Scientific Games Corporation
Q4 2014 Earnings Call Transcript

Published: 12 Mar 2015

[Operator:]

Good day ladies and gentlemen, and welcome to Q4 2014 Scientific Games Corporation Earnings Conference Call. My name is Whitney and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the conference over to your host for today Mr. Bill Pfund. Please proceed.

[Bill Pfund:]

Thank you, Whitney. Welcome everyone and thank you for joining us. With me this afternoon are Gavin Isaacs, President and Chief Executive Officer; and Scott Schweinfurth, Executive Vice President and Chief Financial Officer. During this call, we will discuss our fourth quarter results and operating progress followed by a question-and-answer period. Our call will contain statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those discussed. For certain information regarding these risks and uncertainties, please refer to our earnings press release, issued today, the materials relating to this call posted on our website and our filings with the SEC, including our most recent Annual Report on Form 10-K and our subsequent reports filed with the SEC. We will discuss certain non-GAAP financial measures. A description of each non-GAAP financial measure and a reconciliation of each non-GAAP financial measure to the most comparable GAAP financial measure can be found in our earnings press release. I would also like to call your attention to several financial tables in this afternoon’s earnings release that offer additional historical information on a pro forma basis about the combined companies three business segments

[Gavin Isaacs:]

Thank you, Bill. Good afternoon everyone. Today, Scientific Games reported fourth quarter financial results and provided an update on the significant progress we’re making and implementing our integration plans, and some of the actions we’re taking to drive improving long-term financial results. Our GAAP net loss includes approximately $258 million of pretax charges for integration related costs, M&A and financing fees and other largely non-recurring, non-cash charges. Scott will provide greater detail on these items later. Immediately upon completing the Bally merger last November, we began implementing detailed integration plans. The excellent work done in preparing those comprehensive plans has enabled us to move forward quickly and with confidence. I am proud of our team’s commitment and the results they have already achieved thus far both in the December 2014 quarter and in the month since, but our work is far from over and we expect to accomplish a great deal more this year and next. Let me highlight some of the progress achieved thus far. We quickly implemented actions to begin eliminating duplicative public company expense, and the general and administrative redundancies at both our corporate and divisional levels. Approximately 5% or more than 450 positions were eliminated by year end. After receiving incentives from the State of Nevada, we announced that our corporate headquarters would relocate to Las Vegas. We are currently in the process of moving the corporate functions to Las Vegas and then already closed our New York office. A portion of the New York space has already been sublet and we’re negotiating to sublet the remaining space. In addition more than 20 facilities worldwide have been consolidated and another 35 locations are in progress. The consolidation of our primary U.S. gaming machine production to Las Vegas is underway. We’ve already performed a successful trial of producing WMS live gaming machines on the Bally production line in Las Vegas and the transitional – and the transition of additional WMS product line is progressing. While a significant amount of work remains, we are on track and expect to fully transition all WMS manufacturing to Las Vegas by the end of this summer. By implementing best practices for both WMS and Bally, we expect to meaningfully improve our production efficiency and our cost structure in the second half of 2015. We’ve selected our next-generation operating system platforms for our gaming machines. We made this decision quicker than originally anticipated. More importantly by incorporating elements from both Bally and WMS next generation systems have already in development, we believe our next generation operating platform design is a meaningful improvements over either of the original designs. Our experts are now programming a game development kit that will enable game developers to readily create exciting content to this new operating systems. At the same time, our engineering team is working to establish standard internal componentry for all of our next generation gaming machines. This represents great progress, but we have much work to do before welding up this product. Ultimately, these effects will improve our development processes and bring added efficiencies to our customer’s management of their casino floors. We’ve also began leveraging our great scale in our supply chain to low the cost of components directly in our products. This also holds true for leveraging our purchase of indirect material and services such as transportation, telecommunications, travel, entertainment, IT hardware and software just to name a few. We are still early in the integration process, however, our actions and progress to date demonstrate our focus to ensure that we delever products and service consistent with our commitments that customers and players are our number one priority, while simultaneously realizing the economic benefits of achieving the savings targets. We continue to expect to implement initiatives that will yield 80% of the anticipated to $135 million in annual cost savings by the end of 2015 while fully benefiting from the Shuffle and WMS cost savings during that period. By rapidly implementing our integration plans and achieving cost savings, we expect to drive improvement in our free cash flow and our ability to deliver our balance sheet. I remain highly confident that we will begin to demonstrate meaningful improvement in our free cash flow beginning in the second half of 2015 with continued improvement ongoing in 2016. While integration efforts are our key priority, we remain focused on managing our business. We have an exciting pipeline of innovative new products across our gaming, lottery and interactive businesses that are expected to launch throughout 2015. In early February, our gaming, lottery and interactive businesses such as patent in the ICE Gaming show utilizing a single boost allowed us to demonstrate the wide breath of Scientific Games products offered under Bally, Shuffle Master, WMS, Barcrest, and Williams brands. It was awesome to see, the show is well attended and our team performed well together. Later this month, we will launch a multi-state instant lottery ticket version of our MONOPOLY MILLIONAIRES CLUB game while the original draw-based game did not meet sale expectations, now lottery team worked diligently with lottery customers to identify a way to continue the TV game a show of the same name. From its first taping, the show is proven to be spectacular just watch what’s been posted on YouTube. 12 episodes of the MONOPOLY MILLIONAIRES CLUB TV show have now been produced, which is expected to create wide spread of awareness in marketing for the lottery game. We expect these shows to begin airing the weekend of March 28 and 29, nine more TV shows are scheduled to be produced based upon the winners created from instant ticket games. A gaming operations business continues to perform well relative to the overall industry, reflecting the benefit of great new games and increase player tendency U.S. casinos year-over-year in the 2014 fourth quarter. Our averaged daily revenue for the combined installed footprint increased 10% year-over-year on a pro forma basis. Our legacy WMS footprint of WAP, premium and daily fee participation gaming machines at December 31, 2014, decreased 142 units on a quarterly sequential basis, despite the impact of a single large customer to remove 259 units this December as they prepared to significant corporate change. We believe our full quarter combined ship share of new units to casino operators in the U.S. and Canada increased on a year-over-year basis, despite combined lottery unit shipments. Industry shipments have been low all year reflecting the impact of the challenging industry conditions that contributed to customers’ lower capital spend. In their environment, our share of our customer spend, our share of their wallet have been increasing due to the success of the new Bally games on the prior Pro Wave cabinet, which is led to an increased average selling prices that was launched last year. Ones again, we generated strong interactive revenue growth largely due to the continued player appeal of our Jackpot Party Social Casino. The growth of the newer Gold Fish Slots app, the addition of Dragonplay results and higher revenue from real money gaming. Now, let me turn the call over to Scott.

