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spk09: Good morning. Welcome to the Scientific Games 2021 First Quarter Investor Conference Call. All participants will be in listen-only mode. 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 Bombasi, Senior Vice President of Investor Relations for Scientific Games. Mr. Bombasi, you may begin.
spk08: Thank you, Operator, and good morning, everyone. During today's call, we will discuss our first quarter 2021 results in operating performance, followed by a question and answer period. With me this morning are Barry Cottle and Mike Eklund. Our call today will contain statements that include forward-looking statements under the Private Security Litigational Reform Act of 1995. These statements involve certain risks and uncertainties that 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 materials relating 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 as in the investor section on our website. As a reminder, this conference call is being recorded. A replay of this webcast and accompanying materials will be archived in the investor section on our website at scientificgames.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. Now let me turn the call over to Barry.
spk10: Thanks, Jim. Good morning, everyone, and thank you for joining us. We are extremely pleased with our progress this quarter, delivering another quarter of strong execution, which enabled us to return to year-over-year growth on both the top and bottom lines. 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. I could 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. But first, let me turn to the quarterly results. In the quarter, we are very pleased to deliver strong financial results, as well as key operational progress across our portfolio businesses, demonstrated by double-digit growth at lottery, digital, and side play, as well as continued gaming momentum in North America, enabling us to grow a very strong 35% in A 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 to 80 million in the quarter and enabling us to pay down 250 million in debt, delivering on our ongoing commitment to de-lever. Now turning to the businesses. In gaming, we're seeing great progress. And while continued restrictions and closures particularly internationally, impacted the business in Q1, we are starting to see a strong sense of recovery in the U.S. market. Given the success and 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, focusing on the largest profit pools to capture shares. 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 Cascada, the first global cabinet launched under the new strategy, and games like Coin Combo and Monopoly Money Grab, we have grown our North American premium game ops install base for the third consecutive quarter. Cascada is performing at 2.3 times the house average and, impressively, It is on pace to achieve 1,000 units in half the time of our most successful cabinet in recent history, the J43. And this is despite the backdrop of continued restrictions and closures. And in early Q3, we will launch the mural cabinet with games like Willy Wonka Dreamer of Dreams and 8-8 Fortune's Emperor's Coins with premier casinos in the major U.S. markets. 8-8 Fortunes is a great example of one of many scientific games franchises where we have leveraged its success across all our markets. It is a top-performing game in land-based, one of the top games on our iGaming platform, including ranking number one in the U.S., a consistent performer for our instant lottery business, and it is one of Sideplay's core social casino games. Now turning to the North American for sale market. We grew our ship share two percentage points to 25% last year. Dancing Drum's prosperity is performing great out of the gate at 1.9 times the house average on Eilers. And in our internal data, we're seeing performance as high as 2.7 times, which should lead us to continued success in this market segment. In Australia, a key profit pool outside of North America, we're seeing positive momentum in our ship share off the back of successful launch of Kraken Unleashed. which is performing at 1.5 times the house average. Another sign of our real momentum is our competitive position in Eilish rankings. We have the number one share of top new games in both the WAP category and the for sale category. In fact, in the new games WAP category, we have four of the top five ranked games and all three titles launched on Cascada are registering in ILR's top new premium leased games list. This continued progress is a 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 to 2021 with exceptional top and bottom line results, driven by record industry growth, elevated jackpot activity, and our market-leading portfolio of products and services. The instant lottery business shined 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 lotteries 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. Lotteries with our innovative solutions, including Scientific Games Enhanced Partnership, or SGEP, continue to lead the industry in performance, both in the U.S. and at our top international accounts, including Italy and the U.K. Our retail solutions continue to lead the lottery industry's modernization with checkout line, cashless, and self-service solutions. This quarter, we signed a deal to provide SideQ in-lane at Kroger Stores in Kentucky. It's a game changer for expanding instant ticket distribution into grocery store checkout lanes, allowing shoppers to add games to their grocery purchase in one convenient transaction. And more rollouts are planned with Kroger and other major grocery retailers in other states. We've also been strengthening our global pipeline. In Q1 alone, we signed and extended more than 30 years of instant lottery contracts. including a new contract in Portugal, which is a top 20 market globally. In terms of our digital and iLottery business, our flagship Pennsylvania program saw iLottery sales grow 50% year over year. And iLottery is not just a U.S. story. We provide iLottery to 21 customers globally with new iLottery expansions in Canada and Hungary in Q1. With at least 10 additional U.S. states anticipated to authorize iLottery over the next couple years, we are very well positioned to benefit. Now turning to SidePlay. We are 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 Pets Adventure in April. In the quarter, SidePlay 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 continued to outperform the