Q3 2020 Scientific Games Corp Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the scientific games <unk> third quarter Investor Conference call.

All participants will be in listen only mode.

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Brief question and answer session will follow the formal presentation.

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Withdraw your question. Please press Star then too.

Please note this event is being recorded.

Now, let me turn the conference over to Robert Shore.

Director Investor Relations.

Scientific games Mr. Shore, you may begin.

Thank you operator.

This call will discuss our fourth quarter twinkling results not written form is called my question has agreed with me today are buried cattle and <unk>.

Okay, Okay certain statements adequate portal district in the private Securities Litigation Reform Act of 1995, six months ago, certain risk and uncertainties that cause actual results to differ materially not just let's turn the call.

First regarding breast cancer I think its please refer to our news release issued earlier afternoon or true up late in the call post on our website and our filings with the FCC.

I'll discuss certain non-GAAP financial measures.

In terms of each non-GAAP measure and a reconciliation of each non-GAAP measure.

Most directly comparable GAAP measure can be found at early especially as well as an investor section on our website.

As a reminder, this comes talk is being recorded.

Richard This webcast and accompanied with your sales will be archived the investor section of website at scientific games Dot Com also somewhat the reference slides are available on our Investor Relations website, well matched wanted to speak directly be slides. These slides are much I still think our view of the company's results do reference document following the call now I'll turn the call to Barry Barry.

Thanks, Bobby Good afternoon, everyone and thanks for joining us we're very pleased with our financial and operational progress in the third quarter as we execute the crops in English profit will continue driving success there.

Very proud of the team and how we're performing their strong operational execution delivering solid financial results.

These wins and great product development.

Could you share some highlights of you today, which all will center on the strength, we're seeing in the recovery of our business in the long term value opportunity at scientific games.

Oh and the entire organization, it's never been more excited for the future with a new board industry, leading talent and winning culture.

We continue to improve our financial position to positive cash flow and continued focus on key balance sheet management for the quarter. We generated 140 million in operating cash flow I think between <unk> and free cash flow, representing an increase of 11 million year over year, we renegotiated covenant relief for additional financial services.

Finally, as we navigate to the evolving market environment, and we continued to deliver on our de levering priorities by paying down to 100 million in debt in early October.

We achieved strong business unit performance underscored by three or four business units delivered a year over year revenue and EBITDA growth, while gaining achieve outsized sequential rather than pay either docket.

We have a number of innovative products there given that the edge in this current environment and beyond.

Cashless contact with gaining solution sports betting liking and slightly while our lottery business remains resilient.

On top of these performance results, we are embarking on an exciting new chapter for scientific games with a refreshed board a new investor base.

We now move forward with an enhanced sport that shares our commitment and disciplined approach to de levering, while investing in our people and products again, we create sustainable long term shareholder value.

To this last point as you all know another data to show investors acquired 34.9% of shares outstanding from the Kansas import.

That transition we welcome Jay Neil gallon 20 course honesty to our board as executive Chair and Executive Vice Chair, along with him probably in Haynesville Clinton has two additional independent directors with exceptional global business experience.

Walkie wood treating you tend to get the advisors for the past year and a half they are accomplished industry veterans, who share our passion for culture talent and products. They oversee a new board that comprises the majority of independent directors.

Ward and the management team will review all strategic options to treat and maximize shareholder value. It is over arching strong determination to de lever the balance sheet.

Broader media strategy will be supported by operational improvements along with a renewed focus on working capital management.

Finally, I want to thank Ronald problem and the rest of the chain Forbes for their support over the years.

Now I'll provide a bit of color on some of the opportunities we have in our business either.

In gaming we grew the business from the second quarter, we introduced a new and exciting products at this year's virtual global gaming expenses.

I'm very excited about the cabinet thinking for on road map and the feedback from our customers is extremely positive.

Additionally, we've made great strides recently in investing in our culture and talent, including hiring some of the best R&D people in the industry.

Specie, if it begins to lead to greater hit rate going forward that ultimately translating into revenue and free cash flow.

Are you, perhaps got a cabinet is targeted initially to go after the premium came off market. This new cabinet. If the next generation of our top selling Twinstar Jay 43, when we've sold over 25000 units since launching its really a beautiful cabinet with an innovative take care and an ultra high definition display it has incredible life that's exciting.

