International Game Technology PLC (IGT) 2018 Q2 法說會逐字稿

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

I would now like to turn the conference over to Mr. Jim Hurley, Senior Vice President of Investor Relations. You may begin.

Thank you for joining us on IGT Second Quarter 2018 Conference Call. Marco Sala, our CEO, will provide an overview of the quarter and comment on 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.

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.

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

Thank you, Jim, and welcome, everyone. We are reporting a strong second quarter today. Adjusted EBITDA rose 4%, supported by strong lottery same-store revenues grow and lottery product sales. North America and Italy, our 2 largest regions, each contributed to sales and profit improvement. The results build on a trend of consistent profit improvement at constant currency and scope over the last 4 quarters and confirm a strong start to 2018.

Once again, lottery results were good around the world. Outside of Italy, lottery same-store revenues were up 3.5%. North America was particularly strong, rising 4.2% on continued momentum in instant ticket sales. We are encouraged by the fact that much of that growth is coming from the largest lotteries, such as California, Texas and Michigan. This is the fifth consecutive quarter of at least mid-single-digit same-store revenue expansion for instant and draw games in North America, confirming the vitality of the business.

In addition, we have [earned] incentives for the lottery management agreements we have in New Jersey and Indiana. In Italy, lottery also performed extremely well. 10eLotto achieved another quarter of double-digit wager growth as Numero ORO and Doppio Numero ORO extend the franchise to new levels of success. MillionDAY, a daily draw game launched in February, is performing nicely, essentially compensating for the lower late-number activities so far this year. Scratch & Win wagers were also up in the period, led by the Miliardario family of tickets.

We had a substantial [product] sales to the Massachusetts lottery in the period, representing the highest level of North American lottery product sales in the last 3 years. Massachusetts is widely recognized as one of the world's most successful lotteries. Having chosen IGT Technology for such a significant investment is an important endorsement of our solutions.

We look forward to expanding on our extensive lottery capabilities and opportunities for incremental growth at our Investor Day on Thursday, August 2, in New York City.

Turning to the Gaming business. The global install base grew 5% from the prior year to over 63,000 machines. It was also up sequentially with increases for both commercial casino and government-sponsored VLTs. International expansion remains the most important driver of our higher install base.

We grew the North America casino install base by nearly 170 units compared to the first quarter. It is up 2% in the year-to-date period, both due to the new casino openings and improved demand from existing customers. We're encouraged by this trend, and we expect the North American install base to be higher at the year-end.

New games and cabinets are driving the improvement and (inaudible) remain strong above the prior year levels. We shipped just under 7,700 gaming machines units worldwide during the second quarter. While new and expansion activity was higher, replacement demand was softer. This is true for both the North America and International segments.

In the past 2 years, our replacement unit sales have been skewed toward the second semester. This year, again, we're anticipating increasing replacement sales in the back half, amplified by the recent launch of Crystal 27 cabinet in North America. The cabinet was launched with 2 of our highest-performing test-bank titles: Scarab and Solar Disc.

Italy gaming machine performance is also noteworthy in the period. Revenue was up. Thanks to the higher productivity of both VLTs and AWPs, we were able to more than offset the impact of a 26% decline in the number of AWP units.

Let me offer a few comments on the situation in Italy. The new Italian government has proposed some restriction on the gaming sector. The parliament is considering a law calling for increased machine gaming taxes and for the government to propose [reforms] to be put in place within the next 6 months to eliminate problem gaming and fight illegal gaming. It is the expectation that the reforms , along with increased taxes on gaming machines, will maintain the contribution to the government from gaming at its current and anticipated levels. Clearly, the government is seeking to reinforce responsible gaming programs while strongly acknowledging the ongoing need for revenues. Also included in the law under consideration is a ban on advertising for all gaming segments and the inclusion of an age verification program.

Regarding the advertising restrictions, we manage some of the strongest franchises of any retail brand in Italy. The brands are some of the most reputable and recognized throughout the country. We are confident that the strength of our franchise and brands should sustain us through the medium term. From a profitability standpoint, we believe that the elimination of advertising expenses will compensate for any impact on wagers.

The government has put forth a multiyear road map through 2023 that provides a phased implementation of the gaming machine tax that not only makes it more manageable, it gives us time and visibility to consider actions to mitigate it. So in the near term, we expect that the effect of these restrictions to be relatively modest while the gaming machine taxes will likely result in a EUR 10 million, EUR 15 million impact on EBITDA when fully implemented by 2021.

