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Executives

Julia Boguslawski - Director of Investor Relations & Corporate Communications

Michael Gavin Isaacs - Chief Executive Officer and Director

Linster W. Fox - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Secretary

Analysts

Justin T. Sebastiano - Brean Capital LLC, Research Division

Kelly Knybel - Deutsche Bank AG, Research Division

Todd Eilers - Eilers Research, LLC

Stephen Altebrando - Sidoti & Company, LLC

SHFL entertainment (SHFL) Q2 2013 Earnings Call June 4, 2013 5:00 PM ET

Operator

Greetings, and welcome to the SHFL entertainment Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Julia Boguslawski, VP of Investor Relations and Corporate Communications. Thank you, Ms. Boguslawski, you may begin.

Julia Boguslawski

Thank you. Good afternoon, and thank you all for joining us today for our second quarter 2013 earnings call. I am Julia Boguslawski, Vice President of Investor Relations and Corporate Communications for SHFL entertainment. With me today are Gavin Isaacs, CEO; and Lin Fox, CFO.

Today's call is being simultaneously webcast through our website, ir.shfl.com, and will also be archived for the next 30 days. If you haven't done so already, please download the quarterly presentation accompanying the webcast as we'll be referring to specific slides throughout the call.

Before we get started, I would like to remind you that various remarks we make about future expectations, plans and prospects for the company constitute forward-looking statements for purposes of the Safe Harbor provisions under federal securities laws. Actual results may differ materially from these anticipated results. Please see today's press release and our other SEC filings for a complete discussion of risks that may affect our results. The company assumes no obligation to update any forward-looking statements as a result of any new information or future events.

We will also be discussing certain financial measures such as adjusted EBITDA, which is a non-GAAP measure. A definition and reconciliation of this and other financial measures we use and discuss can be found in today's earnings release, as well as our most recent Form 10-Q. Now I will turn the call over to Gavin Isaacs.

Michael Gavin Isaacs

Thank you, Julia, and good afternoon. I'm really happy with our second quarter results, and I think that they demonstrate strength across the board and show that we are achieving our stated goals. There were many significant operational highlights for the quarter, which are summarized on Slides 4, 5 and 6.

Our momentum in Asia continues, driven largely by our shufflers and by the superior game performance of our slot machines, particularly in Macau. Having just returned from G2E Asia in Macau, I'm delighted to report that our top-performing progressive link, DUO FU DUO CAI, is front and center in every marquee property. It was an exciting thing to witness and as evidenced by approximately 100 placements into Macau this quarter, shows no signs of slowing down.

Last month, Inside Asian Gaming magazine recognized DUO FU DUO CAI as the best progressive slot in the region as part of the magazine's 2013 Supplier Awards. Given the market dynamics, this is a huge accomplishment and we're very proud of it.

In the quarter, strong performance in shufflers and slot machines helped drive a record $77.4 million in revenue. Recurring revenue was approximately $31.2 million, up 8% year-over-year, and grew largely as a result of an additional $1.2 million in Proprietary Table Games. Growth in e-Table and Utility lease revenue also contributed to the year-over-year increase.

After a sluggish Q1, our EGM performance in Q2 demonstrates the true potential of our team and the strength of our suite of products. We had a record revenue quarter driven by strong performance in Australia, especially New South Wales. Our ship share in the quarter was approximately 18%. We successfully capitalized on the various market opportunities, including those in Asia. EGM performance in Q2 was driven largely by installs of hot titles: 88 Fortunes and 5 Treasures. The Flintstones is continuing to help drive installs in the highly competitive Australian locals market, contributing roughly $3 million in the second quarter. We're making progress with our slot launch into the U.S., which I'll touch on later. We recognized our first sales in the U.S. in the quarter, albeit small, and look forward to more significant sales in the second half of the year as we continue to enter new markets.

Moving to Utility. We posted 22% year-over-year growth in the second quarter, driven by increased sales activity and MD3 momentum. The sales came largely from the U.S. as a result of a large corporate customer purchasing i-Deal shufflers, following an initial lease term of over 2 years. We also saw strong sales of 350 shufflers in Asia, about half of which served to grow the footprint and half that served as replacements.