market. The basis for this strength continues to be our payer focus and live-op strategy, powered by our SidePlay engine. we achieved another record with payer conversion hitting 8.1%, while both monthly paying users and average monthly revenue per user continued to be well above pre-COVID 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 SidePlay and its path going forward. Strong momentum continues in both our iGaming and sports businesses, with a record quarter for digital revenue and AEDA. We have the largest high-quality offerings of must-have iGaming content and one of the most reliable and flexible set of tech solutions in the industry, powering leading Tier 1 operators around the world for both iGaming and sports betting. In iGaming, we saw accelerating growth in the quarter, driven by 226% growth year-over-year in the U.S. This success was driven by our broad content offerings, led by our original land-based franchises, including 8-8 Fortunes, our successful launch in Michigan, and supported by continued strength in the UK 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, OGS. We had a leading market share at quarter end of 24% in the three U.S. states where we are live, 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 this success. 8.8 Fortunes is the top performing game on our iGaming platform in every state in which we operate. In fact, in the U.S., of the top performing games on our iGaming 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 a remarkable 15 of the top 20 in Pennsylvania. And the affinity players have for original franchises is not just a US story. Taking a look globally, in 2020, our original land-based franchises generated approximately 30% of the 2.2 billion in total GGR on our iGaming platform and accounted for seven of the top 10 performing titles. While the R&D investment to create these original franchises is largely incurred at our gaming business, we're able to leverage that investment monetizing our franchises across gaming, lottery, social, and our iGaming businesses, enhancing our returns, and engaging players with these franchises wherever they want to play. Looking ahead, we will be launching in West Virginia soon, and we see tremendous opportunity in iGaming as more U.S. states legalize, as we continue to grow our footprint, and as we expand internationally. In our sports betting business, we continue to build on our momentum, driven by 94% revenue growth in the U.S. As a market leader powering premium sports books and fan engagement on a global basis, we are a proven choice for Tier 1 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 a partner to 24 operators on four continents. with a demonstrated track record of success and unmatched capabilities. On the back of a number of renewal and deal wins in 2020, we deployed four sportsbooks in the U.S. in the quarter and launched in Michigan and Virginia. And post-quarter end, we launched in Indiana, Illinois, and Tennessee, bringing our U.S. total to 24 sportsbooks. We are rolling out our sports betting engine with FanDuel as a 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 US, we're now live in 12 states and have plans to launch in Nevada soon. With recent legislative progress in New York, Maryland, Arizona, and Florida to legalize online sports betting and unprecedented demand for our platform and products outside the U.S., including Canada, Latin America, EMEA, and Asia Pacific, we see tremendous momentum. Our success has been driven by our robust offering, providing customers with the broadest and most flexible set of tech solutions in the industry. Our deep tech staff continues to demonstrate its reliability, performing flawlessly at the biggest sporting events around the globe. And with our proven ability to scale quickly and launch in new markets, we couldn't be more excited about the opportunities ahead. And now, I want to provide some comments on our strategic review. This is an exciting time for Scientific Games. Over the past seven months, we've been working hard on a strategic review of our businesses with the help of our board, particularly Jamie O'Dell and Tony Korsanis, who've already successfully led the kind of strategic transformation we are embarking on. I'm 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 a content and digital led growth company focused on building great games that define the future of gaming supported by platforms that power 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 gains for sustainable growth, portfolio optimization, growth opportunities, and de-levering. In terms of portfolio optimization, 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 gain significant market share. For iGaming, our business is the market-leading content provider and is executing at a high level and benefiting from accelerating industry tailwinds and our strong original content offering. Growth opportunities are high in the U.S. with a 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 iLottery business has many years of high growth potential ahead, with the U.S. iLottery 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 see strong growth opportunities ahead in the U.S. as more and more states legalize online sports betting. And SidePlay outperformed the market last year and, again, this quarter, building off strong gains from 2020. With SidePlay's 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 gains. Our best path to delivering significant value is driving a higher mix of both content, which provides differentiation and 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, power great platforms, and create value for our customers. Our second strategic pillar is to capitalize on our largest growth opportunities. We will become a sustainable growth company by making smart, organic, and inorganic investments in our portfolio, building on key growth opportunities, including gaming's winning new content and cabinets, iGaming's content, iLottery expansion in the U.S., the sports platform, and SidePlay's expansion into the booming casual market. We will make that happen across the portfolio by leaning in on content, which provides differentiation and margin, and high growth markets such as digital with large and growing TAMs. 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 de-levering. 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 Science of the 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 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.
