Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to <unk> I T. T 2019 fourth quarter and well you have results conference call. At this time, all participants I know 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 would now like to turn the call over to Jim Harley Senior Vice President of Investor Relations. Sir you may begin.
Thank you and thank you everyone for joining us on my duties fourth quarter and full year 2019 conference call hosted by Marco Sala, Our Chief Executive Officer, and Tim Wriston interim Chief Financial Officer.
After some introductory remarks, well open the call up for your questions.
During today's call 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 expect.
Patients are detailed in our FCC fine right.
Now I'll turn the call over to Marco Sala.
Thank you dream up would be of anyone.
We had a strong finish up to 2019.
Just to be down about 1.7 to one beyond was a in the up that about went up.
We have decided to food court that we've been going out and then maybe in the first nine months of the.
Cash flow generation. It was also the box.
1.1 billion in cash from a better you translate that into approximately 650 million of free cash flow and 500 million well adjusted the free cash flow. These awards also adults and all of our expectation and going firms that inflection. We played a dollar invested to be.
He Piedmont.
The 40 at a 29 p. they'd be that is that so wed achieved despite the over 130 million headwinds group they have to 2018.
These include the effects. So I Gotta gaming got you Dahlia equally gaming machine takes is the gugino of beating only lottery contract and a strong North America multistate that Jack but that PBT in 2018.
Net of these items up but all pizza went up nicely led by strong, but as I took what I've never been music I gaming and he said he segment.
Globally lottery same store revenues and wage also but are you in the.
Yeah, but equally pleased though we that the older 20% the growth in gaming product sales in 2019 political live.
It was driven by a 29 better same thing Goodies that you global you'd been nobody unit shipments, including 35% increase in replacement the human treatments.
None of them Utica replacement unit shipments rose 13, better, saying they become sick with PV of Oh goodness.
If you is that by such tight those as a fortune coin griffin's thrown in Scott.
We achieved the highest ever just selling price into ideas based on the quality of our games, coupled with a broad acceptance of our crisco see in Scotland.
We expect these positive trends to continue into any between.
X break up to three and a lucky moved up two of the most I anticipate that type of say Gee, we were among the top selling games in the poor and doesn't mean thing good momentum into disease.
International replacement units people into went up a 63% in 29 Pete.
In addition to large has read them VLP sheep remains a growth was fueled by a replacement seats to commercial gaming customers, which went up more than 20% on broad based the geographic strength.
<unk> in North America, the Crisco see it is kind of units in games like a god battles and but I can see it drove much of the girls.
Our new Kubot copying it also made the good early rule the news than Europe, and Latin America during the full <unk>.
In North America, yet and the installed base was essentially in line with the priority at a when adjusted for the Oklahoma, where do we have adopted a new market strategy.
Well I encourage you to this strong performance all the new games, especially we look forward from go to speed and then we got that way and the cash sitting tight those the fourth quarter, we roll it out of it but I see that either showcase for now and then go well. They brought that applies sees that I'd assortment, which is performing better.
The international installed base was more or less and changing your onea as converged on C. said, because you know cost them as it were upset by placement all but could easily be as these.
We are excited about the launches of the wheel of fortune mystery being can scatter building on the new big cabinets.
Lethal disease.
This is Bob <unk> mobile strategy focused on more drilling program seems where do we are leveraging formula existing brands, a with a proven game mechanics.
The fourth quarter, we launched if you will you wont building progressive including the two candy bars tight those.
Well, we are confident though we have the content and the fundamental to further penetrate that these growing segment of the market.
Our strong game performance was a these tend to be recognized by information that gaming toward wed AHGP Warner's lots of either of the yet and entered the British because you know wars or when a fortune, calling it was selected as best as lobby.
Where the great here in the system business with either advantage installations in none of them. Yet again. These include the decentralise system afford women car boss them out.
I just put a five new casino opening got all between 19, even more impressive.
Replace the an incumbent provider in six of the I'd say that east, Tennessee. So.
He said he gave me machine performance. It was that is easier in 2019, we the view the wages down 3% and the AWB raises said down to less than one.
With that I end up became more challenging in the back about <unk> of the AD as the market. The reviews, let me turn to play.
Well the mitigated the impact of new taxes.
Those brands like intensified in the current year to date beauty or the we've been production of age verification leaders. In addition wire to fix his own play at winnings at the beginning of the.
Before switching to our lottery business, Let me say award the Onethree engine.
But the cost on currency totally easily operating income in 2019 was 2% above the priority.
These are stronger results considering the profit impact, though via gaming machine, Texas The beauty India.
