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spk02: Good day and welcome to the Scientific Games third quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. James Bombassi. Please go ahead.
spk09: Thank you, Operator. Good afternoon, everyone. During today's call, we will discuss our third quarter 2021 results in operating performance, followed by a question and answer period. With me today are CEO Barry Cottle and CFO Connie James. Our call today will contain certain statements that include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For information regarding these risks and uncertainties, please refer to our earnings release issued earlier this afternoon, the materials relating to this call posted on our website, and our findings with the SEC. We also will 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 release as well as in the investor section on our website. On September 27th of this year, we announced that we had entered into a definitive agreement to sell our sports betting business to Endeavor, and on October 27th, we announced that we entered into a definitive agreement to sell our lottery business to Brookfield Business Partners. We expect to complete these transactions during the second quarter of 2022, subject to the applicable regulatory approvals and customary closing conditions. Beginning in the third quarter of 2021, we reflected these businesses as discontinued operations in our consolidated statements of operations and reflected the assets and liabilities of these businesses as held for sale in our consolidated balance sheets for all periods presented.
spk10: We are reporting our results of continuing operations in three business segments, gaming, side play, and iGaming.
spk09: iGaming is our former digital business segment, excluding sports betting. Amounts and disclosures referring to combined include both our continuing and discontinued operations. On July 15th, we made a proposal to acquire the remaining 19% interest in Sideplay that Scientific Games does not currently own.
spk10: We cannot comment further on that proposal at this time.
spk09: As a reminder, this conference call is being recorded. A replay of this webcast and accompanying materials will be archived in the Investors section of our website, scientificgames.com. supplemental reference slides are available on our investor relations website to help facilitate your review of the company's results including an earnings presentation and historical recast business segment information now let me turn the call over to Barry thanks Jim it's great to be speaking to you today first I want to welcome Connie as our CFO she has hit the ground running and is already making a meaningful impact in our organization as we have successfully executed on a number of significant and strategic action since she took the helm. What an exciting past four months this has been. We are making tremendous progress on our strategic pillars and our vision to become the leading cross-platform game company. We've optimized our portfolio, moving from a holding company to a streamlined content company, singularly focused on building great games fully cross-platform. Importantly, we are achieving our objective to significantly delever our balance sheet, enabling us to be more nimble and invest to grow. To recap our major milestones in the quarter, we have entered into definitive agreements to sell our lottery and sports betting businesses for $7 billion in total consideration, providing us with a net cash proceeds of $5.8 billion that we will use to radically transform our balance sheet. and shift us from being a debt to an equity story following their close, which is expected in second quarter of 2022. The great thing is we already have all the pieces in place to execute our vision and drive sustainable growth and profitability, with gaming, iGaming, and SidePlay as our core. We have a head start with strategic moves we've made over the last several years, going all the way back to our acquisition of NYX back in 2018, which drove our leadership in online gaming. Games are a huge market. People love to play games, and we are squarely pointed at a TAM of over $50 billion for social, casual, and iGaming alone. The future is cross-platform. We know that players ultimately want a seamless experience as they toggle between land-based and digital, and no company can match our ability to achieve this vision. We have an unparalleled portfolio of hit franchises, world-class talent, and a premium content engine. We are taking a deliberate cross-channel approach to developing and managing our product so that players can engage with popular play and familiar mechanics, enhanced by our leading technology and platforms. And we are moving with newfound speed and agility, enabled by our healthy balance sheets. In parallel, we've been investing to grow, both organically and inorganically. In content creation, launching a new Las Vegas iGaming studio and acquiring Lightning Box. In talent, recruiting the best-in-class game developers and expanding into adjacencies, including our recent acquisition of Authentic Gaming, our first move into the highly synergistic live dealer space. and with Sideplay's acquisition of KubeCoy as we expand in casual gaming. While others are just beginning to explore the future of cross-platform play, we are well on our way with strategic steps we've taken that have allowed us to create a truly differentiated position to serve as a foundation for a true omnichannel experience. We are laser-focused on operational excellence and unlocking value, and I'll bet on our talented team every day to win. Now turning to the business performance and the great progress we made in the quarter. We delivered strong consolidated results at our ongoing business with revenue up 25% and Aebitda increasing 74%. With our continued focus on productivity, we didn't miss a beat, generating 187 million of cash from operations and 130 million of free cash flow on a combined basis. And we made great progress de-levering organically, paying down $635 million of debt since October of last year, including our recent $135 million repayment, posting net leverage of 6.6 times, a reduction of four turns since the beginning of the year. In our North American gaming ops, we grew our premium install base for the fifth consecutive quarter, which translates to a total increase of 20% over this period. And significantly, our premium install base now makes up 42% of our total install base, the highest percentage