International Game Technology's CEO Presents at J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum (Transcript)

Mar. 7.13 | About: International Game (IGT)

International Game Technology (NYSE:IGT)

March 07, 2013 1:30 pm ET

Executives

Patti S. Hart - Chief Executive Officer, Director and Member of Stock Award Committee

Matthew G. Moyer - Vice President of Investor Relations

Analysts

William J. Lerner - Deutsche Bank AG, Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

William J. Lerner - Deutsche Bank AG, Research Division

All right. Well, good morning, everybody. Our next fireside chat involves IGT, with me is Patti Hart, President and Chief Executive Officer, as well as Matt Moyer, who quarterbacks investor relations. The format's going to be familiar to you all, we'll start with some questions from me, and then we'll open it up to, importantly, your questions.

Question-and-Answer Session

William J. Lerner - Deutsche Bank AG, Research Division

Patti, maybe we can just sort of start off by just going across the business lines. Maybe you can talk about your expectations for North American product sales this year. Maybe what submarket you see driving growth for newer products, you can talk a little bit about the Canadian and Illinois VLT opportunities as well.

Patti S. Hart

Yes, thanks, and thanks for having me. In the North American product sales, first of all, we're feeling very good. I think about what 2013 looks like for IGT. Obviously, Canada, we are flying the Canadian flag at IGT headquarters this year, it's a big year for us in Canada. And we fought very hard, I think to really take a position as a 40% share owner of that marketplace. So I feel very good about that. Those shipments go out in huge bulks, so they are a little lumpy in the way they go out, and they go out all at once. And we recognize the revenue on that kind of a business once the -- once they're approved by the local authorities, so they come in big bundles. So we feel very good about Canada, that will contribute nicely this year to the product sales. Additionally, we see -- we kind of see a little schizophrenic behavior, actually, in North American product sales. We see some areas that are very healthy where we're finding it's by operator by operator, I would say, Joe, more than geographic, actually. Some operators who are very bullish and investing capital currently, and some who are in the position to hold back, so we have a couple of things going on in the market. The Revel situation, as well as the pending merger between Pinnacle and Ameristar that I think are slowing down some capital in those places while they're really redefining themselves. And then on the other hand, in a couple of the other regionals, as well as the Native American, we're actually seeing some confidence in spending. So I think it's very typical. You see some a little bit out ahead, we feel very good on a year-to-date-- a fiscal year-to-date basis about our market share, and I think that will hold through the rest of the fiscal year.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great, maybe we can switch over to the gaming operations segment, and can you talk about some of the initiatives you're contemplating or are undergoing to improve yields to grow the installed base, maybe specifically on the MegaJackpots side of things as well?

Patti S. Hart

Yes, on the gaming ops side, I mean, the biggest driver of gaming ops yield for us is improvement in gross gaming revenue, which we haven't had a lot of good news in that area lately. I feel like we're running a mini casino with our gaming ops business without the opportunity to market, actually to get people in to use the product. So we're going to float very closely to gross gaming revenues. We are over indexed in Nevada and in Native American, because that's where our Wide Area Progressive concentration is, and that is the highest yielding product for us. So we are going to float a little bit with that, and in a couple of the regional markets. We haven't seen a lot of great news, we're expecting a bit of a lift up in our yields, I think, on a going-forward basis, expect to see kind of flat yields year-over-year, when you think about it on an annual basis. But we're doing a lot of things, I would say, what I would consider to be more surgical as opposed to broad-based, to drive our revenue in that area, we are in the middle of a large program with Caesar's to celebrate the Wheel of Fortune 30th anniversary. It's been very successful running slot tournaments, Wheel of Fortune's slot tournaments in all their properties. Doing some things that include Sony and the brand, so that's been very successful for us. We're also doing some very interesting things on an exclusive basis in -- with some specific properties. We launched a new product at ICE which I think will get at a portion of the game ops business that we have not historically been as successful in, which is kind of that lower end, where I would say we see Aristocrat and Konami in that space, lower yielding, but less capital going into that market. So less-expensive boxes going into that space. So I think, Matt, from a win, we're not saying they're not spending money to chase revenue, right? And I would say we're doing the same thing. I mean, we're looking at the business and saying we're very, very focused on yield, it's a very important -- that's a very much a leading indicator. But what we're really focused on, as a company, is looking at the gaming operations assets and making sure we're generating the maximum amount of cash from those assets that we can generate for shareholders. So we've been very focused, as you've seen, the -- yields have come down a little bit, but the product margins have held, and they've held because we've been very, very focused on making sure that we're managing that. And we saw the headwind coming in gaming ops, and began this focus 2 years ago. And I think it's really paid dividends for us, making certain that as much as possible flows through to investors. So yield, important, but it's not the only thing that we should watch. Because continuing to throw capital at a market where gross gaming revenues are down, as we all saw this morning in the Illinois numbers and Missouri numbers are all down, in double digits again, throwing capital at that this is just irresponsible, I think, for shareholders. So focusing below the yield line, Joe, I would say, equally as rigorously as the yield line.

