Q2 2020 International Game Technology PLC Earnings Call
Ladies and gentlemen, please stand by your conference call will begin momentarily. Thank you for your patience and please standby.
[music].
Ladies and gentlemen, thank you for standing by welcome to the G P 2022nd quarter results.
At this time all participants' lines.
Okay.
After the speakers presentation, there will be a question and answer session to ask the question. During the session. You want me to press Star then one of your telephone.
Please be advised to today's conference maybe recorded if you require any further assistance. Please press star in Lindsay around.
I would now like to handle conference over to your speaker today Mr., Jim Hurley SVP of Investor Relations, Sir you may begin.
Thank you and thank you all for joining us on <unk> second quarter 2020 conference call.
We are presenting the results today from multiple locations. So please bear with us if we encounter any technical difficulties.
On today's call or Marco Sala, our Chief Executive Officer, and Max Chiara, Our Chief Financial Officer. After introductory remarks remark going Max will 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 latest earnings release and in our FCC filings.
During this call we may discuss certain non-GAAP financial measures in our press release slides accompanying this webcast in our filings with the FCC each of which is posted on <unk> Investor Relations website, you will find additional disclosures report regarding these non-GAAP measures, including reconciliations of these mothers with comparable GAAP measures.
And now I'll turn the call over to Marco Sala.
Thank you deem and Hello, everyone I Hope you and your loved ones that remain safe and then seeing these uncertain times.
I want to second quarter. Good results clearly reflect that they want to being bombings stages, all been locked down, especially when they're pretty let me.
We the casinos and gaming gold is a closer look tropicana reviews at the Luckity retail outlets and sporting events I got it sounds good shot down impacted all pretty challenged in Albuquerque, Mark.
That said, Oh, what performance improvement, but other than we expected that baking me at the time, a whole bottled water Q1 cool disease that is out.
<unk> global portfolio of products in assuming Sean across the illegally gaming space.
We also adds an important thing to feed the problem is weve cost saving measures that we implement them to to manage I'm David.
The one I'm going to 68 million, all but you'd be done we generated in the beauty. Olga includes the positive contributions from our North America gaming and lottery segment as well as from here.
We believe it all but 100 million during causing people to free cash flow in the second quarter.
He is a significant achievement.
And the clear indication we are executing win.
Oh, what they could have been affected Doug so they most today you could they engage them in main themes by IGBT team and our customers.
No it's not easy in the current environment and I'm, a great food quota bearing creatable dedication and partnership.
And I feel confident MCO side that we had a chance to appreciate that important sold my bad C. D. E. We didn't do conclusion I'm on got what employees in the community we soon.
These are always been core values.
And the out it could be because MBS gotten into context.
These things so with our employees gosh come into play is in communities in decide for racial exhausted equality indeed.
It's probably a lately I like the enough maybe we ought to executing on keep an eye you ought it used to navigate because when you normalize.
Yes, and safety, although our employees that have always been at the same kind of those priorities.
Good day about 75% of our team is working from home and we have.
Because I want to policies and procedures accordingly.
Customer service Laminates and would knock me that could be I.
Hi, G.D. as develop because lot of technology to provide the remotely ceased and monitoring upgrades and new installations with what our customers. These has become even more crucial to get a success even got anything.
[noise] aggressive actions on peaks in discretionary cost.
There has been to ease the impact of global knocked down as.
Like many of them because the Nisha thieves hot band put out in nature, though we are also driving motive slots are those savings.
Cash flow and liquidity remains the top financial priorities you disclosed in the Q twos, a positive free cash flow and improve our liquidity position.
Focusing on these priorities that we find that was 16 in much stronger the please than we expected to be a de style.
They also position I was a win for the future.
I would like to provide them more specific cycle grain. So during the quarter that begins with a lofty who's the resiliency is evidence that you know what goes on.
Same store revenues at what was up 6% in North America, including getting older than for the same thing Gleeson increase.
<unk> east and draw based games and despite significantly lower reject because TBD.
Great and seen group the progressively throughout two before.
On the contrary information on same store revenue was down 27% in the quarter, that's likely to shut down seven I'd games at around the world, including Colombia, Mexico Threed can go big.
Sage and really cool, we the European or same store revenues now you say fairly in line with the priority Yeah, let Vince.
Latin America, you still a little whatever has called me the 19, thank goodness that could be Jim lico.
He said, he lottery wages or $1.40 percent into poor.
Let him to complete the shuts down hole the grow based a lot to games during the month event.
The closure of Basel restaurants that we should represent about 25% public scratching redone regions for most of them to be.
As we the rest of the award the wages posted the substantially progressive improvement so cool out could that be again, especially if he has been in lots of money goes.
Hi, good back on in late May.
Scratching when he is now broadly in line that we that but he called me Glenn is not the wages are slightly below the priority yet it has a social discussing calc have gone. So I don't think being got them then ultimately.
