Scientific Games Corporation
Q3 2019 Earnings Call Transcript

Published: 8 Nov 2019

[Operator:]

Good day and welcome to the Scientific Games Third Quarter 2019 Earnings Conference Call and Webcast. 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 Mr. Trent Kruse, Senior Vice President, Investor Relations. Mr. Kruse, the floor is yours, sir.

[Trent Kruse:]

Thank you, operator and good afternoon everyone. During today’s call, we will discuss our third quarter 2019 results and operating performance followed by a question-and-answer period. With me this morning are Barry Cottle and Michael Quartieri.Our call today will contain 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 afternoon, the materials relating to this call posted on our website and our filings with the SEC.We also will 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 press release as well as in the Investors section on our website. As a reminder, this conference call is being recorded. A replay of this webcast and accompanying materials will be archived in the Investors section of our website at scientificgames.com. Also supplemental reference slides are available on our Investor Relations website. While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the company’s results and to be used as a reference document following the call.Now, let me turn the call over to Barry.

[Barry Cottle:]

Thanks, Trent. Good afternoon, everyone and thanks for joining us. We had a strong third quarter with year-over-year increases in revenue, net income and AEBITDA driven by growth in all business units as well as continued progress on de-leveraging driven by further debt pay-down and solid cash flow generation. We are on track to achieve our target of 5.5 net debt leverage and will continue our focus on de-leveraging beyond our current goal. At Scientific Games, we have established ourselves as the market leader across the board, sports, lottery and gaming by providing the leading enabling platform as well as the key content that players consume. In fact, we are the only provider set to deliver a one-stop solution of leading platform and content for our partners across all three major verticals with the ability to deliver a seamless player experience across digital and land base however and wherever the player wants to play. No other competitor comes close to our ability to deliver this experience which gives us a significant future advantage as the digital world evolves.Now, before diving into the quarter results, I wanted to highlight that we enjoyed a great G2E this past month. We got excellent feedback on several of our new products, including the new J43 Motion Wheel, Drop & Lock, new 5 Reel Mechanical and Goldfish Frenzy as well as our technology innovation across SG Vision, Unified Wallet and SG Game Service among others and our efforts to build an ecosystem to bring together our industry leading portfolio. Also at G2E, we shared a clear vision on our company’s strategy with investors and analysts to show how we win. First, it all starts with delivering great games like Dancing Drums Explosion, MUNCHKINLAND and Ultra Hot Mega Link. Second, we will win emerging markets just as we are doing in New Jersey iGaming, Pennsylvania iLottery and sports betting overall. Third, secure a strong balance sheet through above market top and bottom line growth, cost efficiencies and efficient cash management. Fourth, we are creating advantages for player and partner experiences through our 1SG approach. A great example of this is Unified Wallet where we are creating a single wallet and player account management that cuts across retail and digital. Fifth, differentiate our business through near-term product innovation like augmented reality table games, SG Vision and more. And lastly, none of this can be accomplished without top talent, because great people do great things. I am especially proud that we are building a culture that attracts and retains the best talent in the industry. The ultimate goal from these strategic initiatives is simple and straightforward. We are committed to achieving our net debt leverage target of approximately 5.5 by year end 2020. We took another important step in that direction in the third quarter by generating strong results across the board. We decreased our net debt leverage ratio to 6.4 and paid down $354 million in debt year-to-date and are on track to achieve our de-leveraging target. We are firmly committed to reducing leverage in this business and will continue this focus beyond our current target of 5.5.With that, let me highlight some of the key developments during the third quarter. In game ops, we are focused on creating best-in-class game franchises, optimizing our product roadmap to attract the segments and maximizing deployment ROI through efforts such as content interoperability. This approach is yielding results on both the top line and through reduced CapEx. Looking ahead, our new games are rising to the top of the charts as we hold 3 of the top 4 new app games and 9 of the top 25 new premium leased and WAP games in the Eilers & Krejcik report. In fact, Dancing Drums Explosions continues to be the number one indexing new WAP game overall delivering around 3.5 house average. We are also excited about future expansion in the Class 2 market. Last year, we entered into strategic relationship with GCG, a distributor with deep ties to this market. We have recently released 5 Class 2 specific games in the last two quarters targeted to the local casino player and our plan is to release additional games this year that are targeted for this important market.In game sales, we had a great quarter driven by the industry’s two best portrait cabinets and outstanding content. Our new WAVE XL cabinet is number one on the charts with TwinStar J43 at number two. This reinforces the fact that WAVE XL will be a strong follow-up to J43, which continues to deliver excellent results with over 2,000 units shipped in Q3. Internationally, Dualos X is now approved in all major Australian jurisdictions and the sales process is raping up. In Illinois, our results continue to be very strong and we are the clear market leader in new unit shipments from the expansion bill. Looking ahead, we are very excited about the continued opportunities in Illinois and international. And finally, in gaming, we continue to deliver outstanding results in table products and systems. We saw 15% increase in tables as well as a 10% increase in our systems business.Within our