Brightstar Lottery PLC (BRSL) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the IGT’s 2017 Fourth Quarter Results Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Jim Hurley. Please go ahead.

Thank you for joining us on IGT’s fourth quarter and full year conference call, hosted by Marco Sala, our Chief Executive Officer and Alberto Fornaro, our Chief Financial Officer. After some introductory remarks, we will open the call for your questions. During today’s call, we’ll be making some forward-looking statements within the meaning of Federal Securities laws. Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. And now, I will turn the call over to Marco Sala.

Thank you, Jim and good day everyone. We are reporting a strong finish to 2017. We achieved a main important milestone in the year, including securing the Italian Scratch & Win Concession, one of our most important contracts through 2028. We also earned a seven year expansion on our California Lottery contract, adopted a new business model in social gaming and introduced a record number of new gaming machine audience. A strong second half performance led by the international segment in the fourth quarter enabled us to meet all our financial objective for the year. In particular, we achieved the top end of our EBITDA guidance. The diversity and scope of our business in products and geographies are the key features and drivers of our four quarter and full year results. We experienced robust lottery performance improving gaming KPIs and we continued our disciplined cost of management throughout the year. An intense focus on bringing innovative content and technology to market fueled our results and will continue to be a critical driver of future results. Turning now to the performance of our operations; global lottery same store revenues outside of Italy rose 6% in the fourth quarter and were up just under 1% for the year. It’s important to note that this performance was on top of an average of 7% annual growth for the proceeding two years. Momentum in North American lotteries continued with over 8% same store revenues growth for the quarter and an increase of just under 1% for the year. This is a major accomplishment when you consider the record 1.6 billion Powerball jackpot in 2016. Some of the largest lotteries such as California, Michigan and Texas booked their highest increases in lottery sales in the second half of the year. This confirms our belief that there is a considerable room to grow lottery sales throughout North America. Italy lottery performance is equally noteworthy. Excluding late numbers, which were exceptional in 2016, we reached a record level of Lotto wagers in 2017. Non-late number wagers grew 4% in the fourth quarter and 3% for the year on the strength of the 10eLotto game. First introduced in 2009, the 10eLotto franchise has risen at nearly 40% compounded annual rate. We had supported 10eLotto’s momentum with new features, notably the introduction of Numero ORO in 2014, and most recently with the launch of Doppio ORO in October. Late acceptance of Doppio ORO has been excellent, as they appreciate the higher frequency of wins and price values. The gamer represented all of total 10eLotto wagers in the fourth quarter and is driving higher average Lotto base. Scratch & Win wagers were up over 1% in 2017, the first increase in six years and up nearly 4% in the second half on stronger results from the core Miliardario franchise. We reinvigorated Miliardario with improved game mechanics, payout structures, graphics and players have responded favorably. The Scratch & Win concession is vital to the success of the Italy segment. Receiving a renewal for nine additional years of this large important contract is a great achievement for us. This award without the full tender process demonstrates the great confidence the regulator has in our ability to successfully run the business. Our success in lottery in Italy is a good example to how innovation can drive meaningful growth even in a matured market. Internationally, lottery same store revenues were relatively stable in the fourth quarter and the full year periods. The UK lottery is our most important international lottery contract and we have seen progressive sign of improvement there in the second half of the year. We expect a return to more normal low to mid-single digit international same store revenue growth in 2018. We made a considerable progress in gaming during 2017. We brought a great deal of innovation to market during the year including six new gaming cabinets. The CrystalCurve cabinet is the flagship of our new offerings and we leverage it for both participation and for sale of games. It has become a significant driver of our gaming KPIs and we believe that trend should continue. On the product sales front, we shipped over 32,000 gaming machines worldwide