Q1 2021 Scientific Games Corp Earnings Call

May 10, 2021

[music].

Okay.

Good morning, welcome to the scientific games 2021 first quarter Investor Conference call, all participants will be in listen only mode should.

Should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad, there will be an opportunity for questions. Later. Please note. This event is being recorded.

I would now like to turn the conference over to Jim Bump AC Senior Vice President of Investor Relations for scientific games. Mr. Baum Basi you may begin.

Thank you operator, and good morning, everyone.

During today's call, we will discuss our first quarter 2021 results.

The performance followed by a question and answer period.

With me this morning are Barry Cottle and Mike Glenn.

Our call today will contain statements that include forward looking statements under the private Securities Litigation Reform Act of 1995.

These statements involve certain risks and uncertainties.

It can 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 morning the myth.

Cereals relating to this call posted on our website.

The filings with the SEC.

We will also discuss certain non-GAAP financial measures of 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 as in the investors section on our website.

As a reminder of the conference call is being recorded.

This webcast and accompanying materials will be archived in the investors section on our website and scientific games Dot com.

Also supplemental reference slides are available on our Investor Relations website. The slides are meant to facilitate the review of the company's results.

Now, let me turn the call over to Barry.

Thanks, Jen good morning, everyone and thank you for joining.

We are extremely pleased with our progress this quarter delivering another quarter of strong execution, which enabled us to return to year over year of growth on both the top and bottom line.

We were able to achieve this despite continued restrictions and closures, particularly in UK and Europe building on the strong progress we made in 2020.

These results speak to the strength of our portfolio of businesses, our execution and focus on delivering compelling content and solutions all enabled by best in class technology and talent.

And in particular recognition to our talented team with their continued passion and dedication.

Not be more proud of what they've achieved thus far and I'm excited about the foundation, we are building for our success going forward.

I also want to share with you the great progress, we're making on the strategic review with our board the.

First let me turn to the quarterly results.

In the quarter, we are very pleased to deliver strong financial results as well as the key operational progress across our portfolio of businesses.

Demonstrated by double digit growth at lottery digital and Si play is.

As well as continued gaining momentum in North America, enabling us to grow very strong 35 per cent and EBITDA year over year.

We continue to be extremely disciplined in managing our balance sheet with an eye on enhancing cash flow.

Growing free cash flow of the $80 million in the quarter and enabling us to pay down 250 million of debt.

Delivering on our ongoing commitment to delever.

Now turning to the businesses in <unk>.

Gaming, we're seeing great progress, while continued restrictions and closures, particularly internationally impacted the business in Q1, we are starting to see of strong since the recovery in the U S market.

Given the success of the cadence of our new product roadmap, we see gaming poised for growth in second quarter, both year over year and sequentially.

In particular, we're seeing strong success from our strategy of bringing in great talent and executing against our new global R&D and product roadmap for.

As seen on the largest profit pools to capture share.

We're also growing and expanding our proven game franchises and our marquee licensed brands.

In our North American gaming operations with the success of the SCADA. The first global cabinet launched under the new strategy and games like coin combo and monopoly money graph, we have grown our north American premium game ops installed base for the third consecutive quarter.

Just Scott it is performing at two three times the house average and impressively. It is on pace to achieve a 1000 units in half the time of our most successful cabinet in recent history. The <unk> 43.

And this is despite the backdrop of continued restrictions and closures.

And in early Q3, we will launch the bureau of cabinet with games like Willy Wonka Dreamer of dreams, and 88 fortunes and Bruce points with Premier casinos in the major U S markets.

Eight eight fortune is a great example of one of many scientific games franchises, where we have leveraged the success across all of our markets. It is a top performing gain in land based one of the top games on our I gaming platform, including ranking number one in the U S. A consistent performer for instant lottery business.

And it is one of site plays of course, social casino games.

Now turning to the North American for sale market.

We grew our ship share two percentage points to 25% last year.

Nancy <unk> prosperity is performing great out of the games, one nine times the house average on islands and in our internal data, we're seeing performance as high as two seven times, which should lead us to continued success in this market segment.

In Australia, our key profit pool outside of North America, we're seeing positive momentum in our ship share off the back of the successful launch of cracking unleashed, which is performing at one five times of the house average.

Another sign of a real momentum is our competitive position in either shrinking.

We had the number one share of top new games and both the WAF category and the for sale category.

In fact in the new games Wap category, we have for the top five ranked games and all three titles launched hunk of SCADA are registering in eilers top new premium leased games list.

This continued progress as the validation of the broader strategy and operating structure that our new gaming team has implemented.

Moving to lottery.

We're off to a very strong start for 2021 with exceptional top and bottom line results driven by record industry growth elevated jackpot activity in our market leading portfolio of products and services.

