William Pfund - Investor Relations Kevin Sheehan - CEO Mike Quartieri - CFO.

Barry Jonas - Bank of America John DeCree - Union Gaming Dan Politzer - JPMorgan David Katz - Jefferies Eric Des Lauriers - Craig-Hallum Capital Group Brian McGill - Telsey Advisory Group Chad Bannon - Macquarie Michael Pace - JPMorgan Dennis Farrell - Wells Fargo.

Good morning and welcome to the Scientific Games First Quarter Earnings Investor Conference Call. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I’d now like to turn the conference over to Bill Pfund, Vice President of Investor Relations. Please go ahead..

Thank you, Andria. Good day, everyone. During today’s call, we will discuss our first quarter 2018 results and operating performance, followed by a question-and-answer period. With me this morning are Kevin Sheehan; and Mike Quartieri.

Our call today will contain statements that include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call.

For information regarding these risks and uncertainties, please refer to our earnings release issued late yesterday.

The materials relating to this call posted on our Web site and our filings with the SEC, including our most recent annual report on Form 10-K filed on March 1, 2018, as well as subsequent reports filed with the SEC, including our first quarter 2018 Form 10-Q filed last evening. We also will discuss certain non-GAAP financial measures this morning.

A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings press release as well as in the Investors Section on our Web site. As a reminder, this conference call is being recorded.

A replay of this webcast and accompanying materials will be archived in the Investors Section of our Web site at scientificgames.com. Now, let me turn the call over to Kevin..

Thanks, Bill. Good morning, and thanks everyone for joining us. I couldn’t be more pleased with our first quarter accomplishments. First quarter results were strong across each of our business segments and marked yet another quarter of steady year-over-year increases in revenue and attributable EBITDA.

Collectively, we have delivered 12% growth on both the top line and on attributable EBITDA. The completion of the NYX acquisition, our February refinancing which is the third in a series of successful debt refinancings, have meaningfully reduced our annual cash interest cost compared to 2016.

These results reflect the success we've created in building a winning culture. Our momentum is continuing and we are maintaining our laser focus on driving steady top line growth while simultaneously taking steps to improve our business processes that will enhance our operating margins and cash flow.

As we announced last night, I will be stepping down as CEO and President of Scientific Games and Barry Cottle currently CEO of SG Interactive will be taking over as CEO. I will be staying on with the company in a Senior Advisor Capacity. I'm very proud of what we've accomplished over the last several years.

Our company is stronger than ever and growing across each of our divisions. With the acquisition of NYX and the rapid growth of our entire interactive business, Scientific Games is poised to lead the future as the entire gaming industry transitions to new digital and mobile platforms, while continuing to execute leadership in gaming and lottery.

I want to thank the Scientific Games executive team, my friends and my colleagues at MacAndrews & Forbes, and the extended family at Scientific Games for their hard work and their commitment. Barry has been a great partner and I look forward to supporting his efforts as we lead Scientific Games into the digital future.

So now let me turn the call over to Mike to discuss our quarterly results..

Thanks, Kevin. Good morning, everyone. As Kevin noted, our results were solid. Consolidated revenue rose 12% and our AEBITDA increased 12% as well. We experienced growth in all of our business segments, despite some tough comparisons in gaming product sales.

This points to the portfolio strength from our diversified global offerings and our ongoing continuous improvement efforts to streamline our business processes. Now let me turn to our operating segments. First, our gaming business. First quarter revenue grew by $3 million over the prior year.

Our AEBITDA margin improved 150 basis points to 49.2% with about two thirds of the enhancement reflecting a more profitable mix of business and the remainder the impact from adopting the new revenue recognition guidance. Gaming AEBITDA segment increased by $8 million. Revenue from gaming machine sales decreased $11 million or 8% in the first quarter.

The strong growth we experienced in slot replacement demand was offset by a lack of new property openings. In the U.S and Canada, replacement units increased 30% from the prior year driven by ongoing demand for our expanded TwinStar family of cabinets and the rollout of new content on the Pro Wave cabinet.

Shipments for new casino openings and expansions in the U.S and Canada totaled only 149 units in the quarter compared to 1,862 units last year's first quarter.

As we previously noted, the first quarter of 2017 included shipments from several large new casino openings, including the iLani Tribal Casino in the State of and a couple of properties in Asia. We expect the second quarter will include the shipments for the opening of the Hard Rock Atlantic City and MGM Springfield Massachusetts.

Internationally, shipments totaled 2,201 units compared to 2,497 units shipped a year-ago. Shipments for new casino openings totaled 251 units in the first quarter, down from 424 units in the year-ago period.

Year-over-year, our average selling price for the quarter was up 4%, largely reflecting a favorable mix of products, in particular, strong ongoing demand for the TwinStar J43 cabinet.