spk07: 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, it 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. Revenue grew 1%, importantly, marking the first increase in revenues since 2019. And Aebita grew an impressive 35% versus the prior year. Importantly, all four of our business units had double-digit Aebita growth in the quarter. Second, we continue to be laser-focused on managing our balance sheet. We generated free cash flow of $80 million and a quarter, which was a $25 million improvement year over year and represents a free cash flow conversion rate of 30%. This increased efficiency and cash flow is a 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 BeLever. As you heard Barry mention earlier, we paid down $250 million in 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 and 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 $50 million in additional run rate savings we communicated to you last quarter. And as a reminder, this is in addition to the $50 million in permanent savings we achieved last year. Now let's turn to the quarterly business unit results, starting with gaming. The gaming team grew Aebita both year-over-year and sequentially, up 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 Aebita 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 an industry-leading position in the UK 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 UK 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 Cascada units on casino floors, and we will be launching the highly anticipated mural cabinet shortly. We had no major casino openings or expansions in the quarter. We saw very strong year-over-year coin in our gaming operations segment with about 84% of our North American installed base 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 to lottery. The strength of the business accelerated yet again in the first quarter, with revenue up 17% and EBITDA up a very strong 53%. Growth was driven by a number of factors. First, record U.S. industry infant sales and strong sales across Europe. Second, above-market performance from our SGEP lotteries. Third, the elevated Powerball and Mega Millions jackpots we all saw early in the quarter. And fourth, the continued strong iLottery performance. The margin improvement in the quarter was fueled largely by the strong top-line growth, and our international joint ventures had a very good result in the quarter. While we anticipate continued strength at lottery in the second quarter, it's hard to predict exactly how long the COVID tailwinds we've seen since the second half of 2020 will continue. Now on to side play. The side play team delivered another quarter of strong results, building off the gains from last year. Revenue grew 28% and they even increased 32%. Impressively, the side play team delivered sequential growth on the back of what was already a very strong fourth quarter. The performance was broad-based and, again, enabled by their live ops 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 A EBITDA of 12% and 26% respectively. 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 a little bit harder. If you normalize for these, the sports platforms and iGaming revenues grew 35% year-over-year and 18% sequentially. That growth and performance was driven by the strong performance of our first-party content, our successful launch into Michigan, and the strength in our UK and European businesses. On our segment KPI page that you'll find in our earnings release, we have provided the normalized numbers for your reference. While digital continues to benefit from the tailwinds in iGaming 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 we look to the second quarter, we will also increase our expenses related to the acceleration and the deployment of sportsbooks in the US. Now turning to our debt, the balance sheet and cash flows. Continue to execute on our commitment to deliver and maximize our free cash flow. We ended the quarter with $8.3 billion in 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 million on our revolver, and we expect to make significant progress be leveraging 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 to 5.7% in 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 a 200 basis point improvement year-over-year. Again, a real credit to the focus and the hard work of our teams around the world. The growth in free cash flow was due to the strong growth in AEBTA, and 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 change. 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 this 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 our players like to engage with, thus enhancing our returns. We are strengthening our balance sheet and are committed to meaningfully reducing leverage. We are investing in high growth opportunities and 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'm very pleased with the progress we are making and the pace at which we are moving. I'm excited about the opportunity that lies ahead. With that, I will be happy to take your questions Operator, can you open the line?
spk09: We will now begin the question and answer session. To ask a question, you may 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 your question has been addressed 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 Truist Securities. Please go ahead. Mr. Jonas, your line is open. Please go ahead with your question.
spk12: Sorry. Thanks for that. So I wanted to start with digital security. Can you walk us through the next milestones for the FanDuel 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're positioned in the emerging Florida market given the new Seminoles Compact? Thanks.