[Scott Schweinfurth:]

Thanks, Gavin and good afternoon everyone. For the fourth quarter total revenue increased to $566 million compared to $402 million a year ago. With the increase reflecting about $152 million from the 40 days Bally results following the acquisition plus having a full quarter of WMS results compared to only 74 days in the prior year quarter. Attributable EBITDA increased $43 million to $173 million. Our results included a number of significant charges in the quarter aggregating $258 million pretax of which $240 million were add-backs in calculating attributable EBITDA and $18 million, all of which are non-cash were not added back. The table on Page 2 of the press release and the descriptive review in the paragraph following the table provide detail of these charges. To summarize these significant pre-tax charges included, accelerated equity compensation payouts to Bally employees associated with the acquisition of $41 million. Long-term asset impairments and write downs of $38 million including $6 million for the impairment of indefinite-lived intangible assets. M&A costs and other charges of $37 million. Legal contingencies and settlements of $24 million. Inventory write downs for discontinued product lines resulting from the Bally acquisition of $18 million. Employee termination and restructuring costs of $17 million and fees for Bally acquisition related financing of $65 million. In addition, we also recorded a tax benefit of $79 million, due to the reversal of the valuation allowance related to U.S. deferred tax assets, as a result of the deferred tax liabilities established as part of the purchase price allocation for the Bally acquisition. We recorded $18 million of other non-cash charges in the 2014 fourth quarter that were not added back to attributable EBITDA including impairment charges associated with the MONOPOLY MILLIONAIRES of contract. Impairment charges related to inventory obsolescence, increased bad debt reserves to write down certain receivables from international customers and an additional shortfall charge related to the Northstar, Illinois joint venture. Of the $248 million in pretax charges, approximately $135 million impacted our cash flow in the fourth quarter of which $102 million were non-cash and $21 million will impact future cash flow, mostly separation and retention payments. Additionally as a result of the purchase price accounting adjustments in connection with the Bally acquisition. We reduced Bally’s deferred revenue by $27 million in the aggregate of which $5 million would have been recognized as revenue for the 40 days post-closing of the Bally acquisition and $22 million would have been recognized as revenue in future periods. Purchase accounting adjustments also increased Bally’s depreciation and amortization by $21 million for the 40 day post-closing period. Bally’s finished goods inventory was written up to fair value by $19 million as a result of the purchase price allocation adjustments of which $7 million impacted the fourth quarter in higher cost of product sales and the remaining $12 million will impact future quarters as that inventory is sold. The balance sheet reflects the significant impact of the Bally acquisition and related financing. At year-end, we had total debt of $8.5 billion, nearly all long-term with no significant maturities before 2018. By year-end, we have paid down $15 million on our revolver used to fund the Bally acquisition and we ended the year with $172 million in cash and cash equivalents. In addition, in February 15, we added $25 million of capacity to our revolver which provides us added liquidity. Assuming the additional revolver capacity have been in place at December 31, 2014, our liquidity would have been $538 million including cash and cash equivalents and available borrowing capacity under our expanded revolver. Based on the outstanding debt balance at December 31, 2014, the annualized cash interest expense will be $615 million and adding non-cash interest and amortization of debt fees and original issue discount, our total annual interest expense would be approximately $652 million. We have $51 million of mandatory debt payments in 2015 and we will prioritize prepayment of our revolver with the free cash flow expected to be generated in 2015. While cash flow from operating activities for the quarter with the use of $30 million it included the $135 million cash impact of the charges previously noted. Based on existing contractual obligations and planned investments, we expect to invest $320 million to $350 million in capital expenditures during 2015, which includes approximately $15 million to $25 million of integration related capital expenditures. We expect to maintain a prudent and disciplined approach towards capital deployment and investing in the future of our business. In this regard, I know many of you have questions about our opportunity in Turkey. As we move towards signing the 10 year concession contract, we’re in ongoing negotiation with our partners about making a potential equity investment. As we are still negotiating, there are no specifics that I can provide today. However, I would note that Turkey is most likely one of the most exciting potential growth opportunities on horizon. We believe that the opportunity to significantly grow the market and generate cash flow in collaboration with our partners as the lottery operator is an exclusive supplier of instant games and lottery system during the 10 year concession is exceptional. Let me reassure you that our approach in Turkey is fully consistent with our disciplined approach to capital deployment and an expectation for improved financial returns and cash flow. Now let me turn to our segment operating results. With the Bally acquisition, we have organizationally structured our business into three segments