The instant lottery business Shine this quarter and we continue to be the clear market leader with our unique solutions, helping to drive record performance for our customers. In fact 43 of 45 U S. Instant game lottery experienced double digit sales growth in the quarter.

And we are the primary provider to nine of the top 10.

We have a unique proposition for our customers with our innovative retail and digital products lottery.

The lotteries with our innovative solutions, including scientific games enhanced partnership for S. J E T.

Continued to lead the industry in performance both in the U S and at our top international accounts, including Italy, and the UK.

Our retail solutions continued to lead the lottery industry's modernization the checkout line cashless and self service solutions. This.

This quarter, we signed the deal to provide site you inline at Kroger stores in Kentucky.

It's a game changer for expanding instant ticket distribution in the grocery store checkout lanes of.

Allowing shoppers to add games to the grocery purchase in one convenient transaction.

And more rollouts of our plans with Kroger and other major grocery retailers and other states.

We've also been strengthening our global pipeline in Q1 alone, we signed and extended more than 30 years, the instant lottery contracts.

Including the new contract in Portugal, which is the top 20 market globally.

In terms of our digital and lottery business, our flagship, Pennsylvania program saw I lottery sales growth, 50% year over year.

And I lottery is not just the U S stores, we provide I lottery to 'twenty, one customers globally with new I lottery expansions in Canada in Hungary in Q1.

With at least 10 additional U S states anticipated the authorized I lottery over the next couple of years, we are very well positioned to benefit.

Now turning to <unk>, we're very excited about both the strong performance in the quarter and the long term outlook as we invest for the future by expanding the $20 billion plus casual gain market with the soft launch of Solitaire pet debenture in April.

In the quarter side play delivered strong revenue and EBITDA growth of 28% and 32% respectively.

Impressively, we were able to build on the momentum from last year growing both year over year and sequentially.

The strength was broad based with growth across the game portfolio as we continue to outperform the market.

The basis for the strength continues to be our payer focus and live op strategy.

Howard buyer side play engine.

We achieved another record with payer conversion hitting eight 1%, while both monthly paying users and average monthly revenue per user continued to be well above pre COVID-19 levels.

With the strength of our core social casino games and growing presence in the casual gaming space. We are very optimistic about the evolution of Si play in its path going forward.

Strong momentum continues in both of our I gaming and sports businesses with a record quarter for digital revenue and EBITDA.

We had the largest high all of the offerings of must have I gaming content and one of the most reliable and flexible set of tech solutions in the industry.

The leading tier one operators around the world for both I gaming and sports betting.

And I gaming, we saw accelerating growth in the quarter, driven by 226% growth year over year in the U S.

The success was driven by a broad content offerings led by our original land based franchises, including 88 fortunes are successful launch in Michigan and supported by continued strength in the U K and Europe.

Our results this quarter clearly demonstrate the strength of our strong franchise offerings, our innovative original content and our market leading distribution platform Oh GFS.

We had a leading market share at quarter end of 24% in the three U S States, where we are locked.

Maintaining our strong share in new Jersey, continuing to grow our share in Pennsylvania, and increasing our share in Michigan in the month of March by 500 basis points to 22%.

Our original content in particular, our land based franchises play an important role in fueling the success.

88 fortunes is the top performing games on our I gaming platform in every state in which we operate.

In fact in the U S of.

The top performing games on our I gaming platform in Q1.

Our original content accounted for 11 of the top 20 games in Michigan.

12 of the top 20 in New Jersey and of remarkable 15 of the top 20 in Pennsylvania.

And the affinity players half of our original franchises is not just the U S store.

Taking a look globally in 2020, our original land based franchises generated approximately 30% of the $2 2 billion in total G. G. R. On our I gaming platform and accounted for seven of the top 10 for forming titles.

While the R&D investment to create these original franchises is largely incurred at our gaming business, we are able to leverage debt investment monetizing our franchises across gaming lottery, social and our I gaming businesses enhancing our returns and engaging players for these franchises wherever they want to play.

Looking ahead, we will be launching in west, Virginia, and we see tremendous opportunity in gaming as more U S States legalize.

As we continue to grow our footprint and as we expand internationally.

And our sports betting business, we continue to build on our momentum driven by the 94% revenue growth in the U S.

As the market leader powering premium sports books and fan engagement on a global basis, we are of proven choice for tier one operators and we're poised to benefit from our continued growth in the total addressable market both in the U S and globally.

We are of partner to 'twenty for operators on four continents.

With a demonstrated track record of success and unmatched capabilities.

On the back of the number of renewal and deal wins in 2020, we deployed for sports books in the U S. In the quarter and launched in Michigan, and Virginia and post quarter end, we launched an Indiana, Illinois, and Tennessee, bringing our U S. Total to 20 for sports books.