in 2017, including 4% growth in replacement units. The nearly 11,000 units sold in the fourth quarter was the highest amount in two years including a 30% increase in total replacement units. Internationally, replacement demand was strong in Latin America. The success of our test-bank process and demand for the CrystalCurve cabinet drove a double-digit increase in replacement sales to North America casino customers and higher ASPs in both the fourth quarter and second half. This marks an important inflexion point for us. We grew the global installed base for the second consecutive year. This was led by a robust international expansion especially in South Africa and Greece, and with the addition of a new video bingo business. We also stabilized the North American installed base starting in the second half of the year adjusted for conversions the North American casino installed base was up sequentially in the fourth quarter of the year. We expect this positive trend to continue throughout 2018. The improvements were supported by high level of new games we brought to market in the period, including Fort Knox, The Voice, SPHINX 4D. We are also creating excellent momentum with Harley Davidson, The GOONIES and Wheel of Fortune MEGATOWER. It was another strong year for systems and software sales to both lottery and gaming customers. The IGT advantage casino management system has been selected for the industry’s most high profile new openings around the world, including the recent Resorts World Catskills and MGM Cotai casinos. We successfully replaced competing central system at The Palms Las Vegas and the Red Wind Casino in Washington State, and for realties, we had the largest system and software sales in Canada and Oregon during the year. We had built on our core central system offerings with compelling add-on products such as Service Window, PlaySpot, Cardless Connect and Resort Wallet. These innovative products demonstrate IGT’s player centric focus. We are looking to broader business by both expanding playtime and introducing a new generation to casino and lottery games. In fact, our PlaySpot mobile solution was recently named Lottery Product of the Year at the International Gaming Awards. Customer interest in this application is high and we’ve had successful initial lots for casino partners such as MGM and Red Rock Resort. I would also like to acknowledge the contribution from Italy sports betting during the fourth quarter. It was driven by growth in wagers and that by a historically low payout. We have a full B2C sports betting offer in Italy that operates through a large network of 1750 points of sales, complimented by a full digital offer. The rising wages of the last few quarters is the result of strategic investment in the business, including remodeling our retailer shops, strengthening our technology platform and enhancing our interactive and live betting capabilities. Our B2B sports betting platform has historically been used by international lottery and commercial casino customers. Today in the US, we provide a sports betting platform with a retail sales for land based casino operators and PlaySpot which enables our customers to activate sports betting on players mobile devices. Both are currently being used by MGM in Nevada. In fact IGT is the only major B2B platform supplier to be approved in Nevada, which has among the most stringent regulation. We have a lot of experience and know-how in sports betting, which is a growing area of interest and opportunity in jurisdiction around the world. We’re being present in this industry for over 30 years. Our 2017 results represent a combination of dynamics their aspect to characterize our performance for the years to come, consistent global lottery expansion, better trends in gaming and a continued focus on disciplined expense management. In 2018, we expect much of our growth to come from gaming, where we continue to raise the bar on performance metrics. In addition to better results in North America, the international segment should be an important driver of gaming growth. The CrystalCurve was only recently made available internationally and we will soon begin selling the new CrystalDual cabinet with the largest screen that was launched at ICE a few weeks ago. And we should benefit from large replacement within VLT unit sales beginning in the fourth quarter. For lottery, global key initiatives with our customers around the world on new game launches, retail distribution strategies and sales and marketing efforts should drive continued growth. Let me conclude with this perspective. In 2017, we demonstrated the diversity and the resilience of our franchise. We delivered on our commitments for the year and in the process we established a solid foundation for growth in 2018 in which we had great confidence. Now I will turn the call over to Alberto.