[noise] led to some important business developments foot locker.
Using clues about the article on coffee stations in Tennessee gas than we've seen since 2004 inch instead of comedy bottom at four to 27 years.
We were also award that debate, but I'm not do you sense, because printing contract for to be Virginia, displacing an incumbent.
Well look.
He will bring to approximately 90% they'll do the genius, but he's gone peak.
Usually I profile endorsement of our printing capabilities key area of investment into procuring before us.
You're supposed to be the on April aggressively deepen relationships, but we have had the we'd be Virginia, who will be last stuff to ideas.
Let's move onto gaming well the impact Gaba global knock down it was the most acute during Q2 as the most because he knows and gaming goes away to close the for a large portion of the beauty of.
In Europe, aiming the U.S., so dangerous began to gradually over you open you need me, while he's got to gaming goes deeper not to be open and the June.
Across the border I would characterize a diluted beginning finance as being better than expected.
And then you as a.
Older 85% of because even as I've now open strong the machine PVC is that being compensated for a few other active machines in capacity restrictions.
Approximately 60% of our installed base these IP and he's on those active you need a lot but from prior year over year limits.
Why that area Progressives have tried and true play as a family so out of it mean that drive that with ease up double digits.
Outside of the U.S. So that he is a lot of a variation on the by region.
Yeah, and Bocca has been mostly open scenes said June Central America is open about South America is most of the close uniquely why reserves out still below that but I owe a yet to be the other views peeves onset afforded in line with January and February 11th.
Yeah, WPS honestly weekend as a social discussing he is out of the two main theme in motor generally speaking foreign currencies.
Despite the global shutdown or we continue to make a good progress on seven less strategic initiatives.
One is our entry into the U.S., He Scotty, California, so they seem guy I mean.
We ship that nearly 1000 units that food Churchill Downs before the Kentucky market could you wouldn't the court.
Leveraging our top performing increase because see these are good and highly popular game teams as such as a fortune, calling and greetings thrown.
Pursuant going Additionally, Scotty color horse racing to put even if he can give gina.
Globally last month, we launched our IDN TCP could.
Peak bottom stop copying it featuring an assortment of our topic for maybe the bulk of log keno, Andrew let's call them.
The new cabinet bids on Nigel P.B. key leadership in video poker by integrating getting a range of idea. The 11th technologically advanced features such as that cashless wagering you as via mobile device charging for the end to play a 11 indicates the four soon to be stuff.
The new Emerald Green eyes, Hi, because you know in Tacoma, Washington that opened in June is being powered by our advantage that same could I look as you know management system.
He also secured the majority of the class could be for Shannon said because either.
Interest that he now what about cashless system solutions continues to expand that on the warm and reality in the final stages over negotiating several deployment.
Over the next few months so.
That's coming out increasing increasingly looking to I'd to provided the digital solutions play as a desire.
We are seeing abusing the strong growth for our digital business around the world.
As a channel it represented a mid single digit said.
Have a 29 theme that revenue and the was gobbling desperately in Q2.
Do you double digits last year and increases out a much stronger, but she is called including 35% the growth in Q2.
Well maintained remains a stronger evenness casino, the open and mobility restrictions piece.
How would it be to sea biscuit business, you need to be accelerated during the second quarter now read wages, increasing about 33% because despite a lot go sporting sporting events and feel that late in the period.
Good old for I gaming and dialogue with the reserves that was strong helped by a growing number of new players.
Revenue for I want to global B to B I gaming platforms increase this 75% things you too.
In North America, which represents about 75% a lot about a b to b I gaming business.
And then you more than doubled the on the strong Canadian plans.
Including a growing number of a new Blake.
Busy they know where did you geordies nowadays seeding new Jersey's levels.
Lago read April breakers and.
Cool that 50% Nikesh.
He is really makes us fairly recently signed up before an expanded suite of IGPM digital solutions, including our extensive reliability all the players because you know content to serve the via our remote games.
Sure enough to I GTP cashless cashless solution to find that lend to be the via the football mobile devices.
We continue to make a great progress in the U.S. the sports betting mock.
In terms of volume of wages aimed at the and number of Steve. So wherever he piece approved I want to play sports platform is the most the why did you use the b to B sports betting platform in the U.S.
In 2019, IGPM crosses over 30% of up to tell that you asked a sports betting wages and we are constantly present the informed of people see the with the coonrod to being a bit most recent additional states have looking at the legalizing sports betting.
And I did the is well positioned to meet that demand.
We recently deepens our relationship will redefine jewell the market, leading the U.S. the sports book up at April through a multi year to sports betting and I gaming function.
GP is a place for platform and odd where do we filed an all time to do is new and existing retailer sport Luca across the U.S. and fund you as we leverage vast assortment of I want to play because you know these games for Keith I gaming activities.