We are rolling out our sports betting engine with fan tool is the part of our recently expanded partnership.

We became operational in two states in the quarter and another two so far in Q2.

We will be rolling out in multiple additional states over the course of 2021.

Overall in the U S. We're now live in 12 states and have plans to launch in Nevada soon.

With recent Legislative progress, and New York, Maryland, Arizona, and Florida to legalize online sports betting and unprecedented demand for our platform of products outside the U S, including Canada, Latin America, EMEA and Asia Pacific.

We see tremendous momentum.

Our success has been driven by a robust offering providing customers with the broadest and most flexible set of <unk> solutions for the industry.

Our deep Tech stack continues to demonstrate its reliability performing flawlessly at the biggest sporting events around the globe and with our proven ability to scale quickly and launching new markets. We couldn't be more excited about the opportunities ahead.

And now I want to provide some comments on our strategic review of this.

This is an exciting time for scientific games.

Over the past seven months, we've been working hard on the strategic review of our businesses with the help of our board.

Particularly Jamie Odell and Tony Corsage who've already successfully led the kind of strategic transformation, we are embarking on.

I am pleased to share that this review is nearly complete and has confirmed the value and growth opportunities of each of our businesses.

Our vision is to become of content and digital led growth company for.

Just on building great games that define the future of gain.

Supported by platforms that power of the best operators in the world.

We will achieve this vision through three core strategic pillars that will deliver on our promise to unlock value for shareholders and position scientific games for sustainable growth.

Portfolio optimization growth opportunities and Delevering.

In terms of portfolio optimization of our strategic review has confirmed the value of our five market, leading businesses, which have strong momentum and are positioned for significant growth.

In gaming our outstanding New management team has positioned us to come out of the pandemic as a much stronger competitor and gained significant market share.

For I gaming, our business as the market, leading content provider and is executing at a high level and benefiting from accelerating industry tailwind and our strong original content offering.

The growth opportunities are high in the U S with of long term Tam estimated to exceed $15 billion.

In lottery, we are the market leader worldwide, our largest customers have been with us more than 30 years on average.

As we have driven increasing value for our customers through innovative systems and products.

Lottery delivered outsized results during the pandemic and again in this quarter.

Our content focused I lottery business has many years of high growth potential ahead with the U S. I lottery market estimated to grow fourfold to $11 billion by 2025.

Our sports business offers the preeminent platform used to power sports betting around the world.

And we are investing to create unique content for our customers we.

We see strong growth opportunities ahead in the U S as more and more states legalize online sports betting.

And Si play outperformed the market last year and again this quarter building of strong gains from 2020 with Si play social casino business continuing to perform well it has strong growth opportunities as it expands in the $20 billion casual marketplace and builds out its pipeline of games.

Our best path to delivering significant value is driving a higher mix of of content, which provides differentiation in margin and digital across the portfolio.

We will leverage our key strengths to unlock value.

Talented teams across the company, creating great games and franchises that engage players wherever they want to play.

Market, leading businesses that are well positioned to capture growth opportunities from emerging trends.

Innovative technologies that enhance the player experience.

We're great platforms and create value for our customers.

Our second strategic pillar is to capitalize on our largest growth opportunities.

We will become of sustainable growth company by making smart organic and inorganic investments in our portfolio.

Building on key growth opportunities, including games, winning new content and cabinets I.

I gaming content.

The lottery expansion in the U S. The sports platform and.

And site place expansion into the booming casual market.

We will make that happen across the portfolio by leaning in on content, which provides differentiation in margin and high growth markets, such as digital with large and growing Tam.

We recognize the incredible opportunity the digital transition in our industry presents and we are seizing this opportunity in fact, we are targeting our digital businesses to be comparable in size to our land based gaming businesses within three years.

Lastly, we remain committed to delevering.

Within two years, we expect to significantly reduce our leverage ratio to be in line with our public company peers substantially enhancing our ability to invest in growth opportunities that drive value for our shareholders.

So as I began my remarks I want to reiterate this is an exciting time for scientific games.

I've never been more optimistic and confident in our future.

We plan to announce specific actions and milestones around our three strategic pillars portfolio optimization growth opportunities and delevering by our second quarter earnings call.

We expect that these actions will be executed over the next year and.

And we are confident you will share our excitement as you hear more about our plans.

And now let me turn the call over to Mike to speak to the financial results. Thanks, Barry and good morning, everyone. We appreciate all of you taking the time to join our call today.

Before I jump into the financials I want to quickly echo Barry's excitement and the optimism we all share at scientific games about our future and the tremendous opportunity we have in front of us to drive significant value for our customers our employees and our shareholders.

