International Game Technology PLC (IGT) 2015 Q1 法說會逐字稿

Good day and welcome to the IGT 2015 first-quarter results ended March 31, 2015 conference call. Today's conference is being recorded. At this time I would like to turn the conference over to James Hurley. Please go ahead.

Hello, thank you for joining us on IGT PLC's first-quarter 2015 conference call. The agenda for today's call includes Marco Sala, Chief Executive Officer of IGT PLC, who will provide an overview of the quarter and comments on broader strategic initiatives. Alberto Fornaro, our Chief Financial Officer, will provide operational and financial perspective on the first quarter. After the Company's prepared remarks we will open the call for your questions.

Before we begin I'd like to point out that results for the periods we are presenting today predate the completion of the merger on April 7. As such GTECH and the Legacy IGT were two separate companies managed independently during the quarter. The press release we issued today and our discussion on this call reflect this distinction.

Today's remarks will focus on GTECH's operations and financials in the first quarter. We will not review the Legacy IGT operations and financials which are presented for information purposes in the back of the press release. While there is no requirement for us to provide these Legacy IGT results, we are doing so in an effort to help you maintain continuity in your analysis.

Starting next quarter we will present combined financial statements in US GAAP and in US dollars and we will release historical pro forma numbers at the same time. During this conference call we may refer to certain non-IFRS and non-GAAP financial measures. Reconciliations of these numbers to IFRS or GAAP as applicable are included in the earnings press release.

During today's call we will be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements.

The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. And now I will turn the call over to Marco Sala, CEO of IGT.

Thank you, Jim. Good morning or good afternoon to all of you. I am pleased to welcome you to IGT's first-quarter earnings call. I will begin by sharing with you my view of the performance of the GTECH business in the first three months of the year.

Then I will talk about the Legacy IGT business, not so much from the perspective of its activities in the quarter, which were not under our management control, but more from the standpoint of post-merger integration and what we have already done to position ourselves and strengthen our leadership in the market.

So let's start with the GTECH side of the business. If we look at GTECH's ongoing activities, excluding the one-off items related to the IGT transaction, the first quarter was one of overall stability.

We enjoyed nice growth in all of our markets and our gaming operations also did well. Our results were somewhat penalized by higher than average payouts in sport betting in Italy, which should normalize as always over time. With a push from a stronger dollar, total revenues were up in the quarter. EBITDA was unchanged, near its all time quarterly high.

Looking at our business by geography, in the Americas same-store revenues benefited from across-the-board strength in jackpot games, instants and traditionally Lottery Draw games. In gaming machines once more we enjoyed robust product sales and strong ongoing participation revenues from our Sphinx and Zuma products in the North American casinos.

In the International segment same-store revenues were up sharply from both jackpot and instants. Year-over-year product sales were lower. As you know, they are sometimes uneven quarter from quarter. We're expecting improved trends through the second half of the year with the rollout of the Greek VLTs.

And in Italy Lotto did very well helped by strong performance of 10eLotto and growth in late numbers. Scratch and Win numbers were down partially due to the calendar of new product introductions. And I already mentioned the impact of higher payouts on our Sports Betting revenues.

So all told, it was quite a solid quarter for our underlying GTECH business, during which we also achieved further improvement in our net financial position. In a period where management resources were focused on completing the IGT transaction, we continued to run our ongoing business efficiently and profitably. Alberto will provide you with more detail on GTECH's first-quarter performance.

Now I would like to focus a little bit on the Legacy IGT side of the business. The results for Legacy IGT's March quarter were disappointing. This was a transition quarter for that team and I believe leadership-related changes associated with the acquisition impacted the business during the period.

Now that the transition is completed and new leadership is in place, we are focused on stabilizing the business in the coming quarters. Importantly, we do not believe that March quarter results are indicative of the future. We expect strong results in balance of the year on an underlying basis before synergies.

From our perspective innovative content and exciting technology are the key drivers of success in the gaming market. And from the start we have reaffirmed our commitment to R&D. I know you appreciate that the game development cycle takes time, and so it was important not to waste any of it to put in place the right infrastructure to foster our development platform.

However, we do not expect any immediate benefits. In the meantime, the launch of a new generation of cabinets gives a clear signal to the market that we are serious about delivering innovation to players and operators.