mix in our history. In North American game sales, we've grown our replacement ship share by 400 basis points to 22% since 2019. And in Australia, we've nearly doubled our ship share since 2020, hitting 14% in the third quarter. At SidePlay, Their focus on payers and their live-op strategy has sustained strong engagement and monetization metrics compared to pre-COVID levels, with the average quarterly revenue running approximately 25% higher and the average monthly revenue per paying user approximately $10 higher than in 2019. And at iGaming, U.S. revenue grew 109% compared to the prior year, and U.S. share increased 200 basis points to 27% in the quarter. Since the third quarter of 2019, we have increased the number of U.S. states where we are active from one to now five with our recent launch in West Virginia. And we have grown the amount of wagers processed through our iGaming platform from 9 billion to nearly 17 billion. Now digging into the business segments in more detail. Gaming is making great strides, and while we know there's more growth to come, we continue to build on our strong foundation with another very successful quarter of execution, as our strong game performance enabled us to grow share across the business. The North American premium ops market, the North American for sale market, and the Australian for sale market, while maintaining our leading position in systems and tables. In the quarter, gaming delivered strong year-over-year growth in both the top and bottom lines. as well as sequential growth, excluding the UK FOBT recovery in Q2. Importantly, our success was fueled by the continued momentum in our product performance, as we benefited from the rapidly growing footprint of Cascada Cabinets, with over 5,000 units now on casino floors. Our continued strong game performance from titles like Coin Combo and Dancing Drums Explosion, as well as the overall strength in the U.S. market, and ramp up of key international markets. Our North American premium stall base grew for the fifth consecutive quarter, exceeding 2019 levels. And importantly, it's at its highest level ever as a percentage mix in the install base. This is key as we look to drive continued growth and profitability in this important segment of the market. On top of this, North American sales showed continued momentum with improving capital cycles in the U.S. market. and with our new products like Cascada, enabling us to sell over 3,200 units and grow our ship share. G2E was a resounding success, and we received extremely positive customer feedback on our gains in products, as well as our cross-platform approach. We've also made great gains in the Australia market this quarter, with our product performance fueling our success. In Q3, we grew our ship share over 300 basis points to 14%. as we launched the new Cascada Portrait Cabinet and saw our game performance build with the continued success of Kraken Unleashed and new games like Fat Fortunes and Coin Combo topping the ranks. In fact, we occupied the top three spots for game performance in the Queensland market for the first time ever. Now turning to our systems business, we have a leading position with approximately 50% share of the North American market. And our cashless offering is currently live with eight sites and nearly 14,000 EGMs. And our pipeline is building. Our systems offering is a key competitive differentiator, and we see it playing an important role in our long-term strategy as the land-based and digital businesses continue to converge. And this quarter, it was great to see momentum build in our table business, where we have a 25-year leadership position in card shufflers and other table utility products. We saw active units build to end Q3 at 87%, which compares to less than 50% active at the beginning of the year. We have the most competitive portfolio of table game content and brands, including Ultimate Texas Hold'em, Three Card Poker, Mississippi Stud, and Let It Ride. While our vault offering, a subscription-based bundled service, is seeing strong demand with over 400 customers already signed on. and our Quartz ETG doubled its footprint in just the third quarter alone. With the debut of innovative table products at G2E, we are finding new ways to engage players as we continue to pioneer in this important segment. Looking ahead, we feel great about our ability to continue to grow share in our North American game ops and for sale businesses, as well as our Australian business with the success of our new games and cabinets. as well as a strong pipeline of product launches planned for 2022 and 2023. It is becoming clear each quarter that the substantial benefits of our gaming turnaround strategy positions us for success, improving our earnings potential and the ability to drive shareholder value. Turning to SidePlay, we had a number of operational achievements in the quarter, continuing the momentum across key areas of the business. Since implementing Project All-Star in Goldfish, the game posted its fourth consecutive quarterly record and has huge momentum going into Q4, while Quick Hit has hit the ground running with the launch of its new version and is up 30% since its relaunch in June of this year. In fact, with Project All-Star now executed across our top three games, we've seen those games grow revenue 45% on average compared to their performance prior to implementing. Momentum continued in payer metrics with ARPDAU $0.69 and a payer conversion of 8.5%, sustaining a quarterly record. Importantly, monthly paying users and average monthly revenue per user remain well above pre-COVID levels. And while the quarter was slightly down, this was related to the performance of Jackpot Party, caused by a temporary release in the game that was identified and corrected quickly. The good news is Jackpot Party has grown since August, and with Jackpot Party rebounding, we expect SidePlay to return to both year-over-year and sequential growth in the fourth quarter. SidePlay is accelerating its evolution as it looks to expand its game pipeline and diversify its revenues, moving aggressively in the larger and faster-growing casual market. Solitaire Pets Adventure launched worldwide this month, and Project X, enabled by the talented team of developers we welcomed with the acquisition of Kukoi Games, is running ahead of schedule, switching to our iGaming business. We are a leader in this space with a truly differentiated position, enabling us to grow our share today and in the future. Demand for the premium