Light & Wonder Inc (LNW) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the First Quarter 2015 Scientific Games Corporation Earnings Conference Call.

My name is Denise and I'll be the operator for today.

At this time, all participants are in listen-only mode.

Later, we will conduct a question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I will now turn the conference over to Mr. Bill Pfund, Vice President of Investor Relations.

Please proceed, sir.

Thank you, Denise.

Welcome everyone and thank you for joining us.

With me this afternoon are Gavin Isaacs, President and Chief Executive Officer and Scott Schweinfurth, Executive Vice President, Chief Financial Officer and Corporate Secretary.

During this call, we will discuss our first quarter results and operating progress followed by a question-and-answer period.

Our call will contain statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These statements involve risks and uncertainties that could cause actual results to differ materially from those discussed.

For certain information regarding these risks and uncertainties, please refer to our earnings press release issued today, the materials relating to this call posted on our website and our filings with the SEC, including our most recent Annual Report on Form 10-K filed on March 17, 2015, and subsequent reports filed with the SEC.

We will also discuss certain non-GAAP financial measures.

A description of each non-GAAP financial measure and a reconciliation of each non-GAAP financial measure to the most comparable GAAP financial measure can be found in our earnings press release.

As a reminder, a replay of the call will also be archived in the investor information section of our website.

Now, let me turn the call over to Gavin.

Thank you, Bill.

Good afternoon, everyone.

Today, Scientific Games reported first quarter results, our first full quarter of combined operations.

We have made significant progress in integrating Scientific Games and Bally and we continue to move forward with our integration.

We are off to a very good start.

Revenue was $659 million, up $271 million due to the inclusion of Bally and growth of our interactive businesses, partly offset by lower revenues from our legacy gaming business and lottery business.

Importantly, the cost structure of the organization is beginning to reflect citings from the initial integration actions.

On a pro forma basis, attributable EBITDA was only down $7 million on a $76 million decline in revenues.

By the end of the first quarter, our teams had implemented changes that are expected to yield approximately $90 million in annualized cost savings related to the Bally acquisition.

With a first year target of implementing actions to save approximately $198 million, we are already nearly 50% of where we expect to be by year-end.

Make no mistake, integration is tough, but we believe we now have the synergies and integration efforts built into the framework of our business.

Our focus is firmly on growing our business, that is ultimately the key to our long-term success.

Importantly, within each of our businesses, we see growth opportunities created by the integration and the convergence of our strengths in gaming and lottery research and technology.

Strengths that we expect will organically build our long-term business.

Our ability to offer the most comprehensive array of products and services, coupled with our strategies to develop innovative and differentiated products is being well received by our customers.

Customers understand what our merger brings, the ability to provide one-stop shopping for the products and services, and an ability to leverage size and scale to fund R&D spending to meet our customers' needs for today and of course for tomorrow.

No one has the breadth and depth of brands, products and services like we do, supported by the scale needed to invest in the innovation and development to offer the customers the best value proposition.

I think some of our recent announcements clearly illustrate why we are quickly becoming the supplier choice.

For example, with one customer, we are providing not just the end-to-end gaming system, but a total end-to-end solution to the casino comprised of the gaming and player loyalty system, new Bally and WMS branded gaming machines, top earning participation games, table products, electronic tables, shufflers and all other utility products.

We are also partnering with them to build a full iGaming environment that will enable their payers to be engaged not only during this day, but also before arriving and after leaving the casinos.

Our teams collaborated across the breath of Scientific Games to work with our customer to bring a new level of engagement and value to our customer bringing the best of breed across the full range of its need.

In our lottery business, the first six episodes of the MONOPOLY MILLIONAIRES' CLUB TV game have now aired.

It is off to an exciting start including $1 million winner generating excitement in both the lottery and game show industries.

This show is aired during the weekend on local TV stations with a potential audience that reaches approximately 98% of the US household with lottery access.

While the original draw-based game did not meet initial sale and expectations, our lottery team continued to focus on innovative ways to continue the TV game a show.

With the launch of a multi-stage instant lottery ticket version of our MONOPOLY MILLIONAIRES' CLUB, we now have produced 12 game show episodes with the expectations to produce nine more episodes, each featuring contestants who've won an expense paid trip to Las Vegas to be part of the TV game show audience by registering their instant games ticket online for a second chance story bringing new incremental growth for our lottery customers.

If you haven't done it already, please watch this weekend to see an example of the excitement a someone else has a chance to win $1 million.

Now, please let me turn the call over to Scott to review our financial results in more detail.

Thanks, Gavin and good afternoon, everyone.

For the [first] quarter, total revenues increased to $659 million compared to $388 million a year ago with the increase reflecting about $294 million from Bally, partially offset by a $24 million decline in legacy gaming product sales, $8 million in lottery product sales, partially offset by $9 million growth in our legacy interactive business.

The change in our consolidated revenues is inclusive of $8 million of unfavorable foreign currency translation.

Attributable EBITDA increased a$129 million to $252 million.

Our results included several significant charges in the quarter, aggregating $29 million pre-tax, all of which were add backs in calculating attributable EBITDA.

The table on page 2 of the press release has a descriptive review in the paragraph following the table provides detailed of these charges.

In addition, not included is an add back to attributable EBITDA plus a $7 million purchase accounting impact to deferred revenue and associated margin that otherwise would have been recognized in the first quarter.

