Q3 2020 International Game Technology PLC Earnings Call
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Ladies and gentlemen.
Standby your conference call will begin momentarily. Thank you for your patience and please standby.
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Ladies and gentlemen, thank you for standing by and welcome to the G T 2023rd quarter.
Results Conference call at this time, all participant lines are in a listen only mode.
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Well.
I would now like to hand, the 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 in Niger, <unk> third quarter 2020 conference call.
Once again, we are presenting the results from multiple locations. So please bear with us if we encounter.
Any technical difficulties.
Participating on todays call are Marco Sala, our Chief Executive Officer, and Max Chiara, Our Chief Financial Officer. After their remarks, we'll 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.
They 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 SEC filings.
During this call we may adjust we may discuss.
There are certain non-GAAP financial measures in our press release slides accompanying this webcast and our filings with the FCC each of which is posted on our Investor Relations Web site, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures with that.
I will turn the call over to Marco Sala.
Thank you gene and the things you you all go to join you guys could be.
You are you in a yard or loved the wassa, keeping safe and what.
Our third quarter revenue, but all keeping cash flow demonstrate because those going out into the year. So.
I thought that business on the unique circumstances that causes that 19 has that broke up on holiday.
And the award in General.
You can clearly see now what the results of the advantage of that comes up from operating costs them as around the world There deserves 44 yield gaming solutions.
Got it.
Oh, Oh, what a global luxury segment achieved the strongest the same sort of see some good old <unk> and adjusted EBITDA you seven quarter led by considerable momentum in North America grew.
Global digitally but didn't get revenue.
We'd show, we now will be bored.
Well not only in going abilities that was up 41.
Including an over a 70% increase from our water be it would be.
Yeah.
The emerging data as a liquid fuel a gift, but equally Lan event for IGBT in the gathering Congress.
That does answer.
Also reflected the BG the lead Gen operational management of the IGBT.
Identifies the 500 million in temporary cost saving bcf to mitigate the impact of the public.
The 375 million achieved by the end of Q3, we are.
You are correct the two new capital.
The stronger the bound Dina fede, the combined that with the cost savings that drove a bus the cash.
Do they need to be 400 media in the UK true since the beginning of <unk>.
I'd like to have knowledge of incredible because of the nature of the GTP in around the globe.
We continue to go above and beyond what I want to customers or their shareholders and you chop that you'd be is unprecedented.
She is beyond the onset of the funds. They make up we are losing got whatever you need to be very nimble in driving good operational leverage and we remain couldn't be good there could be.
Hi, just is well positioned to benefit the foot on the global recovery as we focus on bringing their their beaches players be it in the same compelling solutions to market that while ideally from city to copycat allocation decisions.
This is the first time that we report that under the new Oh.
Organizational structure.
Read the two main operating segments global lottery and global game supported by a streamlined corporate support function the.
To simplify the structure and answers I GTS gross potential by increasing effectiveness and competitiveness and leveraging economies of scale.
It will also improve our understanding there sorry, if you will also improve your understanding of our strategy performance and decreasing value.
Importantly, our new organization provides a better insight into the unique attributes of our global lottery business batteries as consistent.
You provided the studies like Gpus group in the revenue and profit.
He said locally demos today, because the substantial resiliency good reviews from two out could be a big.
As I mentioned that third quarter same store sales growth and we'd be done with the best thing seven workers lost anything incept wed.
Fixed cost per than gaming, which is why you see the very high profit flow through of strong same store sales growth in the quarter.
As expected the gaming segment, there was more affected by that handicap, Bob for the third quarters with the sequential improvement.
Revenue and profit goals firms are strong play an interesting slot as casino and gaming goes up we opened.
Moving on to specific segment highlights from the third quarter, let us begin with Lotte.
Global same store sales increase and impressed.
I see the 9% the in the third quarter.
Performance in North America was especially good with.
With the same store sales are growing at a high teens rate fueled by double digit increases for both eastern and Therell be guedes.
Why to some extent a lot sales may have.
Benefiting from a lack of other gaming and the major term that is clear interest remains robust as other entertainment options.
Became available again.
According to our reserve layers out enjoying the gains and mini aspect to compete or playing lofty.
At higher levels than before.
Italy same store sales delivered an impressive a rebound on stronger player demand.
The small decline in same store sales is largely due to the impact of social distancing measures on the tenant Watergate.
Molly.
Send cleat that a lotta wages stop at the benefiting from the launch of a New York gave cooling the extra.