[Gavin Isaacs:]

Thank you, Scott. Before taking your questions I want to summarize and reiterate our key priorities. Without question our number one commitment is to add customers. Building on our heritage innovation and creating great content and systems across gaming, lottery and interactive. With our talented people, intellectual property, well-known brand, breadth and depth of product portfolios, technologies and scale we believe we are the best positioned company to create new ways to engage players and help our customers to drive growth. Second, we remain focused on the rapid implementation of our integration initiatives that should drive long-term margin improvement and greater free cash flow. We’re action results orientated and our goal remains to delever to 4X times our attributable EBITDA by the end of full year. And third, we remain disciplined in the management of cost and deployment of capital. We will work continuously to refine our business processes to better utilize working capital and create our operating margins and generate free cash flow. Our management team and board are fully committed to drive profitable growth, enhanced our financial returns and delever the balance sheet. I want to thank everyone on my executive team and more than the 850,000 Scientific Games employees around the world to their passion, dedication and commitment to make our company a customer centric world-class leader in innovation and performance, I believe we have the best team in our industry, great companies made up of great people and we have a great future ahead of this. Operator, we will now take the first question please.

[Operator:]

[Operator Instructions] Your first question comes from the line of Steve Wieczynski with Stifel. Please proceed.

[Steve Wieczynski:]

Good noon guys.

[Gavin Isaacs:]

Hi, good afternoon, Steve.

[Steve Wieczynski:]

So that was a lot of information and a lot of numbers but I guess….

[Scott Schweinfurth:]

Get all that.

[Steve Wieczynski:]

Yes, I could Scott. Scott could you repeat all of your prepared remarks again?

[Scott Schweinfurth:]

Well, there is also a whole lot of numbers in the table that we provided.

[Steve Wieczynski:]

I know.

[Scott Schweinfurth:]

We’ve done that specifically because we knew there were going to be questions about how things look like in the past on the new basis that we’re presenting themselves.

[Steve Wieczynski:]

Right, so that’s my question actually. If you look at the combined companies that they were together since October 1, I guess Gavin that the core in terms of product sales I mean the number of unit sold was I guess a little bit softer than what we were looking for, but the ASP was a little bit higher I mean actually a little bit higher than what we’re looking for. So can you just maybe guess some speed in terms of what you’re hearing from customers in terms of CapEx spend in terms what they’re thinking over the 12 months and maybe how they responded to the combined platform.

[Gavin Isaacs:]

The feedback from the customers that so far not been on a few – I mean thank god now we’ve got the acquisition done and I think get on to running the business, I’ve now been on a few customer calls and it’s a very high level customer meetings. I think the feedback we’re getting from customers is – I don’t think they’re going open the check books up completely now and very crazy a little bit more at the time of last year, but they’re very comfortable with who we are, they are very comfortable with our team, they are comfortable with our strategy, they love the fact that we’re going to keep the product brands alive and keep the WMS games being created in Chicago, the Bally games being created in Nevada, the Shuffle games being created in Australia and Asia, the use of the India development teams but at the same time bringing savings for the actual equipment and bringing the core operating systems together. So they love that strategy. They feel we’re well positioned. They understand that we now can provide with everything with systems, with tables, with games. And frankly, when the bucket isn’t growing that much, our goal is to get a bigger share of that bucket. So the unit numbers maybe down, but I think our revenue share and our ASP is going up. So I think at the end of the day I think, we did grow that percentage of share if you will – wallet share if you will. But last quarter was such a third agreement quarter by virtue of the acquisition closed in mid quarter and everything else that was going on in year-end I think that this is the year we really look forward to accelerating and pushing ahead with our plans and that’s a long – that’s almost as long and the answer is got dissertation on the numbers right?

[Steve Wieczynski:]

No, no it wasn’t that – it wasn’t that long, but – so second question I guess in terms of that the debt reduction at this point I know Scott I mean your free cash flow obviously was negative in the quarter and it sounds like maybe your expectation in terms of when you turn cash flow positive has been delayed a little bit, I don’t know if I’m reading into that a little bit. But can you maybe help us to think about where you expect – your leverage is here today, but maybe how you expect again to get down to that 5, 5.5 times where I think people would be a little bit more comfortable with the longer-term story?

[Scott Schweinfurth:]

Yes, I think you have to remember that the December quarter included about $135 million of sort of cash based charges for a variety of things, integration and M&A sort of oriented. And so that have an obvious impact on cash flow from operations and the free cash flow that was generated in that period. And I think what we’ve said and I think Gavin said it in his prepared remarks, we’re expecting that come in the second half of 2015 that things will be going in sort of the right trajectory. We still have some costs to achieve the synergies that we’re going to be incurring in the first couple of quarters here that we’ll have an impact on that cash. We were able to make a very small dent in the revolver in the quarter, paid down by $15 million. We’re actively managing what we’re doing with the cash balance. And looking forward getting down to the four X multiple. It’s going to be a combination of improving the attributable EBITDA, dropping more to the bottom line there, prudent spending on capital which I think you can sort of go back and look at what we accomplish during the 2014 period. I think at the beginning of the year we gave a capital number that was kind of in the 280 range and under that Scientific Games only side we spent maybe 20% less than that. So we were going to continue to invest wisely and make sure that we get an appropriate return on the capital that we are investing. So I don’t think people certainly shouldn’t be modeling yet to be sort of ratable over – equal over a four year period production. I think that will be something of a ramp up.