We have enjoyed a strong partnership over the last two years or for your near you can go to development of the U.S. sports betting market. We look forward to remain get their class the girls bonds.
Last month, we announced an important that your organization of the company into two global business unit, one dedicated law 30 around by five UK, Italy, and YOD does the two gaming led by it and that's why screen right.
Hey, we landed all functions previously assigned to our international he 30, none of the American gaming and North American look every business unit, but really the global view that enables each operation maximize how you put all that and services out of position for to meet the deep expertise.
In terms of customers in places around the world.
By focusing on our core businesses that we will better able to promote the the exchange of its been a piece and best break disease, among guy GP employees around the world.
And we will enhance our ability to provide the greater responsiveness to cast Commision. Please.
Another important aspect of our new structure is that the we'd make it easier for do you want to understand and they do all that business like pro forma 2019 that revenue was evenly split between lottery and gaming lottery accounts for match.
Hi, Fs and page of our put off.
I think our global leadership position in this business, we're still working on line into the new design Buck for context of locker. These town before about the conclusions about what profit.
<unk> gaming got Pvds added about one.
Luckily as you started Goldman thing is great speed growth profile and proved to be a remarkably resilient in weaker macroeconomic conditions.
You can see they think that is does so riyadh reporting to be.
To support a by long term contracts, so that provide the good visibility to future revenue and cash flow streams.
Transition to product line of reporting will make these clear ever for you.
You really start to we will start to come reporting in the new structure next quarter.
The Cobiz Sunday Mic is teaching guys a lot about a new ways of working and how we certainly what customers.
We are focused on leveraging these learnings to open to eat the most efficiently in our new organizational design.
Along those lines, we are executing several initiatives that we announced our operational flexibility inhabiting enabling that causes us to be more responsive to market conditions.
We have identified over two I'm going to meet your name structural cost savings up from three call because lenders across a four main work streams, including eliminating duplicative functions and streamlining their back office activities.
Revising our global investment in technology to focus on value accretive and Knowhow rationalizing Gatland de based on Vcpe, Linda we just because it doesn't priorities.
And optimizing our supply chain now for maximum cost efficiency.
Current trends that suggested the global gaming market because the recovery we are hopeful they progress and girls, who we are seeing it will continue but we need that would be prudent we this bit stations given the economic impacts of the comedy me.
Yeah actually also we have begun to protect the business are working and we are bad peak additional measures you for the situation gets worse.
So now we continue to innovate to the little bit live on the gaming experience I GP is no.
As always our goal is to focus on each of these does that create value for all what does the cool.
At this point I will turn the call over to Max.
Thank you Marco and Hello to everyone on the call today, our second quarter results have been severely affected by the Koby 19 pandemic.
So compatibility I know you everybody or basis is less meaningful.
Now I will walk you through the major highlights by segment to provide the perspective of where business is posting polishing well and where we have been mostly affected by the pandemic.
On a significant revenue decline of almost 50% our profitability has been particularly affected.
The early kicking off the cost saving actions swiftly implemented at the end of Q1 and beginning of Q2 are starting to materialize mitigating the impact to the bottom line.
In addition, we had been focusing our efforts on transitioning from temporary cost reduction actions to more structural savings.
Seven or programs were implemented during Q2, and we remain laser focused on finding additional opportunities to permanently reduce our fixed cost structure.
On slide 12 now.
We generated consolidated revenue of 637 million go month global gaming revenue fell 72% driven by the closure of casino and gaming hosts fewer unit shipments and lower systems and software sales then into probably go together.
Global Lottery revenue was down 26% on reduced traffic two points of sale and the complete shut down of the lot to game in Italy for several weeks.
Oh God the second quarter, we saw improving trends month after month in each operating segment and across all primary revenue streams.
In the first six months revenue declined 34% to 1.6 billion with gaming revenue down, 50% and all three down 21%.
Operating loss of 94 million in the quarter compares to operating income of 224 million into priority and.
Lower business volume had a significant impact on profitability, particularly from product sales. In addition, the priority of quarter included this strategic transaction in Oklahoma as well as high margin items, such as and multi multi air pocket side license and significant system sales.
And the second quarter, we also incurred 43 million in restructuring charges related to projects designed to drive longer term structure of cost savings and the reorganization of the company.
Lastly, we saved about 170 million from Cobiz related cost containment actions compared to the priority of.
No what including Capex savings in December, which helped mitigate the impact of lower revenue.
In the first six months, we incurred an operating loss of 291 million, which included 342 million any impairment and restructuring charges.
That of this costs, our operating profitability would have been around 50 million.
This compares to operating income of 402 million in the first half of 29 team.
During the second quarter, we achieved an adjusted EBITDA of 168 million and the positive free cash flow of 107 million delivering very strong results in a very difficult operating environment and well above our expectations laid out during our last earnings call.
We experienced an accelerated pay somebody opening in casino and gaming Hans and a more resilient demand in lottery across the board.