I'm extremely proud of our employees around the globe frankly was their energy and enthusiasm that was instrumental in achieving the strong operational and financial performance in the first quarter.

Now, let's turn to the quarterly results.

There are four things I want to highlight for you. This morning.

First our strong execution led to a return to growth on both the top and the bottom line Rev.

Revenue grew 1% importantly, marking the first the increase in revenue since 2000 of my team and EBITDA grew an impressive 35% versus the prior to the year.

Importantly, all four of our business units of double digit EBITDA growth in the quarter.

Second we continue to be laser focused on managing our balance sheet, we generated free cash flow of $80 million in the quarter, which was a $25 million improvement year over year and represents a free cash flow conversion rate of 30%.

This increase the efficiency and cash flow was the clear priority for me and our teams around the world.

As we believe it is one of the best ways to deliver value for our shareholders.

Third we are making steady progress on our commitment to Delever as you heard Barry mentioned earlier, we paid down 250 million of debt year to date.

Including paying down $100 million in the quarter and $150 million in April.

In fact since October we have now paid down $361 million on the revolver and we expect to continue to make significant progress on this front going forward as the economy continues to reopen when we drive increased productivity in the business and finally and fourth we continue to be diligent in managing our cost base. We are on track for the <unk>.

Millions of dollars in additional run rate savings, we communicated to you last quarter and as a reminder of this is in addition to the $50 million of permanent savings we achieved last year.

Now, let's turn to the quarterly business unit results, starting with gaming the gaming team grew EBITDA, both year over year and sequentially of.

13% and 3% respectively.

This was despite the continued restrictions and closures with the UK and Europe largely closed for the entirety of the quarter.

The growth in the EBITDA benefited from a more favorable product mix and the cost actions, we've taken as well as comparing against certain charges that impacted the prior year quarter.

Gaming revenue declined 23% year over year due to our geographic and product mix.

As you know we have a industry leading position in the U K and in Europe and in our tables business both of those of which are experiencing a slower recovery.

On a sequential basis. The revenue decline was largely the result of the declines in Europe and the U K that we just discussed and also in line and consistent with the guidance we provided last quarter.

Digging into the quarterly performance, we are starting to see a strong recovery in the U S market and we are well positioned as we continue to place more co scatter units on casino floors, and we would be launching the highly anticipated neural cabinet shortly.

We had no major casino openings or expansions in the quarter, we saw very strong year over year coin net of our gaming operations segment with about 84 per cent of our North American installed base of active.

Looking ahead with the market opening back up, especially in the U S and the continued gains as we execute on our new strategy and product roadmap, we anticipate that in the second quarter gaming will see both year over year and sequential growth in both revenue and EBITDA.

With that let's turn the lottery the <unk>.

Strength of the business accelerated yet again in the first quarter with revenue up 17% and EBITDA of the very strong 53%.

Growth was driven by a number of factors first record U S industry instant sales and strong sales across Europe.

Second of above market performance from our S. T E. P lotteries third the elevated powerball and Mega millions jackpot, we all saw early in the quarter and for the continued strong lottery performance.

The margin improvement of the quarter was fueled largely by the strong top line growth in our international joint ventures out of very good results in the quarter.

While we anticipate continued strength of lottery in the second quarter, it's hard to predict exactly how long the COVID-19 <unk>, we've seen since the second half of 2020 will continue now.

Now one of the pipeline if I play team delivered another quarter of strong results building off the gains from last year revenue grew 28% and the EBITDA increased 32% and preferably the SIFI team delivered sequential growth on the back of of what was already a very strong fourth quarter.

For the performance was broad based and again enabled by their live op strategy and payer focus and the overall strength of the evergreen franchises.

Turning to digital they had a record quarter, delivering 86 million of revenue and $29 million of the EBITDA of 12% and 26% respectively for.

For those of you that may recall in Q1 of last year, we had disclosed two one time items that made our comps coming into Q1 of the little bit harder.

If you normalize for these the sports platforms in our gaming revenues grew 35% year over year and 18% sequentially.

That growth in performance was driven by the strong performance of our first party content.

Our successful launch in the Michigan and the strength in our UK and European businesses.

On a segment K P. I paid that you'll find in our earnings release, we have provided the normalized numbers for your reference.

While the digital continues to benefit from the tailwind and I gaming and sports betting as well as our broad content offering we anticipate there will be some impact on the business as restrictions and closures begin to ease as.

As we look for the second quarter, we will also increase our expenses related to the acceleration in the deployment of sports books in the U S.

Now turning to our debt the balance sheet and cash flows continued to execute on our commitment to delever and maximize the free cash flow. We ended the quarter with $8 3 billion of net debt, which is approximately $200 million lower than Q1 of 2020.

