Good day, and welcome to the IGT 2015 first quarter results ended March 31, 2015, conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to James Hurley. Please go ahead. .

Hello. Thank you for joining us on IGT PLC's First Quarter 2015 Conference Call. The agenda for today's call includes Marco Sala, Chief Executive Officer of IGT PLC, who'll provide an overview of the quarter and comment on broader strategic initiatives. .

Alberto Fornaro, our Chief Financial Officer, will provide operational and financial perspective on the first quarter. After the company's prepared remarks, we will open the call for your questions..

Before we begin, I'd like to point out that results for the period we are presenting today pre-date the completion of the merger on April 7. As such, GTECH and the Legacy IGT were 2 separate companies managed independently during the quarter. .

The press release we issued today and our discussion on this call reflects this distinction. Today's remarks will focus on GTECH's operations and financials in the first quarter. We will not review the Legacy IGT operations and financials, which are presented for information purposes in the back of the press release.

While there is no requirement for us to provide these legacy IGT results, we are doing so in an effort to help you maintain continuity in your analyses. .

Starting next quarter, we will present combined financial statements in U.S. GAAP and in U.S. dollars, and we will release historical pro forma numbers at the same time..

During this conference call, we may refer to certain non-IFRS and non-GAAP financial measures. Reconciliations of these numbers to IFRS or GAAP, as applicable, are included in the earnings press release..

During today's call, we'll be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements.

The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings..

And now I'll turn the call over to Marco Sala, CEO of IGT. .

Thank you, Jim. Good morning or good afternoon to all of you. I'm pleased to welcome you to IGT's first quarter earnings call. I will begin by sharing with you my view on the performance of the GTECH business in the first 3 months of the year.

Then I will talk about the Legacy IGT business, not so much from the perspective of its activities in the quarter, which were not under our management control, but more from the standpoint of cost merger integration and what we have already done to position ourselves and strengthen our leadership in the market..

So let's start with the GTECH side of the business. If we look at GTECH's ongoing activities, excluding the one-off items related to the IGT transaction, the first quarter was one of overall stability. We enjoyed a nice growth in lottery in all our markets and our gaming operations also did well.

Our results were somewhat penalized by higher-than-average payouts in sports betting in Italy, which should normalize, as always, over time. With the push from a stronger dollar, total revenues were up in the quarter. EBITDA was unchanged near its all-time quarterly average..

Looking at our business by geography, in the Americas, same-store revenues benefited from across-the-board strength in jackpot games, Eastern and traditionally lottery draw games. In gaming machines, once more we enjoyed a robust from sales and strong ongoing participational revenues from our Sphinx and Zuma products in the North American casinos..

In the International segment, same-store revenues were up sharply from both jackpot and Eastern. Year-on-year product sales were lower. As you know, they are sometimes and even quarter from quarter. We expect to improve the trend in the second half of the year with the rollout of the delivery of VLTs..

In Italy, Lotto did very well, backed by strong performance of 10eLotto and growth in late numbers. Scratch & Win numbers were down, partially due to the calendar of the new product introductions, and I already mentioned the impact of higher payouts on our sports betting revenues..

So all told, it was quite a solid quarter for our underlying GTECH business, in which we also achieved further improvement in our net financial position. .

The period where management resources were focused on completing the IGT transaction, we continue to run our ongoing business efficiently and profitably. Alberto will provide you with more detail on GTECH's first quarter performance..

Now I'd like to focus a little bit on the Legacy IGT side of the business. The result of our Legacy IGT's March quarter was disappointing. This was a transition quarter for the team, and I believe leadership-related changes associated with acquisition impacted the business during the period.

Now that the transition is completed and new leadership is in place, we are focused on stabilizing the business in the coming quarters. .

Importantly, we do not believe that March quarter results are indicative of the future. We expect stronger results in balance of the year on an underlying basis before synergies. From our perspective, innovative content and exciting technology are the key drivers of success in the gaming market.

And from the start, we have reaffirmed our commitment to R&D. I know you appreciate that the game development cycle takes time and so it was important not to waste any of this to put in place the right infrastructure to foster our development efforts. However, we do not expect any major event.