In the six month period, EBITDA was 477 million and free cash flow positive one under than 65 million.
Now, let's turn to our operating segments, starting with North America, gaining an interactive on slide 13, we generated 96 million in revenue compared to 274 million in the prior year period about two thirds of the decline was related to the direct impact of casino closures on service revenue we did he may.
And then related to contributions from higher unit shipments and large transactions in the priority and.
The installed base decline by about 250 units sequentially as some operators are focused on reducing costs and looking for ways to facilitate social distancing India's environment.
And most jurisdictions social distancing protocols mandate that only a portion of does not machines on the casino floors can be operational.
Overall productivity on active units was higher driven by double digit increases in the W.A.P. yields.
The increase in new and expansion unit shipments was primarily driven by the sale of 977. It started kind of horse racing machines in Kentucky.
Despite lower replacement you any demand the driven by Cobiz related budgetary constraints, we ship just over 3900 units in the quarter with relatively equally split between commercial casinos units envy of teas.
Hi, or system sales in the prior to year, most notably the installation about advantage. It system at EMCOR Boston Harbor also contributed to the reduction in product sales revenue.
Operating loss of 20 million compares to 85 million in operating income in the prior year period.
The results for the North America Lottery segment have shown on slide 14, and clearly demonstrates the resilience of the lottery business revenue declined 12% to 273 million as significant growth in eastern ticket and all games helped mitigate the LTV, Daniel closures and lower jackpot activity.
[noise] increase you're seeing the lottery service revenue bucket on this slide was the result of solid 6% same store revenue growth during the quarter. This is despite mobility restrictions and sharply lower jackpot activity. The over 10% same store revenue increase in instant ticket and draw games reflect yearoveryear growth in markets like Texas.
In Florida.
Partly offset by declines in New York in California, two of the state's hit, particularly hard by coping 19 during the quarter.
The results have impressive even under normal circumstances.
We expect future growth to remain consistent with more normalized levels of low to mid single digit increases.
Let me primarily reflects reduced activity, new Jersey, as well as lower amounts of associated pass through revenue.
Gaming service revenue was down on the closure of VLP venues, partly offset by increased igaming activity in Canada.
The decrease in product sales revenue is due to a large system sale in Massachusetts into priority.
Operating income of 75 million was roughly in line with the probably WIDIA as same store revenue growth offset the reduction in higher margin Alamein incentive and the lack of contribution from gaming machines was largely offset by cost saving actions.
On slide 15, you'll have the results from the international segment, whatever revenue was down was 84 million down 64% from the prior year period, primarily driven by lower product sales.
But I already had also included higher softer says in Italy, and BLT shipment to Sweden.
Service revenue was also impacted by casino closures and mobility restrictions.
Operating loss of 20 million compares to 30 million in operating income in the prior to year as lower unit volume and revenue mix were partially offset by cost savings effort.
Now, let's turn to the Eataly segment on Slide 16, what revenue of 184 million was down 56% from priority elevens.
Lottery revenue declined 55% to do to strict mobility restrictions the closure of bars and restaurants and the shutdown of the Lotto game for several weeks.
In addition, about 25% of discussion when tickets are sold in bars, and restaurants, which didn't be open until mid to late June.
All of it all three wager trend showed progressive improvement throughout the quarter with growth of 6% in June compared to a decline of 81% in April. This once again highlights the resilience of the lot of business. The drop in machine gaming revenue reflects the impact of gaming Hong closures during the quarter, there's values did not reach.
Open until June, notably interactive wagers grew 44% during the quarter as players continue to gravitate to our full suite of digital games.
Other service revenue includes growth in commercial services, which was more than offset by lower sports betting revenue due to lack of events.
Meaningful sports activity only we started in June with the European Football League Football League resuming play towards the end up the month.
The sports betting pay out of 88% reflects the higher mix of digital versus retail wagers in the period.
Operating loss of 7 million compared to operating income of 133 million was primarily due to kabi 19 restrictions, partially offset by cost saving options.
Moving now to slide 17, as we highlighted last quarter, we are focused on reducing our cash cost to adapt to lower Monica demand trends.
As how many of our cost savings achievement during the quarter is included on this slide.
Prior to the Koby 19 crisis, our average monthly fixed cost and maintenance Capex were approximately 235 million combined.
During the quarter, we did use that to about 155 million, primarily driven by employee related actions and strict discipline around discretionary expenses.
We are on track to achieve the targeted 500 million and cost savings and capital spend avoidance for the full year.
While expenses should begin to normalize in the back half of the year, we should still achieve our average monthly run rate of 185 million from March through the end of 2020.
We continue to focus on delivering longer term structural cost savings to make our organization even stronger. We currently estimate that we will be able to delever over 200 million in structural PNM savings compared to pre call. We'd love is mostly in 2021.