Since October as we previously mentioned, we have paid down a total of 361 billion of on our revolver and we expect to make significant progress deleveraging going forward, given our increased productivity and as the macro environment improves.

Our weighted average cost of debt at the end of the quarter was 5%, which compares the five 7% of Q1 of 2020. The 70 basis point improvement was due to LIBOR rates declining over the past year as well as lower net debt.

We ended the quarter with $1 3 billion of available liquidity, which was $353 million higher than the first quarter last year. As you may recall, we don't have any debt maturities due until 2024.

Now moving to free cash flow, we generated an impressive 80 million of free cash flow for the quarter up $25 million year over year, which translated to a free cash flow conversion rate of 30%, which was the 200 basis point improvement year over year.

Again, the real credit for the focus on the hard work of our teams around the world the.

The gross on free cash flow was due to the strong growth in the EBITDA.

The partially offset by the timing of cash interest payments, where we had three interest payments in Q1 of this year versus two in Q1 of last year.

Wrapping up I continue to be extremely excited about the future of scientific games I can tell you that when I took this role a year ago I saw tremendous opportunity to deliver value and transform the company and it's great to see the starting to unfold.

We are delivering strong results enabled by a high performance winning culture and our talented teams around the world. We are executing on our strategies building a strong foundation for our path forward.

We are creating great content and leveraging it across the many platforms of our players like to engage with the.

The enhancing our returns.

We are strengthening our balance sheet and are committed the meaningfully reducing leverage.

We are investing in high growth opportunities, we look to drive value.

And we are well advanced on our strategic review and looking forward to updating you in the second quarter overall I am very pleased with the progress, we're making and the pace at which we're moving I'm excited about the opportunity that lies ahead with that I'll be happy to take your questions. Operator can you open the line.

We will now begin the question and answer session to ask a question. He made press Star then one on your telephone keypad, if you're using a speakerphone. Please pick up your handset before pressing the keys if at any time of your question Theres been a dress and you would like to withdraw your question.

Please press Star then two.

Please limit yourself to one question.

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

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

Mr. Jonas for your line is open. Please go ahead with your question.

Alright, thanks for that so I wanted to start with digital can you walk us through the next milestones for the <unk> contract and when you think we'll start to see a visible uplift in revenues and then with that.

Also for digital how do you think you are positioned in the emerging Florida market given the new terminals contact.

Thanks Barry.

Great questions and I'll take the.

So first of Anvil.

We're very happy.

Excited about the partnership with <unk>.

Obviously, we're in the early days of rolling it out with the.

The annual States, we've now got for converted to our sports engine.

We've got some more lined up between now and the start of the unit.

So.

Youll see that progress.

The.

As the.

With the revenue.

The starts to the.

Fold over the next several months.

Revenue there is a combination of business model of the participation. So we'll.

Continuing to grow.

Alrighty.

On the similar I would say obviously.

Frankly across the digital sports and digital.

As it relates to Florida.

The momentum of the legislation in Florida, New York, Arizona et cetera, we have a great relationship with the seminar with hard rock.

We're live today with digital gaming content in New Jersey, and retail sports in Iowa, and New Jersey, Obviously, we can't comment on specific deals.

Discussions with hard rock breadth of the opportunity.

The continuum of sports and casino.

The exciting times right now in the sports.

Okay, Great and then if I could just ask a quick follow up.

Look you've had some very strong talent joined recently I guess, you could start with Matt Wilson last year and several folks since I guess, just how much do you think the new team staff is on products today, and maybe more specifically.

When does your new Chief products Officer, Rich Sneider started and how long before you think we will see an impact from him joining.

Great, Yes, so all.

Another great question.

Matt and his team Siobhan Connie and others all came in the event.

Now of over a year the yen.

It's been the nominal obviously, you've seen the regrouping the prioritization of the profit pools rehearing of the roadmap supporting the global R&D strategy all pointed at.

The biggest markets.

You are seeing right now.

The progress in those markets with three straight quarters of growth in the <unk>.

Game Ops, North America game ops premium space.

Great products the products that have come out of the team.

And that system.

Got it.

Credible.

New cabinet that is outpacing our other recent cabinet launches.

And of meaningful way with very high ratings on the floor.

Backed up by incredible content like.

In fact, the three titles that we locked with the us got it.

And the top new premium games on Islands, and then followed up by the Bureau cabinets coming out.

Later this summer.

With again, great content of Willy Wonka of an.

88 fortunes and so all of that is just as a function of the team coming in and just you know.

Making the working with the <unk>.

All of that exists at the day in and making an incredible.

Move on the roadmap to address the the key markets.

Unfortunately, even though we have the the noise of COVID-19.

The press some of this because of COVID-19, Arkansas.

