Q4 2020 Scientific Games Corp Earnings Call
Good afternoon welcome to science.
<unk> fourth quarter 'twenty 'twenty.
Results Conference call.
Disappoints will be in listen only mode.
You need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be a net book Timothy to ask question.
Please note this event is being recorded.
I'd now like to turn the conference over to Jim Boom bust C C.
This president of Investor Relations go ahead.
Thank you operator, and good afternoon, everyone during.
During today's call, we will discuss our fourth quarter and full year 2020 results and operating performance followed by a question and answer period.
With me this afternoon are Barry Cottle and Mike Jacqueline.
Our call today will contain statements that include forward looking statements under the private Securities Litigation Reform Act of 1995.
These statements involve risks and uncertainties that could cause actual results to differ materially from those discussed during the call.
For information regarding these risks and uncertainties. Please refer to our earnings release issued earlier. This afternoon. The materials related to this call posted on our website and our filings with the SEC.
We will also discuss certain non-GAAP financial measures.
A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings press release as well from the investors section of our website.
As a reminder, this conference call is being recorded.
A replay of this webcast and accompanying materials will be archived in the investors section of our website at scientific games Dot com.
Also supplemental reference slides are available on our Investor Relations website.
These slides are meant to facilitate your review of the company's results and to be used as a reference document following the call.
And now let me turn the call over to Barry.
Thanks, Jim Good afternoon, everyone and thank you for joining us.
We are very pleased with our strong execution in the fourth quarter and the strategic and operational progress, we're making across key areas of our business.
I'm immensely proud of our team and all we've accomplished together, especially in light of the pandemic.
Looking ahead, we will continue to build on the strong foundation. We laid in 2020, we are investing to grow while being disciplined equity manage our balance sheet and realign our cost base.
Gaming is well positioned to rebound given the reopening.
Any real momentum across our markets and the industry as a whole we firmly believe our content and solutions will be key to our continued success.
To that end, we're building a high performing winning culture that attracts and motivates the world's best talent.
And currently we are conducting a strategic review with the board to determine how we can best optimize our portfolio day.
Average our business and capitalize on key areas that's correct.
Our goal is simple and powerful to deliver outsized returns to our shareholders by capitalizing on evolving industry and economic trends.
Conversations continue to progress at a rapid pace, while we're not ready to say anything yet.
Very encouraged by the progress we're making.
Turning to the quarter, our improving results demonstrate continued strong execution across our diverse portfolio.
Even with headwinds from the Covid resurgence after the holiday.
We delivered sequential improvement in overall company financial results, notably revenue and EBITDA.
For the full year, we achieved record results lottery side play and digital.
Our disciplined approach to cost and working capital management enabled us to deliver year over year growth in free cash flow in the quarter.
We achieved free cash flow conversion of 23%.
Nearly 600 basis points year over year.
In addition, we paid down $100 million of debt during the quarter and have paid down an additional $100 million in February.
Now for a quick review of our businesses and gaming, we're seeing sequential improvement in all lines of business with early successes and executing against our new global R&D and product roadmap strategy.
As you May recall, we started by bringing great talent into the organization and then turn to REIT prioritizing our product roadmaps to focus on the largest profit pools to capture share.
Streamlines the products of organization and have one centralized platform.
This includes moving to a centralized structure.
Configure to gain design studio model and global hardware and supply chain strategy.
We are prioritizing our roadmap from major segments of the market.
Our best game designers are developing content targeting the key revenue pools, using data and analytics to inform market segmentation and game design.
First cabinet launched under this new strategy. It gets caught up in the first game is coin combo. While it's early we're seeing incredibly strong performance for both with the SCADA performing at two and a half times the zone average.
Courage by this early success.
Another great sign as our improving competitive position from Eilers top 25 painless.
<unk> rankings, we had the number one share of top new games in both premium ops category and the for sale category.
Believe we will continue to see positive momentum in the premium segment of our game operations as we rapidly got it installed base launched some euro cabinet and released great games like 80, fortunate tempers coins and Willy Wonka dream or streams.
And on cashless, we're really excited to announce today, a groundbreaking cross licensing agreement with IMTT on cashless gaming IP.
Scientific games and IGT are the leaders in that space with our patents and technology and combined with our last mile systems footprint of over 500000 interconnected slots. This provides operating from the efficient way to access the most compelling portfolio of cashless technologies to provide to their customers. We believe these initial free.
Except with the momentum we're seeing represents a validation of the broader strategy and operating structure that our new gaming team is important.
Hey, Phil just approach leveraging a single platform deploying worldwide cabinet and using our best game designers to target the biggest profit pool.
