Q3 2019 Earnings Call
Ladies and gentlemen, please standby your conference calls begin momentarily. Thank you for your patience. Please standby.
Good day, ladies and gentlemen, and welcome to the G. T 2019 third quarter results conference call.
This time, all participants are in listen only mode.
Later, we'll conduct a question and answer session and instructions will be given at that time.
As a reminder, today's conference is being recorded.
I'd now like to turn the call over to Jim Hurley Senior Vice President of Investor Relations. Sir you may begin.
Thank you and thank you all for joining us on <unk> third quarter 2019 conference call Marco Sala or CEO will provide an overview of the quarter and comment on our breed broader strategic initiatives.
Then Alberto Fornaro, our Chief Financial Officer will provide operational and financial perspective on the results. After our prepared remarks, well open the call for your questions.
During today's call, we will be making some forward looking statements within the meaning of federal securities laws forward looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements.
The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings now I'll turn the call over to Marco Sala.
Thank you Dream and welcome everyone.
The momentum of about a quarter businesses that he's evidencing that third quarter has a solid to keep a four month seem to get those.
Global gaming machine the unit sales, so wed, especially strong during the period.
Free cash flow was robust, reaching a record before I alluded to 56 million for the first nine months in making the important inflection bowling rias space, they've just easier.
Not to be same store revenue outside the value of roles to better same thing that the quarterback.
As a 40% the growth in 40 cents, a little games will say at the low where the jackpot activity in the United States.
He said he thought a lot that he wages were stable.
Yes, good I'd say when wages have made up before it is like the decline in low.
It is worth highlighting good this thing to have our North America lot that he put all that sees the in the last two quarters.
Well, what expanding suite over soon service machines. They did you great theme that is so from our customers at the recent the three the shows.
Oh, what a game got 20, so services says a mix of rubies games, So Houston PK and the multi state the Jack both games and is meant to serve a big box national retailers.
So far about that well I'm going to units have been deployed across then Steve.
We the diesel us speeds is space the food all it down next year.
Oh, what a game dots drill cabinet inspired by a device. We used close flows baiting get you need value, Rhode Island provides a superior service for broad based games that we default use on keno. It was developed to facilitate the retailer adoption the restaurants, the Basel and other social species.
Secondly, spansion is keep driving future lottery revenue growth and that is at what the abuse put all those are all about.
We have added to see some significant the lottery contract that readings and this thing shown over the last several months.
Hi, GP was selected to provide both lottery technology and use them ticket putting thing for venue Mrcc below 30.
We we also see Q multi year to stations in Colorado, Minnesota and Kentucky.
And we just signed a five year facilities management than product sales call that the worried that the ought to go look.
And this nipigon lottery development, our 50 50 joint venture was recently awarded the 15 year busy a lot pixels license.
He is a major step two awards at the prioritization of Lottery Easton games in Brazil that was the eighth largest economy.
It's also an important the window into other opportunities as Brazil, five opens the regulated gaming.
Yes, those can develop into a meaningful meaningful drive that on growth over the license.
Given the relatively modest capital investment required we expect that this business to generate in above average return on investments for us.
Now, let me focus on gaming.
It was a strong quarter thought I want to global gaming business unit sales of gaming machines aware of 44% the greater than the prior year period, driven by 62% increasing replacement unions.
North America replacement units rose, 38% led the by top performing titles, such as a fortune, calling and Greenfield strong.
International replacement units increased nearly 90% benefiting from large as we then veal p. shipments in the period.
Commercial gaming replacement, so were up double digits, we demand the well balanced between increased telco increased 27 cabinets.
We have began rolling out our new call both cabinet to develop the to raise our profile in eastern Europe and that we are seeing interest for other regions as well.
The North American installed base remains stable and is generating higher yields.
We look forward to cash link and for the titles continue to command incremental placements.
Early indications of on our recently launched the prices right games are boot.
We have just said successful showing at Gtwoe we.
Well our team was a little driven performance the cornerstone of our Gagnon strategy.