We continue to expect strong demand for replacement shipments throughout 2018, driven by our innovative content portfolio and the strength of the TwinStar family of cabinets.

Of note, we continue to experience strong performance by the TwinStar J43 and the locket lien gains on the original TwinStar dual cabinets, along with continued solid sales of the Pro Wave Dualos and other platforms. In gaming operations, revenue was down 6% year-over-year or $11 million in revenue.

The adoption of new revenue recognition guidance had a $4.4 billion unfavorable impact to revenue in Q1. For comparability, the impact to revenue in Q1 2017 would have been $7 million.

With the adoption of the new revenue recognition guidance wide-area progressive jackpots are now treated as a reduction to revenue compared to previously classifying such amount as a cost of services. This change in classification has no impact on operating income AEBITDA or cash flow.

On a quarterly sequential basis, our installed base of WAP and premium participation units increased by 21 units or essentially flat, while average daily revenue increased by $0.72 per unit.

We believe the lower average daily revenue year-over-year was largely attributable to the harsh winter weather conditions which affected regional casino visitation in much of the country compared to the prior year.

We noted meaningful improvement in our March results compared to January and February in correlation with improved GGR reported by casino offerings. We are pleased with the success of our newer cabinets, including games GAMESCAPE, TwinStar B75 and the TwinStar iReels.

We continue to replace our older units with newer product throughout North American casino floors. The anticipation surrounding the launch of the James Bond theme games remains very strong. We continue to anticipate that the rollout of the James Bond content on three cabinets will be midyear, kind of the July -- sorry, June, July timeframe.

And that both yield and placements are expected to show improvement in the second half of 2018. Revenue from our other participation units was down $1 million from the prior year as well as on a quarter sequential basis. The install base increased year-over-year reflecting unit growth primarily in Greece.

The decrease on a quarterly sequential basis largely reflects the expiration of certain U.K units previously under contract with Ladbrokes Coral when they merge. As you might recall, as a condition of the merger, they were required to exit certain of their retail shops which they did by selling to competitors.

Those contracts have expired and the customers chose to renew with their existing supplier.

Regarding the triennial review, there's not been a decision or there's not been an official word yet, the general expectation is that an official announcement may be made around the end of May or in early June that will then require several months of market feedback and implementation even beyond that.

Therefore practical impact on us is not likely before 2018 -- sorry before 2019. I would remind everyone that the U.K business we're talking about represents less than 5% of our total gaming revenue. Table products revenue increased $12 million year-over-year or 24%.

The above average growth was driven by both a higher install base, proprietary table games shufflers and other products, along with strong sales of shufflers and other products to major customers. Gaming systems revenue increased $13.5 million year-over-year or 22%.

The growth is primarily related to the ongoing new system installations to new casinos in the provinces of Alberta and Ontario coupled with increased hardware sales for shipments of our innovative new iView 4 player interface display units.

We will continue to roll out our new system to additional casinos in Alberta and Ontario throughout 2018 and into 2019. In the normal follow-on course, we would expect the maintenance revenue associated with those contracts will grow throughout 2018 and '19 and on into 2020.

Turning to lottery, our first quarter revenue increased $13 million or 7% inclusive of an $8 million favorable effect from the adoption of the new revenue recognition standard. Segment AEBITDA was up 10% compared to the year-ago quarter, reflecting the strength of revenue as well as a more profitable revenue mix and lower and lower operating cost.

Instant products revenue grew 7% reflecting the ongoing success of the WILLY WONKA Golden Ticket multistate instant games and leveraging our industry-leading library of game content and knowledge. In the U.S., our revenue grew 8%, while our international business increased revenue by 6% year-over-year.

With the adoption of the new revenue recognition guidance, we've modified accounting for the point of sales arrangements. That is our contracts that we get paid on a percentage of retail sales. The underlying cash flow and economics has not -- it does not change. We continue to get paid just as we always have.

From a revenue recognition standpoint, however, now we record revenue at the time of delivery is made to the lottery controlled warehouse. In the first quarter of 2018, we completed shipments of more tickets to our POS customers than we did a year-ago.

Thus the pickup in business is reflected by the increase in revenue, but is associated with the adoption of the new guidance. The payment for these increased shipments will be made as those tickets are sold through at retail just as in prior period.

Thus the new guidance has an impact of recognizing revenue earlier partially offset by the loss of revenue recognition of tickets that were ready in the distribution channel at December 31, 2017. Within our lottery segment business, our services revenue increased $7 million or 19% year-over-year.

The growth was driven largely from higher revenue from multistate game and an increased number of international customer contracts for recurring systems maintenance. The increase in services revenue was partially offset by a $5 million decrease in product sales, largely reflecting lower international sales due to fewer bid opportunities.

