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Scientific Games Corp (NASDAQ:SGMS)

Q1 2013 Earnings Call

May 07, 2013 05:00 PM ET

Executives

Cindi Buckwalter - VP

Lorne Weil - Chairman and CEO

Mike Chambrello - CEO, Asia Pacific Region

Jeff Lipkin - SVP and CFO

Analysts

Steven Wieczynski - Stifel Nicolaus

Mike Malouf - Craig-Hallum Capital Group

Operator

Good evening, ladies and gentlemen, and welcome to Scientific Games first quarter 2013 conference call. At this time all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded. It is now my pleasure to introduce Cindi Buckwalter, Vice President for Scientific Games. Ms. Buckwalter, you may begin.

Cindi Buckwalter

Thank you very much. Welcome and thank you all for joining us this evening. During this call, we will discuss our first quarter results followed by a question-and-answer period. Please refer to our earnings press release for further details.

As a reminder, this call is being simultaneously webcast and is accompanied by a slide presentation. They’re both available along with our press release in the investor information section of our website at www.scientificgames.com. A replay of the call and the accompanying slide presentation will be archived in the investor information section of our website.

This conference call will contain statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially. For certain information regarding these risks and uncertainties please refer to our earnings press release and materials relating to the costs posted on our website and our filings with the SEC, including our most recent annual report on Form 10-K and our subsequent reports filed with the SEC.

During this conference call, we will discuss certain non-GAAP financial measures. A description of each non-GAAP measure and a reconciliation of each non-GAAP financial measure to the most comparable GAAP financial measure can be found in our earnings press release.

Now I’ll turn the call over to Lorne Weil, Chairman and CEO.

Lorne Weil

Thanks Cindi. Good evening everyone. And thank you for joining our first quarter 2013 earnings call. Jeff Lipkin, our CFO with me this evening and I also have Mike Chambrello who most of you run our Asia-Pacific business to join on this evening's call, as we are feeling considerably more optimistic about China than we felt in the last few quarter and I want Mike to have an opportunity to share our excitement with you.

The first quarter was an extremely busy and productive one for us. We had a lot going on from a business development standpoint which should benefit us as the year progresses. We are also very focused on executing on the key steps required to close the WMS transaction and our proceeding as expected.

It’s a risk spending a moment on our integration planning as we have been making great progress. We have selected executives from each company to serve on an integration planning committee and we have identified few corporate individuals to start the planning team.

In addition, we have engaged integration consultants with experience in the gaming. With respect to the required gaming approvals, we have filed applications in each of the jurisdictions and which we are seeking gaming regulatory approval prior to closing the merger. Another milestone in the process is the WMS stockholders meeting later this week to consider and vote on the proposed merger. As I previously mentioned, this acquisition obviously is far and away the most transformative development in our history and we're excited about the opportunity to work with our new colleagues and look forward to growing our business together. In the meantime our excitement continues to build around the opportunities we see for the combined company. Just last week we announced that we and our partners had been selected as the primary vendor team to operate internet gaming systems and services for the Delaware state lottery. For this bid, we joined up with 888 and Williams Interactive, a subsidiary of WMS to provide a full turnkey solution for the gaming platform, content, and operational services.

For those of you that don't know, Delaware is the first US state to implement interest at i-gaming, including poker, slots and bingo. This made for an extremely competitive process and therefore a huge win for us. This also goes to show that gaming expansion is accelerating through state lotteries and we believe this joint effort with WMS is a prime example of the type of opportunity that can be realized by our pending merger with WMS. We can't talk about Delaware without mentioning their success with sports betting, where at this point we're the only vendor supplying sports betting platform for a lottery in the United States. Betting through our system during the 2013 NFL season increased by 30% versus the prior year reinforcing our enthusiasm for the sports betting business.

Indeed with our many years of gaming expertise combined with our recent acquisition of Parrsboro and its world class state of the art, sports betting solution we see the potential in this area to be one of the next waves of lottery development. In particular we're excited about the prospects for sports betting throughout Europe, given the increasingly hospitable regulatory environment.