[Steve Wieczynski:]

Okay guys and last question from me would be – I guess the last question for me would be on the guidance side. It’s clear you guys probably are not going to be giving guidance and Scientific Games typically hasn’t but. I guess with the complexity now of the business model, I mean can you just give us an idea maybe how you’re thinking about maybe the different business units in terms of just kind of some broader base kind of commentary around each segment would be pretty helpful?

[Gavin Isaacs:]

I don’t know what you mean by that. Do you want financial indications on what we think?

[Steve Wieczynski:]

No, no more just like – okay it’s along the gaming side of the business. I mean how do you guys view like participation? I mean is it – are you guys kind of expecting more of like a flattish cut type environment? I mean there is kind of higher commentary?

[Gavin Isaacs:]

Okay, sure, sure, sure. Well, let’s start with gaming. I mean obviously with our tables, [indiscernible] I think that relatively flat was a little bit of growth in our market share and I’ll share the wallet. We expect to see that and that’s why we’re measuring that one. Our gaming operations continuing to grow slightly in relation to the lottery likewise as it always has been if drew a line over the last few years and you extrapolated I think you’ll get your growth right there. I think let’s say meaningfully – meaningful growth in interactive particularly in the social and the real money in Europe and places like that seems to be going pretty well too. So I think it’s going to be a lot easier to give you a better – you’ll be added a lot better guidance once we have a few quarters of both companies operating together or four companies are operating together. But I think that’s the environment we’re looking at it at the moment. And I think our ability to execute, our ability to deliver on the synergies, and our ability to really lead in many ways of the sector. I think will give us the driving benefits in the incremental results we’re looking for.

[Scott Schweinfurth:]

Yes, and I would agree with that Gavin. I think one of the things that also will drive the interactive business is putting to Bally and Shuffle out in the social space because that’s – that’s been done and represents a real great opportunity for us and that’s going to be happening this year.

[Gavin Isaacs:]

Yes, today we went live with…

[Steve Wieczynski:]

Okay.

[Scott Schweinfurth:]

So all these things are starting to happen. I can only reiterate what I said in our comments that we had very, very good detailed integration plan. We have a great group of people who are all very familiar in many instances with each other. And they’re getting all of this I think a great example of that is the formal Williams Interactive scenes going in there in 15 of the Dragonplay teams to get quickest stayed and get it out in a format which we’re decided by.

[Steve Wieczynski:]

Okay, great. Thanks a lot guys.

[Gavin Isaacs:]

Thanks, Steve.

[Scott Schweinfurth:]

Thank you.

[Operator:]

Your next question comes from the line of Brian Mullan, JP Morgan. Please proceed.

[Brian Mullan:]

Hi, guys, congratulations for closing the Bally acquisition. I know you just touched a little bit on segment guys but if you look specifically at the casino systems business, the last we heard from Bally, there was they were guiding for revenue decline in fiscal 2015 which only have two quarters left to go. So, are you able to provide any expectations for the next two quarters and then in that business longer-term can you talk about the opportunity as you see to resume growth?

[Scott Schweinfurth:]

Yes, I mean I think the systems is such a long lead time and you know I’m very familiar with systems, that the lead time for a system still can be anything – even over to you sometimes that are around for 18 months. I think that Bally projected that a year before and have some very, very big sales, I think we got some big ones coming on attracted in this year. You know we’ve got Elite which is we bring in the second half of our. So I think that with the new approach to how we’re managing the systems business, not separate but part of the gaming business. We have some great opportunities to grow that part. I think that one of the things that we are very lucky to do, when we did the acquisition was kicked it federal involved in the business particularly focused on the systems and we have a strategic objective to really grow our dominance in that sector. You know it is an area which Bally really do separate themselves from impact and we’re making continued improvements. The Elite rollout is very exciting for us because that gives us a small scale product and we can start we traditionally always been strong in the top end in the large Casino market but now we can go and attack the smaller end. So I think the forecast in the projections for us in this business is very positive and it certainly, strategically an area we intend to focus on and ideally dominate.

[Brian Mullan:]

Great, thank you and then just a quick follow-up. Scott can you update us on what your NOL balance was at the end of the year and then any expectations for your cash taxes going forward would be great. Thanks a lot.

[Scott Schweinfurth:]

Yes, the NOL balance will be indicate which I think we are going to file on Monday and the cash tax number is going to be sort of $10 million, sort of a small because it’s mostly the foreign results, not U.S. result.

[Brian Mullan:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Cameron McKnight with Wells Fargo. Please proceed.

[CameronMcKnight:]

Great, thank you. Question to Gavin. Replacement units look like they were up about 23% year-on-year in the quarter, against your - against you taking share more than the markets getting better?

[Gavin Isaacs:]

Yes, I think Bally, in the last quarter continue to have a very stellar performance with the particularly with the Wave cabinet, you know I think one of the areas for opportunity for us and then by you know I think also from the some of the Shuffle product that anyone of the areas for opportunity for us is to get all the brands firing, we had some very expensive and detailed plans this year on how we are going to really kicks the WMS brand in particular. Bally continues to be strong, we got next 23 that we showed a G2E that will be it is currently being ordered now for the Bally line. The Blade, clearly we are getting phenomenal performance in the participation area, we just have trying to get at lies to move more of those units in the sales plan and we have plans for that as well. So I think possibly, but again it’s such a messy quarter, it’s a really – it’s difficult to draw too much out of it, but I do believe that the customers response to the merger and the position in the way and maybe competitive some of the other maybe indicative in that.