Turning to our Social Segment, which previously had been the largest portion of our interactive segment, and it's now a separate standalone segment, revenue continue to experience rapid growth. Segment revenue increased 21% year-over-year to $97 million and segment AEBITDA increased 46% reflecting year-over-year margin expansion.

We continue to leverage our extensive gaming content library to the social casino player to drive revenue growth. We launched the Jackpot Party Social Casino app during the quarter on a new enhanced technology platform and have seen a ramp in revenue driven by the increase in average paying customers post launch.

We remain focused on continually improving the player experience to maximize the number of paying players. Additionally, in mid April, we added to our app portfolio with the launch of an exciting new concept in slot games MONOPOLY Slots Casino -- Social Casino in North America and simultaneously in several other global markets.

The game reflects several new innovative styles of play, features a comp [ph] buying slot play with city building. The early trending indications are very positive for another successful app and are in fact a record level of an equivalent point in time compared to our other successful apps.

Our new digital segment comprised of NYX, our legacy B2B online gaming operations, generated $70 million in revenue and $17 million in attributable AEBITDA. These results include the impact of migrating NYX to U.S accounting standards and the new revenue recognition guidance.

The integration is moving smoothly forward and PASPA is ultimately overturned by the Supreme Court. We believe, we are uniquely suited to partner with our lottery and casino customers to provide a complete and flexible B2B turnkey system for sports wagering.

Our OpenBet sports wagering solution is the world's leading sports bet [ph] platform and we're already working with State of New Jersey to ensure a prompt and smooth regulatory approach to sports wagering in the event of an appeal.

I would like to add that we are also experiencing strong demand in the gaming and content portion of our business as well. The strength particularly in our real money gaming content aggregation operations should translate into strong organic growth.

The market is growing worldwide and there is a significant potential to further expand our customer base.

To [indiscernible] we included a supplemental page in the information -- at the end of our earnings release that present the historical 2016 and 2017 quarterly results for our interactive segment re-casted to a comparative social and digital segment information that you will receive going forward. Turning to our cash flow.

As a result of our successful February refinancing, the acquisition of NYX and the adoption of new revenue recognition guidance, we had several significant changes in working capital compared to the prior year.

The working capital changes include the impact of $50 million associated with the change in accrued interest due to the timing of our February 2018 refinancing, $30 million related to the NYX acquisition, including transaction fees and net liabilities assumed and $10 million of higher net contract assets reflecting the adoption of the new revenue recognition guidance and its impact on our lottery POS contracts.

These items were partially offset by strong gaming segment receivable collections and other working capital change. We discussed the details of our February refinancing in our last conference call, so I’m not going to rehash all the details.

However, I do want to point out on a comparative success, we've had to bring in -- bring down cash interest costs and extending maturities due to the progress we've made and continue to make in improving our business and financial results. In 2015 our cash interest cost was $622 million as of March 31, 2018.

At current rates, our annual cash interest run rate is now approximately $550 million. This includes partially offsetting effective interest rate movements in the general credit market and the additional debt related to the NYX acquisition. And at the same time, we have extended a portion of our maturities out to 2024, '25 and '26.

Additionally we have a meaningful opportunity to further reduce our interest cost and extend maturities later in the year when the 10% notes due 2022 become callable on December 1.

As a result of growth and improvements expected throughout 2018, looking ahead to year-end, we should be in a very attractive position to accelerate free cash flow in 2019 to further drive our deleveraging efforts.

In summary, I would remind everyone that our commitment remains firmly focused on executing operating improvements and capitalizing on smart opportunities that grow our business and reduce leverage.

Kevin would you like to add anything before we open-up the lines for questions?.

Yes. Thanks, Mike As you can see, our first quarter results are very strong with continued growth from every business segment, the momentum continues.

We're capturing top line growth, have established our new SG Digital Group, driving continuous improvement in our processes across our businesses, and we're ready to help our customers win in sports betting with our leading global sports betting platform and proven systems technology.

It's been a privilege to lead this company and I wish all my friends and colleagues at Scientific Games continued success in the future. Now let's take the first question, operator. Please open the line..

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Barry Jonas of Bank of America. Please go ahead..

Hi, guys. Kevin, you had a very successful run here. I mean, I think the stock appreciation since you joined really speaks for itself. It would be great to hear maybe some more perspective on why the change, why now and maybe what your [technical difficulty] involvement will [technical difficulty]? Thanks..

Thanks, Barry. I appreciate the kind words. Actually I love this company and we’ve had so much fun here over the last number of years.

Directing our team to focus on driving their results and the organization is a much stronger organization today with -- and its funny because I do hear this from all of the -- my leadership team that we are all focused on. We own our income statements and we own our results and they lived the business.

