International Game Technology PLC (IGT) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the IGT 2018 First Quarter Results Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Jim Hurley. Please go ahead.

Good morning. Thank you for joining us on IGT's First Quarter 2018 Conference Call. Marco Sala, our CEO, will provide a brief overview of the quarter and comment on some of our broader strategic initiatives then Alberto Fornaro, our Chief Financial Officer, will provide operational and financial perspective on the results. After our prepared remarks, we'll open the call for your questions.

We'd like to split today's Q&A session into 2 sections. First, we'll take questions about the quarter and our operating fundamentals. After we've gone through those, we'll open the call to questions you might have regarding the De Agostini transaction and the registration statement that was filed last night.

During today's call, we'll 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.

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

Thank you, Jim, and hello, everyone. Our first quarter results are among the strongest we ever reported and provide us with a good start to the year. Revenues was up 5% and EBITDA grew 18%.

I think it is important to note that the growth was experienced in the quarter was driven by positive contributions from each of our operating segments. Global lottery performance was especially noteworthy in the first quarter. Growth in the same-store revenue outside Italy was over 9% and among the best we have achieved in the last 3 years. Jackpots were an important element of the performance in North America and International segment, but the underlining contribution of instant and draw-based games was also very good around the world. As I have noted before, continuous innovation remains one of the most important drivers of the lottery expansion and we demonstrated that once again in the first quarter.

Lottery same-store revenues grew double digits in North America. Jackpot games rose over 50%, helped by both Powerball and Mega Million. We had 4 jackpot rolls of more than $400 million each in the first quarter. The change to the Mega Million metrics at the end of 2017 is clearly adding a beneficial impact on player interest in the game and on wagers.

The performance of instants and draw games was also strong in North America with growth of over 5%. This is the fourth consecutive quarter where their growth has been above 5%.

We continued to see success with the large-format tickets and other innovative concepts. Internationally, the EuroMillions jackpot was an important driver of lottery growth for the EMEA region, but the performance of instants and draw games was also good across jurisdictions. Overall, same-store revenue growth was 4%, the highest increase in over a year.

Italy lottery performance was very good during the quarter with the lotto wagers rising nearly 9%. The new Doppio ORO game is driving high-teens growth for the 10eLotto franchise. In February, we launched another new lotto game named MillionDAY. It's a daily draw that offers players a compelling and aspirational prize, a chance to win EUR 1 million every day. The early reception to the game is promising.

Italy's Scratch & Win wagers were up 3%, marking the third consecutive quarter of growth, benefiting from the revitalization of the Miliardario franchise.

Our success in the lottery in Italy is a good example of how we drive meaningful growth even in a mature market. It's a function of consistent product innovation, coupled with our operational expertise. We have further evidence of this in the New Jersey and Indiana lotteries and our incentive for managing them. This is the third consecutive year of earning incentives in New Jersey and the first ever in Indiana.

Gaming also experienced a very good quarter. We have revamped our product offer with the successful introduction of new cabinets and more compelling market-attuned games. This is driving positive results globally, including solid improvement in North America.

In the first quarter, we achieved exceptional growth in Gaming Product Sales, up 29% on strong system sales around the world. Our Advantage central casino management solution was installed at the Resorts World Catskills and Four Winds in North America and at MGM Cotai in Asia. These developments helped establish IGT's position as central system provider of choice for the industry's most important new casino openings. We are building on this momentum with innovative add-on system solution such as Cardless Connect, which were also an important driver of product sales growth.

We shipped just over 5,800 gaming machine units in the first quarter. Replacement of units were up over 12%.

These largely offset the lower industry-wide new and expansion activity in the period.

North America replacement unit sales to commercial casino customers continued to grow with the success of games like Ocean Magic and Golden Egypt as well as newer titles like Elephant King. Acceptance of these games across the full range of Crystal Series cabinets is also adding to support higher average selling price.

The global installed base of gaming machines rose 6% from the prior year. This was driven by international growth mostly in Africa, Greece and the addition of all Zest video bingo units.