[CameronMcKnight:]

Okay, great, thanks and then just following on – I mean we’ve seen – we’ve seen a little bit of improvement in regional gaming trends over the past two or three months, with a bit of debate whether it’s weather or whether it’s an improvement in the low-end consumer, are you seeing that trends like being you’re gaming ops business and you’re seeing that translate into at least, slightly better turn when you’re seeing down and talking to customers?

[Gavin Isaacs:]

Now said, I say yes to both. I think the customers – I think are getting use to it operating in the new environment if you will and I think that yes, we’ve seen some nice some figures. I think it’s a mixture of lot’s of different things gas prices I think mixture of weather, I think it’s a mixture of touch. Little bit better sentiment who knows. But we are definitely seeing it the conversations with the customers are positive.

[CameronMcKnight:]

Got it, thanks and then final one if I may. Little bit, I think picture Gavin, you’ve been in the CEO for a while now, you’re well pass the 600 days. Have you think you’re looking at your different businesses relative to your predecessors?

[Gavin Isaacs:]

Well, my predecessors didn’t have the benefit of putting them all together and I’ll keep coming back to growth opportunity that provides us because you know in the past, particularly from investment in the future perspective, one of the things I continue to hear from customers is that – they are looking for a what the future is going to look like, they are looking for someone to show them what those kind of products is going to bring new players and increase their revenues. Leaving the path always, every company does, struggle, but keep up with the R&D on their existing platform. But virtue of that size and scale now, we got a whole team working on the future and some of the products that they already coming up with a really amazing and really exciting for the future. So I’m really lucky to be in a position via the my predecessors one of companies have never had which is that ability to really investing in this, you’ve got scales to invest in the future and look at some of the ways you can grow the industry. I mean that’s one part of it, the other part of it is I think by bringing all these companies together, plus we didn’t really go after and say that we are going to only positive revenue synergies we really focused on the cost synergies. But as we get to know each other better and as we get to see each other products and possibilities, we start seeing greater opportunities from synergies and positive – revenue synergies across the board and that also exciting and clearly in the branding areas, when you have a brand and we can put it out in scratch tickets, we can put out in gaming machines, we can put it out in internet, we can put it out in social. We are very compelling partner for anyone with the brand. From a system perspective, leveraging the strength of the Bally Systems portfolio and assisting the lottery thing, the lottery systems. Your lottery systems are I guess applicable to the beads in which they respond by virtue of some of the additional functionality we have, we’re looking by adding them into our systems portfolio and there is lot of crossword being done on this. So I guess that’s the really big benefit and the opportunity for me is that I have to scale inside, but right people running my businesses. I am really excited about my team, they are getting on with it, they all have plans, they are all working together, my job is to create the culture. I think you know me well enough and some of the other people in the call know me well enough that I am pretty passionate about that, and I am doing both the culture that I went across the Board and I think everyone is really responding well to that. So it's really exciting. So, as I’ve said earlier on the call, I am absolutely excited that the acquisition part of it is done. And then we’ve moved into the full-on integration running the business, execution phase, and that is exactly what we are doing.

[CameronMcKnight:]

Great. Thanks very much.

[Gavin Isaacs:]

Pleasure.

[Operator:]

Your next question comes from the line of Mike Malouf with Craig Hallum Capital Group. Please proceed.

[Mike Malouf:]

Great. Thanks for taking my questions.

[Gavin Isaacs:]

No problem.

[Mike Malouf:]

Gavin, can you talk a little bit about the salesforce with regards to WMS and Bally, and how they are being integrated. I am just wondering if you’re seeing some conflict or as far as competition goes between the salesforces, and how that is being handled? Thanks.

[Gavin Isaacs:]

So what we did was we went to Rome and we borrowed the Colosseum and we gave them all swords and try it and let that should now. So, it’s a phenomenal opportunity, all these yes, there is both companies had great sales teams. The first step was to pick the sales management team, and we have done that. And we really got the very strong regional managers and directors in place there. Then now what we are doing is that did by bit, we are making sure that say in the past where red might have had 30 accounts going forward they are going to have 20 accounts. So we are going to get much better service to our customers. We are going to have experts in areas like tables who will continue to do their stuff independently, but focused on that likewise systems, but working together with the regional managers. So, at the end of the day, one plus one isn’t going to equal one. We’ve always plan for one plus one to equal, say 1.6 and part of that involves a lot of cross training, how do you sell a WMS, how do you sell a Bally and so far so good, the people are being responding very well in fact, right now in Vegas there is another big training session going on. So, really the way we’ve approached it was to pick the team the leaders first as we did the integration as we did the acquisition, picked the key management team, because that said in this page, great people made up of – great companies are made up of great people. And we are doing the same thing in the sales, lot of people mirroring each other at the moment assisting each other, very positive culture, for example we have one instance, where we promoted someone out of the field from say Bally to a directive position and the WMS persons got back to that area, but the Bally constantly down there working on the transition of working with them. So it comes down to passion, and the right kind of people and I think we’ve got the mix of that, I think it’s going pretty well.

[Mike Malouf:]

Are you experiencing, or maybe I should ask how much disruption are you experiencing, sort of as you got through all of this?

[Gavin Isaacs:]

What do you mean by disruption?

[Mike Malouf:]

I mean, are you seeing an effect on sales? Are you are seeing market share shifts at all?

[Gavin Isaacs:]

Not. No. Not at all.