And it's a very different business today and as you said it is evidenced with the continuous quarterly growth and the margin improvements. At the end of the day, Barry, we've done a terrific job.

I think the position of the company today and I look and I think I talked about in prior quarters, 2018 and also in 2019 we're on a path for continuing success through the next couple of years.

And you look at the changes in the business and where the technology world is going and all the work that we've done in signing to the JAMES BOND franchise and getting the NYX transaction done, it just seem to me that the mantle and the timing was perfectly timed.

We've gotten so many of the blocking and tackling things done now to bring in some new thinking and fresh blood and you know it's always I’ve said this when I came in, it's always a great thing when you bring in new people, they take a fresh look at everything and I think we can only benefit.

Barry is a very smart strategic thinker and we’ve worked to get very closely together for the last number of years and he is ready. And it's not for me to hold back somebody that’s ready and I will be there as much and as often as he wants and I have a big stake in this company going forward.

So I'm going to be very, very interested in making sure we are successful. I mean that’s pretty much the Big Bang as you guys know -- on East Coast guide it's been -- it's a long way away my son has got two little kids, my daughter just got married, I mean there's been a lot of stuff. So it just seem like a perfect time..

Great. While you will be missed in a role and we look forward to Barry coming onboard..

Thanks..

So maybe just a question on replacements. Another quarter of really strong growth. Just curious do you think it's market-wide or company specific? Maybe what are the order sizes look like? Any large orders driving the growth? Thanks..

Yes. I think at the end of the day, we -- as you saw G2E we have really good stuff right now and we’ve got guys building, and I'm so excited that what’s coming over the next number of the years. If you look at the path of new stuff and then on the game upside or the JAMES BOND games, we’re really on a roll.

And I think part of it is we gone into a thing when the transactions happened that we allowed a little bit of the market share to a road. Now it's not a market share gain, but it's getting your rightful position back because we’ve great product across each of the values in WMS brands [indiscernible] and I don't think we see that changing.

Mike, do you want to add anything to that?.

Yes, I will just add a little bit of additional color. I mean, the demand is coming across all portions of gaming on the unit type. It's not any one particular customer that’s driving the volume in the replacement side..

Okay. That’s really helpful.

And then last one for me, maybe just can you give us an update on Brazil?.

Yes. It continues to evolve. It is a process and I think next quarter you will also get a better perspective of what's going on there. We are engaged and the thing is starting to percolate. So, I don't think there's more to say about it this point.

Mike do you …?.

No, not at this time..

All right. Thank you so much..

Yes..

Our next question comes from John DeCree of Union Gaming. Please go ahead..

Hi, guys. Thanks for the question and, Kevin, congratulations on all the hard work over the last two years or so..

Appreciate it..

Wanted to ask, I guess, just kind of one last question on the change here and I think you and Michael had both kind of indicated this in the prepared remarks that reaffirming the commitment to process improvement and deleveraging, and that’s something, Kevin, when you first came on board was a big focus and has been very successful.

So just wanted to get the reaffirmation if that’s still one of the priorities of the company? And then, I guess, perhaps as a follow-up to that, how much more is left on the process improvement side, in cost saves that you can see if there's still a lot of runway there, or if it's just kind of continuing to keep blocking and tackling?.

No, there's significant opportunity as we move forward here. These are two -- a series of massive businesses that have been put together and you could simply tell we got it all done.

But the honesty is, with systems and the Oracle conversion and all of the bits and pieces, it is something that will happen on a quarterly basis for the next number of years. I feel very confident when I look at the business model and we just brought in new procurement people and we're laser focused on that.

We are improving our line and on the quality -- and the quality, so it's very exciting on that. The lottery guys are thinking out-of-the-box as the new [indiscernible]. There's just lots and lots of opportunities here as we move onto the next couple of years.

And I will not be part of the building of the model in the future, but when I look at 2019 it is very, very exciting for me. And I know that -- now that we’ve got a team that understands value creation and I’m very confident that they get that and we will continue that mantle [ph] as we move forward..

Got it. That’s helpful. I appreciate that. And I just wanted to ask one on NYX, a lot of focus that we get is if sports betting gets the green light here in the U.S., but obviously NYX a much larger business than the US opportunities.

So I was wondering if you guys collaborate a little bit and maybe help some investors understand other growth opportunities that you see for NYX, notwithstanding anything that we might get here in the U.S?.

Yes. So let me start and then Michael will do the right stuff. If you remember when we closed that transaction, we were so excited about it because when we got into the weeds there were opportunities galore there.

Remember, they were accumulation of four or so acquisitions themselves and I could see them in a similar stage as to what we were at Scientific Games a number of years ago with the potential to get the synergies inside the business.