We have worked with Parrsboro to integrate our venue based lottery system in Norway which supports nearly 4000 retail points of sale for (inaudible), with Parrsboro sports betting interactive system and we know firsthand how successful this combination of product offerings can be; we believe it will prove attractive to lotteries and licensed private sports with operators around the world, as they seek additional sources of revenue.

Further to this point, later this year we expect to launch a nationwide lottery based sports betting network in Germany that has been in development as many of you know for quite some time. To continue on this sports thread as many of you know, we have long and the only vendor able to offer lotteries, the opportunity to create instant games highlighting the teams, logos and mark associated with the NBA, NHL, major league baseball, Nascar and major league soccer.

These rate brands give lotteries the opportunity to offer fantastic experience and surprises and authentic branded merchandise. We have had success with these games in the United States and with the NBA in China. In a few minutes Mike is going to talk about the really great project we will launching in China in the fall that coincides with next year’s NBA sessions.

Our licensed property group has now taken the sport thing to another level, the fantasy level by creating extremely realistic instant ticket fantasy game based on pro-football. We’ve developed an innovating instant ticket offering tying into the both the strength pro-football and the popularity of fantasy football through a license with the pro-football hall fame. This is a very attractive license offering prices including BI trips to pro-football biggest game as well as trips to the annual hall of fame Enshrinement weekends. The license also provides access to some of the very best players in the history of pro-football; former Dallas Cowboy Emmitt Smith, he is available as a spokesperson and a wide variety of hall of famous are available on the fantasy play style of the ticket and for appearances for launch events for prizing option.

In addition to Emmitt Smith our license property group has secured Franco Harris, Gale Sayers, Roger Staubach and (inaudible) with more to be partly offering. To give the ticket as broad and appeal as possible we developed a unique extended play game style that is (inaudible) of the elements of the fantasy football league.

The demographics of fantasy game player 87% male with an average age of 33 and they create a strong segment participating lotteries. We are optimistic about the offering as football is the most popular sport on the fantasy game industry posting 35 million fantasy players growing (inaudible).

Turing to another topic, getting a lot of attention lately, a number of U.S. states and international jurisdictions are actively pursuing some form of privatization or outsourcing, and we expect to see further lottery development activity throughout the year.

In April, our joint venture in New Jersey and which we hold 18% equity interest was notified of intend to award contract to provide marketing and sales services for the New Jersey lottery. We expect to become the primary supplier of instant tickets to New Jersey, for the first time in our company’s history. We are excited about this opportunity as we have never been a primary supplier we never been a primary supplier to New Jersey, and therefore have not had the level of lottery related supply revenue that is expected from this opportunity.

New Jersey’s instant ticket retail sales were approximately $1.4 billion in the latest fiscal year. We are also happy to report that an alliance we formed with the company in Panama was awarded a 10 year contract with the Panama Lottery to supply instant tickets under a cooperative services program until the year 2023. We are the exclusive supplier of instant tickets and services for the term of the contract. Currently traditional draw based lottery games are the only offering in Panama. So we will be introducing the instant ticket product into the market place.

This is an important opportunity to demonstrate how the products technology and best practices we use around the world could be successfully deployed in Latin America to grow our customers’ lottery businesses. In addition, we recently executed a new contract with the Oklahoma lottery to provide lottery systems and instant ticket services. And we are awarded a two year extension by Montana for our instant ticket contract.

Jeff will cover the details on the quarter. However I did want to note that our Q1 results were in line with our budget. The first quarter has historically been a seasonally lower quarter. Our Q1 results last year were somewhat had an anomaly and reflected some unusual items that benefited the quarter. So to wrap up my commentary, I will say that I am very happy with the direction in which the company is heading. We are highly focused on executing on the number of significant business initiatives and we anticipate momentum will accelerate as the year progresses. Looking ahead we continue to lay the ground work for opportunities in 2013 and beyond including joining forces with WMS.