[Mike Malouf:]

Good, good, great. And then Scott, if you could just remand me, what did you have for interest expense for next year or for 2015?

[Scott Schweinfurth:]

Yes, based on the debt that was outstanding this December 31, it was $652 million in total, I’m sorry, that includes some non-cash interest for the original discount that deferred financing expenses et cetera, so the cash base interest was $615 million.

[Mike Malouf:]

$615 million? Okay. Great. Thanks. That’s all I have. Thank you.

[Scott Schweinfurth:]

Thank you, Mike.

[Operator:]

Your next question comes from the line Todd Eilers, Eilers Research. Please proceed.

[Todd Eilers:]

Hey, guys thanks for taking my question. Hey Scott, just wanted to make sure I understood on the adjusted EBITDA, sounds like early on the call you mentioned there was about $8.5 million of non-cash charges that were not included in your attributable EBITDA number of 173. So simply just adding that back getting the 192 is that a fair, kind of a pro forma number for your adjusted attributable EBITDA and was there anything else that might have added or subtracted from that number other than that $8.5 million

[Scott Schweinfurth:]

Yes, the other piece, Todd. That I mentioned was in purchase accounting, we ended up having to eliminate the deferred revenue that Bally add on its books for things that, I’d say there is still wasn’t an obligation to do something in order to earn that revenue and that in total I think was $27 million and of that $27 million, $5 million of the revenue would have been recognized in the December quarter, so you can take a margin off of that if you wanted to add that back. And then the other $22 million will impact probably the first couple of quarters in 2015.

[Todd Eilers:]

Okay. Great, that’s helpful. I also wanted to ask a question about Greece VLTs, OPAP announced while back that they selected four vendors and Scientific Games was one of those, I don’t know to what extent you guys can talk about it, but if you could share any sort of information on the opportunity, timing, just general thoughts that would be helpful as well.

[Gavin Isaacs:]

Yeah, we’re selected as one and I think the racing none of us talking too much about it, and the contracted just being finalized now, but I mean we announced the numbers, we haven’t.

[Scott Schweinfurth:]

We won the contract actually and…

[Gavin Isaacs:]

Yeah.

[Scott Schweinfurth:]

Signed and certain that will put a platform.

[Gavin Isaacs:]

It’s a good opportunity. I hope there will be a plan – this year open in Greece and in Turkey, and I’m very excited by the opportunity for that I think that every time you roll one of these out, Italy whatever it is you learn lessons, as you carry a little lessons and I think those are the lessons have been well put to bear and comes to the roll out and very excited by it.

[Todd Eilers:]

Okay, great and then just a last question on the interactive business looks like you guys broke out your EBITDA for the first time looks like it’s about a 20% margin some of the larger competitors in the social casino space or kind of in that 30%, 35% range is there any reason why as you kind of scale that business over time any reason why couldn’t get into that 30% to 35% range and then also was curious if you’re willing to break out the percent of revenue on mobile versus Facebook thanks.

[Gavin Isaacs:]

Yes. I think one of the things that we’re investing in right now is the roll out of the real money gaming part of interactive, and so we’re spending a bit more there that’s having an impact on the overall margin of that business, but as we continue to get those on board I think that will help to improve the margin there the – I think if we – I don’t think we will ever separately sort of split out social versus real money gaming, but I think you would see something more similar to what you’re expecting if you just saw the social business separately.

[Scott Schweinfurth:]

And I’m sorry Todd what was the other question you asked about breaking out something.

[Todd Eilers:]

Yes, I was just curious on the social side if you’re willing to give the mix between mobile versus Facebook?

[Scott Schweinfurth:]

We haven’t done that, we didn’t opt to do that as a part of one of the many metrics we disclosed. But I think we'll consider that in the future.

[Todd Eilers:]

Looks like I manage to find one that you guys have been put in the press release.

[Gavin Isaacs:]

Right.

[Scott Schweinfurth:]

I’m sure.

[Todd Eilers:]

Thanks Scott.

[Scott Schweinfurth:]

Thanks Todd.

[Gavin Isaacs:]

Thanks Todd. Bye.

[Operator:]

Your next question comes from the line of Jeremy Luskin with Macquarie. Please proceed.

[Chad Beynon:]

Hey guys, this is actually Chad Beynon here.

[Scott Schweinfurth:]

Hi Chad.

[Gavin Isaacs:]

Hi Chad.

[Chad Beynon:]

Hey, one question, starting with the Gaming ops, I know you mentioned that you had a decline, a sequential decline in your footprint based off of one large customer reducing their floor. I wondering if that is something that will or will not come back. And then just kind of a bigger picture, question on the Gaming ops, when your main competitors had a pretty significant decline within the WAP or premium based segment and I was wondering if you could share your views if you think that regional operators are may be reducing kind of the percentage of WAP and premium based or a few would have expected to gain share during the quarter. Thanks.