We have continued to expand our test programs, which are driving player satisfaction on a broader number one from flights.
There was a lot of excitement around our core VB offer which has been an important driver of the 38% increase in yet to be the global unit shipments.
As the industry is a leading portfolio of intellectual property, which we are upgrading it with a proven new game mechanics.
Wolfe Trahan and X breaker are good examples in fact, the X breakers three is widely recognized as one of the most anticipated titles coming out of the show.
We are complementing these franchises with a new batch of proven performance loading lucky, but moved up and that magic of denial.
We are increasingly leveraging our strength in proud to say so with our lease games.
This is especially true in the growing the multi Lincoln progressive segments, where GDP has traditionally been under represented.
Showcased nine MLP strategy too easy to drive the better penetration.
We are further supporting that effort, though with the new family of peak cabinets, we are launching the peak as Len with extensions of the two proven brands scatter building and the wheel of Fortune mystery link.
GTV was also big show for video Poker, where do we featured a total of four different form factors, including the new big backed up in cobalt cabinets, providing world class solution also to all types of venues around the world. The response is very good, especially for the peak Barton.
And we are well positioned to maintain our leadership in this area.
As an aside the let me say that after a lot of our work and investment. It is very gratifying to be able to report that the progress we've made in our water machine gaming business.
Now, let me turn into sports betting.
A year now after the U.S. Super incurs passed but ruling is powering 35 casino baseball's books in 11 States. Our mobile offer is active in seven states.
Good place for technology accounts for nearly all of a new Jersey in Pennsylvania has taught US sports betting game, which is a testament all to this stability and scalability of our technology.
Speaking of scalability Atg, two we showcased our place for bank and place both for.
The first ever completely self standing spores books in the books, which can be integrated that where any part of because in a flow business solutions that enable us small to medium size casinos to provide a capital efficient vacancy Vega Vegas style sports Lucas.
Areas.
Today, there are over 200 serves service I GTS Police force machines are deployed in sport books around the United States.
Leveraged resort in Mississippi is the first feature our Crystal betting terminal, which is in field trials there.
If you were the only Thailand budget below.
The current proposal includes the IR uptake Cesar.
Gaming machines, and the higher taxes on certain player winnings the parameters for the next 10 that have a gaming machines licensees and also below.
I can appreciate that that these annual process as being a point of frustration for many of you.
I think it is important to stay grounded in our historical ability to navigate through these centers.
We have been dealing with ideas gaming taxes for the last several years.
In that timeframe, our eataly be Dara has grown despite the headwinds including in the year to date.
The 19 period.
Well manage adapted to consistent innovation and disciplined cost management, while maintaining or improving our market position across all gaming business.
The through impact will not.
We know until the budget to low is approved at the end of year.
We are working on a set of initiatives in Italy and on the confidence can offset the entire impact of the propose Texas.
Im pleased with the momentum of our core businesses for the third quarter end the year to date.
And with the positive feedback we received from customers at the recent and lottery and gaming trade shows our focus on player driven performance will support continued progress for our gaming lottery business across all our markets now I'll turn the call for the 12.
Thank you Marco and the low to all of you on the call today.
Our third quarter results are summarized on slide 13.
To continue strength of us dollar against the Euro and the notable impact on reported results again this quarter.
The average Euro dollar rate was one point 11 versus 1.6 team in the prior year period.
At constant currency revenue grew 3% compared to prior year.
Strong North American gaming and lottery product sales, coupled with solid international gaming product sales.
More than overcame the impact of the large multi year, Finland softwood license in the prior year and now you're gaming machine taxes you need.
The constant currency adjusted EBITDA for the 407 million declined to 23 million or 5%.
Adjusted operating income was also lower there was a significant a differential in the profit flow through year over year, primarily attributable to the Finland software transaction in the priority.
In addition, we incurred higher R&D NSG any cost into quarter, primarily related to timing.
Let's now turn to our operating segments.
Starting with the North American gaming and interactive on slide 14.
We had a very strong quarter with revenue growing 11% in operating income up 38%.