To summarize, these pre-tax charges included $11 million impact in cost of product sales from assigning fair value to finish goods inventory for the Bally purchase accounting, M&A cost and other charges of $6 million, employee termination and restructuring costs associated with the integration initiatives of $8 million and long-term asset impairments and write-down of $5 million.

We have been effective in accelerating our integration plans, as we've learned through our prior integrations that moving quickly through implement plans benefits all priorities.

Approximately 650 job positions have been eliminated through integration redundancies and forms the majority of the savings achieved to date.

Other major integration initiatives are also on track, such as the development of a single robust next-generation operating platform.

The consolidation and transition of the WMS gaming facility in Waukegan, Illinois is well underway and, we'll begin the transition of all production to our Las Vegas facility later this quarter and continue to expect that we will have fully transitioned before the end of summer.

By implementing best practices and significantly reducing overhead expense, we expect to meaningfully improve our production efficiency and our cost structure in the second half of 2015.

Recently, we have begun the consolidation of our European headquarters into Barcelona, Spain, following the grant of government incentives we received over the next several years.

These are incentives not originally contemplated in our plans, we look to build a strong relationship with Catalonia and Spain.

All in all, we are ahead of schedule in integrating Scientific Games and Bally.

We remain on track in our plans to implement actions expected to generate 80% of the targeted $235 million of annualized savings by the end of 2015 and expect that the savings generated will lead to continued improvements in cash flow in subsequent quarters.

Cash flow from operating activities for the quarter was $78 million.

However, it also included an $8 million cash impact of the charges I noted above, as well as a $30 million cash payment for previously accrued costs for litigation settlement that negatively impacted cash flow in the 2015 first quarter.

Favorable changes in working capital contributed $34 million to cash flow for the quarter, up from $25 million in the prior year period, despite building inventory for the roll-out of VLTs in Greece and new gaming machines that were shipped at the beginning of April for the upcoming opening of Penn National, new Plainridge property in Massachusetts.

I would note that while the shipment of VLTs to Greece began at the very end of the first quarter, actual placements in venues are beginning this quarter with the majority of the placements expected in the back half of 2015, which is when we would expect revenues to ramp up.

Given our lower capital spending in the first quarter and current outlook, we are lowering our expected CapEx range for 2015 by approximately $25 million and now expect to invest $300 million to $325 million in capital expenditures.

This includes approximately $15 million to $25 million of integration-related capital expenditures as well as planned investments for growth opportunities such as the 5,000 VLTs in Greece and other gaming operations opportunities.

We continue to maintain a highly disciplined and prudent approach towards capital allocation.

In this regard, our partners in Turkey work diligently to obtain the financing to enable them to sign the concession to operate Turkish national lottery.

However, due to the sizable devaluation of the Turkish lira during the past year and challenging conditions in the debt market, our partners were not able to raise the desired financing by the deadline.

And we chose not to provide additional capital to chase the potential revenue opportunity.

As a result, the Turkish government has turned to negotiate with the second highest bidder in the auction.

During the quarter, our total debt decreased $18 million due to $5 million repaid on our revolving credit facility, $11 million in mandatory debt repayments as well as capital lease reductions.

We have approximately [$40 million] in remaining mandatory debt payments in 2015.

I would remind everyone that the prepayment of our debt remains our clear priority for the free cash flow expected to be generated in 2015.

The cash balance decreased $21 million to $151 million, reflecting the payment of the $30 million in litigation settlements and the $17 million of debt reduction as well as other items that impacted cash flow.

At March 31, 2015, our total liquidity including cash and cash equivalents and available borrowing capacity under our expanded revolver in that outstanding letters of credit was $513 million.

Now, let me turn to the operating performance of our three segments.

I'll begin with the Gaming segment, which generated revenue of $426 million.

That is an increase of $262 million over the prior year, with the increase essentially all related to the Bally results partially offset by lower new unit sales in our legacy gaming business.

In the earnings release, you can see the impact that results from the Bally acquisition on our actual reported results compared to our actual reported results in the year ago period.

In order to provide a better like-for-like perspective on the trends of our gaming business, I will focus my following comments on the additional information found on the table of key performance indicators and supplemental revenue metrics that are provided in the earnings release.

That data presents pro forma results, as Bally has been acquired effective January 1, 2014, which we believe may be more meaningful to investors to understand trends in our business.

For the first quarter, revenue from gaming operations was $193 million was essentially flat on a pro forma basis from the prior year, a 9% increase in the average daily revenue to $55.22 per unit largely offset the 2,406-unit decline and the average install footprint of WAP premium and daily fee participation.

On a quarterly sequential basis, the removal of 477 participation games that are ending installed base was less than the rate for the year-over-year impact.

Notable contributors to the increase in average daily revenue are the high earnings performance of our latest Willy Wonka Pure Imagination and the Flintstones WAP games along with the continued strong performance of the MONOPOLY Luxury Diamonds WAP game and our (inaudible).

The decline of 1,701 units in the average installed base of other leased and participation products, primarily reflect that the previously reported loss of the Bedford contract for fixed odds betting terminals in UK in the first quarter a year ago.

On a quarterly sequential basis, the period end installed footprint [increased 31] units.

Year-over-year, the average daily revenue increased nearly $1 or 6% to $16.34, which reflected improved cash box performance in our UK installed base as well as an increase in the daily average revenue of Bally games including VLTs at New York casino.