North America, our commercial gaming installed base was up nearly 400 units sequentially, driven by new openings. Apart from those, the North American installed base was stable. Fort Knox, The GOONIES, Harley-Davidson and SPHINX 4D are performing well and helping to improve our position in the premium segment. North America has benefited from good WAP performance, especially for Wheel of Fortune, MEGATOWER and Megabucks on the CrystalDual+ Stepper cabinet.

The positive momentum extends to Italy as well. Improved productivity of the VLTs and AWPs is helping to mitigate the impact of higher taxes on gaming machines and the state-mandated reduction in AWP units.

On the organizational front, we announced an important change today as we consolidated the leadership of the North American region under Renato Ascoli. We are aligning our North American structure with the regional model already implemented in our International and Italy segments. This simplification of our organization better position us to leverage new strategic opportunities such as in sports betting, which cuts across our lottery and gaming customers.

The U.S. Supreme Court's recent PASPA ruling presents an exciting opportunity for us. We have turnkey solutions for platforms, trading control, risk management support and advisory services that we have successfully deployed in Italy and internationally over the years. Our offering can support a full-scale operation or a smaller-format retail kiosk.

Today in the U.S., we provide a regulator-certified sports betting solution that is up and running at MGM's casinos in Nevada. This solution is comprised of both land-based retail sales sports betting platform and PlaySpot, our mobile solution. Ultimately, the opportunity will depend on how many states choose to allow it, how quickly they do so and how the regulations will shape the offer. Having said that, we have a long-standing deep relationships with the U.S. casino operators and state lotteries and have been actively engaged with them and government authorities to support shaping a safe and sustainable offer.

Now I will turn the call over to Alberto.

Thank you, Marco, and hello to everyone joining us on the call today.

As you know, there have been a few changes in the accounting standard that affects year-over-year comparison. I will incorporate these impacts as I review the business segments, balance sheet and statement of cash flows. We have also included a summary of impacts of these changes in the appendix of this presentation.

Our first quarter results are summarized on Slide 8. As Marco commented, it was a good quarter. Revenue rose 4% at constant currency and scope, which adjusts for the sales -- for the sale of DoubleDown. Growth was driven by strong global gaming system sales and the broad-based momentum in Lottery Service revenue. We also had a higher contribution from Italy sports betting.

At constant currency and scope, adjusted EBITDA grew 14% over the prior year with higher underlying result from each operating segment. The adoption of ASC 606 had a positive impact of $15 million on EBITDA mostly due to the timing of recognizing LMA incentive.

R&D expense was down from the prior year while SG&A expense was up $15 million, although the prior year had benefited from a onetime $18 million bet debt recovery.

The increase in adjusted operating income is in line with the revenue growth.

Adjusted earnings per share was $0.15, which includes higher tax accrual in Italy than the prior year. The prior year has also benefited from bad debt recovery and DoubleDown.

Let's turn to our operating segments beginning with North America Gaming & Interactive on Slide 9. At constant scope, revenue grew 3% mainly due to higher product sales. The drop in reported revenue is entirely due to the sale of DoubleDown.

Service revenue from terminals is $14 million lower than in the prior year due to a reclassification of jackpot expenses for ASC 606. This has no impact on profitability. Aside from this reclassification, service revenue was up modestly from the prior year. While the installed base was lower than the same period last year, this is primarily due to large conversion in Maryland and Oklahoma in 2017. Sequentially, the installed base grew by 375 units on new casino openings. Yields were stable with the prior year, reflecting better WAP performance that was offset by the balance of the portfolio.

Product Sales were driven by strong systems revenue 4x the prior year level, benefiting from the Advantage implementation Marco mentioned. We also had significant sales of system add-ons, particularly Cardless Connect. We shipped 3,716 gaming terminals compared to 3,944 units in the same period last year, which benefited from higher New and Expansion activity and large VLT sales to Oregon and Canada. We recorded a third consecutive quarter of growth in replacement units shipment to casino customers. ASP were above the prior year on a higher mix of new cabinets.

Constant scope, operating income was significantly better than the prior year, reflecting higher revenue and more -- and a more profitable mix of business.

Turning to North America Lottery on Slide 10. Total revenue increased 5%. Same-store revenue grew an impressive 11% on higher jackpot activity and another quarter of solid instant ticket sales. While the underlying lottery trends were strong, Service revenue was impacted by 3 factors: the exit from certain low-margin contracts and a lower effective rate on contract extensions, both of which we expected. The third impact came from satellite outage related to weather disruption in the Northeast.

