International Game Technology PLC (IGT) 2016 Q2 法說會逐字稿

Good day and welcome to the IGT 2016 Second Quarter Results Conference Call. Today's conference is being recorded. At this time I'd like to turn the conference over to Mr. James Hurley. Please, go ahead, sir.

Good morning. Thank you for joining us on IGT's second quarter conference call. Marco Sala, our Chief Executive Officer, will provide an overview of the quarter and comment on our broader strategic initiatives. Then Alberto Fornaro, Chief Financial Officer, will provide operational and financial perspective on the period. After our prepared remarks, we will open the call up for your questions.

During today's call, we will be making some forward-looking statements within the meaning of 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.

Now, I will turn the call over to Marco Sala, CEO of IGT.

Thank you, Jim. And welcome, everyone. We are pleased to be reporting our solid second quarter results. With continued expansion in our global lottery operations and a resilient global gaming business, constant currency revenue rose 1.5 %. Total service revenues which account for about 85 % of the consolidated total and are mostly supported by long-term contracts went up 6 % at constant currency. That includes 8 % growth in global lottery and a 5 % increase in gaming service revenues.

Our North American lottery and Italy segments were the primary drivers of revenue growth. The growth in service revenues was largely offset by lower product sales, which as we have noted previously, tend to vary from quarter to quarter. Total product sales declined 18 % at constant currency, mostly due to an exceptionally high volume in the prior year. While the product sales typically account only for a relatively small percentage of our total annual revenues, they due impact our quarterly performance. This year we expect our product sales to be weighted to the second half of the year. This is mainly due to our own product revenue scale.

Our second quarter profitability was good. Adjusted EBITDA of $ 443 million was 4 % higher than the prior year, driven by significant profit expansion in our Italy and North American lottery segments. The growth in EBITDA reflects the steady high margin characteristics of our recurring service revenues. Lottery performance was of particular note during the period. Global lottery same store revenues, excluding Italy, increased 6 % while total Italian lottery wagers were up 8 %. Our North American lottery operation achieved 7 % same store revenues growth supported by strong multistate jackpot activity for both Powerball and Mega Millions and more normalized trends for broad-based games and instant tickets.

Internationally, lottery same store revenues rose 2 % in the period. In Italy, lotto wagers grew an impressive 19 % on top of 11 % expansion in the prior year. Late numbers were an important contributor to wager growth as was the continued momentum of Italian lotto overall.

Scratch and win wagers were in line with the prior year, including the stabilization of the business as we have optimized the product portfolio and streamlined new product introductions. We are very pleased with the strength of our lottery business but it's important to note that multistate jackpots and the late numbers are more volatility than broad-based games and instant tickets. As a result we do not expect these games to contribute as much to sales and profits in the second half of the year as they did in the first half.

Now, let's go through some games. Constant currency revenues were in line with the prior year. Service revenues were up 5 % in the period but the lower product sales offset that growth. We shipped approximately 8,150 gaming machines in the quarter. Global replacement unit shipments were significantly better than the first quarter as anticipated but below last year's exceptionally high level. New and expansion units were also higher than the first quarter but lower than the previous year when there were substantially more new opening activity in international markets.

It is important to point out that we continue to add good demand for our new cabinets around the world, having experienced the strongest quarterly sales for (inaudible). The games we were begin sending last year -- sorry, later this year -- will have gone through a rigorous field testing we instituted several months ago. This supports our conviction that product sales will pick up in the second half. Double down revenues were modestly below the prior year and below expectations. Double down achieved steady growth over the last several years, almost in (inaudible) fewer by putting successful land-based content into the social casino. We have intensified our thoughts on reinvigorating its growth trajectory and have several new initiatives underway.

Earlier this month we introduced a loyalty program to increase monetization of current players and reengage lapsed players. We will continue to leverage a proven land-based content on (inaudible). Advertising is an additional element recently launched and we expect it will become a meaningful contributor. We are confident in the longer-term prospects on double-down.