Thank you, Marco and hello to all of you. Our fourth quarter financial results are summarized on slide 8 in constant currency and scope which adjusts for Lotto upfront amortization and the sale of DoubleDown. Revenue rose 3%, growth was driven by a significant and expected contribution from our international segment and other quarter of strong global lottery performance and higher contribution from Italy’s sports betting. At constant currency and scope, adjusted EBITDA grew 6% on higher revenue and lower operating expenses, driven by reduction in both SG&A and R&D. Adjusted EPS in the period includes a $0.66 per share non-cash tax impact from recent US tax reforms. Roughly half relates to tax expenses on unremitted foreign earnings and the rest to differ tax assets. The reported EPS in the press release include also substantial positive adjustment for deferred tax liabilities related to purchase accounting. Let’s now turn to our operating segments; beginning with North American gaming and interactive on slide 9. At constant scope, revenue was down on lower product sales and gaming service revenue. Service revenue from terminals reflect a lower installed base compared to prior year. However, excluding comparisons mostly in Oklahoma, we saw a sequential improvement of approximately 100 units in the installed base. Product sales faced a high comparison to the fourth quarter of 2016, which included more gaming machine shipments for new casino openings as well as the central system sales to MGM National Harbor and a contribution from intellectual property settlements. We shipped 5,295 gaming machines compared to 5,419 units in the same period last year. Keep in mind, that units for the recent Resorts World Catskills opening are not in our fourth quarter numbers, they will be included in our first quarter results. Total replacement unit sales were up sharply including double digit growth in casino replacements. Additionally, overall ASP improved highlighting customer demand for our Crystal series cabinets and filled by stiff content. The constant scope operating income largely reflects lower revenue as well as timing of the Jackpot expense which is primarily related to the timing of two Megabucks jackpots. We were able to partially offset these with lower operating costs. Turning to North America lottery on slide 10, total revenue rose 7%, same store revenue grew over 8%, with strong wagers in incentive and draw based games as well as multi-state jackpots, as the instant ticket sales continue to be the largest driver for same store growth. While core lottery trends are strong, service revenue were fairly stable to a lower effective rate on contract expansion and the exit from certain low margin contracts. A low contract expansion have been modest near-time impact on effective rate, the aggregate return on investment for extended contract is very favorable. Produce sales vary from quarter-to-quarter and in Q4 we had a significant benefit from lottery terminal sales and the VLT central system sale in Canada. Operating income was up 1% as revenue growth was largely offset by higher service delivery costs and the legal fees in Illinois. Our Illinois lotter management contract extended in 2017 and we will no longer be recognizing roughly 50 million in annual reimbursable expenses as revenue. This pass-through revenue had no profit associated with that. As a reminder, the supply contract in Illinois remains in place throughout 2018. Let’s turn to our international segment on slide 11. We always expected a strong second half and fourth quarter and you see that reflected here across all revenue items. Revenue and operating income increased to double-digit in constant currency. The strength of the fourth quarter results compensated for the lower profits in the first quarter and reflects the highly variable nature of our international business. For the full year period, revenue and profits were nicely above the prior year. Lottery same store revenues were lightly below the prior year. Broad based expense in EMEA and Latin America were offset by weakness in Colombia. UK lottery trends were stable. Gaming services revenue from terminal was up 1% in constant currency, as a higher installed base was offset by lower average yields due to the geographic mix of revenues. The installed base grew to 15,543 machines from 10,453 in the fourth quarter of 2016 on unit growth in Africa, Greece VLTs and video bingo machines. Product sales were up on lottery software sales primarily in Europe. We shipped 5,565 gaming machines compared to 4,901 in the prior year with a 41% increase in replacement, more than compensating for fewer new and expansion units. Higher unit volumes were offset by product weeks with