The strength and consistency of Italy's performance over the last several years clearly demonstrate the resilience of the business. In fact, all the main lines of business contributed to Italy's highest second quarter results. The broad scope of improvement shows that player interest in gaming is sustained.

Turning to sports betting. Our 2 decades of global experience in this business are paying dividends in the early development of the U.S. market. IGT's sports betting solution have been up and running in Nevada for 18 month and are now operational in New Jersey and Mississippi as well, the first 2 states to regulate sports betting since the Supreme Court ruling. We were also the only bidder for the State of Rhode Island's sports betting platform. Rapid deployment of IGT's sports betting solution demonstrates that we can deliver the product, technology, support and service to make retail and mobile sports betting a reality as soon as any state legalizes this activity.

We have established some important strategic partnership too. In New Jersey, Paddy Power Betfair's FanDuel has selected IGT's platform to power their sports betting business. This is significant progress in a short time for this compelling new growth opportunity. It validates IGT's proven history in sports betting around the world and demonstrates the reliability and flexibility of our offer.

So it is a good start to the year on many dimensions. Adjusted EBITDA growth of 10% in the first half is translating into an improved outlook for our underlining business for the full year. The increased contribution from our core operations enables us to mitigate the headwind from foreign currency exchange.

Now I will turn the call over to Alberto.

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

A summary of our second quarter results are presented on Slide 7. Revenue was flat at constant currency and scope, which adjust for the sale of DoubleDown, reflecting strong lottery performance in North America and in Italy. As we explained last quarter, the implementation of ASC 606 impacts the timing of certain revenues and the classification of Jackpot expenses as contra revenues. These added $33 million negative impact on consolidated revenue in the quarter. Adjusted EBITDA grew 4% over the prior year, which more than compensated for the differential timing of the LMA incentives. Adjusted operating income was up 2% at constant currency and scope, reflecting improvements in operating expenses. Adjusted earnings per share was $0.28 compared to $0.15 in the prior year. The main driver of this year-over-year difference was related to an accrual for tax litigation in Mexico in the prior year period.

Let's now review the results [for] each of our operating segments, beginning with North America Gaming & Interactive on Slide 8. The decline in revenue is entirely due to the sales of DoubleDown and to the ASC 606 classification of jackpot expenses as contra revenue. Gaming service revenue in constant -- at constant scope and adjusted for jackpot expenses was up 10%, primarily due to the upfront recognition of some revenue from a large multiyear poker contract.

The install base grew about 170 units sequentially as a result of the new casino openings at Ocean Resort and Hard Rock Atlantic City as well as incremental placement on existing customer demand for our new product offering. This is the second consecutive quarter of sequential growth. On a year-over-year basis, the install base declined entirely due to large conversion in Maryland and Oklahoma in the second half of 2017. Yields increased as a result of better WAP performance.

Product sales revenue was down year-over-year, primarily due to large replacement sale, most notably to Oregon and Washington, in the prior year. The new and expansion unit increase reflects the shipments to MGM Springfield, Hard Rock Atlantic City and Ocean Resort. At constant scope, operating income was stable with the prior year.

Turning to North America Lottery on Slide 9. Total revenue increased 5%. Same-store revenue grew 4% on solid instant ticket sales and draw-based games with particular strength in California and Texas. As I mentioned previously, LMA revenue reflects the timing associated with recording incentive per ASC 606. As a reminder, LMA incentive are now recorded on a more ratable basis while, in the prior year, the incentive were primarily recognized in the second quarter. This had a $17 million negative impact on lottery service revenue and operating income in the quarter. LMA revenue was also impacted by lower pass-through revenue. As a reminder, the pass-through revenue has no associated profit.

Product sales more than doubled over the prior year, primarily due to an elevated level of lottery point-of-sale terminals and hardware sales in Massachusetts. This marks the highest level of product sale revenue for the North American lottery segment in the last 3 years. I would also like to mention that the timing of these sales shifted forward a bit as they were originally expected to occur in the second half of the year.

Operating income was up modestly on same-store revenue growth, product sales mix and operating expenses discipline despite the differential timing of incentive and higher depreciation associated with recent contract wins and extensions.

Let's turn to our International segment on Slide 10. Revenue declined $12 million or 6%. While revenues declined 6% in the second quarter, on a year-to-date basis, they increased 2%. This demonstrates the volatility that can occur both with the timing of jackpots as well as the lumpy nature of international product sales. In lottery, overall same-store revenue grew 1.4% as the strong instant ticket and draw-based games more than offset significantly lower jackpot activity. We also saw lower non-wager-driven revenue compared to the prior year.

