Q3 2019 Earnings Call

Good day.

Come to the sad to forget <unk> third quarter 2019 earnings conference call and webcast.

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Today's presentation.

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Please note this event is being recorded.

Our total comps covered to Mr. Trent Kruse Senior Vice President Investor Relations Mr. goes the floors or Sir.

Thank you operator, and good afternoon, everyone. During today's call will discuss our third quarter 2019 results and operating.

My question and answer period with me this afternoon, very calm and Michael Kors Terry.

Hello.

Hey statements that include forward looking statements under the private Securities Litigation Reform Act like 95.

These statements involve certain risks and uncertainties that could cause actual results to differ materially those discussed during the call.

For information regarding these risks and uncertainties. Please refer to our earnings release issued earlier this afternoon.

Charles relating to this call posted on our website at <unk> filings with the got to see.

We also will discuss certain non-GAAP financial measures description of each non-GAAP measure and a reconciliation of these non-GAAP measure the most directly comparable GAAP measure can be found in our earnings press release as well as an investor section on our website.

A reminder, this conference call is being recorded a replay of this webcast and accompanying materials will be archived in the investor section of our website at scientific games Dot com.

Also supplemental refer to slides are available on our Investor Relations website, well management will not be speaking directly to the flight Spider man. So we'll take your revealed the company's results actually use as a reference document following the call now let me turn the call over to Barry.

Thanks Trent good afternoon, everyone and thanks for joining US we had a strong third quarter with year over year increases in revenue net income and eight EBITDA driven by growth in all business units as well as continued progress on de leveraging driven by further debt pay down and solid cash flow generation, we're on track to achieve.

Our target of 5.5 net debt leverage and we'll continue our focus on de leveraging beyond our current coal.

At scientific games, we have established ourselves as a market leader across the board sports lottery and gaming by providing the leading enabling platform as well as the key content the players consume.

In fact, we're the only provider sad to deliver a one stop solution of leading platform in content for our partners across all three major verticals, where the ability to deliver a seamless player experience across digital and land base, However, and wherever the player wants to play no. Other competitor comes close to our ability.

To deliver this experience, which gives us a significant future advantage as a digital world evolves.

Now before diving into the quarter results I wanted to highlight that we enjoyed a great citelli. This past month, we got excellent feedback on several of our new products, including the new Jay 43 motion will drop unlock new five reel mechanical and gold fish frenzy as well as our technology innovation across as she vision unified well.

Well, it and S.G. game service, among others and our efforts to build an echo system to bring together our industry leading portfolio.

Also at GE to eat we shared a clear vision, our company strategy with investors and analysts to show how we wet.

First it all starts with delivering great games like dancing Troms explosion, Munchkin land and ultra Hot Mega like second we will win emerging markets just as we're doing and in New Jersey, I gaming, Pennsylvania, I lottery and sports betting overall.

For secure a strong balance sheet through above market top and bottom line growth cost efficiencies any efficient cash management.

Fourth we're creating advantages for player and partner experiences to our one S.G. approach a great example, this is unified wallet work, where we are creating a single wallet and player account management that cuts across retail digital.

Differentiate our business through near term product innovation like augmented reality table games, that's cheap vision and more.

And lastly, none of this can be accomplished without top talent because great people do great things I'm, especially proud that we're building a culture that attracts and retains the best talent in the industry.

The ultimate goal from these strategic initiatives is simple and straightforward we're committed to achieving our net debt leverage target of approximately 5.5 by year end 2020.

Well, it's across the board we decreased our net debt leverage ratio to 6.4 have paid down 355 million in debt year to date and are on track to achieve our de leveraging target we're firmly committed to reducing leverage in this business and will continue this focus beyond our current target of 5.5.

With that let me highlight some of the key developments during the third quarter end game ops were focused on creating best in class game franchises, optimizing our product road map to attractive segments and maximizing deployment ROI do efforts such as confident interoperability. This approach is yielding results on both the top line and.

Through reduced Capex looking ahead, our new games are rising to the top of the charts as we hold three of the top four new web games and nine at the top 25, new premium leased and web games in the latest I listen Kruczek report in fact dancing drums explosions consent needs to be the number one indexing new web game overall delivering around.