Total revenue for from product sales rose, 36% on the strength of new Cabinet 10 games, which helped to drive higher average selling prices.
Product sales also benefited from the execution of the multiyear technology license.
Service revenue was essentially flat when compared to the prior year period is a positive contribution from sports betting helped to offset the treatment of multi year poker contracts in prior period.
The change in the installed base from recent Oklahoma conversion was mostly offset by higher yields on an underlying base the installed base was stable.
Operating income was up 38% on increased unit shipments and the high margin technology license.
On Slide 15, you have the results are North American Lottery segment increased customer demand for self service vending machines.
There was growth in product sales revenue, which was up a 54%.
Kentucky, Virginian misery, who led the notable purchases in the quarter.
The higher Potter product sales compensate for the lower service revenue for lower jackpot activity and the conclusion of dealing on supply contract, but at the lower March.
Certainly the same store revenue growth for just under 4% for instant ticket in drill games was the result, so broad based strength, particularly for large lottery, such as Texas and Florida.
This was partially offset by lower multi stage Jack protective.
Operating income reflects the impact of Illinois, lower jackpot activity, which also affected the let me revenue.
And the additional expenses for Rhode Island, all of which was partially offset by the higher product sales.
Now, let's turn to the international segment on Slide 16.
While revenue was up 3% a constant currency operating income was down 40% as I mentioned.
The third quarter last year included a large high margin multiyear fin, Finland, softwood license, which makes for a difficult year over year profit comparison.
Excluding the Finland transaction constant currency revenue was up 18% in operating income increased 12%.
Hi, a lottery service revenue was driven by 6.5% growth in same store revenue.
Replacement units grew by 88% on broad based geographic demand, including 1547, Sweden, the LTE units.
Excluding Sweden replacement units were up 30%.
Average selling price were lower due to product mix.
Product sales also benefited from.
Recognition of the Sweden BLT system in the quarter.
Gaming service revenue reflects a decline in the installed base due to conversion sales in prior period and lower interactive revenues.
The results for Italy as shown on slide 17.
A constant currency revenue was relatively stable despite increased give me machine taxes.
Total not relate wagers were in line year over year has groupings cruncher when wages of sectors like the decline in the Lotto wagers.
Lower lead time lead numbers activity was mostly offset by wager encore games, which grew 10% following the symbol AHP to launch in July .
Tenelotto wages were impacted by increased taxes on play you'd wins as of July differs.
Machine gaming revenue was down year on year due to higher gaming machine taxes.
Hey, W.P. wagers remain stayed in the quarter as play your excitement around the new games helped offset the reduction payout percentage.
The decline in BLT wagers is driven by the market reaction to newly introduced adjustment to pay out percentages.
Other service revenue reflects growth in commercial services, which more than other came in lower sports betting payout in the priority as a reminder, large portion of the commercial service revenue is pass through in nature, but.
Operating income was impacted by higher gaming machine taxes, and sports betting payout percentage.
On Slide 18, you can see that net debt has improved by approximately 200 million a constant currency compared to year end levels leverage was four point 34 times compared to four point 47 at the end of December .
Now, let's turn to slide 19, where we show our debt maturity schedule as of September 30.
During the quarter, we should the 500 million not to three 8% senior secured the no.
Notes due in 2020.
This is the lowest coupon bond we've ever issued 320 million euros of the net proceeds were used to prepay the term loan amortization due in January 2020 in the remainder were used to repay all the borrowings under our revolving credit facility.
These leaves us with liquidity and cash flow generation the term more than sufficient to covert debt maturities through 2022.
On slide 20, we show year to date cash flows we deliver record operating cash flow of nearly 800 million and the free cash flow over 450 million over the last nine months.
This is clear confirmation of the cash flow inflection we expected to realize this year.
Slide 21, we have included our outlook for 2018.
The outlook for adjusted EBITDA remain remains unchanged at 1 billion 675 to 1 billion 735.
Million dollar based Donna.
Full year average euro dollar rate of 112.