In terms of organization, prior to the closing we had identified in great detail the operational teams we will rely on to run and stabilize the business. This structure has been in place since April 8 and the teams are motivated to grow the business and deliver the merger synergies. These synergies have now been pinpointed with greater accuracy. The preliminary numbers and the calendar have been confirmed and we are confident in their achievability on time and on target.

We have also started to rationalize our industrial footprint. About a month ago we began to consolidate our production and maintenance operations for both gaming and lottery product lines in Reno, Nevada. As a result we are closing assembly facilities in Las Vegas, Rhode Island, Canada and Austria. Industrial efficiencies are an important component of our synergy plan and we wanted to make sure that its implementation was initiated without any delay.

Another important project is the disposal of non-strategic assets. We are in the process of disposing of Legacy IGT's corporate jet. In addition, we have recently initiated a marketing campaign to sell the Las Vegas headquarters and surrounding lands. While we will maintain an important presence in Las Vegas, we are optimizing our footprint now that we are consolidating our industrial activities in Reno.

Finally, the senior leadership team is meeting with customers and employees around the world, listening to their ideas and presenting our plans for the future. They have been good meetings demonstrating a willingness to work together, a definite openness to the new leadership at IGT and an understanding of our rationale of putting together a global leader spanning lottery, gaming and interactive. I would now turn the call over to Alberto.

Thank you, Marco. I am going to focus my comments on the GTECH's first-quarter results, since we were actively managing that as a standalone business during the period. On an underlying basis, that is excluding the Legacy IGT business and the one-off related to the IGT transaction, GTECH achieved solid first-quarter results.

Operating income was up in the Americas and relatively stable for the International segment mitigating a decline in Italy due to higher than average sports betting payouts. On a reported basis first-quarter results bear the impact of one-off costs related to the successful closing of the IGT acquisition immediately after the end of the quarter. I want to start with a focus on GTECH's underlying numbers and developments as I did last quarter.

Now let's look at slide 7, which shows consolidated results for the quarter, and let's focus on adjusted comparable numbers.

Consolidated revenues were up over 3% in the first quarter driven by favorable currency translation. In constant currency, revenues were down 4% as higher revenue and higher service revenue from lottery operations in Italy and the Americas were offset by the higher sports betting payout in Italy.

EBITDA of EUR296 million was in line with the same period last year. This represents the second largest quarterly EBITDA the Company has ever achieved, just short of the EUR300 million record achieved in the first quarter of 2013.

Currency helped a bit here too, accounting for EUR15 million of EBITDA, although that was more than offset by the higher sports betting payout. We attribute the stability of our profitability to the diversity of our business across regions and products and to our culture of cost discipline.

Operating income excluding one-offs, shown here in the center column, was EUR170 million, reflecting the higher sports betting payout in Italy. Currency did not have a material impact on operating income as for the most part revenues are matched to cost in the same currency.

Net financial position before the one-off was EUR2.56 billion at the end of the quarter compared to EUR2.59 billion at the end of December. I will address cash flow and NFP dynamics in more detail later.

Now let's look at the segment level operating performance during the first quarter starting with the Americas. Total revenues grew 23% to EUR300 million in the quarter while much of the increase comes from the strengthening of the dollar against the euro, America revenues were up 4% on a constant currency basis before the impact of LMA pass-through reimbursement. So the segment's underlying performance was quite good.

Lottery same-store revenues were up 5% on top of a 7% gain in the prior year supported by continued momentum in Instants and Draw games as well as healthy multi-state jackpot growth. The strength in instant ticket sales was broad-based across the country with double-digit increases in California and North Carolina.

Multi-state jackpot benefited from a $564 million Powerball jackpot, the fifth largest in the US history, during the quarter. This more than made up for a decline in Mega Millions as there was no meaningful jackpot this year, contrasting with the first quarter of 2014. New business in Colorado and Ontario also contributed to revenue growth.

Product sales of EUR34 million were modestly above the prior year driven by sales of VLT in Oregon and Canada, as well as gaming machines for Latin American casinos. That growth was offset by a decline in lottery product sales for the high level posted in the first quarter of last year when we had recorded significant deliveries in Pennsylvania and California.

Total new unit shipments were down year-over-year as we were comparing against the final stage of the Canadian replacement cycle in the first quarter of last year. The substantial increase in the North American casino participation units reflects growing demand for our new products, namely Sphinx 3D and Zuma.