At the end of the second quarter, our total MD3 installed base was over 2,730 units, with about half of that on lease. With 520 placements, this quarter marked our largest install of MD3s to date. Our MD3 rollout strategy has been a key driver of Utility growth since its launch 8 quarters ago. Our average lease prices are up $11 year-over-year, driven largely by product mix, with new shuffler models starting to comprise a greater portion of the lease base.

Recurring revenues in specialty games hit another all-time high of $13 million in the quarter, fueled by contributions in every category. Our strong side bet and add-on offerings drove approximately 560 lease placements year-over-year, led by 6 Card Bonus, King's Bounty and House Money. Much of the lease revenue increase came from premium games, Ultimate Texas Hold'em and Mississippi Stud, both of which continue to grow in placements quarter-after-quarter as a result of their increasing popularity.

On an annualized basis, these 2 games alone contribute approximately $12.7 million in recurring revenue. I'm especially pleased by the success of these 2 games, given the fact that they were developed internally, and they're a great example of our ability to create innovative and market-leading content.

We enjoyed a successful G2E Asia, and I encourage you to check out pictures of our booth on our Flickr page. There's a link on the last slide of our earnings presentation. We debuted the new TableMaster FUSION, a picture of which is on Slide 6, and we feel excited by its prospects as it begins its official launch next month with installs scheduled in Florida. This fully electronic table game features 5 seats, touch screen betting and a 72-inch video screen for displaying our live dealers. Customers that saw the product in Macau were most impressed with the updated betting in the face for players and the physical appearance of the whole cabinet.

The new Table Master is another key step in our efforts to converge all our e-Table products onto a single platform, something that we believe will serve as a long-term driver of margin improvement in the segment. With our refreshed product lines, we have rebranded our e-Table suite to better reflect the common platform, which we are calling SHFL FUSION. The different configurations will be referred to as virtual, Vegas Star, Hybrid for Rapid, with Table Master remaining as is. e-Table performance in the second quarter improved year-over-year driven by $2 million from sales of our new SHFL FUSION Virtual in Australia.

We continue to make progress in our iGaming segment. We recently executed an agreement with Amaya, whereby SHFL will exclusively offer the on going -- Ongame online poker product to U.S. customers. The MOUs Amaya entered into prior to this agreement are expected to be finalized directly with us. It is anticipated that these agreements and other future agreements will allow many companies to include Ongame poker as part of their respective iGaming offerings. Having many parties using the same poker product allows for greater liquidity, which serves to benefit all parties involved since a large and active player base is a key component to a healthy poker ecosystem.

With record results and many milestones achieved, we had a very strong Q2, and I am confident in our ability to continue sustainable and meaningful growth. With that, I'll turn the call to Lin to go through the financial results.

Linster W. Fox

Thanks, Gavin, and good afternoon to everyone. On Slide 7, you'll see that total Q2 revenue was up 17% year-over-year. Without the effect of foreign exchange, revenue increased 18% year-over-year. Foreign exchange had a de minimis effect on overall profitability.

Slide 8 shows total revenue for Q2 was $77.4 million. Diluted earnings per share were $0.21 as compared to $0.17 in the comparable quarter last year. Earnings per share for Q2 2012 included approximately $0.03 of due diligence expenses associated with the terminated Ongame acquisition. Corporate development and due diligence expenses were approximately $800,000 in the current quarter.

Turning to Slide 9. Recurring revenue increased 8% year-over-year to approximately $31.2 million. Recurring revenue declined by less than 1% sequentially, driven by shuffler conversions and removals of e-Tables from Maryland, which I'll touch on shortly.

Slide 10 is a map of our revenue distribution by geography. 55% of year-to-date revenue came from outside of the United States. As you can see, both Asia and Europe had strong first halves and are continuing to grow.

On Slide 12, you'll see a nice rebound from our slot machine segment coming off a soft Q1 with approximately $25.7 million in revenue. In second quarter, slots were up 16% year-over-year or 18% without the impact of foreign exchange. Sales of 1,192 units grew 14% year-over-year, largely driven by strong performance of New South Wales and Macau. The current quarter included the removal of 78 old Estar units on lease, which was slightly offset by the addition of 36 new Equinox cabinets on lease.