This enables us to put more great games on our cabinets enhancing the lifetime value of our scientific games, our customers and our players.
In short we're encouraged by this early momentum and we look forward to the continued rollout of the cadence product roadmap.
In lottery, we achieved record full year results. Despite COVID-19 driven by instant game sales record technology product delivery and record high lottery sales.
We continue to see strong industry trends in domestic income paint sales, where we are the clear market leader we.
We are encouraged by our unique value proposition to our customers and the mountain of modernizing the industry and growing lottery beneficiary proteins.
Including global growth with scientific games enhanced partnership instant games services or S TEP and innovative retail and digital products.
This is a resilient business that has grown 19 out of the last 20 years, including through two financial crisis and Covid.
Yes.
That pattern held true in fourth quarter with revenue, increasing 10% and EBITDA increased from 7%.
Growth in instant games in the quarter benefited from an increased mix of contracts and S. T E P as well as retail solution from a lottery.
In 2020 U S lotteries using S. T E P experienced 17% growth in instant game retail sales versus the industry growth of 10%.
All 13, SCE P less state lottery customers experienced record instant games sales for fiscal 2020.
We also achieved an all time record in 2020 with our most ever retail solutions point of sale product deliveries.
In terms of a lottery COVID-19 has accelerated interest by states and we're well positioned for the U S expansion given our success in Pennsylvania.
Flagship, Pennsylvania program saw Q4, Waitressed drove by 39% year over year, while full year growth was 67% and.
In 2020, Pennsylvania became the fastest I lottery program in North America to reach a billion in sales despite.
Despite also being the most competitive casino gaming market in the U S.
We anticipate that over the next couple of years at least 10 additional states in the U S will authorize a lottery.
Now turning to size line, where it.
Excited about the performance and path forward, having achieved record results from 2020 and with the expansion into the $20 billion.
Casual gaming market this year for.
For the full year revenue climbed 25% in EBITDA from 55% the fourth quarter saw continued strength with top line growth of 30% and bottom line growth of 41%.
I, probably achieved their goal with both the quarter and the year exceeding market growth.
The basis for this growth with a payer focused and live op strategy, where we achieved records across all key metrics, we continue to innovate and drive engagement across our social casino portfolio with payer conversion achieved an all time high of seven 8%.
Both monthly paying users and average monthly revenue per user or above pre COVID-19 levels.
We couldn't be more excited about side place opportunity I'd say into the casual gaming space. This year with solid third pets adventure with a casual gaming total addressable market in excess of $20 billion.
We see great opportunity to drive long term growth.
With our combo play acquisition and Solitaire pest adventure, we not only purchased a simple monetization games based on one of the most popular card came from the world, but we also acquired a great team based in Tel Aviv and kiosks that we can leverage we see great potential deposits out their pets adventure and the pipelines machine with data analytics, they're low.
I've, often their marketing expertise to drive monetization and engagement.
We've achieved success of this strategy was being there show that where we were able to triple run rate revenues within the first year.
Now moving to our I gaming and sports businesses.
Momentum continues to build with recent state launches in Michigan, and Virginia, and it's more U S States legalize.
Internationally, our platform continues to power the number one leading operators in the U K and Europe for both our gaming and sports betting.
We've been able to achieve this success by bringing together the largest high quality offerings of must have content and the states from in House and third Party studios.
We now have over 2800 games on our platform an increase of 30% since 2019 and our games are ranked among the best from the world.
The number of game rounds played through our <unk> platform increased 38% over 34 billion in 2021.
We have enhanced this offering by entering into deals with 45 studios for third party content.
This stacks up as one of the broadest offerings.
And third party content in the industry.
We remain a leader in gaming in New Jersey with over 30% market share in an intensely competitive market and we've launched are very promising initial results in Michigan.
One of our biggest assets and key to our digital success with leveraging our rich library of IP from our land based gaming business. This includes titles like 88 fortunes Rainbow riches, Chinchy Gauci and monopoly.
We've added original digital innovation to these iconic franchises.
Scientific games IP outperformed in terms of engaging players and driving GTR.
In fact, Russia Interactive noted in the first weekend of online gaming in Michigan. The 80 fortunate towards their most popular slot games generally 10% of their total handle.
Looking ahead, we see tremendous opportunity for I gaming business as we continue to grow our footprint as more U S States legalize gaming and as we continue to expand internationally.
In our sports betting business, we're one of the leading global providers of <unk> services, and we are well positioned to benefit from the broader market trends.
We're growing through expanding into new states and territories, signing new deals building out our pipeline and expanding our services through our getting growth strategy.
And we've been benefiting from all four.