Bally and WMS shipments to US and Canadian customers totaled 4,380 units representing a decline of 1,115 units from the prior year quarter, primarily reflecting 997 fewer Illinois VLTs shipped and 608 fewer gaming machines for new casino openings and expansions, partially offset by a healthy 490 units or 13% increase in replacement units.

We shipped only 147 Illinois VLT units and gaming machines for new casino openings and expansions from this year's quarter compared with the total of 1,752 units for Illinois and new casino openings a year ago.

Replacement units aggregated 4,233 compared with 3,743 units in the prior year quarter.

We believe our shipped share on replacement unit and corresponding wallet share of casino spending increased on a year-over-year basis, despite a lower number of total units shipped.

A primary element in our increased share of our customers' spend, the wallet share, has been the success of the Bally games on the innovative Pro Wave cabinet.

The Pro Wave cabinet has been the leading contributor to the realization of higher average selling price since it was launched last year.

We expect the US, for new casino openings to improve in subsequent quarters.

In early May, we shipped new gaming machines for the expected June opening of the new Penn, Plainridge facility in Massachusetts.

Inclusive of participation games, we believe we will have 43% of the casino floor, including a strong presence of electronic table game suites, as well as end-to-end gaming systems.

Internationally, we shipped 2,352 units, a decline of 945 units largely reflecting lower sales due to the continued import restrictions in Argentina and the softness in the Australian and Mexico market.

With the launch of new cabinet styles throughout the year, we will have new product to offer the international markets.

On a year-over-year basis, the 2% decrease in average selling price for new unit largely reflected the impact of convert to sale lease units, partially offset by the higher prices of premium priced Bally Pro Wave cabinet.

As expected, given the record high level of hardware installation in the year ago quarter, gaming systems revenue declined to $67 million, but was up $11 million from the December 2014 quarter.

Maintenance revenue was essentially flat.

While installations and overall revenue remain lumpy on a quarterly basis, this business remains solid with the continued high win rate and an improved balance toward recurring revenue over the long term.

Today, approximately 50% of gaming systems revenue is from maintenance and service revenues compared to only 33% in 2008.

For the remainder of 2015, we continue to see an improved pipeline of system upgrades, expansions and installations.

Table product revenue declined $6 million, reflecting a decrease in the number of shufflers sold, partially offset by an increase in the recurring revenue from our installed base of shufflers, proprietary table games, and other leased products.

Year-over-year, the installed base of shufflers increased 492 units or 6% while the number of leased proprietary table games increased 128 games, or 4%.

Additionally, the number of table game progressive unit, [table side beds] and other table adds-ons reached a record total of [5,229] units, up 15% over the prior year.

Year-over-year operating expenses increased primarily as a result of the Bally acquisition.

But reflecting the higher revenue and the savings realized through the implementation of integration initiatives including a portion from the WMS acquisition, attributable EBITDA increased by $138 million to $197 million.

In our Lottery segment, revenue totaled $186 million inclusive of an unfavorable $6 million foreign currency impact, compared to $194 million in the prior year period.

Service revenue declined $5 million inclusive of $1 million unfavorable currency impact.

Revenue was primarily impacted by the cessation of sales related to the previously announced loss of the Colorado lottery system contract effective October 1, 2014 and lower international revenue.

This was partially offset by a favorable impact on US retail sales of draw-based games with a $564 million Powerball jackpot that is midway through the quarter.

Product sales revenue declined $6 million inclusive of $2 million unfavorable currency impact, largely due to lower sales of hardware terminals to international lottery customers, primarily those in Europe.

These sales, similar to the installation of gaming system hardware, are subject to timing and demand and therefore the quarterly revenue is often lumpy.

Instant game revenue increased 2% over the prior-year period to $129 million inclusive of a $3 million or 2% unfavorable impact of foreign currency translation.

7% growth in game revenue from customers with participation contracts was driven principally by higher retail sales to our US customers including higher sales to Northstar New Jersey, plus sales to Hellenic Lotteries, which began operations in May 2014, partially offset by slightly lower price premium of sales to other US international customers.

License and player royalty revenue was essentially flat for the quarter.

Despite the 4% revenue decline, operating income in the lottery segment increased 7% or $3 million year-over-year benefiting from a more profitable mix of revenue and lower operating expenses.

Attributable EBITDA for the segment declined $2 million or 3% from the prior year to $78 million, largely reflecting the decrease in EBITDA at our joint ventures, primarily LNS in Italy and the absence of our Sportech equity investment we sold in the first quarter a year ago.

Turning to our Interactive segment, revenue on a pro forma basis increased $6 million or 14% year-over-year, reflecting growth in both social gaming and real money gaming.

Social gaming continues to benefit from an increased base of users on both the Jackpot Party and Gold Fish social casino apps.

On a pro forma basis, our average daily users were up about 15%, while the (inaudible) was flat with the prior year quarter.

As a result of the higher revenue and improved scales in our legacy interactive business, operating income increased $8 million, $12 million from the legacy interactive business partially offset by $4 million operating loss from Bally.

Attributable EBITDA tripled to $10 million, reflecting the benefit of higher revenue and the improved scale being achieved in the interactive business.

In summary, we believe that the combined company is beginning to reflect and will continue to benefit from the diversity of our revenue streams.

When coupled with our intense focus on achieving integration cost savings, we have a defined path to generate improving cash flow.