iGaming content is growing with an estimated $20 billion global TAM, and we sit right in the middle of it. we have the largest collection of must-have content with approximately 3,500 titles and a leading iGaming aggregation platform in OGS, as well as the leading PAM. The integration of our iGaming platform with the market leaders makes us a must-have for both content studios and operators. Our momentum continued this quarter as we achieved significant growth in our U.S. share, posted records for many of our original content launches, secured a number of new go-lives with leading operators, and made a key acquisition with Authentic to compete in the nascent but fast-growing live dealer space in the U.S. As a testament to this, in the third quarter in the U.S., we continued to lead the market and take share, growing our U.S. revenue 109%, while growing our share 200 basis points to 27%. International growth in Q3 was impacted by expected seasonality, but we anticipate a rebound in Q4 given normal seasonal GGR trends and with new territory launches. Players love to play land-based franchises they know and love anywhere and anytime they want, and we have an unparalleled offering. This was underscored with our launch of Coin Combo Marvelous Mouse in August, which achieved record performance, fueling growth in our U.S. share, and follows a successful land-based launch earlier this year. On back of this, we recently launched our number one LAN-based game, Dancing Drums Explosion, to strong performance. In fact, our original games generated approximately 40% of our GGR in the US in the third quarter. Content is a key differentiator, and we made major strides expanding our original content capability, as well as providing a foothold in one of the key growth verticals in iGaming. We now have six iGaming studios, up from four at the beginning of the year, as we continue to ramp our original content capability and provide players with an even more immersive and engaging experiences. Importantly, we've made a strategic move to enter the material and fast-growing live dealer space, recently acquiring Authentic, which provides us with a team, the technology, and an immediate route to market, combined with our proprietary land-based table brands and content, to scale a live casino offering in the U.S., We expect LiveDealer to garner 30% of the anticipated $15 billion U.S. iGaming TAM, similar to its share internationally. As we sit here today, we couldn't be more excited about the long-term growth opportunity for our iGaming business with continued legalization, with our expanding original content capabilities and strong roadmap of upcoming land-based title launches, and with our launch of LiveDealer in the U.S. late next year. So before I turn it over to Connie, I'd like to reinforce how great we feel about the progress we're making and the pace at which we're executing on our vision. Thanks to our strategic moves both this year and over the last several years, we have all the pieces in place today, giving us a tremendous advantage as we lean into our cross-platform strategy with speed. Importantly, we're seeing a new energy and excitement in our organization as employees embrace our new vision and see greater opportunities for growth ahead. I'm so proud of what the team has accomplished over the past quarter, and I'm truly excited about the future and our ability to deliver sustainable, profitable growth as we leave this industry.
spk10: Now, Connie will speak to the financial results.
spk04: Thanks, Barry. It's great to be with you today, and I've had the opportunity to meet some of you, and for those whom I haven't, I look forward to connecting soon. First, I want to start by thanking our fantastic team for their commitment, hard work, and passion over the last several months. We have world-class teams, and they have accomplished a tremendous amount on the strategic front, all while continuing to successfully execute on the day-to-day. We have an exciting path ahead of us at Scientific Games as we look to unlock significant value. We are seeing our company come together and coalesce around a strengthened culture that realizes the value we can create with our new vision and focus. We are moving quickly, announcing the sale of our sports betting and lottery businesses while layering in organic investments as well as the acquisitions like Authentic, Lightning Box, and Kukwai. You are quickly getting to see the shape as well as the pace and agility of our new organization. The divestitures put us on a clearly defined path to materially de-lever and provide us with the ability to invest for growth, both organically and inorganically. Now, let's turn to the quarterly performance. As Jim spoke about in the opening remarks, with the announced sale of sports betting and lottery, we have classified those businesses as discontinued operations. In the quarter, we made great progress strategically, operationally, and financially. and I want to highlight a number of key takeaways from our new business's consolidated results. We had strong momentum with consolidated company revenue up 25%, and we generated income from continuing operations of $100 million. For the quarter, 8 EBITDA was up 74% year over year, driven by gaming and iGaming. In terms of the balance sheet, we continue to make tremendous progress deleveraging organically, paying off the revolver with a $135 million payment in October, and reducing net leverage to 6.6 times. Our teams continue to focus on productivity, generating $187 million in operating cash flow and $130 million of free cash flow on a combined basis in the quarter. Shifting to the business unit results. In gaming, we continued to make great progress with strong year-over-year and sequential growth in the quarter. Revenue increased 47% year-over-year, and A EBITDA was up 123% to $172 million. The business also delivered sequential growth, with revenue increasing 3% and A EBITDA up 10%, excluding the UK FOBT recovery last quarter. From a bottom-line standpoint, the team continued their focus on driving productivity and efficiency, enabling them to deliver eight EBITDA margins of 51% in the quarter and 50% year-to-date. Importantly, there were several key underlying trends that drove growth in the quarter and give us confidence in the quality and the durability of gaming's earnings potential. In North America gaming operations, growth was driven by improved product performance with games like Coin Combo, Dancing Drums Explosion, and Ultimate Firelink