Brightstar Lottery PLC (BRSL) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the IGT 2018 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Jim Hurley. Please go ahead.

Good morning. Thank you for joining us on IGT's first quarter 2018 conference call. Marco Sala, our CEO will provide a brief overview of the quarter and comment on some of our broader strategic initiative. Then Alberto Fornaro, our Chief Financial Officer, will provide operational and financial perspective on the results. After our prepared remarks, we will open the call for your question. We would like to split today's Q&A session into two sections. First, we will take questions about the quarter and our operating fundamental. After we've gone through those we'll open the call to questions you might have regarding the De Agostini transaction and the registration statement that was filed last night. 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'll turn the call over to Marco Sala, CEO of IGT.

Thank you, Jim, and hello everyone. Our first quarter results are among the strongest we ever reported, and provide us with a good start to the year. Revenues was up 5%, and EBITDA grew 18%. I think it is important to note that the growth was experienced in the quarter was driven by positive contributions from each of our operating segments. Global Lottery performance was especially noteworthy in the first quarter. Growth in the same-store revenue outside Italy was over 9% and among the best we have achieved in the last three years. Jackpots were an important element of the performance in North America and International segments, but the underlying contribution of instants and draw-based games was also very good around the world. As I have noted before, continuous innovation remains one of the most important drivers of Lottery expansion, and we demonstrated that once again in the first quarter. Lottery same-store revenues grew double-digits in North America. Jackpot games rose over 50%, helped by both Powerball and Mega Million. We had four jackpot rolls of more than $400 million each in the first quarter. The change to the Mega Million metrics at the end of 2017 is clearly having a beneficial impact on player interest in the game, and on wagers. The performance of instants and draw games was also strong in North America with growth of over 5%. This is the fourth consecutive quarter where their growth has been above 5%. We continue to see success with a large format tickets and other innovative concepts. Internationally, the EuroMillions jackpot was an important driver of lottery growth for the EMEA region, and the performance of instants and draw games was also good across jurisdictions. Overall same-store revenue growth was 4%, the highest increase in over a year. Italy lottery performance was very good during the quarter with a lot of wagers rising nearly 9%. The new Doppio ORO game is driving high-teens growth for the 10eLotto franchise. In February, we launched another new lotto game named MillionDAY. It's a daily draw that offers players a compelling and aspirational prize, a chance to win €1 million every day. The early reception to the game is promising. Italy Scratch & Win wagers were up 3%, marking the third consecutive quarter of growth, benefiting from the revitalization of the Miliardario franchise. Our success in lottery meter is a good example of how we drive meaningful growth even in a matured market. It's a function of consistent product innovation coupled with our operational expertise. We have further evidence of this in the New Jersey and Indian lotteries, and our incentives for managing them. This is the third consecutive year of earning incentives in New Jersey, and the first ever in Indiana. Gaming also experienced a very good quarter. We have revamped our product offer with the successful introduction of new cabinets and more compelling market-attuned games. This is driving positive results globally, including solid improvement in North America. In the first quarter, we achieved exceptional growth in gaming product sales, up 29% on strong system sales around the world. Our Advantage central casino management solution was installed at Resorts World Catskills and Four Winds in North America, and at MGM Cotai in Asia. These developments help establish IGT positions as the central system provider of choice for the industry's most important new casino openings. We are building on this momentum with innovative add-on system solution such as Cardless Connect which were also an important driver of product sales growth. We shipped just over 5,800 gaming machine units in the first quarter. Replacement units were up over 12%. This largely offset the lower industry-wide new and expansion activity in the period. North America replacement unit sales to commercial casino customers continued to growth with the success of games like Ocean Magic and Golden Egypt, as well as newer titles like Elephant King. Acceptance of these games across the full range of Crystal series cabinets is also helping to support higher average selling price. The global installed base of gaming machines rose 6% from the prior year. This was driven by international growth, mostly in Africa, Greece, and the addition of Zest video bingo units. In North America, our commercial gaming installed base was up nearly 400 units sequentially, driven by new openings. Apart from those, the North American installed base was stable. Fort Knox, The GOONIES, Harley Davidson, and SPHINX 4D are performing well and helping to improve our position in the premium segment. North American yields benefited from good whap [ph] performance, especially for Wheel of Fortune MEGATOWER and Megabucks on the CrystalDual+ Stepper cabinet. The positive momentum extends to Italy as well. Improved productivity of VLTs and AWPs is helping to mitigate the impact of higher taxes on gaming machines and the state mandated the reduction in AWP units. On the organizational front, we announced an important change today as we consolidate the leadership of North American region under Renato Ascoli. We are aligning our North American structure with the regional model already implemented in our International and Italy segments. This simplification of our organization better position us to leverage new strategic opportunities such as in sports betting which cuts across our lottery and gaming customers. The U.S. Supreme Courts recent PASPA ruling presents an exciting opportunity for us. We have turnkey solutions for platforms, credit control, risk management support, and advisory services that we have successfully deployed in Italy and internationally over the years. Our offering can support full-scale operation or a smaller format retail kiosk. Today, in the U.S., we provide a regulator-certified sports betting solution that is up and running at MGM's casinos in Nevada. This solution is comprised of both land-based retail sports betting platform and the PlaySpot, our mobile solution. Ultimately, the opportunity will depend on how many states choose to allow it, how quickly they do so, and how the regulations will shape the offer. Having said that, we have a longstanding deep relationship with the U.S. casino operators and state lotteries, and have been actively engaged with them and government authorities to support shaping a safe and sustainable offer. Now, I will turn the call over to Alberto.