In the meantime, the launch of a new generation of cabinets gave a clear signal to the market that we are serious about delivering innovation to players and operators..

In terms of organization prior to the closing, we had identified in greater detail the operational teams we will rely on to run and stabilize the business. This structure has been in place since April 8, and the teams are motivated to grow the business and deliver the merger synergies. These synergies have now been pinpointed with greater accuracy.

The preliminary numbers in the calendar have been confirmed, and we are confident in their achievability on time and on target..

We have also started to rationalize our industrial footprint. About a month ago, we began to consolidate our production and maintenance operations for both gaming and lottery product lines in Reno, Nevada. As a result, we are closing assembly facilities in Las Vegas, Rhode Island, Canada and Austria.

Industrial efficiencies are an important component of our synergy plan, and we wanted to make sure that its implementation was initiated without any delay..

Another important project is the disposal of non-strategic assets. We are in the process of disposing all Legacy IGT's corporate jets. .

In addition, we have recently initiated a marketing campaign to sell the Las Vegas headquarters and the surrounding land. While we will maintain an important presence in Las Vegas, we are optimizing our footprint and now that we are consolidating our industrial activities in Reno..

Finally, the senior leadership team is meeting with the customers and the employees around the world, listening to their ideas and presenting our plans for the future.

They have been good meeting, demonstrating their willingness to work together and that lead to openness to the new leadership at IGT and an understanding of our rationale of putting together a global leader spanning the lottery, gaming and interactive..

I would now turn the call over to Alberto. .

Thank you, Marco. I am going to focus my comments on the GTECH first quarter results since we were actively managing that as a standalone business during the period. On an underlying basis, that is excluding the Legacy IGT business and the one-off related to the IGT transaction that GTECH achieved solid first quarter results.

Operating income was up in the Americas and relatively stable for the International segment, mitigating a decline in Italy due to higher-than-average sports betting payout..

On a reported basis, first quarter results beared the impact of one-off costs related to the successful closing of the IGT acquisition immediately after the end of the quarter..

I want to start with a focus on GTECH underlying numbers and development as I did the last quarter. .

Now let's look at Slide 7, which shows consolidated results for the quarter and let's focus on adjustable -- adjusted comparable numbers. .

Consolidated revenues were up over 3% in the first quarter, driven by favorable currency translation. In constant currencies, revenue was down 4% as higher revenue and higher service revenue from lottery operation in Italy and the Americas were offset by the higher sports betting payout in Italy..

EBITDA of EUR 296 million was in line with the same period last year. This represents the second largest quarterly EBITDA the company has ever achieved, just short of the EUR 300 million record achieved in the first quarter of 2013.

Currency helped a bit here, too, accounting for EUR 15 million of EBITDA, and though that was more than offset by the higher sports betting payout. We attributed the stability of our profitability to the diversity of our business across regions and products and to our culture of cost discipline..

Operating income, excluding one-offs, shown here in the center column was EUR 170 million, reflecting the higher sports betting payout in Italy. Currency did not have a material impact on operating income, as for the most part revenues are matched to cost in the same currency..

Net financial position before the one-off was EUR 2.56 billion at the end of the quarter compared to EUR 2.59 billion at the end of December. I will address cash flow and NFP dynamics in more detail later..

Now let's look at the segment level operating performance during the first quarter, starting with the Americas. Total revenues grew 23% to EUR 300 million in the quarter.

While much of the increase comes from the strengthening of the dollar against the euro, America revenues were up 4% on a constant currency basis before the impact of eliminate pass-through reimbursement. So the segment's underlying performance was quite good..

Lottery same-store revenues were up 5% on top of a 7% gain in the prior year, supported by continued momentum in instant and draw games as well as healthy multistate jackpot growth. The strengthen in instant ticket sales was broad-based across the country, with double-digit increase in California and North Carolina.

Multistate jackpot benefited from a 564 million Powerball jackpot, the fifth largest in the U.S. history during the quarter. This more than made up for a decline in mega-millions as there was no meaningful jackpot this year contrasting with the first quarter of 2014..