So that continues and then the synergies between Scientific Games and NYX are still working their way through and we are on a very successful path on those. But then when you look at the top line critically important as you guys know, we have an enormous opportunity right now. We have so much business, we can't even handle it at this point.

And so that’s really exciting and we're looking for more mathematicians in technology, scientists and engineers from other parts of the planet, so that we can get more of this business up and running. So that's all without the Supreme Court ruling.

And if that comes and as we’ve said from the beginning, we bought this wonderful business based on the metrics that it had in place on the day we bought it, this is all gravy and it could be very exciting. And as you know we're uniquely positioned given our assets in the gaming and the lottery world to seamlessly benefit the States as this happens.

And we will see in the next number of weeks.

Mike you want to …?.

Yes, I think that one of the thing to add on top of that is -- I think the thing to get passed over quite a bit is the iGaming growth that we're seeing on the OGS platform and the number of new customers that are coming online, plus the new content that goes out there. So iGaming is more widely accepted, obviously, throughout the rest of Europe.

And so we’re seeing a nice uptick in that level of business as well as that iGaming expand around the rest of the world and it also will expand here in the U.S..

Next question?.

Our next question comes from Dan Politzer of JPMorgan. Please go ahead..

Hi, guys. Good morning. Thanks for taking my questions. So I just wanted to touch up on Barry's first question. Obviously, Kevin, has done a tremendous amount of the company, push it forward, a good data in relatively short amount of time. So I guess we’re just looking for some further detail.

Is the departure a function of company concerns about suitability to hold the gaming license? What are the kind of the details of the departure? Is there [multiple speakers] evolving it?.

Yes, it's nothing along the line of that. The gaming licenses have [indiscernible] gotten here over two years. No, there is no -- there's nothing complex about this is it's really just an opportunity to move into the next stage for me.

We are on a great role and, yes, whatever the severance under my contract is in place and [indiscernible] and guys have been wonderful to me and there's nothing secret about anything here. It's just an opportunity.

Those that know me know that when things start to get, we formed out, we’ve got all the segments now, we got all the businesses running on overdrive. It's an opportunity to kind of leave on the high note and that's frankly all the risk to it..

Got it. Thanks for the help there..

Sure..

And then, turning to the business, in terms of replacements, how would you characterize the demand here? Is it really a reflection of your better content, is it better environment for the regional gaming consumer, is it just a matter of operators having better balance sheet or kind of how would you parse that out?.

I will take that. [Multiple speakers] all of the above. One of the other things is a byproduct of the new tax laws, the immediate deductibility of CapEx. So retailer -- sorry, our operators are able to get a little bit extra benefit there by getting a little bit more of a bang for the buck on their CapEx dollars.

So, as we said before, its across the board. We feel obviously a lot of good sales of the J43 line, but we also see still good content coming out on the Waves and that's continuing to sell as well. So it is across all segments, Tribal, Regional and the Corporate..

Thanks. And one last one on just a housekeeping question. I know you guys called out the $14 million contribution from NYX in the quarter. Did you -- that’s for revenue.

Is there any way to frame up the EBITDA contribution? Is it consistent with historic margins in that business?.

Contribution directly from NYX to AEBITDA was roughly about $14 million and that would be reflective of [indiscernible] converting. If you remember right they were under IFRS accounting before, so we had to convert that to U.S GAAP plus implement the new revenue recognition standard..

Yes, we had our Board -- just the other thing, we had our Board [indiscernible] U.S and we were able to report that. We are performing slightly above the model that we had when we bought the company. So it is exciting. It's all going the way we planned it and no surprises on that front..

All right. Thanks. Thanks so much. That’s all for me and good luck, Kevin..

Thanks so much..

Our next question comes from David Katz of Jefferies. Please go ahead..

Hi. Good morning and congratulations, Kevin..

Thank you, David..

You know I -- as I look at not only my numbers but the consensus numbers of AEBITDA there's really just a little bit of growth heading into 2019. And what I'd love to talk about is and seemingly I think there's some a wide-open question about what 2019 would look like.

But if you could talk through the different business lines and help us think about a qualitative argument for 1,000,000,005 right, what would have to happen for the company to continue growing it's EBITDA and cash flow into next year? Obviously, the stock has worked well of late and that’s sort of the context of the question..

Yes. I mean, obviously, I talked about this a little bit in the last quarter. If you remember, I was talking about activities that we took on and are taking on this year that provide a small benefit, but an outsize benefit in '19. And we have a sheet, it probably got 25 items on there.

And I did talk about the one just to give you an example of the kinds of things that we’re doing. This one happens to be on the cost side and we had a big corporate office for WMS in Chicago, and it was massive actually and inefficient high taxes, and lots of [indiscernible] and everything.