There are a few items to keep in mind for the fourth quarter first extraordinarily high North American jackpot activity last year fourth quarter.
Which contrast that with the unusually low multistate jackpot activity, so far in the fourth quarter disease.
Second we are actively monitoring trends in gaming machine wagers, Italy for living recent payouts adjustments.
And finally, we had nice momentum in global gaming machines unit shipment in the first nine months in the sales funnel for the balance of the year is robust the fourth quarter is typically significant in terms of product sales, but there's also owns ways that could be some variability in time.
We're updating our capex, how to look to $450 million to $500 million from 450 to 550 million.
Previously.
Primarily due to shifts in timing of certain expense.
To summarize.
Third quarter results were solid we generated the remarkable year to date cash flow and pay down debt well significantly announcing our financial flexibility.
Now we would like to open the call for your question.
Thanks.
Ladies and gentlemen, if you have a question at this time. Please press star followed by the number one key on your Touchtone telephone.
Please ensure that the mute function on your telephone switched off to allow your signal to reach our equipment.
And again, ladies and gentlemen to ask a question. Please press star and then.
Do you would like to remove yourself from the Q. Please press the pound cake, we will pause for just a moment to allow everyone.
And our first question comes from Chad.
Larry Your line is open.
Hi, good morning, Thanks for taking my question.
Guys wanted to start with with free cash flow because like I think that was a bright spot in the quarter, Alberta, you highlighted a year to date trends and now with the reduce Capex can you just give us an update in terms of what your leverage targets are and just remind us any any near term major.
Cash outflows that could come in 2020 that I guess would more being kind of the project Capex category. Thanks.
Yeah.
Brad.
First of all good morning to you.
Regarding the cash flow, let's say that we're basically marching according to our expectation.
As you are aware for this year, we had the deezer.
Provided an outlook.
Of the range of at the adjusted free cash flow to be between 410, five and a 510 million and.
We are on trend and actually this quarter is confirming what already in the second quarter. We show that this progress in that in that direction. So the only update I can say is that we confirm what we've said in in the past.
Regarding the Capex said, the only big news that I can say as being a Brazil at the low tech so that the its growth capex for the new initiatives the profile from from Capex.
He is a fairly moderate the because we did the upfront fee to be paid over 18 settlement it has significantly reduced.
The impact and over several years and we're planning for that so far in Q3 2020 potentially that could be the pain there could be the start of these initiatives. So the impact of the role is gonna be moderate in 2020.
Rather than that are you now the usual.
Be then the extension that we have told in the past so no big news on the Capex from.
Okay. Thank you.
And then.
Switching to Italy.
Alberta, you mentioned that.
The VLP wagers were a little bit weaker in the third quarter I think in the second quarter, you really didn't see a decline just in terms of player pay.
So could could you maybe talk about if some of these players are moving over to the W.P. is and then could you also just kind of high level what the.
What the Italian Impactors ban year to date.
Given the different changes in the gaming market. Thank you.
Good morning chart that take a yada yada question.
As a matter of fact.
VLP wages were up in the first alpha and.
We plan for them to be down in the second that as they were they were in.
Q3.
Reality the the players are still playing added as you why was up in September but that the wages that affected the by a lower pay out as we were anticipating it is a veteran situation.
We anticipated in the previous calls.
Saying that that we would have.
Faced a challenging situation second.
All four of the yet is not a mess that up at peak last week.
Dabbling piza.
Bob.
What.
What I can add that is that there is no changes to our view on the full year impact on new taxes that remains the 40 million we anticipated at the beginning of the AD and what it is important that said the to elaborate a little bit more will meet the is.
To understand the wages plans over the next few more onsite in order to understand that outerwear.
We will be in that 2020 that is.
What we have to do in the in the next weeks and months.
Okay. Thank you very much nice quarter guys.
Thank you.
Our next question comes from Barry Jonas from Suntrust. Your line is open.
Hey, guys good morning.
I wanted to ask a question on Italy.
Given the potential.
Tender.