The dropping gaming machines was more than offset by growth lot to dispose betting and interactive.
This is a testament to that end Ceos orbio middle market the scope of our all said and the strength of our Italian organization.
Out of driving that is also through innovation and expense management.
Turning to lot three same store revenue outside Italy was up once again in 2019, well, becoming very challenging North America multistate at Jack but the comparisons.
Same store revenues for resistant and grow games that rose, 4.5% outside the <unk>, marking the sixth go second people here at the lease the mid single digit growth.
During 2019, the Florida, Michigan, Texas in the United Kingdom.
All among the largest lot that he was achieved as some of the strongest growth rates.
Total easily lottery wages increased 1% led by 10 unlocked and that of utilization of core wages, which experienced said there was period of growth in over 15 years thinks that the launch of the new symbol obligate.
Scratching when a wages were flat with the priority, yet which had benefited from the relaunch of popular multiply and franchise in 2018.
In the fall, we deployed our new cash BOP game available for both retail and digital distribution to be versions of the game at active in New Jersey, Georgia in fees to be.
Several additional jurisdictions.
Claim that the fought a busier cash offer differentiates these sales fell from I've done a good old based game by letting players select a single number that can be war saga put to 250 times their wages.
Like you know that out of multiple draws Barry.
In November I spoke about how general expansion is an important but I've got a future velocity growth and now we were leveraging our suite of a game that's cabinets that boot convenient and say we can you. Please.
During the full quarter, the Texas Lottery began piloting an exciting new distribution strategy for lottery games.
The takes a lot that he became the first in the nation enabled the purchase of reprint and the Powerball and Mega meet them because in the checkout lanes of big above that big box retailers without the need for a dedicated a lot better data.
By integrating a national lottery product, we the air retailers the point of sales system Elaine purchase it represents a cost effective way of increasing revenue for our customers, while maximizing convenience for players.
That a big box retailers at expected to adopt in line over the next few months.
Symbol Optum dashboard and Elaine purchasing out a good examples of Oh, Hi, GT is leading the industry for the by creating the new retail experiences announcing the purchase convenience and identifying teams in gyn and gameplay mechanics.
So that engage existing players why attracting new comments.
I also want to a knowledge of the successful launch of the Mississippi Lottery is less than 90 days after winning board Easton. He gets it and online lottery service contract so for the blend, but new state a lot study.
It was a big sepsis and they demonstration of our teams expertise execution.
Of course, we are looking forward to to the launch of the new eastern pick a lottery in Brazil, which is planned for the second half of the.
It was a year of the great progress I thought our North American sports betting operations.
That's the main six new States went live with IGDSS for the betting platform, bringing our president and CIO group and the duties beacons.
In a short period of time, we have established ourselves as the leading b to B sports betting platform for Len bays and online operators.
Got it repowering to be paid us pause move in over two dozen customers location nationwide as well as the line immobile its boss abating in seven jurisdictions.
We look forward to building on this strong bottom issue, we had in place today and they didn't get new relationships as more state legally the sports.
Oh, what 2019 results confirmed the vitality of identities main businesses. They also demonstrated the advantage of having such a diverse mix of business across products and geographies.
In Twentytwenty, we expect operating profits to grow at mid to single digitally native effects and 2009 teens goodwill impairment.
Our outlook assumes we will fully offset the impact on new equally gave me machine, Texas, and Louisiana VLP wages as it is out of the new age verification procedures and I ever taxis play every week.
I should note that our outlook does not factor he main factories any impact from Corona vitals, which is a very dynamic situation right now.
We are monitoring its evolution closely the needle in particular and our priority has been doing sure being of our people and customers.
He is a week there weeks I said that we'd be crucial in assessing its impact on our businesses.
Cash flow generation should remain strong in Twentytwenty supporting the framework of for adjusted the free cash flow that we provided at our 2018 Investor day.
I'm confident we are well positioned to build on the leading positions we enjoy across the global regulated gaming landscape and now I will turn the call for the team.
Thank you Marco and Hello to everyone.
On slide time, we've summarized the full year results revenue was down 1% has reported but increased 2% our constant currency.
We have significant growth and gaming product sales sports betting and Italy commercial services this more than offset lower global gaming and lottery service revenue, which was impacted by high gaming machine taxes in Italy. The conclusion of the Illinois lottery contract and exceptional North America Multistate truck.
Productivity and the prior year.
Full year operating income.
Decreased 2% as reported while increasing 3% our constant currency, primarily due to lower non cash goodwill impairment.
The impairment charge of 99 million recorded in the fourth quarter reflects an adjustment to the carrying amount of goodwill in our international segment.