Last quarter I highlighted our arrangement with the Paradise Entertainment. That will create an opportunity for us to bring innovation to electronic table games around the world. Earlier this month we announced the largest live electronic table game installation in the United States. At the same time -- (inaudible) Pennsylvania. The casino is another 50 EGT terminals supported by tables and [baccarat] games. This is an important first step in developing deals and emerging [extension] to our portfolio.

Perhaps more significantly we have begun rolling out the highly anticipated wheel of fortune 3D machines. This is the first game we have ever released that marries the brand power of wheel of fortune with the compelling innovation of 3D technology. While there are only a few dozen units on the floor at the end of June, earlier performance indicators are encouraging. The first to introduce 3D cabinets with one title in 2014, there are currently 7 games on more than 2,000 units in North America.

We expect the install base of 3D machines to accelerate due to growing customer demand for the expanding library of 3D titles. All in all we are pleased with the quarterly performance and the (inaudible). Now I'll turn the call over to Alberto.

Thank you, Marco. We achieved solid financial results in the second quarter, demonstrated here on slide 8. Note that with the anniversary of the acquisition we no longer need pro forma adjustments.

Revenue rose 1.5 % at constant currency on strong service revenue growth. Adjusted EBITDA increased 4 % on the higher revenues and synergy savings. We achieved adjusted EPS of $ 0.43 in the second quarter, up from $ 0.38 in the prior year and we have earned $ 1 per share year to date.

On slide 9 we have an overview of the operational drivers of reported revenues and adjusted operating income for the quarter. Lottery service revenue was up sharply, supported by same store revenue growth in Italy, North America, and Latin America. Gaming service revenue was also up as a higher contribution for software was partially offset by lower global install base.

Product sales primarily reflect a more challenging comparison to last year's quarter when we recorded significant lottery product sales in South Africa and larger Canada VLT replacement sales. Lower intermission sales in new and expansion units also contributed to the decline in product sales.

On an adjusted basis, operating income increased 2 %, supported by revenue growth and synergy savings, higher operating expenses, primarily reflect costs associated with the timing of the merger.

Let's turn to North American gaming and interactive on slide 10. Gaming service revenue improved 4 % on increased software contribution that was partially offset by the lower install base. For the quarter, we shipped 1,277 new and expansion units and 3886 replacement units for a total of 5,163 units in North America, both of which were up sequentially. Last year we had sizable VLT sales which negatively impacted the comparison of replacement units. The S3000 Stepper and the CrystalWheel maintain momentum and were the top selling cabinets in the quarter. System sales were strong, reflecting demand for IGT systems, head-on application, particular service win. Double down revenue was lightly below the prior year as a decline in active users was partially offset by strong monetization. Operating income reflect lower revenue from terminal sales in addition to incremental costs to support the gaming turnaround. Those costs including investments in R&D, in collateral such as signage for the install base and targeted pricing actions.

Turning to North America lottery on slide 11, same store revenues rose 7 % on continuous strength in jackpot games as well as solid results from instant and draw games. Many of the largest lottery including California and New Jersey, North Carolina, and Texas grew same store revenue faster than the market (inaudible). Consumer preference for high price tickets was an important driver of recent growth and we had a successful launch of the new Wheel of Fortune ticket in Florida.

Operating income rose 31 % from the prior year, demonstrating the strong operating leverage profile of this business. Product mix in the variable lottery management agreement comparison with last year also contributed to the increase.

Moving to the international (inaudible), the constant currency lottery service revenue increased 10 %. We achieved the same store revenue growth with 2 % in lottery which was supported by strength in Latin America and Eastern Europe that was partially offset by weaker UK performance. Total lottery revenues also benefited from a higher mix related effective rate in the period. Gaming service revenue was unchanged as constant currency is a stronger performance in EMEA, partially offsetting lower service revenue in Latin America due to commercial sales that took place in late 2015. Sequentially, the install base remained fairly stable at 9,478 units.

Total product sales were down in the second quarter. Lottery product sales are a challenging comparison with a central system and a 9,000 unit to terminal sales in South Africa in the second quarter of 2015. Total gaming units shipped were 2,989 in the second quarter. Replacement units were up 4 % from the prior year while new and expansion units declined significantly on lower overall market activity.