There's increasing momentum to legalized sports betting in the U S with estimates that up to a dozen states could legalized online sports betting. This year alone. In addition to the 25 that are already done.
In 2020, we renewed or signed a number of deals including with hard rock Wynn resorts Golden Nuggets on the Florida branch, which includes Fanjul Sky bet Paddy power Betfair with growth from three U S. Sports book in 2018 to 17 at year end 2020, with a strong pipeline of additional <unk>.
Sports with deployments in the U S in 2021.
This includes partnering with and do it in December in West, Virginia, and in the last week in Colorado, utilizing non opened best selling engines or.
Over the course of 2021, we will be rolling out a better you mentioned on Fayetteville, when the remaining U S states they operate in.
This success has been driven by our offering providing customers with the broadest and most flexible set of tech solutions in the industry.
Our tech stack demonstrate its reliability and the NFL championship games here for <unk>.
Forming flawlessly throughout while offering more markets than any other competitor or in house platform.
And now let me turn the call over to Mike to speak to the financial results.
Great and thanks, Barry and.
And good afternoon, everyone. It's good to be back with all of you during the day I Hope all of you are keeping well.
Before I jump from the financials today, let me just quickly say that I could not be more aligned with Barry's comments.
And I continue to talk a lot about the business. We genuinely agree we have a real opportunity in front of us here at scientific games to deliver value to our customers value to our players value to our global team members and value to our shareholders.
Barry and I and all the teams around the world.
Working hard sometimes it feels like at a breakneck pace to position scientific games for the future.
And in my new role now and I continue to be extraordinarily impressed with the talent and the caliber of our global team members and the leadership team and more importantly, how they've all performed in a very difficult macroeconomic environment, it's been extraordinarily impressive to watch.
And frankly, I am humbled by it there is a real sense of energy and optimism at the company, Despite COVID-19 and it's growing daily.
With that let me turn to the quarter results.
We continue to execute at a high level, both operationally and from a balance sheet and cash management standpoint, there are four key things that I would like to highlight for you all today.
First we delivered sequential improvement in revenue and EBITDA. Despite continued closures and restrictions we delivered record full year revenues lottery side play in digital while gaming improved sequentially once again.
All of our teams around the world have been working hard at optimizing their businesses, regardless of the economic environment and executing on what is in their control and Theyre doing a great job at it.
Second the teams continue to do a great job managing the balance sheet and working capital delivering another strong quarter of free cash flow, we generated $72 million of free cash flow, which is a $20 million improvement from the prior year fourth quarter.
Third we continued to deliver on our commitment to deleverage paying down $111 million on the revolver back in early Q4, and making an additional $100 million revolver payment last month.
Probably speaking we remain focused on taking the necessary steps to delever, our balance sheet and we'll continue to do so.
And fourth we continue to be diligent in managing our cost basis. As previously discussed we took steps back in the second quarter to reduce our operational costs and our capital cost by $150 million at the time as a short term measure given the impact of Covid.
Since then we now believe $50 million of those cost savings will be permanent and they were largely achieved by our gaming leadership team as they took the appropriate steps to realign our gaming be use to a global operating model.
Their focus was on appropriately non revenue generating expenses like SG&A, while at the same time, making the necessary investments in R&D and as they implement their new strategy and their new product roadmap.
Yes.
For 2021, we are targeting another $50 million of permanent cost savings all of you should look at that as on a run rate basis exiting 2021.
The savings will come in areas like production in general procurement, reducing our facilities footprint.
Through implementing technology upgrades and unifying our systems, which will result in process and organizational simplification.
We have already put in place the various work streams and governance to deliver on these savings while at the same time continuing to invest in our growing business. We will update you on our progress over the course of the year and keep you informed.
Now, let's turn to the quarterly business unit results.
Starting with gaming.
Gaming improved sequentially across all lines of business with fourth quarter revenues up 24% versus the third quarter keeping in mind, we did see restrictions and closures loosens in October only to tighten again in November and December as Covid cases spiked once again.
Looking at the year over year results, the fourth quarter declined versus 2019 with revenue down, 36% and EBITDA down 50%.
Also to note there were no major openings or expansions in the quarter and we are seeing strong year over year growth employment at our gaming operations segment, where we had about 70% of the North American installed base active in the fourth quarter.
Looking ahead gaming results from the first quarter will continue to be impacted by closures and restrictions across the UK Europe and Asia as well as by an overall slower recovery in our tables business. We do anticipate however performance improving starting in the second quarter as the vaccine becomes more widely distributed and restrictions and closures EPS.
Net lottery.
The business continues to be resilient.