Power 4, driving the premium install base to an all-time high of 42% of the overall mix. We also continue to benefit from elevated GGR levels in an installed base that is now 90% active globally. In game sales, we saw strong demand for our Cascada cabinet, driven by the increased depth and breadth of our game portfolio with games like Cash Falls and Dancing Drums Prosperity. In both our tables and systems business, where we are a clear leader, we saw a ramp in the business. The North American tables business grew 64% year-over-year and is now 87% active, while the systems business grew 21% versus last year. As we look at the gaming business longer term, we see continued momentum in share growth in our key profit pools, enabling us to drive meaningful revenue and profitability and significant cash flow. Focusing on side play, the business continued to deliver a number of strong key payer metrics in the quarter, including maintaining record payer conversion of 8.5%. And while revenue was slightly down in the quarter driven by jackpot parties, the business returned to growth in October. We continue making great progress expanding into casual as SidePlay diversifies its business into the $20 billion-plus casual segment. Now turning to iGaming. The business momentum continues, with U.S. revenues increasing 109% year-over-year, the sixth consecutive quarter that the U.S. revenue growth more than doubled. Overall, the business grew revenue 6% and 8 EBITDA 13% versus Q3 of last year. As a reminder, last year we had certain items in the number that impacted the underlying performance of the business from a comparison standpoint. If you exclude these impacts, our iGaming businesses revenue grew 13% year-over-year. As Barry noted, international revenue and A-EBITDA growth was impacted by seasonal trends, but we expect international to rebound in Q4. Longer term, Given the industry tailwinds in our differentiated position in product offering, as well as our plans to launch live dealer in the U.S. next year, we anticipate sustainable double-digit growth in the business for years to come. Let's now turn to our debt, net leverage, and cash flows, a major focus area, and where we continue to make meaningful progress. We made great strides strengthening and de-risking the balance sheet. ending the third quarter with total debt of 8.8 billion, net debt of 8.1 billion, and net leverage of 6.6 times, which compares to net leverage at the beginning of the year of 10.5 times. Our weighted average cost of debt was 5.1%, and we ended the quarter with $1.5 billion of available liquidity, compared to $1.2 billion in the third quarter of last year. As a reminder, we don't have any maturities that come due until 2024. Moving to cash flow, which continues to be a great story. We generated $187 million of combined operating cash flow in the quarter and nearly half a billion year to date. These results drove the $130 million of combined company free cash flow in the quarter and $343 million year to date. This translates to a year-to-date free cash flow conversion rate of 35%. This is a continued testament to how the organization is intently focused on driving value for shareholders. In fact, we've been laser focused on optimizing working capital, having reduced BSO significantly, largely in gaming, enabling us to free up approximately $120 million in working capital over the past year. I'm excited to share with you our new business's financial profile. We expect the new organization will be highly cash-generative business with double-digit organic top-line growth and a high mix of digital and recurring revenue. We are focused on large growing markets with strong tailwinds. Growth will be fueled by the recovering gaming market and delivering best-in-class products, building continued share gains, strong growth in social casino and casual markets, as well as the proliferation of iGaming in North America. In an increasingly converging world, as we launch games fully cross-platform, we will benefit as we accelerate revenue growth and optimize our R&D. We will continue to be laser-focused on operational excellence and driving productivity to the bottom line. Accordingly, we will see margin enhancement with aEBITDA growing faster than revenue and free cash flow growing faster than aEBITDA. We expect gaming EBITDA to exceed 2019 levels over the next couple of years as the market recovers, driven by continued share gains and our more streamlined organization. With the $5.8 billion of net after-tax cash proceeds from the lottery and sports betting transactions that we anticipate in Q2 of next year, we will quickly and substantially reduce our debt, lowering our cost of capital, which will translate into significantly reduced interest expense over time. with the utilization of our 1.2 billion of NOLs with the divestitures, and as we drive profits, we will become a full taxpayer. In terms of our capital structure, and given the certainty of the proceeds and timing of our divestitures, we are focused on executing our plans to reconstitute our capital structure, including using a majority of our proceeds to pay down our debt portfolio. Importantly, we have the financial flexibility and capacity to invest opportunistically, all within the context of a transformed balance sheet. We are focused on driving a balanced investment strategy that builds on the operational momentum of our businesses, while layering in targeted investments that we can scale for profitable growth. We will prioritize internal organic growth opportunities as we focus on building great gains, investing in our platforms, in targeting high-return capital investments. In terms of M&A, we will have a disciplined approach, continuing to assure that the potential targets fit within our strategy, enhance our competitive advantage, achieve our return hurdles, and are accretive to value. Wrapping up, I am proud of what our company and our team has accomplished this year and how we have delivered on our promises. With our singular focus and differentiated approach, we have a unique opportunity to engage players globally and deliver significant value to our employees, our customers, and our shareholders. We will move with speed and agility and always with an eye on operational excellence and driving productivity to the bottom line. It's great to see how much we've accomplished in such a short amount of time, and we're just getting started. I can't wait for our journey ahead. I'd now like to open the line for questions. Operator.