Adjusted EBITDA of $1.71 billion for the full year was down 1% as reported.
Constant currency, a rose 2%, reaching the upper half of our outlook range driven by profit growth in the North America gaming and interactive and Italy segments.
Moving to slide 11.
Where we summarize our fourth quarter financial results consolidated revenue was down 1% as reported and in line at constant currency strong growth in global gaming product sales in North America Lottery lottery product sales as well as contributions from sports betting in Italy in North America, offset lower service revenues.
As in the full year results service revenues in the fourth quarter also reflects the higher gaming machine taxes in Italy, Illinois contract conclusion, and very strong multistate jackpot activity in the prior year period.
Operating income was positively impacted by product sales mix reduce goodwill impairment and lower bad debt expense.
Adjusted EBITDA of $436 million Rose, 5% has recorded and 6% our constant currency profits were up year over year every operating segments, except for North America Lottery, we'll try to tough comparison to the significant jackpot activity in the prior year.
Now, let's turn to our operating segments, starting with North America gaming and interactive on slide 12.
Product sales rose, 25% the increase was evenly split between machine unit shipments and sales of software and systems for significant growth in new and expansion units was largely driven by the shipment of over 1000 units to move.
In casino in Washington State.
Replacement units were down about 500 units on lower Canada VLP is.
Average selling prices were up marking the sixth consecutive quarter of year over year increases.
Non terminal product sales rose I'm positive contributions from a software sale and the installation Oliver I read our advantage system at Ameren Quinn.
Service revenue, primarily reflects the impact of several multi year poker site licenses executed in prior periods.
Terminal service revenue was only slightly below the prior year.
Higher yields from improving performance, mostly offset the lower install base, which primarily reflects the Oklahoma transaction executed earlier in the year.
A sequential decline and the installed base was a function of removals of unsupported games and hardware additional Oklahoma removals, and the impact of corporate customer actions.
I'd also like to point out that we do anticipate a sequential reduction in the North American installed base from the first half of 2020 as corporate customer actually got typically concentrated early in the year.
We're also working with certain customers to reduce the volatility in the installed base.
While this negatively affects install base in the near term it provides more stability and better economics for us over the long term, we expect the installed base to stabilize following quarters.
Operating income rose on the strength of our terminal software and systems sales.
On Slide 13, we have the result of North America Lottery segment.
Excluding jackpot activity revenues and profits continue to grow despite the conclusion of the Illinois contract.
As you remember in the fourth quarter of 2018, both service and Ellamay revenue benefited from an exceptional 1.5 billion dollar Mega millions jackpot and the second highest multistate jackpot ever as well as a $688 million Powerball jackpot.
This coupled with lower jackpot activity in the current year accounts for the quarter you the decline in both service and Allomap revenue.
Same store revenue from instant tickets and drug games was followed up nearly 4% in the quarter. Thanks to broad based geographic strength.
Product sales were driven by strong demand for our game touch self service machines and increased instant ticket printing activity.
Operating income reflects the impact of lower jackpot activity.
Now, let's turn to the international segment on Slide 14.
Replacement units shipments rose, 23% primer, primarily driven by approximately 1600, Sweden, realty's and strong demand for the Crystal series of cabinets, which more than offset the large 1500 unit South Africa conversion sale in December of 2018.
Overall lottery same store revenue growth of 6.1% was largely driven by strength across Europe.
Gaming service reflects conversions in prior periods and lower interactive revenue.
Operating income rose sharply on gaming machine mix and lower bad debt expense.
Italy is on slide 15.
Total revenue declined 3% as reported but was in line at constant currency has increased sports betting and commercial services revenue offset the impact of higher gaming machines.
Overall lottery lottery wagers were slightly down.
For Lotto games, the wager impact.
Of higher player taxes, Antoniou auto winnings was mostly offset by growth in core Lotto wagers due to innovative products scratching. When also map strong wagers on prior year, thanks to performance with new games.
Sports betting rose on a 9.1% increase and waiters and commercial services continues to grow on the post pay offering we introduced earlier this year.
Lower gaming machine wagers reflect reductions and return to player implement implemented to mitigate higher taxes.
Operating income includes higher contributions from sports betting, which nearly offset the impact of increase gaming machine taxes.
Our debt and leverage profile is included on slide 16.
During the year, we reduced snapped up by approximately $380 million as reported and over 300 million a constant currency with leverage improving 234.31 times from 4.47 times at the end of the prior year.
During 2019, we refinanced over 1.3 billion of that extending maturities lowering interest costs and significantly de risking our exposure to capital markets.