With 10% revenue growth in the quarter and seven percentage of your EBITDA growth lotteries key initiatives like STP, the retail solutions and I lottery, all helped to drive top line growth our new printing press in Leeds is now online as well, which will allow us to increase capacity for our customers.
And provide new print technologies, which will help improve customer profit.
Hi play also delivered record full year results with revenue up 25% and EBITDA up 55%.
For the fourth quarter, they grew revenue, 30% and EBIT of 41% again very nice productivity.
The evergreen nature of our games and our live op strategy drove improved Pedro monetization at above market growth for both the fourth quarter and for the full year 2020.
Now turning to digital.
For the full year revenues grew 8%, while EBITDA increased 40% again nice productivity by the teams and digital around the world. The team achieved again record results for the full year. These results were driven by customer renewals and new deal wins, which have grown to the pipeline of sports books, which we will be deploying over the course of 'twenty.
'twenty one the improvement in EBITDA margin was driven by the sports book renewals as well as short term austerity measures, resulting from Covid over the course of 2021, sorry 2020.
As we discussed last quarter, our current sports businesses, principally international which is more of a services and time and materials model. This model tends to cause some lumpiness from quarter over quarter revenue related to when we deliver the <unk> solutions and the associated licensing into the marketplace.
While the timing impact benefited us in the third quarter. It created a more difficult comparison force in the fourth quarter. Additionally from an expense standpoint, the fourth quarter was impacted by increased spending related to upcoming sports book deployments across the U S.
Now, let's turn to that balance sheet management and free cash flow.
We continue to be focused on deleveraging and maximizing our free cash flow, which includes aggressively managing working capital. We ended the year with $8 4 billion of net debt a $200 million improvement versus 2019, ending debt of $8 6 billion again very solid progress against a tough macroeconomic backdrop.
Our weighted average cost of debt at year end was approximately 5% down from five 8% exiting 2019, the lower rate was due to a combination of LIBOR rates declining over the course of 2020, along with the refinancing of our $2 2 billion a 10% notes in terms of the maturity profile, we don't have any debt.
Matures until 2024.
Also noteworthy we ended we ended the year with approximately $1 3 billion of liquidity of $363 million improvement from year end 2019.
Finally, let's turn to free cash flow, we generated 72 million of free cash flow from the quarter and $186 million for the full year our.
Our free cash flow conversion was approximately 23% for the year, which compares to approximately 18% in 2019, an improvement of nearly 600 basis points year over year.
Our improved free cash flow conversion, which was principally driven by a $230 million improvement in working capital lower capital expenditures and lower cash interest capital expenditures for 2020 ended at 190 million down 95 million versus last year and below our <unk> guidance of 210 to 202.
$25 million.
Our cash interest payments improved $78 million year over year as a result of our lower average cost of debt.
Today, all my prepared comments, let me just recap some of the things that we tend to be really excited about here at scientific games as we build for the future.
One we are building a high performance winning culture and we are focused on delivering results.
We have improved productivity with both sequential improvement in EBITDA and a higher free cash flow conversion, despite the resurgence of COVID-19.
We have a healthier balance sheet and have delivered despite a difficult economic backdrop.
We are continuing to develop great content, and we will continue to invest and expand in the fastest growing parts of the market.
We have an enhanced management team and enhanced board focused on the long term, which is awesome to see.
And we continue to be in the middle of our ongoing strategic review of growth enhancing opportunities to determine the best path forward to most effectively unlock the value of scientific games and we're doing that at a fast pace in a nice clip.
All in on that's why I'm pleased with our progress that's why our team members are pleased with our progress and Thats why we as a global scientific games organization are excited to unlock the value of one scientific games, while delivering long term value for our players our customers our employees and our shareholders with that we're happy to take your questions.
Greater can you please open the line.
We will now begin the question and answer session.
That's a question you May press Star then one on your touch on phone. Its just think if youre using a speakerphone. Please pick up your handset before pressing the key.
Withdraw your question. Please press Star then two please.
Please limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Our first question is from John Decree from Union Gaming. Please go ahead.
Good afternoon, everyone.
Congratulations on such a success in such a challenging year operationally. So I wanted to congratulate you bearing Michael first.
And then Barry if I could ask my first question Big picture on on the gaming strategy, the new team and kind of operational changes that you've made I think in your prepared remarks, you've talked about some of the.
Maybe early results of our early products from that new team and new chain I was wondering if you could talk a little bit about.
How we should think about the gaming turnaround going forward and things, we should look for proof points, along the way to to get a sense of how things are going how things are progressing and how that turnaround is going.
Okay.
Okay. Thanks, Thanks, John really appreciate that.
Yeah. So.
Essentially we're early in the journey, but we're already starting to see progress in the market from the.
