come together and coalesce around the strength and culture that realizes the value we can create with our new vision and focus. We are moving quickly announcing the sale of our Sports Betting and Lottery Businesses, while layering in organic investments as well as the acquisitions like Authentic, Lightning Box and Koukoi. You are quickly getting to see the shape as well as the pace and agility of our new organization. The divestitures put us on a clearly defined path to materially de lever and provide us with the ability to invest for growth both organically and in organically. Now let's turn to the quarterly performance. As Jim spoke about in the opening remarks with the announced sale of Sports Betting and Lottery we have classified those businesses as discontinued operations. In the quarter we make great progress strategically, operationally and financially. And I want to highlight a number of key takeaways from our new businesses consolidated results. We have strong momentum with consolidated company revenue up 25%, and we generated income from continuing operations of $100 million. For the quarter AEBITDA was up 74% year-over-year, driven by Gaming and iGaming. In terms of the balance sheet, we continue to make tremendous progress deleveraging organically. Paying off the revolver with $135 million payment in October and reducing net leverage to 6.6 times. Our teams continue to focus on productivity generating $187 million in operating cash flow and $130 million of free cash flow on a combined basis in the quarter. Listing to the business unit results in Gaming, we continued to make great progress with strong year-over-year and sequential growth in the quarter. Revenue increased 47% year-over-year and AEBITDA was up 123% to $172 million. The business also delivered sequential growth with revenue increasing 3% in AEBITDA up 10% excluding the UK FOBT recovery last quarter from. From a bottom-line standpoint, the team continued their focus on driving productivity and efficiency, enabling them to deliver AEBITDA margins of 51% in the quarter and 50% year-to-date. Importantly, there were several key underlying trends that drove growth in the quarter and give us confidence in the quality and the durability of Gaming's earnings potential. In North America Gaming Operations growth was driven by improved product performance with games like Coin Combo, Dancing Drums Explosion, and Ultimate Fire Link power for driving the premium install base to an all time high of 42% of the overall mix. We also continue to benefit from elevated GGR levels in an installed base that is now 90% active globally. In Game Sales, we sell strong demand for our Kascada cabinet driven by the increased depth and breadth of our game portfolio with games like and Dancing Drums Prosperity in both our tables and systems business, where we are a clear leader we saw a ramp in the business. The North America Tables business grew 64% year-over-year, and is now 87% active while the Systems business grew 21% versus last year. As we look at the gaming business longer term we see continued momentum in share growth in our key profit pools, enabling us to drive meaningful revenue and profitability and significant cash flow. Focusing on SciPlay. The business continued to deliver a number of strong key payer metrics in the quarter including maintaining record payer conversion of 8.5%. And while revenue was slightly down in the quarter, driven by Jackpot Party, the business returned to growth in October. We continue making great progress expanding into Casual as SciPlay diversifies its business into the 20 billion plus Casual segment. Now turning to iGaming. The business momentum continues with U.S. revenues increasing 109% year-over-year, the sixth consecutive quarter that the U.S. revenue growth more than doubled. Overall the business grew revenue 6% and AEBITDA 13% versus Q3 of last year. As a reminder last year we had certain items in the number that impacted the underlying performance of the business from a comparison standpoint. If you exclude these impacts our iGaming businesses revenue grew 13% year-over-year. As Barry noted international revenue and AEBITDA growth was impacted by seasonal trends, but we expect international to rebound in Q4. Longer term, given the industry tailwinds in our differentiated position and product offering, as well as our plans to launch live dealer in the U.S. next year, we anticipate sustainable double-digit growth in the business for years to come. Let's now turn to our debt. Net leverage and cash flows, a major focus area and where we continue to make meaningful progress. We may great stride strengthening and de-risking the balance sheet ending the third quarter with total debt of $8.8 billion, net debt of $8.1 billion and net leverage of 6.6 times, which compares to net leverage at the beginning of the year of 10.5 times. Our weighted average cost of debt was 5.1%, and we ended the quarter with $1.5 billion of available liquidity compared to $1.2 billion in the third quarter of last year. As a reminder, we don't have any maturities that come due until 2024. Moving to cash flow, which continues to be a great story. We generated $187 million of combined operating cash flow in the quarter and nearly $0.5 billion year-to-date. These results drove $130 million of combined company free cash flow in the quarter and $343 million year-to-date. This translates to a year-to-date free cash flow conversion rate of 35%. This is a continued testament to how the organization is intently focused on driving value for shareholders. In fact, we've been laser focused on optimizing working capital, having reduced DSO significantly, largely in gaming, enabling us to free up approximately $120 million in working capital over the past year. I'm excited to share with you our new business' financial profile. We expect the new organization will be highly cash generative business with double-digit organic top line growth and a high mix of digital and recurring revenues. We are focused on large growing markets with strong tailwinds. The growth will be fueled by the recovering gaming market in delivering best-in-class product yielding continued share gains, strong growth in social casino and casual markets, as well as the proliferation of iGaming in North America. In an increasingly converging world as we launch gain fully cross platform, we will benefit as we accelerate revenue growth and optimize our R&D. We will continue to be laser focused on operational excellence in driving productivity to the bottom line. Accordingly, we will see margin enhancement with AEBITDA growing faster than revenue and free cash flow growing faster than AEBITDA. We expect gaming AEBITDA to exceed 2019 over the next couple of years as the market recovers driven by continued share gains and our more streamlined organization. With the $5.8 billion of net after tax cash proceeds from the Lottery and Sports Betting transactions that we anticipate in Q2 of next year, we will quickly and substantially reduce our debt, lowering our cost of capital, which will translate into significantly reduced interest expense over time. With the utilization of our $1.2 billion of NOL with the divestitures and as we drive profit, we will become a full taxpayer. In terms of our capital structure and given the certainty of the proceeds and timing of our divestitures we are focused on executing our plans to reconstitute our capital structure including using a majority of our proceeds to pay down our debt portfolio. Importantly, we have the financial flexibility and capacity to invest opportunistically, all within the context of a transform balance sheet. We are focused on driving it investment strategy that builds on the operational momentum of our businesses, while layering and targeted investments that we can scale for profitable growth. We will prioritize internal organic growth opportunities as we focus on building great gain, investing in our platforms and targeting high return capital investments. In terms of M&A we will have a disciplined approach continuing to assure that the potential targets fit within our strategy, enhance our competitive advantage, achieve our return hurdles and are accretive to value. Wrapping up I am proud of what our company and our team has accomplished this year and how we have delivered on our promises. With our singular focus and differentiated approach we have a unique opportunity to engage players globally and deliver significant value to our employees, our customers, and our shareholders. We will move with speed and agility and always with an eye on operational excellence in driving productivity to the bottom line. It's great to see how much we've accomplished in such a short amount of time and we're just getting started. I can't wait for our journey ahead. I'd now like to open the line for questions. Operator?