Out of his cabinet offers an immersive experience.

That's gotta will launch with corn calm down a new premium came up title, which was developed by our studio that produce many of our top game franchises like 80 fortunes dancing Johnson Gigi balance sheet.

Our cashless in contact with solutions that we've been working on for years is now gaining momentum in the market.

Unified wallet, which powers the cashless gaming experience was named the top 20, most innovative game technology products I could see the journal. Our solution is currently in pilot with two corporate customers get the deployment is expected in the fourth quarter and into 2021.

Really well positioned for cashless gaming given our market leadership, there and approximately 525000 connected slot.

Additionally, FCD sheet, you're tracking except released in the fourth quarter will be placed in a pilot sites in Q1 2021 its.

It's hard when software subscription services will capture the value at bats, and send accurately casino operators can profit even back in the table game play that player segment.

Along these lines the pipeline and interest for the electronic table game segment remains strong.

<unk> continues for the ball subscription program using the table games subscription model.

That allows operators access to a robust library of proprietary game titles.

Common theme here, if we expect increasing recurring revenue component of our business led by our focus on increasing our domestic premium footprint and game ops.

Despite the pandemic well continue to track the best talent in the industry and it's especially excited to welcome Ted popping, who will be joining the team at 2021 and highly successful game designer and the creative force behind some of the industry's most notable things pretty Buffalo brand ours and walking dead right.

We also recently completed the process of reorganizing our studios with the goal of developing a higher quantity of top performing game.

Ted will be leading a las Vegas location it's.

This reorganization will help amplify our unique strength and focus the studios on developing content for the largest market opportunities.

Overall, the team is doing a great job looking at the business with a fresh outlook enhancing the culture and improving our product roadmap commercial approach marketing analytics as a result of these efforts we expect to see an increase came on footprint and 2021 and beyond which is one of our key priorities.

And our lottery group, we see strong industry trends, continuing and domestic instant ticket sales, where we are the market leader.

This led to a 10% growth in revenues in the prior year we've.

We've also seen great results with our scientific games enhanced partnership where S.G.P. program.

The new listeners on the call. This program is one because I think he's provides instant game category managed services across the full supply chain, providing game design and portfolio management.

Advanced logistics, and analytic systems and services and retail optimization.

They said a converted to <unk> S.G.P. program outpace industry secure sales grew by over 40%.

During Q3, we continued with major deliveries, including converting the national lottery in Turkey, with our JV partner did over 5000 X Gene's wave lottery terminals, that's retail digital scratch games and systems, we continue to win T contracts and extensions, including securing wins in Massachusetts point instant ticket contract for five years.

18 year, I will lottery systems contract, a 10 year contract in Oklahoma, which includes the system and S.G.P., along with a host of other wins and extensions both domestically and abroad.

On the product side, we are relaunching, our highly successful multi state Willy Walker linked instant game and continue to have success with our retail solutions.

I do want to touch briefly on Brazil, collectively with our JV partner, we've chosen to withdraw from the proposed structure due to a failure to finalize negotiations with the local lottery retailer and an unfavorable Supreme Court ruling after carefully considering our options we determined that proceeding further with the project would not be financially prudent.

We didnt make a material capital investment in this market we.

We will continue to explore opportunities in the country.

Lottery stability in domestic trends, coupled with the opportunity for additional S.G.P. conversion.

Our digital business continues to capture market share and see significant global opportunities to cross sell sports betting anti gaming during the quarter the transformation of our product development and delivery capabilities as evidenced by several new deal announcements in deployments.

We signed a new partnership with hard rock International for full sports technology stack and I can echo system to power their you EPS growth plans.

We've already launched retail sports an island, New Jersey for them during the quarter with mobile coming soon.

We also extended our contract with debt and GM for I gaming signed up net debt as a partner in the U.S. and reached an agreement with big time gaming providers. Some of the most sought after gave the biking to become the sole distributor of their content in the U.S. in Canada.

We also signed a multiyear contract we know what the flooded three four sports profit.

Others brand portfolio includes global market leaders in a wide array of region, including Vandal Betfair Paddy power Guy that sports betting in Australia and Pokerstars. This year marks the twentyth anniversary of our partnership with the flooded.