I would like to now turning to cash flow in net debt on slide 18, despite the very challenging operating environment in the first half of the yeah. We were able to de lever 325 million in cash from operations and a 165 million in free cash flow.
This resulted in our ability to reduce net debt by almost 100 million.
Since year end.
Last quarter, we said that we expected the second quarter to be the most challenging for cash flow and that we anticipated burning cash in the period. In fact, we generated over 100 than 7 million in free cash flow during Q2.
Given the better than expected the results I'm confident that we will be able to deliver positive free cash flow for the full year, including a modest contribution in the second half barring a second wave of restrictions related to the pandemic.
Leverage of 5.5 times increased from 4.3 times at the end of the priority or primarily driven by the impact Koby 19 had on EBITDA in the first off of 2020.
Turning to slide 19, we ended the quarter with a with approximately 2.3 billion in total liquidity comprised of about 1.3 billion in restricted cash and 1 billion in additional borrowing capacity under our credit facilities.
This is more than enough to cover debt maturities through 2022, you can also see that we are well diversified in terms of our sources of debt.
During the quarter, we issued 750 million five point, 25% notes due in 2029. This was the lowest U.S. dollar denominated coupon ever issued by the company or its predecessors and represents the longest duration issuance since 2015.
We use 500 million of the net proceeds to fund a passion tender of our six in a quarter percent notes during 2022.
We are laser focused on reducing cost and were and what pleased to successfully refinanced a portion of our 2022 notes with a lower coupon instrument the balance of the proceeds was used to enhance our liquidity.
Lastly, turning to slide 20, I would like to summarize the key points in todays presentation.
Once again, our businesses have demonstrated their solidity with lottery, particularly with resilient and the value that comes from geographic and product diversification.
We are on track to meet our target of 500 million in cost savings for 2020 and have shifted our focus to initiatives that will drive longer term structural savings.
We have strong liquidity and ample resources to manage debt maturities over the next few years and provide a bit of a safety net should it be needed.
And we deliver positive EBITDA and free cash during the quarter, even though a large portion of our business was not operating on severely handicap or severely handicap for most if not all of the quarter. This allows us to continue to execute on out of the leveraging strategy.
Now we'd like to open the line for your questions operator.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your test sounds sound. If your question has been answered or you wish her a movie Oh from Mikhail Please press the pound key once again to ask a question. Please press star and then one now.
And I first question comes from Carlo Santarelli from Deutsche Bank. Your line is open.
Hey, guys good morning.
Thank you could do Martin Martin the color.
I was just accident you talked about it a little bit here in terms of cost savings and obviously looking at slide 17.
But since you run rate of 155 can you guys mentioned that March through December the average monthly run rates about 185, just obviously that implies.
I picked up in the back half of this year, but is that just extrapolating that dot that's on rate of whats implied for the back half across 2021. It would appear there's just kind of more than 200, there in terms of the annual cost saves on a permanent 2021 basis are there other cost at that what I've said it could come.
Back in 20, or 21 that you're contemplating in addition to kind of how you exit this year.
Hi, Carolyn So first of all if you if you do the math or the assumption is that in the second half of the yeah. We would run at about 200 million per month.
Versus the 185 average that we called out for the entire period.
That is because we front loaded the savings with some temporary a swift actions early starting from the end of March on words that may fade. The in the latter part of the a and that's why the cost would start to pick up a little bit towards the end up busier.
Going into 2021, we have laid the foundations for those structural savings as Marco clearly highlighted with those four initiatives.
Could there be more.
It was maybe but at the end of the story, we also need to watch very carefully what what a trend the revenue will have into the second part of the early 2021, because some of those discretionary cost that we were able to take out may well come back.
And so net net we are confident right now with the 200 million in a in a BNS savings obviously that number does not include a capex reductions that we have.
Achieved before 2020 and some of those will probably stay in place social for 2021.
Got it that's helpful. Thank you for the clarification on that.
You guys provided some color on on kind of fee.
The cadence up how things progressed, and obviously I think that the wide area progressed as you mentioned were up double digits.
If you looked at kind of the the base on a whole and maybe just looked at them.
June isolated where I would assume a significant portion of the machines that had been turned back on it. We're on could you kind of give a holistic picture of.
Maybe what the apples to apples year over year yields would have looked like during that period, but for the entirety of the does.
Good morning capital, it's Mako speaking, but I think of that.
I'm going to repeat award.
Say that you are.
During my prepared remarks.
The.
The number they gotta being.
Active machines.
With that being mainly today that through the month of June.
We are talking about.
Hi around 60% so.
Still base.
I see.
And.
The comment, though we were making was.
Being.
And they.
PBT was up.
For.
Most important.
Fourq use on the performance.
Wow.
That as I said.
We've got the active machines of course.
Double digit double digit top of answers I left that somehow is that it's like being a good the demand that their competitors.
Found the time of day, if he opened.
Because the.
That is.
Now I'll, we can you imagine that if utilities out.