(inaudible) income declined year over year, approximately two-thirds of the decline was due to lower product sales and one-third due to unfavorable foreign exchange. Our Italy results on slide 13, during the quarter we experienced strong lottery growth and resilience in gaming but the wager rose 19 % which included significant late number activity. Excluding the late numbers, lotto wagers posted 7 % growth compared to the prior year, scratch and win wagers were flat for the quarter. Higher wagers per machine and lower return to players drove machine gaming growth despite the decline in (inaudible) units installed and also the (inaudible) low impact.

Sports betting wagers were flat for the second quarter while revenues declined on a higher payout. Italy second quarter operating profit was up 14 %, driven by the strong performance in lotto, a shift in timing of certain marketing expenses, and the net $ 7 million one-off benefit versus the prior year from a multi-year value added tax, VAT credit. Following the fourth quarter VAT announcement, we had in fact completed the administrative work for the interactive claims related to the treatment of certain scratch and win expenses. The addition of positive impact is reflected in the second quarter and we do not expect any incremental VAT benefit going forward. Operating profit growth were partially offset by (inaudible) low impacts.

Let's turn to our debt and leverage profile which you can see on slide 14. Net debt for the second quarter was $ 7.8 billion excluding any impact of foreign exchange, net was essentially in line with the fourth quarter level despite the $ 240 million Italy full upfront payment. As reported on the consolidated financial statement, the full $ 390 million upfront payment is accounted for in our cash flow used in investing activities while the capital contribution from minority partners of $ 150 million is found in cash flow from financing activity.

The second full upfront concession payment of EUR250 million is scheduled for the fourth quarter. Leverage was 4.43 times, last 12 months adjusted EBITDA improving from 52 times six month lyre, has improved profitability and basically operational management more than compensated for the large lotto concession payment. I would also like to mention that we successfully an amendment for approximately $ 3 billion in multi-currency revolving credit facility comprised of $ 1.8 billion and EUR1 billion line of credit.

In doing so we have extended the maturity from November 2019 to July 2021. in addition, the maximum leverage threshold was increased by 25 basis points effective from third quarter 2016 through the third quarter of 2019. we decided to proactively extend the maturity now because our advantageous market condition and to reduce nearly $ 5 billion bond term loan and credit line maturity in 2019. While we remain committed to reducing our net debt leverage, our action provide the company significant financial flexibility over the next several years.

The higher profit and operational discipline are more clearly evidenced on slide 15. We generated $ 524 million in cash from operations in the first half of 2016 including $ 318 million in the second quarter. CapEx was approximately $ 220 million in the first half which mainly corresponded to maintenance investments and reflect a fairly normalized run rate. The (inaudible) flow you see here is before minority partner capital contribution for the lotto, including the contribution we generated $ 64 in (inaudible) flow in the first half even after the substantial lotto payment.

Let me provide some perspective on how to look at 2016 which we have summarized on slide 16. We are very comfortable with the range of EBITDA guidance of $ 1.74 billion to $ 1.79 billion. We delivered strong profitability during the first half of the year supported by significant lottery growth and a contribution from synergies. As you build your forecast for the remainder of 2016 there are important considerations to keep in mind.

First, that our profits in Italy are traditionally higher in the first half of the year. This is primarily due to the rate we have on lotto which declines today as wagers grow. This will be different in the future because the fee will be at the fixed level for the entire year.

Second, as I mentioned earlier, Italy profits benefited from marketing expenses that shifted out of the second quarter and into the balance of the year as well as incremental VAT benefits. Third, we are planning for the moderation in lotto wager growth to more normalized levels as the contribution from late numbers has been above average.

Along those lines, the record Powerball jackpot in the US was another significant contributor to profits in the first half of the year that is not expected to reoccur in the second half. Just as lottery was an outsized contributor to profits in the year to date period, gaming is expect to be the more important driver in the second half of the year. This is primarily due to product sales expectation and a ramp up in synergies will also contribute to the back half.

We are updating our outlook for capital expenditure to $ 550 million to $ 580 million which includes technology related CapEx for the new lotto concession. This is down from our prior expectation of approximately $ 575 million to $ 625 million which did not include approximately $ 35 million in lotto related infrastructure spending. The reduction is mostly related to the shift in timing of anticipated Florida lottery capital requirements and Italy sports betting renewals.