Gaming service revenue declined, reflecting the exit from certain legacy interactive businesses and the jackpot expense reclassification. Gaming product sales declined as a result of fewer replacement [unit] shipments, primarily in Latin America. In total, we shipped 3,120 units in the quarter compared to 3,591 in the prior year period. We believe this is primarily a matter of timing. Operating income was impacted by lower revenues and mix, partially offset by lower operating expenses.

It was a very strong quarter for Italy, whose results are on Slide 11. Revenues increased 9% on a reported basis and 3% at constant currency on continued lottery momentum and increased gaming results, despite the state-mandated reduction in AWP machines.

Total lotto wagers increased by about 8% resulting from double-digit growth in 10eLotto, primarily from the continued strength in Doppio Numero ORO. MillionDAY, which was just released in February, generated EUR 54 million in wagers, which offsets the lower wagers from Late Numbers. Scratch & Win wagers increased 2% on the sustained momentum of Miliardario.

Machine gaming revenues were up on continued strength in the underlying performance of both AWP and VLTs. This increase is impressive despite the state-mandated reduction in AWPs, which are down about 15,400 units or 26% year-over-year. The World Cup have contributed to an 8.4% increase in sports betting wagers, which was [partially] offset by slightly higher payout percentage. Operating income was up 8% at constant currency, reflecting the high profit flow-through of lottery growth and disciplined cost management.

Our debt and leverage profile is on Slide 12. Net of effects, leverage was stable despite the upfront fees and payments to minority partners. This quarter also marks the first full year dividend payment to our minority partners related to their interest in the lotto concession.

Cash flow for the first half of the year is shown here on Slide 13. Cash from operation was $120 million, and capital expenditure were $259 million. During the quarter, we have the second installment of the upfront payment related to the Italian Scratch & Win license totaling $366 million. This leaves one final payment of EUR 450 million due in the fourth quarter.

We also executed a couple of capital market transaction this quarter. We successfully issued EUR 500 million senior secured note with a 3.5% coupon due in 2024. Approximately EUR 400 million of the net proceeds were used to fund a partial tender of 700 million 4.125% and EUR 500 million 4.75% notes, both due in 2020, and the remaining net proceeds were used to pay down our revolving credit facility. We made a distribution to our minority partners of approximately $180 million and received approximately $135 million from them as their contribution to fund their share of the Scratch & Win upfront installment payment that occurred during the quarter.

Our outlook for 2018 is included on Slide 14. We normally disclose the euro-dollar exchange rate at which the EBITDA outlook is anchored because changes in FX rate are unpredictable and can be wide. Therefore, we normally do not expect to recover any adverse impact as well as we don't incorporate favorable swings from currency movements. However, the strong underlying performance of our business year-to-date will absorb the assumed negative impact from foreign currency translation.

So thanks to the business improvement [that we are, therefore,] maintaining our adjusted EBITDA outlook of $1.7 billion to $1.78 billion while adjusting the euro-dollar full year rate assumption to $1.19 from $1.22 in the previous outlook. This assumes a euro-dollar rate of $1.17 for the balance of the year, which is a negative impact of approximately $26 million.

So for the record, let me repeat this point. Thanks to business improvement, so we are maintaining our adjusted EBITDA outlook of $1.7 billion to $1.78 billion while we are adjusting the euro-dollar full rate assumption to $1.19 from $1.22 in the prior year outlook, and this assumes, therefore, for the balance of the year, a euro-dollar rate of $1.17.

Given our year-to-date performance, we now expect our results to be more evenly distributed between the first half and second half of the year rather than being more heavily back half-weighted as originally anticipated. Also, given the timing of certain product sales, we expect Q4 results to be much stronger than Q3.

With regard to the increasing gaming taxes in Italy, there will be a 25 basis points increase on gaming machine effective September 1, 2018. An incremental increase of 50 basis point will be implemented gradually from May 1, 2019 to January 1, 2021. In addition, in 2023, there will be a slight reduction of 15 basis point. As Marco told you, we expect this to be manageable. The 2018 impact is modest and is included in our updated outlook. Our outlook for capital expenditure remains unchanged.

At this point, we'd like to open the call for your questions. Operator, could you please start the Q&A.