lottery group, we are driving significant revenue and profitability growth. We saw 6% increase in revenue and an 8% increase in AEBITDA driven by strong year-over-year growth in systems and in lottery instant products with strength both domestically and internationally. In the last 52 weeks, the high margin instant product market has grown domestic retail sales by over 2 billion year-over-year and SG represented more than 80% of that growth. The team is delivering its best ever win rate on contract re-bids and winning significant new deals domestically and internationally. Recently, we captured the attention and imagination of our partners like never before at the 2019 Nashville trade show, showcasing our many innovations such as the new James Bond multi-state instant linked game, PlayCentral HD with SGVision, a vast portfolio of instant game finishes and concepts, second chance in iLottery games and a future of retail room featuring SG’s integrated suite of product innovations, had attendees buzzing with excitement after catching a glimpse of our latest tech. In fact, PlayCentral’s self-service vending machines are seeing increased placements and are now deployed in Wal-Mart stores across Kansas, Pennsylvania and Arizona.We continue to focus on our retail solutions suite of add-on products to accelerate our lottery customer sales growth. Most recently, we executed a sale of SCiQ instant game ecosystem and PlayCentral’s self-service vending units to the Arizona lottery. SCiQ will be implemented for a national chain that is a key retailer for the Arizona lottery. Since switching to Scientific Games lottery systems from another supplier in 2016, the Arizona lottery has achieved all-time record sales and profits. A key component of their growth has been expanding points of distribution with innovative products that allows the lottery and their retailers to maximize sales performance. In addition to Arizona, our SCiQ pilots continue favorable results of retailers experiencing 12% to 15% increase in instant game sales and customers are gaining new consumer insights as a result of the big data generated by SCiQ. Our iLottery launch in Pennsylvania, the most successful iLottery launch ever which has exceeded $500 million in sales handle had a record day in September with over $2 million in sales in a single day.And lastly, Scientific Games continues to expand our lottery footprint with wins in Italy, Turkey and recently awarded Brazilian Lotex concession. Brazil is the world’s eighth largest economy and we are excited and honored by this opportunity. In Italy, SG was awarded with an exclusive agreement to supply 30,000 WAVE retail terminals making it one of the largest lottery terminal point of sale networks in the world and domestically, in Florida, we will continue our 30-year partnership with the award of a new 7-year SGEP contract which has an option to be extended for an additional 7 years. Since 1997, Scientific Games’ enhanced partnership has powered the Florida lottery instant games to perform 52% better than the lottery industry average with a 10-year compound average growth rate of 22%. In fact, when looking at all of our SGEP customers, they have experienced a 10-year CAGR that was 80% higher than lotteries served by other contract vendors.In digital, revenue increased 7%, AEBITDA increased 42% and we are growing existing accounts as we continue to win deals in the market. In iGaming, we recently launched open gaming, our end-to-end digital ecosystem which is home to trusted content aggregation technology, a robust player account management platform, 2,500 plus games and innovation-rich features across jackpots, free rounds, tournaments and peer-to-peer gaming. Understanding this ecosystem is OPS and OGS technology which recently received a gold medal in the 2019 best interactive product category at GGB Gaming & Technology awards. With robust reliable iGaming solutions we saw an increase of 400 million wagers placed on our OGS platform year-over-year, with 9 billion wagers placed this quarter. We are the market leader in North America and are well positioned to take advantage of expanding market opportunities in iGaming where we can leverage our leading position to be the preeminent player in future iGaming expansion. And in sports, we are continuing to launch in additional states with Caesars, grow with our partners when – and the Oneida Nation and delivered exceptional results in previously underserved international markets like New Zealand and Turkey. In fact, in Turkey, we have seen consistent and significant growth since launch, smashing several weekly records. Our open sports product suite continues to gain well-deserved recognition as we were awarded Digital Product of the Year at the Global Gaming Awards.Lastly, we recently announced an expanded partnership with the Netherlands lottery to bring Dutch lotteries players a full digital sports betting solution. We are now investing to be the pre-eminent player in the emerging $20 billion digital market with key wins materializing and firmly believe we are poised to best support operators with our robust, reliable and comprehensive sports, iGaming and iLottery platforms. As we look at our social business, SciPlay continue to outperform the market with 11% growth while also delivering a 35% increase in AEBITDA. We saw an 18% increase in mobile revenue. Our average monthly revenue per payer reached a quarterly record of almost $85 and payer conversion rates remain strong at 5.8%. We are adding a number of exciting game updates that will lead to continued growth in our evergreen franchises as we explore opportunities in new geographies, new games and potentially new genres. In closing, we are excited by the near-term opportunities we have in front of us as well as our best-in-class positioning for future growth across existing and emerging markets.As you can see, Scientific Games is the best positioned player in the market to deliver best-in-class games, lottery and sports betting to players across any channel or platform they want to play with a vision to deliver a seamless player experience that only SG can deliver. This position, along with our commitment to delivering outstanding, innovation and a more efficient enterprise across our diversified portfolio of businesses, sets us up for profitable growth and significant cash flow generation to reduce debt and continue our deleveraging path.Now, let me turn the call over to Mike to provide his review of the third quarter results.