The global lottery market Theres always enjoy this data growth profile over the next five years, we expect sales to increase at a low to mid single digit rate.
Our current perform.
The answer is strong there and certainly supports this view.
This is because he is a supply driven business and there are many drivers supporting growth.
We focus on optimizing game portfolios in nature jurisdiction by introducing new games.
Layering denial of pricing.
Gains and improving the price structures.
On the distribution side as we look to increase their retailer footprint and provide incremental access points such as our sales service vending machines and that new line purchasing.
I lottery is another area of opportunity.
Global high lottery sales nearly doubled in the third quarter to quarter revenue large increases across all geographies.
We strengthened our industry leadership will review recent new contract award that was including seven year facilities management contract with a fall on the national.
And I looked at it in addition to a new 70 us comfortably the Nebraska alone.
We also secured a two year extension with the New Yorker long pretty one of the worlds the biggest and most successful lotteries and the largest in the U.S.
Moving onto gaming, where we were.
Encouraging players demand trends combined we I GP is a strong portfolio of engagements of solutions.
It's that drive that sharp sequential improvement in Q3 revenue and profit.
Over 70% of our premium North American installed base is currently active.
As I noted in August the productivity of IGPM active wide area progressive as being strong with ease of more than 20% above prior year levels.
We are closely closely monitoring the impact of our recent call the restrictions imposed the inserv.
So the work you.
In Italy dedicated gaming goals and sports betting shops has been closed since October 20 peaks and the will not reopen until at least the December tour.
We appreciate that we are a steaming the needs of the depend baby care and that is a push.
VP of additional casino closures.
There are a few product portfolio highlights worth noting.
If you want to be awarded with the most of any gaming supply yet as part of the casino Jordan as a top 20, most innovative gaming Technology Award.
Our.
Our ex breaker three is not gain peak about a top cabinet and the play sports betting and play sports for the web or limits.
We are seeing the strong momentum for our electronic table games in your area of focus for US we just secured a greatly expanded.
Good morning, Ed.
For our DSD I EPG equity encore, the Boston Harbor, and there is a lot of interest in our new BTG tavener coming out all their degree.
We are also gaining traction with our cashless Society gaming solutions.
Which are designed to increase our casino liquidity safety operational efficiencies, while delivering a more compelling and convenient experiences for players.
As always been a leader in cashless technology being the architect of vertical the pity them to pick out technology, we first.
To show that our cash flows and specialists technology for casino customers 40 years ago and have won many awards for it since then.
We took a decision a couple of years ago to integrate our existing IGPM payments or solution that was already using our lottery and digital.
Total activities into advantage, our casino management system using.
These integration allows players with the ability to fund their wagering accounts, our digital wallets directly from external funding sources in factor as it is the only casino management.
Spending will provide evan that as a fully integrated the cashless solution that incorporates external funding capabilities.
Also important to note that the IGPM as a very strong IP portfolio does area.
Today in the U.S. alone Nigel.
As one casino cashless solution that is nice one in Nevada in in Nevada field trial and for others under contract and plan to commence in the first half of the year.
These activity confirms our status as the leading system cashless provider in the industry.
Our resort wallet cashless cashless solution recently went live at the result was that Steve marking the introduction of cashless gaming in the state.
Earlier this year at AGBT deployed they cast them cashless solutions forced banks that spare some real piece.
Retail driven and not beating the nuclear registration, mostly among a younger demographic.
Cashless activities already driving me at least.
Any better sense of vendors to cast spans revenue only four more after launch.
Yes.
Visual to our digital embedded activities, where our global revenue of over 100 million was up 41% in the third quarter we.
We are making the scale of this business clearly as of now by disclosing the digital embedded in the revenue inclusive of high lottery.
In our press release.
A little over half of our revenue comes from Italy to see activity.
Read the remainder from our need to be activities.
Need to be revenues was up over 70% in the quarter.
Led by growth in North America, which accounts for 80% of our B to B business.
I gaming that represents about 60% of the B to B digital embedded in the revenue and that is a faster growing business. There is no question the play.
Isn't it easier for access to digital wagering and in the U.S. is the most important emerging market opportunity.
New Jersey, and Pennsylvania, the largest USA gaming jurisdictions, where we have a combined 25, 30% the show Mark.
Aspect to.
Similar market share new jurisdictions is that the regulator high gaming in the future.
Regarding sports betting the identity is powering the over for the U.S. us pause boots across 15 states.
During the quarter, we expanded our bpd spots.
Late in the prominence on maybe that actions.