New business in Colorado and Ontario also contributed to revenue growth. Product sales of EUR 34 million were modestly above the prior year driven by sales of VLT in Oregon and Canada as well as gaming machines for Latin America casinos.

That growth was offset by a decline in lottery product sales for the high level posted in the first quarter of last year when we had recorded significant deliveries in Pennsylvania and California..

Total new unit shipments were down year-over-year as we were comparing against the final stage of the Canadian replacement cycle in the first quarter of last year. The substantial increase in the North American casino participation units reflects growing demand for our new products, namely Sphinx 3D and Zuma. .

Excluding foreign exchange, operating income in the Americas were up 19%, supported by higher lottery and gaming profits. FX was an important contributor to the increase in the reported terms at the segment level..

Moving to Slide 9. The International segment posted revenues of EUR 77 million. International Lottery same-store revenues were up 11%, fueled by broad-based growth in instant ticket sales, led by the U.K. .

Jackpot games also performed well, especially in Poland and Czech Republic, which continues to benefit from the launch of the multi-jurisdictional EuroJackpot..

Product sales was slightly below the prior year as higher lottery product sales in New Zealand were mostly offset by a decline in gaming product sales. We expect the upcoming Phase I rollout of the VLT increase will have a beneficial impact on international revenues in the second half of 2015..

Operating income from International segment was EUR 30 million compared to EUR 15 million in the prior year, and increased profits for lottery operation were more than offset by lower product sales and a broad mix of items..

Turning to Italy, on Slide 10, revenues were down 7% in the first quarter. The drop is primarily due to the sports betting revenues where the payout increased 10 percentage points from the prior-year period. Our payout is now aligned with the broader industry average, and we expect to be in line with historical trends on an annual basis..

Total Lotto wagers were specially robust during the quarter, up 16% to EUR 1.8 billion, driven by strong performance in 10eLotto and late numbers. .

Instant-ticket wagers of EUR 2.3 billion were 7% below last year, in part due to the cadence of new product introduction..

As anticipated, Machine Gaming revenues were impacted by the implementation of the Italian Stability Law. Apart from that impact, Machine Gaming revenues would have been roughly unchanged from prior year..

The drop in operating income from the Italy segments can be entirely attributed to the increased sports betting payout. Increased lottery profitability and cost-saving initiatives more than offset the impact of the Stability Law on the gaming machine business..

Now let's look at the bottom half of the income statement on Slide 11. Operating income, as reported, was EUR 149 million, the difference is coming primarily from IGT-related transaction and restructuring cost of EUR 21 million. The EUR 41 million increase in interest expense was driven by the financing cost associated with the IGT acquisition.

Other expenses of EUR 122 million reflect primarily the premiums associated with our hybrid tender and bridge loan termination cost, both related to IGT acquisition. .

On a reported basis, we recorded the first quarter loss attributable to the owners of EUR 27 million compared to EUR 75 million of income in prior year, but that will take the result of the acquisition related items I have already discussed. Further details on the one-off items may be found in the Appendix..

On Slide 12, we have provided a summarized third quarter P&L on a reported basis. Reported figures reflect an average dollar-euro exchange rate of 1.13 compared to 1.37 in the first quarter of 2014. You can see the currency impact I spoke about along the right side of the page..

Turning to Slide 13, you will see, excluding one-offs, our net financial position was EUR 2.56 million at the end of the quarter. Net for the adjustment and cash flow from operation was 1 69. Total CapEx was EUR 65 million, mostly related to maintenance CapEx..

On the right-hand side of the page, you'll see our reported net financial position of EUR 3.16 billion and the impact of the IGT one-off items, the largest being the exit rights from the financing cost associated with the transaction.

You will find the accounts of the legacy IGT business for the March quarter before we close the transaction at the end of our press release..

Moving to Slide 14 for an update on our integration efforts. As Marco mentioned earlier, we are very focused on realizing our synergy targets. We have identified $280 million in total synergy over the next 3 years, EUR 230 million being the cost synergies.