Incredible effort that Matt and his team has accomplished coming into gaming just honestly about a year ago.
It's somewhat obviously covered up with.
Covid.
Measured against that but it's exciting because we're positioned nicely as the recovery continues.
So if you look under the Hood, what Matt and team did over this past year is 50.
$50 million out of permanent cost out of the business, mostly in SG&A and reinvested.
A portion of R&D.
Really.
Driving.
The focus on building great games, bringing in some of the industry's top talent and revamping the entire roadmap and approach to R&D.
The highest profit pools.
And then streamlined our cabinet and our game Dev to increase the ROI on our R&D spend.
Now we're seeing we're starting to see the early signs of this effort.
In the latter part of 2020 and into 2021.
If you look at it on a quarter by quarter basis, we had quarter on quarter growth in the premium game ops, which is again our top profit pool.
In the space today, we grew from Q2 to Q3 to Q4, and if you look per eilers, we had the highest percentage of top new games and game ops and sales.
We also see our active fleet growing.
About 70% in Q4, and 80% plus in Q1, and our yields are up year over year.
This is driven by the first products coming out of this group to Scot I wish I had the $2 five selling performance and point combo, which had the three X performance.
And we actually have.
Total roadmap going through the roadmap going through the end of the year.
It's amazing Cabinet and Bureau at two excellent games that followed these policies up so.
No John.
I'm extremely pleased with where we are.
I look out on the field and I see we have an all star team. We have the right game plan in place and we are scoring runs in the early innings.
Obviously, the gaming over but.
I certainly like our chances.
Just a quick follow up so.
Cascadia is is live today, it's it has launched and neuro is another cabinet will launch later this year is that correct.
That's correct, yes, just try this out in the marketplace to do today Scott sorry.
Preferred performing well.
And then if you look at our presentation deck Youll see Bureau as well.
<unk> in the marketplace and these are going at the heart of the gaming market North America game ops, and ultimately sales as well and they've got really great products games setup launched U S. Neuro and you saw coin combo and monopoly come out with just got it and from Euro you have.
Willy Walker and our eight.
Fortunately products coming out on that and the products and the games look fantastic.
Thanks, Barry Mike if I if I can.
Operator, we lost him.
Okay.
The net Josh.
What do you want me to go back to John.
Can you open up Johnson line again, please I think we got cut off there. Thank you go ahead.
At my apologies gets up to that just quickly Michael.
I was going to ask you about the working capital improvement in the quarter. If you could unpack some of those improvements and.
If you could give us any insight as to what what is sustainable for 2021, and how we should think about working capital for this coming year.
John I promise I Didnt until agenda cut you off there Andrew.
Question.
Good good to talk to you I appreciate you asking about working capital.
For us working capital free cash flow is becoming just a mantra for us within the organization cash is king as we say internally a lot lately.
It really does drive a lot of shareholder value, we're focused on it as a result.
Extraordinarily pleased with the progress the team made last year, obviously with the results we put on the board $72 million of free cash flow in Q4 186 billion for the full year, we're really really proud of the free cash flow conversion.
3% dropping through to the bottom line from my EBIT up 600 basis points year over year, we talked a lot about it in Q2 Q3.
Working capital actually had a $230 million improvement in working capital year over year.
By going after all the working capital accounts DSO GPO DSI and just the normal hygiene you put around that the treasury teams did a great job with our cost of debt cost of debt down from $5 eight last year to 5% freed up $78 million.
And then all of that kind of landed with us $1 $3 billion of liquidity.
We're certainly happy with as well up $363 million year over year going forward, it's going to continue to be a top priority. Obviously, we're just going to continue to pull all the levers that we've been pulling this year won't be any one thing it's going to be a lot of small things just like it was this year. We will continue to focus on free cash flow continue to focus on liquidity continue to poke.
On the cost of capital.
We're obviously going to modulate our capex with the demand from our customers as they know more we'll know more and we'll turn that number up or down.
A year goes and then a whole lot of focus as you heard us talk about it in the prepared remarks on operational excellence and the cost impact that comes out of that $50 million last year, another $50 million on a run rate basis exiting this year all of that and then you get gaming kind of Q2 Q3 Q4 starting to recover.
And you get the really good kind of cash flow back in the business, which comes from EBITDA growth net of our gaming business were pretty pretty bullish about the prospects here and we're going to stay focused on it and again.
As we call. It that's rocket fuel to give the teams to invest in all of the growth opportunities all the new products all the right content for their market. So they can continue to win.
Wherever they play and so we're pretty bullish on our working capital. We're pleased with the work. The team has done so far and it will continue to be a top focus force going forward.
Operator, we'll take our next question.