[Scott Schweinfurth:]

So I think let me answer the three questions there. The first question is I don’t know, I mean I’ll assume that WAP product - very popular place to place them, I mean if you looking us as a customer and you don’t have some of the great brands and the great products that people are making and investing a lot of R&D dollars into. You may - find out the customers go-to-properties, they still have them. So, when that large corporate customer gets through its issues I would expect that they would look at reinvesting in their flow. I don’t know that’s up to them. In relation to the regional, I think it goes back to the same think that if Monopoly Luxury Diamonds is the hottest game in – on the floor at the moment and I don’t have it, you probably need to have it. But I don’t think they are going to add incremental units, I think they are going to take that - from someone else and put that game on. So I think our portfolio is performing pretty well, across the Board by having the benefit of having Bally games now in there in the brands. We’re seeing good performance with Bally, with all the brands across all of those portfolios. I think one of our big areas of disappointment last year was in the non-WAP premium products, where we lost the lot of units, then I get that was an area where we cut down our WAP. We got to like it, a branded version of standalone game in many instances, the customers attacks that part of their flow to reduce costs. At the same time, I don’t think we performed certainly at the WMS side if it’s very well in that sector. But G2E we showed that we had a lot more new games coming out from that sector and we are seeing some very good performance so far The Flintstones, and I think Bally were seeing some good performance, and the Bally brand were seeing some performance with Wonder Woman. So I think we have some really good products across all the portfolios there and, we are also excited about the Class 2 opportunities now that we can combine all the different brands. So I think in – we are feeling fairly comfortable in the gaming operation sector. Did I answer your question?

[Chad Beynon:]

Yes. And the other one I just add on that three part question was about the one large customer who had a reduction in footprint.

[Scott Schweinfurth:]

Yes, I certainly hope, when they get through whatever they’re going through. They look at reinvesting and delighting their players. And I hope that we have the product that will help through that performance.

[Chad Beynon:]

Okay, got you. Thanks. And then moving onto product sales, Gavin you talked about a new operating system that affirmed - that your team is working on. Wondering if you could share timing on this and I know the last wave of new operating systems, I think everyone said it was 10 times the prior fire power. Wondering if I guess, there is significant innovation that could potentially create market share opportunities with the new operating system and then the second part of question is would you plan to have the current number of cabinets from WMS and Bally the pro series the s23 Blade et cetera - kind of using this system. Thanks.

[Gavin Isaacs:]

Okay. So you asked one question.

[Chad Beynon:]

Both I’ve heard.

[Gavin Isaacs:]

I will handle the question. So, in relation to the operating system, the operating system the key thing you remember about operating systems. I mean, you can build the biggest engine in the world and [indiscernible]. But if you don’t have great games, doesn’t made anything, and the key to getting more efficient is when we talk about building an operating system, we are also building a game kit development - game development kit with it. The operating system as I mentioned in my words, we’re planning for a 2E kind of projection for rollout that. We’re ahead of that. We found that both WMS and Bally were doing things to improve their existing offerings to keep up the technology more than anything else. And that we’re taking the best of those worlds to put them together, again a great team of people working very effectively on that - and now working through that now and developing the game development kit. So I think we’ll be well on track for that. That will be forward and backward compatible. So we will be able support all of the current cabinets that we have out there and one of the things that clearly outside [indiscernible] come up with additional cabinets were required or it seems that the life has prudent that the great cabinet can help great software and by virtue. And some other cabinets we have great content by itself seems to drive product sales, we need to have both and I think we’re well positioned to both. Did I answer all parts of that question…

[Chad Beynon:]

Number of cabinet.

[Gavin Isaacs:]

Number of cabinets going forward. Well – and I think we’ve got a couple of more planned releases for this year and I think part of innovation results in not only being able to release great software, but we’ve also going to bring good looking cabinets to the customers floors. So we will continue to do that. And I think we have plans that coincides the needs of our product lines in the customers eyes.

[Chad Beynon:]

Okay, thanks Gavin. And Scott one for you, since there was really the only guidance number that you issued the 320 to 350 of CapEx, could you talk about the variance the low end to high end if that’s more on lottery contracts or gaming ops based on efficiencies that you see throughout the year?

[Scott Schweinfurth:]

Yes, I think it will be more dependent upon spending in the lottery side of the business than on the gaming side of the business because on the gaming side the biggest pieces for the actual gaming ops installed base. And I think we know what we need to do to keep that base fresh and replacing and changing out top axis et cetera. So I think the variability will be more on the lottery side.

[Chad Beynon:]

Okay. Thank you very much.

[Scott Schweinfurth:]

Thank you.

[Operator:]

Your next question comes from the line of Kevin Coyne with Goldman Sachs. Please proceed.

[Kevin Coyne:]

Can you hear me?

[Gavin Isaacs:]

Yes.

[Kevin Coyne:]

Sorry about that, thank you for taking the questions. Most have been asked and answered, but I just wanted to clarify on page 3 of the press release where you’ve referenced the $15 million of restructuring costs that you’ve incurred in the fourth quarter. When you use the word additional referring to the rest of 2015 and 2016 that’s an addition to the $15 million, not in addition to I guess the approximate $75 million or $80 million that you expect to incur?

[Gavin Isaacs:]

Correct.

[Kevin Coyne:]

Okay. And I may have – you may have been asked this question, but with the number you gave on page 2, the full year run rate for 2014 on a combined basis. Do you have that for just the fourth quarter, the revenue and EBITDA?

[Gavin Isaacs:]

No, I don’t…

[Scott Schweinfurth:]

Yeah, I don’t think we’ve disclosed that. I guess you found another number, we didn’t disclose in this press release.

[Kevin Coyne:]

Okay.

[Gavin Isaacs:]

We didn’t make it longer for next year, next quarter.

[Kevin Coyne:]

Okay, I’ll try – I’ll try following up. Just – I don’t know if anyone referenced any things you’re hearing from your end customers in terms of any tailwind from gas prices whether that would be more so on the lottery side? Do you any read through on that?