Coming just how do you think about hurdle rates given the risks in that market and then just related to that assuming the tender proceeds.
Scenario, where the industry consolidate and wood.
And say look to grow.
And that scenario. Thanks.
Good morning, Barry its Marco I think your question and I've tried to provide our point of view regarding.
The 10 data that is embedded in their proposed budget the low.
First of all up let me say that.
The timing will get a timeline of the 10, there will be challenging.
To achieve.
For the government and let me tell you why things.
The draft the budget the law requires a uniform nationwide the regulation for gaming machine distribution.
And that the regions or add to some autonomy in these matters as a matter of fact to to be there aren't many different regional lows in place.
The government has been working on these are monetization.
Okay on these laws of the amortization of these laws and then put in this way 40 year without the reaching an agreement then.
As a consequence of these other sports betting tend that has been delayed the notwithstanding the licensees is by the couple of years ago.
This is why I think at that at the proposed timeline there over the 10 that we'll be very difficult to achieve.
Having said that the when it comes up to.
What it is contained in the budget and all I can tell you that for real diesel which accounted for most of our gaming machine the profits or what it is in the proposed low is properly align with our transportation.
Well, they WPS that the license fees our new.
Hi, WPS as you more or less important contributor to our profits and there is a wider range of productivity across our network.
As a result, though we will be the only on machines that provides solid returns.
In general we expected.
The new fees.
We are resulting in a few of our AWB units a market in the market.
Because of some of the marginal mussina will be eliminated eliminated. The therefore I agree with you leave for these we lapped panda there will be probably.
Someone with action in in in the offering and possibly San.
Consolidation and instead that the is quite premature to make any assessment and because we do not the noise about what it will be the final decision of the government. The in terms of the budget floor and we need to wait.
The next quarters of 2020 to understand their willingness of the government that we show a tender and that the conditions that apply to explain.
Great that's really helpful. Marco.
Maybe just one on terms of what the tenders talking about in terms of new taxes, I think it's very encouraging.
Guys. Thank you may be able to offset that.
Is that mostly through cost efficiencies.
You know just curious, especially as you're potentially starting to see some friction with.
The reduction in return to player and with that as we think about.
It's the original target or free cash flow for next year.
Should we also think that may still be intact for 50 to 550.
Sure.
Is there potential similar to this year that maybe slightly reduced thanks.
But if I try to give a very precise answer regarding the impact of.
Rick the increased taxation for 2020 .
We expect that at the gross EBITDA impact of the new proposal gaming machine taxes is around that $30 million.
And the we are working on a set initial of initiatives summing the gaming machines about some across the rest of the Italian portfolio to offset the.
The impact of the gaming machines. So we will pay attention on the mitigating action we will.
Implementing the gaming machines are because we have to pay attention on the reduction of the outer.
Because it is impacting wages, but with a solid the sector or additional initiatives that I think we will disclose at the time of presenting the guidance for next year that will allow the Italian team to completely offset that 30 million Edwin.
Yeah.
We will add for next year I will leave 12 battle to talk about balance the patiently in terms of our cash flow for next year.
Okay, well it will be difficult, obviously, because with the guidance full guidance will be march, but so far we're not seeing anything that should.
Conforti change for next year, Mark was just explain about the 30 million. We said we were going to recover the 40 mowing. The ports on think is what is up into the digital TV LTM. We've said it so far it's down but it's according to expectations. So I don't I don't have element to change what we've said in certain.
We will provide more details in March when we get that having more datapoints have better information not no change for the time.
Got it okay got it thanks and nice quarter.
Thank you Barry.
Our next question comes from dominate Galati from your line is open.
Good morning first question just a follow up on the comments on the on 2020 for E. coli and I'm trying to understand if that 30 million a headwind that you are mentioning is already including some a payout mitigation and well have.
Yeah. The clearly the 40 million for this yet that's what's expected to recover.
Thanks to the lower payouts on trying to understand it. This 30 million is the is the net impact that Dan you want to offset that with the.
Initiatives that were talking about so okay. That's fair.