Thank you, Marco, and hello to everyone joining us on the call today. As you know, there have been a few changes in the accounting standard that affects year-over-year comparison. I will incorporate these impacts as I review the business segments' balance sheet and statement of cash flows. We have also included a summary of the impacts of these changes in the appendix of this presentation. Our first quarter results are summarized on slide eight. As Marco commented, it was a good quarter. Revenue rose 4% at constant currency and scope which adjust for the sale of DoubleDown. Growth was driven by strong global gaming system sales and a broad based momentum in lottery service revenue. We also had a higher contribution from Italy sports betting. At constant currency and scope, adjusted EBITDA grew 14% over the prior year with higher underlying result from each operating segment. The adoption of ASC 606 had a positive impact of $15 million on EBITDA, mostly due to the timing of recognizing LMA incentive. R&D expense was down from the prior year while SG&A expense was $15 million, although, the prior year had benefited from a one-time $18 million bad debt recovery. The increase in adjusted operating income is in line with revenue growth. Adjusted earning per share was $0.15 which includes higher tax accrual in Italy than the prior year. The prior year has also benefited from bad debt recovery in DoubleDown. Let's turn to our operating segments beginning with North American gaming and interactive on slide nine. Constant scope revenue grew 3% mainly due to higher product sales. The drop in reported revenue is entirely due to the sale of DoubleDown. Service revenue from terminals is $14 million lower than in the prior year due to a reclassification of jackpot expenses for ASC 606. This has no impact on profitability. Aside from this reclassification, service revenue was up modestly from the prior year. While the installed base was lower than the same period last year, this is primarily due to large conversion in Maryland and Oklahoma in 2017. Sequentially, the installed base grew by 375 units on new casino opening. Yields were stable with the prior year reflecting better WAPA performance that was offset by the balance of the portfolio. Product sales were driven by strong systems revenue four times the prior year level benefiting from the advantage implementation Marco mentioned. We also had significant sales of systems add-ons particularly Cardless Connect. We shipped 3,716 gaming terminals compared to 3,944 units in the same period last year, which benefited from higher new and expansion activity and large VLT sales to Oregon and Canada. We recorded a third consecutive quarter of growth in replacement unit shipment to casino customers. ASPs were above the prior year on a higher mix of new cabinets. Constant scope operating income was significantly better than the prior year reflecting higher revenue and a more profitable mix of business. Turning to North American lottery on slide 10, total revenue increased 5%. Same-store revenue grew an impressive 11% on higher jackpot activity and another quarter solid instant ticket sales. While the underlying lottery trends were strong, service revenue was impacted by three factors. The exit from certain low margin contracts and the lower effective rate on contract expansions, both of which we expected. The third impact came from satellite outage related to weather disruption in the north. LMA revenue includes $11 million from incentive in New Jersey and Indiana that are now recorded on a quarterly basis pursuant to ASC 606. As a reminder, last year our incentive revenue was concentrated in the second quarter. So, the timing benefit we have in the first quarter will effectively get reversed in the second quarter of this year. LMA revenue was also impacted by the loss of pass through revenue related to the end of our Illinois operator contract. The pass through revenue has no impact on profit while the incentive had a strong profit flow through. Product sales were higher than the prior year and benefited from terminal -- retailer terminal sales in Massachusetts. Operating income was up 11% and Same-store revenue growth and LMA contribution partly by the revenue dynamics mentioned earlier. We also had higher depreciation and amortization related to recent contract expansion and increased investment in R&D which supports innovation and Same-store sales growth. Let's turn to our international segment on slide 11. It was a strong quarter accentuated further by the usually low performance in the prior year. Revenue rose 6% at constant currency mostly on higher product sales. Lottery Same-store revenue grew 4% on broad based geographic spreads. Higher