[Michael Quartieri:]

Thanks, Barry. Good afternoon, everyone. I know many of you were at our investor presentation at G2E last month. Our results highlight the path to 5.5x net debt leverage that we laid out driven by growth in our business, free cash flow and a reduction on our leverage.For the quarter, consolidated revenue increased 4% and AEBITDA increased 6%. We experienced revenue growth in all of our business segments and greater growth in AEBITDA as a result of process improvements. Net income was $18 million compared to a loss of $352 million with the prior year period including $339 million in restructuring and other charges, primarily related to the verdict in the Shuffle Tech legal matter. Gaming revenue increased $6 million to $454 million, and AEBITDA was down $7 million on a mix shift of revenue compared to the year-ago quarter. We shipped 8,261 machines globally, including 4,152 replacement units in the U.S. and Canada, and 1,378 open and expansion units, which includes shipments to the Illinois VGT market.Our replacement sales were up 24% from the prior year, when excluding the units that were part of entering into our strategic relationship with GCG last year. Internationally, shipments totaled 2,731 compared to 2,625 units a year ago. Our average selling price for the quarter was $17,500. We continue to see great results from the TwinStar J43, are seeing momentum in the WAVE XL, and we will have 14 exclusive WAVE XL games released by the end of 2019, and expect to regain share internationally with Dualos X that is now approved throughout Australia. Game ops revenue was down $1 million on quarter sequential basis as our U.S. and Canadian installed base was down 547 units, primarily driven by the removal of some legacy product.Internationally, revenue increased as a new contract win offset erosion in our installed base in the UK with the implementation of the GBP 2 stake limit in April 2019. Gaming system’s revenue increased $7 million from the prior year primarily driven by higher growth in recurring maintenance and services revenue. As we look to the fourth quarter, I remind everyone that Q4 last year was a record quarter for systems revenue, driven by larger site installations in Canada, and as we previously mentioned, the major new site installations are coming to a conclusion. Table products continue to grow with revenue up $8 million from the prior year period to $60 million on continued strength in the business.Turning to lottery, our third quarter revenue increased $13 million to $220 million, and AEBITDA was up $7 million to $99 million compared to the year-ago quarter. Within our lottery business, our systems revenue increased $5 million or 8% year-over-year to $70 million, driven primarily by international product sales. In the quarter, we completed the delivery of sports betting terminals in Turkey. We recently were awarded a new agreement to exclusively supply lottery instant games, and up to 15,000 WAVE retail terminals to the Turkish national lottery, which is separate from our sports betting contract and for up to 30,000 WAVE terminals to SISAL in Italy. We expect to begin delivery in both of these markets in the second quarter of 2020, and will continue through 2021. Our lottery instant products revenue grew $8 million or 6% to $150 million, driven by the mix of contracts and higher revenue for licensed content.We are pleased to announce along with our 50

[Operator:]

Yes, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have will come from John DeCree of Union Gaming. Please go ahead.