Joseph Greff - JP Morgan Chase & Co, Research Division

Right, and you're talking, I guess, in other words, free cash flow from game ops, so profits more or less the capital...

Patti S. Hart

That's right.

Joseph Greff - JP Morgan Chase & Co, Research Division

Do you see yourselves kind of at a steady-state in terms of game ops related capital expenditures? Or ultimately do you have to see that creep up or...

Patti S. Hart

I think, we're in steady-state, actually, right now. When we look out over the next couple of years, we think that the game ops capital is kind of at a fixed number for us in our planning. Now, there are some exceptions to that, that would not come in the large MegaJackpot area. But there are some exceptions to that. There is some new opportunities that we're taking a look at in Eastern Europe. In South America, where large capital deployment would allow us to take advantage of kind of a one-time market opportunity. And those, I would say, are set aside. But I think, when you look at the current installed base of capital flowing into the market as it's currently defined, I would say it's pretty steady-state for us over the next couple of years.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. Can you talk about the interactive business as well? Can you talk about your expectations for DoubleDown as you're making the deal or making acquisition, and how things have turned out in the year plus since you've closed it --

Patti S. Hart

-- sure. Yes, it is -- we just had our year's celebration of owning DoubleDown. So I would say, interactive, thinking about it in 2 buckets, one is kind of the real money wagering part of the business. We feel very good about that business. We -- last week, we launched in Mexico, there's only 2 online gaming license that were granted in Mexico. We are with a partner there and launched last week, and so we're one week in, so it's kind of hard to say, but very good early returns in Mexico. We also launched in British Columbia 10 days ago with our real money wagering, feel very good about how that is going early, the customer's delighted with the early returns. We like the movement in New Jersey, we think that the New Jersey bill looks like the bill that we would like to see everywhere. It is focused on all forms of gaming, not just poker, so it is casino and bingo. And it also is very focused on tourism. So the gaming bill is, poker-only bills in Nevada, as an example, are more focused on the residents of Nevada. And so your market is so much more limited and New Jersey is not as focused on you being resident while you're playing, as opposed to a permanent resident of New Jersey. So we like the way the New Jersey bill looks, we're hoping that, that will be a precursor for what we'll see in other places. The Illinois 'Kitchen Sink' Bill that passed and will go to the Senate, I think, it moved last night, or this morning, to the Senate, also looks very much like New Jersey. So we do think that the dominoes will begin to fall, we think we are very well-positioned in the online space, real money wagering space. We installed 20 new customers in the month of December, as an example, in Europe. So we've been very focused, we feel very good about that business. And on the other side, on the social gaming side, the business plan that we looked at, when we acquired DoubleDown actually has, I think, made its way to the trash, finally, at IGT, because it -- the performance of the business has far out -- outperformed anything that we thought that we would see when we acquired the company a year ago, from the top line to the bottom line. So we see daily active and monthly active users are above our expectations. The projections that we had for the company when we acquired it, the revenue per daily user, the churn rates, the conversion rates, everything that we looked at in the business. And I think the most important thing that we expected is when we acquired DoubleDown, they were running about $0.18 a day in revenue per user. They're now at $0.31 per day, and Zynga runs at kind of $0.05 to $0.06. And our -- one of our thesis was that our content would actually perform better than the traditional slot content that was in the social gaming sphere, whether it was in DoubleDown or it was in someone else's, and we've actually found that to be exactly true. We've launched 4 of our traditional titles that you would see in casinos and those games outperformed anything else in the slot content world. So we feel very good about it, top to bottom, we feel good about the margins, we feel good about the track we're on to make it GAAP accretive in 2014, and we're still committed to that. So this is one of those that when, as a CEO of a company, especially a company that is a market leader in its industry, you always hope to be able to look around and find an asset that you can bolt-on, that adds revenue and doesn't erode margins. And this is one of those. They're hard to find, but we feel very good about this one, and I think a lot of good news ahead at DoubleDown.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. You filed 2,000 amended proxy statements over the last 2 months. Many of them dealing with presentations about your views on capital allocation. Can you review with us your views on capital allocation? Obviously, you have a -- I guess it was Monday of this week the dividend was increased nicely. But we'd love to hear your updated views on capital allocation?