And as we previously noted, we intend to prioritize free cash flow to reduce leverage, we believe the foundation is in place for improved operating results in future quarters with continued progress in achieving our integration savings and improving organic growth.

We believe we're largely on track to continue to expect our free cash flow being meaningfully better in the second half of the year with additional improvements in 2016 and beyond.

And with that, let me turn of turn the call back to Gavin.

Thanks, Scott.

Before taking your questions, I want to be clear on one very important point.

While financial sightings are very important in driving our expected increases in free cash flow in coming months.

Our number one commitment is to empowering our customers.

The longer-term value accretion from the Bally merger will be in our ability to leverage the innovative product development and technological capabilities across the Company to provide our customers in the gaming, lottery and interactive industries with high earning products and services.

Total solutions with the best in class value proposition.

Our customers understand this and are supportive of our strategy.

The combination of our comprehensive product and service offering, the innovation and differentiation enabled by our combined IP resources, the talented engineers and product development teams around the world to create solutions for our customers that will engage players and provide growth in their businesses.

These are the strengths that create a real excitement that we sold, we first discussed the potential of combining Scientific Games at Bally.

Make no mistake, while the revenue synergies are harder to quantify and generally take longer to materialize, they know that's real.

New revenue synergies come from building on our heritage of innovation creating great content system across gaming, lottery and interactive.

With our talented people, intellectual property, well known brands, breadth and depth of product portfolios, technologies and scale, we're uniquely positioned to create new ways to engage clients and to help our customers drive growth.

I would like to thank all our stakeholders, our Board, our shareholders, our debt holders, and most importantly my teammates at Scientific Games throw their hard work.

Integrating and running a business at the same time is difficult, but we are off to a strong start and are excited about the opportunities for the future.

Operator, we will now take the first question.

(Operator Instructions) Cameron McKnight, Wells Fargo.

A question for Scott first of all.

Scott, could you walk us through the impact of some of the one-offs on free cash flow in the quarter and guidance towards where underlying or recurring free cash flow likely came out in the quarter?

Sure.

I mentioned that there were sort of two one-offs in the cash flow from operating activities.

One, related to the cash impact of the charges that we booked during the quarter and that was $8 million and the other related to the payment of $30 million in cash for previously accrued litigation amount that were settled during the quarter.

So, those two are sort of the usual items that sits in the quarter.

So, if you take the number that was there and you add $38 million to it, free cash flow was closer to sort of a $45 million number.

And as I said, our expectation is that, that number will go going forward.

Okay, got it.

Thanks.

And then a question perhaps for Gavin.

Can you talk to conditions and just the environment within gaming operations, units were down sequentially and we have been hearing that things are getting a little more competitive on the participation front, if you could give us an update there that'd be very helpful?

I was delighted by our performance.

I think we strengthened in that part of the business.

The unit numbers may been down a little bit and that's -- different customers removing some units, but I wouldn't -- again, it was asked quite strongly on the (inaudible).

So, I don't know about the competition per se, I think we've had a very strong quarter and I don't know about the total market, but I think we are more than holding our own (inaudible) still growing in that space.

Steve Wieczynski, Stifel.

Gavin, can you help me go through the ASP, I mean, the ASP was a little softer, I think, than most were looking for.

And it was down a good bit quarter-over-quarter.

So, was that partly mix or what drove that down.

And can you talk about the pricing environment at this point.

It is very simple as one convert to sign-up for a -- a customer that went off later wanted to purchase.

Okay.

Can you just give a little more color in terms of what you're seeing out there in the pricing environment, is it still pretty competitive at this point?

Pricing has been fairly stable, I mean we looked back onto this over the last four or five years, fairly stable.

There is actually no reason to discount when the market is so small.

There are some customers trying to -- some competitors I should say who bundled and try and give away free units, if you buy certain number, but this doesn't make sense to us to do that.

I think that ultimately, there is a price where the markets accept the units and not much reason to go below that, but at the end of the day the customers aren't going to buy unless they work.

Okay, got you.

And then Scott, you just touched on this a little bit, but I guess when you look at the conversion into free cash flow was a little softer.

Even if you add back the two things you mentioned and this is a, for most investors at this point, it's a levered story and I guess with only paying down $18 million in the quarter, what gives you the confidence of the next two, three quarters that, we will see this free cash flow will be able to start to accelerate again and the debt will -- and a leverage will be reduced, a little bit quicker.

I think there are some things from the seasonality in the past that will improve revenue in the future quarters, the gaming business traditionally on the product sales side, the June quarter is traditionally the best quarter in terms of new unit sales.

The June and the September quarters are usually the best quarters in terms of revenue per day and the gaming operations business.

And as we said in the call, our pipeline for the systems business show stronger performance in the second half of the year.

On the lottery side, the lottery business has a little bit of seasonality and the product sales side with the December quarter typically is the largest quarter.

I guess another thing I would point out as we lowered our expectation for CapEx spending by about $25 million, is sort of what -- where we are at for the first quarter and where we expect to be for the rest of the year.

And then probably another very significant impact is the cost savings that we're implementing from our integration efforts will build throughout the year.

I think Gavin talked about the fact that we're almost 50% through what we expect to implement for the current year, and you'll see benefit on the expense side and therefore on the cash side going forward.

And let me add to that, Steve.