[John DeCree:]

Hey, everyone. Good afternoon. Congratulations on the solid quarter. Two questions for me if I could. I guess having just spent a lot on slots at G2E I will start with lottery, first. I think business has been growing quite a bit quicker than we were modeling. You just announced a couple of contracts queue. In your prepared remarks, you talked a little bit about some of the products sales driving that. Just wondered if you could speak a little bit more to the growth that you are seeing there and how sustainable it is and kind of why it’s accelerating now?

[Barry Cottle:]

Hey, John, this is Barry. Thanks for your question. Yes, look, the lottery business, as you said is healthy and growing. Really two things driving it, number one, we are delivering an unprecedented win rate right now across domestic and international. And number two, we are growing organically basically driving our strategy of providing value-added services like SGEP and the retail suite of solutions such as PlayCentral and SCiQ. In terms of the contract wins, we are very proud of obviously the ones we just announced, Florida, Turkey, Italy and Brazil. In Turkey, we delivered strong system sales, systems results primarily related to the hardware sales as part of our sports betting contract, but we are really just getting started in Turkey and elsewhere internationally as we will see significant WAVE terminal sales in Turkey and Italy beginning next year. We are also proud to be awarded the concession as part of the joint venture in Brazil. We believe Brazil could be a very sizable market for SG with the concession payments also spread over 8 years, so there’s really no significant 1 year cash outlay either on that. Florida is another. We will continue our 30-year partnership with Florida Lottery with the award of a new 7-year managed services contract. As we mentioned on the call, since 1997, SGEP has powered the Florida Lottery’s instant games to perform 52% better than the lottery industry average with a 10-year compound average growth rate of 122%. In fact, we are looking at all of our SGEP customers, they’ve experienced a 10-year CAGR, that was 80% higher than lottery served by other contract vendors. And beyond those wins as they mentioned we have a lot of organic – significant organic growth across the board as well domestically and internationally where actively engaged as we highlighted with handful of state lotteries on the procurement of additional retail products. We just closed the deal with Arizona for both SCiQ and PlayCentral terminals across the state you see that lottery team is really doing a phenomenal job expanding their footprint and our partners that we are working with are seeing significant growth in result by partnering with us.

[John DeCree:]

When you look at international lottery products out some of the contracts you have won I guess funding growth probably I think in the prepared remarks of 2Q of 20 starting to ship lot of those terminals through 2021 are there more large contracts out there that could be up for grabs over the next 12 or 24 months that we are not aware of.

[Michael Quartieri:]

Yes, its Q here John yes they are absolutely we got a specific dedicated team in the lottery business it is going through and I would tell you since I got here in 2015 they have been working on Brazil and I am sure they have been working on Turkey long before that as well so, it is a longer drawn out process which is why we have got a team of roughly about 5 individuals because that’s all they do so, I am sure there is going to be more new and exciting contracts for us to speak about either on the next call or the one afterwards

[John DeCree:]

Great, that’s helpful. And if I could I wanted to ask about the CapEx reduction just wondering if you could unpack that a little bit what is driving that Barry you have talked a lot about your plan to improve efficiencies particularly in the gaming business with the content inoperability I am curious how much of this CapEx reduction is coming from your efforts on that front it would seem like if CapEx is coming down and you are still growing the free cash flow profile in ROI opportunity here is poised to turn the quarter and accelerate so just curious if you could talk a little bit about the CapEx what is driving it and if that kind of levels sustainable.

[Michael Quartieri:]

Mike here again when you look at the lowering of the CapEx guidance it is really around kind of two primary areas the biggest piece of it being the game ops CapEx definitely lower than we anticipated at the beginning of the year as we're continuing to make progress as you said on content interoperability. But as well as the other initiatives within the supply chain itself as well as value engineering of our cabinets so that will be a key driver for us and as Barry has been drilling into pretty much everybody in the company is about ROI driven returns on our deployed capital and so we are very diligent in that process in regards to kind of the rest of the I say the free cash flow profile for this year or should say for the quarter. Unfortunately, this quarter, we did see some negative working capital swing just based on the timing of interest in the sales throughout the quarter but in the end John it’s just timing as you would know anytime you look at working capital on our quarter by quarter basis it will fluctuate just based on the natural timing of transaction so I would definitely make sure that everyone is aware very well there is absolutely no fundamental change in our business it is going to result in the permanent change in the working capital requirement and to your point earlier if you really look at the where the main point of where we are going and the diversity of what we're bringing forward, it's really when you look at the EBITDA minus the CapEx for this year versus last year we are up almost 15% this year which is nearly a $100 million plus in addition to free cash flow that we are generating from this result of that and so, that clearly demonstrates the progress that we are making behind Barry’s leadership.

