SGMS 4Q 2014 CONFERENCE CALL NOTES

CONF CALL

  • 5% of employees (450 positions) eliminated by end of 2014
  • Gaming consolidation underway in Las Vegas
  • Highly confident in seeing improvement in FCF starting in 2H 2015
  • Gaming ops:  Average daily revenue/footprint increased 10% YoY in 2014
  • Lower installed base: One single customer reduced slots by 259 in 4Q 
  • $18.5m not added to Attributable EBITDA -consisting of $6.2 million of impairment charges associated with the Monopoly Millionaires Club™ game (of which $5.7 million impacted cost of instant games and $0.5 impacted depreciation and amortization), $5.2 million of impairment charges related to inventory obsolescence (of which $3.1 million impacted cost of services and $2.1 million impacted cost of sales), $4.0 million write-down of certain receivables from international customers included in selling general and administrative expense and an incremental $3.1 million charge in earnings (loss) from equity investments related to the additional shortfall payment booked by the Northstar Illinois joint venture for the lottery's fiscal year ended June 30, 2014.
  • No significant maturities until 2018.  Paid down $18m in revolver to fund Bally acquisition. 
  • Currently liquidity of $538m
  • FCF: priority is to pay down revolver
  • 2015 Capex: $320-$350m (15-25m integration related capex)
    • Spending mainly on lottery side of business
  • SG&A:  $85m of charges previously described; $11m restructuring expenses ($1m WMS-related)
  • 7% increase revenue in UK installed base
  • 4Q: 228 IL VGT units shipped
  • 4Q replacement: 4,511 (848 units YoY increase)
  • Maintenance revenue virtually flat
  • Table revenue down $1m 
  • Lottery services revenue declined $5m (low performance of Powerball and MegaMillions). 2015 better start due to large Powerball in February.
  • Lottery: benefited from lower OpEx and lower termination expenses  
  • Interactive: $3m from Bally
  •  Key priorities:
    • 1) customers
    • 2) focused on integration initiative
    • 3) discipline in management of deployment of capital

Q & A

  • Feedback from customers: similar budgets as last year
  • Believe increased wallet share in Q4
  • Leverage:  Q4 included $135m of cash-based charges. Continue to invest wisely and get appropriate returns. 
  • 2015 Gaming:  relatively flat with a slight increase in share 
  • 2015 Lottery: Europe doing better
  • Gaming systems:  long lead time. Expect some big sales.  ALH rollout is very exciting - for the smaller-end market.
  • NOL balance at end of 2014: will be in the 10K (will be filed on Monday)
  • Cash taxes:  tens of millions from foreign results
  • Q4 Replacement units:  Bally had a stellar performance with Wave cabinet and Shuffle products. 
  • Gaming ops: customers are used to operating in 'new' environment. Mixture of luck, lower gas prices, and better weather also playing impact.
  • Salesforce integration:  training session. So far, so good.
  • Pro-forma 12mth ended: Cash based interest expense was $615m 
  • In purchase accounting, eliminated deferred revenues that Bally had ($27m). $5m of that $27m would have been in Dec Q. The other $22m will be impacted in 1H 2015.
  • Greece (OPAP):  contract being finalized now. SGMS was selected as a contractor. 
  • Can you get Interactive margins to 30-35%?  Rolling out mobile part of interactive.  Spending more there which has adversely impacted margins. 
  • Area of disappointment:  non-WAP premium units declined in 2014.  Customers had to reduce costs in that sector.  
  • Good performance with Wonder Woman and Flintstones 
  • S23 Cabinet will be launched this year and a couple of more products
  • The $15-25m of integration capex is in addition to the $70-80m disclosed previously
  • Low Gas price impact:  instant ticket sales are up but don't know definitely if there is an impact
  • Attributable EBITDA from Equity investments: $70.8m in FY 2014
  • Writedown in receivables:  related to Gaming business in Latin America

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