I will now turn things over to Mike to discuss China.

Mike Chambrello

Thanks Lorne. As Lorne just mentioned we really are very encouraged by the recent performance improvement we are seeing in China. While we are not yet in positive territory, year-over-year retail sales results have now improved with sequential quarter and we saw material improvement in March and April retail sales performance relative to February. Additionally the 15% growth of the overall lottery industry in the first quarter in China, reflect sustained consumer demand in this geography.

Simply quiet, we believe the key to our improved performance, since better gains, lower inventory retail, and increased retail and marketing in promotions. We now removed old inventory from retailer locations and warehouses in all provinces and replenishing this inventory with new games; games that really do reflect SGMS best practices; really reverting to the game design and price structure and product launch planning that enjoyed so much success in China prior to 2012. Back to basics, you would be getting to see the results. This approach includes launching the types of games that have been successful in other parts of the world and are differentiated from other products such as family of games that content common themes that are grouped together at retail to increase consumer awareness. But in fact we introduced our first family of games in April with a second schedule for mid-May.

The launching distributions of these games types have been well coordinated and the reception of both province and retailer levels so far has been very positive. We have additional family of games products planned for once in third and fourth quarters as wells as the re-launch of the very successful 30 RMB game later this quarter which had previously been so successful primarily due to its start price of 1.5 million RMB.

As Lorne mentioned later this year, our product launch plan includes extensive play games as well as a rebranded series of NBA games which for the first time will include individual players in addition to the team theme games. This will be 10 RMB and 20 RMB games.

The NBA games will have a very unique design and use innovative printing technology that will further differentiate this product all other tickets on the market. I have actually have samples in front of me and to say they’re fantastic, I think would be a great understatement.

Any way as part of our enhance marketing strategy, we are continuing toward very closely with the lottery partners to help highlight the game benefits to player and also raise awareness of winners to further engage existing players and draw a new series in group players.

Other initiatives include exploring new price structures that should make game more compelling and competitive in the marketplace. Our weekly results beginning to reflect all of these developments, sales in the last four weeks ending April 28 with highest of 2013, this is contributed to our over our year today non-picture improvement of 1.3% compared to the same period in 2012.

I wanted to note one other item. We’ve said before that we believe the rollout of the competitive draw-based lottery product over the year has directly impacted in tickets. We’ve also commented that is the rollout of this product which is maturity or saturation. We believe that the trajectory of instant ticket sales will turn more positive in fact we’re starting to see a slowdown in growth of this competitive product and believe that most of the growth is now coming from the provinces that are just beginning to introduce these games.

Looking ahead we see opportunities in high frequency system based games and electronic instant tickets. We believe we can offer unique content enhanced by the game inventory provided by WMS to supplement existing product including ironically new high frequency games to support their next cycle growth as well as introducing new product lines into each of these distribution channels.

While the timing of these product introductions is difficult to predict, we feel we are very well positioned in each of these areas and certain key provinces and believe that any one of these opportunities combine with our initiatives in instant ticket business could sustain and even accelerate the positive momentum we’ve seen in the last few months. All in all, very encouraged.

With that I’ll turn things over to Jeff to discuss our financials.

Jeff Lipkin

Thanks Mike. Hello everybody and thanks again for joining us this evening. As Lorne mentioned our first quarter results were in line with our expectations. It’s important to evaluate our first quarter results in the context of our financial performance historically. If you look at our numbers over the past few years, Q1 is been a slower quarter for us. If clean results of our racing business which we sold in Q4 2010, we reported revenue of 191.8 million and 196.7 million and a terrible EBITDA of 73.8 million and 75.0 million in Q1 2010 and Q1 2011 respectfully.

In Q1 2012, we benefited from few unusual items which caused our financial results in 2012 to be much higher relative our first quarter results historically. The most significant items that impact the comparability with the impact of the highest even Mega Millions jackpot in lottery systems, a significant products sell by Barcrest in our gaming business and achieve point $2 million insurance recovery that we received in Q1 last year.