Our next question is from Barry Jogger Donuts from <unk> Securities go ahead.
Hey, guys I wanted to start with a question on cashless gaming can you talk about the strategy behind doing a cross licensing agreement with IGT and just any further thoughts about the wider market opportunity. Thanks.
Thanks Barry.
Let me just make sure I get the second question right. So you you.
You asked about cash is on the first and what was the second.
Oh, just any further thoughts about how big the market opportunity could be for cashless.
Okay got it okay. Thanks.
First of all thanks for asking obviously, we're extremely excited around this morning's announcement.
The cross licensing.
Agreement enabled.
US provide cable operators with access to the gaming industry, most compelling portfolio of cashless gaming and IP technologies. This is something we've been working on for years, we built a huge comprehensive set of patents and technologies in this space.
So when we combine that with IGT that enables us to basically to deploy the best solution.
With the with all the technologies in IP that comes into this pool.
We can build a seamless cashless solution for our from our customers.
And we've actually built a product obviously and.
It's out in market now with the Seminoles, there's really three key pieces of that <unk> got to think about it. One is it's really essentially an extension of the systems business. So we have the IP and technology, we have the product and solution that solves the last mile and by the way, we have our systems business and by the latest being the <unk>.
Leading systems provider with.
Over 525000 interconnected footprint, we have a really large addressable market to go out and attack. This.
The revenue model, obviously is going to be a hybrid of recurring and nonrecurring elements.
As we put as we continue to roll this out into the marketplace and then obviously, we have to pull to license as well.
Got it.
And then just maybe another question on non gaming product sales.
As you speak to customers about 'twenty, one how do you see the outlook on one hand, we're hearing about lingering COVID-19 concerns potential for smaller slot floors on the other hand, we've got the vaccine and it seems like operators are more focused on net gaming VIP player.
He is a little more discerning on new slot products. So just would love to hear what.
What do you think the outlook is this year.
Yes look.
It's fluid clearly so we don't want to speculate too much on that future macro environment trend, but I got to tell you what we're seeing.
Seen or I should say, we arent seeing this in our near term trends now I got to obviously have to qualify that.
You guys know our customers are mainly the travel regionals, which is 95% of our business and 80% of their revenue is slots. So.
Very important business that these folks that they lean into particularly as other pieces of their business like bars lounges, and restaurants also get impacted by Covid.
We're seeing.
Sequential improvement so Q2 to Q3 to Q4.
And across the board and that shows up in our premium game ops trends. Our games sales has continued to improve as even even in the context of the holiday.
The resurgence of Covid.
And we're seeing it in our present fleet.
Fleet line as we mentioned before from 70 now even into <unk>.
80% in the Q1 range with yields continuing to grow and then obviously of that set.
We feel really confident with our roadmap as we starting to see our new products from this team come out in the marketplace.
The highest percentage of top new premium and Wap games in the marketplace per eilers.
And the new products that I mentioned, which I think the one thing to think about us.
As this thing continues to move.
Moving.
Players go to casinos to play exciting new games, and so we really believe in value and invest in great content. That's always been the case and we're optimistic that it will continue and so as this continues to recover we're going to focus on building those products because having those new products in the marketplace is what creates.
Excitement for the operators.
Great. Thanks, so much Greg.
Our next question is from Chad Beynon from Macquarie go ahead.
Hi, good afternoon, Thanks for taking my question.
Wanted to start with digital.
Barry you touched on I guess high level on the I gaming, the ods and the content side versus sports betting the open bad opportunities. It sounds like the I gaming may actually be.
As good if not better of an opportunity given your share in new Jersey and in what you alluded to in Michigan.
And more so if more states legalize, but I wanted to get your kind of high level in terms of how youre thinking about these segments long term, maybe just some additional color in terms of your successes in how youre thinking about the business going forward.
Absolutely, yes, we look we are.
Very bullish on gaming.
For several reasons first as you mentioned.
First of all 2020 was actually a record year for it so we're coming off a record year and we believe we're well positioned for 2021 as you mentioned part of it is just growth driven by the macro environment Theres new markets New states.
That are starting to legalize it's behind the sports betting there's not as many legalized state.
States, but it is becoming a fast follower and we're seeing in the new markets like Pennsylvania, Michigan line up there.
There's really strong demand there.
We're seeing nice because we actually have the leading products in the marketplace. We have the leading pan out there today, we have what we call lgs, but it's essentially as power Netflix of games right at it.
We service.
140 operators on one end and then 2800 games on the other end, we bring together third party content that we then anchor with our own content inside that.
Killer IP, we mentioned I think in the script, the 88 fortunes, leading the Michigan market. So we have.