So we’re moving a smaller group into the -- a relevant office space where it's kind of the hot techie area and then taking and relocating many of the people to Reno and Las Vegas and Atlanta where the salaries are different.

So that -- in the way we did the math is going to provide about a $5 million benefiting in the current year, but $15 million in the future year.

But there is a whole series is just if you can use your imagination for that and when I look at the model the numbers that we have are -- I don't -- we don’t kick it ahead of ourselves, but you are going to be very surprised and happy as long as we execute. And I’m -- as I said, how confident we are, we’ve got a -- really excited team right now..

Got it.

And I'll apologize if this sort of went through in the prepared remarks, but could we just talk about the cash flow statement for a moment?.

Sure..

And the cash from ops was kind of off trend to the low side this quarter.

Could we talk about what's in there and should we expect that this resumes kind of the more normalized levels going forward in the next few quarters?.

Yes, sure. Take into account that when you did the refi, you dramatically changed the structure of the interest payments. And that happen not only February of '17, we did it again in August and that we did it again in February of '18.

So the largest chunk of that swing in the CapEx, $50 million is associated with just the change in timing of interest payments. And that fluctuation is going to go up and down throughout the rest of this year as we continue to lap the refinancings that we've done already.

Beyond that you had the $20 million or -- sorry, $30 million associated with NYX, which resulted the liabilities coming on our books as a result of purchase accounting which then had to be relieved and the payments associated with the transaction costs. So that pieces is kind of one-time in this quarter. It's going to normalize going forward.

The rev rec piece was accounted for about $11 million of the negative impact. That’s a one-time piece this time and it will kind of run itself and course throughout the rest of the year. So, outside of the timing around interest -- interest payments, we're expecting to have a normalized working capital relationship again..

I’m sorry, so outside of this quarter or this year?.

You will see it throughout the course of the year as it relates to the timing of interest payments. Outside of this quarter, which were the other two items I mentioned, NYX and the rev rec adoption, it should basically get back to a more normal level throughout the rest of this year..

Okay, got it. Thank you very much..

You’re welcome..

Our next question comes from Eric Des Lauriers of Craig-Hallum Capital Group. Please go ahead..

Good morning, guys, and thank you for taking my questions. So casino openings this quarter were obviously late. I’m just wondering if you could talk a bit more about casino openings for the rest of '18 and into '19 and the opportunity you see for new gaming machine sales there? Thanks..

Yes, I think for this year these are the -- probably going to be the two primary openings for the full-year. We've got a word that Boston Harbor is now planned for middle of '19, which will be the next sizable opening in the U.S market.

So a lot of the growth and what we're able to achieve from a results standpoint on the gaming sales side is going to come through the replacement market..

Great. Thank you..

Our next question comes from Brian McGill of Telsey Advisory Group. Please go ahead..

Yes. Thanks, guys. I’ve a question on the continued strong sales on the VLTs in Illinois. Is that’s number that can continue with the initial contracts come up? And then kind on that same note there's been some talk about the Canadian VLT replacement cycle beginning again.

Where do we stand on that, and I guess what type of market share do you have up there? I think that market is about 35,000 games. Thanks..

Yes, I think, well, I will take the VLT for Illinois first part. We are continuing to put out the new placements right now, but given that contract started [indiscernible] plus years ago, we are going to start seeing the replacement cycle come through.

And I think it's a market area where when one operator gets a new machine it attracts attention and then the operator across the street have to have the same machine, so you kind of get into this nice vertical cycle on the replacement side.

In regards to Canada, I think we’re going to see just a continued kind of relative level to what we’ve seen in the past. I think new cabinets will continue to rollout as we've had especially when we are getting into the continued rollout of the systems.

We are seeing good growth across the board in the replacement cycles through each one of the provinces. So I don't expect to be have much of -- I should say, there shouldn’t be much of or any decline at all, if anything that’s going to be a nice modest growth for us on a go forward basis..

Thank you..

Our next question comes from Chad Bannon of Macquarie. Please go ahead..

Hi. Good morning. Thanks for taking my question and congrats again on everything, Kevin..

Thank you so much..

Firstly just no one has kind of hit on JAMES BOND not that one title release matters that much for -- from a cash flow standpoint, but I think in the fourth quarter you had a fall off in the WAP segment, the improvement that we saw in the first quarter was I think a positive surprise, particularly ahead of bond.

So could you kind of help us think about if you have placed the game in the June quarter, any early responses? And I know that you mentioned that the segment should be up in the back half, but any more color on the release just given the anticipation and kind of the build up around it? Thank you..

Yes, I mean, this is probably the most exciting thing that’s happened to our company and maybe the NYX to see other. We have three new games that are all time to -- you don’t want to leave them out.