EuroMillion jackpot activity benefited customer in EMEA including the U.K. In Latin America strength in Jamaica, Mexico, Trinidad and Tobago, was offset by continued weakness in Columbia. Gaming services revenue from terminal increased with the addition of Greek VLTs and video bingo machines. This was partially offset by lower average yields due to the geographic mix of the revenue. Interactive revenue was lower mostly related to a 3 million jackpot expense reclassification for ASC 606 which has no impact on profitability as well as the exit of low margin contracts. Product sales were up on gaming system revenue including the large advantage implementation at MGM Cotai. We shipped 2,112 gaming terminals, up 5% from the prior year despite significantly less new and expansion activity. Over 40% growth in replacement units was driven by higher shipment to Latin America, Australia, and New Zealand. Higher unit volume were partially offset by a product mix with lower ASPs including large shipments to Latin America. Operating income was up sharply on a more favorable product mix from higher system revenues and lower SG&A. Italy results was light as well. At constant currency, revenue rose 4% on solid lottery and sports betting performance despite higher gaming machine taxes. Total Lotto wagers rose nearly 9% supported by 10eLotto growth and the popularity of Doppio ORO. The recently launched MillionDAY daily game partially offset an unusual low level of late numbers activity. Scratch & Win wagers increased nearly 3% on the continuous success of Miliardario. The decline in gaming machines mostly reflects higher taxes as well as modest impact from the state mandated reduction in AWP. They were partly offset by better underlying game performance from both AWP and BFTs. Sports betting revenue grew on a more normal payout versus the prior year historical high-level. Operating income benefited from higher revenue partially offset by higher marketing and advertising cost to support the introduction of new lottery games as well as higher depreciation related to the technology upgrades for the new lotto concession. Our debt and leverage profile is on slide 13. At constant currency, the net debt was essentially aligned with yearend level when we account for changes in the Italian legislation for our commercial services operation. This change requires moving $50 million of cash and equivalent in our balance sheet into restricted cash which increases net debt. During the period, we retired €500 million of 6.625% senior secured notes mostly using proceeds from our term loan facility. Our leverage improved from yearend on stronger operational performance. Cash flow is shown here on slide 14. While underlying the first quarter business fundamentals improved, cash from operation was lower than prior year due to three items. First, the change in accounting standards requiring the restricted cash to be included in cash and cash equivalent within the statements of cash flow. Second, the time of Italy receivables which is partly related to fluctuation that occur depending on the day of the week on which the quarter ends; finally, the timing of incentive compensation payment which were made a little earlier this year. On slide 15, we have our outlook summary for 2018. We continue to expect adjusted EBITDA of $1.7 billion to $1.78 billion for the full-year period. We have had a strong start to the year, and are pleased with the continued momentum in both lottery and gaming. While the adoption of ASC 606 had a positive impact on our first quarter result, as I mentioned earlier, the timing benefit effectively gets reversed in the second quarter. There are still some moving parts with respect to the full impact of ASC 606. As of now, we expect an approximately $10 million to $15 million in headwind to EBITDA based on the treatment of the intellectual property contract. The revenue is now recognized upfront when the license term commences, compared to the more ratable treatment over the contract term under the old standard. Importantly, there is no impact on cash flow. Now, we continue to expect profits will be more weighted to the second-half of the year based on timing of Sweden and Canada VLT sales in the four quarter. Our outlook for capital expenditure remains unchanged. Keep in mind that our outlook assumes a euro/dollar exchange rate of 1.22. In the last month the rate has been above 1.20. At this point, we'd like to open the call for your question. As a reminder, we'd like to start the question on our first quarter results and our operating fundamentals. We will address the De Agostini transaction and registration statement later on. Operator, could you please start the Q&A session?