Quite obviously, putting together the companies of this size, there is a lot of people issues, there is a lot of uncertainties, we're beginning to get momentum now and as the teams begin to settle in and work together, clearly they are going to operate the business more effectively.

So, for the first quarter, as I said in my talk, I think it was a very strong start.

Can I ask one more question, I guess, what kind of progress to be made, Gavin, with going out to properties and casinos and selling that total package meaning going and be able to do slots, shufflers, systems, I mean, are people pretty receptive to that or they pretty cautious, they don't want to give all their business to one provider?

I think they are very -- and you can ask as many more questions like that as you want.

I think that they are very receptive.

We've been putting out press releases, showing some of these -- one, the other day that we put out where the customer genuinely took not only the system, they took games, that's recurring revenue, tables, electronic tables, shufflers, they even took chippers.

Then they took our -- what we call our SG Universe product where you actually take the player outside the casino and you can communicate with the customers there.

I think the customers are very receptive, they understand what we're doing, they understand the rationale, they really are looking to people to leave the way into the future with new R&D and new concepts and products.

We've been sharing that with them and the reception has been very positive.

Clearly, our systems business is getting going from strength to strength again, which is a great start with system-based gaming and everything else like that.

So I think, I am spending more time now that we've got through the funding and the integration, now I am spending more time getting out in the road and trying to meet with customers and as are my senior team.

So, very customer focused as I've always been.

The team is very customer focused, customers are responding well and I think that all goes well for the future.

Mike Malouf, Craig-Hallum Capital Group.

With regards to the CapEx, could you just -- was that related to the Turkey bid or was there some other reason why you lowered the CapEx and missed that?

Yes.

There is a piece of it that is Turkey related because we were going to have to put some CapEx into the system infrastructure there, but we also saw on both corporate basis and on the lottery basis less spending than what was anticipated in the first quarter and some of that will continue into the rest of the year.

Okay, great.

And then you were actually really helpful with regards to the free cash inflow calculations, but on the EBITDA side, when you take a look at that write-up associated with the acquisition of $11 million, that's not included in the EBITDA, correct?

So that's, I mean, you could almost say that EBITDA was $263 million?

No, it's in the $252 million.

The write-up is?

Correct.

What I said was not in the $252 million was the impact of eliminating the deferred revenue at the time of the acquisition and purchase accounting for $6 million that would have hit this quarter and we not eliminated in purchase accounting.

Kevin Coyne, Goldman Sachs.

I just want to follow up on a previous question, just to understand the process a little bit more from the customer perspective.

I'm used to see in telecom and tech where service providers put out RFPs and will ask for multiple bids, are they doing that as well for greenfield projects like Baha Mar and are they asking for end-to-end solutions in those RFPs?

Is that kind of how it works or is it totally different?

In gaming -- lotteries have RFPs, always, the government contracts and you are responding to RFPs.

Gaming, they're not going to just -- very few -- some customers are very loyal and they just go straight to their incumbent system provider for example.

But effectively when the customer wants to buy a system for a greenfield property and it's not linked to anything else, they'll see what the market has got out there.

Again, when you look at our systems business, clearly it is the category leader.

And so we do bid, we also now more expensive than our competitors, but obviously the quality, the customers see if they are prepared to -- it depends on what they want from a system, but if the price isn't the major determinant, we often win.

So yes, you've been in everything.

Games, it's really performance based and there are a lot of game providers out there, if your games perform well, that will be bought.

But the other aspect to that is that to buy a game just before it's performing well today, you've got to have confidence that in five years time, the company you're buying it from will have more games to support that game will be quality games and they are not just a small one, one hit, one to shop, and that's why a lot of the -- a lot of companies of our size and scale seem to plateau, (inaudible).

So, there are lots of factors and that's the way gaming works.

As I said, lottery is all -- government lottery is RFP based.

Interactive is again, I mean we have content, we hook our servers in the remote gaming server business up to a B2C operator and the players go online and if they want to play our game, they click on it and if they want to play somebody else's, they click there too.

But just as a follow-up, so you could submit a bid on an end-to-end solution, and they could piecemeal except your bid for certain product and take other people's offer for those solutions.

To an extent, I mean, it's got to be compatible and (inaudible).

Just a question on the 8-K that was filed a few days back regarding a competitor's allegations regarding the technology.

Again I think the 8-K gave your stance, but I was just curious how your customers are reacting to it and do you have any sense of timing of when it's going to be wrapped up and perhaps is there a precedent let's say issue that the industry dealt with in the past and maybe you can give us how this is resolved.

I haven't heard one piece from the customer.

I can't believe you, do you seriously want me to answer that?

Well, it was worthy of an 8-K.

Come on, (multiple speakers).

We had to put it in 8-K.

We generally don't comment on litigation on these calls.

Okay.

Just one part of question and just -- I know during the road show, you had talked about opportunities with various state lottery contracts that were coming up for renewal.

Can you give us an update in terms of -- is that going to be more of a back half of the year when we may start hearing on some of those?

We've submitted a couple of bids right now that are in the process of being evaluated and there is not a set time frame for when the lotteries will make their decision on that.

There is a couple more that we're expecting to receive RFPs sometime this year that we'll respond to that the decision likely wouldn't be made until maybe end of this year, beginning of next year.

Chad Beynon, Macquarie.

Gavin, you mentioned a few minutes ago, you kind of touched on SG Universe, and I wanted to dive into that a little bit because one of the things that was shown to us a few years ago was the real money, I guess property wagering on mobile devices, iPads, iPhones.