Cash flow for the full year as shown on slide 17.
We generated cash from operations of $1.1 billion and Capex of 442 million was better than the expected range of 450 to 500 million.
We delivered 650 million and free cash flow and approximately 500 million an adjusted free cash flow, which includes the cash proceeds from the Oklahoma transaction, we did midyear.
As a reminder, adjusted free cash flow as free cash flow after minority distributions and it does not include.
Growth Capex of approximately 50 million.
Dividends and return of capital payments to minorities totaled 234 million and included an accelerated return of capital to auto JV partners of approximately 20 million.
Non restricted cash totaled 663 million at the end of the year, a portion of which will be used to retire 435 million, 4.75% euro bonds that mature later this week.
Our outlook for 2020 is included here on slide 18.
I'd like to first point out, but the outlook. We are providing today does not factor any potential corona virus virus impact.
Historically, we have provided our outlook for adjusted EBITDA, We're now providing our outlook for operating income and depreciation and amortization.
We've been discussing this internally for several months and feel this change better reflects market best practices that are grounded in U.S. GAAP measures and FCC guidance.
For the full year. We currently expect operating income of 740 $790 million and depreciation and amortization of 870 to 880 million.
The underlying euro U.S.T. rate assumption is 1.10, we will continue to report and comment on adjusted EBITDA results and you have our view on the two most important parts with ally and DNA.
Operating income outlook assumes mid single digit constant currency growth of 2009 teens goodwill impairment.
We are more than overcoming the contribution from the Oklahoma transaction in 2019 and significant lower element centers in the first half of 2020, which was based on unusually low jackpot activity over the last several months.
Profits are expected to be below the prior year in the first half.
With growth coming in the second half.
Three main reasons first expected timing of global gaming product sales, including extremely limited North America, new and expansion activity in the first half.
Second the impact of recent weakness of Realty wages in Italy, which we can more effectively mitigate later in the air.
And third lower holiday incentives in the first half.
Capital expenditures in 2020 are expected to be between 400, and 500 million of which 350 to 450 million as maintenance Capex.
Our overall 2019 results highlight the strength of a diverse business portfolio substantial contributions from global gaming product sales and sports betting Morgan overcame a significant headwinds faced by the North America Lottery Anatel, Italy gaming businesses, we delivered on all.
All of our financial objectives reduced our debt to return cash to shareholders.
Now we'd like to open the call for your questions operator.
Thank you Sir.
I wish to ask a question at this time, Please press star one on your telephone.
And share that the mute function on your telephone is switched off Hello, yes.
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Well pause for just a moment so allow everyone to signal.
We will now take our first question from Carlo Santarelli with Deutsche Bank. Your line is now open.
Hey, guys good morning.
For starters would you guys mine kind of discussing as you think about 2020, obviously, there's there's some puts and takes just thinking about kind of the cash flow generation and some things there'll be a little bit harder for you to obviously quantify with with the situation in flux in Italy right now as it is [noise], but as you think about your uses of capital going.
Through the year acknowledging the four to 500 million of Capex.
And the expected free cash flow generation, what do you kind of see is the priorities for discretionary free cash flow use.
Thanks.
Oh.
Good morning catalog.
Well look at first of all the good news is that the we had a focus on cash flow and we have a positive on on that is.
Because we still seem that twentytwenty.
Cash flow generated cash flow generation in line with with our expectation.
And in the framework that we present that that I want a 28 dealing base to be and in terms of capital allocation. Our priorities have not changed and there are not that we have to find that the capex necessary to maintain our existing portfolio business.
To pay down the debt.
To selectively invest the new growth initiatives everywhere.
The available and that in that eight though what I should own.
And so we are currently allocating capital to all Florida. These areas, but the if though we advocate pickup at priority is that they use the debt.
Understood. Thank you and then Mark are you had talked a little bit about kind of the Italy outlook for this year and acknowledging that that kind of the first half.
We'll be challenging given some of the remediation efforts one kick in until the second half.
You also mentioned kind of any outlook for 2020 that that your expectation was to offset the taxes in the in the lower volumes.
It is in your view given everything that's going on and maybe inclusive of of the cobot 19 situation.
Do you believe that that from in Italy perspective, you guys will be able to hold adjusted EBITDA relatively from in 2020.
Hi, This is a very complex question I ever to divided up into two buyouts that lumbar into that a guy has.
The outlook.
Ed in front of ours, we've now grown of iOS and then I can offset to everybody at this point in time, our view about grown of idols you need any let me start up that trying to summarize how we see add the out of Luca without factoring.