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.
spk10: And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Barry Jonas with Truist Securities.
spk02: Please go ahead.
spk11: Thank you. Thanks for taking my questions. I wanted to start with the lottery sale. Do you feel that you guys maximized proceeds there? And what were sort of the pros and cons with going down this path versus an IPO? Thank you.
spk09: Hey, Barry. Thanks for the question. Before Connie jumps in, I'd like to say that this transaction was a great outcome of a great process, and I'd love to give some context as to where this transaction takes us. Because on the heels of this deal, this has completely transformed us from a holding company to a unified company, streamlining our organization and singularly focused on a vision to become the leading cross-platform global game company. And now, with over $7 billion of proceeds, we can radically transform our balance sheet and at the same time invest for growth. And the great news is we have all the major pieces in place, and we're moving with speed and urgency to continue to unlock significant value for our shareholders. And with that, I'll turn it over to Connie.
spk04: Great. Thanks, Barry. And Barry, great to be with you today. You know, we explored multiple monetization paths with the intention of creating competitive tension in the process ultimately to drive a great outcome, and that's exactly what we did. As we went through the decision criteria, there were really three areas that we honed in on. The first was a premium valuation, but importantly also with consideration of timing and the certainty of proceeds. The second for us was all about minimizing complexity and risk. You know, we learned one thing over the last few years is that the macro environment sometimes can be a bit difficult to predict. And the third was all about speed. We want to get and start to move very quickly on executing our vision in order to de-lever the balance sheet and provide that flexibility that Barry just spoke to. The sale to Brookfield really ticked all three of those boxes and we're incredibly pleased. You know, it's really powerful when you look forward into Q2. next year, we're going to, for the first time, have the flexibility in order to de-lever and radically move forward with the balance sheet as an asset. So overall, we're really excited with the path ahead.
spk11: Great. And just a follow-up question, you guys have done a few small deals recently and was hoping to get a little more color on sort of your thoughts on synergies from these I guess specifically I'm interested in the authentic gaming deal and how big of an opportunity you think live dealer can become for Cygames.
spk09: Absolutely. I'll grab that one. Look, this is a great deal for us. It completes our digital portfolio, and it's a perfect fit for the organization that's highly synergistic and gives us a very competitive product in a very nascent but fast-growing part of the US iGaming market. We estimate or project to be up to 30% of the iGaming space. So it's a very important market. And the perfect thing about this acquisition is what we get is a seasoned team, a competitive product. We get a robust technology that we know scales with proven production capabilities. And then we get to marry that with the value we get to bring to it, which is our iGaming distribution through OGS, the proprietary table IP that we have, you know, the great brands like Let It Ride, you know, Three Card Poker, and all the kind of side bet technologies and IP that we've created, and then plus the deep casino operator relationships. And so it's actually, in a lot of ways, it's a real perfect marriage that creates a very compelling product offering for this market. And for us, no matter how you look at it, it's also a very capital efficient way for us to enter this market. And ultimately, the acquisition uniquely positions us as the only provider that has the combination of the land-based and iGamer operator relationships, the scale of innovative table content, and now, with Authentic, the live dealer capabilities to capture these opportunities in the iCasino market going forward. So we're really excited about it.
spk10: Great. Thanks, Barry. Thanks, Connie. Thank you.
spk02: The next question will come from John Decree with CBRE. Please go ahead.
spk07: Good afternoon, Barry, Connie. Thanks for taking my question as well. Maybe, Barry, if I could jump onto the back of the last question and talk a little bit more about M&A. You've been a little active with Tuck in and haven't even closed on your transformative divestitures yet, so I was wondering if the opportunities for you going forward once you get those big transactions over the finish line change, if you have your sights on being more active or looking at larger targets. I know Connie in her prepared remarks talked about being disciplined, but Given where the balance sheet is going, it seems like you can be disciplined and also set the target quite a bit higher. So I'm curious if there's some doors ahead that you're looking to go through once that balance sheet is shored up and you've got proceeds from those two transactions.