Over the last three years, we've reengineered our sports after system to be best aftermarket and highly customizable. This is like an increasing customer demand and the velocity. It supports the deployment maybe from an average of one per year in 2017 to launching more than 20 year to date.

Our TV platform is highly scaled feature rich and year to date has delivered more than 13 billion being announced the players across the world. We used the product strategies and where the Netflix we create the industry's best I can any content, including our own franchises, such as monopolies and she's balance sheet and reaching right now and then supplement that with the world's leading content.

Third Party studios.

In New Jersey alone, which is the most mature I like any market and yes, we have a 40% market share and our revenue during the quarter was up over 100% from the prior year.

Across both sports and gaming we are highly skilled cash generative.

Our customer base and major regulated markets across the UK E U H packing in Canada with that experience and the transformation of our people products and technology, we are well positioned to capture further market share globally.

And finally, the cycling generated above market growth in revenue and strong growth in EBITDA again this quarter, our baseline of revenue remains above precluded 90 levels driven by improvements made to our gains in recent quarters, our evergreen franchises and social casino games provide a highly reliable sticky user base of players in fact over the past four.

Here. This business is growing at about a 20% CAGR and outperformed the market by approximately 40% delivering predictable results in a either dr. <unk>.

In addition to the organic growth in our social casino franchises, we are entering the $20 billion casual game genres Solitaire, we will provide updates on this exciting initiative with the first step the beta testing in solitaire pets adventure in the first half of 2021 rap.

To wrap up I'm really pleased with the cash flow we achieved in the business this quarter driven by the breadth of our portfolio, which has enabled strong growth the great talent, we've assembled and the governance changes we have implemented there's a ton of enthusiasm right now throughout the organization and I've never felt more confident in our position and the team we have than I do right now.

Looking ahead, we continue to execute on our key initiatives to drive sales and profitability as we identify new opportunities to capitalize on scientific games leadership and unique market position important.

Importantly, we have the flexibility we need to properly position the company for long term success and are committed to unlocking the full potential of the company's best in class collection of products and technology to deliver outsized returns to investors.

Dan I'll turn it over to Mike Jackson to provide some financial highlights Mike.

Thanks, Barry and good afternoon, everyone. I appreciate you all taking the time to join the call today.

I want to start off today by simply emphasizing how excited I am about this new chapter for scientific games under a revitalized board and a revitalized shareholder but.

It's definitely an exciting time of the company's history, and I'm delighted to be part of it.

I continue to see a tremendous opportunity to deliver significant value to our shareholders and it's great to know we have a strong than Likeminded board and wonderful challenge and support this management team to make it happen.

Obviously, the transition of the shareholder base and the board was a major focus area for some Q3 and it was a major accomplishment for some country.

In addition to supporting the transition a global peace wall. So my life, we focused on growing out of a very challenging Q2 environment.

And positioning the company said that it can be nimble to perform strongly in whatever geopolitical and macroeconomic environment, we find ourselves on through the end of this year and beyond.

For Q3, three areas I'd like to highlight the start off the call today. So.

First as Barry mentioned, we generated $62 million in free cash flow, which was an $11 billion year over year improvement that was in the middle of a very challenging global economic backdrop and slowdown.

This was driven by the across the board and as I mentioned last quarter and a new focus by our global teams on working capital management, we look.

Continue to put significant attention and effort towards ensuring we deliver strong free cash flows in future quarters and every quarter.

Second we ended Q3 with 1.2 billion and available liquidity just over 1 billion of that was in cash and cash equivalents.

This was coupled with a strong support we receive from our banking group. Many of you on the phone today. Thank you for your support.

As reported within to amend our credit agreement, which extended the covenant relief period under the revolving credit facility through the first quarter of 2022.

The 100 million dollar payment, we made against the revolver in October also underscores our confidence in our financial position.

Third the breadth and resiliency of the scientific games portfolio continued to show its value in core strength.

Despite the cobot impact on the gaming industry, all three of our other businesses lottery digital inside play combined to post this 15% year over year revenue growth and 24% year over year.

Adjusted EBITDA.

This is a true testament not only to the hard work of the teams within the business units, but also the value of meaningfully participate even a diversity of land based and digital markets across real money and free to play game.

Now, let's talk about our quarterly results in a bit more detail.