[John DeCree:]

That’s great. Thanks for all the color. I appreciate the questions commentary. Thank you.

[Michael Quartieri:]

You got it.

[Operator:]

Next we have Barry Jonas of SunTrust

[Barry Jonas:]

Hi, guys. You gave your 1 turn deleverage target last quarter just curious if you feel more or less confident now about hitting that target and if may be that confidence is tilted more towards growing EBITDA or else paying down debt?

[Barry Cottle:]

Look I would say we remain very confident in hitting the 5.5 quite frankly let me emphasize 5.5 is just a point our goal is to continue to drive that even lower look its it is kind alluded to, it's a balance of first and foremost driving top and bottom line growth of the business implementing cost efficient initiatives from our cash management refinance and repaying debt balance of doing a lot of things in terms of the top and bottom line growth we have outlined as we spoke about it G2E but the focus on just launching great new games and winning markets that were now prioritized as winning the emerging digital markets like our iLottery sports and gaming its new business is internationally we just got through talking about right with the Italy Turkey Brazil and then the innovative new products that were bringing the market all with that kind of ROI focus ROI focus, SCiQ, PlayCentral, etcetera so continuing to drive that and more.

[Trent Kruse:]

I will just add on to that it really get down through the free cash flow and paying down the debt and so, in addition to just the growth drivers that vary a little bit to end now all the different growth drivers we walk through at the G2E presentation we really do see some significant opportunities to enhance just the free cash flow in and of itself just through operating efficiencies, as I mentioned early around the supply chain to interoperability of content, the value, reengineering of our cabinets we also always look to keep an opportunistic eye on the capital markets to lower our cost to capital and as we are looking out into this year and may we don’t see any really sizable cash outflows like we experienced in the prior year. When we had the L&F concession that legal settlement unfortunately and the higher CapEx spend associated with that of normally large number of new contract winds and renewals that we have last year so, to my point earlier on John DeCree’s question where you really focus down on it an EBITDA minus CapEx is up more than $100 million year over year and that is an important factor for us and as Barry mentioned this is adjust lets get to 5 ½ times be done we got to be focused in going on beyond that so

[Barry Jonas:]

Great, great. So speaking of G2E I think you talked about trying to get your ship share back to that sort of 27 to 29% range very solid quarter in the Q3 just curious if you think your back in that range and may be who you taking share back from? Thanks.

[Barry Cottle:]

Well I think we are the first to report so will find out exactly how much ship share we took from everybody but we do feel good about it like we said throughout the calls in the first half of year we kind of recognized that its going to be a slow first half of the year as WAVE XL content gets up to speed and we get more and more of it out there but besides the excitement we have about WAVE XL J43 we sold nearly 2300 units this quarter and that cabinet is three years old pretty unheard of and we are really excited with the motion wheeled it is coming out as a supplement to that so we do feel really good about our game sales pipeline going forward.

[Barry Jonas:]

Great. And then last one for me on Brazil any more color you can give on the JV at this point just curious if the supply agreement will be split evenly or may be higher share and then also curious if there is an iLottery component here? Thanks.

[Barry Cottle:]

I will take care of the last part. Yes, there is a iLottery component that will be coming shortly but the key thing with the partnership is it is a 50 – 50 joint venture obviously we believe given it is the a 15 year contract and the worlds 8th largest economy this could be something that’s very meaningful not only to us but to our JV partner but with all of that excitement we are cautious that it is a greenfield opportunity and that's going to take time to build but we think it is going to be incredible potential for both of us

[Barry Jonas:]

Got it. Okay, thanks guys.

[Barry Cottle:]

You are welcome.

[Operator:]

And next we have David Katz of Jefferies.

[David Katz:]

Hi, everyone. How are you?

[Barry Cottle:]

Good. How are you doing?