spk09: Yeah, look, in fact, I think the great thing actually is we have every major piece in place that we need to win today based on the investments we've made. over the last several years. You look at NYX and Authentic and the like, it really basically puts all the major pieces there for us. Going forward, we're going to take a balanced approach that builds on the operational momentum of our business today with organic as a priority. All that said, we absolutely will continue to scan the market for talent, games and adjacencies that will accelerate our vision. And the good news is, and I know we've spoken about this before, but we actually have a big advantage when it comes to approaching M&A in the sense that with our OGS, it enables us to scan the market to see attractive targets and trends and really help us look and dissect the market. And second, it enables us to provide instant distribution to any studio or game that we potentially acquire. So our goal is, you know, look, to approach M&A smartly with that financial rigor that you mentioned, Connie said, absolutely, so that we achieve the return hurdle, accretive to long-term shareholder value, as we've done in the past. And I think, look, you know, in recent history, we have a strong track record, you know, for success in M&A execution and driving returns, as you've seen with NYX, Don Best, SportsCast. So continue to be disciplined and balanced in our approach going forward.
spk07: That's how thanks for additional color barrier. And if I could ask a follow up on the eye gaming business a little bit, I mean, a lot of a lot of focus on the US rightfully so given the market and how fast it's growing. But I'm wondering if there's opportunities internationally and I gaming as you continue to do that tuck in M&A and, and ramp up your focus on on providing more and top quality content If you could maybe characterize kind of where you see the international opportunities or, you know, if that'll be a growth engine as well or if we really should just be focused on the U.S. right now.
spk09: No, great question. You know, first of all, obviously the U.S. market is, you know, huge greenfield market for us where we've established a leadership position that we continue to grow. We had, you know, a great quarter again. with 109% year-over-year growth, and we captured two basis points at 27%. But Europe is a big part of our business, and I think there is an opportunity for us to continue to look at regional and geographic opportunities from a content perspective, and I think we can do that in two ways. as we've talked about before in our cross-platform approach, leveraging our land-based IP into certain markets. If you remember, on the land-based side in the UK, as an example, we got close to 50% market share, and in that market share, you've got a content engine that's sitting there in the UK building franchises that we can take to market, as well as serving the regional flavors in those international markets through content as well and regional studios. And, you know, as we mentioned, you know, we've grown our studio base from four to six in the digital space. And I think from an organic perspective, we have a real opportunity to grow both internationally and in the United States.
spk07: Fantastic. Thanks, Barry. And congratulations to you and the company again on all the, you know, the massive strides you've made over the last couple of years kind of coming to a culmination here. Thanks for taking the question, and congratulations.
spk02: Thank you. The next question will come from Ryan Sigdahl with Craig Halem Capital Group. Please go ahead.
spk05: Good afternoon. Nice results. I want to dive a little deeper on Authentic as well. I guess the launch into the U.S. late next year, why wait a full year? to bring that technology here? And then secondly, how much opportunity do you think there is to expand the product offering? Piers Lake Roulette is a big part of their business today.
spk09: Yeah, absolutely. Great. Hey, Ryan. Good to talk to you. Thank you. Great question. I'll take the product first. Out in the marketplace today, we have Roulette. We have Blackjack. We'll be launching Baccarat before the end of the year, so we'll have a really nice portfolio product that's relevant to both the U.S. and international markets on top of that. The roadmap will include our own SG, you know, branded IP that I mentioned before. And from a product perspective, so we have ready-made product that covers the large categories to take to market, you know, with the technology product and everything that's at scale to do. The way it works in the live dealer space, as you might know, there's the, you know, the digital technology platform piece, and then there's also the the live ramp up piece of this that occurs in both casino individual tables as well as tables that can be broadcast across the casino environment. And that's the piece that you have to ramp up. And so as we've closed the deal and are bringing the product to market, it's going to take, you know, a few months to a couple quarters to get that piece ramped up in the U.S., which we will absolutely do. And then we'll obviously just, you know, we'll scale our, you know, investment according to the, you know, the demand and revenue in the marketplace. So, again, it's really, honestly, it comes back to that perfect fit for us because they kind of fill the piece that We didn't have, and we massively filled a piece that they didn't have. So it's wildly synergistic in that regard. So we're really excited because we'll be able to get a product to market next year.
spk05: Makes a lot of sense. One more for me. iGaming, you mentioned a lot of market share gains north of 100% growth in the U.S., et cetera, et cetera. Overall revenue was only modestly up. You mentioned seasonal trends. I guess what was different seasonally this year versus last year? Thanks.
spk09: Yeah, absolutely. I mean, I think, so first of all, we were up in the U.S. year over year and quarter on quarter. Europe is really – which is, again, still the bulk of our business – has the seasonal impact that you saw in Q3. But you'll see, obviously, that – you'll see growth going forward as we exit that seasonal period going into Q4.
spk05: Go ahead, Brian. Sorry. What's different seasonally? I think of seasonality as the same year after year after year, so I still don't understand. Maybe we can follow up offline, too, if that's easier.
spk09: Yeah, no, no. Look, I would say this is a more normalized year. You would normally see the seasonality. Last year, I would say it would be an abnormal year where you would probably – you had the COVID bit of the business that, made it less normalized. But in a normalized year, in our iGaming market, you typically see a seasonal impact in Q3.