spk11: Thanks, Barry. Great questions, and I'll take those. So first, FanDuel. We're very happy and excited about our partnership with FanDuel. Obviously, we're in the early days of rolling it out with the FanDuel states. We've now got four converted to our sports engine, and we've got some more lined up between now and the start of the NFL season. So you'll see that progress along with the revenue as it starts to fold over the next several months. Our revenue there is a combination of business models and participation, so we'll continue to grow as the journey continues. On the Seminoles, I would say, obviously, it's an exciting time, frankly, across digital sports and digital. As it relates to Florida, we're excited to see the momentum of legislation with Florida, New York, Arizona, et cetera. We have a great relationship with the Seminoles and Hard Rock. We're live today with digital iGaming content in New Jersey and retail sports in Iowa and New Jersey. Obviously, we can't comment on specific deals, but we continue discussions with Hard Rock around other opportunities across the continuum of sports and iCasino. So very exciting times right now in sports. Okay, great.
spk12: And then if I could just ask a quick follow-up question. Look, you've had some very strong talent join 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 stamp is on products today? And maybe more specifically, when does your new chief product officer, Rich Schneider, start and how long before you think we'll see an impact from him joining?
spk11: Great. Yeah. So, also another great question. Yeah, I mean, the new team, Matt and his team, Siobhan, Connie, and others all came in. They've been here now a little over a year. The impact has been phenomenal, obviously. You've seen a regrouping of prioritization of the profit pools, re-gearing the roadmap accordingly. global R&D strategy all pointed at, you know, the biggest markets you're seeing right now, progress in those markets with three straight quarters of growth in the GameOps, North America GameOps premium space. We're seeing great products, the products that have come out of this team and that system with Cascada, which is an incredible company. New cabinet that is outpacing our other recent cabinet launches in a meaningful way with very high ratings on the floor at Eilers, backed up by incredible content. In fact, the three titles that we launched with Cascada all are in the top new premium games on Eilers, and then followed up by the mural cabinet that's coming out later this summer. with, again, great content of Willy Wonka and 8-8 Fortunes. And so all of that is just a function of the team coming in and just working with the talent that existed today and making an incredible move on the roadmap to address the key markets. And honestly, I say it's unfortunate even that we have the noise of COVID you know, that suppressed some of this because, you know, as COVID and the market start to recover, I think you're really going to see the magic of what is coming out on that side of it. It's going to become even more enhanced, obviously, with Rich. Rich is a great example of how we're continuing to lean in on content, building great games, right? And he's a very experienced industry leader. He started you know, to our products and the approach to the business. And, you know, because he's a veteran. He knows what he's doing. He's the best in the business. So we're really excited about the impact he's going to have. And obviously we've announced some other talent that's coming on board as well that's going to continue to augment it. And, you know, we've kind of said all along we're assembling the best studio talent And, you know, it's going to basically result in the best roadmap and portfolio and development in the industry. And we're really excited about the progress that we're making there.
spk12: Oh, that's great. Thanks, and congrats on a nice quarter. Thank you.
spk09: The next question comes from John Decree with Union Gaming. Please go ahead.
spk02: Good morning, everyone. Thanks for taking my questions. Two. The first one on iGaming content, a lot of market share and a nice uptick in revenues. And given the gaming team that Barry was just talking about for land-based that we're all very familiar with, I'm curious if you could talk about the integration of your iGaming content and your land-based content. Is there an opportunity to leverage your leading land-based content online? Do you have separate teams that do the digital content? And, you know, I guess the genesis of the question is we've seen a lot of B2C suppliers, your customers or would-be customers, looking to get some content in-house. So it's becoming very clear how important quality and even maybe quantity of content is on iGaming and your success, I think, evident of your library and ability. So, You know, I'm curious if your land-based expertise is providing a lot of help on the digital side or if there are synergies there. So I'm just curious to get your thoughts on that.