Slide 13 shows our Utility segment performance and highlights recurring revenue of $13.7 million, up 3% year-over-year. Our shuffler lease installed base, however, was down 138 units sequentially. This was largely the result of a large casino customer opting to purchase 375 i-Deals following a successful lease term of over 2 years. Oftentimes, in circumstances like this, the customer is either looking for ways to reduce OpEx and/or has easy access to capital. Although conversions are part of our business, one of this size is very rare, and we don't anticipate further conversions of this magnitude anytime in the near future. Slightly offsetting the conversions were approximately 237 net shuffler leases, which includes 110 shufflers placed at Maryland Live! There were 160 lease-to-lease upgrades in the quarter, which have no net effect on the lease base but are important long-term drivers of recurring revenue. Shuffler sales were very strong in the quarter, up 45% year-over-year. Asia was a notable driver of this sales growth, contributing over $5 million in the quarter.

Moving to Slide 14. Recurring revenue from Proprietary Table Games grew an impressive 11% year-over-year and total revenue grew 18% to $14 million.

Slide 15 shows recurring revenue in e-Tables was up 16% year-over-year, but as expected, declined sequentially due to removals in Maryland as the market transitioned to live tables. Total revenue grew 4% to $7.1 million. Our average sales price improved 32% year-over-year, driven largely by the new FUSION virtual upgrades.

Turning to Slide 16. Second quarter gross margin grew 40 basis points year-over-year to 65%, largely the result of improved margin in the Utility segment. Utility margin increased 120 basis points to approximately 66% as a result of the i-Deal conversions in addition to greater shuffler sales revenue. PTG gross margin of 82% grew 20 basis points due to greater total revenue. At 35%, ETS gross margins were negatively impacted by accelerated depreciation of Table Master units currently on lease. With the launch of Table Master Fusion at G2E Asia, we are accelerating the depreciation of first-generation units and we'll do so for 4 more quarters.

EGM gross margin remained relatively flat year-over-year at 62%, and average sales prices remain very high at $19,600.

As to operating expenses, Slide 17 shows our R&D investment in the second quarter grew $1.2 million year-over-year. Half of the increased R&D investment relates to the hiring of additional iGaming developers as we continue to build this new business. The other half relates to EGM compliance expenses for new content releases in the marketplace, in addition to expanding into new territories, such as emerging markets in Asia.

Second quarter SG&A increased $4.1 million year-over-year, largely driven by global growth initiatives across the entire company. The $2 million increase in compensation and related expenses was driven largely by increased headcount in the year from expansion and support of new products and new territories. $500,000 of the compensation increase was due to greater sales and profit-driven compensation expenses as a result of more revenues during the quarter, and $400,000 was from increased medical costs in the quarter.

Legal costs were approximately $1.3 million of the increase, driven largely by litigation costs. Over half the litigation expenses were to protect and defend our valuable IP.

Additionally, $500,000 of the increase was due to expanding our iGaming sales team in Gibraltar office. $400,000 of expenses were due to increases in advertising and trade shows. Slightly offsetting SG&A expenses were corporate development and due diligence expenses, which relate to our evaluation of strategic M&A. These expenses were $600,000 less in the current quarter than the year-ago quarter, which included expenses related to the terminated Ongame acquisition.

As communicated on our year-end call, OpEx for the second half of fiscal 2013 will ramp slightly from the first half. The absolute dollars for Q2 OpEx should be a reasonable proxy for Q3 and Q4. Operating margin for the second quarter was relatively flat year-over-year at 22%. Normalizing for corporate development and due diligence expenses, operating margin was 23% in the current quarter and 25% in the year-ago quarter.

Net income was a record $11.8 million, up 22% year-over-year. Slides 18 and 19 show our adjusted EBITDA and free cash flow performance. Second quarter adjusted EBITDA was a record $25.4 million, up 7% year-over-year. Free cash flow or adjusted EBITDA less CapEx less cash taxes was $8.6 million in the second quarter, down $3.1 million year-over-year. Free cash flow benefited from higher EBITDA but we paid $2.3 million more in cash taxes as a result of increased profitability in both the U.S. and Australia. Capital expenditures were also $2.5 million higher year-over-year, largely due to the construction of our new consolidated facility, which is anticipated to be completed in the fall.

The effective income tax rate was 31.7% in the second quarter as compared to 32.4% in the year-ago quarter. We believe that for the fiscal year, our tax rate will be in between 29% and 31%.

As to working capital, Q2 inventory turns of 3.5 declined from 4.3 at year end. Inventory levels shown on Slide 21 rose $6.2 million from year end, largely as a result of our slot machine launch in the United States. We're making a concentrated effort to get our units out on trial in selected markets as we gear up for further expansion.