At this point we'd like to open the call for your questions. Operator, can you please proceed with instructions?

(Operator Instructions) Barry Jonas, Bank of America.

Hi, guys. Broadly speaking, how far along do you think you are in the turnaround of the North American gaming business? And then just for the quarter, a little bit ahead of what we were thinking on a normalized basis, any shipments you might call out, whether it's VLTs in Canada, Oregon, or anything else. Thanks.

Hi, Barry. It's Marco. I think that when it comes to being a strong base, I think that in the second quarter, we should see some improvement in the sense that we believe that the decline our install base will begin to moderate. And progressively stabilize later on. And we rely on very exciting new games such as Wheel of Fortune 3D, Aladdin, TMZ, Plants vs. Zombies, also in 3D, that we have just introduced or we'll be launching.

And operators are enthusiastic about the potential of these games and orders reflect that view. So, that's mainly the reason why we expect that we will see compared to the first half of the year some progress there, in the sense I repeat, that we expect that we will moderate the decline. While in internationally we expect the greatest stability and even improvement coming from Latin America and Europe and Australia. So, in this part of the business, I think we are headed in the right direction.

The same applies to product sales because we believe that in the second part of the year we will do better. We have already anticipated that in the first quarter we were saying that we will progressive improve and fully expect that in the second part of the year we will do better overall than in the first part of the year. Again, we are talking about our newer cabinets such as S3000 Stepper, CrystalWheel are performing well and we are introducing a new access cabinet internationally and along with the new cabinets we have also developed new content in North America and internationally to support them. So, this is the reason why we expect that we will move forward, improving the outlook of the gaming business in the second quarter.

Barry, Alberto. Regarding your question on VLT, last year we had in total almost 2,000 units, 1,965 in various jurisdictions in Canada and in the US. This year we had 916 in total, so almost entirely the reduction in the volume is coming from the VLT. 950 is the reduction in Canada. We didn't sell anything this quarter. And the remaining jurisdiction -- of the 900, we sold in the second quarter 60, 400 in Illinois and the remaining is all in Georgia.

Great. And just a question on synergies. Can you say maybe where you're at now on an annualized run rate basis. Maybe what are some examples of incremental areas for savings at this point?

Barry, we are on track and actually we're running better than the $ 70 million that we said, slightly better. So, we're absolutely confident regarding achieving what we have told The Street. Regarding the area, we will not see a lot of impact in the future in the operating expenses. It will be mostly at the gross profit level because the remaining senior (inaudible) was related to activity like the procurement area and field service.

Got it. Thanks a lot, guys.

Chad Beynon, Macquarie.

Hey. Great. Thanks for taking my questions. Good morning. This quarter we've heard a lot from broad consumer companies that results were slightly weaker than expected because of all the acts of terror and negative events that we've seen around the world, including the Brexit situation as well. In your results it didn't look like you were really effected by any of this. Can you talk broadly if you think these situations may have reduced your growth in the quarter? And then more importantly if you think there will be any impact in the back half of the year from Brexit or anything else that you're seeing from your customers? Thank you.

Chad, I would say that the overall macro environment for the moment, we cannot say had an impact on our business. In general regarding Brexit we have done a preliminary valuation and we don't see apart from potential macroeconomic impact in general due to the uncertainty of the process, we first of all don't see any immediate impact and second, given the fact that we have on one side relatively low percentage of our revenues coming from the UK, at the same time we have a cost base in the UK that is larger than the simple lottery activity that we do because part of our activity is interactive game.

We don't see any major issue coming also from foreign exchange consideration. More long-term it depends what is the outcome of this process and the agreement that will be taken politically. Worst case scenario at the moment, given the analysis we've done, some of the benefits that we were expecting in terms of financial flexibility and a withholding tax between different countries, no, we don't tax on dividends so maybe, maybe depending on what is the solution could impact it and therefore these will be lower opportunities from that point of view than a real impact compared to the current situation.