LMA revenue includes $11 million from incentive in New Jersey and Indiana that are now recorded on a quarterly basis pursuant to ASC 606. As a reminder, last year, our incentive revenue was concentrated in the second quarter so the timing benefit we have in the first quarter will effectively get reversed in the second quarter of this year. LMA revenue was also impacted by the loss of pass-through revenue related to the end of our Illinois operator contractor. The pass-through revenue has no impact on profit while the incentive had a strong profit flow-through.

Product sales were higher than in the prior year and benefited from terminal -- retailer terminal sales in Massachusetts.

Operating income was up 11% on same-store revenue growth and LMA contributions, partly offset by the revenue dynamics I mentioned earlier.

We also have higher depreciation and amortization related to recent contract extension and increased investment in R&D, which supports innovation and same-store sales growth.

Let's turn to our International segment on Slide 11. It was a strong quarter, accentuated further by the unusually low performance in the prior year. Revenue rose 6% at constant currency mostly on higher product sales. Lottery same-store revenue grew 4% on broad-based geographic strength. Higher EuroMillions jackpot activity benefited customer in EMEA including the U.K. In Latin America, strength in Jamaica, Mexico, Trinidad and Tobago was offset by continued weakness in Colombia.

Gaming Service revenue from terminal increased with the addition of Greek VLTs and video bingo machines. This was partially offset by lower average yields due to the geographic mix of the revenue.

Interactive revenue was lower, mostly related to a $3 million jackpot expense reclassification per ASC 606, which has no impact on profitability as well as the exit of low-margin comp.

Product sales were up on gaming system revenue including the large Advantage implementation at MGM Cotai. We shipped 2,112 gaming terminals, up 5% from the prior year despite significantly less new and expansion activity. Over 40% growth in replacement units was driven by higher shipment to Latin America, Australia and New Zealand. Higher unit volume were partly offset by a product mix with lower ASPs, including larger shipments to Latin America.

Operating income was up sharply on a more favorable product mix from higher system revenues and lower SG&A.

Italy results are on Side 12. At constant currency, revenue rose 4% on solid lottery and sports betting performance despite higher gaming machine taxes.

Total lotto wagers was nearly 9% supported by 10eLotto growth and the popularity of Doppio ORO. The recently launched MillionDAY daily game partly offset an unusual low level of Late Numbers activity. Scratch & Win wagers increased nearly 3% on the continued success of Miliardario.

The declining gaming machine mostly reflects higher taxes as well as modest impact from the state-mandated reduction in AWP. They were partly offset by better underlying game performance from both AWP and VLTs.

Sports betting revenue grew on a more normal payout versus the prior year historical high level.

Operating income benefited from higher revenue, partially offset by higher marketing and advertising costs to support the introduction of new lottery games as well as higher depreciation related to the technology upgrades for the new lotto concession.

Our debt and leverage profile is on Slide 13. At constant currency, the net debt was essentially in line with year-end level when we account for changes in the Italian legislation for our commercial services operation. These changes require moving $50 million of cash and equivalents on our balance sheet into restricted cash, which increases net debt. During the period, we retired EUR 500 million of 6.625% senior secured notes mostly using proceeds from our term loan facility. Our leverage improved from year-end on stronger operational performance.

Cash flow is shown here on Slide 14. While underlying the first quarter business fundamentals improved, cash from operation was lower than prior year due to 3 items: first, the change in accounting standards requiring the restricted cash to be included in cash and cash equivalent within the statements of cash flow; second, the time of Italy receivables, which is partly related to fluctuation that occur depending on the day of the week on which the quarter ends; finally, the timing of incentive compensation payments, which were made a little earlier this year.

On Slide 15, we have our outlook summary for 2018. We continue to expect adjusted EBITDA of $1.7 billion to $1.78 billion for the full year period. We have had a strong start to the year and are pleased with the continued momentum in both lottery and gaming.