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

Alberto, you talked a little bit about the first half and the second half being a little bit more evenly distributed now. But if you go back and look at the beginning of the year, your guidance range has remained the same. Obviously, the $26 million of an FX headwind is now in there. You also had $10 million to $15 million of some other expenses that were called out on the first quarter. Is it safe to say then, given all of that, and obviously looking at the full year, so we're not really taking any timing stuff in to consideration, couple that with obviously the Italy tax that obviously is not going to be that big of a deal or all that material, you guys would've been comfortably at or above the high end of your guidance from an operating perspective x all of this stuff?

I mean, that's exactly the point we are making here. I mean, if we look without the currency, we probably could be towards the center and the upper level of the guidance, other things being equal. Consider -- sorry, just to give you the full information, that part of what you've seen in the first half always reflect the fact that we were able to pull some of the deals in the first part of the year. So not all the improvement do you see -- not all the improvement that you see in the first half is coming from improved performance, but is also timing compared to our initial outlook. This means that the second half is going to be more balanced. And consider always that we still have a couple of deals in Q4 that in terms of product sales, that could materialize or not. And so therefore, we're factoring, as usual, when it is related to the fourth quarter, the potential risk that is slide to Q4 -- to next year.

Understood. And then obviously, being cognizant of the fact that you have another payment coming for the Scratch & Win in the fourth quarter of this year, but if you just look at your first half cash flow, x the upfront payment, obviously, a healthy number for the first half of this year. And as we kind of get through the second payment, the visible kind of large lottery contract payments will be in the rearview mirror for some time. Could you talk a little bit about kind of the free cash flow utilization as we look ahead?

Yes. I mean, we will have a conversation, Carlo, at the Investor Day on this topic. Let me say that regarding -- the cash flow utilization is relatively consistent with prior years, when we eliminate mostly the impact of the big renewal, particularly the one in Italy. Again, with -- at this stage, we still want to deleverage and approach -- particularly after the earlier renewal of the Scratch & Win, which will increase our debt by year-end, we would like to continue to deleverage and maintain -- again, we don't have a formal policy, but we're paying a dividend and we would like to maintain it. So for the time being, I would say no change.

(Operator Instructions) Our next question comes from Chad Beynon of Macquarie.

First question, just wanted to go into North American gaming. You spent some time talking about the install base growth. And Alberto, I believe you also noted that WAP performed nicely in the quarter, which was good to see. And we've seen in your maintained guidance that may imply that you're still investing in this business. Could you elaborate a little bit more in terms of what you're seeing with some of the game? performance? I know you delayed some of the product later in the year. Kind of where these games are in their life cycle and then maybe a preview into G2E, if we should expect to see a lot of the new products that you showed us in the last couple of years or if the products that you have out there will just have legs that could potentially reduce the spending or the attention on the business? Just a little bit more color there would be helpful.

Look, you're right. Our global install base continues to grow in North America. Operators seems to have appetite for compelling products. We had a sequential growth in North America install base in the second quarter, and we increased 544 units to date. To elaborate a little bit on Italy, this was largely achieved on the rollout of the new games contents, such as Harley-Davidson and Fort Knox on the CrystalCurve cabinet, The Voice and The GOONIES on the CrystalCurve ULTRA and the SPHINX 4D. Special mention is also to be devoted to the Wheel of Fortune MEGATOWER. That is another important contributor. In the second half, we have a roster of games coming to market that are like Fortune Gong and, for me, the most important being the Wheel of Fortune 4D. So the feedback we are getting from our customers on both the new line and of cabinets and the new games is positive and is also evidenced by an improved yield. So we expect that, both in the North America and the International businesses, the install base to grow moderately in the 2018, based on the performance we are getting. It's clear that our focus will be on developing contents. I think our effort is to try to be totally concentrated in this development. We feel more comfortable with the new organization that is in place since the beginning of the year, and the results are materializing. And we rely on data to confirm our original view, our original view that was to stabilize the install base first, and then based on the developments, we can deploy to the market to have, let me say, a modest but constant growth.

Okay, great. My follow-up is related to just a couple of the cost items in the quarter. You had a nice margin improvement year-over-year and sequentially. Just looking at SG&A and R&D, it does look like, from a dollar standpoint, it came down here. Just wondering if that's further refinement of the cost of the business or if maybe there was a slight benefit in the quarter because of FX or anything else that's worth highlighting there just on the cost side.

Chad, Alberto. On the R&D side, it is basically coming from the dimension. We mentioned before that in the fourth quarter of 2017, we took some action. And from those action, we are still seeing the benefits positively impacting the quarter. Regarding SG&A, I would say that is more our normal attention to costs and activity that we perform in order to maintain and control our cost base. So there is some impact due to the currency, but also there is some small improvement due to the performance in the first half of the year.