Really great content really get great distribution, just waiting for these markets.
To continue to roll out.
And.
It's it's a business where it is.
Our content reaches the players it's must have content and so it gets widely distributed by all the operators in the marketplace today. So.
Yes, it's a real strong business that we're very bullish on.
And as we're continuing to expand internationally, we're just.
Setting ourselves up from the United States is that moving in and as we all know kind of moving a little faster due to the.
The COVID-19 stimulus.
Great and then I wanted to touch on another growth industry and growth driver for you guys I lottery.
There are some questions around if it is additive to I gaming.
Both I lottery and gaming are offered in Pennsylvania, and I think you highlighted pretty strong results and I lottery. So can you just confirm that this continues to be a good growth driver for you guys and then for the state and is that what gives you confidence that more states will look to legalized in the future. Thanks.
Yes, absolutely so I'll talk specifically about Pennsylvania, and then maybe pull it up to talk a little bit more broadly about our I lottery offering to your point Tom.
The Pennsylvania lottery actually had.
No.
Both the instant tickets out of retail and digital both grew year over year in the same year and in a year, where I gaming also launched in Pennsylvania and so it.
We see is that the market overall market is growing in all boats are rising with that.
We're super excited about it because.
We're already the global Lottery later today, we provide platforms and digital content to 20 lotteries globally and in 2020 alone we launched a lottery with Canada, Germany, Hungary, and Turkey, and we think the U S states potentially an additional 10 states will adopt.
Lottery over the next couple of years and if you think about it from where we sit we have very strong.
Relationships with our lottery partners today.
Across a comprehensive set of services today, and we have the most successful lotteries launched in North America.
The first program to reach $1 billion in sales and so we've got a great product and I lottery and we have a really strong.
<unk> chips with our customers and so we.
We're bullish on high lottery.
And feel like we're really set up to win there.
Thanks, Barry I appreciate it.
Okay.
Our next question is from David Katz from Jefferies Go ahead.
Yes.
Afternoon, everyone.
I appreciate the results in.
Congrats on it.
When we think about the process of getting leverage lower over an extended period of time.
It is.
Are you sort of contemplating sort of broader bigger.
Strategies for taking bigger bites I suppose is what I'm getting.
Getting at it certainly is commendable.
Generate free cash flow in this environment.
But.
Are there ways to maybe get the leverage down faster.
Very much appreciate it I appreciate the question and clearly.
Thank you for acknowledging by the way the operational success that we've been having as we mentioned before we're not going to go into the specifics today on the incredible strategic work that we're doing with the board what I can say is we've been very busy.
With very productive.
Discussions with the board on that strategy Thats going to focus on selling scientific games up.
To be a high growth company focused on maximizing scientific games shareholder value and focus on Delevering.
When we have something to share.
We really look forward to doing that with you.
Alright.
Appreciate that and I Hope you don't mind me asking my second.
Question is around the digital aspects of the business.
There is an awful lot of capability in there from social sports.
Real money, alright are there certain capabilities or other ways to increase the.
<unk> strategically right with them.
Those digital businesses any.
Posture on M&A or tuck ins or any of those sorts of things that could help that positioning.
We're constantly looking out in the marketplace.
Sure.
Gaps in our product portfolio.
Excuse me.
And things of that nature.
Obviously with in the digital and sports betting space, we made a big bet several years ago with NY exit opened yet and so we've got a fairly comprehensive.
Product offering today, but we're constantly looking out there for talent or for.
Portfolio gaps so.
Where we don't sleep at night, we're always we're always looking to grow and be aggressive.
Me, neither thanks very much congrats on the quarter.
Thank you.
Our next question is from.
From guests. Thank you from.
Go ahead.
Okay.
Hey, Great afternoon, everyone. Thanks for taking my questions.
Okay.
Operator, we lost her.
Jeff.
Hey, Jeff Sorry, we lost you there can you just restart your question.
Yeah, I wanted to start on the gaming business and specifically as you know with line of sight into the vaccine rollout and full herd immunity.
Continues to improve each day. It just curious have you noticed any changes in customer tone regarding capital budgets and specifically just wondering at what point, we could start to see an inflection there.
Basically as we mentioned before.
Well right now.
With a customer base that we have.
The travel regional which is 95% of our base.
In the near term trends.
We're continuing to see sequential improvement.
Okay, Great. That's helpful. And then just switching gears here over to Si play.
Sure, we'll get more color here on the call. After this but just wanted to get your updated high level thoughts about have you I'm just curious how do you see the market opportunity as you expand into the casual games genre, playing out for you guys and how do you plan to compete versus the current players there and that's all from me. Thanks.