So we will be perfectly positioned as we get to the end of June, may be right after the 4th of July kind of timetable to have these machines out in the casinos and there's a lot of interest.

But the more exciting piece is that as we’ve talked about like WAP [indiscernible] that is the relationships -- relationship if we have with applied minds is I think [indiscernible] California that the stuff that we are working there will be in '19 and beyond and that's really the game changers.

So we got exciting stuff coming out in the second half of the year that’s going to draw a lot of attention to Scientific Games. But then it gets [indiscernible] in a big way as we start to place some of this new stuff that's never been seen in the industry before.

We are really excited about bond and so, yes, so you'll start to see on the game upside in the second half of the year will be when you really start to see what we've been talking about as we been transitioning over the last four or so quarters from a position where I don't think we wanted to be in to where we are today where we're poised to start to show growth and acceleration as we move forward second half of the year, and then hopefully step up in '19 and '20..

Okay. Thanks. My follow-up is with respect to CapEx, you guided $320 million to $350 million. I believe the Pennsylvania lottery renewal is coming up maybe this month and decision will be made shortly.

Could you just help us think about a rough ballpark number, if you are awarded the contract and if that CapEx would be spent in 2018 or '19, just generally how those contracts would work? Thank you..

Yes, I think from a timing perspective, the RFP is out. We are in the process of responding decision will be made. I think my understanding is sometime in October. We would expect any CapEx spend associated with the renewal would come very late in Q4, but primarily be tied into '19..

Okay. Thanks, Mike. I appreciate it..

You’re welcome..

Our next question comes from Michael Pace of JPMorgan. Please go ahead..

Hi. Good morning, guys and apologies I jumped on late. So, I don’t know if this was discussed in prepared remarks.

But question is for Kevin, I guess, just to talk about the CEO transition, was there a formal search for the CEO spot or is it just been so widely known internally that Barry was the guy to take your place when and if you did move on? And then a follow-up to that, how long should we expect you to remain in an advisory role?.

Yes. There has been a process that’s being going for a while and we evaluated do we go out and get someone from the outside or do we take a proven commodity that's in-house. And Barry's background if you go back and look at it is striking and he is ready. You’ve seen what he has done with the social business over the last number of years.

And as I said earlier in the scripted stuff, he is very -- he is a strategic thinker. And so I'm very excited about that transition as we move more towards that with our company as we move forward.

I’ve been always talking about us being a technology company, then with a guy like that running it maybe when we put out our press releases saying we’re a technology company they won't say, oh the game supplier company. So that's all good.

The decision really was do we bring in on an unknown from the outside or proven executive from the inside that not only I've seen for the last number of years but for a longer period he got [indiscernible] at -- in MacAndrews & Forbes as and one of their other investment companies.

So it's clear to -- its clear, an easy decision that Barry was the right guy and Mike I’ve a pretty long-term thing that I'll be available to help them mentor him as much as he thinks he needs it, and I want to be very helpful. Obviously, I had said earlier at the big stake in making sure he's wildly successful.

We have such huge opportunity here at Scientific Games as we move through '18 and into '19 with the refinancing, and then it just becomes a massively different net debt to EBITDA opportunity with the cash flow that’s going to be generated by this company, and that will be realized by the investment community over time.

We don't expect it to be on day one, but this is a exciting place over the next couple of years and I’m going to keep my eyes and ears in it..

And then just I guess while we’re on the top of Barry, I guess, since he has run the Interactive, or Social business for years now, I guess what does that tell us in terms of maybe the company for Barry being more or less likely to -- for additional inorganic growth in that business or more or less likely for something strategic with the Interactive business?.

It's probably a combination of the two, right? We've got so much opportunity. Our Social business segment is on fire. Mike talked earlier it would be at the monopoly game being the best start to a game that we’ve ever had.

We’ve got a really cool thing that we are working on for the latter part of this year that's different than anything we've done before. Our Spicerack business is doing wildly better than we had modeled when we bought the company. So that's all good news.

And I think being able to pick a little tuck-in things along the way that augment that growth is a good thing. But that knowledgebase that he has to now take a fresh look at the way we conduct our business on gaming and lottery, you guys have heard me talk about this, but I’m not a technology [indiscernible] than he is.

So what I would pontificate about and hope for, he is actually the guy that’s the data-driven guy that’s going to drive that outperformance. So, again, it was such a logical time for this transition to take place, so I’m really excited about the prospects for Barry as we watch what he does..

And then one more, if I may.

I guess, given your departure and you I think you just mentioned you just had a recent Board meeting yesterday or the day before, can you just remind us what the Board's and I guess you're the largest shareholders view in terms of the priority to reduce leverage as a key driver for risk reduction in equity value going forward?.