Arkansas for recover I think it really is the.

The matching the blended.

Now on that side of it.

Obviously with the rich niches.

The Great example of how we're continuing to lean in on content building great games right.

The very experienced industry leader he started in July.

We believe it's going to have the immediate.

To our products and the approach to the business.

And because of.

The veteran he knows what he's doing any of the seats.

Yes.

So we're really excited about the impact of he's going to have and obviously, we've announced some other talented coming onboard as well that's going to continue the augmented.

And we've kind of said all along we're assembly of the best studio talent.

Yes.

Basically the result in the best roadmap portfolio and the development in the industry.

We're really excited about the progress that we're making there.

Oh, that's great thanks, and congrats on a nice quarter.

Thank you.

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

Good morning, everyone. Thanks for taking my questions.

Two the first one on I gaming content.

So a lot of market share and a nice uptick in revenues.

And given the the gaming team debt. The Barry was just talking about for land base that they were all very familiar with.

Im curious if you could talk about the maybe the integration of your I gaming content in your land based content I mean is there in <unk>.

The opportunity to leverage your <unk>.

Leading land based content online do you have separate teams that do the digital content and I guess the the Genesis of the question is we've seen a lot of Bdcs suppliers, who are customers of would be customers looking to get some content in house. So.

It's becoming very clear how important the quality and even maybe quantity of content is on gaming and your success I think the evident of your library and the ability. So curious if youre of land based expertise is providing.

A lot of help on the digital side or if there are synergies there so.

Curious to get your thoughts on that.

Yeah, no absolutely again, another great question.

It started the reverse or reverse the about.

Obviously.

Announcements of moves of people moving into.

The building content for Icos Hi.

Quite frankly, it's just all of that does is it just reinforces our belief of the huge upside and market potential in gaming today, if you think about it.

The $15 billion plus the Tam in the U S alone in this marketplace and I gaming and whereas such that early stages of this right.

The Greek state slide for one coming on shortly.

Such unprecedented momentum in the space right now.

With both legislators on the legislative front, but also on the player adoption for them right and so there's this huge market opportunity.

That's out there now.

So the space the space there for multiple players to be providing some of that.

We are extremely confident that we are and quite frankly, the enviable position as it relates to bringing content to other gaming today.

For exactly what you just described I mean, not only do we have the market leading share today broadest content offering the 3000 gains for the lgs platform, but as you said.

We have best in class of old treasure chest of franchises in studio teams and gaming to day building things like 88 fortunes dancing drums et cetera that could be deployed across the land base of digital and players love to play, but they play in casinos.

We mentioned earlier, the 30% of our $2 2 billion of global GTR comes from SG content content that.

On the in the.

And the land base and people can play in.

Digital and we think the digital starts to progress across the United States that is going to become even more important.

They have the player experience.

They recognize the brand the recognized the games play the love how the game plays features as the bonuses and so are.

We talked about under strategic review leaning into content.

Building, great franchises of deploying those across the land base of digital.

And of really really nice position.

Going forward to take advantage of that.

That's great color of Barry Thanks for that.

If I could shift gears quickly for a quick follow up on slots, specifically and we've seen casinos.

So really across the country turned the corner over the last couple of months and hopefully the quite at the end of the tunnel curious if your team has seen any change in behavior.

He knows we're keeping a tight watch on their wallets and their capital budgets, but we're hearing more and more.

Recovery of progressing more focus on gaming, particularly from regional casino operators and less on some of those non.

We're less profitable amenities.

So not sure if they've started to look at reinvesting just yet if it's too soon but since we last spoke just a couple of months ago. Im curious if youre seeing any any behavior of getting any better visibility as to when your customers might start.

Ramping up their capital spend on the casino floor.

Yeah. John This is Mike I'll take that Theres, a couple of things in there.

Sounded like Capex was one of them and then just overall performance of the gaming.

On the Capex side as you said, it's just a little early to react to that yet.

We don't have great clear guidance channel, how thats going to come through from the operators. They are still working through the budgets on their side.

I would say just on Capex, we've kind of seen the consensus out there.

And that you won't have owners for Capex for the year. We think you guys are in the right Zip code.

Waiting and watching like everybody right now to see how that.

Played out on the on the gaming business overall, I would say this and I'll, let Barry jump in and add some color on the back end as well.

Very simple just really pleased with the momentum of the gaming business right now.

We landed about where we thought we were going to land in Q1.

And as we guided the market for.

For Q1 as well.

As you go into Q2, we see a lot of positive trends, we are at about 84%.

Active units of North America, right now we see coin.

17% in April over what we saw in Q1.

You heard in my prepared remarks that the international markets, especially the U K and Europe, where effectively closed for the entire the entirety of the quarter, we expect those markets to start opening back up.