lower ASPs including the impact of larger transactions in Latin America. Italy results was light as well, with constant currency scope the business essentially steady, thanks to solid underlying performance. In lotteries mainly the machine gaming and sport betting, we mitigated a sharp drop in late numbers compared to prior year as well as the unfavorable impact from higher machine gaming taxes. Non-late number, Lotto wagers rose 4% in the fourth quarter as a lot of players gravitated towards our innovative new offering Doppio ORO. Scratch & Win wagers were up 2% on the continuous success of Miliardario and multiplayer tickets. The decline in gaming machines mainly reflects higher taxes. Recent network optimization in higher levels of online play drove sports betting wager growth of over 8% in the fourth quarter. This accounts overall for the substantial increase in revenues. The other route was the results of historically low payout which was 10 percentage point below the prior year. On slide 13 we have summarized the results for the full year, a constant currency scope revenue was roughly in line with the prior year. In other words we were able to make up for the combined benefit from Powerball in late numbers in 2016 and despite higher Italy gaming machine taxes in 2017. Growth from strong underlying lottery performance, system and software sales and sports betting offset these headwinds. Adjusted EBITDA of over 1.676 billion was a dry hand of our outlook. Expense saving helped to mitigate a tough comparison with higher margin profile of the 2016 revenue benefits I just mentioned. Capital expenditure for maintenance and growth excluding Lotto were 585 million for the year, within our expected range of $575 million to $625 million. Total CapEx was 698 million and included 130 million in Lotto network and infrastructure upgrades. External to the depth and average profile which you can see on slide 14, net debt at the end of the year was 7.3 billion which is slightly better than our outlook where we consider 100 million in unplanned impacts from the first Scratch & Win payment and incremental foreign exchange headwinds. Adjusted for currency, leverage was approximately 4.25 times, a nice improvement from 2016. Cash flow shown here on slide 15; during the year we generated nearly 700 million in cash from operation, as you know the Italy upfront payment of 245 million are now in cash from operating activities and were previously located in cash from investing activities. This change has no impact on free cash flow. We also had elevated cash taxes from the sale DoubleDown. On slide 17, we have the outlook for 2018, which assumes an average euro-dollar exchange rate of 122. We currently expect adjusted EBITDA of 1.7 billion to 1.78 billion for the full year period. As a reminder, the first half of 2017 included approximately 30 million in EBITDA from DoubleDown and there would be an incremental 20 million headwind from gaming machines in Italy also from higher taxes in the first four months of 2018 and also from some new regional restrictions on AWP. Profits should be a little bit more weighted towards the back half of the year, as they were in ’17. This is mainly a function of gaming product sales timing including the largest ridden VLT sales expected in the fourth quarter. 2018 capital expenditure are planned at 575 million to 625 million. At the midpoint, this includes about 550 million related to the maintenance on existing contract and about 50 million for growth CapEx. Maintenance CapEx is lightly above the normal trend largely due to capital for several successful lottery wins and expansion including California, Georgia and Florida. Additionally, the nine year renewal of the Scratch &Win concession we require a gross cash payment of €300 million in the second quarter and €450 million in the fourth quarter. We are responsible for roughly €500 million in total with the balance coming from minority partners. We believe in the recent change to the US tax code should be a modest cash benefit in 2018, given the complexity of the changes we are still working through impact on future years. As we have demonstrated over the last two year, our lottery and gaming operation generated a strong operating cash flow that has enabled us to consistently find our CapEx needs. The elevated cash out outlays for CapEx and upfront payment in Italy in 2018 are linked to many years of revenues and cash flow visibility for a good portion of our Italy and North American lottery business. After 2018, the capital requirements for these operations should moderate considerably if free cash flow should accelerate and leverage should improve. At this point, we’d like to open the call for your questions.