[Operator:]

Thank you. And the first question will come from Barry Jonas with Truist Securities. Please go ahead.

[Barry Jonas:]

Thank you. Thanks for taking my questions. Wanted to start with the Lottery Sale; do you feel that you guys maximized proceeds there and what we’re sort of the pros and cons with going down this path versus an IPO? Thank you.

[Barry Cottle:]

Hey, Barry, thanks for the question. Before Connie jumps in, I just – I'd like to say that this transaction with a great outcome of a great process, and I'd love to give some context to as to where this transaction takes us, because on the heels of this deal this is completely transformed us from a holding company to a unified company, streamlining our organization and singularly focused on a vision to become the leading cross-platform global game company. And now with over 7 billion of proceeds, we can radically transform our balance sheet and at the same time invest for growth. And the great news is we have all the major pieces in place and we're moving with speed and urgency to continue to unlock significant value for our shareholders. And with that I'll turn it over to Connie.

[Connie James:]

Great. Thanks Barry, and very great to be with you today. We explored multiple monetization paths with the intention of creating competitive tension in the process, ultimately to drive a great outcome and that's exactly what we did. As we went through the decision criteria there were really three areas that we honed in on

[Barry Jonas:]

Great. And just a follow-up question. You guys have done a few small deals recently and was hoping to get a little more color on sort of your thoughts on synergies from these acquisitions? I guess specifically I'm interested in the Authentic gaming deal and how big of an opportunity you think live dealer can become for SciGames?