To elaborate a little bit more on this, we do not see from the consumer standpoint in our main geographies a change -- a substantial change in behavior. On the other hand this business has proven being rather resilient. Even during very important economic downturn. For the time being, at least, we are not registering a change of attitude.

Great. Thank you. And then, Marco, in your prepared remarks you talked about the Wheel of Fortune 3D being out in the field. I think you mentioned a few dozen are out there. Can you talk about your strategy in the third quarter in terms of how you're planning to roll this out on a piecemeal basis or allowing every operator who is asking for it to get it right away? And then if you could give us any color on maybe a potential pipeline if you're willing?

What I can tell you is we have already a quite substantial number ordered. We are progressively deploying it and from a commercial standpoint we continue on these lines. What I can -- I think it's the most important comment I can say in this moment is the machine is doing well on the floors that have already deployed it. This I think is the more interesting part of the conversation and again there is interest, that is something that customers out there (inaudible) and it is something that reflected in our pipeline.

Okay. Thank you very much.

David Katz, Telsey Group.

Hi. Good morning, all. Or afternoon. I wanted to ask about the North American gaming business and just sort of following through on the Wheel of Fortune 3D, a couple of thoughts about it. Are there -- how is that pricing in the field relative to your historical pricing on other 3D games? And are there additional iterations on that in the works behind it to continue whatever momentum you may be building going forward? And then just on the core video which is a topic that comes up as we talk with your customers, if you could give us some color about games that are in some stage of testing or approval process or it sounds like we are counting on some sales for those or should be counting on some of those sales in the back half of the year and I'd love to get just a little more color on that, please?

David, regarding Wheel of Fortune, I would say that in general pricing is aligned with the best premium product that we have in the field and we -- so therefore, no major change compared to that. On the other side we have in the field around 50 units now and the performance has been -- they're not a lot but the feedback has been very encouraging given the low number of units that we have.

In terms of -- regarding the core product, what I can tell you is that we have now a set of new contents that have been tested over the period of the previous months along the lines of the process that we have anticipated and we believe some of that content, according to the results of our test, are very promising. And we rely on them for the second half of the year. So, I think that the only way is to apply the discipline we have anticipated. We've done it and we feel that some of these products have a good potential.

Understood. If I could ask about DoubleDown, I know, Marco, you touched on some strategies to try and reinvigorate that business, one of which I believe you said was a loyalty program. Can you put a bit more detail around what those strategies or what the nature of those strategies might be? Is it around -- I'll let you answer the question but I'd love to get a little more color on what to do with that business which had been flat for awhile and is now looking to be down?

Yes. I understand. But DoubleDown has enjoyed a tremendous growth. Now we are facing increased competition and this is a matter of fact because other players are introducing their successful land-based content and are bringing some innovation. There are other new ops in the market. But we have our own roadmap and we have a focus on a well defined set of actions that should allow us to return to growth.

And you are right. The loyalty program, we all recognize the loyalty program is fundamental to attracting and keeping players. It's the primary focus of our activities. We always felt that regarding, let me say, the social feature of DoubleDown was lagging a little bit behind and now there's a loyalty program, should help us in reducing the gap.

On the other hand, I think we still have -- we have plenty of successful games in our library that are yet to be launched on DoubleDown and we rely on them from a content standpoint. I think we can make (inaudible) advertising as another theme that was introduced recently and we suspect it will become meaningful. And of course we continue to invest in technology in order to allow us to introduce innovation more easily.

So, we're working on all those lines and we expect that those -- let me say, developments, will help us to stabilize and then get back the business (inaudible) because the market is still -- I mean, very interesting market. We believe in the social casino space and we are confident that DoubleDown is a very good platform to compete in it.

If I can just follow that up, I know that we've talked about on premise and some of those technology offerings and I know that you have an entertainment system offering as well, what progress or what updated thoughts do you have around integrating DoubleDown as a B2B offering within your casino technology offerings? In addition to it being a business in and of itself.

We are now focused mainly on the B2C component of that part of the business. There are some developments about the on premise parties, more focus on what you already know, regarding the ability to provide sports betting and real money gaming at the premises of our customers, more than on the social space.

Perfect, thank you very much.

(Operator Instructions) Cameron McKnight, Wells Fargo.