[Operator Instructions] And our first question comes from Barry Jonas of Bank of America. Your line is now open.

Just had a couple of questions, first on the North American gaming terminal side, could you please help frame how you’re thinking about 2018 in the sense of market share gains versus overall market health, market growth?

We do not comment on market share, but I can summarize what I just said, nearly 11,000 units we added in the last quarter, the strongest quarter in two years for gaming machine shipment. And that is despite significant lower expansion activity. Replacement were up over 30% from prior year and represent the best performance in the last three years. We drove it because of our new cabinet CrystalCurve, CrystalSlant, AXXIS 23/23 that have been an important drivers for these demand. And in addition to that we are seeing a nice acceptance of our new Video Reel product among casino customers, especially in North America. So, to come to the answer, our strategy is to increase our presence in the Video Reel segment of the market, which accounts for most of the industry replacement for sales and we are confident that the positive momentum for North America, unit shipments will continue in 2018, with particular strength in the second half of the year. And this reflects to the natural seasonality of our unit shipment. So, all-in-all I think I’m positive. We are planning growth in that part of the business especially in the replacement side and we are confident with what were done in terms of cabinet and content to continue to drive our sales over 2018.

So next ones on the lottery side in North America, I think multi-state lotteries have been very strong, do you think that continues given the recent Mega Million rule changes? And then may be just broadly how should we think about the relationship between those multi-state sales and then the core lottery product, do they correlate positively or is there a potential cannibalization?

For the time being, we didn’t see major cannibalization since all the business segments grew, unless it’s something that we see also internationally. We see a very strong eastern ticket growth but also the other draw games are doing nicely and we will in a way turn our product offering to provide our customer with new innovative products. As you said that I think Mega Million has performed as expected. There has been some modest cannibalization to Powerball and also in line with our expectations customers are still learning about the Jackpot-only option, which is a differentiator between the games. So all-in-all I think also the start of the business can provide a contribution, but let me say in general, I’m positive looking at the last three years on the lottery growth in North America and going forward also internationally, because I continue to see a good acceptance of innovation from the customers, that help driving the sales. As I mentioned during my remarks it’s happening in Italy that is for sure in matured markets.

And then last one from me, can you maybe just talk about some of the key sensitivities in guidance between the high and the low end?

Barry, Alberto, I would say there are three major factors we have mentioned that we have a little bit of wining gaming machines in Italy next year that is scanning from the first four months of the year where in ’17 we didn’t have the higher taxation and in ’18 we will have it, and also some restriction due to regional gaming regulation. Our ability through all the other products including the gaming machines to absorb that negative impact will be one of the driver in order to bring our results over the top of the range. The second is we have a little bit negative impact from the expansion in terms of pricing for 2018. And again as Marco was mentioning, if the same store sales will be more positive than what we are currently anticipating, that could drive the guidance towards the higher end. And the third one and the most important, the size of the gaming growth in 2018. So that could help us to get towards the top of the rates.

And our next question comes from Chad Beynon of Macquarie. Your line is now open.

Alberto understanding that you did mention that you’re still working through the impact from tax reform in the cash taxes. Could you provide a little bit more clarity on any updates on capital allocation given that your leverage is now at 4.2 times, you secured the Scratch & Win contract 2019, but as – or payment for 2018. But as you noted there CapEx should probably come down going forward and you will be in cash harvest mode. So if you just kind of help us think about capital allocation once the payments are made for the Scratch & Win.

So we are talking about basically an outlook for 2019. Let me say, for ’18 what I can say obviously with the debt going up there will be no change on our capital allocation. So our focus is to contain increase of the debt due to the anticipated Scratch & Win renewal as much as possible, and then again in 2019, we will see where we are, where we end up ’18. But certainly we want to continue to deleverage depending on when we get there what is going to be our visibility also on the taxes more in the long term. We will revisit the capital allocation and discuss, but for ’18, I don’t see any change.

Domestically I think we all have a pretty good hand on what’s going on with the operators here. They had a very strong second half and that should result in our view in higher CapEx dollars for 2018 and beyond. Internationally it’s a little bit more difficult for us to kind of put the pieces together and you noted a very strong second half. So could you give us any more color for 2018 on what’s going on internationally and then if there’s any update on Greece in phase 2 and when that would come in for 2018?