While the adoption of ASC 606 had a positive impact on our first quarter result, as I mentioned earlier, the timing benefit effectively gets reversed in the second quarter. There are still some moving parts with respect to the full impact of ASC 606. As of now, we expect an approximately $10 million to $15 million headwind to EBITDA based on the treatment of intellectual property contract where revenue is now recognized upfront when the license term commences compared to the more ratable treatment over the contract term under the old standard.

Importantly, there is no impact on cash flow.

We continue to expect profits will be more weighted to the second half of the year based on timing of Sweden and Canada VLT sales in the fourth quarter.

Our outlook for capital expenditures remains unchanged.

Keep in mind that our outlook assumes a euro-dollar exchange rate of 1.22. In the last month, the rate has been above 1.20.

At this point, we'd like to open the call for your questions. As a reminder, we'd like to start with a quick question on our first quarter results and our operating fundamentals. We will address the De Agostini transaction and registration statement later on.

Operator, could you please start the Q&A session?

(Operator Instructions) Our first question comes from Carlo Santarelli with Deutsche Bank.

When you think about your adjusted EBITDA range for the year, the $1.7 billion to $1.78 billion, and then you think about obviously the incremental headwind of $10 million to $15 million from the ASC 606 as well as what looks like maybe a $30 million headwind stemming from where current euro-dollar exchange rates are today relative to what's embedded in the guidance, can you talk a little bit about your decision to kind of leave guidance unchanged? How much of that had to do with performance in the first quarter relative to the overall strength that you're seeing in the business less some of these potential headwinds?

Carlo, I would say because the euro -- let's start with the currency. Because the euro has a strong impact in our results, that's the reason why we normally revise the guidance at a certain rate. So at this point, I would say that the guidance is still a 1. 22 and therefore any change, positive or negative, will obviously impact our results. Regarding the ASC 606, let me tell you that this is an estimate because obviously we are assuming that by the end of the year we will have certain deal. It could be that if these deals change, some of them could have a different accounting treatment than what they had under prior accounting standards and therefore the negative impact of $10 million, 15 million that we are estimating could change, positively or negative, we don't know, but this is our best estimate at the moment, which is, to be fair, is not a big impact overall. Let's go for a second to the overall guidance. The reason to keep it is because as we mentioned just a few weeks ago in March, our guidance in the year, and I have discussed again part of the reason, was based on a better performance in the second half, particularly due to the fact that in the fourth quarter we have some concentrated sales, particularly I mentioned the one in Sweden. So the first quarter has helped us to, in some way, to get more comfortable with the guidance and help us to confirm it because some of this deal obviously they are not finalized until they are signed and everything is good to recognize revenue. So overall, we have confirmed the guidance. Certainly the first quarter has helped us to confirm it and regarding the 2 items you mentioned I have provided you some insight.

Great. And you are -- you did say that you still believe that the second half absolute EBITDA or adjusted EBITDA generation will be greater than the first half, correct?

Based on what we see today, it should be slightly higher because, again, with the first quarter, we have reduced a little bit again.

Perfect. And then if I could, just one follow-up on the North American installed base. I know that the 376 incremental quarter-over-quarter units that you guys added, you guys referenced them being largely new opening driven. Could you talk a little bit about the progress you are seeing on the placement of the 4 titles or broader Wide Area Progressive stuff that you guys have seen? And how the uptake on those games have been, i.e., if not for the new opening opportunities that were presented to you, what does that base look like, sequentially?

Yes. Carlo, it's Marco, and I can tell you that also taking apart the new openings, our installed base has been slightly above the last quarter last year. I think that the net of new opening, we achieved a good performance with the rollout of the new games content such as Harley-Davidson, Fort Knox, The Voice, The GOONIES, SPHINX 4D and the CrystalCurve and the CrystalCurve ULTRA cabinet. And we look forward to MEGATOWER was another important contributor. We feel that these titles continue to expand and we have a full lineup of new games coming to market throughout '18, that includes new titles such as Fortune Gong, Money Storm, Wheel of Fortune 4D. So initial results and the customer feedbacks on new games and the cabinet we are getting are positive and we expect that we should increase our installed base throughout 2018.

Our next question comes from Barry Jonas with Bank of America.

Just a couple of questions. First, can you give us an update on what's going on in Brazil?