spk11: Yeah, no, absolutely. Again, another great question. And I'll kind of start in reverse order. First about, you know, obviously, you know, announcements and moves of people moving into building, you know, content for iCasino. Quite frankly, all that does is it just reinforces our belief of the huge upside in market potential in iGaming today. If you think about it, it was $15 billion plus TAM in the U.S. alone in this marketplace in iGaming. And we're in such the early stages of this, right? I mean, this is the tip of the iceberg. You've got three states live, four, one coming on shortly. And you have such unprecedented momentum in this space right now with both legislative, on the legislative front, but also on the player adoption front, right? And so there's this huge market opportunity that's out there now. And, you know, so there's space, right? There's space there for, you know, multiple players to be providing content. we are extremely confident that we are in, quite frankly, the enviable position as it relates to bringing content to iGaming today. You know, for exactly what you just described. I mean, not only do we have the market leading share today, broadest content offering with 3,000 games with an OGS platform, but as you said, we have a whole treasure chest of franchises and studio teams in gaming today, building things like 8-8 porches, dancing drums, et cetera, that can be deployed across land-based and digital. And players love to play, but they play in casinos. I think, you know, we mentioned earlier that 30% of our $2.2 billion in global GDPR comes from SG-owned content, content that, you know, gets developed in the land-based and people can play in digital. And we think as digital starts to progress across the United States, that's going to become even more important. is, you know, to have that player experience that they recognize the brand, they recognize the gameplay, they love how the game plays, its features, its bonuses. And so, you know, as we talked about in our strategic review, leaning into content, you know, building great franchises and deploying those across land-based and digital puts us in a really, really nice position going forward to take advantage of that.
spk02: That's great color, Barry. Thanks for that. If I could shift gears quickly for a quick follow-up on slots specifically, and we've seen casinos really across the country turn the corner over the last couple of months, and hopefully it's light at the end of the tunnel. Curious if your team has seen any change in behavior. We know that the casinos were keeping a tight watch on their wallets and their capital budgets, but we're hearing more and more recovery progressing, more focus on gaming, particularly from regional casino operators and less on some of those non or 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, you know, just a couple months ago, you're curious if you're seeing any any behavior or getting any better visibility as to when your customers might start ramping up their capital spend on the casino floor.
spk06: Yeah, John, this is Mike. I'll take that. There's a couple of things in there. It sounded like CapEx was one of them and then just overall performance in 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 yet on how that's going to come through from the operators. They're still working through the budgets on their side. I would say this on CapEx, we've kind of seen the consensus out there. that you all have on us for CapEx for the year. We think you guys are in the right zip code, but we're waiting and watching like everybody right now to see how that one's going to play out. On the gaming business overall, I'd say this, and I'll let Barry jump in and add some color on the back end as well. As Barry said, we're just really pleased with the momentum in 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 Q1 as well. As you go into Q2, we see a lot of positive trends. We're at about 84% active units in North America right now. We see coin up 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, were effectively closed for 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 the gaming business to be up both sequentially and year over year in the second quarter. And that's just on the back of all the good teams, all the teamwork that we have going on in the gaming business right now. So maybe on the product side, I'll let Barry jump into a little bit more of that because I think that's fueling a lot of it.
spk11: Yeah, and I just want to say Mike did it really well. I mean, we're really, you know, in terms of the trends outside of the The territories, you know, Mike alluded to, like the UK, where we have such elite market share and they've been impacted by COVID. We're actually not, you know, we're not seeing the trend. We're seeing great trends. You know, we're seeing the trends of coin-in is increasing, you know, active machines being turned on or North America game ops, you know, premium, you know, growing and so forth. You've got to remember, 95% of our customers are mainly tribal and regional. And 80% of their business comes from slots, so that's super important for their business. And so we're seeing good trends in that regard. And as I mentioned earlier on the call, We're really, if you look at the product success that we've had just recently with the recent products being brought out and with the combination of Cascada and Mural and those games with the recovery in the marketplace, we're really setting ourselves up for growth and continued growth in Q2.
spk02: Thanks, guys. I appreciate all the color. Congratulations on the quarter.
spk09: Thanks. The next question. comes from Chad Bennion with Macquarie. Please go ahead.
spk00: All right. Good morning. Thanks for taking my question, and congrats on the quarterly results. First, I wanted to focus on margins, particularly in the gaming segment. It looks like OpEx continued to decline. You guys have talked about that, some of the cost containment measures you've taken. Margins for the quarter in that segment were up to 44%, despite you know, product sales similar to what you were just talking about, not really, you know, fully back to where we'd like to see it. So I guess my question is, you know, where can margins in this segment get to? And then, you know, as we look out just over the next couple months, should we expect a lot of costs to kind of come back to the business that could kind of temper our expectations in terms of this massive margin improvement? Thank you.
spk06: You bet. Chad, it's Mike. I'll try that one. I guess the first thing that I'd do is I'd point you to the short-term austerity measures that we put in place last year, obviously, on the back of COVID. I would call out that most of that short-term austerity measures have come back into the business already. Those are already reflected in the Q1 results, so what you see in Q1 is a pretty good benchmark of where we are. As the business starts to ramp, which would be a great thing, we'll obviously add back in the variable costs as needed to meet that demand, and we'll do it with a guiding principle of ensuring that OpEx continues to scale with revenue. There's obviously going to be some quarter-to-quarter volatility that always exists based on mix, regionally, by product, et cetera. But I think if you look at the Q1 number, it's a pretty good indicator going forward of what we expect.