We have grown our offer for the U.S. sports betting market the reader the formation of our core food service trading team based in Las Vegas using.
This important addition that announces that the appeals.
Hi, GTS place portfolio setting nibbling Gaza to deliver an all in one solution for operators seeking it seems all sports betting that provide.
We signed a long term sports betting technology agreement to redeploy the remainder for them or by retailers.
Thats book throughout America. This.
Building on our existing partnership in Pennsylvania.
Our Indiana and Mississippi.
Another significant endorsement HGTV was selected as the first would be to be sports betting platform provider in the U.S. to bring those.
Shall NVH data loggers, two regional casinos and sports books.
It is worth noting that the visa high growth could lead to be digital embedded businesses have margins that are accretive to our existing portfolio those.
Those margins it should become even a strong data with more.
More scale in the business.
I'm very pleased with what we achieved in Q3, the diversity of our business as provided the extraordinary resilience.
Throughout the company. We have also demonstrated that we can drive with cost and capital decisions.
While still making good progress on emerging businesses.
The simplified organizational we put in place enabled us to focus on our core competencies and to identify the opportunities to rationalize costs.
So far we have identified over 200 million instructors sales.
Over the next two years with over 80% of that benefiting the global gaming segment.
Continue to work on additional opportunities as we create a leaner stronger GP.
With that I will turn the call over to Max.
Thank you, Michael and Hello to everyone on the call today.
Before reviewing our third quarter results I'd like to spend a few minutes on the recent change in our organizational structure.
Mark will discuss the benefits, we expect from the new organization and I want to show to show you how it translates into our numbers.
On the next slide we have laid out the changes to our financial statements based on 2019 actual results and.
And we're also included recast historical financial data KP eyes, and reconciliations of non-GAAP measures in the appendix to this presentation. You will also find a recast data available in both presentations.
Since spreadsheet form on our Investor Relations website.
The mapping on slide 13 indicates how we have more each revenue category from our prior four business segments to the two global divisions under the new structure.
Slide 14 shows our full year 2019 revenue operating income.
Adjusted EBITDA look under the old and the new organizations.
He will be happy to see we have added adjusted EBITDA by segment, which represents a new layer of disclosures. This is intended to provide greater visibility into the performance and intrinsic value of each of our businesses.
The reorganization also presented an.
Attunity to revisit our cost allocation methodology and align it with market best practices on.
On Slide 15, you can see that we are now allocating a great a larger portion of corporate support expenses to the two operating segments, increasing the percentage from about 50% to around 75%.
Couple support expenses that exclusively benefit one of the segments are directly assigned to that segment. While the remainder is generally allocated based on the segments respective revenue contribution.
Moving to slide 17, our third quarter results clearly demonstrate the remarkable resilience of our business portfolio and.
Sharp sequential recovery from the acute onset of the pandemic in the second quarter.
Year over year comparisons are tougher as they are still impacted by actions taken by public authorities across all our markets to slow the spread of the virus.
We delivered consolidated revenue of 980 to me.
And then in the third quarter flow.
Global Lottery revenue exceeded the Q3 2019 pre cobot level, thanks to solid growth in same store sales.
Global gaming revenue was impacted by Corbett restrictions that was partially mitigated by strong growth in digital in betting.
In the first nine months.
We generated 2.6 billion in revenue with nearly 40% realized in the third quarter.
Deliver operating income and adjusted EBITDA of 129 million and 354 million respectively. In the third quarter. This was achieved thanks to high profit flow through in lottery.
And disciplined cost savings across the board.
While continuing casino closures and shows social distancing protocols impacted beginning contributions.
The net result is a stronger EBITDA margin compared to the prior year.
Now, let's turn to our operating segments, starting with global lottery.
On slide 18 were revenue of 570 million was up 3%, marking a rebound to pre corporate levels Global lottery revenue operating income and adjusted EBITDA were all at or near the highest level achieved in seven quarters.
Historically same store revenue growth outside of Italy, and wager growth in Italy.
Well the K P ice use for our lottery business beginning this quarter, we are transitioning to same store sales as we believe this is a better indication of player demand.
You will find same store sales data for the prior periods in the recast applied section of our presentation.
While the impact of Covance.
It varies greatly by geography on a global basis service revenue benefited from an 8.7% increase in same store sales.
Double digit growth in instant tickets and draw games in North America was driven by the popularity of new games and higher price point tickets across multiple.
Couple states, including Michigan, Texas and Indiana.