On a 3.5 house average.

We're also excited about future expansion in the class to market last year, we entered into strategic relationship with GE Si cheat a distributor with deep ties to this market. We've recently released five class two specific games in the last two quarters targeted to the local casino player and our plan is to release additional games. This year that are targeted for this.

Important market.

And game sales, we had a great quarter driven by the industries to best portrait cabinets, an outstanding content, our new way back. So cabinet is number one on the charts with Twinstar Jay 43 at number to this reinforces the fact that way back. So we'll be strong follow up the J 43, which continues to deliver excellent result.

So with over 2000 units shipped in Q3 internationally. The Dualities access now proved in all major Australian jurisdictions and the sales process is ramping up in Illinois. Our results continue to be very strongly with a clear market leader and new unit shipments from the expansion Bill looking ahead, we're very excited about.

The continued opportunities in Illinois and international.

And finally in gaming, we continued to deliver outstanding results and table products and systems, we saw a 15% increase in tables as well as a 10% increase in our systems business.

Within our lottery group, we're driving significant revenue and profitability growth, we saw a 6% increase in revenue and an 8% increasing EBITDA driven by strong year over year growth in systems and in lottery instant products with strength, both domestically and internationally.

In the last 52 weeks the high margin instant product market has grown domestic retail sales by over 2 billion year over year, an S.G. represented more than 80% of that growth.

The team is to delivering its best ever win rate on contract Rebids and winning significant new deals domestically and internationally.

Recently, we captured the attention imagination about partners like never before at the 2019 NASPL trade show.

Showcasing our many innovations such as the new James Bond multi state instant Lincoln place Central HD with SG vision, a vast portfolio of instant game finishes and concepts second chance, an eye lottery games and a future of retail room, featuring eschews integrated suite a product innovations had attendees buzz.

And with excitement after catching up glimpse of our latest stat. In fact play central self service vending machines are seeing increased placements and are now deployed in Walmart stores across Kansas, Pennsylvania and Arizona.

We continue to focus on our retail solutions suite of add on products to accelerate our lottery customers sales growth.

Most recently, we executed a sale of side Q instant game ecosystems and play Central self service spending units to the Arizona Lottery Saccule will be implemented for a national chain that is a key retailer for the Arizona lottery.

So instead switching to scientific games lottery systems from another supplier in 2016, the Arizona Lottery has achieved all time record sales and profits a key component of their growth has been expanding points of distribution with innovative products that allows the lottery and the retailers to maximize sales performance.

In addition to Arizona, our psyche pilots continue favorable results with retailers experiencing 12% to 15% increase an instant game sales and customers are gaining new consumer insights as a result at the big data generated by cycle.

Our I lottery launch in Pennsylvania, the most successful I lottery launch ever which has exceeded 500 million in sales handle had a record day in September with over 2 million in sales in a single day.

And lastly, scientific games continues to expand our lottery footprint with wins in Italy, Turkey, and recently awarded Brazilian low text concession.

Brazil is the world's eighth largest economy and we are excited and honored by this opportunity in Italy. As she was awarded wouldn't exclude with an exclusive agreement to supply 30000 wave retail terminals, making it one of the largest lottery terminal point of sale networks in the world and domestically in Florida, We will continue our 30 years.

Our partnership with <unk> with the award of a new seven year S.G.P. contract, which has an option to be extended for an additional seven years since 1997 scientific games enhance partnership has powered the Florida lotteries instant games to perform 52% better than the lottery industry average.

With a 10 year compound average growth rate of 122%.

In fact, when looking at all of our S. T. P customers they've experienced a 10 year CAGR that was 80% higher than lottery served by other contract vendors.

And digital revenue increased 7% EBITDA increased 42% and we're growing existing accounts as we continue to win deals in the market.

Hi gaming, we recently launched open gaming our end to end digital Echo system, which is home to trusted content aggregation technology.

A bus player account management platform 2500, plus games and innovation rich features across jackpots free rounds tournaments and peer to peer gaming.