Excluding foreign-exchange, operating income in the Americas was up 19% supported by higher lottery and gaming profits. FX was an important contributor to the increase in the reported terms at a segment level.

Moving to slide 9, the International segment posted revenues of EUR77 million. International Lottery same-store revenues were up 11% fueled by broad-based growth in instant ticket sales led by the UK. Jackpot games also performed well, especially in Poland and Czech Republic, which continues to benefit from the launch of the multi-jurisdictional EuroJackpot.

Product sales were slightly below the prior year as higher lottery product sales in New Zealand were mostly offset by a decline in gaming product sales. We expect the upcoming Phase One rollout of the VLTs in Greece to have a beneficial impact on international revenues in the second half of 2015.

Operating income from International segment was EUR13 million compared to EUR15 million in the prior year as increased profits for lottery operations were more than offset by lower product sales and a broad mix of items.

Turning to Italy on slide 10, revenues were down 7% in the first quarter. The drop is primarily due to the sports betting revenues where the payout increased 10 percentage points from the prior year period. Our payout is now aligned with the broader industry average and we expect to be in line with historical trends on an annual basis.

Total Lotto wagers were especially robust during the quarter, up 16% to EUR1.8 billion driven by strong performance in 10eLotto and late numbers. Instant ticket wagers of EUR2.3 billion were 7% below last year, in part due to the cadence of new product introductions.

As anticipated, machine gaming revenues were impacted by the implementation of the Italian Stability Law. Apart from that impact, machine gaming revenues would have been roughly unchanged from prior year.

The drop in operating income from the Italy segments can be entirely attributed to the increased sports betting payout. Increased lottery profitability and cost-saving initiatives more than offset the impact of the Stability Law on the gaming machine business.

Now let's look at the bottom half of the income statement on slide 11. Operating income as reported was EUR149 million, the difference coming primarily from IGT-related transaction and restructuring costs of EUR21 million. The EUR41 million increase in interest expense was driven by the financing costs associated with the IGT acquisition.

Other expense of EUR122 million reflect primarily the premiums associated with our hybrid tender and bridge loan termination costs, both related to IGT acquisition. On a reported basis we recorded a first-quarter loss attributable to the owners of EUR27 million compared to EUR75 million of income in prior year. The delta is a result of the acquisition-related item I have already discussed. Part of the details on the one-off items may be found in the appendix.

On slide 12 we have provided a summarized first-quarter P&L on a reported basis. Reported figures reflect an average dollar/euro exchange rate of 1.13 compared to 1.37 in the first quarter of 2014. You can see the currency impact I spoke about along the right side of the page.

Turning to slide 13 you will see, excluding one-offs, our net financial position was EUR2.56 billion at the end of the quarter. Net of the adjustment cash flow from operations was EUR169 million. Total CapEx was EUR65 million, mostly related to maintenance CapEx.

On the right-hand side of the bridge you see our reported net financial position of EUR3.16 billion and impact of the IGT one-off items, the largest being the exit rights and the financing cost associated with the transaction. You will find the accounts of the Legacy IGT business for the March quarter, before we closed the transaction, at the end of our press release.

Moving to slide 14 for an update on our integration efforts. As Marco mentioned earlier, we are very focused on realizing our synergy target. We have identified $280 million in total synergy over the next three years, $230 million being the cost of synergies. We are making good progress on these cost synergies and we are on track to achieve two-thirds of the savings by the end of the first year on an annualized basis.

We are also working diligently to report our second-quarter results as a combined entity, reflecting our new organizational structure, reported in US dollars, on a single fiscal reporting calendar, and in US GAAP. At that time we will also provide pro forma historical data for the combined entity. And then we will offer more clarity on our financial outlook. We are looking forward to this new chapter in the Company's history. Now I would like to open up the lines for Q&A.

(Operator Instructions). [Deo Tunacas], [Genovarie].

I wanted to actually ask some questions on IGT if possible, on the IGT side too. We saw a soft quarter in terms of profitability, but we saw very good performance in terms of cash from operations. Can you explain to me the difference in why EBITDA fell so much and how you managed to pull that through on the operational side -- on the cash from operations side? Thank you.

Okay, (technical difficulty) major driver that have reduced the profitability are related to the product sales side of the business and there is a contribution from the Gaming Corporation driven by a lower installed base compared to the same quarter of last year. These are the major drivers regarding the reduction in EBITDA and profitability.