Same store sales in Italy declined 3.5% during the quarter scratch and win nearly recovered to the prior year level, while auto was down 5.4% as tangible autoplay levels were impacted by social distancing practical.
Coals sales in Latin America were down high single digits and remain volatile as koby 19 affected that region later and several gains were closed during the quarter.
Same store sales in EMEA declined, 3.3% with the United Kingdom, and Czech Republic sales a bit stronger than the overall region.
Ellamay revenue was impacted by lower jackpot activity.
Significant terminal and printing sales in the prior year are reflected in the year over year decline in product sales revenue.
Operating income of 196 million was up 22% fueled by high profit.
Flow through from increased revenue and the benefit of cost saving actions adjusted EBITDA rose to $309 million compared to $270 million in the prior year period up 14% year on year on year.
The results of the global gaming segments on slide 19, clearly.
<unk> reflect the ongoing impact of casino casino closures and social distancing protocols revenue of 412 million was up 234 million sequentially and adjusted EBITDA was 90 million higher showing the extent of the rebound from second quarter levels.
We had solid growth.
Sales in digital and betting revenue with a 30 million increase over the prior year period as sporting events return and momentum continued in digital gaming.
Sequentially the installed base remain relatively stable.
Turning to product sales ASP were stable year over year, and we sold nearly.
3700 units globally in the third quarter replacement units were nearly double the Q2 level.
Operating loss was 8 million in the quarter with $58 million in positive adjusted EBITDA.
These results include 36 million of higher bad debt and inventory obsolescence charges.
Primarily reflecting the pandemics impact on certain markets.
An update on our cost saving initiatives.
He is on slide 20.
We are on track to achieve the targeted 500 million in temporary cash cost savings and capital spend avoidance for 2020 to weather the storm.
Caused by the pandemic.
This includes a reduction in expenses of about $360 million and the remaining 140 million is related to capex.
The new global product organization provides us an opportunity to optimize our portion of the value chain across businesses and regions.
We expect our initial work to yield over 200 million in structural cost savings.
Capex and Opex related over the next two years relative to the 2019 run rate, we expect to realize most of these savings in 2021.
Over.
80% of the savings will come from the global gaming segment as we focus on operational excellence initiatives in areas like supply chain manufacturing and logistics. There is also opportunity to reduce the complexity of our product and geographic mix that will benefit product development and capital expand.
Overtures in future years.
Other margin improvement initiatives include opportunities with our real estate footprint workforce migration.
And discipline on discretionary costs and structural reductions in as Gionee.
On slide 21, we have summarized year to date.
Cash flow and net debt.
In the first nine months of the year, we achieved 610 million in cash from operations and $384 million in positive free cash flow. We are pleased to report that we are converting a higher percentage of adjusted EBITDA to operating cash flow with a 73% conversion rate.
And in the first nine months of the year compared to 62% in the comparable prior year period.
In the third quarter, we delivered $220 million in positive free cash flow compared to 95 million in the prior year period. This.
The strong free cash flow generation was driven partly by solid.
Financial results and partly by a beneficial shift in timing from Q4 of certain working capital items, Italy gaming taxes and Capex.
Our strong cash flow generation has allowed us to reduce net debt by over 300 million at constant currency on a year to date basis, and a 140 million.
As reported.
Turning to slide 22.
We improved our liquidity during the quarter to approximately 2.6 billion comprised of about $950 million in unrestricted cash and 1.6 billion in additional borrowing capacity under our credit facilities.
Thanks.
To solid cash flow generation, we repaid borrowings on our revolving credit facilities made at the beginning of the pandemic re establishing full capacity under those facilities, including as recently as last week.
In addition, let me remind you that earlier in the year, we successfully renegotiated our covenant package to the site.
Current quarter of 2021.
Cash flow generation and debt reduction is a is our top priority and we are aiming to restore our credit ratings to pre pandemic levels. We believe the resiliency of our business the strong cash flow generation and the solid liquidity position demonstrated in the third quarter if maintain.
That should help us achieve this objective in the not too distant future.
Lastly, turning to slide 23, I would like to summarize the key points of today's presentation that.
The resilience of our business was clearly evident in our third quarter results.
First global lottery achieved remarkable growth delivering the highest level.
All of same store sales and adjusted EBITDA in seven quarters second digital and betting revenue is increasing rapidly and we are seeing positive sequential improvements in the global gaming segment third strong cash flow generation allowed us to generate to increase our liquidity and reduce that bolstering our.
Financial flexibility.