Patti S. Hart

Yes, very important part of the responsible of the board and the management team to really think about our responsibility to allocating capital to shareholders and to the market. So when we think about it, I think, it hasn't changed dramatically. The thing that, I would say, has changed is that, if I go back in my tenure, 4 years ago, and the company's balance sheet was not as healthy as we wanted it to be, the products were not performing as well as we wanted them to perform, and there was a lot of work that we had to get done in the company before we could actually free up cash to have the great luxury of deciding what we're going to do with it. So that has changed in the company now to where we feel like most of the things that needed to be fixed, if you will, the operational things are behind us, whether it's the deployment of SAP or upgrading our inventory management system, those things are bit behind us now. So when we look forward and we think about capital allocation, the first place we would always put our dollars will be back into the business. So if we have an opportunity, whether it's in the game ops side of our business or it's in R&D, that's where we would go first, if the returns are appropriate. And I think what you've seen is we've been very diligent about that. We have moved ourself from throwing capital at the game ops business, chase yield to being very diligent, looking at the return, one box at a time. So if you put the next box on the floor, does it return at or above the previous boxes that you've put on the floor? And if you find yourself in a declining return mode, that's when you have to start thinking about whether your oversaturating the market with capital. So while we've always put that first, if the returns are there, I would say that the return characteristics of that business have changed over the last couple of years, and when you're putting on the 24th Sex and the City box, it does not necessarily return the way the first 23 did. So that's where we would go first, as I mentioned earlier, that we have a couple of opportunities we continue to look in the market. One of the things that's happening around the world is there are significant number of markets that are, today, very gray, and they're attempting to go white. And for tax reasons and revenue reasons and all the things that you know, and that's everything from Greece to many South American countries, like Brazil and Colombia, to many Eastern European countries. And those are kind of one opportunity to go in and throw your VLT machines in the market. And those will go in, primarily, on a pay revenue share, they'll go into the game ops side of things. So we want to make certain that we're staying flexible and that we can take advantage of those opportunities. So that would be kind of job one for us. We don't really see anything on the strategic front, that's where I would go second with my capital today. We look, we stay in the market, I would say the couple of areas that we feel stress in the business, that capital could solve, one is in the talent the area. As you move into social gaming and online gaming, the whole war for talent really heats up in that area, particularly on the mobile front. And it's not unusual to do kind of an acqui-hire, right? Where you go and you buy the studio as opposed to hiring people one at a time. So we always have our eyes open for those things, and it's very interesting when you go to the game developer conferences now, it used to be where people got together and talked about games they were building, and now it's where people get together to try to shop their studios, to have the large companies buy them. And so that's one area, I think, from a talent perspective. I mean, when you're in the content business and your content is your differentiation, you really have to make sure you have the best talent in the industry. So that would be one area. We haven't seen anything that I would say, we're ready to bite on. But that would be one area I would probably lean towards, Joe, from a strategic perspective. And then last, is just about returns. I mean we have made a commitment to strive to a 2% yield on our dividend. I think the increase in the dividend this week gets us there, we'd like to stay there, there are a number of our investors who really prefer the dividend, and we want to make certain that they're in the stock for their reasons and they're getting their return and that their support is rewarded. And then next, you would go to share buybacks. We have $600 million left on our authorization for repurchasing shares. We have that kind of in a window of 2 to 4 years, depending upon the valuation of the stock. If the stock kind of sits where it is, it's a little bit more attractive to us than if it moves significantly up from here, I wouldn't expect that we would to another accelerated share repurchase, that's not something that we're considering right now only because we feel like we need to this flexibility, with some of these markets that we're looking at. But I would expect that we would exhaust the $600 million earlier than planned.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. Maybe you can just talk a little broad and open-ended about a recent proxy process. What have you learned? And what, if anything, do you anticipate changing, whether its strategy, communication, I'll leave it open-ended there?