spk04: Yeah, and I just feel that there were some one-off items that were included in prior years that we normalized for this year. But overall, some COVID tailwinds that were included last year, which are now normalized into the seasonality. But great business and continues to drive growth for us.
spk02: The next question will come from David Katz with Jefferies. Please go ahead.
spk00: Hi, afternoon, everyone. Thanks for taking my questions. I wanted to just, one, focus on the gaming machine business, which arguably is a bit less dynamic. But given the people you brought in and given what appears to be opportunities within that. Should we think about that as a business that takes share, growing top line, or driving efficiencies or better profitability on the bottom line, or how would we apportion both if the answer is all of the above?
spk09: Okay, great. Yeah, I guess I'll start. I think it's a great question, David. I would, I guess, look at it a couple ways. First of all, I think in that market you have really strong macro environment happening right now in the sense that You've got the recovery of COVID that is taking place on a global scale, which is a great flywheel. Right now, we believe we'll continue for a while. And then we sit in a very strong position within that, as we're seeing incredible momentum in gaming. Again, that cuts across our premium game ops to game sales. Australia, as we've reported, we've continued quarter-on-quarter, year-over-year gains with and capturing market share in each of those categories. So continued top line growth as we can build great products and take share in a segment that has a high growth recovery cycle, which is really, really strong. And I think ultimately, it's also we're becoming more efficient because the new team, as you described, is not only making a major impact on the top line by focusing on the major profit pools and building great games and products with the talent and product road mapping and market segmentation that they've done, but they've also streamlined the business from a standpoint of streamlining the cabinets, and supporting those cabinets with really strong products that capture the addressable universe and keep them out on the floor. And so you're also seeing efficiency to it as well.
spk04: Yeah, and I just build on that a little bit. We're seeing absolutely great momentum, as Barry just described. The team has a very detailed strategic plan, as Ray mentioned, to break it down by segment by segment. And so we're very confident in our ability to drive share gains over time. Additionally, I think the quality of our product continues to improve, which will just accelerate that growth. Last year, we took out a significant portion, $50 million, in order to streamline the operation. And I'd say that we continue to look for ways to drive further efficiency. So to answer your question, we're going to see top-line growth, we're going to see bottom-line growth, and continue to make significant momentum.
spk00: Understood. And as my follow-up, you know, Connie, I just wanted to walk through, because you gave quite a lot of information in your prepared remarks, I just wanted to walk through quickly some math and make sure that, you know, we have it right. We're winding up with the neighborhood of $3 billion of debt. We're taking the gaming machine business and growing it at some appropriate rate. I seem to remember earlier on in one of the earlier releases, there was talk about growing the digital businesses to be equal in size to the gaming machine business, which is more like a double size. you know, from where it is plus. And, you know, then it's a function of what, you know, kind of multiples we want to put on all that. Is that a fair way for me to take away from what you said?
spk04: Yeah, you know, I think that in general that's pretty in line. You know, we've spent a lot of time recently really stepping back as part of the strategic review to think about the shape of the organization and how we see that go forward. And so, Just to recap a bit more at a macro level, we expect to drive double-digit organic top-line growth. To your point, we're going to lean into digital and make that a larger part of our organization go forward, which naturally creates strong recurring revenues and cash flow. Overall, I'd say that we're going to continue to drive operational efficiency, which will also improve both that EBITDA and that cash flow line. And as Barry mentioned before, the great news is that if you look at our mix of digital versus land-based, we're sitting in that kind of, call it high 30s, tickling 40%. And so we've already got a lot of momentum to get us to where we need. And with the really robust portfolio we have today, we've really got all the pieces to drive that even further in the future.
spk02: Again, if you have a question, please press star, then 1. Our next question will come from Jeff Stanchel with Stifel. Please go ahead.
spk08: Hey, afternoon, everyone. Thanks for taking my questions and grasping a nice set of results here. I wanted to start on operator purchasing behavior in North America. You know, based on the U.S. listed names of reported earnings this cycle, it looks like the replacements market did kick up a bit here quarter on quarter. From that perspective, Barry, could you just frame how discussions with operators have trended over the past, call it, six months? Does it feel like appetite for deploying some capital to the slot floor is picking up? And if so, how does this play into your views on the cadence of a full-scale recovery in the replacements market?
spk09: Sure, absolutely. I'll, you know, I guess I would start by saying is, you know, I don't know if you guys, you know, how many people went to G2E, but I think G2E was an amazing event and quite frankly one of the proudest moments I've had. you know as the CEO here with the feedback buzz and energy that that it showed and there we got tremendous amount of positive feedback from our customers in terms of the products that we put into the marketplace and and the you know the the sentiment that we got there with the recovery you know that that's in place was you know the combination of our products and our approach to the market etc you know It gives us the confidence as we're looking forward and looking over the next six months and into 2022. Connie, you want to jump in as well?
spk04: Yeah, I just echo that. We are starting to see more optimistic tones from our operators, which is great. We have spent a lot of time behind the scenes building out a world-class portfolio, so we We're excited to see the market recover because we're going to seize the moment to really drive share gains off the back of it.