When we look at the cash flow there are two major components that have impacting positively the cash flow from the quarter and are related to the fact that last year there was the payment for the renewal of the license with [Saudi] that is the largest part of the improvement.

But also, when we look at the working capital in particular to the receivables, there has been a reduction of the receivables on a year-over-year basis that has contributed to the improvement in the cash flow.

In terms of guidance you mentioned that you potentially expect an improvement in the coming quarters. Can you elaborate a bit more? Because obviously the results, at least in terms of machine (technical difficulty) for this quarter were not great. So can you give us a bit of guidance on what you expect for the third quarter of IGT or whether you see an improvement right now?

No, we will [just hope] to give you the wider picture. We will provide some guidance with earning calls at the end of next quarter. What we are saying is that we expect anyway, especially on product sales, that in the second part of the year we will have a better performance.

And that will be related to the fact that we expect improved product sales because there will be some new casino openings. And in addition, in the balance of the year we will benefit from the sale of the [cabinet] that we recently introduced which will feature both existing content and new games.

Okay, answered. Thank you.

(Operator Instructions). [Rudolf Renewal], RBS.

(Technical difficulty) synergy target revenue (technical difficulty) will be delivered on schedule? My next question is on your leverage target, you have mentioned in previous conference calls that this was four times in the medium-term. Could you elaborate a bit on that, is it still standing and also if (technical difficulty)?

Excuse me, can you repeat the first question because we didn't catch it.

It has to do with your leverage target, you mentioned (multiple speakers).

No, we got it. The first question was regarding synergy.

The first question is you have confirmed this, so I was wondering if you would confirm your leverage target as well.

Okay, regarding the leverage, we have communicated to the market a target for leverage closing that was a factor -- the range was between [4.5] and [4.9]. And then we said that longer-term we would be at 4 or below 4. We have not changed our target that still remains that one at 4 or below 4.

Regarding the synergies, after a few weeks we totally confirmed the synergies and we will deliver them on time and with the numbers we anticipate to the market in the previous months.

Okay, thank you for that.

There are no further questions at this time. (Operator Instructions)

Is there another question, Operator?

David Farber, Credit Suisse.

So I had a couple questions. I would first, I guess on the IGT side of the house, understanding you guys didn't own the Company, but can you just walk us through how you viewed performance in the quarter? And now that you own both entities maybe just talk a little bit more about how you see the businesses together for the balance of the year. And any examples you have maybe of how you are driving business on a combined basis. And then I had a couple follow-ups. Thanks.

I mean commenting the quarter, as far as the gaming operation (inaudible) performance is not surprising. The [plan] is consistent with what we have seen (inaudible) over the last years and a 4% sequential decline from the same quarterly is mostly due to [Maryland] conversion. The International (inaudible) is stable and year on year we have a decline because the conversion in Mexico.

So that is how we see the solution regarding the gaming operation regarding the profit sales. There were particularly weaker periods in the industry because of newer openings, especially in games and strong activity in prior year. But as I said before, we expect looking forward an improved product sales trend in the near-term.

And (inaudible) we are very pleased when it comes to the interactive part of the business because our social casino business grew consistently with these quarters and also the IGT interactive part of the business is growing.

So if I look forward I consider that we will have a combination of the two entities. On the other end you appreciate that we grew on the -- regarding revenues with the GTECH part of the business. And also by the way, either in US as well as in Italy. And you have to keep in mind that in a combined entity our installed base is over 70,000 units going forward. So we will balance the ups and downs accordingly to the different developments in the different part of the world.

Okay, do you guys have -- just a housekeeping question. Can you maybe, Alberto, provide us with maybe net debt or any sort of balance sheet items now that you have closed, given all of the consents? That would be helpful. And if you could provide us, if you have it, maybe just sort of what pro forma leverage looks like in your mind? If we need to do it offline, that is fine. But if you have anything on the balance sheet on a combined basis post the quarter, that would be helpful.

And then lastly, just curious, you guys took a bad debt charge or IGT did before you took it over. Do you happen to know what that was from and do you expect any bad debt going forward? Thanks.

Regarding the debt, let me tell you that you can imagine that right now, moving everything into US dollar with new accounting standards, to have the data on a combined basis and have a precise answer for you would not be possible. And again, in July we will also provide some guidance regarding that.