[Barry Cottle:]

Absolutely. I'll grab that one. Look this is a great deal for us. It completes our digital portfolio and it's a perfect fit for the organization that's highly synergistic and gives us a very competitive product in a very nascent, but fast growing part of the U.S. iGaming market. We estimate or project to be up to 30% of the iGaming space. So it's a very, very important market and the perfect thing about this acquisition is what we get is a season team, a competitive product. We get a robust technology that we know scale with proven production capabilities and then we get to marry that with the value we get to bring to with is our iGaming distribution through OGS. The proprietary table IP that we have, the great brands, like Let It Ride, Three Card poker and all the kind of side bet technologies and IP that we've created, and then plus the deep casino operator relationships. And so it's actually in a lot of ways, it's a real perfect marriage that creates a very compelling product offering for this market. And for us kind of, no matter how you look at it, it's also a very capital efficient way for us to enter this market. And ultimately the acquisition uniquely positions, the only provider that has the combination of the land-based and iGamer operator relationships, the scale of innovative table content, and now with authentic the live dealer capabilities to capture these opportunities in the iCasino market going forward. So we're really excited about.

[Barry Jonas:]

Great. Thanks Barry. Thanks Connie.

[Barry Cottle:]

Thank you.

[Operator:]

The next question will come from John Decree with CBRE. Please. Go ahead.

[John Decree:]

Good afternoon, Barry, Connie. Thanks for taking my question as well. May maybe Barry, if I could jump on to the back of the last question and talk a little bit more about M&A. You've been a little active with tuck-in and haven't even closed on your transformative divestitures yet. So I was wondering if the opportunities for you going forward once you get those big transactions over the finish line, change if you have your sites on being more active on looking at larger targets. I know Connie and her prepared remarks talked about being disciplined, but given where the balance sheet is going seems like you can be disciplined and also set the target quite a bit higher. So curious if there's some doors ahead that you're looking to go through once that balance sheet is short-up and you've got proceeds from those two transactions.

[Barry Cottle:]

Yes. Look in fact I think the great thing actually is we have every major piece in place that we need to win today based on the investments we've made over the last several years. You look at NYX and authentic and the like, it really basically puts all the major pieces there for us. So go going forward we're going to pick up the balance approach that builds on the operational momentum of our business today with organic, as a priority, all that said we absolutely are going to, will continue to scan the market for talent, games and adjacencies that we'll accelerate our vision. And the good news is, and I know we've spoken about this before, but we have – we actually have a big advantage when it comes to approaching M&A in the sense that with our OGS, it enables us to scan the market to see attractive targets and trends and really help us look and dissect the market. And second, it enables us to provide instant distribution to any studio or game that we've potentially acquire. So our goal is look to approach M&A smartly with that financial rigor that you mentioned, Connie said she is absolutely so that we achieve the return hurdle, accretive to long-term shareholder value as we've done in the past. And I think, look in recent history, we have a strong track record for a success in M&A execution and driving returns you've seen with NYX, Don Best Sports Corp. So look, I'm confident that we can continue to be disciplined and balanced in our approach going forward.

[John Decree:]

That's how thanks for the traditional color Barry. And if I could ask a follow-up on the iGaming business a little bit, I mean, a lot of focus on the U.S. rightfully so given the market and how fast it's growing. But I'm wondering if there's opportunities internationally in iGaming, as you continue to do that tuck-in M&A and ramp-up your focus on providing more and top quality content. If you could maybe characterize where you see the internationals opportunities or if that'll be a growth engine as well, or if we really should just be focused on the U.S. right now?

[Barry Cottle:]

No. Great question. First of all obviously the U.S. market is huge Greenfield market for us, where we've established a leadership position that we continue to grow. We had a great quarter again with 109% year-over-year growth and we captured 2 basis points to 27%. But Europe is a big part of our business and I think there is an opportunity for us to continue to look at regional and geographic opportunities from a content perspective. And as – and I think we can do that in two ways. One is, as we've talked about before in our cross platform approach, leveraging our land-based IP into certain markets, if you remember in land-based side of the UK, as an example, we have close to 50% market share. And in that market share you've got a content engine that's sitting there in the UK building franchises that we can take to market as well as more serving the regional flavors in those international markets through content as well and regional studios. And as we had mentioned, you know, we've grown our studio base from 4 to 6 in the digital space. And I think from an organic perspective, we have a real opportunity to grow both internationally and in the United States.

[John Decree:]

Fantastic. Thanks, Barry. And congratulations to you and the company again on all of the massive strides you've made over the last couple of years, kind of coming to a culmination here. So thanks for taking the question and congratulations.

[Barry Cottle:]

Thank you.