And we think that bodes well for what Q2 should look like as we said in our remarks, we're right now anticipating and expecting again.

Both sequentially and year over year in the second quarter net just on the back of all of the good teams all of the team work.

We have going on in the gaming business right now so maybe all of the products and then I'll, let Barry jump into a little bit more of that because I think that's fueling a lot of them yes.

The net really well.

In terms of the trends outside of the <unk>.

Territory.

Mike alluded to like the UK, where we have such as the lead market share that's impacted by it.

Okay.

Actually not we're not seeing the trends.

We're seeing great trends, we're seeing the trends of point in the increasing active machines being turned down or in North America game ops premium revenue. So you got to remember 95 per cent of our customers remains of tribal and regional so and 80% of our business comes from slots for the Super important.

For their for their business and so.

Seeing the trends in that in that regard and as I had mentioned earlier on the on the call.

We're really the.

If you look at the products success that we've had just recently with the recent products being brought out and and.

The combination of the Scott it in Euro and those games with the recovery of the marketplace, we're really setting ourselves up for.

Gross.

And continued growth in Q2.

Okay.

Thanks, guys I appreciate all the color congratulations on the quarter.

Thanks for the next question comes from Chad Bennett with Macquarie. Please go ahead.

Alright. Good morning, Thanks for taking my question and congrats on the quarterly results.

First I wanted to focus on margins, particularly in the in the gaming segment. It looks like Opex continues to decline you guys have talked about that you know some of the cost containment measures you've taken.

Margins for the quarter in that segment were up to 44%. Despite you know products sales similar to what you were just talking about not really fully back to where we'd like to see it. So I guess my question is where can margins in the segment get too and then you know as we look out just over the next couple of months should we expect.

A lot of cost of kind of come back to the business the that could kind of temper our expectations in terms of this this massive margin improvement. Thank you.

Chad its Michael ill try that one.

I guess the first thing the idea is that once you sort of the short term austerity measures that we've put in place.

Last year, obviously on the back of the COVID-19.

Call out that most of the short term of austerity measures of the come back into the business already those are already reflected in the Q1 results of what you see in Q1 is a pretty good benchmark of where we are.

As the business starts to ramp which would be of great. Thanks, well, obviously add back in the variable cost.

Needed to meet that demand.

The guiding principle of ensuring the opex continues to scale with revenue.

Theres, obviously going to be some quarter to quarter volatility that always exists based on the mix regionally byproduct et cetera, but I think if you look at the Q1 number it's a pretty good indicator going forward of what we expect.

Great. Thank you and then I wanted to switch to Si play I know that you mentioned you just soft launch solitary pets are I believe you know a month or so ago and that'll kind of get you into a bigger cash.

Casual games genre, how are you thinking about growth in this segment of our other segments that are tangential to your business given the balance sheet that you have on the side by side. Thanks.

Yeah, absolutely we've been really pleased with the.

The private side.

And as you can see from the third quarter as well there continue to see incredible strength in the social casino space, which is a $5 billion plus cash.

They've actually grew in Q1 again, beating the market.

The profit.

The portfolio of games, which.

Yes.

Great to see that continued progress.

Coming out of the COVID-19 tailwind from last year.

And now they are attacking the <unk>.

One $8 billion.

Casual market with voluntary.

Which comes on the back of the Bingo game that we love.

As well so.

It's still early on on the solid.

Sure.

We just basically.

The launch happened in late mid to late April, but we're very encouraged by it.

The the methodology of our playbook that we used for bingo.

So well.

Being applied the solitaire, so it's not our quote unquote. The first time at the rodeo in terms of launching the games like this and we've got other diverse efforts that are helping us get into that that category as well so I.

I think again.

Very happy with where they are.

I'm very confident in their ability to the castle space and the successful but.

Thanks for thanks, Mike.

The next question comes from Ryan take Bowl with Craig Hallum Capital Group. Please go ahead.

Good morning, Thanks for taking the questions.

On the slide deck, you say, 24% I gaming market share just to be clear is is this market share of G. G. R or is that 24% of games out there one of your competitors provided of similar data point I think that was you know number of games, but can you clarify that please.

Yes.

We're making us.

At least not for TTM.

Thank you and then can you remind us the amount of Nols. The company has and then are there any restrictions on those or could those potentially for assume those will be used to shelter any gains on potential divestitures.

Yes, the number.

<unk> one point.

Theres nothing overly restrictive debt, we see today.

Great. Thanks, guys I'll hop back in the queue.

The next question comes from David Katz with Jefferies.

Please go ahead.

Hi, Good morning, everyone. Thanks for taking my question I wanted to focus on the lottery and just get some incremental impressions.