Yes. In Brazil, there is an RFP for an instant ticket concession that was published in April and we are evaluating the opportunity. We're in conversation with partners and therefore I cannot elaborate very much on it. But that is where we are.

Great. And then you also, in the release, talked about doing a new Analyst Day in August. Just curious if you can maybe talk about what you hope to accomplish there. Any sort of preview would be helpful.

Yes. Okay, first of all, it will be our first analyst and investor Day in the U.S. so it's particularly important for us. The first one was in Italy, as you remember. But I think that the focus will probably on the lottery side because it's -- we obviously will provide some information regarding our Gaming business, but normally we have a lot of update on that specific part of our business due to it. The Investor Day will be mostly on the lottery side, which is less probably known to the U.S. investors and to the U.S. -- some of the U.S. analysts and we will provide a deep dive into that business in the different jurisdictions.

Great, I'm definitely looking forward to that. And then last one for me. About 2 years ago, you gave normalized free cash flow guidance in the range of $500 million a year over the next 5 years. You think that guidance still holds -- and recognizing you've since sold DoubleDown?

No, I think we need to update. We are working on it. You can imagine that between the tax reform, the change in accounting standard, there is a lot of moving parts. At a certain point, we will update. What is important to say is that compared to that scenario, we have already done a lot of investment, and as we mentioned in the past, with expect that the CapEx should moderate in the future.

Our next question comes from Chad Beynon with Macquarie.

In the opening comments and in the slide presentation, you mentioned that there is a simplification in North America led by Renato and I was wondering if the goal here -- or I guess the outcome would be more revenue growth or just kind of a little bit more attention within certain pieces of NAGI or if it was more, I guess, margin or cost focused? And if any of this is kind of assumed in the back half of the guidance or if this announcement was just to kind of streamline some of your initiatives. Any color there would be helpful.

Sure, Chad. But the simple answer is that this change aligns North America with the regional model that already exists for the International and Italy segment. We did do the acquisition of IGT because we needed to integrate the 2 companies, deliver on synergies and created the right platform to grow the Gaming business. Now we believe that this simplification better positioned the company to leverage strategic new opportunities such as sports betting. There are other opportunities. It's clear that when you look at sports betting and you're having the same jurisdiction opportunities with lottery customers, opportunity with commercial casino, the fact of having a unified organization allows you to take the best decision for the interest of the company. It's clear that you might have some simplification of the organization, but is not the main purpose to have this change that was, in our view, something that we had planned since the acquisition of IGT.

Okay, great. And then on the AWP regulatory change in Italy, I know that it's still early and progressing, but any additional color in terms of how your machines and your field personnel have been able to offset some of the regulatory changes? And I guess, is your view still the same in terms of how that business will be? Is that still the same within your guidance range?

I can elaborate on it, dividing it into 3 parts because on gaming machines in Italy, you have the increased taxation, you have the reduction of AWPs and we have also some decision in some regions to drastically reduce further the AWPs. When it comes to the -- we factor in our guidance the impact of the higher taxation. When it comes to the reduction of overall AWPs, we expect a mid-single-digit decline in terms of revenues in '18. On the other side, the higher productivity from machines should offset the reduction in the installed units and we believe we can offset the impact on profits through lower costs associated with managing smaller, less fragmented network. So impact on taxation, we do not believe that the reduction of AWPs that has been implemented into waves in '17 and by the end of April '18 will impact very much our profitability. A different discussion is about some regional law. We are now seeing Piemonte that put additional restriction on gaming machines in the, let me say, generalist channel. We expect a restriction in a couple of additional regions by middle of this year. The impact of this is estimated to create about $10 million headwind EBITDA in 2018 that has been already factored in the outlook. Of course, we will continue working out, appreciating the better productivity of the machines that we are having in the specialized shops and aligning also our structure to recover part of this headwind.

Our next question comes from Domenico Ghilotti with Equita.

My first question, I would like to check the yield on North American gaming installed base because, if I'm not wrong, I saw a drop compared to last year. I'm trying to understand which is correct and what's going to be the reason. And then a second question on the sports betting opportunity. I'm trying to understand if you -- so what is time frame where you could see some contribution, some effect on your performance? So should we expect something already next year? Or are you more, say, projecting something more for the medium term? And a third question is on the incentive payments. So if I understood properly, so the new accounting standard is forcing you to book an incentive progressively during the year. I'm trying to understand, based on the performance, if you are confident to achieve incentive payments above last year anyway.

