Brightstar Lottery PLC (BRSL) Q3 2012 Earnings Report, Transcript and Summary

Welcome to International Game Technology's Third Quarter Fiscal Year 2012 Results Conference Call. [Operator Instructions] This call is being recorded. If anyone have any objections, you may disconnect at this time. I would now like to turn the call over to Matt Moyer, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good afternoon and welcome to IGT's Third Quarter Fiscal Year 2012 Earnings Conference Call. On the call with me today are Patti Hart, CEO, and John Vandemore, CFO. Before we begin, I'd like to remind listeners our discussion will contain forward-looking statements concerning matters, such as our expected financial and operational performance, including our guidance for fiscal 2012, our expectations for the economy in general and the gaming industry in particular, the expected impact of the DoubleDown acquisition and our strategic operational and product plans. Actual results may differ materially from the results predicted and reported results should not be considered as indicative of future performance. Potential risks and uncertainties that could cause our business and financial results to differ materially from our forward-looking statements are included in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. All information discussed on this call is as of today, July 24, 2012, and IGT does not intend and undertakes no obligation to update this information to reflect future events or circumstances. In addition, on today's call, we may discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the GAAP measures we consider most comparable can be found in today's earnings release, which is posted on the Investor Relations section of our website, igt.com, and included as an exhibit to the Form 8-K, which we furnished today to the SEC. With that in mind, I'll now turn the call over to Patti.

Thanks, Matt, and good afternoon, everyone. Our third quarter results are highlighted by strong revenue growth and our ability to leverage our leading game content across multiple platforms. While some areas of the business fell short of our internal expectations, other areas showed meaningful continued improvement. The breadth and diversity of our revenue is a testament to our business model, a model that has extensive global reach and yields healthy cash flows. We continue to show strong consolidated revenue growth. Total revenues in the quarter grew 9% over last year's third quarter, aided by our interactive business and North American product sales. North American replacement units grew 44%, indicative of our strong portfolio of gains. In gaming operations, excluding our interactive businesses, revenues were flat and gross profits were down slightly from last year. We continue to see positive growth in our global fixed fee installed base with an increase of 10% this year. While these units weigh on a consolidated yield, they are great source of consistent earnings and cash flows. We do recognize that some of our participation games are not performing at the levels we had become accustomed to but we remain focused on the attractive long-term returns on capital that this business generates. Our international business delivered mixed results. We experienced lower unit sales in the Europe and South America, but we increased shipments into Australia, Asia and Mexico. We remain confident that our international business will continue to be a strong contributor to both revenue and earnings moving forward. As we expected, the addition of DoubleDown to our interactive group is impacting our overall operating margin in the near term, and it is also providing accelerated revenue growth. We are making important investments to expand our interactive distribution into mobile platforms in new geographies. Over time, we expect to see overhead leverage and higher operating profit margins. We continue to pursue our vision of ubiquitous device-agnostic content distribution. Most recently, we launched our first IGT theme into the DoubleDown Casino with the release of the Da Vinci Diamonds. This game's exposure has grown from thousands of people a month, having started as a machine on U.S. casino floors, to millions of people every day around the world. The repurposing of our game library has allowed for the rapid and cost-effective enhancement of the DoubleDown Casino. We are generally pleased with the progress we have made in achieving our fiscal 2012 financial goals but have not lost sight of the need for continuous improvement in our business. We are about where we expected to be at this point in our fiscal year and we remain dedicated to the efficient deployment of capital to drive positive returns for our shareholders, as evidenced this past quarter by an increase in our share repurchase authorization to $1 billion and the acceleration of $400 million of share buyback activity. With that, I'll ask John to go over the financial details of the quarter. John?