Good morning. Thanks very much. First of all, in the first half you generated underlying cash flow before the Italian lottery, around about $ 300 million. Should we think of this as a baseline level of cash flow generation going forward? So, $ 150 million a quarter or roughly $ 600 million a year?

Cameron, we said in the long-term on average we were looking at a number that is slightly lower. What we've seen in the first half of this year in general has been a good cash flow generation. It also has been impacted by two important things. One is the dynamic of the working capital in Italy that has been more favorable and sometimes that happens because it's related to the normal cycle of the cash in Italy which is higher in certain days of the week when the quarter ends and certain days of the week in lower in others.

Part of it is due to -- will be reabsorbed. The other is that we actively have been looking at our balance sheet and obviously if there are assets we can monetize, we have done it, last year for example, to finance the restructuring expenses. And we are continuing to do it. So, overall I would say what I said a couple of quarters ago in terms of average cash flow that we expect from the business. Having said that we will strive to get more and this quarter we have been successful.

Thanks. That's super helpful. You mentioned the potential to monetize assets. Just on the topic of DoubleDown, there are press reports that one of DoubleDown's competitors is being shopped for what seems to be a pretty high valuation or a pretty large valuation and high multiple. Is DoubleDown an asset that at the right price you'd consider selling and monetize the content through licensing deals? Or is DoubleDown something you see as being too core to the business to consider selling?

Cameron, I was talking about (inaudible) assets, not assets that generate profits. Anyway, Marco would probably give you a better --

Of course we are following with interest the development of the deal. I don't know at this stage the (inaudible) for the time being we are I think to keep this asset within our portfolio.

Great. Thank you very much.

John DeCree, Union Gaming.

Hi, guys. Thanks for the question. Just wanted to shift gears to the lottery business more broadly. I think, Marco, in your prepared remarks you've mentioned some product expansions and developments that you guys have had that have been successful to drive growth. I was wondering if you could add some color as to how much meat is left on that bone and what we could expect going forward, is that something that's going to be continuous over the next couple of quarters?

John, we missed the first part. Can you repeat it?

Sure. Just wanted to shift gears to the lottery business more broadly and the comments in the prepared remarks suggested some of the product innovations on the lottery side have been key catalysts to driving some of the larger growth in the lottery business overall. I was wondering what the pipeline of that lottery product expansion is going forward and if we should expect similar trends over the next several quarters?

I think the catalyst in the first quarter, John, in the first couple of quarters were mainly the jackpot and the exceptional performance of late numbers for the lotto part of the business. The rest of the business was growing at healthy average growth. It's always between 3 % and 5 %. That is very good. We are referring to that part of the business where we are constantly innovating our products.

We did in Italy, we are suggesting to do that in the continents and we are very good in developing new ideas regarding broad-based games and instant tickets and along these lines. We help our customers growing their business. This is a business that is proving to be a -- with a very, let me say, stable growth. In the last years we were around 3 % or 5 % and we expect that it has all the potential to grow going forward.

Mostly because there are very different performances across the areas and jurisdictions, it's 3 % within the United States, it's -- outside the United States and we are helping our customers filling the gaps where they exist or improving their performance of what they are doing better, looking out on the products, the payout, the price points, the distribution, the advertising, all the elements that are representing the mix of the lottery that can be moved in order to continue to grow.

If I could just follow up on the multi-state jackpot games that have been really strong in the first two quarters and realizing that the business is volatile and very much jackpot driven, only two quarters here that we've really seen good growth. Is there any sense as to consumer preference? Is there -- realizing that the large jackpots are unpredictable, but any sense that these games are increasingly popular with the consumer and that maybe elevated consumer spend levels on multi-state jackpots is something that might stick around? Or is it purely just too volatile to get -- ?

You have to look at the entire portfolio of lotteries. The entire portfolio of lotteries has the jackpot games, the broad-based games, the instant tickets. It's clear that when it comes to the jackpot games, they are interesting the players when the jackpot is increasing. And by the way, the market jurisdictions organization have worked on the metrics of the jackpot in order to create more momentum in the jackpot generation. But it's important that the lottery is the entire portfolio and the entire portfolio is done by different product, they're all officiated, and there are of course some spikes for the jackpot games when it comes to the jackpot, it's very high.