Sure well my second question is on Brazil, So I'm trying to understand what's what festival what are the.
If you can guide us on the Capex.
Before the for the rollout and.
Hopefully also on the prospects that you see over the medium term.
Okay, Domenico I try to put together, a 19 and 20 when it comes.
To the impact of the budget Hello.
When it comes a two day.
19, the budget lower EBITDA impact.
This remains a 40 million.
Yeah, the factory in redaction own VLP wages in the second.
We will recall that some of these in 2020 , but how much. We recall then will depend on that will de wager trends in the next few quarters as I said articulating my answer too badly.
When it comes out they 2020 gross EBITDA impact the of the proposed.
Give me machine, Texas, we are saying the gross impact is 30 million and we are working on a set of initiatives.
Summing Guinea machines, and so they are implying some fine tuning on they pay Yao to in order to recall that part of the third but we are also a working on some new initiatives on the rest of the Italian portfolio the combination of the.
To set of actions.
We'll make us confident that we will have said that the impact all day 2020 .
Tax increase that Leah.
Yes.
Okay the effect.
Are you just not just to be sure last point I just wish around this topic.
Are you, including the 30 million I could also impact both of the a increase in taxation and the taxes on wins. So both yes, yes, okay.
Regarding Brazil.
We at this point in time, a part of from providing you in general.
Very positive attitude, though we have on this opportunity in Brazil for us is a little bit the too early to elaborate on on more specifically on the kind of as potential we have on on this business.
We expect that to finalize the contract and the time a will.
Resent our.
Guidance for next year, I think we will be in that position to give you some bad and outlook now I ask.
Are there to provide you the answer regarding the topic sophomore, they're busy and then.
Domenico So as you know disease, if the 50% to joint venture with scientific games for 15 years.
The total Capex at current exchange rates is around 200 million million. So we will.
Have the 50% of it and that there.
There is a first installment that does do and if everything goes.
According to expectation should be in 2020, and it's around the current exchange rate.
20.
20, forming.
Let let me for a second be clear the 200 million is for the upfront fee that has been device you didn't wait installment to the first one is $24 million and we expect to paid in 2012.
The JV receives around 18% of the wager for all of our services that we are going to provide and obviously you can imagine that.
We are targeting interesting results given also the jurisdiction that is Brazil.
That has a certain specific type of risk that needs to be taken into consideration having said that the this is the first step there are other opportunity in Brazil and saw the fact that that we are having these presence there in case, there not developments, particularly on sports betting gaming, we will have already presence now that.
We can leverage for further.
Business opportunity.
And at the Capex figure that you provide is that Jeff on the upfront.
It's not including sorted out on the Rollouts.
It is just on the upfront and it will depend on when that impact on 2020 will depend on number one when we start and second now quickly, we'll we'll be able to deploy so we will be more specific.
In a in the next call, where we will have all the elements, but again he is going to be it gradually implementation.
Okay.
Thank you.
Yes.
And again, ladies and gentlemen ask questions. Please press star.
Now.
And our next question comes from David Katz from Jefferies. Your line is open.
Hi, good morning, everyone.
Hi.
Good morning.
Wanted to just go back and be a little clearer about one of Mark I was answers around the gaming machine business in Italy.
It sounds as though.
We should not expect that there'd be an outcome and therefore any capex allocated 2020 towards deploying a meaningful number of gaming machines.
Is that a is that a correct assessment.
Yes.
Okay.
Second if we look at the domestic premium installed base. It's one of the areas we've been watching carefully.
Finally for an infection, which I think we've talked about.
What is the latest information you're getting about your game placements, particularly in the premium participation games of which we saw many outage you two weeks and help us paint a picture the next.
Several quarters on what you can reasonably expect there, including you know should it accelerate their you know there could be some capex associated with that too.
David Good morning.
Regarding the installed base.
You appreciate the also this quarter our installed base installed base remain.
Stable confirming that the trend of the last two years.
As a as I anticipated in the last.
Core reserve, we feel that from base remains under pressure from competition and from customers and looking to use. This basis has also from the consolidation of operators, but we had a very positive of award we are having guy.