Thank you, Patti. As Patti mentioned, we are pleased with the strength of our revenue growth in the third quarter. Compared to the third quarter of fiscal 2011, total revenues were up 9% to $533 million, driven by strong growth in our interactive businesses and in North American product sales. However, continued investment in our emerging businesses and market dynamics in the few areas impacted our ability to translate that revenue growth into higher earnings. Adjusted earnings per share decreased 12% to $0.23 per share, reflecting both lower gaming operations and international product sales gross margins. GAAP earnings were $0.16 per share, reflecting the addition of charges associated with contingent consideration related to the acquisition of DoubleDown. As a reminder, our press release contains a reconciliation of adjusted measures to their comparable GAAP counterpart. Now let me discuss results related to gaming operations. To aid comparability, I will do so, excluding the impact of our interactive businesses, which generated $43 million of revenue in the quarter and $8 million in last year's third quarter. Gaming operation revenues were flat as a 7% increase in the consolidated installed base was offset by lower combined yields. IGT's consolidated installed base ended the quarter at 56,900 units, up 3,600 units from a year ago and 800 units sequentially. We saw increases in both our domestic and international lease operation and in our domestic MegaJackpots' installed base. Gaming operation's yield was $50.20 in the third quarter, down 7% versus prior year and 4% sequentially. This decline is mainly attributable to the increased mix of lower-yielding lease operations and standalone MegaJackpots units. Gaming operations gross margin was 60% in the third quarter, down from 62% for the same quarter last year, primarily due to the aforementioned lower yields and higher depreciation expense. For the fourth quarter, we are assuming consolidated gaming operations gross margin of approximately 62%, including our interactive businesses. The gaming operations environment, particularly in the wide area of Progressive, remains extremely competitive. We remain focused on pricing discipline and on driving higher returns on capital over a longer-term horizon. Consolidated product sales revenues increased 5% to $232 million for the quarter. We recognize the sale of 11,600 units, up 30% from last year's third quarter, primarily driven by new openings and higher North American replacement units, including 900 Canadian VLT units. Average selling price was down 11%, due to a higher mix of VLT and used unit sales. Excluding those units, the average selling price was consistent with the last year. Consolidated product sales gross profit was $124 million, flat with last year. North American product sales gross margins increased 56%, due to increased production volumes, while international gross margins decreased to 49% on lower volumes and lower parts in conversion kit margins. For the fourth quarter, we are assuming consolidated product sales gross margin to be approximately 52%. Third quarter operating expenses increased 40% to $207 million, primarily due to the inclusion of our interactive businesses. We continue to make operating expense investments into these businesses, which we expect to leverage as revenues continue to grow. Excluding this impact, the operating expenses for the quarter grew 7%, primarily due to a bad debt credit in the prior year. Overall, operating expenses were stable at 30% of revenues, as we maintained tight cost controls across the company. As of June 30, 2012, cash, cash equivalents and short-term investments, inclusive of restrictive amounts, totaled $328 million. Contractual debt obligations increased to $1.9 billion, reflecting increased borrowings under our credit facility to partially fund our recently announced accelerated share buyback. Combining the shares repurchased under the accelerated share buyback to date and under the previous authorization, we have repurchase over 27 million shares this fiscal year, or nearly 10% of our outstanding common stock. We expect our fully diluted weighted average shares outstanding to be 291 million shares for fiscal 2012. Inclusive of dividends, we anticipate returning over $0.5 billion to shareholders in fiscal 2012, a clear indication of the strength of our cash flows and confidence in our strategy. Back to you, Patti.

Thanks, John. Given our financial results through the first 3 quarters, we remain confident in our ability to achieve our full year financial objectives that we set forth earlier this year. We are managing that which is within our control. We're focusing first on our customers and delivering on promises made to all stakeholders. With that said, for the current 2012 fiscal year, we are reiterating our adjusted earnings guidance of $0.98 to $1.04 per share, including the expected impact of our share repurchase activity. Our core objectives for 2012 remain consistent, as we look to grow our revenues, build on the momentum of our internal improvements, leverage our income statement and energize our interactive business. With that, we thank you very much and we'd like to take your questions.

Kim, we're ready to take questions now. Thank you.

[Operator Instructions] Our first question comes from Mark Strawn with Morgan Stanley.

One question and one quick follow-up. First, just on the timing of the buyback, I'm just curious if you could help us to understand the rationale there for looking at the current quarter's results, which seemed to be below expectations pretty much across the board. I was wondering why you would institute the buyback in front of that, maybe not or maybe wait until after to do that? Is there -- could you give us some insight there?