So, they have not -- we cannot predict on that going forward when the jackpot will materialize.

Great. Thank you. If I could just switch gears quickly to the electronic table game installation in Pennsylvania. I've seen existing customer in Sands in Las Vegas, but I was wondering if you could discuss the opportunity for that electronic table game in the US elsewhere. Is there anything in the pipeline? Is that an increasing focus for IGT?

No. We have the products. They're approved in Nevada and Pennsylvania. There are upcoming installations and field trials that are scheduled for Bellagio and Rio in the third quarter. And we look at these businesses as an opportunity to grow our sales. That's the reason why we did the deal with Paradise. That's the reason we believe we can progress in that part of the portfolio.

Great. Thanks, everyone.

Domenico?Ghilotti, Equita.

Good afternoon. My first question is related to the decrease in the CapEx guidance. I see that you are mentioning the possible delay in the sport betting investments. Are you now counting on basically this standard to be issued after year end? So, in 2017? Or just waiting for the investment for the roll out? And if you can elaborate a bit more on the current development on this topic? The second question is on DoubleDown, follow up. I'm trying to understand if you see the relaunch of DoubleDown as a potentially long and expensive -- so, if you're ready to take some dilution in your profitability or even severe dilution in your profitability in order to relaunch the business and if you see this project as quite a long process, several quarters down the road?

I'll start with the second one. I think we have a solid roadmap and we have to execute that. To execute that roadmap we do not envision additional investment. Regarding the sports betting, the answer is we expect that the tender will be postponed to next year. We don't see any possibility to get it done. This is our view, to get it done by year end.

Okay. I can follow up on another question. You were mentioning as a weak performer in the lottery business, the UK. And it is clearly countries now heavily effective by much uncertainty. On the other side you were commenting about the resiliency of the lottery business. So, do you see any reason behind the UK weakness that is not consumer driven? So, something specific, a comparison or whatever that is behind the weaker UK performance?

No. I think that is totally unrelated to the Brexit. There is a jackpot game that is having some difficulties and from what we understand, our team is working to address it. So, it's very specific to one game --

Product innovation basically? Lack of product innovation?

Yes. Let me put it in a wide sense, yes.

Thank you.

David Farber, Credit Suisse.

Hey, guys. How are you?

Very good. What about you?

Very good. Most of my business questions have been asked and answered. I just wanted to ask about the credit facility amendment that you put in the release? I was just curious if there were any fees associated with it and just sort of your thoughts around extending it and then increasing the ratio. You haven't really touched on that. So, that was my question and that's it for me. Thanks.

David, it is very simple. Conditions are the same that we got when we structured the deal. They are very, very convenient. We pay a small fee, an amendment fee to get it done. What is really important is the fact that we can count now for five years on these facilities. We have a bigger concentration on maturities in 2019 that we have now significantly reduced and therefore for us it's okay, it removed an uncertainty in a moment that we believe is good, that the market has abundant liquidity and our bank is very, very supportive of our story.

Regarding the comment, it's simply being now a facility for five years and we get a little bit more flexibility, that's it. But there's no change at all in our plans.

Very good. Thank you.

Brian O'Brien, Credit Suisse.

Hi. Good afternoon. I just wondered if you have publically disclosed what the leverage covenant is on the facility?

No. We have never talked about it, regarding that. But we are comfortable below.

Okay. And just in terms of deleveraging targets, what are your thoughts on where you think the business can get to, say, in the next one to two years. Do you have a view on where you'd like to see this business operating on a net debt to EBITDA basis?

No change compared to what we have said in the past. We have a goal to achieve 4.0 in the net debt to EBITDA leverage ratio by 2019.

Okay. Great. Thank you. Thanks.

I would liken now to turn the call back to Marco Sala for any additional or closing remarks.

Thank you very much for joining us today. We have had a strong first half and are excited about the product innovation we will bring to the market in the second half of the year. As always, we appreciate your interest in the company and we look forward to seeing many of you in September. Bye-bye. Thank you, again.

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