For from two perspectives.

Number one there is fair amount of discussion around but you know I lotteries and if you could talk about your views on it your positioning within it et cetera et cetera, and the other is that we have a lot of debate around lotteries globally.

You know the degree to which there are other public entities that trade in a completely different context.

The than you do and you know I just love to hear your impressions about kind of your positioning globally within the lottery.

And we don't want to necessarily talk about how other companies you know trade and valuations et cetera, but you know give us the tools to sort of make a detailed evaluation of about that ourselves. Thank you.

Thanks This is Barry.

Take the first part of that and then Mike.

Jonathan.

Let's start first with the lottery again, I think the theirs.

Incredible opportunity.

Yes, Hi, lottery right now and we're extremely excited about it number one it kind of starts with the fact that again theyre just an enormous tam out there.

11 billion in the U S alone.

We're in such the early stage the early innings of the thing.

For the few states.

And the states over the next few years. So again the number one of the opportunities for US where there is just this huge tam out there untapped.

With tremendous momentum coming off that day.

Yes.

And we're in the.

As it relates to the lottery.

We've got.

Probably launched one of the most successful or most of the vessel.

Lottery launched the date and silver.

Pena.

We've got great products and solutions, we actually provided by lottery locally.

It's about 2021 lottery as you mentioned international.

Worldwide and so we've got the great solution.

And we're sitting on the cusp of an incredible market opportunity as it relates to the high lottery, so we'd be a lack of work.

We're in a great position to win and the other key advantage for US here is as.

As you alluded to on a global scale and we provide lottery products.

All of the top lottery worldwide.

Every continent.

Relationships of the W. L. A and other lottery 43 of 45 states and nine of the top 10, just puts us in a great position. We're already there we already have a relationship and I lottery, just an extension of that business for us. So.

We're super excited about it.

Yes, David This is Mike I'll jump in on the back of what very subtle the lottery business I mean, we could not be more pleased with the lottery business performance of what the team members there around the world are doing for them.

One of the accelerated again in Q1, which was great to see was 17% top line growth, 53% bottom line growth.

We're seeing that momentum carry.

Over the end of Q2, so far I mean thats of global statement, it's not just the U S statement Theres, obviously been some industry tailwind the startup kind of of the second half of last year and they continue now it's hard to predict exactly how long those are going to last and exactly what the lasting.

Behavior changes may be coming out of the back of the that but what we see today of the business that just hitting on all cylinders performing very very well.

Whatever happens with the COVID-19 <unk>, what I would say about that business in general of again this the global statement.

See secular tailwind for that business, we're absolutely a clear industry leader with a market leading position of that business and we see a lot of growth opportunities within the existing portfolio of that lottery business all of the industry tailwind sides of again very.

Tremendous enormous tam for that business worldwide.

Lotteries of around 29 consecutive years of ROE, you've got high lottery and sports betting as Barry talked about the Nathan with the big Tam sitting behind them, we're expecting at least the 23% CAGR next three to five years on the lottery side, probably 43% on the sports betting side and as you said you asked the the one.

80 lotteries around the world.

And we sit behind a lot of those Brian if you drop down into our leadership, we've got this extraordinarily high customer base.

For the top 25 global lotteries for scientific games, we got 40 for lotteries in the U S. We've got going back to the content per.

Non of the conversation that we've been having today, we've got 87 of the top 100 best selling games, we really like our chances in the space. We've got an unrivaled understanding of the gross market plans the patented proprietary game planning price structures and inventory management and the.

Team has just done a great job over the years of building a great robust business on the on the path forward. We think there's growth left right. The industry tailwind that we've talked about using our S. G. P value prop to migrate operators of customers' real chance to leverage our leadership in essence to introduce the I lottery and sports betting into our existing high quality customer base.

Right gained share in systems, and then use our experience of the turnkey solution provider for BTC international opportunities, where theres, a large tam sitting out there waiting for us and so right now we're pretty bullish on the lottery business lottery business is performing well and we're excited about the path forward in all of the opportunities of Liza.

Thank you very much of.

We have time for one more question.

Thank you and that will come from Jeff substantial with Stifel. Please go ahead.

Hey, great. Thanks, Good morning, everyone. Thanks for squeezing me in here and congrats really nice quarter.

For my first question I believe you've had your cashless technologies out in the field for a short period of time here with the Seminole tribe of any thoughts on how that's performing and any color on how you think that oral Y band for the Seminole and future partners might play out for them would be helpful. As well and if you could also talk to cut.

Of what the pace of discussions have been like with potential partners for these technologies and how you kind of see that rollout progressing this year and longer term should we expect it to kind of accelerate into the back half of the year.

Absolutely. Thanks, Thanks, Jeff.

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