Third quarter consolidated results showed significant sequential improvement, 30% of revenue and 94% of adjusted EBITDA versus prior year. However, revenue declined 18% to 698 million.

These lower revenues drove a year over year, adjusted EBITDA decline of 32% down to 235 million.

Importantly that 235 million was up sequentially from 121 million in Q2.

Given the reality of the global gaming market, which assuming a lot more like a U shaped recovery than a V shaped recovery and the continued uncertainty of the global pandemic, we will continue to be somewhere between disciplined and cautious in our approach and we will continue to focus on cash flow and throttling expanded investment in line with the current market outlook.

This will include diligence on expense controls until revenues fully normalized EPS.

As a result of all of these measures when revenue does return we expect to have a higher flow through from revenue to cash flow.

Turning to our balance sheet and cash flows we delivered $140 million in cash flow from operations, which is in line with prior year.

The team continues to do an outstanding job managing the factors that are largely in our control.

And year over year delivered $44 million source of cash from working capital improvements in the quarter.

This resulted in free cash flow of $62 million and as mentioned earlier. This is an $11 billion year over year improvement.

As you will see in our press releases, we have also recast mostly cash flow to exclude changes in restricted cash absent. This change free cash flow would have been higher this quarter.

This revised presentation intends to more accurately aligned with what investors care about which is the cash we generate that is available for debt reduction and strategic investments excluding legally are contractually restricted cash.

Our capex spend for the quarter was 50 million compared to 75 million last year the.

The 2020, we now expect capital expenditures to be between 200, and kind of 225 million, which is just about $100 million below the guidance. We set back in February 20 Twond.

Finally, we ended the quarter with a net debt leverage ratio of 9.6.

I'll quickly now turn to our Q3 business unit performance starting with game.

And gaming our results continued to be impacted by the pandemic with revenue and adjusted EBITDA down, 49% and 66% year over year, respectively.

We did see strong sequential improvement however, with revenue up 154% and adjusted EBITDA of 348% versus Q2.

To add some color on the current environment over 90% of the U.S. casinos are now open.

We are continuing to see strong year over year corn and growth in our gaming operation segment with about three fourths of our installed base currently being lot.

While we benefited from 40 openings this quarter, we won't have the same level of new casino openings in the fourth quarter.

A lottery revenue and adjusted EBITDA, both increased about 10% from the prior year.

A strong results are the product of both continued rebound of domestic instant lottery sales and built in international product sales.

From a margin point of view the growth and the GP was offset by higher revenues in the lower margin equipment sales.

Which was 9 million above last year due primarily to increased sales into Turkey in Italy.

Our digital revenue increased 15% to 75 million and adjusted EBITDA increased 47% to 25 million versus the prior year that $25 million number was helped by the completion of work delivered in the quarter just as a quick reminder, our club sports business is primarily international based.

With this being this business being more of a services going to climb in the materials model that model pins to call. Some lumpiness in quarter over quarter revenue was around when we delivered the end solutions and associated licenses into the marketplace our $25 million.

Adjusted EBITDA number this quarter was helped somewhat by that phenomenon in the business. That's that's supposed to more sports gaming business in the west with a smaller.

Part of our current revenue stream or grow kind of the trends to go more smoothly and in line with the market.

Finally on so I played a business continued to perform better than the market with revenue up 30% and adjusted EBITDA up 54% over the prior year.

The business also showed strong productivity with adjusted EBITDA margin, increasing 500 basis points to 33%.

In closing Cuprum is a solid result in an otherwise pretty difficult market. We made progress in several key areas that are worth mentioning again here as we wrap up the call.

The transition to a new independent board and a renewed shareholder base.

We continue to strengthen our liquidity position, which is now 1.2 billion, while also paying down $100 million on our revolver.

We've added additional flexibility stemming or covenant relief period boot you want to 2022.

We have three of the four businesses delivering very solid top and bottom line growth and dropping nice productivity to the bottom line.

And importantly, we saw positive momentum in our gaming business from Q2 to Q3.

While improving its long term cost structure simultaneously.

In the middle of all of that.

They focused on and continue to hire industry, leading talent across all the news and corporate functions and to continue to invest in a high performing a winning culture.

Going forward.

We will continue to build upon this momentum focusing on at least four key financial priorities. The first is predictability, which.