However, when I look at in terms of that, what we provided at the time of the debt offering in terms of total debt, I don't see any major change at the moment compared to the pro forma number that we have provided. So that is where we are at the moment. Again, as soon as we will be able to comment on common accounting standard and one currency, we will do it.

Now related to your question on the receivables. We had in IGT in the quarter certain receivables that were unsecured, which we took basically a write-down. And it is more related to a specific exposure than anything else because all our portfolio in IGT is basically on a secured basis.

Okay. And then last question maybe, Marco. Any update on the Italian lottery contract or any thoughts there? I didn't know if that was something you guys could talk about, or is it a little early? That is it for me. Thanks very much.

No, we are still waiting on the issuance of the tender. I mean, I think all of you know regarding how the tender should be structured in general terms. But to make a further comment we need the issuance of the tender.

We hope that this tender will be issued before summer so we can prepare our offering, and it should be so considering that there is the best interest of the government to get the first installment by the end of the year.

Thank you.

[Todd Ellers], [Ellers Research].

I had a follow-up on the with regards to the IGT game sales. I believe you mentioned and the prior question and also in the press release that there was some -- I think it was Maryland lottery conversions in the quarter. Can you say how many there were in the quarter? And then also it looks like it probably had an impact on the ASP for IGT. Could you possibly give the adjusted ASP ex those conversions?

Approximately 1000 units, and that basically fully explained the reduction in the average selling price that you have seen quarter over quarter.

Okay, just -- I'm sorry, you broke up a little bit. That was 1000 units that were converted for IGT?

Yes.

Okay. Were there also some --?

(inaudible) unit.

Sorry, there seems to be a delay; apologize. Were there also some GTECH units converted in the quarter as well?

No, because actually what happened on the GTECH side, our install base grew during the quarter by around 600 units. So there was no conversion for on our side.

Okay, thank you. And then my second question was with regards to the Oregon VLT replacement contracts. Did both GTECH and IGT ship the remaining units under the previously-announced contracts in the quarter? Is that essentially complete as of the first quarter?

GTECH shipped 400 units and IGT slightly above 300, and I think we are basically concluded.

Okay, perfect. Thank you.

Francesco Previtera, Banca Akros.

The question is about the reporting in US GAAP, if you can confirm, would be second-quarter reporting to show the full entity with the new reporting? And the other question is about the balance of currencies in that of the new entity. If you can provide us a rough figure of the cost of borrowing. And how is the breakdown of currencies? Thank you.

Francesco, regarding the reporting numbers, they will be provided when we are going to announce the second-quarter results, I confirm you that. And the question regarding the debt, we have said that the (inaudible) of the debt is more or less 50 -- around 50% in euro and 50% in dollars. We see the interest expense depending on the mix between the various instruments and the currency will be between 525% and 550%.

[535] is the cost?

525% to 550% depending on the mix by currency and by product -- by funding source.

Okay. Thank you.

David Hargreaves, Sterne Agee.

They were mostly answered. I just wanted to find out, and I am sorry if I missed it, did you give any sort of guidance for capital expenditures for the year? And could you let us know what that major components of that would be?

No, we didn't give guidance for the year, that will be done in July. However, until now basically we have always guided that the market on the GTECH side, that we have so-called maintenance CapEx needs that are -- historically have been between EUR170 million and EUR230 million. And by maintenance CapEx we mean the CapEx that is necessary to keep the current portfolio of contracts.

So we don't see any reason why this year should be different from that. Regarding the growth CapEx, we have again not provided the number, but you can imagine there will be some CapEx related to Greece, to the VLT in Greece.

And do you expect to be -- now that the deal is closed do you expect that you may need to borrow additional funds over the course of the year or do you know at this point?

But it will depend on how the cash flow for every quarter will move. So again, the point will be to provide you a point in time which will be the guidance for the year end 2015 when we will produce the second-quarter earnings.

Okay, last question, just a quick clarification. The EUR296 million of EBITDA you reported, is that before -- have you added back the IGT acquisition cost or is that before or after?

That is before any cost associated with the IGT acquisition. You find in the presentation in the appendix very detailed at an operating income level what are the impacts. And at the operating income level, not in EBITDA, it is EUR21 million and are related to some restructuring costs related to the acquisition as well as transaction costs.

So they are fully added back, okay. Thank you so much.

Duncan Lake, Nomura.