[David Katz:]

Not bad not bad. I wanted to just go back to the CapEx discussion which often we find to be double edge discussion with two sides can you just provide us a little insight as to the CapEx guidance decrease and if there is some make up for it going forward what change the run rate there

[Michael Quartieri:]

It’s really around game ops placements as well as the our ability to get content interoperability out there to keep some of the cabinets out there that were previously coming back because of just not having enough good content to bring forward in addition to that I would say the vast majority of the revised guidance down in addition to that there are some other projects that we had planned far within lottery relatively small in nature but a number of them in just like say quantity and those look like they are spilling into more of 2020 rather than the proposed timing that we are looking at it 2019 that we have viewed through the first half of the year.

[David Katz:]

Got it. And on the subject of refinancing opportunities I am not sure if you touched on this in your earlier remarks but we are always keeping a careful eye on you still have some expensive debt out there that could be replaced at some point and whether there might be any bank financing refi opportunities in your future.

[Barry Cottle:]

We will work just as everyone else work constantly monitoring the market and we will be opportunistic as we look to lower and improve our overall cost to capital that was an important step for us to get the commitment on the revolver as that was current as of October and so getting that new five year revolver in place with an important domino for us to get behind that.

[David Katz:]

Okay, thank you very much. A nice quarter. Congratulations

[Barry Cottle:]

Thank you.

[Operator:]

And next we have Chad Beynon of Macquarie.

[Chad Beynon:]

Hi, afternoon. Thanks for taking my questions. Shifting back to gaming operations, it looks like you are continuing to trade out some of the lower performing legacy games with the WAP games Barry that you touched on that are kind of shooting the lights out here and we are trying to find a point of inflection here to kind of balance this out so do you think that I guess first of you are starting to see an inflection with some of the older units coming of and the newer games that are doing well we will kind of offset any of that leakage and then the second part of that question is given that we heard from Caesars yesterday that they will continue to right size their floor do you think that could push back this inflection question? Thank you.

[Barry Cottle:]

Yes absolutely. So first of all, I mean as we have talked about now on several of the earnings calls where I would hyper focused on game ops and first stabilizing and moving that business to growth and as you described we had some older cabinet coming up of over this past the full goal here is the number one priority is getting great content out building great games to drive that business and you mentioned WAP and yes we have really strong WAP games 3 of the top 4new WAP games according to the October Eilers performance report. By the way, that's versus one of last year but there is also the larger premium category which we were also under index last year that we have had a new focus with our product road map to go after in a big way and we have 9 now to top new 25 premium WAP games and a majority of these games are interoperable as we were talking. about in the CapEx discussion so Dancing Drums Explosion number 1 Eilers WAP game performance to 3.5 we have got MUNCHKINLAND land performing at 3x we have two bonds that are round out number 3 and number 4 WAP also around 2x and then on the premium side we have we've got Jin Ji Bao Xi, which we've talked about now with a footprint of over a 1000 performing at a 2x plus and we are really excited about lot of really strong games out there with Money Link and the Ultra Hot Mega Link, which we showed at G2E so it is really about getting great games out there that can outperform the floor and then doing it in a way that is flexible for our customers so the example we have been talking about interoperability as it relates to CapEx but interoperability solves two issues interoperability also helps us give operators the flexibility to grab new great performing content on cabinets that they already have on the floor so, we have made this overall move to kind of digitalization of cabinets and merchandising overall that helps us basically with conversion efficiency speed the market getting great games out to replace games that may not be performing all of that will help us drive and get to where our goal for game ops.

[Michael Quartieri:]

Yes. And just to your point regarding Caesars, it was roughly just over 80 units that our footprint was reduced Caesars certainly not material and again it was primarily older legacy cabinets had been sitting out there for to the better part of public 4 plus years so?

[Chad Beynon:]

Okay, very helpful. Thanks for that data point. And then just back on domestic game sales I know it is tough to figure our market share and heading into the quarter we are getting the sense that everyone could have some soft year over year replacement trends just because of the timing of G2E that was in mid October this year which could push orders in to fourth quarter instead of third quarter and obviously giving your growth that completely goes against that thinking which I think has been kind of narrative going into the quarter so, do you believe that you know this could have even been stronger for more replacement if G2E timing would have been the same as the last year and may be some of these units will actually help the fourth quarter? Thanks.

[Barry Cottle:]

Honestly, I don’t know in terms of to be honest with whether the impact of G2E or not I think the we have been mentioning all along in the last few quarters that we felt that we had a strong back half of the year that was basically combination of as Q alluded to having base of J43 that continues to have extremely strong sales third highest quarter quite frankly ever since it launched and it has been out there for years and then we layered on top of that the WAVE XL with unique content on the WAVE XL coming in the back half of the year and combination of those two things I think drove our success and we are seeing strong momentum with both products with a good strong pipeline and like I said our year over year comparison is even greater when you compare that to the GCG deal that we did of last year so I don’t know that it had G2E had an impact on it as much as it relates to more of a road map rollout.