Current of items.
As you might remember that on our Q3 any color.
We estimated that they do not seem like the of the budget. The low proposal at the time to be approximately 30 million on Twentytwenty bidder.
The reality they final budget below ended up a being a little better than expected the as the legally to further reduce the minimum be out three showed the full board.
He WPS MBS these.
On the other end as I say that during my remarks up the implementation of age verification and I got to Texas on play is winning for real diesel is having a greater than expected impact to our wages.
No the net impact of the budget the low end VLP wages is now about that 35 million at the de bids that level.
And we still believe we cannot said the visa in Twentytwenty through a combination of cost management the put unity growth in another part of the of the Italian portfolio and the with the San <unk> other opportunities. We believe we can exploit so all in all when they look at these situation regarding the.
Business as usual, we think we have a steel in that position to offset the.
The impact of both the budget the low as well as.
The more negative than expected trend that mainly on VLP.
Is that.
I'm sorry to this part of the question.
Yes, no that's more than sufficient for that part I guess, maybe and acknowledging this is very difficult and it's still very early days.
Could you comment at all about maybe what you're seeing in terms of of the more recent kind of last few weeks here is as obviously the headlines have have gotten a little bit incrementally.
I would say more worrisome.
How that's impacted some of your volumes et cetera.
Yes, I can try I can try to do.
I mean is very unpredictable as old as the CEO is another thing to everybody and the as though we are saying Hey, you within Oh, what a management team and we're well prepared to control what we can control.
And then see is first of all about the about people, let me spend a couple of.
Mean is done on people because it's important that our priority being.
And our people I want to say that we have taken immediate measures, including restricting travelers encouraging telecommuting, creating centralized people resource center and preparing contingency plan, where appropriate and we continue to monitor the situation in Italy and across all.
Regions.
Because we feel that with yet and well being of our people and community really for 18 years, our utmost concern.
Now.
Let me Fourq use oney telephone stuff.
I have to provide you a little bit of bank around that give you a little bit of a.
Framework.
Because the regarding easily we should be guide to the country into.
Three areas.
First it doesn't have a small towns that the data concede that the red zone, where significant vis three shows our employees.
Second.
Three larger regions in the no refer where a number of excretion Ed beam blaze, but as of yesterday were out of Mona is the end generally less restrictive.
No matter the additives that began a region around the Moulin Ed implemented that the most this restrictive measures.
Including limiting how was over bearish on the first some point of sale so with our product.
Operating I was out of back to normal as of yesterday entered that we have the rest of Italy, where no particular restriction have been imposed.
So now you have to judge.
They did.
Single week all that.
We have experienced.
In India in all back on the buyers in Italy.
Obviously, there is going to the initiative I've just described.
And.
Clearly very preliminary so not a reliable sample set the who used to grow any definitive conclusion. However, I can elaborate the qualitatively award, though we are seeing.
The first comment is outside the Nordic regions. So, we'll see not very little change the employer behavior.
Second point is that in general lot that is as being modestly impacted mostly in loan, but India and largely due to the severe restriction that have been now moderated.
On the other end the gaming machines that were affected more because of the restriction on operating God bless part for point of sale and the public space, but again most of the number to be up you have to keep in mind that that the lumber idea closed the shops at six PM and most part of the players, especially.
For VLP is out of playing off that then PM Oh, sorry, six PM in the rest of Eataly.
Talking about the gaming machines.
The impact that has not been so significant.
So that is that what they can offer after a weak.
The situation is fluid.
Certain restrictions are being good bye.
I mean this is what we are comfortable providing.
Stein, obviously initially we will continue to moderate or very close in the disease. This situation about people.
That's great. Thank you very much for all the color.
Thank you very much catalog.
Our next question comes from Barry Jonas.
Your line is now open.
Hi, guys just just on the guidance is it fair to say if we take operating income add back DNA and then make some assumption for stock based comp valid get us pretty close to.
We're even with your expectations for EBITDA are are there any other docs, we should consider.
Hi, Barry.
The Twentytwenty bids is expected to be relatively aligned with 2019 net of effects.
And.
On one side of the positive we expect to fully of Saturday, but I'll be digest budget law and weaker VLP Wizards.
Before any corona light as the impact I keep our repeating because it is an important message on the other than that we have to take into account that at 1090 years, Oklahoma transaction and the lower North American multistate, the Jack but that the EBIT in the second doubtful.
Got it and the that 2019 and the early twentytwenty that inhibit our ability to earn incentive of on eliminate contracts in the first.
Of our calendar twentytwenty not net of those items.