Yes, I'll start and let Patti chime in. We're continuously evaluating means through which we will return cash to shareholders with our Board and amongst senior management. That's something we're continuously undertaking. We tend to manage the business on an annual basis, so quarterly variations to us are part of the nature of the business and here, we've affirmed our guidance for the year. Overall, we wanted to accelerate the opportunity to take advantage of the share price. But also, it was a conversation that had been continuing for quite a while with the Board, in the Board. And we felt it was the right time to enact the -- to enact the repurchase.

Yes. I think, Mark, we don't see the quarter as having missed on every item as you've indicated. I mean, we had very strong revenue growth in the quarter. Our interactive business, inclusive of DoubleDown, is performing out ahead of really where we would expect it to be at this point. We felt like the North American shipments were very strong on both the new and replacement side of our business. We had a couple of anomalies and some used equipment sales into Mexico and Australia that are just not things that you expect to be repeated in the business. And I think, we say every quarter that we manage the company on an annual basis, and we do. And when we deploy capital, we look at much longer time frame than just 1 month or 2. So that's the way, I think the way we think about it. We think the quarter is very strong. We generated $150 million of cash. It's a nice cash generation quarter. So...

That's helpful. And just following on with that. It seems -- was there something a timing weighted that shifted into the fiscal fourth quarter because it looks like, factoring in -- to reiterate your guidance, you're looking at $0.32 to $0.38 for the quarter, which is a noticeable step up. So is there anything that shifted there? Then the second part is, given there's one quarter less and you still have a $0.06 delta, is there a particular area of visibility that remains low that -- why you would keep such a wide range into the fourth quarter?

Yes, I think there is a pretty significant differential here in this quarter between shipped and recognized, and there were a handful of sizeable deals that we were not able to revenue recognize in the quarter. That being said, again, we're affirming our annual guidance and it's a consistent level of guidance we had throughout the year. But there is a lot of volatility in the various markets we deal with, international, in particular, and that drives us to have a little bit less visibility than we would normally have accompanying and narrowing of the range. But again, we still feel solid about the range that we've offered and continue to move forward in that direction.

Yes, and I would just add to John's comment, Mark, the couple of areas of visibility for us. We had a little bit of Canadian VLT in this quarter. We have a couple thousand, I think, coming in the next quarter, but it's coming into new provinces where we have to get through the compliance process. So those things are in the balance. We have a little bit of Illinois in the fourth quarter. Currently, again, those things kind of sit in the balance, in many cases. We've got a couple of new Ohio properties that can kind of go either way in the quarter. So -- and we have a couple of things that we're working on from an import/export perspective that don't have anything to do with compliance, regulatory or our ability to build the game where the customers desire to have them. But outside the U.S. we're getting things into the country and through the import process. So -- and those things, we don't have them all loaded but it's enough, and I think DoubleDown is the same, right. DoubleDown, we have a couple of new products launching in August and our assumptions around our ability to drive daily average users is still not as predictable for us, being new owners of that business, as maybe we'd like for it to be.

The next question comes from Felicia Hendrix with Barclays.

While we're on DoubleDown, just a few questions there. You put in the release that the monthly users were down. But I was wondering, could you discuss the conversion rate, how that was in the quarter, and maybe recent trends? And if you're expecting the user count to rise? You did just say that you're adding some new products, so maybe you could elaborate there.

Yes. I mean, the monthly user data is one point that we examine. We're also -- and we're giving you bookings for daily user. And at the moment, that's the extent of our disclosures, although I continue -- we're looking at what those will be in the future. In the month, we focused on expanding across platforms and geographies at DoubleDown, and as a result, we did not roll out as many new games as had been the case in the past. We did roll out Da Vinci Diamonds, and that saw a measurable uptick in performance. From a financial standpoint, we're extremely pleased with the bookings per daily user. Those are extremely strong, and we believe, among the best in this market on the Facebook platform.

Yes, and the new products coming on Da Vinci Diamonds are a continued repurposing of our historic game library from IGT. It's the fastest and the lowest cost route to market for us to really expand the content in the DoubleDown Casinos, so a few new wins that will be coming in August and September that look like Da Vinci Diamonds.