Domenico, it's Alberto. Let's talk about accounting. Okay, the first question is related to the yield trends. Overall, the first quarter yield were stable with prior year period and were up sequentially. The WAP yield are driving the improvement due to the productivity of the Wheel of Fortune MEGATOWER and Megabucks CrystalDual+ Stepper. When you look at the revenues, you need to consider that in the first quarter of this year, the application of ASC 606 has impact in the total revenues before -- because before the jackpot expenses were included as a cost and now are included as a reduction of revenue. So that could have impacted the yield. And obviously, Jim can go later on with you in more details. Regarding the third question or regarding the incentive payment, last year -- okay, first of all, the good news is, we have now not only New Jersey generating an incentive, but it's also Indiana even on a smaller scale, but that's a very good news for us. Last year, the New Jersey incentive was recognized -- large part of it was recognized in the second quarter, and remaining part was recognized in the third quarter where the final number was validated. This year, the new accounting standards basically require us to accrue over time and that's what we have done in the first quarter and therefore we have a positive impact, which will be reversed in the second quarter. Regarding New Jersey, I cannot say at the moment if it's going to be higher or lower than last year because, again, we have -- it will be done on an accrual basis and we have 3 quarters to go. But the first quarter is also encouraging.

Domenico, I take the question regarding U.S. sports betting. And it's clear that we feel this has a great opportunity for our company for the reason I already anticipated during my written remarks. But when it comes to size of the opportunity, it's very difficult to predict because this will depend on how many state choose to allow sports betting, how quickly they do so, and don't forget, how the regulation will shape the offer because this is very, very important in order to have a healthy business. We are well positioned in the relationship with our customers. The only additional comment I can make is that, last Friday, IGT submitted its proposal to the Rhode Island State Lottery to provide comprehensive sports betting operation. The proposal contemplates both land-based and digital wagering, and reportedly IGT was the sole bidder in the process. So we feel we are well positioned.

Okay. I have a question or comment, more of a question given the complexity of the topic, on the potential impact of the Italian situation -- Italian politics in particular. We read in this document -- a government document about an exit strategy from gaming that was [disheartening] and a bit of a concern for us.

No, I think the document is so vague that I'm not scared about what is written there because apart from that, they were somehow summarizing a lot of things that were in the political debates in the previous quarter. Some of the actions that they have indicated has been already implemented, and to provide some clarity on it is all we need to whether the government in place and to see the Ministry of Economy level, which are the priorities they intend to face. I feel -- I don't feel at this point in time quite scared about the 2 lines that are in that document.

Our next question comes from David Katz with Jefferies.

I wanted to just follow up on the issue of sports betting in a bit more detail, and I know that the timing and size are open questions to be determined. But to be specific, and I heard your comment about the Rhode Island Lottery submission, I just want to be clear. Are -- is IGT in a position to provide a jurisdiction or an entity, really an end-to-end full solution as it relates to sports betting assuming that there's land-based and mobile in terms of handling the bookmaking, customer interface, all the technology hardware, software? Is it a full solution? Or are there certain capabilities where others would have to play a role?

This is a good question. First of all, we can provide the full know-how in managing a sports betting operation. We do that successfully in Italy where we manage the end-to-end value chain of the business. In U.S., what I can tell you is we have the platform. We are up and running in Nevada. We have a licensed platform. We are providing mobile solution and distribution. So we feel that we have the know-how to provide a turnkey solution. It's clear that case-by-case we might team up with our third-parties in order to enforce our offering, but the bulk of our offering is already in a very good shape to start having any conversation with any partner in the United States.

Perfect. And with respect to the derivative contract, I expect that...

David, it's Jim. Let us make a formal transition to that and actually this would be the right transition for us. We have some prepared comments we'll read and then we'll ask for questions.

Okay, Alberto here. At this point, let's go to registration statement for 18 million shares in the prospectus supplement describing the De Agostini variable transactions that were filed last night. We refer you to the prospectus supplement for the details of the transaction, but I can provide you a brief overview on this call.