Our outlook for the international part of the business on gaming is positive on all the jurisdiction because I think we have consistent programs throughout the different continents, even the fact that we can rely on the new cabinets and the new contents in the various geographies. We have a good programs in Australia and in Asia where we were under represented. We started enjoying a good recovery in South America and I think we can progress along those lines. And we are also moderately optimistic regarding EMEA. So all-in-all we see that we have the opportunity to leverage off our investments in order to grow our presence throughout the various geographies. Regarding Greece, I think that what I can say is that we are progressing with a rollout of VLTs and we had about 2700 units installed at the end of the year. With respect the phase rollout which is for us 5500 units to be substantially completed by the end of 2018. I have to recognize that dial-up connectivity is currently lower than originally anticipated. But we are working in order to improve to the launch of new games, our performance and we are positive regarding the new roster of gains we have to deploy in that market.

And our next question comes from Domenico Ghilotti of Equita. Your line is now open.

My first question is on sports betting in the sense that in the call you were mentioning that the growing interest in this segment. I’m trying to understand if it is internationally outside of Italy, if it B2C or just B2B, so if you can elaborate on this, and if you could and if we could expect acquisitions in order to strengthen your position in this segment. Second question is on the cost side, so in particular you’ve done a lot of investment on cost on product and content development for the gaming business. How should we look at the performance understanding the cost for this business going forward? Are you now satisfied or should we assume a stabilization in the cost trend for content and innovation. And last question, you were mentioning the problems also the headwinds in Italy from local rules, local constraints, how have you seen the development, are they stable, are they deteriorating. So how do you see the situation, still deteriorating or not?

I’ll start from the last one, and the last question regarding the situation. I think we have to value that here what has been decided by the central government and what is going on at the local level. The first phase of government mandate, the renewals which called for 15% reduction in share rise was completed at the end of 2017. I mentioned it just to say that there was no material impact to us in ’17 as we weren’t using rollover right removals at the end of the same. Another 19% reduction in unit is required by the end of April. In this case, we expected mid-single digit decline in AWPs related revenues in 2018. But on the other hand we also expect the [dire] productivity the machine could offset the reduction in the installed base, so positively balancing the situation. Regarding the regions, you know that in the fourth quarter (inaudible) put restriction on gaming machines in the generalist channel, meaning to (inaudible). We know that there will be some additional restrictions in few additional regions by the middle of the year, and as Alberto said that we are estimating this impact in about 10 million headwind in EBITDA in 2018 already factored in our outlook. So all-in-all I do not expect a major deterioration starting from what I’ve just said and this is what we’re factoring and we believe we should inspect any disruption in 2018. I’ll take also the question regarding sports betting. As you know we have a good operation in Italy. This is the only market where we intend to have B2C operation. We do not intend to have any other B2C operation outside. We do not intend to make acquisitions because we feel we have what is needed to take opportunities internationally. We are looking of course, with a good degree of interest on the development in the United States, where by the way, we are already providing a sports betting platform with a retail sales of our land based casino apparatus and also PlaySpot, which enables our customers to activate sports betting on player mobile devices. And they are already existing because they are being used in by MGM in Nevada. So what I wanted just to say is that we have the platform, we have the know-how in trading control on risk management support and on how to manage B2C operation. So I think we can provide our customers both casinos and lotteries throughout the world a good help in the case they want to enter these business segment.

Domenico I will take the next question on the cost, so let’s start with R&D. We’ve historically maintained since the merger a high level of investment in R&D because we acknowledge at the beginning there were some gap in gaming in terms of our offering that we needed to fill. So now we have delivered the significant request for our cabinets and content and therefore in the second half of 2017, we took action to optimize the R&D. So as you’ve already seen some of - you’ve seen the impact in Q4. So we do not expect any other reduction in R&D to affect our ability to bring compelling new games and hardware to the market, but certainly you will see some benefits of the action already taken on the full year 2018. Regarding the SG&A, I will make a comment that is related to the overall company rather than talking simply about the gaming. There has been a significant reduction in SG&A on a full year basis in 2017. Some of it is, around 60% of it is due to the fact that with divestiture or DoubleDown we don’t have any more significant amount of SG&A related to it. Some of it is purchase accounting. There were some one-offs. Again around 60% is basically related to these three items. The remaining part is mostly related to action taken to reduce expenses. So at this point we have completed all our synergies related to the SG&A and took some major actions for their structural reduction. As you know every year we continue to look for opportunity to improve our operational efficiencies. But these will be more an ongoing and incremental basis as a significant program that specifically addresses the SG&A.