[Gavin Isaacs:]

Well, instant ticket sale are up and the drawer obviously gets benefited by the big jackpots. I don’t know if I could [Indiscernible]

[Kevin Coyne:]

Okay. And just one – I believe on the Caesars call it was brought up in terms of let’s say purchasing trends going forward that perhaps the gaming equipment providers may have to think of new ways to recreate the spot machine and I know that something that you and your competitors have been working on. But when you think about that next generation solution that could drive their replacement cycle. Do you work alongside the operators as well when you think about those things or is it…

[Gavin Isaacs:]

Absolutely – no, no, no. What we do is, we absolutely work there. I mean when we say with customer focus we really do mean we are customer focused. Two weeks ago, we had a customer advisory board. We’re flying all the big customer and we sit down with them, we get feedback on what we’re doing. We showed them some of the things that we’re planning for the future. We get customers – so we do a lot of that. But you know customers want to grow their revenue. We want to grow out, so we worked together on that project. I think that there is still a lot of great revenue. We all focused on the corporate because they report. That’s a massive native American market out there. There is a massive market out there. And they all assumed to be continuing to grow, and they continue to invest in that flow. So our products continue to evolve like there is a evolution not a revolution, but we are working on the new products for the future as that mentioned by virtue of our R&D seismic scale, which hopefully ruled on pretty one bit more speed and then revolution to that sector, but certainly it’s a partnership – it’s a open partnership to the customer.

[Kevin Coyne:]

Great, thank you.

[Gavin Isaacs:]

Okay. Are there any others?

[Operator:]

Our last question comes from David Hargrave with Sterne Agee. Please proceed.

[David Hargrave:]

Hi, thank you very much for all the detail you put in the release. I find it very helpful. And…

[Gavin Isaacs:]

[Indiscernible] to get across for that we much – we have to do that once and then we can move forward simple unified company.

[David Hargrave:]

No, I mean that we like more rather than less, thank you very much.

[Gavin Isaacs:]

Sure.

[David Hargrave:]

When we’re looking at the pro forma number that you gave us for the year. I know that you tend to include some attributable EBITDA that’s non-cash and I was wondering if you could give us the non-cash portion of that $989 million that you listed in the release.

[Gavin Isaacs:]

Are you talking about the EBITDA from our equity investments?

[David Hargrave:]

Yes, sir.

[Gavin Isaacs:]

Yes, so that’s actually in that there is a reconciliation of net loss to attributable EBITDA and it is $70.6 million of EBITDA from equity investments, maybe its $70.8 million, yes, sorry $70.8 million.

[David Hargrave:]

And can you give us a sense for how Bally as a standalone entity would have reported – would have performed like on a like-for-like basis in the quarter?

[Gavin Isaacs:]

No.

[David Hargrave:]

You don’t have like an EBITDA number that we could, okay. In addition to the financial information, I’d be interested in seeing something that sort of organizes your schedule of patent explorations and I think if you look specifically to shuffle masters just as an example in the last 10-K, including a disclosure about patents expiring through 2015 being immaterial to the company and I’m wondering what’s beyond that its material and could you give us some sort of the schedule and maybe there will be in the 10-K.

[Gavin Isaacs:]

Yes, I don’t think there is anything. I think we have a statement in the 10-K that there is nothing material that’s happening in the near future.

[David Hargrave:]

Was there is something relate into Shuffle Master that was key that was going to be expiring because it’s weird the way that language is worded.

[Gavin Isaacs:]

Yes, let me just give you a little bit color on that. I think I know that business probably I know the other one. We have a patent and what should do is patent gives you a legal right to exploit that patent 20 years from its grant. We don’t just sit back on that and expect at the end of 20 years everything to come out and do it. What are you trying to? You should try and extend it. So for example, with a table game, you might have the first patent that goes for 20 years but then you might add side bets. As the side bets go want you extend the life. So you can really extend, someone can come up with the base core game may be, but if the don’t have the patented side bet it’s not the same. The other thing you really got to remember and I think this is the same across all different sectors much as gaming and the trademarks are really, really important and they last forever. So players who love to play blazing sevens, right, the blazing sevens patent may be – go on and you might be able to make – COMODO [indiscernible] and something else whatever you want to call it. People want to play Blazing 7, people want to play Three Card Poker, and they don’t want to play Scott Schweinfurth, which may be a copy of some of the base games. So I think the trade mark is really important as well and that’s why the – that’s why there’s nothing really materialized I believe from a patent expiration perspective, because we do have the little side bet extensions on many of our patents in that sector. Does that sort of helps?

[David Hargrave:]

Yes, it certainly does and then lastly, this is really small but, I’m just curious. When you talk about the $4 million write-down of receivables internationally, I was wondering if you could tell us what business that’s related to and perhaps what region it pertains to.

[Gavin Isaacs:]

Yes, it was in the gaming business in Latin American

[David Hargrave:]

Got it, thank you so much.

[Gavin Isaacs:]

David, thank you.

[Operator:]

That concludes today’s Q&A and now I’ll turn the call over to Mr. Isaacs for closing remarks.

[Gavin Isaacs:]

Well, again thank you for putting up with all that detail. I mean it really is – I want to specifically thank Scott and his team for doing an amazing effort to bring this – all these companies together and go through close. At the same time as we are running out [indiscernible] they’re doing really double the work. There is a lot of detail there, but also this has been said a few times. Hopefully that will give some great explanation. And as we move forward we are going to run the business we're going to report back. We will continue to report on our synergies. We will continue to report of the size of the businesses. We thank you for your support and look forward to speaking to you next time. So thank you.

[Operator:]

Ladies and gentlemen that conclude today’s conference. Thank you for your participation, you may now disconnect. Have a great day.