Okay. And will you comment on the conversion rate at all?

I think not at this time. I think the extent of our disclosure is going to include the active uses and the bookings per daily user. But again, we are comfortable with the conversion we're seeing and we'd point you to the bookings for daily users, probably the strongest indication of the health of that business right now.

Okay. And then just within the past weeks, 6 weeks or so, I'm wondering if you've seen any change in tone from the slot managers. I believe you were seeing some early signs of potential pickup a few months ago, just wondering if anything has changed since then?

Relative to replacement cycle?

Yes.

Yes. So I think we always hear very optimistic things about the intent to purchase. I think it's been less predictable. You can see in our North American replacements are very strong shipments this quarter. I mean, we felt very good about the replacement market. So I think if that's an indication of confidence, it's a good strong, positive indication from the marketplace. So up sequentially and up year-on-year for us for replacement perspective, we'd like to see that trend continue. If things we hear from operators would indicate they like to continue to put capital to work, so we did have to get a little help from the economy.

And our next question comes from Robin Farley with UBS.

Great. I guess, I just wanted to clarify. I know you're reiterating your guidance at $0.98 to $1.04 unchanged. But I think we're all under the impression that your guidance previously did not include any accretion from the share repurchase that was announced in June. And I may have missed you commenting on some of the markets that are -- Board's not clear, that are sort of sitting in the balance. I think you mentioned Illinois in Q4. And I guess, I just want to clarify. I had thought that maybe Illinois was not in your full year guidance. And so I guess, can you clarify a little bit about -- if I heard that right that it is in that range now?

Yes, we have a little Illinois in our guidance, in our forecast, as well as the Canadian units Patti spoke about.

But I mean, the share repurchase, in other words, the last time a quarter ago when you [indiscernible] I'm sorry?

[indiscernible] The guidance we're reconfirming with the share repurchase. The share repurchase is now factored into our guidance. It remains within that range. We gave the share count, and keep in mind that, that the shares won't be out for the full year. It's only a very small portion of the overall repurchased activity is going to factor into the fourth quarter in the full year results.

And our next question comes from Steve Wieczynski with Stifel, Nicolaus. Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division: Just one question. On the -- can you just kind of talk us through kind of the pricing environment in terms of what you're seeing out there? You talked about how your average selling price was down because of mix. But as we kind of go forward, is that -- is this kind of a range we should be looking at? And I assume your margin for the -- your guidance for the fourth quarter of 52%, that's down a good bit from last year. Is that mostly mix as well?

Yes. I would say it's a fiercely competitive market and probably as competitive as it has ever been. So I will preface by saying that we won't make any bones about that. However, we did have in the quarter a significant shift in mix. MLD as a percent of our shipments was down significantly, as was the AVP units. So we had a lot -- I mean, as we're moving into this VLT process for 2013, those boxes, very important part of our business, but they do come at much lower price points. And so as we think about Illinois and we think about Canada and how much that's part of the next couple of years for our industry as well as our company, I think we have to adjust our thinking on the price points and the margin points for those boxes. That's a business that you wouldn't not choose to participate in based on that, but I think we have to be realistic about where they come in from an ASP perspective and from a margin perspective. They're a little bit lower than what you see and the full-featured MLD type boxes that are -- that we typically ship.

Our next question comes from Carlo Santarelli with Deutsche Bank.

So with respect to your product sales, if you guys could kind of quantify on an apples to apples basis how your pricing have change year-over-year for like to like products per se? Then I just had one quick follow-up.

We're just grabbing the information for you, Carlo.

Yes, I think so. I mean, excluding the anomalies we mentioned at the VLT and the used unit sales, pricing was relatively consistent with last year. So I guess, I characterized the VLT and the used unit sales. They are obviously dragging down the ASP. And then absent that, the sales, pricing is flat against the backdrop that Patti mentioned on the unit to unit basis with the non-MLD units in the mix higher than we had expected, but essentially pricing flat among those products.