Patti S. Hart

Yes, you do learn a lot, actually. You learned how to pack, that one of the things you learn because you're on the road a lot. I think there are silver linings in kind of every cloud. This didn't come out perfectly the way we would have liked for it to, I think, we lost a very, very good director that was really serving well for our shareholders, and I think that's unfortunate, but that's behind us. And we learned a lot in this process. I think one of the things that we learned, and we share this with many investors, is that there is a yin and a yang to good governance. When you really put in place a good governance structure, which we have at IGT, we don't have staggered boards, any shareholder can make a proposal, we have this really great open friendliness to shareholders, and I think that's a very positive thing. I think the reverse side of that is, it is very easy for anyone to get traction, whether they really have a plan for your company or not, and I think that's the flip side of that. So we have to learn that and we have to think about that, I think as a board, as we go forward. I would tell you what I heard from investors largely, if you sum it all up, everybody had their own views is, there is a general belief in the -- where we're going as the right direction, strategically as a company, that we do have to embrace the online world. We can't turn a blind eye to the fact that the Internet is going to be disruptive to our business. That we could think better about communicating, I think, things a little more rigorously. I think we missed a couple of things in the last year, I think we missed on our accelerated share repurchase, we didn't dedicate enough time to educating the market, we made assumptions that people really understood the instrument. And we shouldn't have made that assumption, we should have been more specific, that turned out to be a great trade for us, as a company. We took $400 million worth of stock out of the market at exactly the price the stock was on the day we announced we were going to take the stock out. I would have preferred to avoid the wild ride up and wild ride down. But net-net, it was a great trade for us, when you see where the stock is trading today. But we probably could have spent a little bit more time. A lot people misunderstood, actually, how that instrument was going to behave, how it was going to make our stock behave in the marketplace, and we heard that a lot, I think, when we were on the road. But I would say, good support for the strategies, still some show-me investors on the DoubleDown acquisition, and particularly the valuation for DoubleDown. I would say, people have moved from we-don't-want-you-to-be-on-online to maybe-you-paid-a-little-too-much. And so I think we have to work, and I think it's our job to work and make sure that everybody sees what we see, because we think the valuation -- we think you couldn't buy it today for what we paid for it, based on the traction that it has and how much that business has changed and how many people are looking to be in that business. We were right to go first and be a market leader and be disruptive. So I think what I learned, Joe, is that there's yins and yangs to good governance structures, that won't mean we'll change ours, but there's yins and yangs, and that we need to do a better job of helping you see what we see when we make decisions.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. There's news earlier in the year that Sci Games is getting together with WMS. Are you seeing any impact from that in your current business?

Patti S. Hart

We're not seeing any impact yet, I would say.

Joseph Greff - JP Morgan Chase & Co, Research Division

And I say that any impact that we view is potentially favorable and that you could have a company that's going through some degree of disruptions, see, in [ph] that word disruption, and potentially seeing a tangible benefit in pricing or less cutting of good deals or cheap deals by WMS which we have seen before. Do you anticipate-- and just on the topic, do you anticipate any further consolidation within the sector?