Our next question comes from Domenico Ghilotti of Equita.

And my first question is on your revised guidance. I'm trying to understand, so if you could recap which segments [you] were above expectations, so excluding the contribution from phasing of some projects that were mentioning. So were you really above in terms of underlying performance? And second question, well, we talked in the previous call about the potential to transfer of spending from AWPs to VLTs. And looking at your Q2 numbers, really, I see quite impressive performance in VLT spending. I wanted to have some more visibility or some more track record to comment on this trend. And the third question, well, on the sports betting in the U.S. I would like to have some more color on the potential contribution that could come, at least for next year, from the development and the joint venture that was signed. So any additional (inaudible) would be welcome. And the last question, you were referring to the changes introduced -- the regulatory changes introduced by the recent decree. I didn't catch -- what is your view on the possible introduction of [the ID] card recognition on the gaming business?

Okay. Domenico, I'll start from question one of the questionnaire, the revised guidance. Regarding the drivers, it's basically the lottery, both in North America and in Italy. Italy is clearly the performance of the lotto. That has been very good since the beginning of the year. And also I would say that the sports betting is performing quite well, but it's mostly the lottery. When we look instead to North America lottery, you can see that both in the first and in the second quarter, our same-store revenues were up significantly. And also, this is positively impacting the size of the incentives that we are receiving. For example, we were able to book incentives in Indiana for the first time this year. And second, also in terms of New Jersey incentive, it was [way] higher than what we expected. So overall, it's these 2 main areas that have contributed to the improvement in our outlook. I will leave Marco to follow up on the other question.

Regarding Italy, you are right. I mean, VLTs are doing well on one side because of strong improvement of the offering. We have, for our side, released a number of good products. And in addition to that, the reduction of the AWPs is somehow turning into an improvement of VLTs. Regarding the age verification, I mentioned the age verification during my remarks. But to elaborate a little bit more on it, what I can tell you is that it's clear that Italian players will not be pleased with an age verification. But having said that, it is a program that is already in place with interactive. There are more than 2 million Italian players that are registered in order to play the digital offering. When I look also the experience in other countries, such as Greece, where recently the deployment of the VLT program has been carried out with the machine, with the need to be identified by the machine itself before starting play, that didn't show an impact on the rollout or on the appreciation from the players. So all in all, it's just an age verification. It's not more than that accordingly to what is written in the decree. Will be a change, but a change Italian players are already used to and, according to international experiences, shouldn't reduce the interest from the players of the game.

On the sports betting?

Sports betting, sports betting. I mean, it will be a very, very short answer. It' totally impossible for us, at this point in time, to make any evaluation regarding the contribution sports betting will provide to our P&L. As we are keeping on saying, it's clear that it will depend on the kind of regulation will be in place, how quick the regulation will allow the different states to deploy their businesses and which kind of position we will take in the various jurisdictions. So in other words, we do not anticipate an outlook of the revenues that are related short term on this business.

Our next question comes from David Katz of Jefferies.

Can I just ask one more detail about the guidance? If I look back to the 4Q earnings presentation when the guidance was given, it doesn't, I don't think, make specific reference to the ASC 606 impact, which I think has been $30 million year-to-date. When you initially gave that $1.7 billion to $1.780 billion, was that contemplated in there? Or is that a headwind that you've overcome also as we sit here today?

Let me -- David, let me recap what we did. The guidance, we provide normally in March. And only March, we were able to fully complete the analysis of the impact of the ASC 606. In that specific call, we quantified the impact of the ASC 606 as, that was our estimate at the time, negative between $10 million and $15 million at an operating income level. So far, the negative impact at an operating income level of the first half is around $4 million. I also, at that time, specifically mentioned that this estimate for the full year can change because we'll be impacted by the transaction that will be part of our revenues for the year. Some of this transaction could have a different accounting treatment. And so depending on what transaction will be part of our revenues, that amount can change at year-end. So, so far, we are not changing the initial view. We don't have other elements to change yet. And what we have included in our numbers is a $4 million negative at operating income level for the first half. The impact at revenue level is obviously higher because there are some reclassification in terms of revenue. The jackpot expenses, as I mentioned, are not part any more of the costs but are brought in reduction of revenue. And so overall, the impact could be higher on the revenue side.