Among the products. Okay, great. That's helpful. And then just really quick housekeeping. In terms of your replacements, what was Canada as a percentage of the mix? Or if you have an absolute number of what Canada represented with respect to your replacements?

It was about 900 units.

Your next question comes from Joe Greff with JPMorgan. Joseph Greff - JP Morgan Chase & Co, Research Division: A question for you in the gross margin on game ops. It was down about 240 bps year-to-year. Can you help us understand, break that up between the inclusion of interactive and the impact from lower MegaJackpot yields? And then I have a follow-up.

Yes. So gaming operation's gross margins, excluding the interactive business, was 60% as compared to 59%. And then, again, the impact on the margins, on an apples to apples basis, is mixed. It's higher lease operations and standalone MegaJackpots in the mix as compared to prior year. And just to color, the lease operations openings like Marilyn Live [ph] which offers a lease operation Aqueduct in New York, just figure prominently in there. Joseph Greff - JP Morgan Chase & Co, Research Division: Great. And then I think this was asked a couple of different ways, so I'll take a stab at the EPS guidance for the fiscal year. We were to back out the EPS accretion from the buyback, that implies that something is lower versus, say, 3 months ago, at least at the top end. And I guess what part of the businesses is that sort of lower view derived from?

Well, I mean, I would take or the mid-point of our last guidance, and if you adjusted for a couple of cents because of the repurchase, you're still within the old range. So again, we're still within that range. I think what you're seeing is the margin pressures continue. We're obviously, handling a beating last year on the revenue line, but we're having challenges on the margins associated with game ops and then some of the international product sales. And we expected those will continue to a degree. Obviously, we're focused on those and be -- we'll be working to resolve them. The game ops yield is probably the most significant contributor in that.

Our next question comes from Shaun Kelley with Bank of America.

Just wanted to ask kind of one more on the game ops yield side. So last quarter was one of the first that we kind of saw this issue on the MegaJackpots, and it was down on an apples to apples basis. It was down to 4%. This quarter, it's down 7% year-on-year. I mean, kind of, in your sense, as you look guys look out the industry where -- can you just give us a sense of where you think competition in that business can kind of bottom out and where that yield is headed just as we think forward?

Yes. So, I mean, I think that the game ops yield, again, we're very focused, as a company, on returning on the capital. So yield is a component of that, but it really is about adjusting our thinking to taking slightly lower yielding products if we can put more legs on the hardware. So you'll continue to see us think that way about that business. But I think the yield declines are really -- it's a 3-headed monster for us, right? We have the economy, which I think is having an impact for us. It's a much -- been a much more elongated as we all know, protracted recovery. So the economy is having an impact. The competition is having an impact. I mean, there is a lot more choices of the game, particularly in the wide area Progressive area. That Wide Area Progressive business model has been under pressure for some time and there's a lot of choices there. And then the last is we have a couple of products that aren't performing in that area that we're addressing. We've made some changes. We've made personnel changes and some process changes and some quality checking changes that I think are -- have been long overdue. And so it's really 3 things for us. And we're hoping to get some help from the economy and that the competitors' products, they're good products and they're going to come and go like all good products are. But we've got to get our products performing and that's the real focus for us. And that's going to lift it up a bit but it isn't going to lift it up dramatically until we get some lift from the economy.

That's helpful. And then, I guess, just one more on DoubleDown, just follow-up on that area. I'm just trying to kind of, I guess, kind of gauge how we should think about improvement in that business going forward. Would you expect to see -- should we expect to see user growth sequentially from here? How should we think about that? And kind of what's your expectation for how that business will trend through in the fourth quarter, maybe into 2013?

So our first focus there is to work on the platform extension. To really move it, it's all about mobile, mobile, mobile for us in the DoubleDown area. So it really is, first, in order to really take us from where we are on our daily and monthly average users to where we want to go, it's going to require 2 main things: its platform reach and language conversions. Those are the 2 things that we need to kind of break through to the next level. So those are the things that we're working on. I think adding to that, the IGT library of games that we've done -- I mean, Da Vinci Diamonds was a huge hit for us on DoubleDown. And really getting those things right before we start spending customer acquisition cost. That's really what we've been focused on. So we're going to let it sit it around here until we think we feel like we have a product that's robust enough to push it up to the next level.