Just a follow-up on the situation in Italy on the gaming machine. Do you believe that the restriction on AWPs could be exploited by VLT? So there is a transfer of consumption and spending from one end to the other because of the restrictions or do you disagree on this?

Now this is a very good question, we are really monitoring very closely especially in (inaudible) region if it is happening or not. I have the expectation that it could happen, but I do not have data at this point in time can clearly support it. But this is one of the key point we are very interesting in exploring and (inaudible) will represent the perfect place to understand it.

[Operator Instructions] And our next question comes from Carlos Santarelli of Deutsche Bank. Your line is now open.

On the R&D front, as you guys were just talking about it, obviously fourth quarter run rate looks to be about $40 million on an annualized basis below where you were running through the first three quarters. So just kind of as we think about 2018 and maybe as you guys kind of contemplated your plan within the context of your 1.7 billion or 1.78 billion guidance. Are you kind of thinking that 4Q is more of a stabilized go-forward run rate at present or was that somewhat of an anomaly?

Carlos I think what you see in Q4 is pretty dramatic, close to the run rate. Now we can change a little of the program during the year depending on what happened if we need more in such scenario or loss, but it’s a good approximation.

And then on the gaming op side, obviously Alberto given your comments around the changes in Oklahoma, the gains that you have deployed, my sense is just given the timing of G2E you haven’t seen yet the full benefit of everything you intend to employ. Do you believe as we look out to 2018 that given some of the puts and takes including game performance of some of the most deployments that that base could actually see some expansion over the course of the year?

Carlo its Marco. I think yes, the answer is yes. I think that we should expect some improvement in our installed base. Our objective for the second half of the year was to stabilize it. We have always had very, very prudent and moderate expectation out of it. But we expect that our installed base considering the new cabinets and the contents I spoke about during my remarks might help us in improving our installed base in both the premium and non-premium part of the business in the Oklahoma is a good example of it.

And then from me just one quick follow-up. Just from talking to some folks it sounds like there might be a new cabinet out for 2018, maybe a little bit larger screen that’s gotten some very good feedback. Is that something you guys believe could rollout in ’18 for sale side?

Yes, either you are referring to the cabinet we have presented at ICE. It will be presented I think at G2E and I’m assuming that it will be ready to be deployed in at least in the second half of the year in North America.

And our final question comes from the line of David Katz with Jefferies. Your line is now open.

I wanted to just ask a bit more pointed question about the installed base domestically? We stay focused on when that base starts to grow, but historically the trend may have been that the yield on it may turn up sooner than the installed base overall assuming that you’re rolling newer higher performing games in and removing older ones that roll off before the actual base grows the yield may go up. Is that a fair characterization of it, and how do you think about that trajectory, as we compare it with what you’ve guided us to today?

Look I think that given the overall machine mix, we expect yield in 2018 to be relatively consistent with what we achieved in the fourth quarter. I think WAPA is doing better, we have some let me say, challenges in the standalone product. So I think overall I feel the yield as to be same as consistent with what we achieve in the fourth quarter.

And that concludes our question-and-answer session. I’d like to turn the conference back over to Marco Sala for any closing remarks.

Thank you all for your questions and for your interest in IGT. We achieved a lot in 2017 and laid a strong foundation to build on in 2018 and beyond. I’d like to thank the IGT team for their hard work and contribution to our accomplishments. I’m confident that the continued focus and discipline of the organization will enable us to execute our strategic objectives and deliver on our financial goals. With that I wish you all a good day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.