We are making good progress on this cost synergy, and we are on track to achieve 2/10 of the savings by the end of the first year on an annualized basis..

We're also working diligently to report our second quarter results as a combined entity, reflecting our new organizational structure reported in U.S. dollar on a single case color reporting Canada and in U.S. GAAP. At that time, we will also provide performance historical data for the combined entity.

Anyway we'll offer more clarity on our financial outlook. We are looking forward to this new chapter in the company history..

Now I'd like to open up the lines for Q&A. .

[Operator Instructions] We'll now take our first question from Deo Tenakus [ph] from Chenavari. .

I wanted to actually ask some questions on IGT, if possible, on the IGT side, too. We saw a soft quarter in terms of profitability, but we saw very good performance in terms of cash from operations.

Can you explain to me the difference, and why EBITDA fell so much and how you manage to improve that through on the operational side -- on the cash from operation side?.

Okay. The major drivers that have reduced the profitability are related to the product sales side of the business, and there is a contribution from the gaming operation driven by lower installed base compared to the same quarter of last year. These are the major drivers regarding the reduction in EBITDA and profitability.

When we look at the cash flow, there are 2 major components that are impacting positively to cash flow for the quarter and are related to the fact that, last year, there was the payment for the renewal of the license with Sony, that is the largest part of the improvement, but also when we look at the working capital in particular to the receivables, there has been a reduction of the receivables on a year-over-year basis that has contributed to the improvement in the cash flow.

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In terms of guidance, you mentioned that you potentially expect an improvement in the coming quarters. Can you elaborate a bit more? Because obviously, the results at least in terms of machine sales for this quarter were not great.

So can you give us a bit of guidance on what you expect for the third quarter of IGT or whether you see an improvement right now?.

No. We will -- just to give you a wider picture, we will provide some guidance with earning calls at the end of next quarter. What we are saying is that we expect anyway especially on our product sales that in the second part of the year, we will have a better performance.

And that will be related to the fact that we expect improved product sales because there will be some new casino openings. And in addition, in the balance of the year, we will benefit from the sale of the cabinets that we've recently introduced, which will feature both existing content and new games. .

[Operator Instructions] We'll take the next question from Rudolf Renuan [ph] from RBS. .

[indiscernible] the synergy target revenue will be delivered on schedule. My next question is on your leverage target, I mean you have mentioned in previous conference calls that this was 4x in the medium-term. Could you elaborate a bit on that? Is it still standing and also if [indiscernible]. .

Excuse me, can you repeat the first question, because we didn't catch it. .

It has to do with your leverage target. You mentioned 4... .

No, they've been -- first -- we got it. The first question regarding synergy. .

The first question is, you've confirmed this, so I was wondering if you would confirm your leverage target as well. .

Okay. Regarding the leverage, we have communicated to the market, a target for leverage closing that was a factor of -- the range was between 4.5 and 4.9. And then we said that longer-term, we will be at 4 or below 4. We have not changed our target. That still remains that one at 4 or below 4.

Regarding the synergies, after a few weeks, we totally confirm the synergies, and we will deliver them on time and with the numbers we anticipate for the market in the previous months. .

There are no further questions at this time. [Operator Instructions] We'll now take our next question from David Farber from Crédit Suisse. .

I had a couple of questions.

I would -- first, I guess, on the IGT side of the house, I understand you guys didn't own the company, but can you just walk us through how you viewed performance in the quarter? And now that you own both entities, maybe just talk a little bit more about how you see the businesses together for the balance of the year? And any examples you have maybe of how you drive the business on a combined basis? And then I had a couple of follow-ups.

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I mean commenting the quarter as far as the gaming operation, the year-over-year performance is not surprising. The trend is consistent with what we've seen evolving over the last years and the 4% sequential decline from December quarterly is mostly due to Maryland conversion.

The international installed base is stable and year-on-year, we have a decline because of the conversion in Mexico. So that is how we see the situation regarding the gaming operation regarding the product sales. There were -- particularly a weak period in the industry because of new openings, especially against a strong activity in prior year.