And does mobile have lower bookings per user because I believe that's an issue that a variety of the kind of the -- I guess, the big kind of -- the big social guys have run into?

So I mean, sorry -- so what we're looking at bookings per paid per daily user. That's an all-in number. I don't think we'd want to talk about with precision what we see mobile. But we see a lot more right now in the desktop environment, which speaks to Patti's enunciation of our priority of getting on mobile in a big way.

Right, but you won't tell us whether or not there's negative mix in that?

No.

Yes, I don't see -- I don't think negative mix from last quarter, if you're looking at things trending quarter-over-quarter. There hasn't been a significant enough shift in devices for our users to actually -- to really see any kind of significant shift in the booking.

Our next question comes from Harry Curtis with Nomura.

Two questions. Just going back to the fourth quarter guidance, I want to make sure I get this right. So if most of the sequential improvement in earnings is coming from units that haven't been recognized yet, just to get to that magnitude of improvement, according to our model, it means that you'd probably have to ship 20,000, to 25,000 units globally, as opposed to the 11,600 that you did in the third quarter. Is that about the right range?

No, I think that, that would -- assume your model would then be assuming the consistent ASP with what we experienced this quarter to get to that level. That's higher than what we would indicate.

Okay, so yours is -- so it would probably be a lower number, but fewer VLT shipments at a lower price?

Well, I would just say that the ASP expectations are different than they are this quarter. So it's not just units, it's combination of units and price.

Okay. And then, just the 30,000-foot question on the interactive business as a whole. It's -- and it's not an easy question to ask, but I think I have to ask it. When you take a look at the cost that are going up, the fact that the users on DoubleDown have come down sequentially, it's a business that, to some degree, is pressured or brought down your gross margins. I guess, my question is, it looks like it's a dilutive business at this point. And I'm wondering how, going forward, you see it creating shareholder value or how long it's going to take to create shareholder value?

Well, keep in mind that the interactive business, as we referred to, include more than just DoubleDown. So there's more that -- more at play there than DoubleDown. And when we talk about users, monthly users were down, daily active users were up and bookings per daily user were up. So we saw strength in that business. It's not dilutive. It's cash accretive to us. We think that our -- in interactive business as a whole, including the real money wagering products in Europe, continue to require operating cost investments. And it's much like a capital investment. You have to make sure your systems are capable of handling the growth and the operational requirements. And we will continue to invest in those businesses as long as we have faith that ultimately, the revenue is going to continue to grow at the rate it's growing at. So DoubleDown is performing at or above plan. Evidence of that by the adjustment we made in our fair value to earn out, which is in our GAAP earnings and got the other data points we mentioned with regards to table daily active users and bookings per daily user up.

So the last question then would be, when you look at your SG&A, R&D, and D&A for the June quarter, is that about the right run rate? There was nothing extraordinary or one-time in those 3 line items?

Well, I think you continue to see some level of growth there as, for example, advertising and selling continue to factor into the DoubleDown model. But we will continue to make those investments as long as they're accompanied by growth in revenue, which we are seeing.

Okay. But there was nothing extraordinary in those numbers?

Nothing, nothing extraordinary, no.

Your next question comes from Steven Kent with Goldman Sachs.

Just to follow on a little bit on Harry's question. Can you just discuss whether you'll have to mark-to-mark your DoubleDown purchasing? In other words, would you have to write it down? And the reason I ask is that in your outlook section of the press release this time around, you mentioned that your outlook could include charges for impairment, and you never had that in the disclosure before. And I'm wondering if that's because of concerns that you may have to mark the DoubleDown purchase down.

No, I mean, that, that language, that nomenclatures is pretty standard. There's nothing that leads us to believe in any way, shape, or form at the moment that we would have an impairment issue with DoubleDown. And keep in mind, impairment issues are judge holistically across the organization. So no, I mean, given the trends in the business, given the performance, quite frankly, if anything, we just wrote up our expected payout against the contingent consideration with DoubleDown, which was, we want to believe that factors there are improving, not in any way declining.