Got it. That's helpful. And then with respect to the domestic installed base, which clearly has stabilized to slight -- started to slightly improve. Should we think about what you've done so far as primarily replacing your own footprint with better product? And is there some expectation that you can start to expand beyond that? What's left out there as you look at that total domestic installed base of your games for you -- that you think you have the best shot at replacing before? And/or is there some share gain opportunity that you can foretell?

I'm not sure that I got the second part of the question, but let me elaborate on the first part. For sure that we were replacing our install base with better games. Now the positive balance is that the positive games are more than offsetting the games that were lagging behind, and that is providing us a little bit more comfort on the solidity of our install base, David. I'm not here to say that this will -- is the beginning of a ramp going forward with a big improvement on the install base. We are more focused on keep on progressing modestly by bringing to the market solid games, performing games with well-received cabinets, I have to say, because the cabinets that we launched have been -- were received. We are looking in the entire install base. We are doing good progress in gaming. We are also doing good progress in the Class II. So I think that we are looking at the overall install base as an opportunity that could ending with a moderate growth over the next quarters.

(Operator Instructions) Our next question comes from John DeCree of Union Gaming.

I have 2 questions, one on Italy and then a quick one on North America. Marco, thanks for all your color on the Italian regulatory environment. Just a question on clarity. It seems like most of the restrictions that the government has been implementing has been aimed at retail or machine gaming. I just wanted to clarify that we haven't really seen any aim taken at one of the larger pieces of your business, which is the lotto and lottery business in Italy. Is that accurate?

Yes, nothing has been even talked regarding the lottery part of the business.

Great. And then in North America, you called out some strong terminal and hardware sales in the lottery in Massachusetts. And I was wondering if you could give us a little color on that. Is that something that you typically see? I mean, we've seen some strong mid-single-digit growth in North America in the lottery business. Does that compel retailers to upgrade? And is there potentially more opportunities like that across the rest of your lottery portfolio in the U.S.?

John, I think the product sales activity is very lumpy, depends on the plan. In the case of Massachusetts, it's a very well-run lottery. They have their own plan. So this -- what I can say is that regarding the past, this is a very high level of product sales. I would not extrapolate the trends. But it's a good sign of the fact that one of the most important customer is -- continue to give us confidence through this important order for terminals and other equipment to be sold.

John, I want to be sure that I completely answer your question on the Italian action of the government. It's clear that the advertising ban includes lotteries. They are not taking any action regarding taxation fees, and all this stuff was never discussed in any moment. It's clear that when it comes to advertising, since the ban is across the segments, it includes also lotteries. Just to be sure that you've got the sense of my answers -- of my answer.

And we do have a follow-up question from Domenico Ghilotti of Equita.

I have the page 2 of the questionnaire and I will start from the tax rate. So the only disappointment from my perspective is that, well, with the tax rate going down in U.S. and in Italy, the corporate tax rate that you extrapolated from your Q3 -- Q2 adjusted numbers, you are still below 40%. I don't know if it's right to extrapolate from single quarter, but I would like to have some more color on this topic.

Domenico, regarding the tax rate, there is an impact coming from a settlement that we achieved in Italy, and that is one of the major driver. But let me say in general, again, that when we look at the overall impact of the U.S. tax, consider that we're still working on it. Normally, a change in the tax that is so deep requires time to be, first of all, digested and also understand what are some of the criticalities that have been introduced. But on the other side, provide some opportunity to -- some opportunity also. So we are working through that. When we will have a better view, we will provide. Consider that for the U.S. tax reform, we have said for the 3 years, '17, '18 and '19, we expect no impact, minimal impact in terms of cash tax rate.

Okay. And just the last question, (inaudible). On the performance of your gaming business in Europe, so in particular, I'm referring to SPIELO, are you satisfied with the competitive standing, competitive performance of SPIELO in Europe? Or do you think you have to improve competitors?

Overall, I think we are satisfied. We are now devoting energies in order to improve our position in Greece, where the beginning was not as good as we were anticipating. But I have to say that the product that we recently launched in Greece are improving our performance in comparison with the local floor. So I think we are in a good position. What we've done in Italy, by the way, is very well because I think -- as I was mentioned before, the contents we recently delivered on the VLTs' segment of the market are doing very well and are improving our position also in the Italian market. So all in all, I'm positive, and I look forward to seeing additional improvement.

And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Marco Sala, CEO, for any closing remarks.

Thank you for joining us today and for your interest in IGT. We look forward to seeing many of you on Thursday for our Investor Day in New York City.

Have a good day and a nice summer. Bye-bye.

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