Patti S. Hart

Yes, so I would say, we haven't seen a lot of movement yet. I do think that it will create more rational pricing in the marketplace than what we have been experiencing for the last year, which I think is a good thing. We also are experiencing, there are a lot of laws in the VLT market around your ability to be both the machine and the system supplier, and so those areas where Sci Games is the systems supplier, they're going to have some issues there with their ability to provide boxes, which we think is a good situation for us, where we think, have an opportunity to make market share. Yes, there is -- whenever you go through these sorts of things, there's a lot of fear, uncertainty and doubt in the marketplace, in customers are buying product and spending capital, and they want to know that there is going to be years of support for the hardware. And when you're buying a company on synergies, which is basically the story they're telling, synergies mean you have to eliminate cost, which typically mean people or platforms, right? And so I think there is some uncertainty in the marketplace about what that looks like long-term. I think that's good for us as well. I think it's an interesting combination because I think it starts to bridge forms of gaming, right? The lottery gaming into the casino style gaming. I've been a believer, I think since I've been at -- since I joined IGT a long time ago, as a board member, that really, the winners would build this great global gaming ecosystems that would be agnostic to game type. And those that built those and built those first, with the best content would be the winners. So I think this is an interesting bridging of probably a lower margin business, that's more bid-oriented into a customer relationship, higher-margin business. Not sure there's a lot of synergistic work between them. But I think it's an interesting combination of 2 gaming types, that if you ran the transition the right way, could probably be beneficial. Certainly it was good for the WMS shareholders. So I always look at those and say, did they do their job as a management team? And they did their job as a management team, right? That's their job. So I don't see anything near term from a consolidation perspective. There is always noise in this industry about someone's flirting with someone, who is flirting with someone in the gaming industry. There's a lot of smaller players. I wonder how long you can really survive in this business being kind of subscale. It's a hard business and the innovation expense is not insignificant. I mean, the R&D expenses to fund innovation and fund changes, it's a very difficult business to be subscale in. So I wonder what is the right scale and how long some of those subscale folks can really continue to take share. I don’t think -- I'm not saying they go away, but how long can they continue to grow without significant investment.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. I'll now turn it over to the audience for questions. Sam?

Unknown Analyst

[indiscernible] Do you see a momentum here in Illinois to the bills in other states right now in terms of, have you seen [indiscernible] federal [indiscernible] Do you see any other states now trying to talk about writing bills, so you can get normal?

Patti S. Hart

Yes, we actually. I mean, there's bills everywhere. I mean, we've been working on them for years, as I'm sure many others have been in the gaming industry. They take years before they come to light and everybody else sees them. So I think the thing that's happening, Sam, right now is that everyone is studying New Jersey and they're going in looking at their own bill to say what about New Jersey should I adopt, or not? Because the bills are so different everywhere. And I think if we can move to a place where state-by-state, they look similar, maybe you have different taxation rates, maybe you have maximum, minimum bet changes, state-by-state. But if it looks similar in the offering, I think that it's better for the consumer. And so I think New Jersey has kind of set that, set the parameters for that. I think the Illinois bill that moved on last night or this morning looks very much like New Jersey, right? It's all forms of gaming, not just poker. And organized in the same way, so that it's about tourism. So there's a lot of states and a lot of Native American organizations rewriting bills, I would say in the last 2 weeks as opposed to starting from scratch.

Joseph Greff - JP Morgan Chase & Co, Research Division

Yes, sir?

Unknown Analyst

Can you address the other side of the market [indiscernible]. What are seeing [indiscernible]?

Patti S. Hart

Yes, it's a very different competitive set. I mean, when we have our war room of our competitive strategy, I mean, the online world typically doesn't have any of the same names as our land-based world. So I think that you'll see in the U.S. the very -- the ones that had been shaken out to be successful in Europe, you're going to see Party Bwin in the market, I think in the U.S., they're a good provider, they have a good product, have a good management team, so I think you'll see them. We provide them our content, all these people are also customers of ours because we plug our casino content in. I think you'll see Paddy Power, they're a good company, again, very well run, they understand -- I think they really understand the player, I mean, these guys have done a very good job of database marketing. I mean, they've moved from just being a gaming shop to being real database marketing oriented, so I think you'll definitely see them. You'll see Playtech as someone who more sits behind, I think, as a platform provider. I don't think about them the same way I think about Paddy and Bwin because they are direct to the consumer and they have such a big brands that people understand and know. And you'll see some smaller folks, there's a lot of talk about Zynga coming into this space. I think there's the crown jewel at Zynga, it's still 100 million poker players that everybody would like to get their hands on. They don't really have a structure to operate in a regulated, licensed environment. And it's one thing to have the license to be the provider. It's another thing to have to take every product through a compliance process and have it approved before it can go live. And that's a very, very different business than Zynga runs today. Their business cadence would kind of freak out, I think, actually, with the notion of going through compliance for every product and every game mechanic to be inspected. So I think they bring a great poker infrastructure, but I wonder whether or not their product actually -- most of the product that you would play on their site would never make it through a compliance process today. So don’t think about Zynga as much as some of the others. Certainly, Caesar's with their World Series of Poker and their -- they have so many partners, actually so many people right now, it's hard to figure them out. But they're going to be a player, I mean, they have a World Series of Poker database that I think is available, and can be mined. And they're going to struggle on the casino content side, which is what we do well. So all of these folks is great for us, we wants that -- as we always have been at IGT, we want everyone in gaming to be successful because we have an opportunity to be a part of everybody's success by extending to them our casino content and that will be our strategy as the U.S. goes state-by-state as well.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. Next question, Sue?