At 85 days, our global DSO for the second quarter increased 11 days from the prior period, reflecting the popularity of our extended payment sales model in Australia and Asia and a record sales quarter. U.S. DSO went down 4 days to 42.

Operating cash flow for the second quarter was $5 million as compared to $4.2 million in the prior year period.

Moving to Slide 21. CapEx in the second quarter was $8.8 million. We compute -- we communicated on our year-end call to expect quarterly CapEx to be within $8 million to $10 million range for fiscal '13 due to the new building construction. We believe CapEx will continue to fall within this range for the second half of the year and then return to more historic levels in fiscal 2014.

As of Q2, we had availability of approximately $200 million under our revolver. Total cash on hand exceeded debt by approximately $33 million.

Finally, as we have repeated before, our priority for cash usage is to pursue and sustain long-term growth. Our strong balance sheet provides us with the financial flexibility to invest in the business and to continue to evaluate growth initiatives, including acquisitions. We will continue to look at the best way to manage a balance between investing in our business and capital allocation for potential M&A, stock repurchases and dividends. And with that, I'll turn the call back to Gavin.

Michael Gavin Isaacs

Thanks, Lin. Great stuff. At this time, we're maintaining our full year growth rate range of 12% to 19% top line growth. We expect continued strength in our Utility segment, driven by MD3 replacements and further momentum out of Asia as that market keeps growing and evolving. I'm proud to report that we placed 40 DeckMate 2s in the quarter. Although initially, the low-hanging fruit will be lease-to-lease upgrades, over time, we believe that the superior feature set and increased speed of the DeckMate 2 will help to convert all of the sold units into new, revenue-generating ones. Especially exciting is the fact that just last week, we supplied 26 DeckMate 2s to Caesars for the World Series of Poker finalist table. These shufflers are front and center at the highly publicized event, giving them great exposure and helping set a new standard for poker rooms worldwide. This quarter had many shuffler sales, and although leasing is a priority for our business, international growth almost always translates to a sale. We're currently seeing strong performance in Asia with our Utility segment, which we expect to continue due to product performance and market growth. We are dealing with several legacy contracts that allow for lease conversions, but we're working through those and such contracts are not part of the long-term strategy of our business. However, as we mentioned, changes in access to capital and other factors can influence purchasing decisions. We have an aggressive campaign in place to grow our lease base, which involves marketing and pricing initiatives, as well as structured product rollouts to encourage leasing and help retain our current lessees for the long term.

We expect consistent growth in table games with one of those drivers being our superior upgrade offerings. 6 Card Bonus keeps growing in popularity and has truly reinvented and revived the Three Card Poker experience. Our newly launched Game Manager 2 software is a perfect example of how we never stop innovating for our customers and improving the experience for our players. Game Manager 2 takes progressive wagering a step further by enabling both multilevel jackpots and fully configurable multiple reserve pools.

Our Operator Wide Area Progressives, or O-WAPs, are gaining steam with corporate customers across the globe. We're currently configuring our progressive tables across 35 of Game King's [ph] casinos in the U.K., our largest cross-property O-WAP installation to date.

We've invested in our e-Table business. Anyone who attended G2E Asia witnessed just how sophisticated and attractive our revamped product offerings are. Although the first half of the year got off to a slow start, we are currently seeing some exciting domestic and international opportunities coming down the pike across the entire product range. Our slot machine content is exciting, relevant and market-appropriate. One of the most highly competitive markets in the world, Australia, still continues to be our major market for slots this year. However, we've made progress in other markets like Asia, the U.S., Latin America. I'm pleased that we've opened a new sales office in Buenos Aires, Argentina, which will manage our operations for all of South America. In my experience, having a local office greatly enhances the ability to be successful in any region.

We're currently trialing about 80 units in California, Oregon and Minnesota, being very deliberate and thoughtful in our approach. We're continuing to collect feedback and fine-tune our games for the various needs of the markets. We've expanded our library to 10 titles available for sale and our plan is to have 3 more available by the end of this quarter. Last month, we announced our entry into the New York VLT market, which will initially result in 112 participation units with the opportunity for even more installations based on performance. This is a unique and high profit -- I'm sorry, high-profile market, so we're thrilled to have the opportunity to demonstrate what our machines can do. Although still early, we are encouraged by the strengthening performance from our current placements.