With that background turning to our core business in Q1 ’13, retail sales performance in many of our core market started off slowly this quarter as we eluted too on our last earnings call. However, importantly as the quarter progressed we experienced improved sales performance in several key areas of our business. We are further encouraged at this improvements same stuff continued until April.

We are encouraged that we have recently signed a number of new contracts entered into several contract extensions and further several important business initiatives that should begin to bear fruit later this year.

Before I go into more details on our results, I should mention that during the quarter we sold the installed base of gaming terminals in our UK pub business. As a result beginning with this quarter we are treating results of this sale as a discontinued operation as required under applicable accounting rules.

All the numbers in our press release and discussed on our call today are from continuing operations ongoing or otherwise noted. Revenue for the quarter was 219.6 million as compared to 231.2 million in the prior year period. Printed products revenue was up 800,000 lottery systems was down 6 million and gaming was down 6 million.

Operating income for the quarter was 11.1 million principally due to lower and less profitable revenue mix and an increase in SG&A and depreciation amortization expense partially offset by lower employee termination and restructuring expenses.

The SG&A increase was largely driven by approximately 4 million of fees and expenses related to WMS acquisition. Looking at the individual segment, printed products revenues was relatively flat as the strength we realized in our license property business was offset by our US price per thousand and percentage of sales businesses.

In part due to challenging year-over-year comparisons from the very strong sales levels in Q1 2012. Internationally revenue rose from percentage of sale customers and from the acquisition of Provoloto but was offset by lower sales from price per thousand customers including Italy.

Printed products operating income was 33.9 million as compared to 35.1 million last year; driven impart by a 1.5 million increase in SG&A principally due to the incremental over head from the acquisition of Provoloto in the absence of the insurance recovery, we received last year; partially offset by lower compensation expenses here.

We all set a $1 million increase in depreciation amortization expense primarily related to a license thing; third party brand. This was partially offset by a 1.5 million positive impact from a more profitable revenue mix this year.

Lottery systems sales revenue was lower year-over-year as hard ware and software sales fluctuate from quarter-to-quarter due to their non-recurrent nature. The decline in lottery service revenue was primarily due to challenging comparison; against Q1 last year, which included a record 656 million mega millions jackpot.

Lottery systems operating income decrease primarily due to a lower and less profitable revenue mix and a $2 million increase in depreciation, amortization expense related to deployment of new hardware in China and the amortization of new technology development costs.

Our gaming results reflected lower retail sales levels including the loss of the William Hill contract; lower revenue from our customers outside the UK along with lower sales of gaming terminals. Gaming operating loss was 1.5 million compared to an operating income of 3.7 million last year.

Primarily due to a lower and less profitable revenue mix and a $2.3 million increase in SG&A offset by a $1 million insurance recovery in the current period. The less profitable revenue mix was principally due to a loss of 2 million in revenue from William Hill and the interruption of 1.9 million of revenue from customers in Puerto Rico and Italy, which we are hopeful could resume in the near future.

The increase in SG&A reflected 2 million and legal fees and expenses related to our gaming business in Italy along with severance costs. The increases were partially offset by the absence of the 2.3 million of re-structuring cost in the prior year period.

Moving down to P&L, our earnings from equity investments decreased by 2.7 million year-over-year, primarily due to results of RCN, China and Italy. We realized that at 1.5 million decrease year-over-year and other rank coming expense, primarily due to an increase in foreign exchange, transaction expenses during the quarter.

These factors resulted in a reported loss for the first quarter of 12.3 million or $0.15 per share. Turning to attributable EBITDA, EBITDA from equity investments declined year over year by 1.4 million to 21.7 million reflecting lower results in Italy, China and RCN, attributable EBITDA decreased 8.2 million year over year to 78.6 million as a result of the factors I've mentioned.