spk08: Okay, great. Very helpful. And then for my follow-up, I was hoping to talk to the casual gaming side of SidePlay for a bit. Obviously, a considerable TAM to attack here, but I was hoping you could talk a bit more on how you see that opportunity fitting in strategically to your RemainCo gaming content-led growth strategy.
spk09: Thanks. Absolutely. As you said, no dominant player or game that you have to deceit to go after that. And there's strong synergy with the social casino because, quite frankly, they're very similar. They're very similar in terms of the core game mechanic that drives success in that marketplace. You have a simple core loop, whether that core loop's a slot, a puzzle, or a card game, and then you surround it and drive player engagement and monetization through a metagame. The social you know, loop, a progression loop, a live events loop, you know, a monetization loop. And so there's all the expertise and engines built in the side play organizations that have been really refined over the last few years can then be applied to that casual space. There's also a tremendous amount of player overlap as well. And so, you know, so there's a tremendous synergy between side play and the casual space. And then ultimately as we build, you know, funnel back into the business, as well as building great franchises that, again, can be pulled backwards throughout the organization. We see tremendous upside in that business and a real opportunity over the next several years. Thank you.
spk02: The next question will come from Chad Baynon with Macquarie. Please go ahead.
spk01: Hi. Thanks for taking my question. I wanted to start on your Australian market share momentum that you talked about here with the Kraken series. I know that's been a market that's been tough to break into, or at least, you know, get to kind of a ceiling market share level. Do you believe this is sustainable? Is this just the beginning of kind of a multi-year market share gain opportunity? And how should we think about, yeah, kind of what's in front here, just given what you were able to talk about earlier? Thanks.
spk04: Hey, Chad. Connie here, and I love this question. And we've been spending a lot of time, as Barry mentioned, really thinking about what are the profit pools and how do we win in each of those. And we believe that the Australian market is a really exciting area for us to drive further share gains, as you're starting to see. It was interesting, probably about 12 months ago, we held our first Best Games workshop in Australia, putting all the brightest minds within R&D to really figure out how do we hone in and start to drive momentum in that market. And really what you're seeing today are the fruits of those labors. So with a portfolio like Kraken, also Fat Fortunes coming out and Coin Combo. We're just really well positioned to continue to grow. So I think it's the beginning of an amazing journey ahead for us as we make momentum in that market.
spk01: Thanks, Connie. And then separately, given your current systems market share position, in addition to your unique omni-channel PAM and iGaming platforms that you talked about and you obviously didn't divest, Can you talk about how one may drive the other and kind of how these could work together in the converging world, the converging omnichannel world? Thanks.
spk09: Yeah, absolutely. Great question. If you think about it, the system CMS and the player account management are very similar in their functionality in terms of managing authentication, player wallet, et cetera. One does it on the land-based side, the other one does it on the digital side, but in the that we're seeing in convergence, it's important, and we're hearing from our operators that it's important that they want a 360 view of their player and the ability to manage that player regardless of whether they're playing in the casino or outside of the casino, tying loyalty points across the board, being able to communicate And I think given the fact that we have world's leading PAM and we have the assistance business that you said, it puts us in a unique opportunity to bring the two together to provide a land-based digital CMS PAM solution that will provide that capability to operators as the world starts to converge. Operator, we have time for one more question.
spk02: Yes, sir. The next question will come from Zach Silverberg with Barenburg. Please go ahead.
spk06: Hi, thanks for taking my question. So in your presentation you discussed enhanced margin and cash conversion moving forward. So can you discuss the margin and free cash flow expansion opportunities that you're seeing on the cost side?
spk04: Sure, I'd love to take that question. You know, as we lean forward and look at the organization, where it's all predicated upon us continuing to deliver strong, organic, double-digit growth. And as we continue to lean into these areas, such as digital and content, we know that those will have high yields, which will ultimately allow us to drive A EBITDA at a rate faster than revenue, and then also cash flow at a rate faster than A EBITDA. So working your way down into also when you think about our transform balance sheet, all of a sudden we're going to have lower interest costs, which will also help drive productivity to the bottom line. So all in all, that's kind of the shape as you look forward. Great. Thank you, everyone.
spk09: Now I'm going to turn it over to Barry for some closing remarks. Thanks, Jim. Thanks, everyone, for joining us for today's call. We are very excited about what we have accomplished this past year. and how we are transforming our company for the future. We have all the pieces in place today to execute on our vision and drive sustainable growth and profitability. We are singularly focused on building great games fully cross-platform. While the others are just beginning, with the strategic actions we have taken, we are well on our way. We have a truly differentiated position with the talent, the franchises, and the platforms to build a true omni-channel experience. And with that, I want to thank you for your support. Thank you, everyone, for joining us. Now I'll turn it back over to the operator.
spk02: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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