To put a D.
But.
Stopping volume is positive.
Today to the demand we have seen especially.
For a long.
Because he knows there for the piece from the business.
Great. Thanks, just one one last follow up.
Any sense of the I'll be hundred 68 million debate.
That you guys did in the two Q.
As we think about modeling kind of the back half of this year 21, any sense gear in terms of US anyway, you could couch. It beat the EBITDA generated in June when when things were more functional from both a lottery and gaming perspective.
Max.
Well I'm definitely if you look at D. Although we don't want to give out monthly performance at this point the month of April has been the worst of the quarter.
A with a very low number in terms of EBITDA that number started to pick up in may and the ending June.
With a with.
Allowed us to obviously to get to that stronger finish.
And again going forward, where we need to I assume a that the trajectory of a the opening kind, especially on the gaming side. That's plateaued at this point you may have some further openings, but at the same tell you might you may have some casinos that would be forced to close for a period of time.
So our our position right now is to continue to maintain a prudent approach down the road into the second half of the.
Understood. Thank you guys.
Thank you Carlos.
Thank you.
Your next question comes from Chad Beynon from Macquarie. Your line is open.
Good morning, Thanks for taking my question and congrats on a strong results in positive free cash flow.
I wanted to start wanting lottery good morning, one and start with lottery you mentioned, the North American lottery FMC in instant improves throughout the quarter.
Particularly in markets that weren't as facing is as high restrictions in you expect for this business to continued low to mid single.
Digits can you talk about.
If you think there was an inflated benefit from the government checks or was it pretty consistent.
As these fees check started to to become a little less important and then secondarily or are you hearing are speaking with legislators who could be pushing for more online or or high lottery type options I know, it's not a big piece of the business in the U.S., but just wondering if that could become a larger.
Just given what you're seeing in other online divisions. Thanks.
So a.
Not to be performance.
Currently doing.
Very Wayne.
No doubt that for the mobility restriction as a meaningfully impact.
On global Luckily see to say NAV rely on me, but we saw is we've got a core ready as a this feature needs though.
I'm not to go back in June let me give you some jetta general numbers are not focusing on the U.S. So for a while but I think it is important to understand that progress here the population and I'm talking about the wage is inevitable.
Overall wages.
28, better same thing in my 7% down in June last then in July is between seven and then seven then they send them. So.
I'd be very cool vary as being that we get in stronger.
The next spring them.
We and and then.
As he was saying that before Menzies, particularly strong.
Yes.
He is well above.
Last Fianna and finance.
Keeping gone.
I think of that more than this state that checks they benefit the lottery benefited.
From the closure of a cause either so we started.
Investigating.
No lease I'm going to answer and we have now convenience said that.
For sure that they're not to areas that whereas the closure of because he was a has come into any improve.
[noise] sees.
Foot lockers and I personally feel that these there has been a unique us who come stances.
The pandemic provides an opportunity to appreciate that entertainment value all that the lottery games that because at the end of the day, we see these trains that keeping on.
That is.
I see I forgot being the beat though the online.
He's always on that but I can no onetime DCP or anything concrete.
He is point in time after many years I'm quite prudent.
The predicting the decisions and the behaviors.
The.
Okay. Thank you nice a nice trending results for for lottery.
Appreciate it.
Thank you.
And again, ladies and gentlemen to ask a question. Please press Star then one now.
Our next question comes from Barry Jonas from Truest Securities. Your line is open.
Hey, guys.
So.
With the new segmentation of the business do you still see the same level of synergies between gaming and lottery as one of your original Iced tea transaction was that was announced.
This is a very good question. The answer is yes, so we still believe that.
The two segments on a complimentary and cool rather than was the who later.
I mean guest base.
The book enjoy global coverage and.
Providing the company with the two CBLI does take advantage.
Well, there any opportunities around the war and.
Some after the deal so that the benefits.
With that innovation.
Then thing technology on Leverageable across the various segments.
Also the equation because when it comes to regulation or.
Orphan.
Given that you get these are legally the single agency we enjoy.
Deep longstanding relationship of both it and put it.
And ER b to B on would be to be providers. So easy is a competitive advantage.
We'll see BTT.
Two ways because of the combination of businesses.
Great. That's really helpful. And then wanted to touch on Italy, just you know what has been the tone from the government given the stress that the business I guess more specifically the machines business is felt and do you think we could see any changes to how they have historically interacted with the industry.
I think I see some changes that I see that some changes because of this the first time, regardless of the funding gap.
The government.
I've seen that.
Wages negatively affected the.
By the impact of lower pay outs.
Hi, Atlanta taxis over play at winning so in addition to the implementation of the age of verification. So I think that are these might change the approach a understanding of that so for the increases in fixation.
And that I have a for the led to the reduction in wagering affecting very important revenue stream.
Great Great and then just last one for me I.
I think minority dividends and returns of capital for the year down about 100 million or so.