EBITDA is expected to be up mid single digits with GE is aligned with our operating.
Income outlook.
Oh, that's great and then I appreciate it.
Real time about Italy, just curious.
Anyway to quantify how big the northern region is that you're talking about and then.
Think about.
The potential hits to retail what could you see some substitution to interactive wagering.
[laughter] put as that for rather than more than five of the country represent four.
Realty's.
For gaming machines in general 50%, the because we are proportionally more concentrated in the not the Bob Oh Vitale and for federal all three they represent less than 40%.
Got it being the online a we didn't.
See anything spectacular.
Line that that is.
Adding guys.
Saying that there is going to offset what his opinion gets had everything 11.
Got it and then maybe just.
The guidance you [laughter] given.
Maybe talk about the difference between the high and low end some the assumptions built up and if you could do that for Capex as well that'd be helpful. Thanks.
No I think the regarding the capping the topics.
We have very disciplined approach the Atlanta, Florida.
We provided.
A the guidance that is already factoring our attention on a on that on that part of of the business in general if I look at that.
The what is really influenza seeing this situation of.
Our twentytwenty is jackpot.
I kept on them mentioning gate about that we are experiencing something we didn't experience in the revisit.
The jackpot is constantly heath.
The very low level and this is affecting quite significantly our Ellie maes.
Got it off of the business.
As always though we have to take into account of that.
Part of our that with all that relies on product sales so that the by nature of the whole is.
That unpredictable and having said that they did this situation in Italy is a situation where do we have to deal day by day without considering Corona light as the.
To a landscape.
That is more challenging than before having said that the in day in day, the previews, yet or when all is able to fix it.
Great. Okay. Thanks, so much.
Thank you.
Thank you. Our next question comes from the medical Giladi with Ecuador. Your line is now open.
Good afternoon. The first question is a follow up on the Italian outlook.
Excluding the probably nineteena so the underlying trends that these embedded in the guy that I was I was wondering if you add the seen over or you are seeing outside of the northern region.
HM every call very compared to the minus the 30% a in the beauty wager that have been reported.
I mean do to de age verification. So just any sign of improvement in that trend.
And the second.
I social that Tenelotto was a struggling a little between Q4 in terms of wages are so I am trying to understand if I'd say that the game as reached maturity.
Second question is on the Koby 19, a implications.
I'm trying to in two to figure out if we choose not to say save you just correct to say that.
Probably lotteries out the less affected in any case.
And then probably add on the other side. It is to use it can be the most affected the parts of the bees messages today. They did a distribution that okay and last question on them.
Free cash flow generation.
Can you help size also in a.
Guiding high on the cash taxes expected for this year.
So we can a breach.
Cash flow.
The Ya.
And varied I'm sorry, it was not the lost a just a check can I feel.
Hmm, So [laughter] Oh, the fourth question, though for the first for the current situation. It [laughter] still limited so they just they see a vacation because if I'm not wrong there are a declining.
So in your guidance compared to 1918, there is there any specific reason for the for the lower DNA in the guidance.
Okay I keep.
The two questions regarding the performances and I ask our team at to provide color on the other two questions.
Regarding VLP is Oh, we do not see for the time being.
Edit go very because he is also difficult at this point in time.
To identify the last week, what is that related to the Corona light as old it is related to.
The performance of the LTV, but having said that in the first eight weeks.
See not quite stable performance that they've got to being 10 in local was a combat is online with the BBC related that.
To be increasing the indexation of winnings about the underlining.
Lottery business is positive, though what we are seeing at the beginning of the thanks to the innovation. Thanks, the launch of the new problems solved giving guys that comfort that we have not facing a.
A truly be.
Of the lot thirdly, the lottery business.
Okay I'll take the other two questions on free cash flow in cash taxes. So we believe cash taxes will be comparable to the prior year was a moderate increase.
And then three and I think was the second question.
We believe the consistent with the prior year, so and purchase accounting.
We will have less.
DNA.
Yeah.
Okay clear.
Any comment on a on my thoughts on the coffee 19.
Im facility.
Hi, or impact on my thought is Saudi I am sorry, I missed the I missed the because not all I can elaborate meals and of course, because again I mean.
Yes, I can reiterate the point a lot that he is.
Is not showing that.
A big impact on it and the and.
Yes. These are more and you have perspective that he if you plan to stay in a point of sale.
For sometime now and there is the Corona vials that probably.
You might think if you want to spend the same time, a weather user to spend Mds. In addition to the fact that that the.
There were some of the speech on preventing people from entering the bank of says because the who has simply so I think at the combination of these two being Sir can explain why for the time being.