The west is developing a high say do ratio in everything we do.

The second thing is they said a balanced priorities, which is focusing on liquidity growth and profitability.

The third is operational excellence and ensuring that its core to everything we do and delivering enhanced margins in an improved customer experience as we do it.

And then fourth and finally, a renewed focus and determination on Delevering the company.

With that we're happy to take your questions operator could you. Please open the line.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

You are using a speakerphone please pick up your handset before pressing the keys if.

But any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Barry Jonas Truest Securities. Please go ahead.

Hey, guys good.

And Mike.

My first question.

Can you talk a little bit about how you're weighing the difference.

And timeframes to de leverage.

It seems like there are multiple options on the table on top of free cash flow generation.

Sales.

Thanks.

Thanks Barry.

This is Barry Ed I'll take that so I think its.

As you probably noted in our sales for September.

September 14th that Investor Press release, and actually confirmed last week in our first board meeting there is renewed interest evaluate initiatives that we believe will drive shareholder value.

But obviously, it's early and we can't really speculate at this time.

As you guys know, it's something we have and will continue to consider with various structural avenues to de lever.

Meanwhile, operationally and as demonstrated this quarter. We're also committed to delevering by achieving greater cash flows from top and lot top and bottom line growth cash and cost management and working capital management.

Great Great and then just one more for me we've been hearing a lot about cashless gaming maybe can you talk about how.

You see the market opportunity.

Differentiate your product or other offerings out there.

Oh, absolutely. So so first of all I think like everyone has seen increased interest and momentum obviously due to the market conditions that are that have happened bracket.

We're actually excited about this because its an area weve been working on for a while and Weve developed some really good IP around it.

In terms of our positioning and how we see it I mean, I think you know number one we're extremely well positioned in the segment given the leadership position, we have an assistance category, which as.

As you know we have about 525000 slot machines connected and about 5000 table. So you know it really helped US you know.

Already a part of that last mile, Let's just call it between the wallet and the and the slot and.

And and so we've got a solution that we as I've mentioned before we've been working on now for a while combination of hardware software.

Preproduction currently we have two large corporate customers that we expect right now that we expect deployments. Beginning later this year and I think you know for US it's like I said, it's that we're seeing.

The sales both from a regulatory perspective as well as from an operator perspective, you know increase interest and and moving to step forward.

In terms of you know that the revenue model I think you know that we also that the good thing about this is this one is going to be lump that into the detail, but it's a multiple multiple screen revenue, which is a combination of some upfront hardware along with software licensing maintenance et cetera. So I think again to get a good.

Good products, good mix and we're in a really nice position there given our current.

Positioned in the marketplace as well as the length of time and IP that we've developed in it.

That's great if I could just sneak in one last one.

We're seeing some instances second waves.

States.

Are your competitors talked about seeing in October.

Slight softness in some of their.

Dissipation revenues, just wondering if you're seeing anything like <unk> like that in any of your segments.

I mean, you know you.

Right now I'd say, we remain cautiously optimistic obviously the progress that we made from Q3 over Q2.

But we're aware as others are the other things that are probably you know popping up in particularly over in Europe, and some of the countries there. So.

You know right now would you say that you know we continue to to to see progress but are monitoring the situation closely as these things are just starting you know.

Hitting the market yeah.

Yeah, the only the only thing I'd add to that Barry. This is Mike I mean, obviously first and foremost.

Health and safety of our team members, our customers or suppliers continue to be.

Forefronts of everything we do with you are watching the same thing, there's you're seeing as well we hate to see it.

But obviously if it goes that direction, we got a playbook now coming out of Q2 that we didn't want to run, but we needed to run to get the cost structure, where it needed to be.

Kind of play that thing out.

Well, we looked at we just go back there again, if we had to but we're cautiously optimistic. This thing will continue to move forward. We like the momentum we saw Q through the Q3, we think we'll see momentum Q3 to Q4, but like you wouldn't like everybody else. We're watching the same things you all on its own.

Anybody's guess right now how this thing is going to turn out.

Great really appreciate all the color thanks, guys.

The next question comes from Chad Beynon of Macquarie. Please go ahead.

Good afternoon, Thanks for taking my question.

Nice results of real really the only I guess confusing thing for US is on the game off so I just wanted to revisit that a little bit I believe you said that 25% of your.