18 months ago, we launched our iGaming business. Rather than acquire a company, we built our own flexible platform to best deliver our IP-rich, unique content to online customers across the globe. Our servers are ready, our licenses are in place, we have created 14 games, 4 of which are GLI-approved for real money gaming. We have agreements in place with online conglomerates, like GameAccount Network and Amaya, to collectively offer access to approximately 100 operator sites. The integration process is extensive due to the unique nature of each operator's platform. Our focus is to handle these processes with as much thought, quality and attentiveness as possible to ensure customer satisfaction and long-term success. We have completed our integration work and expect revenues to commence shortly. We anticipated these revenues to have begun by now, but frankly, we're slightly behind. However, we have not spent to the levels that we initially communicated on our year-end call.

We are on the cusp and I'm excited by what this business will do as our content is distributed through more and more channels. What makes me confident in the long-term prospects of this business is the competitive edge we have with unique, proven, in-demand, proprietary content that only SHFL can offer.

Today, we announced an agreement with Evolution Gaming, marking our first entry into the fast-growing live dealer online market. We will be providing Evolution with our Proprietary Table Games, which will form part of their offering of over 100 live tables.

Before Q&A, I'd like to announce that we are hosting our Investor Day next Thursday, June 13, in New York City. This will be a great opportunity for management to provide a strategic update and to highlight the strength of our innovation and of our global team. Our entire executive team and some of our directors will be present in addition to key leadership through all our product lines. Details about the event, including webcast and replay information, will be available on our IR site, ir.shfl.com. And here's an ad. And if you want even easier access to pertinent company information, please download our Investor Relations app for the iPhone and iPad available in Apple's App Store. It's very cool. Our app gives investors access to the latest company news, events and financial information right at their fingertips in an easy-to-read, magazine-style layout. Features include access to press releases, annual and quarterly reports, SEC filings, stock information, an events calendar, an interactive analyst center and more. It's really great work by our IR team to get that up and running.

Finally, I want to thank our shareholders and our board for their support and especially to my team who really dug in this quarter with relentless determination and passion to deliver what are clearly superior results.

I look forward to reporting our progress next quarter, which we anticipate will be broadcast live from the new SHFL headquarters. With that, we will now take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Justin Sebastiano with Brean Capital.

Justin T. Sebastiano - Brean Capital LLC, Research Division

Can you talk a little bit about how the units are trialing in the U.S., in California, Oregon and Minnesota, how the performance of those games?

Michael Gavin Isaacs

Yes, sure. I mean, we've had -- most of the games are now performing well above house, which is good news. Some of the units that have been there from the beginning, in particular titles in denominations have done well. Others, one in particular we've had to replace and we put in a new title, which is starting to perform incredibly well. But it's still early days. Some of them have only been out there just over 90 days but the initial feedback is still very positive.

Justin T. Sebastiano - Brean Capital LLC, Research Division

Okay. And you said you sold some in the U.S. Where did they go?

Michael Gavin Isaacs

I think they went to Oregon -- sorry, some in Oregon, some in California.

Justin T. Sebastiano - Brean Capital LLC, Research Division

And how many?

Michael Gavin Isaacs

I think it's like less than 10.

Justin T. Sebastiano - Brean Capital LLC, Research Division

Okay, okay. And then iGame, the iGame is having -- you said you guys were a little behind schedule. Can you talk to why that is and how much did you actually spend? Are you pretty much in line with where you thought you would be if you were generating revenues as far as cost to revenues?

Michael Gavin Isaacs

I think I stated pretty clearly that we haven't spent as much as we thought we would. Frankly, it's difficult to recruit some of the people you need for this business. But we're a little bit behind because frankly, the integration has been a little bit more difficult and we're not the only ones who can control that. Obviously, we have to rely a little bit on the regulators and our partners. But we've done everything that we've needed to do now, and we expect to go live very shortly. By now, we were hoping to be up and running. We were hoping to get revenues coming through. We do expect them to come in this quarter, and that's just the beginning. I mean, this business is just purely a question of timing. From an expense perspective, I think that we're about a quarter behind where we wanted to be. But again, I think we -- it's fair to say that for the year, where we expected to break even, we expect to make a small loss this time whereas that revenue will come through following and just gear up afterwards.