How should we be thinking about modeling those line items for the remainder this year in next year.
Max So first of all the dividend as part of our restricted payments definition in our bank facility. So.
We would the recent bank amendment, we kind of a put a stop on the dividends until Q2 of 2021 included.
After that.
He is going to depend upon our ability to stay below five in terms of leverage a which is a hot the out of limited threshold that we need to be into in a in our agreements.
And with respect to their minority payments you you will you have seen from our material that we published today that the what about 75 million of payments linked to the to the Jvs This quarter.
This is lower than the normal distribution based upon a day they like last year results.
But again the boards of a the jvs.
Determined that it was not wise to make the full distribution early on in the spring due to the impact ended the associated uncertainties around that Cobley 19 pandemic. Obviously this is a moving target. So the board will reevaluate the distribution so any remaining.
Undistributed earnings.
If and when the market backdrop improves or later on into your.
Great. That's all for me thank you.
Thank you very much.
Thank you Sir our next question comes from dominate Coca lumpy from whatever your line is open.
At good money two questions. The first a just a follow up on you know the free cash flow. So you were commenting that you expect some modest positive free cash flow so in effect on the alpha.
And then is the number including any so are you, including any minority distribution or your free cash flow number.
And so anything that.
No.
Yeah, So the hi, Domenico so that the them the point I'd like to make here is.
So first of all as a general rule, we tend to collect our EBITDA with a quarter delay. So in Q3, we will be collecting the lowest EBITDA probably in the in the year and so that that Q3 number is a significantly affected by let me say a lower to the north.
Come on.
Profit collected.
In that period.
On top of that we also were able to overachieve on our 500 million because of some deferral some topics, which.
I will have to happen before the end of the year inline with our agreement so that capex number would probably pickup a little bit and the second half as well as there were some timing body insists on primarily on working capital in taxes that.
Again will reverse versus the first half in the second half, particularly in Q3. So that's why we came out prudently with this.
Modestly positive cash flow into second half, which is probably going to be skewed towards the latter portion of the six months period.
Okay. Why is that you are not assuming any and so the dividend distinguish on two minorities in any case, it's not a is not including and that's the cash that there's not a then we say that the decision will be a on the board itself did a specie jvs and obviously there will they will have conversations.
During the second part of the yet, but we don't know at this point.
<unk>, Okay and the other question is just and we view on the.
And then business. So you were commenting that a if I'm not long discussion, we not basically flattish lots of steel.
See leg down.
I presume that betting.
The b thoroughly stronger due to the activity that has resumed and no clear to me a what keys that trend that you have seen VLP is maybe that piece as well.
Im not just by the fund them, but also by Uh Huh.
Situation like the cops are leaders.
Sure sure Domenico.
Good afternoon Festival and the video views that you're right if I answer summarize that.
The product lines, you mentioned, the Wifi out broadly lie in a way the scratching we know.
Below last year.
On a lot of mainly because of the it's a lot familiar that he is a a kienle type of put all those.
Thats a implies.
ER length of stay at that point of sale. So that they know the speed at the time is now.
Yeah.
Sports betting that assume a with a there the opening over the values are championships or are they got to being a view jeez I can tell you that are the performance now he is our line, but with the performance over the force them to moans.
So being impacted.
By the age of either.
Or a combination of.
That is things, including the age of either but I'd just point in time of day and format. So.
I went back to the to the.
Let me, let you towards the in January and February regarding the E.W.P., either they are likely be law.
The Conformis, we were having the first two long sitting there for them below last the data for the same movies as I mentioned before.
Those are tending look from a those out of machines that are still all day.
You know at least the kind of point of view point of sale and the four.
Do you did the players and I cannot say.
In the initial but as long as me what used to and as the reason why.
Wages.
Fees for the time being.
Thanks.
Why didn't does have a and they network Oh parish showing a you are all the network is up at finding that anybody is up and make a photo VLP is is marginally down versus last year on a on AWB either.
Yes.
Dal tile and gotten celebrating machines.
The same glass, but I think of easy is not a wise for my answer is down is mostly because 10% of the machines is not the beacon them, but.
Of the network or could improve.
Pvt, I think the issue is they usually just explain.
It doesn't really to publicly is a firm spend more time indifferent overseas.
And just the last a follow up.
You already fairly clearly in terms of wagers.
When you're commenting young yet, but four months should we assume that a the lower pay out the tea in the meantime, you got to apply there is a little bit supportive yet on the out in terms of a sales and profitability.
All right.
Well, there's no big deal.
Hi, I do not see big differences at this point okay.
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Okay. Thank you.
Thank you.
Thank you.
Our next question comes from David Katz from Jefferies. Your line is open.
Hi, good morning, or good afternoon, everyone, depending on where you're sort of high that hi, I wanted to ask two questions number one with the new.
Disclosure structure, where gaming has its own buckets.