Unknown Analyst

I'm just -- I was curious of your opinion [indiscernible] market [indiscernible]

Patti S. Hart

Yes, I think it will go through phases. Like I think all of these online businesses do. So I think it will go through phases of being additive, but if you look at what's happened in the U.K., there's been very little cannibalization in the U.K. as gaming has moved online. But then I think it goes through, I wouldn't call it cannibalization, but what it does is it captures the younger demographic and it holds them for life. That's what happens. So it doesn't cannibalize the people you have there today. But it takes the new players and it builds a relationship with them, so then the way gaming is absorbed into their life is different. So you're not going after -- you're not going after the people who are playing on The Strip today, but you're primarily going after either people who want to augment their play from a bricks and mortar casino, or today don't play in a bricks and mortar casino. I think the question is what happens to the player who doesn't play in the casino, do they ever come into the casino? So I think it goes through an evolution, I think if you look at most industries that have been disrupted by the Internet or by technology of this ilk, you find that it goes through an augmentation and then it starts to outgrow the core business. I think you can look at widely whether it's Expedia or Priceline or Amazon, you look at any of them, right, and the initial phase for sometime is not cannibalization but then it's -- the requirement of the bricks and mortar owners, whether you're a movie theater owner or you're a retail store to make sure that your experience in there is still an experience that people want to come in and do face-to-face. Our chairman, as he was telling a story at one of our investor meetings, because he serves on the board of Nordstrom's, and he was talking about their move at Nordstrom's to move online. And what it's really done to their shopper, which is the mother still wants to come in the store, but the daughter would prefer to buy it online. And so it's how do you marry that experience into one place and then how do you make sure that at some point the daughter does want to come in, right, to the store. And so I think you have to look at it for the next 5 years, augmented, and then you have to look at it 5 years out, and say, that's when you find online -- and that's what's happened in every industry, I think, that's converted online, and I think we'll follow that.

Joseph Greff - JP Morgan Chase & Co, Research Division

Next question. How do you -- you've identified International markets as a source of growth. Can you just talk about what you're seeing in International markets? Which International markets -- you touched upon it a little bit earlier as giving you confidence in achieving your growth targets.

Patti S. Hart

Yes, I'm starting to think about Illinois as an International market. It's taking that long to get going in Illinois. Yes, so I would say, Asia's all -- what everyone talks about, Asia's great, and we got out late in 2006, 2008, when actually we just made some product decisions in my -- when I go back and look retrospectively that were just a miss for the company and now we're waiting for the replacement cycle to kind of gain traction in Asia. We certainly see Asia as a continuing-to-grow, healthy market, Singapore and Macau, specifically, but outside of that as well in many areas of Asia, we see growth. You don't hear as much about South America, I'm heading actually to Buenos Aires tonight to see customers next week in Peru and Columbia and Venezuela -- no, I'm not going to Venezuela now, that Chavez died. We actually pulled that one from the trip next week. But there's a lot of gaming expansion going on in South America. It doesn't happen in the same way that it happens in Macau, it's not these huge new casinos that go up. It's very, very few U.S. companies that build casinos there, tends to be more European companies that build casinos in South America, and they're not big bang kind of things. They are more incremental, they start with a 300 machine gaming hall, and then it grows to 500, and then it grows to 750. But the South American marketplace has been very good to us in the last couple of years. Argentina, import/export issues down there, trying to get our money out of there, can sometimes be challenging. But those who solve those problems best, which we feel like we have been doing, will benefit because the Argentina market is growing and it's very healthy. As is Peru, as is Chile, as is Panama, as is the Philippines, eventually, right? So in Mexico, I mean, people forget that Mexico is still growing. There are still parts of it that are converting from Class 2 to Class 3, and they're still great opportunities for us in Mexico. And we're starting to see a little bit of a comeback in Europe. I wouldn't say it's huge yet, but we're starting to feel a little more traction there than I think I've probably seen in the last 4 years. A lot more optimism, none in the consumer spending area, but definitely with capital deployment. Most of the product out there is pretty aged in Europe, and so -- and then what you find is a lot of new forms of gaming taking hold. The video lottery business taking hold, there's a lot more disruptive work that's going on in Europe. We, at the ICE show this past month, we signed up 7 new cloud customers in Europe. They're all European customers. So there's a lot more technological disruption going on in the European gaming space today than there is in the U.S, and we like to participate in that. So -- and in Canada still is international for us, Joe, so we'll take it twice.