spk00: Great. Thank you. And then I wanted to switch to SidePlay. I know that you mentioned you just soft-launched Solitary Pets, I believe, a month or so ago. And that'll kind of get you into a bigger casual games genre. How are you thinking about growth in this segment or other segments that are tangential to your business, given the balance sheet that you have on the side play side? Thanks.
spk11: Yeah, absolutely. We've been really pleased with the progress on side play, you know, and as you can see from the, you know, their, the social casino space, which is, you know, $5 billion plus. They've actually, you know, grew Q1, again, beating the market across its portfolio of games, which, you know, is just great to see that continued, you know, progress coming out of, you know, the COVID tailwinds from last year. And now they're attacking the $20 billion plus casual market with Solitaire Pets Adventures, which comes on the back of, you know, the bingo game that we launched as well. So, you know, it's still early on Solitaire Pets. We just basically, the launch happened in mid to late April, but we're very encouraged by it. Obviously, the methodology or you know, playbook that we use for bingo so well is, you know, being applied to solitaire. So it's not our quote-unquote first time at the rodeo in terms of launching a game like this. And we've got other diverse efforts that are helping us get into that category as well. So I think, you know, again, it's, you know, very happy with where they are and very confident in their ability to enter the casual space in a successful way.
spk00: Thanks, Barry. Thanks, Mike.
spk09: The next question comes from Ryan Sigdahl with Craig Hallam Capital Group. Please go ahead.
spk01: Good morning. Thanks for taking our questions. On the slide deck, you say 24% iGaming market share. Just to be clear, is this market share of GGR, or is that 24% of games out there? One of your competitors provided a similar data point. I think that was number of games, but can you clarify that, please?
spk11: Yeah, we're basing that calculation off of GGR.
spk01: 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 – or assume those will be used to shelter any gains on potential divestitures?
spk06: Yeah, the number is 1.2. I mean, there's nothing overly restrictive that we see today.
spk01: Great. Thanks, guys. I'll hop back in the queue.
spk09: The next question comes from David Katz with Jefferies. Please go ahead.
spk05: Hi. Good morning, everyone. Thanks for taking my questions. I wanted to focus on the lottery and just get some incremental impressions from two perspectives. Number one, there's a fair amount of discussion around iLotteries 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. And, you know, the degree to which there are other public entities that, you know, trade in a completely different context than you do. And, you know, I'd just love to hear your impressions about kind of your positioning globally within lottery. And, you know, we don't want to necessarily talk about how other companies, you know, trade in valuations, et cetera. But, you know, give us the tools to sort of make a detailed evaluation of about that ourselves. Thank you.
spk11: Thanks. This is Barry. I'll take the first part of that, and then Mike can jump in. Let's start first with the iLottery. Again, I think that there's incredible opportunity in iLottery right now, and we're extremely excited about it. Number one, it kind of starts with The fact that, again, there's just an enormous TAM out there, 11 billion in the U.S. alone, and we're in such the early stage, the early innings of this thing. We're going live in a few states, and I think we expect 10 states over the next few years. So, again, another one of these opportunities for us where there's just this huge TAM out there, untapped, and with tremendous momentum coming off the heels of COVID-19. And we're in an enviable position as it relates to iLottery. You know, we've got, you know, probably launched one of the most successful or the most successful iLottery launch to date in Pennsylvania. We've got a great product and solution. We actually provide iLottery globally. It's about 20, 21 lotteries. You mentioned international. worldwide and so we've got a great solution and we're sitting on the cusp of an incredible market opportunity as it relates to I lottery so we feel like we're you know we're in a great position to win and the other you know key advantage for us here is you know as you alluded to on a global scale and we provide lottery across you know all the top lotteries you know worldwide you know in You know, every continent and our relationships with the WLA and other lotteries, you know, 43 of 45 states and, you know, nine of the top ten, just puts us in a great position. We're already there. We already have a relationship. And iLottery is just an extension of that business for us. And so we're super excited about it.