Yes, I mean, this model is running on overdrive. As you know, we -- and Mike talked in the earlier points -- we’ve out the big 10% $2.2 billion, 10% debt [indiscernible] refinancing later this year at the right time. If you think about that, that's almost a $100 million opportunity give or take.

So we are growing into our shoes and I think the thing is -- and our growth on the EBITDA that’s going to be very significant over the next couple of years.

So when you take those factors, and you take the reduced interest and Mike talked about the significant drop in our interest cost, despite the acquisition of NYX, because the debt associated with that, that all of a sudden you are talking a very, very different game in cash flow.

So everyone gets that mathematics and understands that that's the route to value creation. So I don't see that changing.

I mean, of course we may look at these other acquisitions that we’ve been able to pick up stuff at very attractive multiples and when you look at that, that drives the net debt to EBITDA improves with each of those transactions as well. So I think that's kind of what you'll see as we move into the future..

Great. Thanks and good luck with everything, Kevin..

Thank you so much..

Our next question comes from Dennis Farrell of Wells Fargo. Please go ahead..

Great. Thank you. Kevin, you set out a plan when you first joined, that was ambitious and you delivered, and we are going to miss you..

Thank you..

So congrats. As you look at it, you’ve made a fair amount of acquisitions over the last couple of years. I would say you really delevered through acquisitions and improving your free cash flow over the last couple of years.

Would you say that the acquisition landscape is still pretty favorable or would you say it's scarce at this point?.

I think it's more of a tuck in kind of thing at this point if you look at -- its more than same of what we did over the last 18 months, excluding the NYX which was a big transaction.

But the fun part that we have is that when we go to our Board meetings and we show the business case that we had when we made each of these four or five transactions, and the fact that we’re outperforming on each of them.

So as I had talked about in an earlier quarter, we had to reprove ourselves, right? Because we had some complex acquisitions and we may not have gotten them off the ground as quick as we should have.

These ones we have a machine now and we’re making sure we're watching this on a biweekly basis at my leadership meeting and now Barry's leadership meeting. So we’ve -- I think shown that we now are able to do these things and do them smartly and attractively. So I think it will be more -- some more of that smartly..

Okay.

And then just switching topics, moving over to sports betting, I’ve heard some speculation that the potential ruling might just pertain to New Jersey and not kind of be open to other states? Have you heard anything about that or do you think, if you believe the ruling potentially could be open -- give the ability for all states to offer sports betting?.

Yes, Mike here. That remains to be seen. I think, people are speculating a lot at this point in time. So I think we’re in a position where once the ruling comes out, and hopefully it will be a repeal of it, that will be positioned to support both of our lottery and gaming customers..

Okay. Thank you..

And if it's just New Jersey, we’ve a huge amount of opportunity there as well. And then if this leads out, just provides great growth as we go out every quarter..

Our next question is a follow-up from David Katz of Jefferies. Please go ahead..

Hi. Thanks for taking more questions. Just to -- I think there was some indication in some of the prior commentary about the next big opening being up in Boston. There is a Hard Rock property opening in Atlantic City, if I'm not mistaken.

And I think historically company's try to roll both on the technology side as well as what I would assume would be a roll on the slot floor as well.

Are you looking at that as a significant opening or am I [multiple speakers] that?.

No -- yes, I think what was the [indiscernible] little bit of confusion. So in the opening remarks we commented that the two openings in Q2 that we're looking at is the Atlantic City Hard Rock as well as the MGM Springfield. The comment regarding Boston was that would be a opening in 2019..

2019? Perfect. And just one last thing. The prior question was broaching the subject of focusing on delevering.

You have a target leverage ratio in mind or a range in mind and what can we realistically expect between now and say the end of next year or the year after?.

We do, but we can't really share it. But I think you’ve seen what we want to do over the last couple of years. And when we run the model, it does improve significantly over time and that’s the direction that we have until things change. And I don’t expect that we are all focused on improving the capital structure of the business..

Okay. Thank you very much..

This concludes our question-and-answer session. I’d like to turn the conference back over to Kevin Sheehan for any closing remarks..

Yes. Thanks, guys. Thanks for listening in on the call today. I just wanted to close by saying I’d like to thank all of you for joining us, and give a special thanks to my good friend, Bill Pfund, our VP of Investor Relations. Most of you know Bill and I appreciate his passion for Scientific Games.

His vast experience and his tireless efforts to serve our company and our investors both on the equity and on the credit side. Bill has been a successful IR professional since we were all in our diapers and after 40 years this is his last earnings call.

He will be retiring at the end of May and turning Scientific Games IR responsibility -- responsibilities over to Bobby Shore's very capable hands. Bill is a close friend of both Mike and I, and we will miss his expert guidance [indiscernible]. Thank you so much and have a great day..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..