Could you talk about the importance of this feature?

I know you're the only company currently doing it.

What the reception is from your operators?

I know you have a few announcements here.

And more importantly, do your operators particularly those in destination markets have the WiFi capabilities to run the system?

Just wondering if you could touch on that?

Sure.

Let me give -- I don't want to give you too much, so our competitors who are listening in, we say, hi to all of them.

Clearly, SG Universe benefits from a very strong systems background and business.

We looked at what Bally had, we looked at what Scientific Games were doing with side play, we looked at what WMS was doing with their solution and then we put together what's really rapidly become something we're very excited and it's like a best of breed.

The WiFi capability is very, very cheap.

You have the beacon technologies out there, and it's not rocket science and you are building a new property, you build it in and retrofitting a property is not that expensive.

So that's quite easy.

It's really -- I mean there are many different aspects to it and there are many different stages to it, but we have a fairly well advanced development plan for many of those stages in the whole concept about staying connected to your player and being able to communicate with the player on and off the property, being able to market them more effectively both on and off the property, being able to offer them different solutions, both for gaming and for a play on and off the property.

That's what it's all about and how important -- is it clearly with mobile devices that everyone is carrying with marketing, it becomes very effective and important tool.

Is it the (inaudible), I mean, we think it's a great start, just one of our solutions that we're working on for the future.

Happy to give you a demo, [you want to try it out]?

Alright.

I am looking forward to it.

And then on market share, you noted that you believe that you gained market share, I'm guessing that was referring to the domestic market.

Wondering if you could touch on how you believe you're positioned internationally particularly ahead of the flurry of openings in Asia over the next 12 months to 18 months.

Why don't you put that again, sorry?

Wanted some commentary on international positioning in advance of the property (multiple speakers)?

Sure.

I mean, just like here, the international customers, many of whom in Asia -- they would like to understand what we're trying to achieve and what we're going to achieve with our solutions and the unification of the operating system, things like that.

Clearly, the systems business actually has penetrated the Australian market, really for the first time which is very exciting, it's a great opportunity.

So, sort of like more of the same and there are certain markets internationally that are struggling a little bit.

Argentina we all know, it's very difficult to import and export, but there has been a little bit of business there.

Uncertainty around Mexico, things like that.

What's happening in Macau?

I look at it as a reset.

I think ultimately probably works in favor of mass market, which is our kind of solution.

The rest of Asia seems to be bubbling along, and we continue to do well.

I don't know what to say about Europe, [it's not a] major slot purchase market, but we are starting to see some traction and of course the VLTs in Greece is a great opportunity.

And one last one, if I may.

Scott, last quarter you talked about a leverage goal 4 times by the end of four years.

I know that's ways out, but that kind of stuck in my head.

Given the puts and takes and some adjustments to cash -- CapEx, could you just give us an update there or just confirm that that's still the goal?

Our goal is still to be less than a 5 multiple in a four-year period and we remain committed to that goal.

We're pleased with what we've been able to accomplish on an integration basis.

I want to clarify one point on the $90 million of integration, cost savings that have been implemented that as a run rate for the year versus what was realized during the quarter.

So there is a difference between implemented and realized, but assume made that clear.

So, I do think that we are on track for achieving the (technical difficulty) that we set out at the start.

Susan Berliner, JPMorgan.

Scott, I wanted to start with you if I could, can you just tell us I guess what the actual synergies in the first quarter that were achieved?

The preponderance of the synergies related to position elimination, as I reported, we have -- since the closing of the transaction, we've eliminated 650 positions within the Company, and are a bit ahead of where we expected to be at this point in time.

And in addition, all of sort of public company costs that were duplicative between the two entities have been eliminated, and we've made progress on what they're using the scale of our combined operations in renegotiating terms with vendors and getting lower costs for that.

We also have made pretty decent progress on closing and combining facilities on a global basis.

I mentioned in my remarks that we in the quarter, we made the decision to locate our European headquarters in Barcelona.

So we're making progress on getting that accomplished.

So the actual number for implemented synergies be around $25 million?

No.

The implemented synergies is the $90 million that I talked about.

So through the closing in November through March 31, 2015, we've implemented $90 million of the $188 million that we expect to have implemented by the end of calendar 2015.

Okay.

I was just trying to get what was flowing through for Q1 but I can circle back with you on that.

I guess and one of the questions I keep getting is what a true apples-to-apple EBITDA and I know did a really -- the cash flow -- walking us through the cash flow and the add backs was really helpful.

I was wondering if you could do that with EBITDA?

Well, there is a table in the press release, right, that sort of highlights the things that were unusual in the quarter and the total amount was $29.4 million, and then, if you -- we also provided a table near the end of the press release that on a pro forma basis shows the pro forma income statement result and there is a reconciliation from the net loss to attributable EBITDA on a pro forma basis for the March 2014 quarter to the March 2015 quarter, and we also put in there the sequential quarter, the December 2014 quarter, so that if people wanted to look at sequential improvement, what that look like.

And then, I just had a couple of others.

With your I guess shipment to Plainridge, the Greece VLTs, Baha Mar, I know you guys don't like to give guidance, but I think a bunch of us missed on the sales number this quarter.

So, I was wondering if you could help us how we should think about the shipments over the next few quarters?