We are on track to meet our target of $500 million in temporary cost savings and cash avoidance actions for 2020 further we have identified over 200 million in structural cost savings versus the 2019 run rate to be achieved over the next two years, we expect to realize most of those savings.
Any 21.
We are continuing to focus on disciplined capital allocation, we are working toward an improved margin profile for the business.
While there is still a lot of uncertainty surrounding the pace of recovery around the world. We're managing through this global pandemic and have demonstrated our ability to adapt to these challenges and deliver solid results.
Yeah.
Now we would like to open the line for your questions operator.
Thank you.
Ladies and gentlemen, if you have a question are profound impact of star followed by the number one key on your cost on telephone. If your question has been answered or you wish to remove yourself.
Thank you. Please press the pound key once again to ask a question. Please press star and then one mile.
And our first question comes from Carlo Santarelli from Deutsche Bank. Your line is open.
I have a very good morning of if you wouldn't mind also.
Tell us navigate through this environment domestically swaps and acknowledging that a lot of operators a lot of your customers have kind of changed their strategy a little bit in are obviously.
Earning even more from some kind of their slots floor as a percentage of their overall.
Footprint.
How's the discussion.
And it's a route replacement activity spend allocation towards new content et cetera.
Changed over the last kind of several clients as most of these assets have started to see stability in some of the trends.
Yeah.
Good morning, Carlos can you hear me I.
I can hear you yes.
Thank you very much.
It has been a very.
Particular period of time, because generally speaking.
We can.
Consider that what happened in the Q3.
Better than expected.
Because we the ucaas evil, but.
We can open that we have seen a strong strong demand longer geography, especially in our region Island, probably markets, that's where most of our business is concentrated it is clear that.
That is a period of transition we know that operators remain focused on disciplined capital allocation and operating cost having said that they will definitely need the fresh compelling content that the key player in.
And that is where that would be the.
The challenge.
Joanna I think there will be.
Again, some pressure on product sales.
But on the lease Bob.
The business.
I think a better with the recovery of.
The situation in terms of.
Active machines that will see the development of the offer more.
More and more important and I think a better they will.
Luca for games and as always.
It will be a matter of our ability to bring these games to the market that put more control of their.
Sales gains and offshore revenue gains and a nuclear attack we feel as we address the gripe strong line up of that 12 itself.
Combined with the new cabinets, but.
But that I think are able to add them nine to visit.
I have and then offsetting that floats.
Thank you that that's very helpful. And then if I if I could just follow up with one kind of on R&D.
Not reality, so there's there's been a lot of talks domestically in the us around.
State budget deficits, and whatnot and potential for gaming expansion across numerous verticals to kind of help sell those those budget deficits up I lottery, obviously has been something that's been successful and in some of the states, where it's rolled out obviously.
Great gets a pretty considerable percentage.
Of those raised funds.
You guys noticed any change in the tenor of those discussions to the extent that lottery officials and prolexic yourselves or having any any conversation around the potential for for a broader rollout of bilateral.
Three across the west.
No I think are going full was ideas how to present a great great.
Could you repeat it for all of our customer first and foremost sales it.
Oh, it was very difficult to tablet and predict that the decision on the government side going forward and the timing of it but these.
I don't know.
Pretty positive about that willingness to integrate the the ilottery offsetting gains and locally business.
Great. Thank you very much.
Thank you Kevin.
Thank you.
Question comes from Chad Beynon from Macquarie.
In line with our bank.
Good morning, Thanks for taking my question and I appreciate all the disclosure.
You gave to us.
Wanted to start with.
Your strength and B to B, I gaming, particularly in the U.S. or North America.
You talked about the growth year over year and also your market.
Share of 25% to 30% I believe can you elaborate a little bit just in terms of whats leading to the success or the players are attracted to many of you are known content land based content games.
Do you have different jackpot features and then lastly on that.
Do you have agreements with all of the major players in the gaming space. Thanks.
Yes, let's start the probably the last one that we are.
We serve are all of them and so.
And the reason for that is in the strength of our that gaming dolphin.
He is.
The Verizon wireless access how we are enjoying the end, but perspective, though we see this business.
With that in future the relation of other states. So there.
Okay.
The reason or modest success.
This will be video mobile and now about when gauging.
Jason I would need to.
By the major players.
Great. Thanks, and then on the weakness that we've seen in North American Jackpots.
I do believe that that's benefiting instant another draw based games and.
Yes.
How should we think about when this can kind of return to more.
Normalized levels that we saw in prior years, you know is the player just not as drawn to this game as as they have in years past or.
Is it just hitting much earlier and Thats just kind of a random.