Justin T. Sebastiano - Brean Capital LLC, Research Division

Okay. And then just lastly, I mean, the lease base was down again this quarter. I mean, I think you explained it pretty well as to that big i-Deal, lease-to-sale conversion and then the big sale of the new shuffler. So is this, though, something that you see as sort of a trend? I think last quarter, you mentioned that a lot more casino customers are more likely or maybe more apt to purchase shufflers now. I mean, is this sort of a paradigm shift in the way they think about shufflers? Or do you see us kind of getting back to more leases down the road?

Michael Gavin Isaacs

No, I don't think this is a paradigm shift. I think that this -- I think we highlighted it last quarter to let people know that we had this big legacy contract coming up. We don't do contracts, which really require this, but unfortunately, our products are both for lease and for sale. And if you want to pay the price, you can buy them. I think it's up to us to try and put in place programs and marketing incentives and such, pricing programs whereby that the incentive there is not to buy them. And that's certainly our focus going forward. Internationally, always or almost always, will be a sale. But we expect and we hope that customers will see the benefit of new functionality and improvements in new models coming through, and that in itself will drive them towards leasing over purchasing.

Justin T. Sebastiano - Brean Capital LLC, Research Division

Okay. So I just want to be very clear. You guys are still very focused on getting shufflers to lease.

Michael Gavin Isaacs

That is our #1 preference.

Operator

Our next question comes from the line of Kelly Knybel with Deutsche Bank.

Kelly Knybel - Deutsche Bank AG, Research Division

Just to kind of maybe touch on one thing. I know you guys touched on the balance sheet and kind of where you're positioned with that. I was wondering if you could kind of help me understand here, I mean, you guys have a very nice stream of recurring revenue. Interest rates are very low right now. And on the previous call, you had talked about 2 potential acquisitions that you had been evaluating. Can you kind of update us where you are in that process, and kind of what your timing is around any kind of capital allocation decisions?

Linster W. Fox

Well, first of all, we don't comment on any acquisitions or M&A that we're pursuing. We really can't be more specific on a call like this. As far as our capital allocation, I think I said it in the prepared remarks, but we will -- we're constantly looking at this. And in the absence of any significant M&A, we certainly will be looking at ways to return capital to shareholders, be that dividends, buybacks, whatever. So we're constantly looking at that. But it has to be a balance between investing in the business and any M&A set that comes forward.

Kelly Knybel - Deutsche Bank AG, Research Division

Okay, fair enough. And then just real quickly. I know you commented on the inventory. There was some build for the U.S. business for the slot sales. Is there any way you could kind of classify how much of your inventory build is kind of being directed towards the U.S. side just to help us understand what's going on there?

Linster W. Fox

As far as the increase, it was about $6 million. And I'd say that maybe a little more than half of that was in the slot to the U.S. You have -- Gavin I think talked about the trials that are going on out there, but you have to understand that we're bringing in -- these units come in from Taiwan. So they're staged and they're put out on trial. So there's a flow there that are either out on trial, being staged here, out on the water in the Pacific. So that's the majority of the increase, and that will go away once we get that online.

Michael Gavin Isaacs

Yes, and it's also -- actually, when you have a supply chain which is very cost-effective, you need to forecast. And of course, we're forecasting units to go out now with some -- many of these units are still tied up in legal contract stage. So the units are sitting here ready to go, they just have to get these contracts signed and formalized, which, as we all know, isn't an easy process in many instances. So there will always be, with slots, given that we can do them at a very good price in Taiwan, that impact of in-transit goods, if you will.

Operator

Our next question comes from the line of Todd Eilers with Eilers Research.

Todd Eilers - Eilers Research, LLC

I wanted to ask on the Utility side. Can you say how many shufflers were part of new openings or expansions this quarter? And then did you also have any placements into the, I guess, Maryland market this quarter or was that last quarter?

Julia Boguslawski

Yes, Todd, we did, actually, and Maryland Live! really was the, I think, most notable new opening in this quarter. In Maryland Live!, I believe we placed about 110 shufflers on lease. And the rest of the growth that you saw in that segment, we talked about our great momentum in Asia, and we had about 350 shufflers sales in Asia. What was really impressive about those is over half of those served to grow our footprint, went into markets that are sort of becoming more sophisticated and previously had hand-shuffled tables. So a lot of what we saw this quarter was expanding and growing the footprint. A few shufflers from the new opening in Maryland Live!, and then we talked about the i-Deals, of course. But then, other shufflers just spread throughout the U.S., some sales in Europe and Australia.