In may in Vietnam, tease out seeing any impact that and then the he added eight and it WPS as when an impact there.
That is bigger.
Water, though we have seen on the lottery public hearings.
Okay. Thank you.
Thank you them anyway.
Our next question comes from tapping on with Macquarie. Your line is now open.
Morning, Jordan vendor on for Chad.
How do you think.
How do you think the operator mergers have affected the installed base for the industry and how should we think about this impact in North America during 2020.
But Chad good morning, Jordan, Saudi good morning.
I apart from the El Dorado sees a we arent really seeing significant consolidation.
And commenting on the or the El Dorado Caesars.
From the fact that they are very good the customers.
But it's clear that part of the transaction synergies that are they are announcing our income from the using these machine and see the purpose properties and as a matter of fact that we are experiencing it so.
Is something that we know we have who is a.
Knowledge, there and we feel that we have a better positioned than ever to compete for our fair share of floor, because we have a particularly strong.
Line, Apple, but others say these peters attack as a matter of fact phase it's clear that that consolidation other presents a challenge.
Awesome and then back at your Investor day about a year and a half ago, you talked about a lottery being a low to mid single digit grower with nuclear states potentially being incremental.
Is there anything changed in terms of how you students business outlook.
I would love to do you mean, so now we are a lottery. We are very positive I mean as I said the my remarks are now the number of years a in at all.
Got a significant and I do not see anything that that should prevent that would be positive.
Looking into the future I mean again that the point is keen about all the other innovations that we have discussed about the I mean, we keep on introducing innovation that allow us to imagine moderate growth in Italy, but also innovations that giving out of the possibility to continue to grow at a missing.
So they did in the U.S. and I mentioned, a game summation distribution innovation and we ever line up of our brothers to since we have the management email marketing Department.
Keeps on thinking about that.
No that these ideas that will be drilled two hour catheters that some people in the with the growth of enjoy.
I'll send magnet pass it off thank you.
Thank you very much.
Thank you.
Next question comes from David Katz with Jefferies. Your line is now open.
Hi, Good morning, everyone. Thanks for taking one question for all the detail.
If we could just double back on one of the topics I know is important and you've touched on some but if we were to try and hypothetically walk down you know from.
You know, what we would estimate to be a you know on EBITDA level.
And the Capex guidance that you've given and I know you touched on cash taxes et cetera, but.
Could you help us sort of walk down to a.
You know available free cash flow.
Level and talk about what.
May or may not occur or what could get in the way of some of that free cash flow being.
No.
They are available to accumulate or you know return based on whatever decisions you might make down the road, but you know what would that number look like.
Yeah, maybe I ask Jim to answer this question, because I'm not sure that I completely understood it themselves.
David I think that really it's best to stay grounded in the framework that we provided at the Investor Day, which is a framework that is still valid for this year.
So I think you've got an outlook for capital expenditures. This year. This for 2020 that is somewhat a little bit lower than what you're you're used to seeing from us and that certainly important component.
But I would say grounded in that framework, it's very difficult to to do the backend math from from EBITDA to free cash flow.
Right. So let me I mean, I think normally speaking what the quoted range has been for 50 to 550, you know based on your prior Capex.
Indications. So we can certainly make better Josh spend I think part of my question was are there any potential capital needs of significance.
That may or may not occur that we could just talk through so we haven't updated mindset on those.
Such as new market coming online or a contract coming up et cetera.
No we do not have a specific.
Did that requirements that are visible to us.
Right now, but I want to reiterate what Jim said that in terms of free cash flow I mean, we identify what we're doing is a priority of the group about that we want to the main speak to water. We have expressed that back in 2018.
Okay I appreciate it. Thank you very much extraordinary that thank you very much. Thank you very much.
Thank you. Our next question comes from John Mccain with Union Gaming. Your line is now open.
Good morning, guys. Thanks for taking my questions ammonia into Q2 from me won on the North America Gaming business I believe in the prepared remarks, you talked about just lower expansion.
And new openings in North America, but your replacement right.
In 2019 was quite strong I was wondering if you could talk about how you feel about the pace of replacements for 2020, I'm kind of ex Corona virus and then.
The follow up would be have you.
Seen any change behavior from your customers in North America.
If they're getting more cautious on current virus and perhaps influencing their purchasing decisions early in the here.
I started from a lot better and we do not see so five and it'd be a change in the behavior of our customers.
Regarding.
The beginning machines.
The four months when it comes out to the.
To the product sales I mean, we are.