Certainly. [Operator Instructions] Our first question comes from Carlos Santarelli with Deutsche Bank. Your line is now open.

Hey, guys, thanks. When you think about your adjusted EBITDA range for the year, $1.7 billion to $1.78 billion, and then you think about, obviously, the incremental headwind of $10 million to $15 million from the ASC 606 as well as what looks like maybe a $30 million headwind stemming from where current euro/dollar exchange rates are today relatively to what's embedded in the guidance. Can you talk a little bit about your decision to kind of leave guidance unchanged, how much that had to do with performance in the first quarter relative to the overall strength that you're seeing the business less some of these potential headwinds?

Hi, Carlo, I would say as because the euro -- let's start with the currency, because the euro has a strong impact in our results, that's the reason why we normally decides the guidance at a certain rate. So at this point I would say that the guidance is still at 1.22 and therefore any change, positive or negative, will obviously impact our results. Regarding the ASC 606, let me tell you that this is an estimate, because obviously we are assuming that by the end of the year we will have certain deal. It could be that if these deals change some of them could have a different accounting treatment than what they had under prior accounting standards, and therefore the negative impact of $10 million-$15 million that we are estimating could change positively or negative. We don't know, but this is our best estimate at the moment, which is, to be fair, is not a big impact overall. Let's go for a second to the overall guidance, the reason to keep it is because, as we mentioned just a few weeks ago in March, our guidance in the year, and I have discussed the gain part of the reason, was based on a better performance in the second-half particularly due to the fact that in the four quarter we have some concentrated sales, particularly I mentioned the one in Sweden. So the first quarter results as [ph] to in some way to get more comfortable with the guidance, and help us to confirm it because some of these deal obviously they are not finalized until they are signed and everything is good to recognize the revenue. So, overall, we have confirmed the guidance. Certainly the first quarter has helped us to confirm it, and regarding the two items you mentioned I have provided you some insight.

Great. And you did say that you still believe that the second-half absolute EBITDA or adjusted EBITDA generation will be greater than the first-half, correct?

Based on what we see today it should be slightly higher, because again with the first quarter we have reduced a little bit the gap.

Perfect, thank you. And then if I could just one follow-up on the North America installed base. I know that the 376 incremental quarter-over-quarter units that you guys added have -- you guys reference them being largely new-opening-driven. Could you talk a little bit about the progress you are seeing on the placement of the four titles or broader wide area progressive stuff that you guys have seen, and how the uptake on those games has been, i.e., if not for the new opening opportunities that were presented to you. What does that base look like sequentially?

Yes, Carlos, it's Marco. And I can tell you that, also taking apart the new openings, our installed based has been slightly above the last quarter last year. I think that the net of new opening we achieve a good performance with the rollout of the new games content, such as Harley Davidson, Fort Knox, The Voice, The GOONIES, SPHINX 4D, in the CrystalCurve and the CrystalCurve ULTRA cabinet. And Wheel of Fortune MEGATOWER was another important contributor. We feel that these titles continue to expand, and we have a full lineup of new games coming to market throughout '18, that includes new titles such as Fortune Gong, Money Storm, Wheel of Fortune 4D. So initial results and the customer feedbacks on new games and the cabinet we are getting are positive. And we expect that we should increase our installed based throughout 2018.

Great, that's very helpful. Thank you both very much.

Thank you, Carlos.

Thank you. Our next question comes from Barry Jonas with Bank of America. Your line is now open.

Hi, guys. Just a couple of questions, first, can you give us an update on what's going on in Brazil?

Yes, in Brazil there is [indiscernible] concession that was published in April, and are evaluating the opportunity. We are in conversation with partners, and therefore I cannot elaborate very much on it, but this is where we are.

Great. And then you also in the release talked about doing a new analyst day in August. Just curious if you can maybe talk about what you hope to accomplish there. Any sort of preview would be helpful.