Moving on to the balance sheet, our debt less cash at quarter end was approximately 1.4 billion. Our liquidities stood at nearly 300 million, including approximately 206 million of available (inaudible) and cash of 90 million. Our free cash flow is negative thirteen's of the quarter compared to positive 127,000 in Q1 last year, primarily due to increased cap ex in Q1 2013, related to the timing of the purchase of gaming terminals and printing press upgrades in the US, partially offset by increased cash flow from operating activities, 1.3 million principally due to distributions of earnings from one of our equity investments.

(Inaudible) focused on executing on our significant new business development including the launch of instant tickets in Greece and Panama, startup of Properties Plus in Maryland and the opportunity in New Jersey for a joint venture. We’re also working on several other business developments that may provide incremental revenue in 2013 and beyond. As Lorne mentioned we are very pleased with our progress towards completing the WMS acquisition. We look forward to the opportunity to begin to leverage the many opportunities we see from the combined company, with that I'll turn it back to Lorne to wrap up.

Lorne Weil

Thanks Jeff, really not much more to say in terms of prepared comments. As Jeff summarized I think our first quarter in terms of financial performance was pretty much exactly where we expected. We are seeing several very positive trends as we move from the first into the second quarter along the lines of what Mike described taking place in China, we're very optimistic about the trajectory of our performance through the balance of the year and of course we're very, very positive about the step function increase in performance that will result from our impending merger with WMS, so really with that I think we can end our prepared remarks and operator, if you'd like to open up the program for Q and A please.

Question-And-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of the Steven Wieczynski from Stifel Nicolaus. Please proceed.

Steven Wieczynski - Stifel Nicolaus

Mike I guess the first question here will be for you its China related obviously and if you look at the comparison as we get into the second quarter and third quarter do they become pretty easy. So I am just trying to gauge your level of confidence here over the next six months, over the next 12 months, is it something where you are optimistic where you get back to say 2011 levels or is it, that we are going to see much more pronounced ramp from here on now?

Mike Chambrello

Well keep in mind that this whole new process that we are in, in the family of games etcetera, there is an offset from sort of changing the internal planning process and then getting to the point where and submit to CSL and final MOF approval. So as Lorne mentioned or I think I have mentioned, we did start the family of games in April, I really see our strongest game mix in the second half of the year. So I think the opportunity for favorable accounts and getting to a trajectory where we were happy is, we are best situated for the second half of the year however a couple of the games that in the game family that we are able to get in May and June. We are pretty optimistic about it, but I think we see the full impact on a run rate basis really hitting in the second six months of the year.

Steven Wieczynski - Stifel Nicolaus

Okay got you and then Lorne you talked about this briefly about privatization and some opportunities not only in North America but also internationally as well, can you just kind of highlight any markets out there that either you have your eye on or they are potentially could be coming up here over the next six months or the next 12 months.

Mike Chambrello

You know I assume the situation in Greece which I think is certainly the one close in that were most (inaudible) and the most the optimistic about. The schedule now looks as though hopefully all of the paperwork and so forth necessary approvals could be done by the end of May and our target now looks like we actually start lottery up and begin to sale tickets to the public in the fall of this year, which would mean that we would have to begin printing tickets and loading up the distribution channels in Greece sometime during the summer so the closest in opportunity we have therefore is outside the United States would be Greece.

There is a lot of conversation going on right now around the privatization of the lottery in the province in Ontario, if we consider Canada to be a foreign country. Being Canadian myself, I don’t view it totally that way. But I understand that it is technically foreign. It’s definitely moving forward. There has been some changes in the government in Ontario. So things have moved ahead slightly less quickly than we might have expected earlier.

But that is certainly very much in our focus and something we are devoting a lot of attention to. Similarly there is lot of discussion and a lot of activity around the privatization of the lottery in Ireland. There hasn’t yet been any RAFP or even RAFI in Ireland, so it’s not completely clear exactly what the format it. But the expectation is probably be something along the lines of what we did a couple of years ago in Italy or what we are about to do in Greece with some meaningful upfront payment together obviously with revenue stream going forward.