Underpinning the second system is Oh, P.S. and O.G.S. technology, which recently received a gold medal in the 2019 best interactive product category at GGB gaming in Technology Awards with a robust reliable I gaming solutions. We saw an increase of 400 million wagers placed on our O.G.S. plan.

Form year over year with 9 billion wagers place this quarter, we're the market leader in North America, and <unk> and are well positioned to take advantage of an expanding market opportunities and I gaming, where we can leverage our leading position to be the preeminent player in future I gave me an expansion.

And in sports will continue to launching additional states with Caesars Crow with our partners when in the end the Oneida nation and delivered exceptional results in previously underserved into international markets like New Zealand and Turkey. In fact in Turkey, we have seen consistent and significant growth since launch smashing several weekly records.

Our open sports product suite continues to gain well deserved recognition as we are as we were awarded digital product to the year at the global Gaming Awards.

Lastly, we recently announced an expanded partnership with another lens lottery to bring Dutch lotteries players they full digital sports betting solution.

We're now investing to be the pre eminent player in the emerging 20 billion dollar digital market with key wins materializing and firmly believe we are poised to best support operators with our robust reliable and comprehensive sports I gaming and lottery platforms as we look at our social business. So I play continue to outperform.

On the market with 11% growth, while the OLED also delivering a 35% increasing EBITDA, we saw an 18% increase in mobile revenue.

Average monthly revenue per payer reached a quarterly record of almost $85 and payer conversion rates remain strong at 5.8%, we're adding a number of exciting game updates that will lead to continued growth and our evergreen franchises as we explore opportunities a new geographies new games and potentially new.

Sean or is.

In closing we're excited by the near term opportunities we have in front of us as well as our best in class positioning for future growth across existing and emerging markets. As you can see scientific games is the best position player in the market to deliver best in class games lottery and sports betting to players across any channel or platform they want to play with it.

Vision to the to deliver a seamless player experience it only SG can deliver.

This position along with our commitment to delivering outstanding games innovation and a more efficient enterprise across our diversified portfolio of businesses sets us up for profitable growth and significant cash flow generation to reduce debt and continue on our de leveraging path now.

Now, let me turn the call over to Mike to provide his review of the third quarter results.

Thanks, Barry Good afternoon, everyone. I know many of you were at our Investor presentation at Gtwoe, We last month, our results highlight the path to five and a half times net debt leverage that we laid out driven by growth in our business free cash flow and a reduction in our leverage.

For the quarter consolidated revenue increased 4% and the EBITDA increased 6%, we experienced revenue growth in all of our business segment and greater growth in EBITDA. As a result of process improvements net income was 18 million compared to a loss of 352 million with the prior year period.

Including 339 million in restructuring and other charges primarily related to the verdict in the shuffle Tech legal matter.

Gaming revenue increased 6 million to 454 million and EBITDA was down 7 million on a mix shift or revenue compared to the year ago quarter.

We shipped 8261 machines globally, including 4152 replacement units.

In the U.S. and Canada, and 1378 open an expansion units, which includes shipments to the Illinois BTT market.

Our replacement sales were up 24% from the prior year when excluding the units that were part of entering into our strategic relationship with GCG last year.

Internationally shipments totaled 2731 compared to 2625 units a year ago, our average selling price for the quarter was $17500.

We continue to see great results from the twin Star Jay 43 are seeing momentum in the wave excel.

And we will have 14 exclusive wave excel games released by the end of 2019.

And expect to regain share internationally with dwell looks that.

That is now approved throughout Australia.

Game Ops revenue was down 1 million on a quarter sequential basis, as our U.S. and Canadian installed base was down 547 units, primarily driven by the removal of some legacy product.

Internationally revenue increased as a new contract win offset erosion in our installed base in the UK with the implementation of the two pound stake limit in April 2019.

[noise] gaming systems revenue increased 7 million from the prior year, primarily driven by higher growth in recurring maintenance and services revenue as we look to the fourth quarter I remind everyone that Q4 last year was a record quarter for systems revenue driven by larger site installations in Canada.

And as we've previously mentioned the major news site installations are coming to a conclusion.

Table products continued to grow with revenue up 8 million from the prior year period to 60 million on continued strength in the business.