Just a quick one. I mean just going back to the leverage, I know you guys can't give an exact sort of level, but it looks, assuming the decline in the IGT EBITDA and everything else, they are pretty stable in terms of GTECH EBITDA and debt levels and cash.

I just wanted to ask in relation to the rating agencies and your discussions with them, would it be fair to say -- I mean have they given you -- are they going to give you time to get all your projections on pro forma accounts and wait until August before anything happens or how do you feel about that? Have there been any discussions? Because clearly it was a little bit -- it looks like it was a little bit weaker. Thanks.

No, there has been no discussion with the rating agencies regarding that. As always we will present once we have on a homogeneous basis the forecast of the next two or three years and we will discuss with them. But I would say it is a pretty normal process that we have when we complete the forecast.

A reminder what we have already anticipated, it would be a mistake to give the financial results of March as indicative of the future. We expect to have stronger results in the balance of the year on an underlying base before synergies.

Okay. But I guess just wondering, you obviously had those discussions when you had the ratings or when you did the bond issue a couple of months ago.

Yes, we had the discussion and we are not planning short-term anything. Once we will be ready with the new forecast in dollar we will see if it is necessary to meet with them.

Okay, great, thanks. Thanks, guys.

Alex Hooper-Greenhill, Societe Generale.

My question has actually been answered, but could you just confirm because I didn't quite hear, you are going to report in US dollars in the next quarter or you are not quite sure yet?

No, we can confirm that we will. We confirm that we will.

Okay, great. Thank you very much.

Betty Fusco, Cairn Capital.

Two questions for you, please. One, on the IGT side of the business, what is your visibility on machine sales? You have said that you think that the rest of the year is going to be stronger. The first-quarter or the second-quarter results for IGT were quite a bit weaker than what we expected. So do you have weeks of visibility, months of visibility?

My second question (multiple speakers), sorry. No, that is all right. The other question was on the new Italian taxes that GTECH has paid, I thought I read someplace that you have actually paid the full amount due for -- the 40% that was due in April with the balance due in June, I believe. And where are your partners on the amounts that they are owed? That they owe on the tax? Thank you.

Regarding the first question, we have some visibility regarding the fact that there will be some new openings and we are working in order to get our market share in those new openings and we will (technical difficulty) to that. We are discussing with the customers the new cabinet and the new content that are combined with (technical difficulty). So we have some visibility and some initial feedback that give us confidence regarding (technical difficulty).

Okay and how are those new openings -- sorry. Please continue.

Is mainly Massachusetts.

Okay. And sorry, on the Italian tax?

On the Italian tax we have paid the 40% which in total is EUR38 million which includes our share of it and the share of the network. In the network there has been a large part of the tax already paid. There is a part that has not yet.

We are finalizing the contracts with them. We have anticipated it but we have notified the government about what is happening and therefore we expect a resolution of this by the time we will have the second payment.

Okay. So you have to collect the part that your partners owe out of the EUR38 million that you've paid?

Let me say part of the network has paid, there is part that is not paid. But there the problem is not only related to the payment, it is related to the fact that we are modified and negotiating with them the new contract so that the [contract] different services that we provide based on the new rule. And so, we are diligently working with them to get to a solution before the next payment is due.

Okay, so you would anticipate then that when the 60% payment is due you would only pay your portion and your partners would pay their portion?

Correct.

Okay. And what is your portion of the 60% please?

We have paid in the quarter EUR5 million as our portion of the tax, the additional tax.

Okay. All right, great. Sorry, just going back to the machine visibility. You said it is mainly in Massachusetts. But am I -- is this something that is likely to happen in the current quarter, so the third quarter for IGT or would it be the quarter after that? Where and the calendar year will this be announced and how much do you think you could be down for the full year then in product sales at IGT?

We are not anticipating this number. What I can say is that we will have better performance compared to what we are experiencing today. And regarding Massachusetts, (inaudible) between this quarter, second quarter calendar and the following.

Okay. But you always that you were going to be down in product sales in IGT for this year, correct, because of the big sales last year?

Yes. But I am comparing what we are experiencing today announcing the results with what we expect in the second part of the year. My point is don't take what we are commenting today as far as product sales is concerned. Because even though we do not have issued the guidance yet we are confident that for the remainder of the year the performance will be better. In North America, as well as International, that is the sense of my message.

Okay. And at the time of the road show how much did you think the IGT machine sales were going to be down for full year 2015?

No, we are not providing this figure.