Should we expect that you know the digital aspects of gaming you know will be something we'll be able to breakout just given you know not to make a short term decision, but you know given the way the market is focused on all things digital.
You expect will have enough for the tools to you know to break that out for.
For earnings and value purposes.
Max.
Right now our plan is to provide the disclosures around the two segments a lottery on one end and gave me going the other side gaming and will include those are the digital business. So <unk> the expectation I would say that we will continue to provide the.
Qualitative information on or around the digital business progression.
For the foreseeable future.
As to allow the market to.
Let me say verify that the trajectory that the company is into for the gaming business or in the digital space.
But right now we don't have plans to to break down the digital as a separate a segment.
Got it which me.
Oh, sorry, please finish.
No I was just saying, which may or may change in the future, depending how the digital business develops right, but if it becomes.
Immaterial part of our portfolio, we may reassess that decision that the set at the future point.
Understood.
My second question that I know this was was discussed a bit earlier is around maintenance capex.
And you know the the decision to.
Reducing the near term some of which will come back could you provide just a bit of color as to what that maintenance Capex is for it. It does say in the doctorates more gaming oriented I, obviously, what I'm getting at is the notion that there may be a need to catch up.
You know later on in the future.
No actually the microscopic systematically yes, the maintenance Capex is typically correlated to the lottery contracts as we win new contracts. Obviously, we have to reestablish the footprint of machines, the new systems and that introduction requires an up.
Typically an upfront investment.
So that topics is considered a contractual in nature and that's why it's called maintenance. There is some maintenance capex in gaming as well, but just not not the predominant portion of that.
Oh that.
Number.
All right. So they the reference on slide 17 around.
You know kutcher deepest for gaming activities.
It is more cost oriented than it is maintenance capex or.
Yes, I mean as cost oriented and is also a growth oriented right. Because we we we I've been able to timeout topics associated with new initiatives.
Or more aggressively than what we were allowed to do on demand tenants one right. The maintenance just follows through what the new timing is for the implementation of the new projects and you kind of adjust to the there that timeline of your investment on the growth you you have the ability to assess is.
That project would apply to launch in this current environment or do I need to delay the launch it for a in a future period, Hence you got a little bit more flexibility on to act upon that capex.
<unk>.
Thank you for the color appreciate it.
Right.
Thank you and we'll take our last question from John decreased from Union Gaming. Your line is open.
Hi, everyone. Thanks for all the additional color.
Just two questions for me going back to the cost savings the 200 million of expected structural cost savings is there anyway, you could help us think about the allocation of that between the new reporting segments mix between gaming and lottery or corporate support at their weight.
Break that out generally.
I'll take it so we don't even have the two segments. It ready yet so [laughter]. There's this question is a little bit.
Early on but.
Basically.
Obviously, the savings are a structural in nature in the sense that we have identified opportunities to really have reduced cost to structurally.
A portion of that production is a let me say employee related at portion of that is a really.
Different way of.
Delivering the same service performance in a much more efficient way.
And so I will defer let me say a further discussion about the split of the savings once we have the segments later on in the future.
Sure sure that that's helpful and last a different topic with Brazil, specifically and then any other kind of do you contracts.
They are expected to come online this year or were expected to come online this year or or early next year is there any visibility obviously the pandemic has disrupted governments.
If you still have any expectations on on when Brazil, where some of the other maybe contracts in the pipeline.
Either coming we're not coming this year, given a bigger parties governments have focused on.
Oh regarding Brazil, I do not the I do not see at this point in time and not be to build the government piece, suggesting that the they are considering or to be Larry.
The contracts I suppose to sign the contract in September for launching.
In the fourth quarter.
And I didn't see any RPQ are good.
Changing <unk> did you.
The perspective of these are development.
And I do not see.
In any other vehicles or something that is especially for the luckily side.
That is.
Acting Ghana, the sale of under development.
UK is undergoing gone or.
We have.
The government decided the.
To a two way too.
The six month extension.
Two gameloft about the delay was completed before they make a so I do not as a in the indicate report that day, suggesting that they make is the leading.
The programs.
Blended.
Thanks, Mark Thanks next I appreciate it.
Thank you John.
Thank you and that does conclude our question and answer session for today's conference I like to turn the call back over to Mark will follow for any closing remarks.
Thank you for joining us today once again I'd like to express my gratitude for the patient education. The team is demonstrating India's unprecedented times.
Well executing well our speed and agility allows us to be stock liquidations swiftly and safely as soon as a market to the open it to function eggs effectively as possible wherever they are working working conditions outcome study.
We are diligently diligently managing expenses and our liquidity and we are taking full advantage of the breadth and depth of our global portfolio of solutions locally gaming indeed.
Another new organizational structure should enable us to leverage I wasn't leadership position and even more impactful way.
I wish you all nice based of the summit and I look forward to speaking soon.
Well and BC.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.
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