Turning to lottery, our third quarter revenue increased 13 million to 220 million.

And they EBITDA was up 7 million to 99 million compared to the year ago quarter within our lottery business. Our systems revenue increased 5 million or 8% year over year to 70 million driven primarily by international product sales.

In the quarter, we completed the delivery of sports betting terminals in Turkey.

We recently were awarded a new agreement to exclusively supply lottery instant games and up to 15000 wave retail terminals to the Turkish National Lottery, which is separate from our sports betting contract.

And for up to 30000 wave terminals to Saul in Italy, we expect to begin delivery in both of these markets in the second quarter of 2020 and will continue through 2021.

Our lottery instant products revenue grew 8 million or 6% to 150 million driven by the mix of contracts and higher revenue for license content. We're pleased to announce along with our 50 50 joint venture partner, we were awarded the instant lottery contract in Brazil, just a few things I'd note.

Brazil is the largest economy in the world to the lottery is expected to commence operations in Q3 up 2020, but the market will take time to scale.

And three our cash investment into the joint venture will be manageable as the concession amount is payable over at eight annual installments.

For side play segment, we generated strong growth with revenue up 11% year over year to 116 million and EBITDA was up 35% to 32 million.

These results were driven by increased monetization of paying players and payer conversion increasing to 5.8%.

In digital we generated a 7% increase in revenue to 65 million and a 42% increase and they EBITDA. The 17 billion. The strong flow through was driven by higher revenue sales mix and decreased operating expenses.

We see a number of opportunities for continued growth across I gaming I lottery in sports through both share gains end market expansion.

For the second consecutive year, we received the digital product of the year Prize at the Global Gaming Awards 2019 for open sports our end to end sports betting product suite.

Moving to cash flow and the balance sheet, we generated 53 million in free cash flow in the quarter, which included a negative 48 million dollar impact due to the timing of interest and an increase in receivables due to the timing of sales throughout the quarter.

At quarter end, we had 363 million in cash and cash equivalents and our net debt leverage ratio was down to 6.4 times as we continued our deleveraging efforts Capex was 75 million compared to 93 million in the prior year, we're lowering our capex guidance to 295 to three.

Hundred 15 million, which is down from our prior range of 340 that 360 million.

We paid down another 55 million in debt during the quarter, bringing our year to date total to 355 million.

Also we are pleased to announce that we received commitments from some of our revolving lenders to extend 588 million of commitments under the revolving credit facility for a five year period, we're still in discussion with other lenders regarding potential additional extended revolver commitment.

We have a number of organic opportunities to grow our business around share gains and gaming, new retail solutions and lottery and growth inside play and digital there are also a number of new market an expansion opportunities in front of us across our businesses. These growth drivers in conjunction with business improve.

That's to enhance free cash flow provide us.

Tools to get to our five and a half times debt leverage target by the end of 2020.

This concludes our prepared remarks, operator could you. Please open up the line for questions.

Yes, Sir we will now begin the question answer session.

To ask a question in my Press Star then one on the Touchtone phone.

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My question has been addressing your question. Please press Star then too.

Again in a star then one to ask a question at this time, we'll just pause momentarily to assemble roster.

Your first question, we have come from John degree of Union Gaming. Please go ahead.

Hi, everyone. Good afternoon, Doug congratulations on the solid quarter.

Two questions for me if I could I guess, having just spent a lot of time on slots at Gtwoe. We I'll start with lottery first business has been growing quite a bit quicker than we were modeling you just announced a couple contracts can you in your prepared remarks, you talked a little bit about.

Some of the product sales driving that I'm, just wondering if you could speak a little bit more to to the growth that you're seeing there and how sustainable it isn't kind of why it's accelerating now.

Hey, John This is Barry Thanks for your question, Yeah, I look the lottery business as you said is healthy and growing really two things driving it number one.

We are delivering an unprecedented win rate right now probably domestic and international and number two were growing organically basically driving the our strategy of providing value added services like SGP and the retail suite of solutions, such as place central and cycle.

In terms of the contract lands are very proud of obviously the ones, we just announced Florida, Turkey, Italy in Brazil in Turkey, We delivered strong system sale systems result, primarily related to the hardware sales as a part of our sports betting contract, but we're really just getting started in Turkey and elsewhere internationally as well it will see significant wave terminals.