Yes, okay, first of all, our first analyst and investor day in the U.S., so it's particularly important for us. The first one was in Italy, as you remember. But I think that the focus will probably on the lottery side because it's -- we obviously will provide some information regarding our gaming business, but normally we have a lot of update on that specific part of our business [indiscernible]. The investor day will be mostly on the lottery side, which is less probably known to the U.S. investors and to some of the U.S. analysts. And we will provide a deep dive into that business in the different jurisdictions.

Great. I'm definitely looking forward to that. And then last one from me, about two years ago you gave normalized free cash flow guidance in the range of $500 million a year over the next five years. You think that guidance still holds, and recognizing you've since sold Double Down? Thanks.

No, I think we need to update. We are working on it. You can imagine that between the tax reform, the change in accounting standard, there is a lot of moving part. At a certain point we will update what is important to say as that compare to that scenario, we have already done a lot of investment. And as we mentioned in the past, we expect that the CapEx should moderate in the future.

Okay, thanks so much.

Thank you. Our next question comes from Chad Beynon with Macquarie. Your line is now open.

Good morning. Thanks for taking my question. In the opening comments and in the slide presentation you mentioned that there's a simplification in North America led by Renato. And I was wondering if the goal here, or I guess the outcome, would be more revenue growth or just kind of a little bit more attention within certain pieces of NAGI or if it was more, I guess, margin or cost focused. And if any of this is kind of assumed in the back-half of the guidance or if this announcement was just to kind of streamline some of your initiatives. Any color there would be helpful.

Sure, Chad. But the simple answer is that this change aligns North America with the regional model that already exists for the International and the Italy segment. We didn't do the acquisition of IGT because we needed to integrate the two companies, deliver on synergies, and that created the right platform to grow the gaming business. Now, we believe that these simplification better position the company to leverage strategic new opportunities such as sports betting. There are other opportunities. It's clear that when you look at sports betting and that you have in the same jurisdiction opportunities with lottery customers, the opportunity with commercial casino, the effect of having a unified organization allows us to take the best decision for the interest of the company. It's clear that you might have some simplification also of the organization but it is not the main purpose to have these change that was in our view something that we had planned since the acquisition of IGT.

Okay, great. Thank you very much. And then on the AWP regulatory change in Italy. I know that it's still early and progressing. But any additional color in terms of how your machines and your field personnel have been able to offset some of the regulatory changes. And, I guess, is your view still the same in terms of how that business will be, is that still the same within your guidance range? Thanks.

I can elaborate on it dividing it into three parts, because on gaming machines in Italy you have the increased taxation, you have the reduction of AWPs. And we have also some decision in some regions to drastically reduce further the AWPs. When it comes to the -- we factor in our guidance the impact of the higher taxation. When it comes to the reduction of overall AWPs we expect a mid single-digit decline in terms of revenues in '18. On the other side, the higher productivity from machine should offset the reduction in the installed units. And we believe we can offset the impact on profits through lower costs associated with managing smaller, less fragmented network. So impact on taxation, we do not believe that the reduction of AWPs that has been implemented into waves in '17 and by the end of April '18 will impact very much our profitability. A different discussion is about some regional law. We are now seeing the amount that put additional restriction on gaming machines in the, let me say, generalist channel. We expect a restriction in a couple of additional region by middle of this year. The impact of this is estimated to create about $10 million headwind EBITDA in 2018 that has been already factored in the outlook. Of course we will continue working hard, appreciating the better productivity of the machines that we are having in the specialized shops, and aligning also our structure to recover part of these headwinds.

Okay, thank you very much. Appreciate the color.

Thank you very much, Chad.

Thank you. Our next question comes from Domenico Ghilotti with Equita. Your line is now open.

Hi, good morning. My first question, I'd like to check the field on North American gaming install-base because if I'm not wrong, I saw it dropped from last year, I'm trying to understand it is correct, and what can be the reason? And second question on the sports betting opportunity, I'm trying to understand if you -- so what is the timeframe where you could see some contribution from that sector on your performance? Or should we expect something early next year or you are more -- say projecting something more for the medium-term? And the third question there is on the incentive payment, so if I understood properly, so the new accounting standard is forcing you to book incentive progressively, do you end the year, I'm trying to understand based on the performance if you are confident to achieve incentive payments above last year anyway? Thank you.