So I think right now Greece, Ontario and Ireland would be the ones that are the nearest in opportunities. There are a couple of other jurisdictions where I would prefer not to offer any explicit comments, but there are jurisdiction in which that we will have tremendous potential, but it’s not yet time to talk about.

Jeff Lipkin

One thing I would add, this isn’t the privatization but it is an outsourcing; this Panama, which we announced, which could have an item packed on ’13, not a privatization per say but it is the CSP contract with outsourced services signed to begin.

Steven Wieczynski - Stifel Nicolaus

Okay and the last question from me. WMS question, I’m not sure which you will be able say, and which you won’t be able to say; but we have heard from a couple of operators out there, that you know potentially when this deal goes down they might be a little bit hesitant to purchase boxes from you guys, as given that they think your lottery business is almost in direct competition with them. Is that something either that you’ve heard or is that something you’ve had discussions, I don’t if you can comment on that but that would be very helpful.

Lorne Weil

Well, I can certainly, its Lorne speaking, I can make a couple of comment around that. The first is, no, I, we’re not hearing that. We’ve heard very early on shortly after we announced the signing of the contract and we met with WMS at the end of the January. It was certainly coming back to us that some of WMS and soon to be our competitors and the WMS business were attempting to create the feeling among customers that the lottery industry and the casino industry were somewhere direct competitors and therefore there should be some reluctance on the part of the gaming operator to make commitments to WMS for Scientific Games.

But we’ve had pretty extensive conversations with number of the leading operators and we’re not hearing that we’ve obviously done everything we can to reassure the customers that there is going to be nothing lost in transition from the current ownership to our and that if anything we’re going to commit a huge amount of technology in other resources of Scientific Games to strengthen the leadership of WMS in that industry. So there is no reason to for the customers to take that bait but of course that something you always hear every time there is an acquisition in any. The reality is that the second quarter which just ended and I’m sure you’ve had an opportunity to look at the results that WMS has just released, the WMS what they call on that segment of the industry ship share in the second quarter coming clear to be several months after the announcement of our deal; showed a very nice increase in this quarter over previous quarter and the same quarter in the previous year. And that, I think when we had our conference call after we announced the acquisition of WMS, we talked about a couple of the things that we are extremely enthusiastic about was at the time the beginnings of the introduction of their Blade cabinet now hopefully our Blade cabinet primary new product for the sale market and the game field product which is the primary new product in the anticipation market, in the case of the increase of the ship share now was standing the concern that you expressed in your question.

The introduction of the Blade for sale cabinet has met with tremendous response to perform this is been terrific but it was only very partial quarter that that new product was available in the market and still the ship share of WMS showed a significant increase over both sequentially and year-on-year so we can only suppose that in the quarters to come with the availability of that product for the full quarter we’ll see an uncommon and improved within the performance and in the gaming operation side the game field cabinet which is again just beginning to be introduced the performance virtually across the board in every environment that has had a chance to demonstrate itself.

The performance has been tremendous consistently outperforming industry in floor averages and I think you will see again from this quarter as WMS results that the yield from gaming operation showing nice improvement as well. So, certainly all of the as the decline in these days KPI is that would indicate the performance the WMS product lines and the WMS operations within the main gaming operators in North America and elsewhere are very, very encouraging and we can be only be cautiously optimistic that this trend will continue.

Operator

And your next question comes from the line of Mike Malouf of Craig-Hallum Group. Please proceed.

Mike Malouf - Craig-Hallum Capital Group

Maybe I can keep on the merger question; if everything goes well with regards to the end of the week, how long do you expect to hear back from all the regulatory agencies; and has that timeline changed it all since you first put it out there? Does it get tighter at all? Thanks.