Sales.

In Turkey, and Italy, beginning next year.

We're also proud to be awarded the concession as part of the joint venture in Brazil.

We believe Brazil could be a very sizable market for SG concession payments also spread over eight years Theres really no significant one year cash outlay either on that.

Florida was as another we'll continue our 30 year partnership with Florida Lottery with the award of a new seven year managed services contract as we mentioned on the call since 1997.

S.G.P. as Howard the Florida lotteries instant games to perform 52% better than the lottery industry average with a 10 year compound average growth rate of 122% in fact looking at all of our ESG customers they've experienced a 10 year CAGR that was 80% higher than lotteries served by other contract vendors so and beyond.

The wins as I mentioned, we have a lot of organic.

Significant organic growth across the board as well.

Domestically and internationally. We're actively engaged is as we highlighted it with a handful of state lottery is on the procurement of additional retail products.

We just closed the deal with Arizona for both cycle in place central terminals across the state.

So you can see the lottery team is really doing a phenomenal job expanding their footprint and our partners that we are working with our seen significant growth in results by partnering with it.

Sorry, when you when you look at international Lottery products out some of the contracts you've won I guess.

Funding funding growth, probably I think.

Prepared marks twoq of 20, starting to ship lot of those terminals through 2021 or more large contracts out there that could be up for grabs over the next 12 or 24 months that we're not aware of.

Yeah, its Q here John .

Yeah. There absolutely is we got to specific dedicated team in the lottery business, that's going through and.

I would tell you since I got here in 2015, Theyve been working on Brazil.

And I'm sure they've been working on Turkey long before that as well. So it is a longer drawn out process, which is why we've got a team of roughly about five individuals that that's all they do so I'm sure there's going to be more new and exciting contracts rose the so to speak about either on the next call or the one afterwards.

Right that's helpful and if I can I wanted to ask about the Capex reduction.

I was wondering if you could unpack that a little bit what's driving that I know Barry you've talked a lot about your plan to.

Improve efficiencies, particularly in the gaming business with content Inoperability and.

I'm curious how how much of this capex reduction is coming from your efforts on that front I mean, it would seem like a capex is coming down and you're still growing the free cash flow profile in ROI opportunity here is.

Poised to turn a quarter and accelerate so just curious if you could talk a little benefit the capex, what's driving it and if that kind of level sustainable.

Yeah, Hey.

Mike Your again, so when you look at the lowering of the Capex guidance, it's really around kind of two primary areas. The biggest piece of it being the game ops capex.

Definitely lower than we anticipated at the beginning of the year as we're continuing to make progress as you said on content interoperability, but as well as the other initiatives within the supply chain itself.

As well as value engineering of our cabinet Ah so that'll be a key driver for us and as Barry has been drilling into a pretty much everybody in the company is about ROI driven returns on our deployed capital and so we're very diligent in that process.

In regards to kind of the rest of the I'd say the free cash flow profile for this year or should they for the quarter.

Unfortunately, this quarter, we did see some negative working capital swing just based on the timing of interest into sales throughout the quarter.

But in the end John It's just timing as you would know anytime you look at working capital on a quarter by quarter basis. It will fluctuate just based on the natural timing of transaction.

So I would definitely make sure that everyone's very well.

There is absolutely no fundamental change in our business that's going to result in a permanent change in the working capital requirements and to your point earlier.

If you really look at that where the the.

The.

The main point of where we're going to end the diversity of what we're bringing forward. It's really when you look at the EBITDA minus capex for this year versus last year were up almost 15%. This year, which is nearly 100 plus million dollars.

In addition of free cash flow that we're generating from at the result of that and so that clearly demonstrates the progress that we're making behind barriers leadership.

That's great. Thanks for all the color I appreciate the questions commentary. Thank you.

Got it.

Next we have Barry Jonas of Suntrust.

Hi, guys. Vicki you gave your one turn de leverage target last quarter. Just curious if you feel more or less confident now about hitting that target and if maybe that confidence is tilted more towards growing EBITDA or else paying down debt.