You did not provide it at the time of the road show?

Listen, I mean we have said that we will provide the guidance in July, okay. So we have said that the quarter -- for the quarter the product sales has been below our expectation. There has been a clear decline of a year over year on the new and a decline in International product sales.

So what we see is that the results of the quarter cannot be multiplied by four, we have nine months in front of us and we expect better product sales for the remaining three quarters. And we will provide much more visibility on a combined basis including SPIELO, because part of the equation is also what we are doing in SPIELO that in terms of sales and in terms of installed units is doing better. And therefore you will have the full picture.

So -- okay, one more question. How much were machine sales up at IGT last year, 2014?

Maybe we can follow up with you on that question. The IR team can get that for you off-line.

Fine, who do I contact, please?

You can contact Jim Hurley and my telephone number is on the press release.

Okay, great. Thanks, Jim.

Next question.

(Operator Instructions). Antonio Casari, Northlight.

A quick follow-up again on IGT sales. And is there any extraordinary sales last year that we should think of when comparing the four months in the last -- in the remaining part of the year 2014 versus 2015?

And the second part is, on top of -- as a result of the drop in sales there is also a significant compression in margin. Is that as a result of a fixed cost structure or is it driven by other elements which cannot -- will continue to be there irrespective of the recovery in sale?

And then the second question is relating to your cost synergies. Would it be possible -- I appreciate you said two-thirds to be achieved by the end of this year on an annualized basis by the end of year one, you mean April 2016 or end of 2015?

And the second question is how much in terms of actual, so in terms of by the end of 2015, is going to be 50%? Or so we -- on an annualized basis we have -- we get to the two-thirds? How does it work, the math there, please? Thank you.

Let me say talking about the synergies, we were saying by the end of year one, so I have been saying that we will execute actions by the end of first quarter of next year that on [average] base will represent 65% of our anticipated revenues -- sorry, synergies. Having said that, we do not anticipate the portion of it that will impact this year. We will be more clear on that on the end of next quarter while providing guidance.

Okay, thank you.

Okay, regarding your first question that was related to the units (inaudible), what happened in United States last year where the sales of around 1,000 units in Oregon which isn't -- in Illinois, sorry, in Illinois.

Going to the other question related to the gross profit, let me tell first of all that for the interactive business and for the gaming operation the gross profits have been basically stable at a very high level. The gross profit of the product sales has gone down for several reasons.

First of all, for the mix of these revenues (inaudible) in the past quarter were positively impacted by the gross profit of the intellectual property fees that we get that have been lower than last quarter. And there is no cost associated with that so the mix has played an impact in the product sales.

In addition to that, IGT has taken around a $7 million write-down this part of the gross profit calculation in inventory that has been quite exceptional due to the fact that for certain components (inaudible) supplier and they had to do the write down because the sales were not as I had suspected when the last order was put with the supplier.

So overall mix and some specific issue have impacted the gross profit as well as the mix in the products sold because, as we have mentioned, there has been 1,000 units that have been moved from the installed base to the product sales related to [maintenance].

Okay, and you mentioned 100,000 -- sales of 100,000 machines in Illinois?

1,000, 1,000 I said.

1,000.

1,000.

I mean how much is -- sorry, this is like how much is per machine on average, $3,000 or more? Are we talking about $3 million or so?

You are asking for the average price of the machine?

Yes, exactly in order for us to have --.

It depends on the type of machines, but we are talking about consider between $15,000 and $25,000 depending on the type of machine.

So we are talking $15 million to $20 million, okay, perfect, thank you.

As there are no further questions I would like to hand the call back over to Marco Sala.

Thank you very much. I would like to leave you with three takeaways from this (inaudible) where we operated as two separate entities.

One, the underlying GTECH business is solid with strong performances in gaming and lottery.

Two, we are ready take on the challenges of the Legacy IGT gaming machines, stabilize it and give it new momentum for growth. As I mentioned, the past quarter was a transition period and the results are not indicative of the future. We expect stronger results in the balance of that year on an [underlining] basis before synergies.

And third and last point, we (inaudible) offering the right organization, the right (inaudible) to meet our customer's needs in the new global gaming landscape. Together with our synergy goals we believe our distinctive approach to market can create significant shareholder value over the long term.

We look forward to next quarter's combined reporting and, having said that, I wish you all a good day and thank you for listening and for your interest in IGT.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.