Your installed base for an active during the quarter and the active units were up double digits. So I'm just a little confused on how that led to a 38% year over year decline. If you could confirm that and then more importantly on these in actives is that what was blended during the quarter and have you seen more of these.

Thats turned on which could obviously help some momentum into the fourth quarter and beyond thanks.

Okay. This is Bobby.

They report in our case to guide that give you a total installed base, that's what kind of a blended number at the end of the Cape Guy, It's actually a total number of a record years and actually guys.

You know it's been about 78% of our units are currently turned on you know can you give us a year of your upticks in terms of play levels.

But yet couldn't like have you couldn't really kind of back in queue.

You know when you every year, but that's that's what they're putting profit there.

Okay and are you. So have you seen more of these turned on as you progress through the quarter is that how we should think about.

You know absent any changes with with the second way of kind of how that that could potentially said.

In the fourth quarter.

You have been relatively consistent kind of got 70% to 80% range. You know once you get Metro model perspective is New York is a really good market for us and that opened kind of mix. You know made a September so that was only in the quarter got one month.

But for the most part it's kind of been a 78% range.

Okay great.

Okay, I guess moving on to the social business that really held up very well I think there were there were some some fears that that could that could come down could you talk about how the the come to play integration has gone so far and if there's any plan.

Sales to rollout.

Other titles or if the thinking right now is monetization on the core games and then just further.

Integration on on Solitaire pets, and some of that come to play.

Titles. Thanks.

Yeah, absolutely. So I think first of all the come to play integration decide plays actually gone well, we've built a really nice playbook with.

Show down on the Bingo front and just follow that same playbook, and it's really worked nicely plugging them into.

Our you know the analytics the way and the monetization schemes that we have there as you mentioned, there's one game that we were super excited about when we went into this acquisition, which is a solitaire game that we expect out.

And and data in the first half of next year I would say that's the first how you think of this as a studio that specializes in messenger entre and so will focus initially on the solitaire game, but as that grows and the way we tend to build a game called splinter cell will splinter out fellow team off of that.

I think the laughter related card games, so think of it as a as a center of excellence in that genre that we will you know, we'll get that will begin to build from.

Thanks, Barry appreciate it.

The next question comes from John Decree of Union Gaming. Please go ahead.

Hi, everyone.

Right.

Sorry.

To ask a little bit about some of your comments in the prepared remarks and your focus on the installed base I heard some high.

High caliber talent.

On the R&D side of the business and just wanted to see if you could help us understand what that means for R&D on the gaming segment going forward should we expect to see a little bit more capital going to R&D or would it be a kind of reallocation of resources and.

With the output to kind of look like are you you've mentioned higher performing games in more of them, but what does that take is it going to be more games in general we're focused on.

Quality. It is how do we think about spend and an output of the game studios with some of the changes that you're making there.

Hi, good great question I wish I would have liked that capital I would say I think it's more of a focusing or you.

You know strategy as opposed to quantity strategy. In fact, just the opposite I think coming in the coming in the door. If you look at the year to two years ago, we were spread too thin going after too many markets and geographies.

The team that that's leading the gaming team has really done an amazing job of coming in putting the plans together to really refocus the development resources towards the largest profit pools and within those profit pools, finding the gas in there John or is where we need to fill them and so the strategy.

It is really about increasing the R&D. After those large profit centers and then offsetting that with not going after unprofitable efforts that are currently going on in finding efficiencies and other matters and that the model is really you know the formula is very simple we are attracting get great R&D talent restructured the studios in it.

Animal creative centers.

Led by both the internal top talent that we have and some that we brought in.

We then you know.

Target those after those profit centers, and then Weve designed and incentive program for them to incent them toward it and drive you know forward on it and so we're super excited we've already started to see you know that we showed in the virtual GTV somebody outcomes of this strategy and I'm really excited about the product roadmap and gains that we've got.

Come in based.

Based on based on this.

And maybe John I'll, just I'll just add one I'll just add one thing real quick as Barry said, it's fewer but better games.

Right, and then putting or full weight and energy behind those games and then as you talked to Matt and Savant Im calling in the team.

It's definitely going to be more money in R&D and going after prosecuting the product lineup, but we're gonna self funded by taking cost out of the other places and that's the plan the team has in place.