Well, as I said, the June quarter is traditionally the strongest quarter of the year in terms of unit shipments and you can perhaps go back and look at historical data to get a perspective on that.

The September quarter at the opposite end of the spectrum is usually the slowest quarter in terms of new unit shipments for the year and December will be an improvement over September or that's what we would expect, but certainly less than what the June quarter would be.

Great, and then my last question --

And I'm sorry, one other thing if I could add.

You mentioned the Greek shipment, the Greek opportunity is not a unit sale opportunity, it's a gaming operations opportunities.

So, that will be earning revenue over a 10-year period of recurring revenue for that.

Okay, great.

And then just one question on any hedging strategy to deal with the FX movements?

We actually had a discussion of that with our Board and have concluded at this point in time relative to the cash flow that comes internationally that we would not do any additional hedging on foreign currencies.

[Reline Thero] Bank of America Merrill Lynch.

It's James Taylor.

Just to maybe dig into the unit sales a little bit more.

I think there was something in the release, but there was a lot of data in here.

Can you just give us a little color on what happened with replacement sales versus new opening sales in the quarter?

And I guess it would also be helpful, I know you don't want to give sort of granular guidance, but maybe just to give your outlook for the North American replacement market for the rest of the year.

Okay.

So relative to the unit sales for the quarter, in the US and Canada we shipped 4,380 units and embedded in that was 147 Illinois VLT units and 4,233 replacement units and that 4,233 was up from 37,043 on a pro forma basis in the prior period.

So it was up [13%].

And I believe there were no new units shipped to new casino openings or expansions.

What does the comp look like for the rest of the year, like in terms of new openings last year?

I don't have that data in front of me, James, but as an example, we obviously shipped in April the Penn Plainridge unit which I talked about in the discussion.

I think our overall expectation is that new unit shipments in this year will be probably a little bit lower than what they were last year and last year wasn't particularly strong for new unit shipments to begin with.

We're going to continue to have the same tough comparison with Illinois VLT units because the market is maturing and the number of new locations that are been authorized is slowing.

I just answered to Susan that we do expect on an overall basis units to be up and be the highest of the year in the June quarter, be the lowest of the year in the September quarter and then up in the December quarter from the -- the December quarter from the September quarter.

And then on the gaming apps business, obviously there was a sequential change.

It's my understanding that there was one particularly large distressed gaming operator that has taken a pretty dramatic new approach to their gaming apps.

But again, on a sequential basis how do you think about the wide area progressive in premium game installs for the rest of the year?

Well, to be quite frank it's likely to be dependent upon the performance of the games on the floor because if you're performing well you'll generally get more placements on the floor.

We're encouraged by --

We seem to be performing well.

Right.

In the last couple of quarters we've had pretty nice quarter-over-quarter improvement -- quarter over the prior-year quarter improvement in the revenue per day which I think will be helpful.

And the thing that we can't predict is if there are other operators that decide that they want to reduce or right size their participation footprint.

I guess just the last sort of outlook question would be on systems.

I know it was a very tough systems comp in the fourth quarter as well as in this first quarter.

How do the comps look for the systems business for the rest of the year in terms of large installs last year?

I think that the September quarter and December quarter in 2014 were relatively lower than the first two quarters for that year.

So I would say the comps will be easier in the last half of the year, especially given the backlog of the business and the new installed.

Gavin talked about in Australia that we'll be putting in over that timeframe.

Just one last housekeeping question, all the data and the pro forma data you gave in the release was very helpful.

Is there any chance that you're going to provide that for sort like a full rolling four or eight quarters for modeling purposes?

Well, I guess, next quarter, we would have in June 2014 quarter and you're only then missing the September 2014 quarter and you can probably get to that by taking the year-end 2014 and backing out the first -- the quarters.

So, we'll see -- if it's helpful, we can certainly put it in the next release.

(inaudible), Independent Credit Research.

First, I was wondering if you can tell us, have you noticed any changes in the decision making process of your gaming customers in regards to buy versus sell, (technical difficulty) of your machines?

Not really.

And what -- on average, if you take 100 as a volume, what is the percent of machines that you are releasing versus selling?

It doesn't quite look that way.

There is different categories on a floor and depends on the customer.

I think on average, a customer -- if you took an American is an average, they may lease about 20% of their floor, but it really depends.

But in regards to new opening casinos, are you more inclined to buy or to lease?

I think it depends upon the casino operator and what their particular strategy is because some have a richer mix of participation and some have a leaner mix of participation.

I think on an overall basis, participation is usually sort of 8%, 9% of a total casino floor.

And if it was up to you, would you rather sell all of your machines or to lease them?

We would rather lease rather than sell.

We are focused on our customers and if our customer -- there are certain properties that we have that are leased to us so that we can only lease.

And there are others where we offer the option and where we offer the options is entirely up to the customer.

The next question is, I was wondering if you would be willing to start breaking down your sales and maybe a number of units installed per segment internationally versus North America?

Is there any plan to do this?

No.

I don't think so.

We break out the units that we sell between US and Canada and international, but we've not traditionally broken out the gaming ops installed footprints.

Okay.

And then, would you tell us a little bit more about the compensation.

How does the compensation work for your sales people in lottery segment and in the gaming segment?

Do they make base salary plus commissions and where is this competition reflected in the income statement?

Only in cost of goods sold or SG&A?

Yes.

you're right.