Lorne Weil

These are very, very difficult things to predict. We are talking about a broad range of regulatory agencies, many of whom have a lot of things on their plate and we have been ourselves involved in regulatory matters enough for a long enough period of time to know the vagaries that exist in the system. So, I would say that we are quite pleased with the progress that we have been making so far, everything seems to be moving comfortably along the time table that we had been planning on since the beginning. I don’t think I would want to say that at this point, we are accelerating or moving forward where the timeline where we see are getting all unnecessary approvals but neither have we seen anything at all up until at this point to suggest that the time line is going to fall behind where we can find either. So, I think when we in WMS, work together to organize and structure the deal, we establish a time line by which we are expected to have achieved all of the necessary approvals and be in a position to go forward to complete the transaction and I would say right now we don’t see any compelling reason to either move or schedule forward or to be alarmed or concerned that we might not make the timetable or that in any way falling behind. I realize that doesn't really answer your question Mike but hopefully at least gives you some comfort that we're comfortable with how things are moving forward.

Mike Malouf - Craig-Hallum Capital Group

Okay great, and then as you take a look at the first quarter's results I know you commented a couple of times that the results were in line with your budget and your expectations, I think they were a little bit outside of certainly my expectations and some of the others on the street, and I'm just wondering as you look at this merger with WMS, certainly the company's going to get even more, certainly a little bit more complicated with the story and is there any chance or any talk that you guys have had with regards to sharing your internal expectations with the street and with investors? I guess that's another way of saying is there any chance that you might change your stance with regards to guidance?

Lorne Weil

Well, we certainly can’t begin to think about sharing any internal projections that we have with ourself combined with WMS until we have actually completed the transaction itself, there's about 20 different reasons why, even if it were our official policy now to give guidance, why we wouldn't be able to do that, so.

Mike Malouf - Craig-Hallum Capital Group

No that's not what I'm asking I'm asking if once the merger is completed that you might change your stance with regards to giving guidance to the street.

Lorne Weil

Well, you know there is.

Mike Malouf - Craig-Hallum Capital Group

Because certainly you obviously have internal expectations that are being met while the external expectations are not. So there's obviously a disconnect; so just that maybe?

Lorne Weil

Yes, I understand that. I think maybe the first thing to do, I think Jeff was trying as well as he could to articulate that as far as this year goes, that the first quarter was an anomaly or an aberration and that and as we by ourselves Scientific Games move through the year, that our own situation will ought to become a less, let’s say a normal so the first thing I would suggest that we do might is that, at least wait until the end of the second quarter and see where we are at that point in relation to where we would have been expected to be for the first six months of the year before we necessarily jump to the conclusion that we Scientific Games alone that our actual performance is not consistent with expectations although having said that I am not suggesting that I am not sympathetic to your concerns because I obviously am but I think we need more than one quarter to establish that trend and I would suggest that we at least wait until the second quarter before we jump to any particular conclusion.

Having said that once we get through the second quarter and on into the third quarter as we complete the merger with WMS even if we don’t change our formal stance on guidance in terms of regular either annual or quarterly guidance updates, I certainly think it would not be inappropriate for us to discuss in some greater depth than we have before at least the broad parameters of how once we have completed the transaction and we have had a chance to do our real time consolidation that we will talk in some detail and (inaudible) talking about possibly having a full day of investor day may be in New York.

May be in Chicago at WMS’ headquarters in Atlanta where we are sort of playing with this but anyway have a much more comprehensive opportunity to show and tell all the things that we are excited about where WMS is concerned and all of the things that we are excited about where scientific games has concerned and may be most importantly the things that we are excited about in terms of the synergies of combining the two companies that right now that either company is really able to pursue and I think once we have let’s say a full day of show and tell including a plenty of quantitative stuff in the show until I think that should began to communicate a quite a bit clearer communication and understanding on your and other’s part, of exactly what we were doing and then where we go from there. We will kind of have to see; you know how things go at that time. But certainly we are going to make every effort to explain where and why we think the combined companies are going in the clearest possible way.

Operator

And with no further questions in queue, I would like to thank everyone for joining today’s conference. This concludes the presentation and you may now disconnect. Have a great day.

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