Todd Eilers - Eilers Research, LLC

Okay, great. And then, obviously, part of the sales, I guess, in the quarter, you had mentioned the lease to sale and the i-Deal shuffler with one customer. Can you give us a sense for how that impacts the, I guess, the gross margin for you guys? I mean, I guess, is that -- what sort of impact was that in the quarter?

Michael Gavin Isaacs

I mean, it wasn't a high price and it wasn't -- I don't know.

Julia Boguslawski

It was a sale in sales revenues.

Linster W. Fox

We had -- with the conversion and all the business in Asia, we didn't see any deterioration in margins. Obviously, there's some impact from that but generally, the margins are up.

Todd Eilers - Eilers Research, LLC

Okay, all right. And then I had a question on the slot business, and I apologize if you guys gave the information already, but can you break down the unit sales by market? I guess, obviously, Australia being the biggest and I think you mentioned you had a few in the U.S., but just kind of curious what the mix was for the quarter.

Michael Gavin Isaacs

Bulk was Australia, I believe.

Julia Boguslawski

Absolutely.

Michael Gavin Isaacs

I'm not sure. I know we had 100 into Macau.

Julia Boguslawski

100 in Macau.

Michael Gavin Isaacs

We had about, I think, 7 into North America, right?

Julia Boguslawski

Yes. Really, the majority was Australia.

Michael Gavin Isaacs

Yes. So the bulk of it would be Australia and New Zealand.

Operator

Our next question comes from the line of Steve Altebrando with Sidoti.

Stephen Altebrando - Sidoti & Company, LLC

The $1.3 million that you mentioned in defending the IP, did that relate to one specific competitor or is that just sort of an ongoing process?

Michael Gavin Isaacs

A lot of it -- I think more than half of it was with one ongoing competitor. But the rest of it was between a couple of other matters.

Stephen Altebrando - Sidoti & Company, LLC

Okay. And then in regards to the shuffler, I'm sure the pricing is kind of a dynamic process, but given the easy credit environment, has there been kind of more internal discussion about rethinking sales versus lease price?

Michael Gavin Isaacs

We -- it's got nothing to do with the credit markets, quite frankly. We want to encourage people to lease our shufflers; it's as simple as that. And so one of the things that we are proactively doing and frankly have been doing but perhaps it's time for some more of it, is that we've been increasing the purchase price of these devices but trying to keep the leasing fairly flat. So the incentive is there to be flat. We've had a couple of large customers who've opened properties recently tell us that given the new increased purchase price, it doesn't make sense to purchase and they may as well lease, which is exactly what we're trying to achieve. So I think you can't do it overnight, you can't become -- the expression is pigs become fat and hogs get slaughtered. We don't want to become hogs. We absolutely have to look out for our customers, but at the same time, we have to drive our strategic needs and those kind of programs are important to us. So we do have a lot of long-term corporate customers who've got long-term contracts, and frankly, we're still running out a few of those. This recent purchase was part of one of those; I think that contract is nearly 4 years old. So the new contracts that we enter into won't have those provisions, but at the same time, if a customer still wants to buy, they can buy but the price hopefully will be commensurate with a good return to us as well.

Stephen Altebrando - Sidoti & Company, LLC

Okay. And then just lastly. Is there a material difference in the monthly lease price in, say, like the i-Deals that came off versus the MD3s that came on during the quarter? And that's it.

Julia Boguslawski

Yes, absolutely. Just given the size of that i-Deal order, just how many i-Deals were on lease, there was a very good lease rate, very attractive. And so the new MD3s that have come onto lease, we definitely are seeing that. I think we mentioned $11 increase in ALP year-over-year. Last quarter, it was a lot of the same. That is because of these MD3s and some of the newer products comprising a greater portion now of the lease base. But definitely, the new shufflers that came onto lease are carrying a higher average lease price than the i-Deals that were converted.

Operator

There are no further questions at this time. I would like to turn the floor back over to Mr. Isaacs for closing comments.

Michael Gavin Isaacs

Well, again, I thank all our investors, our shareholders and, most importantly, our staff for the great work for another great quarter and we look forward to many, many more. So thank you again for your support.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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