And higher top line.

Got it that's helpful and Mike perhaps a good segue into my second question, probably your area of expertise on working capital something you've talked about.

On prior calls and I had a few months to roll up your sleeves I'm wondering if you could kind of help unpack that a little bit and kind of maybe give us. Some examples of areas of improvement and then to the extent that you'd be willing to kind of quantify the opportunity opportunity in terms of impact on on free cash flow is it you know kind of nickels and dimes here in.

There or is that the opportunity to increase cash flow through those initiatives.

Well, a little bit larger than that.

I'll, probably stop short of giving guidance and and what you'll probably hear me say is a bit of a no brainer, so I'll apologize, but but it's just good old fashioned cash flow from operations and working capital of three aside the PEO.

Yeah. So when we look at those numbers need to be the benchmarks in this industry and other industries that would suggest we've got a lot of juice in that squeeze if you will and we're just gonna get really maniacal focused on or procure to pay process is our quote to collect process is fine.

Fine tuning our supply demand planning processes, making sure you have the inventory required to deliver.

Valuable topline growth and in all of those things just get rid of all the waste that set them. When we're done with that work and it'll it'll take some time to get through that in a meaningful way and to put the automation the tools the technology. The intelligence, we need around it but its its bigger than a breadbox for sure.

Which is why we're going to focus on it.

Very good thanks, guys I'll hop back in the queue.

The next question comes from Ryan signals of Craig Hallum Capital Group. Please go ahead.

Great. Thanks, That's my question.

Oh.

Really nice margin expansion in digital this quarter you noted some one time stuff going on but its Q3, a good run rate in the near term and then what does the longer term EBITDA margin look like in that business segment.

I'll I'll do they all do the Q3 to Q4 run rate going to let Bobby jump on the back of it what what I was trying to articulate there in the commentary clearly we were helped by some one time deliveries in Q3. So I don't think the Q3 run rate is indicative of Q4 run rate and so we should we should just expect some of that onetime does.

Liberty not to repeat itself in Q4 that being said, we're still obviously very positive about the future of that business the growth of that business. How we're winning in that business a lot of really good things there, but we did have a nice little pop one time pop in Q3 that we wouldn't carry over into Q4.

Yeah Yeah.

No we're recognizing license revenue in the in the third quarter digital exhibiting work you detail on that and the FCC filing so.

You know some compare ability issues kind of threeq to Fourq you visit the really go grow kind of in between 20 for wanting to come. Thank you.

Thanks, just any longer term targets or expectations on margins in that segment.

No we don't I mean, there's operating them as levers in the business as it scales up its been approved but no kind of near term target there.

Moving on then in the U K some of the B two operators there got a pretty large legal settlement I'm up to a billion pounds from about tax reform.

Have you guys been able to claw back and hear that keeping participation based machines there are gaining share there.

Nothing I can really share right now youre taxi was definitely all over it we're looking at but there are probably pretty minimal that quantified at this time.

Great. Thanks, guys. Good luck.

Right.

Your next question comes from David Katz of Jefferies. Please go ahead.

Hi, good afternoon, everyone.

Thanks for taking my question.

Hi, if you don't mind.

I'm going to take a run at some of the initiatives comments that were made.

Earlier.

And you know I am sort of wondering yes, those initiatives are more strategic in nature or are they.

Intended to you know to Abhi.

Obviously, they should include an outcome, where they reduce leverage or can they be isolated to just you know strategic.

You know strategic oriented.

<unk> companies to grow differently, and better and and and the like.

Look I you know as I mentioned before we can't speculate on specific actions you know the goal here is as we have mentioned before is to both drive shareholder value and de lever the company and you know we're looking at.

You know, we're looking across the company. It had you know what it strategic initiatives make sense in order to to achieve you know maximization of shareholder value and that's really the only guidance that we gave at this time.

I see.

David the only two out of that is because I think it's I think it's all of the above its obviously, we have an overarching objective to delever the company.

We tried to be pretty consistent about Uh huh.

The new board leaders.

The leadership teams come together, we're reviewing the strategy a strategy as we always do in terms of how to best maximize shareholder value in the meantime, we'll just driving like crazy to get top line growth primarily in our gaming business back and put the products in place we need to win in the marketplace and gain share.