It is important to note that our comments do not constitute an offer to sell or the solicitation of an offer to buy IGT shares.

To give you some perspective, De Agostini current holds approximately 103 million IGT shares. As part of their portfolio management activities, they are looking to establish a collar on a portion of their IGT holdings by buying a put and selling a call with a duration of 4 to 5.5 years. Crédit Suisse is the sole counterparty. This structure provides De Agostini with a predefined minimum value for the 18 million shares while enabling them to participate in a portion of the upside appreciation in the underlying shares.

The transaction contemplates that during the contract term, De Agostini can monetize the value of a portion of these shares by effectively taking a loan against that. For Crédit Suisse to have a direct exposure in the transaction, they're going to borrow shares in the market and then sell them. The company will be assisting in the process and thus filed a registration statement and prospectus supplement with the SEC.

Importantly, the company will not receive any proceeds from the offering and there is no impact to our income statement, balance sheet, cash flow, share count or ordinary dividend payments because of the transaction. The final details of the transaction will be made available only when it is completed.

This is Marco. Before we move to your questions, let me just say that De Agostini has made it clear to IGT's Board of Directors that they are pursuing this transaction as part of managing their overall business portfolio. Today, IGT is by far the largest single asset in De Agostini's portfolio at around 65% of De Agostini's gross asset value. Following this transaction, this percentage is expected to decrease to less than 55%, in line with the level GTECH represented before the merger with IGT.

De Agostini is a long-term and strategic shareholder of IGT. They have been valued supporter of the company since the inception of our relationship in 2002, and they have stated their intention to remain IGT's controlling shareholder for the foreseeable future. They have also said that they are not contemplating any additional transactions in IGT shares.

As mentioned, several disclosure documents were filed with the SEC in relationship to De Agostini transaction and an offering is underway. As a result, while we will try to answer your questions as best as we can, you can understand that we are subject to certain limitations and would encourage you to review the registration statement, prospectus supplement and other publicly available information regarding the transaction. Now we'll take any question you might have on the transaction. Operator, can you assist with that?

(Operator Instructions) Our first question comes from Carlo Santarelli with Deutsche Bank.

I believe in the documentation it references a 60-day lockup, and I understand and appreciate the comments that they intend to remain a controlling shareholder as well as that they are not contemplating future sales. But is there anything that you guys could maybe point to that could get investors comfortable with, post that lockup expiry, other similar transactions not happening in the near term?

Carlo, this is Alberto. We cannot say anything more than what we have already said that's been provided to us by De Agostini. So basically, De Agostini has specifically stated that they don't have any intention to execute any other transaction in the foreseeable future and this is what we can say.

Understood. And the 60-day lockup is correct, is it not?

It is correct.

(Operator Instructions)

I believe David Katz had a question. So David, if you could reenter the queue, that would be great.

Okay. And our next question is from David Katz.

So at the conclusion of this arrangement, does De Agostini still own the same percentage of the company as prior to it?

David, in this transaction, De Agostini is not selling shares, so therefore we loan the share and in this transaction, what they can do at a certain time, if they needed to monetize, they could get a loan pledging the shares, but this is just an option that they have that is included in the contract. So at the inception, there is no selling of shares from De Agostini. The sale of shares comes from Crédit Suisse that needs to hedge the transaction on the option that does with De Agostini.

And in the context that we -- all shareholders are essentially treated equally, do we have any insight about the much longer-term plans for ownership in the company from De Agostini?

As I mentioned, David, De Agostini has told us that they don't plan to execute any other transaction for the foreseeable future.

We have no further questions at this time. I would now like to turn the call over to Marco Sala for any further remarks.

Thank you. Our first quarter performance is a direct result of the essential work we have done to position IGT for sustainable, long-term growth. Our disciplined investment in R&D and CapEx is yielding good revenue and profit growth. While it is only the first quarter, I believe that our performance sets up well to achieve the strategic and financial goals we have established for 2018. We look forward to expanding on this in early August when we will host an Investor Day in New York City. Thank you, as always, for your interest in IGT and I wish you all a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.