Look I would say we remain.

Very confident and hitting the fight.

5.5, and quite frankly, just let me emphasize 5.5 is just a.

Hey point, our goal is to continue to drive it even lower.

Hello.

It's you know it has to kind of alluded to it's a balance of.

First and foremost driving top and bottom line growth of the business.

You know implementing cost efficient initiatives smart cash management refinancing repaying debt, if you're a balance of doing a lot of things in terms of that you know the top and bottom line growth. We've outlined this we spoke at it you know at GTV, but the focus on just.

Launching great new games, and winning markets that we're now prioritize that went in the emerging digital markets like I lottery sports and gaming its.

New businesses internationally that we just got they're talking about right with.

Italy, Turkey, Brazil.

And then in an innovative new products that we're bringing to market all would that kind of ROI focused side Q play central you know et cetera. So.

Continuing to drive that and more.

Yes, I'll just add onto that it is.

Really gets down to the free cash flow and paying down the debt and so in addition to just the growth drivers that Barry alluded to and.

All the different growth drivers, we walk through at the Gtwoe we presentation.

We really do see some significant opportunities to enhance just the free cash flow in of itself just through.

Operating efficiencies as I mentioned earlier around the supply chain to interoperability of content the value reengineering of our cabinet.

We also always look to keep an opportunistic I on the capital markets to lower our cost of capital.

And as we're looking out into this year in May we don't see any real sizable cash outflows like we experienced in the prior year. When we had the l. enough concession the legal settlement, Unfortunately, and the higher capex spend associated with that abnormally large number of new contract wins and renewals that we had last year. So.

To my point earlier on John decrease question, when you really focus down on it EBITDA minus capex is up more than 100 million year over year, and that's an important factor for us.

Barry mentioned this isn't just let's get to five and a half times and be done we've got to be focused and going on beyond that so.

Great Great. So speaking of GE to me I think you talked about trying to get your ship share back to that sort of 27% to 29% range very very solid quarter. In the Q3. Just curious if you think you're back in that range, and maybe who you're taking share back from thanks.

Well I think we're the first to report so we'll find out exactly how much ship share we took from everybody, but we do feel good about it and like we said throughout the calls in the first half your.

We kind of recognize that it's going to be a slow first half of the year as wave XL content gets up to speed and we get more and more of it out there, but the side.

The excitement we have about wave XL Jay 43, we sold nearly 2300 units this quarter and that cabinet is three years old.

Pretty unheard of and we're really excited with the motion wheeled that's coming out.

As a supplement to that so we do feel really good about our game sales pipeline going forward.

Great and then just last one for me on Brazil, any color you could anymore color you can give on a on the JV at this point just curious if the supply agreement will be split evenly or maybe you'll have a higher share and then also curious if theres an eye lottery component here. Thanks.

I'll take care of the last part yes, there is an eye lottery component that will be coming shortly.

But the key thing with the the partnership as it is a 50 50 joint venture obviously, we believe.

Given it is the a 15 year contract and the world eighth largest economy. This could be something that's very meaningful not only to us the to our JV partner.

But with all that excitement we are cautious that it is a greenfield opportunity thats going to take time to build but.

We think it's going to be an incredibly potential for both of us.

Got it okay. Thanks, guys.

You're welcome.

Next we have David Katz of Jefferies.

Hi, everyone how are you.

You too.

I pad by pad.

I wanted to just go back to the Capex.

Discussion, which.

Often we find to be double edge, you know discussion with two sides.

Hey can you just provide a slow inside as to the Capex guidance decrease and if there is some make up for it.

Going forward.

What what changed the run rate there.

It's really around game ops placements.

Well as the our ability to get content interoperability out there to keep some of the cabinets out there.

That were previously coming back because of just not having enough good content to bring forward.

In addition to that and that's the I would say the vast majority of the of the revised guidance down. In addition to that there are some other projects that we had planned for within lottery.

Relatively small in nature, but a number of them in just I'd say quantity.

And those look like Theyre spilling into more of 2020, rather than the proposed timing that we were looking at it 2019.

We had viewed through the first half of the year.