[Chad Beynon:]

Okay, thanks. Really, nice quarter guys.

[Barry Cottle:]

Thank you.

[Operator:]

Next we have Brad Boyer of Stifel.

[Brad Boyer:]

Yes thanks for taking my questions guys. First one is just around Illinois. As you guys have explained previously. You guys, obviously have a nice competitive advantage in that market and with the VGT market they are expanding it’s a nice little year term growth opportunity for you I guess I just wanted to see to what extent the Illinois VGT market benefited the quarter and sort of how you see that tale there from the expansion kind of helping your product sales kind of on a go forward basis?

[Barry Cottle:]

Yes so just during the quarter we had roughly about 830 units that are included in opening expansions so we are not taking the benefit of that fixed machine being available and having that inflate our replacements sell numbers that we have quoted you guys today there is 7000 locations out there and just over 50% of the market there is a 3500 unit opportunity however I believe that the content we have is superior to the competition and therefore we should get a better share than that 50% the timeframe for that to rollout probably going to take probably another year as those things rollout because there is only so much in the pipeline that can get out and install in those locations through the distributorship network that we have.

[Brad Boyer:]

Okay that’s helpful. And then not to belabor the point around game ops and appreciate that you guys are turning out order games here but I guess just as you kind of look ahead I mean when in your estimation and sort of as you guys underwrite it internally when do you guys think we could start to see some actual growth in the install base itself?

[Barry Cottle:]

Look as I mentioned before its that we have been able over the last several quarters to move it to a point of where it is fairly stabilized and the goal is just to as this is a game hits business and we believe we have got some good strong games out of the gate that are performing well. Our goal is to push it and combine that with, as I mentioned before, interoperability, potentially some – working out flexible pricing and things of that business model things to go after so we also have we mentioned before attacking markets in which we are such Class 2 in Oklahoma with our partnership of the GCG. So this is an all-out effort of ours to focus on that category.

[Brad Boyer:]

Helpful. And then lastly, you guys obviously have some new products coming out. You have a market like Illinois, you had Dualos X you can correct me if I’m wrong. But I believe those are lower priced products. I guess, how should we be thinking about ASP here kind of going forward? It looks like it’s kind of been hovering around that 17.5 level for the last couple of quarters. I, kind of, would’ve thought with WAVE XL, kind of, being more prominent in the back half that it might push that ASP a little bit higher but maybe there is some offsets the other way. Just help us think about that.

[Barry Cottle:]

Yes. Sure. I mean, if you look at the Dualos X is a premium cabinet, but you barely start to get off the ground on its sales internationally. But at the same time, the J43 is a 3-year-old cabinet. So after 3 years old, the price starts to come down a little bit. WAVE XL is a high premium cabinet, and we believe that’s going to drive the ASP to where it is today. But we would expect it to be around this 17.5 kind of number, just based on the pipeline of what we have plus TwinStar with the 5 Reel Mechanical that’s coming out. And so I think we are pretty steady state at that 17.5 plus or minus or $100 here and there.

[Brad Boyer:]

It sounds good. Thanks for your answers, guys.

[Barry Cottle:]

You are welcome.

[Operator:]

And our last question will come from Joe Stauff of Susquehanna. And gentlemen, it appears that there is a lost connection there. So we’ll then conclude our question-and-answer session. I would now like to turn the conference call back over to Barry Cottle for any closing remarks. Sir?

[Barry Cottle:]

Great. Thank you. Thanks everyone for joining us today. We appreciate your support. The entire organization is laser focused on our key strategic priorities that enable us to accelerate our progress and extend our industry best positioning. These priorities will allow us to deliver the greatest returns for our stakeholders, set ourselves up for profitable growth and generate significant cash flow to continue on our de-leveraging path. We are firmly committed to reducing leverage in this business and we will continue this focus beyond our current net debt leverage target of 5.5. I look forward to speaking to you next quarter. Thank you.

[Operator:]

And we thank you, sir, and to the rest of management team for your time also today. Again, the conference call has now concluded. At this time, you may disconnect your lines. Thank you. Take care, everyone and have a great day.