Domenico, Alberto, let's talk about the accounting. Okay, the first question is related to the yield trends; overall, the first quarter yield were stable with prior year period and were up sequentially. What yield are driving the improvement? Due to the productivity of the Wheel of Fortune MEGATOWER and MegaMax CrystalDual+, when you look at the revenues, you need to consider that in the first quarter of this year, the application of ASC 606 is impacting the total revenues before because before the jackpot expenses were included as a cost and now are included as a reduction of revenue. So that could have impacted the yield. And obviously, Jim, can go later on with you on more details. Regarding the third question, regarding incentive payment, last year -- okay, first of all, the good news is we have now not only New Jersey generating an incentive, but it's also Indiana even known as [indiscernible] that's a very good news for us. Last year, the New Jersey incentive was recognized -- large part of it was recognized in the second quarter, and the remaining part was recognized in the third quarter, where the final number was validated. This year the new accounting standards basically require us to accrue over time, and that's what we have done in the first quarter, and therefore we have a positive impact, which will be a reverse in the second quarter. Regarding New Jersey, I cannot say yet the moment if it's going to be higher or lower than last year, because again, we have -- it would be down on accrual basis and we have three quarters to go, but the first quarter results are encouraging.

Domenico, I'll take the question on regarding U.S. sports betting, and it's clear that we feel this has a great opportunity for our company for the reason I already anticipated during my written remarks. But when it comes to size, the opportunity is very difficult to predict, because this will depend on how many state choose to allow sports betting, how quickly they do so, and don't forget how the regulation will shape the offer, because this is very, very important in order to have a healthy business. We are well-positioned in the relationship we had with our customers. The only additional comment I can make is that last Friday IGT submitted its proposal to the Rhode Island's State Lottery to provide comprehensive sports betting operation. The proposal contemplates both land base and digital wagering, and reportedly IGT was the sole bidder of the process. So we feel we are well-positioned.

Okay. The other question or comment question given the complexity of the top detail on the potential impact of current situation, current politics in particular -- we are at in this document about next strategy from gaming that was a bit of a concern for us.

No, I think the document is so big that I'm not scared about what is written there because apart from that, they were somehow summarizing a lot of things are that were in the political debates in the previous quarter. Some of the actions that they have indicated have been already implemented. And to provide some clarity on it, first of all, we need to where the government in place and to see the Ministry of Economy level, which are the priorities they intend to face. I don't feel at this point in time by scale about the two lines that are in that document.

Okay, thank you.

Thank you. Our next question comes from David Katz with Jefferies. Your line is now open.

Thanks. Good morning everyone. I wanted to just follow-up on the issue of sports betting in a bit more detail. And I know that the timing and size are open questions to be determined, but to be specific and -- you know I heard you comment about the Rhode Island lottery submission. I just want to be clear, is IGT in a position to provide a jurisdiction or an entity, really an end-to-end full solution as it relates to sports betting assuming that there is land-based and mobile in terms of handling the book making, customer interface, all the technology, hardware, software, is it a full solution or there are certain capabilities were others would have to play a role?

No. This is a good question. First of all, we can provide the full know-how in managing sports betting operation. We do that successfully in Italy, where we manage at the end-to-end value chain of the business. In U.S., what I can tell you is we have the platform, we are up in running in Nevada we have a licensed platform. We are providing mobile solution and distribution. So we feel that we have the know-how to provide the turnkey solution. It's clear that case-by-case we might came up with third-parties in order to enforce our offering, but the bulk of our offering is already in a very good shape to starting rating any compensation with any partner in the United States.

Perfect. And with respect to the derivative contract, I expect that…

David, it's Jim. Let us make a formal transition to that, and actually this will be the right transition for us. We have some prepared comments, we'll read and then we'll ask for questions.

Okay.