Got it and on the subject of refinancing opportunities I'm not sure. If you touched on this in your earlier remarks, but we're always keeping a careful eye on you still have some expensive debt out there that that could be replaced at some point and whether there might be any bank finance.

Thing rifai opportunities and your future.

I will work.

Just as everyone else, we're constantly monitoring the market and we'll be opportunistic as we look to lower.

And improve our overall cost of capital, but was an important step for us to get the commitment on the revolver.

As that was current as of October and so getting that new five year.

Revolver in place was an important.

Terminal for us to get behind Us.

Okay. Thank you very much nice quarter congratulations.

Thanks.

The next Swift's had radon of Macquarie.

Hi afternoon, Thanks for taking my questions.

Shifting back to a gaming operations.

It looks like you're continuing to trade out some of the lower performing legacy games with the web games, Barry that you touched on that or.

Kind of shooting the lights out here.

And we're trying to find a point of of inflection here to kind of balance. This out. So do you think that I guess first off you are starting to see an inflection with some of the older units coming off and the newer games that are doing well, we'll kind of offset any of that leakage and then the second part of that question is given that we heard from.

Caesars yesterday that they will continue to right size there their floor.

You think that that could push back this inflection question. Thank you.

Yes, absolutely so.

So first of all yeah, I mean as you know we've talked about now on it on several the earnings call.

We are.

I would say hyper focused on game ops, and first stabilizing and moving that business to growth and as you. You described we had some older the older cabinet coming up over.

I mean as fast that the whole goal here is the number one priority is getting great content out building great games to drive that business and you mentioned Wap and yes, we have really really strong Wap games out three of the top four new web games.

According to the October Eilers performance report.

By the way that versus one of last year, but theres also the larger premium category, which we were also under index last year that we've had a new reef nude focus with our product roadmap to go after in a in a big way and.

We have nine now the top new 20, 525 premium web games and.

And the majority of these games or interoperable as as we were talking about in the.

Capex discussion so.

Dancing Troms explosion number one eilers web game performance at 3.5, we've got Munchkin land performing at three X. We have two bonds that are.

Round out our number three and number four while also around two x.

And then on the premium side, we've got Junjie bounce it synergy value as we've talked about now with a footprint of over 1000.

Performing at a two X plus than where we're really excited about a lot a really strong games out there with money length and then altra.

Mega language with strategy to be so it's really about getting great games out there that can outperform the floor and doing it in a way this flexible for our customers. Those example, where we've been talking about interoperability as it relates to capex, but interoperability solve two issues.

Inter Operability also helps us give operators the flexibility.

Grab new great great performing content on cabinet that they already have on the floor.

So we made this overall O move toward kind of digital digitization of cabinets and merchandising overall that helps us basically with conversion efficiency speed to market getting great games out to replace games that may not be performing all of that will help us drive and giftware.

We.

Our goal for game up.

Yes, just into your point regarding Caesars.

It was roughly just over 80 units that are their footprint was reduced at Caesars. So it's certainly not material and again it was primarily older legacy cabinet that have been sitting out there for.

To the better part of probably four plus years so.

Okay, Yes, very helpful. Thanks for that data points and then just back on domestic game sales I know, it's tough to figure out market share in heading into the quarter, we're getting the sense that everyone could have some soft year over year replacement trends, just because the timing of GE to we.

It was in mid October .

This year, which could push orders into the fourth quarter and sort of third quarter and obviously given your growth that completely goes against that thinking.

Which I think has been kind of the narrative going into the quarter. So.

Do you believe that this could have even been stronger from a replacement standpoint. If you do we timing would have been the same as last year and maybe some of these units.

Actually help the fourth quarter. Thanks.

I honestly I don't know in terms of to be asking whether the impact of GTV or not I think for us. The the we have been said we had been mentioning all along in the last few quarters that we were going we felt like we had a strong back half of the year that was basically combination that as you alluded to.

Having basically Ajay 43 that just continues to have cream extremely strong sales third highest quarter quite frankly ever since that launch has been out there for years and then we layered on top of that the wave XL with.

Unique content on the way of XL coming in the back half of the year and the combination of those two things.

I think drove.