Okay, Great Great question.
Look I think an incredibly smart move.
One.
It's an opportunity to expand in the $20 billion casual games genre.
And which there is a lot of winners.
And.
And we have the right playbook to enter that casual space. So if you think about it thoughts as a compelling simple core loop.
And.
Solitaire is a simple core loop and so what we're looking for in the casual space is games and teams that know how to build.
I understand that genre, the simple core loop with evergreen that also evergreen and then plugged in to the machine that the analytics to live ops, the UA and monetize monetization machines that Si play has and the great thing is we have a playbook there of entering into <unk>.
That piece of casual and one that we've actually done before and if you think about a bingo is it multi card simple loop game as well very different than slots that we plugged in and we were able to <unk> the revenue run rate within a year and so we think it's it's something we've done before and it's a smart move to to enter that much larger Tam.
Yeah.
Okay.
Great. Thanks, I appreciate all the color and congrats on a strong quarter. Thank.
Thank you operator, we have time for one more question.
Okay last question is from Ryan.
Bell from.
From Craig Hallum go ahead.
Great. Thanks, Michael Barry Congrats on the operational improvements and very good to hear on the encouraging progress on the strategic assessment process.
Just want to jump into digital quick.
Congrats on the aren't interrupted performance during the Super Bowl one year.
Your main competitors there are notable outages, which were currently high profile across a number of operators, but curious if this has resulted in any new customer opportunities for you guys and then maybe share learnings that you guys have had over the years you know how you fine tune the tech.
In the UK to bring it here basically to execute so well.
Yes, absolutely great question I'll actually reverse it started at the start of your first question. So.
What we have found over the years and decades of actually running sports betting through Europe is that yes.
You have to be reliable stable and provide a customizable solution to operators. So that they can compete in the marketplace you can't fall down and but you also have to give them the flexibility to create an offering that.
Is helped allow themselves to differentiate and we've been able to do that with home that basically over years and years in the UK and.
We got to the Super Bowl and escape, but before that we got through the Melbourne Cup, we got through the Grand National in the U K and so the superbowl is just yet another example of years.
Time tested attack that's in the market today, we actually see by the way.
UK market share continuing to grow.
As operators want to systems integrators.
Best core elements of their tech solution in order to have the best products in the marketplace and so we just keep our mentality is.
Build the best products and it will win over time right and what we're seeing in terms of going back to your first question in terms of growth.
We believe that we still have there's still a ton of <unk>.
Macro and market factors that are driving growth for us.
One is new markets and states are continuing to line up.
As Covid is driving continued interest to legalize we have new deals that are coming from everywhere from European providers coming over to the marketplace as new states lineup. There's regional players. There Theres also players that have already made it a short term decision to get into market with a tech solution.
And switch over to our solution we've seen several of those that we just recently launched so new deals and then behind that quite frankly for 2021, we've got new deployments for deals we've already done right <unk> continues to expand when Golden Nugget et cetera, our goal is to deploy throughout fan.
Build throughout 2021, and so I think we I believe we said we went from three to 17 deployments from 2018 to 2020, we should come close to doubling that in 2021. So we've got we have a lot of great growth.
Just as kind of sports betting marches throughout the United States and then lastly, our new products. We continue to launch New products example of one that.
We offer an accordion of low.
Anything that you want but you can take as little as you want as well and we continue to launch new products into our offering like.
That building capability et cetera, and so there's just things like that.
As we continue to attack that we try to.
We grow the market.
Yeah.
Great. One quick follow up just on the IGT cashless is that is to go to market and a joint operational fashion. There are you sharing tech and then your each going their own separate ways to win customers and monetize that.
It's the latter.
And the IP.
But the the.
<unk> is really.
It's driven out of an extension of your systems business.
Abiding that cashless last mile and so we have our solution actually as I mentioned before in the market, but by pulling the IP.
<unk> ourselves in IGT, which we both have very comprehensive IP, we're able to actually create a solution that is really best in market as seamless as possible from the player and that's Super Super important.
Today.
Sure.
Thanks, Good luck guys.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Barry Cottle for closing remarks.
Thanks, everyone for joining us for today's call. We are all very excited at scientific games about the path forward.
There's a new set of energy and optimism at the company as we looked at how we can best optimize our portfolio deleverage our business and capitalize on the key areas of growth in order to deliver outsized returns for our shareholders. We are excited to update you on our progress in the coming quarters as we look to unlock the value of science.
For the games.
You for your support.
Okay.
Thank you everyone calls now.
Thank you everyone and we'll be available after the call to take any further questions.
It sounds from from now concluded. Thank you for attending today's presentation you may now disconnect.