In in the Florida in India's appeal time, and that being said that accounting because a elaborating as you I Vasco wheel of fortune franchisees benefited from I think their highest performing and monster deserve that diversified the lineup of we have read.
We are covering all the segments. We are improving also our yield the machine.
Performing.
Very well so the most important franchise we ever is a integrates shape. We are also a rolling out a suite of games and that the price is alive and size and that was or something well be working on quite.
I believe and that the early indications.
I think we have to improve our multi link progressive offer we have significantly in the improved detail we have been presenting nine new titles.
At.
Gee to eat, but India, India Ziggo has is clear data we have.
To see how we are performing on it.
Does it we have also launched a new.
Carbonator the peak.
As Len.
With the two proven franchise is a kerrobert scana billing and we look forward to mystery linker. So I mean, considering that the also in the in the same a period of time, our eel there is a 2% or the premium price.
He'll that is a 2% up I think we either.
Improving in that area notwithstanding all the.
The challenge is I do not hide.
Got it.
Thank you very much.
Thank you David.
Hey, I'm.
Question comes from John decrease from gaming your line is open.
Good morning, everyone. Thank you for taking my questions.
Right.
Prepared remarks, Mark you talked about generating significant cash flow year to date on track for your target you've mentioned that Youve just issued one of your lowest coupon bonds ever.
As you look at 2020 to conversation that we have often.
But wanted to get built the latest thinking if theres been any discussions about use of cash in 2020, now that you're hitting that inflection point.
John This is a better there is no change so far regarding new traditional cash I think we are.
Basically confirming the trending that reduction in generation of cash flow and so on and.
So far there is no change from 2012.
Okay.
A question on the game ops business I guess to follow on David's question from before the consolidation in the casino industry.
As companies look to harvest synergies slot floor as a place they target.
Wondering if you could talk about what you've seen.
Certainly and if youve any expectations is that.
Headwinds, it's something that you've always been dealing with and just part of the business. If you could provide a little bit of color on your on your outlook given the consolidation in the U.S. casino space.
As I was saying is on a in the previous answer that I mean this is one of the challenge we have in front of ours I mean that talking for example about.
Eldorado and Cesar consolidation is clear that it will have an impact of our own NASA and there is no doubt on it but having said that we have.
The best quality of our offering or better said that our offering is the best in the last few years and that we feel that the what we have on one side and that they line up of the products that we will bring to market the Leila.
I have said, we'll try to upset.
Some of the headwind said that you have.
Described that data reality I mean, there is nothing at all to be supplies about data, we have been working and validating the challenging and competitive environment for the last four years old style, we start seeing.
A stabilization of our installed base and improvement of our product sales. So we feel better equipped than before Dane taking these challenges.
Marketers want to focus on.
Corporate casino customer but.
Large tribal casino customer.
You can follow up to that can talk about.
Trends there are they.
Same better or worse than what you see in terms of demand relative to that to the casino customer the corporate customer and that's all thank you.
No I I do not see a major difference or they are.
Both.
Working quite efficiently for from their perspective and that they are challenging as our to bring a good brothers that are performing in the floor, increasing the solicitation of other players.
There was I do not see a major major difference in terms of the way they are trying to improve the satisfaction for their customers.
Thank you.
Thank you.
Our next question.
So from your.
The line.
Good morning, Thanks for taking my question.
Just a couple.
North American gaming continues to ramp nicely.
I was wondering if you can help us.
With respect to the reported EBIT in the quarter are there any can you give us the DNA and if not is the DNA again, just trying to reconcile the to the EBITDA production is it comparable versus the previous period in last couple of quarters. It hasnt been and so I was just trying to understand that.
This is all battery regarding that but the you know what you see.
In the overall stability.
The increase is mostly driven by.
The product sales and so therefore, the shouldn't be any.
Significant the change compared to the too.
There is no change compared to what it was.
In the past.
Well.