Drove our success and and we're seeing strong minot momentum with both products with a good good strong pipeline and like I said that our year over year comparisons even greater when you compare that to.

The GCG deal that we did and of last year. So.

I don't know that at Gtwoe, we had an impact on it as much as it relate as more of a roadmap rollout.

Okay, Thanks, really nice quarter guys.

Thank you.

Next we have Brad border of Stifel.

Yes, Thanks for taking my questions guys first one is just around Illinois.

You guys have explained previously you guys, obviously have a nice a competitive advantage in that market and with the digi key market they're expanding.

It's nice little near term growth opportunity for you I.

I guess I just wanted to see to what extent.

Hi, Vg market benefited the quarter and sort of how you see that tail there from the expansion kind of.

Helping your product sales kind of on a go forward basis.

Yes, so just during the quarter, we had roughly a bout 830 units that are included in opening an expansion.

So we're not taking the benefit of that six machine being available and having that inflate our replacement sell numbers that we've quoted you guys today.

There are 7000.

Locations out there and figure that were just a tad over 50% of the of the market Theres, a 3500 unit opportunity. However, I believe that the content, we have the superior to the competition and therefore, we should get a better share than that 50%.

The timeframe for that to rollout.

I'm not probably going to take.

Probably another year as those things roll out because there's only so much in the pipeline that can get out and installed.

In those locations through the distributorship network that we out.

Okay. That's helpful and then not to belabor the point around game ops and appreciate that you guys are churning out some some older games here, but I guess, just as we kind of look ahead.

I mean.

When in your estimation and sort of as you guys underwrite it internally when do you guys think we could start to see some actual growth in the installed base itself.

[noise] look at them in as I mentioned before that that the.

We've we've been able over the last several quarters the move it to appointed of where it's fairly stabilized and the goal is just you know as you know this is a game its business and we believe we've got some good strong gains out of the gate that are performing well our goals to push it.

And combine that with as I mentioned before interoperability potentially some.

You know some.

Working out flexible pricing and things of that business model things to go after its though.

We also have we mentioned before tacking markets in which were class two in Oklahoma.

Our partnership other GCG. So this is an all out effort of ours to focused on that category.

Helpful. And then lastly, just you guys. Obviously you have some some new product coming out you have a market like Illinois, you had do aloe sex.

You can correct me, if I'm wrong, but I believe those are lower priced products I guess, how should we be thinking about a SP, you're kind of going forward.

It looks like it's kind of been hovering around that 17, and a half level for the last couple of quarters.

I kind of what a thought with wave XL kind of being more prominent in the back half that it might push that ASP, a little bit higher but maybe there is some offsets the other way just help us think about that thanks.

Yeah sure I mean, if you look at a dwell effects. The is also as a premium cabin it but it's barely starting to get off the ground on its sales internationally.

But at the same time to Jay 40, threes, a three year old cabinets. So.

After three years old.

The price starts to come down a little bit.

Wave Excel is a high premium cabinet and we believe that's going to drive the ASP to where it is today, but we would expect it to be around this 17 five kind of number.

Just based on the pipeline of what we have plus twinstar with the five year old mechanical that's coming out.

And so I think were pretty steady state at that 17, five plus or minus $100 here and there.

Sounds good thanks answers guys.

You're welcome [noise].

Our last question will come from just off of Susquehanna.

I was just off your lot of might give me that sir.

Well I gentlemen, the pairs that others lost connection there. So we'll then conclude our question answer session I will now turn the conference call back over suburb called for any closing remarks, Sir.

Great. Thank you.

Thanks, everyone for joining us today, we appreciate your support the entire organization is laser focused on our key strategic priorities that enable us to accelerate our progress and extend our industry best positioning. These priorities will allow us to deliver the greatest returns for our stakeholders center sales up for profitable growth and generates significant cash flow.

To continue on our deleveraging path, we're firmly committed to reducing leverage in this business and will continue this focus beyond our current net debt leverage target of 5.5.

Look forward to speaking to you next quarter. Thank you.

And we thank you Sir and the rest of management team for Thomas' today again the conference call now concluded at this time you may disconnect. Your lines. Thank you take care, everyone and have a great day.

Thanks.