This focus on cash and operational excellence and cost is another big thing. We think all those things are going to go a long way towards Delevering. The company and we're just going to stay focused on that.

[noise] I understand not not an easy one to ask or or answer if I can just follow up with respect specifically to the slot offerings within the company.

You know historically we've seen.

Companies in that business you know go through Repositionings retooling is there are a variety of other characterizations.

And that can take some time because of the product development process inherent in it.

Or would you sort of characterize where yours is is it you know some some fine tuning of the process is it more of a retooling how would you position that at this point.

Look I think we're actually if you remember we.

Out three years ago, we started some initiatives to get to a single platform. So we're completely platform agnostic, we began to do a reassessment of the of the product of the geographies and the target market actually Jamie and Tony joined Us about a year and a half ago and started working that strategy.

And so I would say you know this is not a okay. We're a complete re hall and were starting from scratch right now I would say you know the actually the products that we the first products. We showed a GTV is you know had has a.

What we would call a fingerprint on what is an outcome of that so I think you're going to start to see in the product roadmaps coming out an outcome of the strategies that that we've been putting in place and I think it's only you know.

Given the timelines that you described it's only going to get better overtime as we continue to bring in more talent and and the like and so I would say yeah. Our expectation is you're going to start start seeing improvement immediately but that basket our expectations as they accelerate even more.

As the team that's in place you know can make even greater impact as well.

Yeah, I think the initial reaction to that to your point theory on GTV was fantastic, Matt and the team are able to do a little bit of a virtual petting zoo and the feedback they got from the marketplace and the customers and every I mean, we thought it was a great event. The customer feedback was awesome I think the 15 months into that retooling as you as you mentioned.

We're pretty excited about what we're seeing so far nothing to customers are reacting well to it yeah.

Thanks very much appreciate it.

The next question comes from Joseph Stauff of Susquehanna. Please go ahead.

Oh. Thanks, Thank you very much good afternoon I.

I guess two questions you know look I don't want to belabor the point because I know your little restricted in how you can answer it but as we think about this strategic review process right. The board the board was just reconstituted.

As you referenced just had the first board meeting, it's just something that.

Is likely to take say six months or.

Or could that be done sooner relative to how you think about.

The portfolio and whatever strategic decisions would be made is there any.

Just baseline guidance or timing that you could give us from that front.

[noise], we're not we're trying not to put timelines around that right now I mean, obviously, we're all coming together, we had a great first board meeting with all the new members last week. So we're working through it thoughtfully at an appropriate pace and when it's time to talk to the market, but not anything that might change if something were to change. The move will do that time with all of you of course.

Okay.

And then maybe something hopefully that's more explicit that that you could answer is you.

You know strategically how do you think about.

The benefits of having both gaming and lottery under one roof that is do you think.

One or the other businesses that you derive significant synergies maybe there are some marginal center synergies from having them together.

Yeah look I mean, I guess, how I would describe it is you know right now you know operationally, we're focused on being the global B to B provider choice across you know the key forms of way Trimas gaming sports betting and lottery, while supporting office there are strategic fit its taken social.

Basically I mean, providing best in class platform and content needs, leading the digital transition and growth and leveraging the broadest portfolio deep partnerships in order to create differentiation. So to that end you know that the kind of key synergies that cut across our businesses. Today is we've got an amazing house of brands and franchises.

That we're able to leverage across all of our groups right. So whether that's you know Willy Wonka monopoly 18 fortune all of our all of our business units that have access to that which is nice and the other is you know there there are some shared customers across some of the best business units as well as an example, Canadian lotteries, where we'll supply various forms of.

You know gaming lottery and and digital as well. So you know obviously in early stages of that as we had mentioned before but you know that that's how you should think about our business is how we've been approaching it.

Okay. Thanks very much.

Thanks, Joe.

This concludes our question and answer session.

I would like to turn the conference back over to Barry Kabul for any closing remarks.

Great. Thanks for joining us today, everyone. I know, we've had a lot of new listeners on todays call sales. Our long time supporters, we're truly excited about the talent and expertise we've added to our board and the value creating opportunities that lay ahead for such a strong team and portfolio of assets and look forward to speaking to you next quarter and updating you on our progress.

To improve our balance sheet and deliver the best products to our partners and mobile land based gaming. Thank you all for your support.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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