Thing to forecast thank you.
I think I think today is that there is a combination of competing so the Rodney is that.
His expertise need more frequently than in the past and that is related to the statistics standpoint, and then there is a sort of.
I have a subject.
Probably played into that I know that the bulk of the consortium power.
Our bullet because these.
Our actively studying all there are enough to cope with the situation and and we are making good money and that provides a good ideas to innovate.
Good games on those games.
Thank you Mark I appreciate it.
Thank you Chad.
Okay now our next question comes from Barry Jonas from Charlotte any your line is open.
Hey, guys good morning.
I wanted to start with.
Co that.
Separate from where you've seen closures in Italy, or wherever are you seeing any softness.
In participation revenues as we're starting to see rising cobot cases, or maybe just generally hearing any real time.
New concerns from your customers.
I'm not aware of it isn't that the last two weeks I think the performance of all what games as well as your line now you need that money moves weakside or more the last few days, but generally speaking.
I'm not aware of its salts to me.
Saying that did that.
Great. That's really helpful. And then just generally speaking Marco how are you thinking about capital allocation priorities here seems like lotteries recovering quicker than than middle of people expected gaming is sequentially seeing improvements. So just from a pure capital allocation and that also includes.
Any thoughts on when Youre reinstituted the dividend thanks.
I think a moxa can take these questions.
Yes, yes.
So high Hi, Barry So in terms of capital allocation, our priorities have not changed as we reestablish them in the past few quarters. So.
We continue to be very focused on our capex discipline. So we have even strengthen our disciplined.
Disciplined.
Towards the investment that.
Delevers highest return and lowest payback, especially to conserve cash and is a very difficult environment.
Good.
Secondly, obviously, our priority is around that.
De leveraging the company so with the important.
Message over the quarters, obviously, the strong cash generation, which will help us managing.
Our our target our goal of reducing leverage going forward.
Okay, and then last but not least on the dividends you may remember that when we renegotiated our covenant package.
In substantially achieved a sort of a standstill on the leverage covenant and interest coverage ratio until the second quarter of 2021 included.
In exchange substantially we basically.
I put a halt on dividends until.
After that period and there will be a five time leverage targets that will kick in starting in Q3 of 2021 that.
That will be the threshold to allow the company to resume dividend payments going forward.
Great. Thanks, so much guys and thanks for the segmental EBITDA disclosures.
You're welcome Gail.
And again, ladies and gentleman to ask a question. Please press Star and then one now and our next question comes from nominal Coke Allotting from well your line is.
Okay and then.
Hi, Good morning first question is on the cash generation typical you have as a good cash generation in Q4, but you worry fairing in the color to some the movements in the working capital from one quarter to another so I'm trying to understand that we can expect another.
Leverage in Q4.
And the second question is on your structural savings you were referring to the big conquer in Twentytwenty one.
But most of all can you give any sense on what and how much is the capex relating how much is cost related also on your structural savings you know just on your total.
500 million and last question is on the current situation that we are seeing weather and you tell me in particular with the locked down to you were referring to and I'm trying to understand how much are they affect in particular your lottery businesses. So if it is a deal up and running and if youre still seeing some.
<unk>.
Activity in particular, if you can elaborate on instant tickets and the real gains.
Okay, Domenico I think the last last year on that and indeed.
Not to elaborate on the first two embezzling subject again anyway.
Regarding gabi did the gain you've got called called me. The I can summarize the situation in a deep study.
As a whole.
As you are aware are currently gaming goals and sports betting shops coldness do out of the country other closer to Easter.
Until December.
To the end.
We reevaluated that the impact of these four eyes a little.
You bet represent around two.
The media on the Dol does a good morning.
I mean, they see.
Situation on a lot of reserves.
Hi, this is a little bit more complex.
Compatibility because if I take out the situation as it is today.
With some of the Red zone or another but with the.
More let me say.
Lets so severe that is pretty chose Zendesk you telling me, we expect when a minority.
We see that exercise.
Trying to understand what is going to up and not even under the current conditions, meaning that.
Lot, though is the lotteries in general out up there flattening that I don't know there's three shows on pull back on the shop. So the main distribution channel, but not the main distribution channel for block, three and buzzard, which accounts approximately 25% of the scratching weve wages.
Must close it seeks in sales then the region.
And not only open for take rate raising another region. If the situation regarding both the games and the distribution remains in station and even.
Even in the case, where lets assume.
That all the regions that turned out to be a rabbit.
Well, Brazil will not.