Okay, Alberto here. At this point let's go to the registration statement for 18 million shares in the perspective settlement describing there [technical difficulty] that were filed the last night. We refer you to the perspective supplement for the details of the transaction that I can provide you with brief overview on this call. It is important to note that our comments do not constitute and offer to sell or the solicitation of an offer to buy IGT shares. To give you some perspective, De Agostini currently holds approximately 103 million IGT shares. As part of their portfolio management activities, they're looking to establish a caller on a portion of their IGT holdings by buying a put and selling a call with the duration of four to five-and-a-half years. Credit Suisse is the sole counterparty. This structure provide De Agostini with a predefined minimum value for the 18 million shares, while enabling them to participate in a portion of the upside appreciation in the underlying shares. The transaction contemplates that during the contract term De Agostini can monetize the value of a portion of these shares by effectively taking a loan against that. For Credit Suisse to hedge their exposure in the transaction, they are going to borrow shares in the market and then sell that. The company will be assisting in the process and has filed registration statement and prospectus supplement with the SEC. Importantly, the company will not receive any proceeds from the offering. And there is no impact to our income to our income statement, balance sheet, cash flow, share count, or ordinary dividend payment because of the transaction. The final details of the transaction will be made available only when it is completed. This is Marco. Before we move to your questions, let me just say that De Agostini has made it clear to IGT's board of directors that they are pursuing this transaction as part of managing their overall business performance. Today, IGT is by far the largest single asset in the De Agostini portfolio at around 65% of De Agostini's gross asset value. Following this transaction, this percentage is expected to decrease to less than 55% in line with the level GTECH represented before the merger with IGT. De Agostini is a long term and strategic shareholder of IGT. They have been valued supporter of the company since the inception of our relationship in 2002. And they have stated their intention to remain IGT's controlling shareholder for the foreseeable future. They have also said they are not contemplating any additional transactions in IGT shares. As mentioned, several disclosure documents were filed with the SEC in relationship to the De Agostini transaction. And an offering is underway. As a result while we will try to answer your questions as best as we can, you can understand that we are subject to certain limitations and would encourage you to review the registration statement, prospectus supplement, and the other publically available information regarding the transaction. Now, we will take any questions you might have on the transaction. Operator, can you assist with that?

Certainly [Operator Instructions] All right, our first question comes from Carlos Santarelli with Deutsche Bank. Your line is now open.

Yes. Hey, guys. I believe in the documentation, it reference a 60-day lock up. And I understand and appreciate the comments that they intend to remain a controlling shareholder as well as that they are not contemplating future sales. But is there anything that you guys could maybe point to that could get investors comfortable with post that lock up expiry, other similar transactions not happening in the near term?

Carlos, this is Alberto. We cannot say anything more than what we have already said, that's been provided to us by the De Agostini. So basically, De Agostini has specifically stated that they don't have any intention to execute any other transaction in the foreseeable future, and this is what we can say.

Understood. And the 60-day lockup is correct, is it not?

It is correct.

Okay, thank you very much.

[Operator Instructions]

I believe David Katz had a question. So, David, if you could re-enter the queue, that would be great.

Okay. And our next question is from David Katz. Your line is now open. Q – David Katz: Hi, good morning. Thank you for all that again. So at the conclusion of this arrangement, De Agostini still own the same percentage of the company as prior to it.

David, in this transaction, De Agostini is not selling shares. So therefore, we will own the share, and in this transaction what they can do at the certain time if they needed to monetize, they could get loan pledging the shares, but this is just an option that they have that is included in the contract, so…

Okay. It doesn't -- sorry go ahead.

So at the inception, there is no selling of shares from De Agostini. The sale of shares comes from Credit Suisse that needs to hedge the transaction on the option that does with De Agostini.

All right. And in the context that we all shareholders are essentially treated equally, do we have any insight about the much longer term plans for ownership in the company from De Agostini?

As I mentioned, David, De Agostini has told us that they don't plan to execute any other transaction for the foreseeable future.

Okay. Yes, got it. Thank you very much.

Thank you. We have no further questions at this time. I would now like to turn the call over to Marco Sala for any further remarks.

Thank you. Our first quarter performance is a direct result of the essential work we have done to position IGT for sustainable long-term growth. Our disciplined [ph] investment in R&D and CapEx is yielding good revenue and profit growth. While it is only the first quarter, I believe that our performance sets up well to achieve the strategic and financial goals we have established for 2018. We look forward to expanding on these in early August when we will host an Investor Day in New York City. Thank you as always for your interest in IGT, and I wish you all a great day.

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