[Operator:]

The next question will come from Ryan Sigdahl with Craig-Hallum Capital Group. Please go ahead.

[Ryan Sigdahl:]

Good afternoon. Nice results. Want to dive a little deeper on authentic as well? I guess the launch into the U.S. late next year. Why wait a full year to bring that technology here? And then secondly, how much opportunity do you think there is to expand the product offering peers like roulette is a big part of their business today?

[Barry Cottle:]

Yes, absolutely. Great. Hey, Ryan and good to talk to you. Thank you. A great question, I'll take the product first. Out in the marketplace today we have roulette, we have blackjack, we'll be launching baccarat before the end of the year. So we'll have a really nice portfolio of products that's relevant to both the U.S. and international markets on top of that. The roadmap will include our own SG branded IP that I mentioned before and from a product perspective. So we have ready-made product that covers the large categories to take to market, with the technology product and everything that's at scale to do. The way it works in the live dealer space is as you might know, there's the – the digital technology platform piece, and then there's also the live ramp-up piece of this that occurs in both casino, individual tables, as well as tables that can be broadcast across the casino environment. And that's the piece that you have to ramp-up. And so as we've closed the deal and are bringing the product to market, it's going to take a few months to a couple of quarters to get that piece ramped up in the U.S. which we will – which we will absolutely do. And then we'll obviously just – we'll scale our investment according to the demand and revenue in the marketplace. So again, it's really honestly, it comes back to that perfect fit for us because they kind of fill the piece that we didn't have, and we massively fill the piece that they didn't have. So it's wildly synergistic in that regard and that – so we're really excited because we'll be able to get a product to market next year.

[Ryan Sigdahl:]

It makes a lot of sense. One more for me, iGaming, you mentioned a lot of market share gains north of 100% growth in the U.S., et cetera, et cetera. Although overall revenue was only modestly up. You mentioned seasonal trends, I guess, what was different seasonally this year versus last year? Thanks.

[Barry Cottle:]

Yes, absolutely. I mean, I think so first of all, obviously we were up in the U.S. year-over-year and quarter-on-quarter. Europe is really, this is again still the bulk of our business, as it has the seasonal impact that you saw in Q3. But you'll see – you'll see obviously that will – you'll see growth going forward as we exit that seasonal period going into Q4. I think we will take our next question.

[Operator:]

Yes.

[Barry Cottle:]

Go ahead Ryan, sorry.

[Ryan Sigdahl:]

What's different seasonally, I think of seasonality as the same year-after-year-after-year. So I still don't understand. Maybe we can follow up offline too, if that's easier.

[Barry Cottle:]

Yes. No, no. Look, I would say this was more normalized here. You would normally see the seasonality last year, I would say it would be an abnormal year where you would probably – you had the COVID bit of the business that made it less normalized, but in a normalized year, in our iGaming market, you typically see a seasonal impact in Q3.

[Connie James:]

Yes. And I just know that there were some one-off items that were included in prior years that we normalized for this year, but overall some COVID tailwinds that were included last year, which are now normalized into the seasonality, but great business and continues to drive growth for us.

[Operator:]

The next question will come from David Katz with Jefferies. Please go ahead.

[David Katz:]

Hi afternoon, everyone. Thanks for taking my questions. I wanted to just one focus on the gaming machine business, which arguably is a bit less dynamic, but given the people you brought in and given what appears to be opportunities within that, should we think about that as a business that take, share growing topline or you know, driving efficiencies or better profitability on the bottom line, or how would we apportion both if the answer is all the above.

[Barry Cottle:]

Okay, great. Yes, I guess I'll start it. I think it's a great question, David. I would, I guess, look at it a couple of ways. First of all, I think, in that market, you have really strong macro environment happening right now in the sense that you've got the recovery of COVID that is taking place on a global scale which is a great flywheel right now. And we believe we'll continue for a while. And then with – and then we sit in a very strong position within that as we've – we're seeing incredible momentum in gaming, again, that's cuts – that cuts across our premium game off to gain sales to our Australia. As we've reported, we've continued quarter-on-quarter, year-over-year gains with and capturing market share in each of those categories. So continued topline growth as we can build great products and take share in a segment that has a high growth recovery cycle which is really, really strong. And I think, ultimately it's also, we're becoming more efficient because the new team as you described is not only making a major impact on the topline by focusing on the major profit pools and building great games and products with the talent and product road mapping and market segmentation that they've done. But they've also streamlined the business from a standpoint of streamlining the cabinets and supporting those cabinets with really strong products that capture the addressable universe and keep them out on the floor. And so you're also seeing that efficiency to it as well.