Joseph Greff - JP Morgan Chase & Co, Research Division

Okay, great. Can you talk about the cloud a little bit. I know you spent some time, this was two Decembers ago, at an investor meeting in New York, and you just mentioned about some successful launches internationally. But can you also talk about what the response has been from the U.S.-based customers?

Patti S. Hart

Yes, we haven't really introduced it in the U.S. market. So I think it's a product that the U.S. market just isn't ready for yet, honestly. It's more of a European, it's more of a distributed gaming product where you have gaming locations that have maybe 50 to 150 machines. They can't afford server-based technology, it's cost prohibitive. And this is really a low-cost way for them to have some of the same feature functionality that the larger casinos have. Whether it's downloading configuration or analytics, or media management kind of capabilities, so I would say it's -- the product hasn't matured to the point that the way the U.S. casino market is designed, it doesn't work for it yet. It has to move in at these lower levels and then make its way up, I think, from a feature functionality perspective. The feedback, as a matter fact, I had an e-mail just this morning from the CEO of Olympic Casinos, in Tallinn, Estonia, and they are -- they have every one of their casinos now on our cloud product. And they're using it, and primarily for analytics, but he -- it's really allowed him to move his assets between casinos in a way that's much more efficient than he had before. He's starting to do some downloading config, not quite there yet, but I would say, every customer across the board, I mean, you know who they are, that have engaged with the product, Gala Coral, Rank, now owning Gala Coral will also deploy it on all their properties. The customer's delighted with it. I mean, the folks in Evian, France, I went up and actually visited them, they were our first cloud installation, and I mean, they just could not be happier. They have cloud sitting on top of sbX. So their sbX functionality is enhanced by the cloud capability, the analytics from the cloud that sit on top of it. So I would say, generally speaking, the customers have been happy with it, but what always happens when you put infrastructure, cloud is infrastructure, at the end of the day, is everybody is now hungry for the app layer, right? So we're running pretty hard to lay the apps on top of the infrastructure, but very happy customers.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. This is the last question. When you look at product sales, what newer products are you most excited about? What's been feedback from your casino operator customers.?

Patti S. Hart

If I didn't say Dolly, I would be really skewered when I get back to the office. I mean, Dolly Parton has to be the one product in our product sales area that -- like we cannot contain the enthusiasm for. It's been very interesting. So I think Dolly will be very successful. I think our real edge product which is kind of our Telly's Treasure and Vampire Blood, is it called?

Matthew G. Moyer

Vampire Life? Blood Life?

Patti S. Hart

Blood Life, drinking the blood drops, which I don't totally understand, but that game mechanic has been very well received. And we have a lot of large backlog of orders in that area, we're waiting for some compliance clearance in a couple of places. But it is the game mechanic and the functionality as opposed to just the theme there. And then our Takes the Cake product which also has been very successful at banks with Candy Bars, and Candy Bars has been one of the most successful games that IGT has ever developed on the product sales side. So getting the Takes the Cake product out bank with it, I would say it will be Dolly, Real Edge and Takes the Cake. I mean I could give you a much longer list, but those are the hot ones.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. Thank you so much, Patti.

Patti S. Hart

Okay. Thank you. Appreciate it.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!