So the added verbiage had -- the last time around it was $0.01, and this time around is like $0.03 or $0.04, so that's why I'm asking. I guess, just a follow on again is, what kind of growth rate do you need on DoubleDown users to meet the objectives of breaking even by 2014?

Yes, I think it's a combination, Steve, of users and revenue per user. And so we're probably more focused right now on mining revenue from the users we have and moving that number. We think that, that's the softest ground for us, and absent more robust offerings in the mobile and language space, that, that's the best place for us to go. So we're not focused on a lot of marketing and customer acquisition. We've really been focusing on mining the database of customers we have. So our plan with DoubleDown over the horizon of the earnout is a combination of growth in users and growth in revenue per user.

Just to clarify, the language there, we're constantly evaluating all of our business as we're required to for a variety of factors including impairment. That language was more precisely directed toward the fact that we will be revaluing the earnout on DoubleDown on a regular basis and that includes a variety of factors, including the -- simply the time value of money, as well as an updated perspective on the likelihood that DoubleDown will achieve its earnout objectives and to the extent those vary, we don't have a very good sense today as to what those will be. So you can expect, on a GAAP basis, that we will continuously revising our perspective on the likelihood of those earnout payments and that will roll-through as a charge, which we will continue to highlight as an adjusting item.

Our next question comes from Clifford Kurt (sic) [Kurz] with CLSA. Clifford Kurz - Credit Agricole Securities (USA) Inc., Research Division: It's Clifford Kurz at CLSA Inc. calling for John Oh. Actually, just a quick question back to the ASP and what kind of level of competition are you seeing from lower tier suppliers, mostly talking about North America here?

Yes. I think the competitive environment there has remained relatively constant, so I would say, certainly, hasn't decreased. But we haven't really seen a significant uptick, either in the -- in either discounting or in the share volume of competitive product that's available. So I would say, expense, fairly consistent through it, consistent for probably more than a year at this point. Clifford Kurz - Credit Agricole Securities (USA) Inc., Research Division: Great. And just to follow-up on that. You talked about a little bit about greater used sales this quarter, is that more of a one-time phenomenon? Or do you see that trending going forward?

Yes, we believe it was a phenomenon. At some point, you take what the market will give you in terms of the product you're putting in. We did have some rather sizable used unit sales in the quarter that, again, pulled down that ASP, as we mentioned.

Our next question comes from Joel Simkins with Crédit Suisse. Joel H. Simkins - Crédit Suisse AG, Research Division: You talked earlier about some of the multipronged challenges in gaming ops. We haven't talked about poker. Obviously, that's still very important contributor. Can you just give us a sense of how you see this competitive landscape in poker shaping out over the next couple of years, particularly, some of your competitors look to be making some additional efforts in this segment?

Yes, it's -- that's a good question, Joel. I mean, we're -- certainly, poker has been a significant contributor to IGT since our inception. We were founded as a video poker company, so it's a part of our heart and soul. But it's going through its own level of changes. So certainly, some of our competitors have made some moves. I don't think that time has passed enough to see whether or not those will be successful or not. So we'll see how that goes. But we're not standing still, and we never have. I mean, our poker products continues to evolve. John and I actually just spent some time with the poker studio a couple of weeks ago up in Reno and looked at the new products they have coming. We have to be out on the leading edge of those products, but that's at the customer base. As you all know as well as we do that, it doesn't adapt to change easily. They kind of -- are very habitual in the way they like to play; the processes that they used to play their games. So it's about introducing some new feature functionality gradually and easy over time in a way they can digest it. And that's really what we're doing. It's what we have done forever. So it's a little bit stay the course for us, I think continuing to adjust the product, but not dramatically transforming the product to make certain that we're still appealing to the core video poker customer base is the way we're thinking about it. So I think we have a nice plan. I felt comfortable, I think, after my time with the folks in the studio, that they have a nice plan to kind of ramp up that part of our business over time. Joel H. Simkins - Crédit Suisse AG, Research Division: And just one quick follow-up with regard to gaming ops. So when you've seen some of your competitors go in with much lower pricing on stuff that might go head-to-head with MegaJackpots, I mean, what has typically been yours response? Are you willing to cede floor space if the economics aren't right? Or he have you had to go and sort of capitulate on price?