[Connie James:]

Yes, I would just build on that a little bit. We're seeing absolutely great momentum as Barry just described. The team has a very detailed strategic plan, very nice break it down by segment, by segment. And so, we're very confident in our ability to drive, share gains over time. Additionally, I think the quality of our product continues to improve, which will just accelerate that growth. Last year, we took out a significant portion, $50 million in order to streamline the operation. And I'd say that we continue to look for ways to drive further efficiency. So, to answer your question, we're going to see top line growth, we're going to see bottom line growth and continue to make significant momentum

[David Katz:]

Understood. And as my follow-up you know, Connie, I just wanted to walk through because you gave quite a lot of information in your prepared remarks. I just wanted to walk through quickly some math on and make sure that we have it right. We're winding up with the neighborhood of $3 billion of debt we're taking the gaming machine business and growing at some appropriate rate. I seem to remember earlier on in one of the earlier releases, there was talk about growing the digital businesses to be equal in size to the gaming machine business, right. Which is more like a double from where it is plus. And that it's a function of what kind of multiples we want to put on all that. Is that a fair way for me to take away from what you've said?

[Connie James:]

Yes, I think that in general, that's pretty aligned. We've spent a lot of time recently really stepping back as part of this strategic review to think about the shape of the organization and how we see that go forward. And so, just to recap a bit more at a macro level, we expect to drive double digit organic topline growth, to your point, we're going to lean into digital and make that a larger part of our organization go forward, which naturally creates strong recurring revenues and cash flow. Overall, I'd say that we're going to continue to drive operational efficiency, which will also improve both that EBITDA and that cash flow line. As Barry mentioned before, the great news is that if you look at our mix of digital versus land-based and we're sitting in that kind of call it high 30s, tickling 40%. And so we've already got a lot of momentum to get us to where we need and with a really robust portfolio we have today, we've really got all the pieces to drive that even further in the future.

[Operator:]

Our next question will come from Jeff Stantial with Stifel. Please go ahead.

[Jeff Stantial:]

Hey good afternoon, everyone. Thanks for taking my questions. And congrats on a nice set of results here. I wanted to start on operator purchasing behavior in North America, based on the U.S. listed names that have reported earnings this cycle, it looks like the replaces market did tick up a bit here, quarter-on-quarter. From that perspective, Barry, could you just frame how discussions with operators have trended over the past, call it six months? Do you feel like appetite for deploying some capital a lot more is picking up? And if so, how does this play into your views on the cadence of a full-scale recovery in the replacements market?

[Barry Cottle:]

Sure, absolutely. I guess I would start by saying that is – I don't know if you guys – how many people went to J2E, but I think J2E was an amazing event. And quite frankly, one of the proudest moments I've had as a CEO here with the feedback buzz and energy that it showed. And there, we got tremendous amount of positive feedback from our customers in terms of the products that we put into the marketplace. And the sentiment that we got there with the recovery that's in place was the combination of our products and our approach to the market, et cetera, it gives us the confidence and as we're looking forward to and looking over the next six months and into 2022. And Connie you want to jump in as well?

[Connie James:]

Yes, I just echo that we are starting to see more optimistic tones from our operators which is great. We have spent a lot of time behind the scenes building out a world-class portfolio. So, we're excited to see the market recover because we're going to seize the moment to really drive share gains off the back of it.

[Jeff Stantial:]

Okay, great. Very helpful. And then for my follow-up, I was hoping to talk to the casual gaming side of SciPlay for a bit, obviously considerable PAM to attack here, but I'm hoping you could talk a bit more on how you see that opportunity fitting in strategically to your remain co gaming content led growth strategy. Thanks.