We went provides as usual, we'll disinformation infrastructure weigh on a yearly basis, but specifically on this quarter. There is nothing significant historical.
Okay fair enough. Thank you.
On the Italian business, you certainly had talked about the VLP wagers and how they had softened.
At least relative to your expectations in line with your expectations.
I would imagine.
And maybe you can kind of help me understand but I would imagine you know it's.
Most likely a result of just kind of lower payouts and.
The overall sort of adjustment to that.
Certainly isn't the first time that payouts had been lowered how long of a period does that take.
Lease based on historical analogs.
Before the customer kind of stabilizes and sort of excepted.
My if my premise is accurate.
No no.
Is that going at the end in the in the previous Z ever.
We.
Didn't see.
A declining wages.
Related to the decline in the.
The out one of the reason for that as being the that all the operators were trying to innovative products in a way that.
Was making less visible.
The reduction of pay out of the machines after a few.
Waves of they pay out that it action plan now play is.
Seeing eater.
Even though I mean as I said before if you look at their spending and they are increasing their spending at the point is a their wages are declining because the pay out the is declining it will take us sometime to stabilize it and we will for the true at a monitor very.
Closely we also specter that some new products.
Can bring the kind of innovation in the market that can try to offset the product.
The impact on wages of a pay out and them pretty positive with that though very Peter timer they wages.
Will stabilize again, but.
The it's clear that.
It's always challenging in our business, though and the you ever to keep on.
Reducing the payout, yes, okay make sense and then.
Yes.
One last question largely on the international segment.
You know there there certainly was a negative surprise out of Latin America, and the fourth quarter of last last year I know that business as you had previously described.
You shows up kind of later in the quarter.
And I was wondering if if there'd be any incremental impact to be expected. This quarter certainly on a lot of countries and South America are struggling to say the lease and I was wondering if if that has any regional impact again on your expectation for that portion of your.
Sean business that's affected.
Joe This is umberto.
Well what happened last theories.
Got it really simple because you're not was mostly timing effect so at the time.
We reported in the fourth quarter certain sales moved the to the next year and actually so far the unit sales in Latin America have been quite good. So now again. These diseases. These are markets that are either have a certain volatility so something can happen.
We're not aware at the moment anything because the specifically that could impact our fund why in the last year. The wearing a couple of countries. Some action taken particularly in terms of gaming machines regulation and taxes that.
The the operator in an uncertain in a state of uncertainty that and mentored delay in the purchase so so far there is nothing like that in your right.
Okay. Thank you very much.
Yes.
Well take our last question from Dominick <unk> from Equita. Your line is open.
Two questions first a rating related to.
Situation Vfds.
Could you provide.
The level of the out in VFD in Q3 just understand.
A large was.
Reduction.
And the effect on the question is.
Well on the consolidation has been talking about consolidation among the clients what about the translation I'm on the supplier. So are you.
Are you looking.
Do you see.
Thank you for some.
Ill.
Some larger deals strategic deals.
Supply so you involved.
So we did.
No. Many go this is all Baptists you understand that.
Purposes, we cannot payout.
One of the.
And.
We compete and so therefore.
We will not elaborate.
Regarding your question on consolidation.
Obviously, there have been in the recent past that are being.
Some transaction and saw on our side as markets that we're trying to understand understand the regulatory environment. What is gonna be eventually for the beat our approach we think they're gonna be some structural changes, but this is where our analysis stops and mark.
So clearly that.
That's where we're focused.
Okay.
Thank you.
Thank you.
Thank you and that does include our question and answer session for today's call.
Turn the call back over to Mark.
<unk> for any closing remarks.
Thank you for joining us today and for your interest in HGT I'd, just like to a lighter that the record free cash flow generation. We achieved in the first nine months is a testament to the diversity of the product. So we offer and our global fleet, we are committed to driving growth and then.
Nucleation for our shareholders and customers are like by consistently delivering content and technologies that offer them part a little gaming entertainment experience and a good day.
Ladies and gentlemen, thank you for participating in today's conference. This does.
You may all disconnect everyone have a wonderful day.
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