Very happy with with the performance, how we are adding because the overall market sentiment is very positive about the our games and our cabinets and these each other we did a 29%.
Proven vessel, so last year, but even taking out that the contribution of theirs. We then VLP, we add up 14% and the North American part of the business is growing 12%.
And this is that the combination of a very very well appreciate to cabinets and a very good the game so that by the end our leading to the fact that had to we are enjoying.
In a is be that is increasing.
Quite gross constantly over the last years and this year, we adler, reaching the highest level in a in 12 years by the way also the international part of the business is doing very well because.
In a in a apart from this we don't VLP there.
In the replacement.
For our casino, Canada as being a greater in the combination again, but the growing penetration of our they crystal city's cabinet and are very good content.
The data as you may think in a different geographies.
That's helpful architect Thanks for the color if I could ask one more on Brazil, you mentioned in your prepared remarks, I think an expected second half launch.
I was wondering if you could give us a little bit more detail on any milestones that that we're waiting for.
How much isn't capex, if you could remind us for for this year, assuming things launch on time, and then is there any revenue or for profit contemplated guidance. This year and that's it for me thanks guys.
Now there are not the revenues and profits contemplated for this year that we started.
The operation in the second Dow's how of that the AD.
We are on in the process.
To get all the formalities that than with the Brazilian.
Later and we.
We are working there in order to be prepare to loans. These initiative in the second part of the AD.
To give a little bit of color and this is a greenfield opportunities. So we'll take a time to build out.
A distribution network and establish a place where we have miss about having said that day. If we can see the they drove base part of the business that is already up and running and the represents 3.5 billion the revenues.
Over the years, though a shoe that are present and that represents a benchmark for that for the size of our business I'm talking over the duration of the concession I'm not making.
But most strategically disease.
Point of reference we are internally using two said our expectations over the years.
Thanks Marco.
Thank you.
Thank you Sir our next question comes from just off what's the school Honda Your line is open.
Oh. Thank you good morning, So two questions Marco please on on Italy, one is as as we think about sort of the.
EBITDA or EBIT improvement I'm being back half weighted is it fair to assume that.
Some of the mitigating factors you put in place last year.
Are the same this year that is you know your ability to.
Applied to lower the payout ratios and so forth is is that the bulk of the.
Second half waiting as it relates to results.
From the headwinds this year.
I think yes part of it.
Well they would just said about that we see also some growth in other parts of the Italian portfolio.
Yeah that was looking at the cost that settled at all as though we are doing regularly that was that the additionally, efficient efficiencies as well as a other initiatives that represented but as that additional opportunity. So we as a very establishes set of initiatives are that indeed as a.
The the confidence to offset that.
I mean I've just described.
Okay. Thank you and then.
Strategically I wanted to ask you about within handily you have a very strong.
Sports.
Sports betting.
Brand and offering and I was wondering how you view youre.
Or how do you view a digital casino product offering I is it is it something that's hard to invest in because of the advertising ban or is that something.
Now where you can use your strong sports offering to be able to cross promote and build that bigger than it is.
But we added to do we have it.
Most part of our digital offering you need that in addition to suppose betting that.
Games.
So I think he's already they had already included in our digital offering.
In Italy casino games, and other kind of games out or the backbone together with the this pause, but think of our leisure digital offering in Italy that is that as you as you are saying relying on our stronger brand franchise.
And is it something I guess that.
I understand the habit, but I guess I was wondering if there's any capacity to invest more into that too to ramp is larger than it is or what is the capacity to invest in that or are there are the is the advertising ban limit you know the ability to reinvest to grow that faster or.
For two by other brands I guess that was more my question, Yes, I mean.
Nothing ban is obviously not there had been very much I business as a the digital a one.
For the rest the I think are we are that we have been investing appropriately.
In their relationship with the return so we were expecting that part of business. So I think we ever we have been only as a very balanced in ER.
Investing in a in this part of the business and that in fact that we have enjoyed the.
Good growth about that I have also to say profitable growth. So that's the reason why my using yeah. They wanted to balanced.
I see thanks very much.
Thank you. Thank you very much.
Thank you and that does conclude our question and answer session on today's call I would now like to turn the call back over to Marco Sala for any closing remarks.
[noise]. Thank you everyone for joining Gaza on our call today and the for your question 2019. The was a good deal for US we delivered on all our financial objectives are meeting the top end of our profit and cash flow expectations.
As we look forward to two times Twentytwenty, we are of course monitoring the corona vital situation closely apart from that but there is a good underlying momentum for our main lottery and gaming businesses as we entered the year. We appreciate your interest in agency and have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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