[Barry Cottle:]

Absolutely. as you said, thanking about the games, the casual game space, huge PAM, $20 billion, there is really no dominant player or game that you have to deceit it to go after that. And there's strong synergy with the social casino, because quite frankly, they're very similar. They're very similar in terms of the core game mechanic that drives success in that marketplace. You have a simple core live that correlates the slot puzzle or a card game, and then you surround it and drive player engagement and monetization through a metagame, the social loop, a progression loop, a live events loop, monetization loop. And so, there is all the expertise and engines built in the side play organization that have been really refined over the last few years can then be applied to that casual space. There's also a tremendous amount of player overlap as well. And so, there's tremendous synergy between side play and the casual space. And then ultimately as we build successful casual games and draw audiences, we have the possible funnel back into the business, as well as building great franchises that again, could be pulled backwards throughout the organization. And so, we see tremendous upside in that business and a real opportunity over the next several years, several years. Thank you.

[Operator:]

The next question will come from Ted Beynon with Macquarie. Please go ahead.

[Ted Beynon:]

Thanks for taking my question. Wanted to start on your Australian market share momentum that you talked about here with the Kraken series. I know that's been a market that's been tough to, to break into, or at least, get to kind of a ceiling market share level. Do you believe this is sustainable? Is this just the beginning of kind of a multi-year market share gain opportunity? And how should we think about yes, kind of what's in front here, just given what you were able to talk about earlier. Thanks.

[Connie James:]

Hi Ted Connie here. And I love this question. We've been spending a lot of time, as Barry mentioned, really thinking about what are the profit pools and how do we win in each of those and we believe that. And the Australian market is a really exciting area for us to drive further share gains as you are starting to see. It was interesting probably about 12 months ago, we held our first best games workshop in Australia, putting all the brightest minds within R&D to really figure out how do we hone in and start to drive momentum in that market. And really, what you're seeing today are the fruits of those labor. So, with the portfolio, like Kraken, also Fat Fortunes coming out and Coin Combo, we're just really well positioned to continue to grow. So, I think it's the beginning of an amazing journey ahead for us as we make momentum in that market.

[Ted Beynon:]

Thanks, Connie. And then separately, given your current system's market share position, in addition to your unique omni-channel PAM and iGaming platforms that you talked about, and you obviously didn't divest, can you talk about how one may drive the other or kind of how these could work together in the converging world, the converging omni-channel world? Thanks.

[Barry Cottle:]

Yes, absolutely a great question. So, if you think about the system CMS and the player account management are very similar in their functionality in terms of managing authentication, player wallet, et cetera. One does it on the land-based side. The other one does it on the digital side. And the increasing demand that we're seeing in convergence, it's important. And we're hearing from our operators that it's important that they want a 360 view of their player and the ability to manage that player, regardless of whether they're playing in the casino or outside of the casino, tying loyalty points across the board, being able to communicate. And I think given the fact that we have world's leading PAM and we have the systems business that you said, it puts us in a unique opportunity to bring the two together to provide a land-based digital CMS PAM solution that will provide that capability to operators that as the world starts to converge.

[Jim Bombassei:]

Operator, we have time for one more question.

[Operator:]

Yes, sir. The next question will come from Zach Silverberg with Berenberg. Please go ahead.

[Zach Silverberg:]

Hi, thanks for taking my question. So, when your presentation you discussed enhanced margin and cash conversion moving forward. So, can you discuss the margin and free cash flow expansion opportunities that you're seeing on the cost side?

[Connie James:]

I'd love to take that question. As we lean forward and look at the organization where it's all predicated upon us continuing to deliver strong, organic, double-digit growth. And as we continue to lean into these areas such as digital and content, we know that those will have high yields, which will ultimately allow us to drive AEBITDA at a rate faster than revenue, and then also cash flow at a rate faster than AEBITDA. So, working your way down into also, when you think about our transform balance sheet, all of a sudden, we're going to have lower interest costs, which will also help drive productivity to the bottom line. So, all in all, that's kind of the shape as you look forward .

[Jim Bombassei:]

Great. Thank you. We're rolling. Now I'm going to turn it over to Barry for some closing remarks.

[Barry Cottle:]

Thanks Jim. Thanks everyone for joining us for today's call. We are very excited about how we have accomplished – what we have accomplished this past year and how we are transforming our company for the future. We have all the pieces in place today to execute on our vision and drive sustainable growth and profitability. We are singularly focused on building great games, fully cross platform, while the others are just beginning with the strategic actions we have taken; we are well on our way. We have a truly differentiated position with the talent, the franchises and the platforms to build a true omni-channel experience. And with that, I want to thank you for your support.

[Jim Bombassei:]

Thank you everyone for joining us. Now I will turn it back over to the operator.

[Operator:]

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