In both businesses and even in our interactive business, the sales people have a base salary and they earn a commission based upon what products they actually sell.

And those costs, both the salary and the commissions, are included in our SG&A costs.

David Farber, Credit Suisse.

Just one real quick question, I'm not sure if you guys have this at hand.

How much actually has been realized with regards to the cost savings to-date?

I know you guys talked (multiple speakers) what's kind of running through the P&L today or in the first quarter?

I think we're only talking about what got implemented in the quarter rather than what got realized in the quarter.

And that's the disclosure that we've opted to make.

You can imagine though if we've implemented $90 million by the end of March, that we're going to get most of that realized during the 2015 period.

I know that make sense.

And then, just in terms of -- and you might not touch on this but just in terms of kind of an apples-to-apples LTM number relative to kind of what you guys showed in offering documents the high-yield deal, I think you guys have like $1.3 billion or so.

Do you guys have a number that's comparable to that kind of rolled forward for today?

I don't have that number in front of me, but again, I believe that we're, if anything, we're ahead of where we expected to be on the synergies at this point in time because we were able to accelerate some of the position eliminations that had been planned.

Well, that includes the [235] but are you saying that number might be higher or are you just saying in terms of timing?

I'm just saying in terms of timing.

At this point, we're ahead of where we're expected to be in position elimination.

(technical difficulty).

Yes, the [235] was what was in the offering document.

Right, that's what I'm saying.

I'm saying is there -- so like in that document, you have attributable EBITDA of $1 billion essentially.

Essentially, I'm looking for that number LTM for today.

I think some other guys were touching on that as well.

I think we're saying we're [putable on] track.

Got you.

Okay, it's a relatively close one (multiple speakers).

Yes.

Dan Fuss, Morgan Stanley.

I'll make it quick, guys.

Most of my questions have been answered, but is there any other FX impact outside of the lottery impact that we should be mindful of, whether it be in table, systems, interactive or on the international unit side?

Yes, there is a little bit in gaming and a little bit in interactive.

In our gaming business, for the preponderance of our revenues, they're in dollars, but we do have the fixed-odds betting terminals in the UK.

So, there tends to be a little bit of currency there.

And then, on the interactive business, we also have for our real money gaming business, we're doing that in local currency and there's a fairly sizable portion of that that's either euro or pound based but my recollection for the quarter is that there was $8 million total FX impact on revenue, $6 million of that was in the lottery business and the balance was split between gaming and interactive.

David Hargrave, Sterne Agee.

Great job on the integration process and thank you for bearing with us as we get to know the Company better.

I was wondering if you could give us some color on when we think about the replacement market and the average age of machines, what should we be looking to in terms of forward indicators, budgets and customer attitudes?

How important is it to start to see some sort of casino top line revenue growth?

And what else should we be looking at or thinking about?

I guess, the combination of things.

I mean, I guess (technical difficulty) and you get friends explaining how this will work.

When I started in the business it was sort of like the five year lifecycle for a game.

Then we brought software into the games and that extended the life of the cabinet, the cabinet still the executor and a lot of these things are getting older, and older, and clearly the new ones are performing better.

(technical difficulty) their equipment, particularly native American casinos, even Canadian casinos.

So, you often see refreshment rates there higher than maybe some of the more cash-strapped corporate casinos.

Again, it depends on the region as well in a competitive regional environmental, locals environment, I get more replacement that you will in a tourist environment.

(technical difficulty) it seems to me that we've got to a stage that those who've been investing in the floors continue to improve.

We see some good growth rates in some of the regional markets, not the ones that are publicly recorded, but in the private native American markets and things like that.

And again, they constantly are improving their floors.

So, that's the story that we try and tell our customers, we try and show them the evidence but sometimes they just feel that there are other better uses for their capital.

Clearly growth will drive a lot more replacement we would hope but it's a very -- there's no such thing as a market, every market is a little bit different.

And in terms of new jurisdictions, are there any particular states that are on your radar screen right now?

Well, unfortunately, lot of them.

But obviously, Massachusetts and Maryland and expansions there.

Talk about, Alabama's great.

We'll take any that comes.

Macau, there are five or six properties opening over the next two years there.

(technical difficulty) openings in Asia which is always good.

New York, five properties opening here, four defined and one to be define at least.

And then those that having been approved already.

We look for everything.

I mean Alabama would be one that would be -- that just [topped up the sleek], but yes we are constantly out there looking but I don't know of anything that's going to surprise everybody.

Are there any important lottery contracts in the next 12 months that we should be watching to that might have some lumpy impact on the numbers?

It's sort of like the secret sauce.

We do have lots.

We're constantly -- we put out releases when the new expansions been approved.

We bid on things and whoever wins puts that bid out.

Some things we don't bid on.

It really is --

And you can look in our 10-K we had a table that disclosed the largest lottery contracts and what the expiration date of those contracts were and whether there were any extensions to extend beyond those expiration dates.

We have no further questions.

I would now turn the call back over to management for any closing remarks.

Well I thank you for joining us this afternoon.

We're trying to and as you can see that we understand and we respect that we have a lot of equity investors who are probably a lot more familiar with our business than our debt investors, we're going to try and continue to educate and provide you with updates on our progress.

And obviously, the next one will be our second quarter results at the end of next quarter.

Again, thank you for your interest and your support and we look forward to seeing you soon.

This concludes today's conference.

You may now disconnect.

Have a great day, everyone.