If the situation remains as it is today and I'd be that the vision that I just mentioned, we expect to revenue backlog.
Then well need them.
In a moment.
On the lot berries.
Sorry on EBITDA, you mean that EBITDA level, yes, yes, okay. Thanks, Okay.
Okay, and Domenico I'll take the first and the second so in terms of the Cat <unk> question about the cash generation expectation through the balance of the.
Obviously important to note that we generated this the strong free cash flow figure in Q3.
Was the combination of much better than expected financial results in the quarter.
Which drove positive cash generation, but there was also a beneficial shift in.
I mean from working capital items, and Italy gaming taxes, primarily.
Or that we will we will have you come in during Q4 as a result of the initial.
Reprofiling of the tax payment that the Italian government.
Has allowed the when the pandemic first kicked.
Then in March April.
So year to date.
We generated about 400 million just shy of 400 million of free cash flow for the nine months period. We think we are going to be able to maintain that figure through the end of the year sold Q4, probably is going to be a.
Tetra quarter in terms of cash.
We sure we should also keep in mind that.
The current expectation so slightly deteriorating taking into account. The recent lockdown measures that were enforced in several jurisdictions, where we compete.
And obviously those timing items that I just.
Cost related to the Q3.
In terms of the structural savings and I passed to the next question.
So the 200 million on as we said that to more than 200 million of structural savings identified going forward.
That.
New York City of it will come to fruition in 2021, but again is going to be a step up in savings generation during the course of the year.
I would say the majority will be related to PNM opex and a there is a portion which we'll be effect.
Capex that this probably round about is going to be a quarter of that.
The main area of the savings I'd like to repeat our kind of grounded around the initiatives to achieve operational excellence in areas like supply chain manufacturing logistics.
Comply.
Complexity reductions in our proud of geographic mix, which savings that will come in this particular area from product development and from Capex and then other margin improvement actions in areas such as Ed our real estate footprint revision late labor labor arbitrage.
George I cost to low cost countries and a reduction in discretionary costs, such outside service and consultant marketing and traveling costs.
And again last but not least 80% about 80% of those savings will accrue to the gaming segment.
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And do you envision significant cost fought integrations for cost products secondly synergies.
We have I mean as a reminder, we booked in Q2 or 80 45 million of restructuring costs related to three different programs around.
Those initiatives. So I think we are.
Our head of the game in this in this particular circumstance.
Thank you. Thank you.
Thank you. Our next question comes from Joseph off some stats Mahannah. Your line is open.
[noise].
Good morning, Marco Good morning, Max two questions. Please I wanted to ask about.
You know now that.
Now that you have effectively reorganize you know the the company's entire sort of operating structure and I know you talk about you know the synergies.
Realize going forward as a result of that.
I Wonder if you could share with us maybe your thinking Marco about.
Whether or not you think the business even in again sort of the re reorganized structure.
It is.
If youre flux.
Flexible about.
Possibly separating lottery, whether it be in the spin out or a separation.
I know, it's a difficult question, but I wonder if you could share with us how you think about that and if you are flexible regarding that possible scenario.
Yeah.
That I outlined.
[laughter] DP good question no doubt.
But let me say that all the smokers are for the time being.
In creating the best the best condition, we hope to have a.
For both segments.
Because.
Well, we feel there is a marks.
Very very clearly described that we have I make that unity.
You can see that its basically the gaming business. So we can maybe be small cell model fake ids or more accretion.
And.
We can work all the time.
Yeah, I guess, what I learned that a little bit is enjoying that because you're not going to give more analytical.
And then a cool video.
The gaming business.
We the timeline I mean, you can't always conceive at implicated without creating very good but I will share a little bit about that if you are asking me.
Mashelkar might be thinking about that there is more work we will be discussing with the board when I mean, when there are these cashing out in your organization.
Nation was up 40 by improving our effectiveness take advantage of the synergies.
Habit on efficiency, we could then ex that.
We spend towards up to speed on by the new organization more than that and the PC side of the business form filling that deep.
So it gives a deck.
Okay.
Yes.
And then again as you think about sort of the portfolio.
Lottery versus gaming kind of going forward.
Look I realize you know the the.
The fourth quarter and the Lockdowns like kinda are what they are but assuming.
Things normalize hopefully sometime in first half of.
Next year.
Is there something within your product portfolio and your offering whether it be in gaming whether it be in lottery.
That you feel as though you need to add more too.
How do you think about that those prospects and kind of where you'd like to add too.
In the respective portfolios.
This is another good question.