spk06: And, David, this is Mike. I'll jump in on the back of what Barry said on the lottery business front. I mean, we could not be more pleased with the lottery business performance and what the team members there around the world are doing. Clearly, they accelerated, again, in Q1, which was great to see with 17% top-line growth, 53% bottom-line growth. We're seeing that momentum, by the way, carry over into Q2 so far. I mean, that's a global statement. It's not just a U.S. statement. There's obviously been some industry tailwinds that started kind of in 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 that. But what we see today is a business that's just hitting on all cylinders, performing very, very well. Whatever happens with the COVID tailwinds, what I would say about that business in general, and again, this is a global statement, we see secular tailwinds for that business. We're absolutely a clear industry leader with a market-leading position in that business, and we see a lot of growth opportunities within the existing portfolio of that lottery business. On the industry tailwind side, again, Barry said it, tremendous, enormous TAM for that business worldwide. The U.S. lotteries have grown 29 consecutive years in a row. You've got iLottery and sports betting, as Barry talked about, that are nascent with these big TAMs sitting behind them. We're expecting at least a 23% TAGR next three to five years. On the iLottery side, probably 43% on the sports betting side. And as you said or you asked, there's 180 lotteries around the world, and we sit behind a lot of those. If you drop down into our leadership, we've got this extraordinarily high customer base, 24 of the top 25 global lotteries are scientific games. We've got 44 lotteries in the U.S. We've got, going back to the content portion of the conversation that we've been having today, we've got 87 of the top 100 best-selling games. You know, we really like our chances in this space. We've got an unrivaled understanding of the go-to-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. And now on the path forward, we think there's growth left, right? The industry tailwinds that we talked about, using our SGEP value prop to migrate operators and customers, real chance to leverage our leadership and instance to introduce the iLottery and sports betting into our existing high-quality customer base, right, gain share in systems, and then use our experience as a turnkey solution provider for B2C international opportunities where there's a large team sitting out there waiting for us. And so right now we're pretty bullish on the lottery business. The lottery business is performing well, and we're excited about the path forward and all the opportunities that lie ahead.
spk05: Thank you very much.
spk06: Operator, we have time for one more question.
spk09: Thank you. And that will come from Jeff Stanchel with Stifel. Please go ahead.
spk03: Hey, great. Thanks. Morning, everyone. Thanks for squeezing me in here and congrats. Really nice quarter. For my first question, I believe you've had your cashless technology down the field for a short period of time here with the Seminole tribe. Any thoughts on how that's performing and any color on how you think that ROI is Ben, for the Seminoles and future partners might play out for them, you know, would be helpful as well. And if you could also talk to kind of what the pace of discussions have been like with potential partners for these technologies and how you kind of see that rollout progressing, you know, this year and longer term. Should we expect it to kind of accelerate into the back half of the year?
spk11: Absolutely. Thanks, Jeff. Really appreciate that question. And Look, we're really pleased where we are. Since we last spoke, the site has actually gone live. We've connected about 13,000 machines. Obviously, it's early in the journey. We have seven additional partner deployments in the next 12 months lined up. So, again, this is one of those tips of the iceberg of, I think, a – You know, something that has a tremendous amount of momentum across the industry, and we're sitting in a great position coming off the heels of our patent deal with IGT. And the fact that, if you remember, as we talked about last time, it really comes down to having, you know, the technology and patents to be able to deploy a best-in-class solution. And it has to, you know, you're solving for the last mile, right? And so with our systems business with, you know, 525,000 interconnected slots, you know, out of the marketplace, we can take that product across the, you know, the larger addressable universe. So, you know, we're really excited about it. But, you know, obviously it's still very early in the journey, but we're seeing, you know, strong demand and we're rolling it out and refining the product and really happy where we are. In terms of the revenue potential, it's a combination of hardware, software, revenue, et cetera. There's good ROI to it. And we won't go into the specifics of what that looks like, but we're very pleased with where we are. With that, I'll turn it over to Barry for some concluding remarks. Thanks, everyone, for joining us on today's call. We are very excited about the progress we're making and how we're executing both strategically and operationally. Our strong results demonstrate the strength of our content and franchises, engaging players wherever they want to play. Our strategic review and resulting plan is well-progressed, and we look forward to sharing with you how we will unlock tremendous value through our core strategic pillars, optimizing the platform, capitalizing on high growth opportunities, and significantly de-levering. And with that, I want to thank you for your support. Thanks everyone for joining our first quarter call. Now I'll turn it back over to the operator.
spk09: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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