No, I think it's been a little bit of both. I think we try to look at on our case-by-case basis. We don't feel a need to match our competitors and starts capping our best gains. We just feel like that, that's going the wrong direction for us and for our customers. We want those games to be motivated to generate as much revenue as possible with a best placement on the floor. So we feel like capping our best and highest performing games would not be the right move for our shareholders. So we've done it on a case-by-case basis. In some cases, we've done some creative things to maintain our floor space. In other cases, where we feel like in it's not in your best interest and our best interest we let the floor space go in a couple of cases. And then I think time will settle that out. It's very difficult when you go in with these high-end games and the Wide Area Progressive and MegaJackpot area with license fees and all the bells and whistles to really cap it and really be able to earn back your capital investment. It's a very difficult equation. So we've kind of held-through, just saying: "Our gains generate more, therefore, we should participate more." And that's worked for us so far.

Our next question comes from Dennis Forst with KeyBanc.

Yes, I had a question, specifically, about the state of Ohio. We're seeing a lot of expansion of gaming there between the land-based and the VLTs at the race tracks. I'm wondering, in the June quarter, did you recognize more than the Toledo and Cleveland Casinos, the shipments to those 2?

Yes. We had one racino and I maybe mispronouncing this, sorry, I apologize to the residence. Shadow downs [ph], was also a racino recognition there in day Ohio market.

Okay. And what about the cafés? There are a lot of, I think, potential opportunities in the -- for small internet cafés and restaurants that can have a limited number of VLTs. Is that a potential market that you guys are looking at?

That is basically the market in Illinois. It's been the market in Louisiana. It's more of a route market right up our [indiscernible].

But is it the market in Ohio?

Yes. I mean, we don't currently see legislation that's going to lead to, what I would consider that route market kind of business. I think as we move from the land-based aggregated casinos into the VLTs, that could likely come later. But it's not currently something that's on the drawing board.

Okay. And then for those 3 properties that you ship to, approximately how many units were shipped? And I assume they were all recognized in the quarter.

Yes, they were all recognized. We'll get you the sizes in that off-line. We'll dig that out.

The next question comes from Edward Williams with BMO Capital Markets.

Just going back to DoubleDown for a moment. Can you give us an idea as to how many of the IGT theme slot games may make it out on to DoubleDown this year, if you look at either September fiscal or the calendar year? And then secondly, can you give us some color about the usage of DoubleDown? So if we look at -- if I look at app data, there's a substantial usage of DoubleDown within the U.S. I think almost 3x the size on the percentage basis, as [indiscernible] poker. Does that correlate with how to revenues are coming in for DoubleDown, if we look at the...

Yes, it does. It does, actually. I mean, that's what I was saying earlier that need to kind of moving into the translation era [ph] with the product into new languages because it does correlate exactly. If you look at English-speaking countries, you would see that it's the lion's share of the revenues. So that's an area, I think, that we have to make some improvement in, not just from a product perspective, but from a marketing perspective. What was your other question, Edward, I can't remember?

Just in terms of how many games.

Oh, yes, in the games, I would say, this fiscal year, a handful. It's a handful. And then -- because we're really focused on the platform. So we're trying to put a few games in, but at the same time, really focus on a mobile platform and the multiple language platform before we really push a lot more content. It's a rapid process when we decide Da Vinci Diamonds from decision to launch with a very short time period. So that's a good thing. We have the good game library lined up and ready to go but we want to do it when we have the broadest reach possible.

And then what about the timing for languages then? Is that -- can you give us any clarity about that?

Yes. It's kind of in the calendar year, another, I would say, an additional 1 or 2, and then the most of it you'll see in calendar year '13. That's when you really see the broader language conversion. Okay. Well, thank you very much. We really appreciate everyone's time. We appreciate your continued interest and your continued support. Thanks very much.

Thank you. This concludes today's conference. You may disconnect at this time.