Reality is a if we look at the portfolio that we have right now.
Pico, we have everything you need to get over our business all the time that we do not.
He loved that they these are moment.
Need.
Something although we are missing something significant in our existing capabilities.
But of course, there's always the possibility that.
Maybe.
Sadly nishu, they're all in the sound bite out of the business.
Could be could be a leading todays going forward, but there is nothing that is.
Hello plan offload and that capital pool Theres, a bought that we constantly look at that.
The our portfolio and we are always welcome Steve getting the kinds of integration.
We might that come see that's for the time being but nothing major that I can obviously that that going forward that might we might be that did that.
Some pieces of volatile.
Technology pronounce our kind of profit.
Thank you.
Welcome.
Thank you and our next.
Question comes from David Katz from Jefferies. Your line is open.
Hi, good morning, everyone. Thanks for all the color and detail on.
Formation I wanted to just ask about the North American installed base, particularly the premium end of it and my guess is you have made mix some comments in on it but we continue to contemplate when we.
We could expect or should expect that.
To start to rise.
You know, it's been sort of ticking down and VAT.
That can have some positive implications as well, but I would love just a bit more color on that and then I have one quick follow up.
One moment I think we have a mute issue.
Oh, Okay sorry.
Sorry, David.
But the point is a very simple and everything relies on on our on our games I think that.
We have proactively work.
With our cost of those up for the time being that will ensure that are they about weather based product on that because we know floors and though we have a line out of.
The new content and as it possibly know everything that relies on our ability to bring to market profit.
With that.
Outperforming.
Very good and because were able they did they do that but all the way down. These are going to size very successful on that product sales part of the business grew up in Asia to allow a lot of products over the last quarter that didn't have the usable we.
Yes.
Continually bring gaming, but all those on the store base because as I said at the beginning I truly believe that the duties that is that is going on that the geico of.
Our cost them as two as compared again bunch when you put all that and that is.
The challenge again.
The walking dead and see it as a deal.
Okay. Thank you and I wanted to ask one other sort of more strategic question, given where the environment is today around all things digital sports gaming et cetera, and you know that.
The value that's being assigned to that.
Not that it would be necessarily a short term.
Decision I see that you've broken out some of your digital revenues in the quarter, how do you envision that continuing to grow and.
Are there ways that you might think about.
In terms of attracting or assigning capturing more value.
From those.
No. This is a good quarter.
I guess that the from a sports betting and that we just announced the fact on landing.
I have.
Pete.
That will.
Managing the decrease for our customers day in sports betting it is a.
The way to capture more value in that the baby chain, especially for that.
As more medium operators that.
We have a platform.
Before you go about whatnot customers.
They got to being gap I gaming I think of it that we got into that as well.
Lesion as long as we look at the development of the market.
Obviously, it's a big number going up is that.
It will allow alley.
Considering that that we feel that we can have.
Now once all lines that additional things that between 25 and 30% market share you can conceive of the kind of the goal to be is leading that we have it but is that plaza and but we are also very.
Very well.
Lesions would take.
They have been paid out from Amy.
I lost 30 regulation.
Around the war that Andy is that.
All Cibolo Leann and good players in say the last as well as internationally and we've really been able to that.
These.
And now that add air where that weekend.
We can enjoy.
Slide that solid growth, so I think at that point yet.
The other focus more Ben but I think they're all good market.
What the market with achieving that.
The next step.
He has got to be sure that we will add solid positions.
As these businesses when I do the action that we look at an oversupply and expand that.
They are out of our wholesale to GAAP channel I have Bob.
Oh Wow.
The name change.
Thank you very much.
Thank you David.
Thank you and that does conclude our question and answer session for todays conference I'd now like to turn the conference back over to Marco Sala for any closing remarks.
Thanks.
Thank you all for joining us today.
We opened our simplified the structure and announced the discourages improve your understanding of our stoppage it the full month and do that.
As you had just doors, our third quarter revenue profit and cash flow demonstrate that the extraordinary events the level of business on that they're using.
Unique circumstances that caused the 19 as broke up on that what is this the end awarding jetta once again I would like to thank the IGPM front as a patient education since the onset of the pandemic can we improve the bidding involved in driving operational leverage and we are committed to continue doing so that.
You bet.
Thank you have a demonstrated that they GP is well positioned to benefit from a global recovery. We look forward to speaking with you over the next several weeks and please state your name and DC.
Thank you.
Ladies and gentlemen, this concludes today's conference call.
Thank you for your participation you may now disconnect everyone have a wonderful day.
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