But as I've said before, we expect looking forward an improved product sales trends in the near-term. Other than that, we are very pleased when it comes to interactive part of the business because our social casino business, I believe, consistently with the previous quarters and also the IGT interactive part of the business is growing.

So if I look forward, I consider that we will have a combination in -- of the 2 entities. On the other end, you appreciate that we grew on the recurring revenues with the GTECH part of the business and also by the way either in U.S. as well as in Italy.

And you have to keep in mind that the combined entity, our installed base is over 70,000 units going forward, so we will balance the up and downs accordingly to the different developments in the different parts of the world. .

Okay. Do you guys have -- just a housekeeping question. Can you maybe, Alberto, provide us with maybe net debt or any sort of balance sheet items now that you've closed given all the consents? That would be helpful.

And if you could provide us, if you have it, maybe just sort of what pro forma leverage looks like in your mind, if we need to do it off-line, that's fine, but if you have anything on the balance sheet, on a combined basis, post the quarter, that would be helpful.

And then lastly, just curious, you guys took a bad debt charge or IGT did before your -- before you took it over.

Do you happen to know what that was from, and do you expect any bad debt going forward?.

David, regarding the debt, let me tell you that you can imagine that right now, moving everything into U.S. dollar, we do accounting standards to have the data in a combined basis and the precise answer for you would not be possible. And again, in July, we will also provide some guidance regarding that.

However, when I look at in terms of that, what we provided at the time of the debt offering in terms of total debt, I don't see any major change at the moment compared to the pro forma number that we had provided.

So that's where we are at the moment, and again as soon as we will be able to comment on common accounting standard and one currency, we will do it.

Now related to your question, on the receivables, we had, in IGT, in the quarter, certain receivables that were unsecured, which we took basically a write-down and it's more related to a specific exposure that anything else because all our portfolio in IGT is basically on a secured basis. .

Okay. And then last question maybe, Marco, any update on the Italian lottery contract or any thoughts there? I didn't know if that was something that you guys could talk about or is it a little early? And that's it from me. .

No. We are still awaiting the issuance of the tender. I mean, I think, all of you know regarding how the tender should be structured in general terms, but to make further comment, we need the issuance of the tender.

We offer that this tender will be -- should be before summer, so we can prepare our offering, and we should -- it should be so considering that there is the best interest of the government to get to the first installment by the end of the year. .

We'll now take the next question from Todd Zeller from Earnest [ph] Research. .

I had a follow-up on the -- with regards to IGT game sales. I believe you mentioned in the prior question and also in the press release that there was a some -- yes, I think, it was Maryland lottery conversions in the quarter.

Can you say how many there were in the quarter? And then also it looks like it probably had an impact on the ASP for IGT, could you possibly give the adjusted ASP x those conversions?.

Approximately 1,000 units and that basically fully explain the reduction in the average selling price that you have seen quarter-over-quarter. .

Okay.

Just in -- I'm sorry, you broke up a little bit, that was 1,000 units that were converted for IGT?.

Yes. .

Okay. Were there also some... .

[indiscernible] units. .

Sorry, there seems to be a delay, I apologize.

Were there also some GTECH units converted in the quarter as well?.

No. Because actually what happens on the GTECH side, our installed base grew during the quarter by around 600 units. So there was no conversion for on our side. .

Okay. And then my second question was with regards to the Oregon VLT replacement contracts.

Did both GTECH and IGT ship the remaining units under the previously announced contracts in the quarter? Is that essentially complete as of the first quarter?.

GTECH shipped 400 units and IGT is slightly above 300, and I think we are basically concluded. .

The next question will come from Francesco Previtera from Banca Akros. .

The question is about the reporting in U.S.

GAAP, if you can confirm it, will it be second quarter reporting to show the full entity with the new reporting? And the other question is about the balance of currencies in the debt of the new entity, if you can provide us a rough figure of the cost of borrowing and how is the breakdown of currencies?.

Francesco, regarding the reporting numbers, they will be provided when we're going to announce the second quarter results. I confirm you that. And the question regarding the debt, we have said that the split of the debt is more or less 50 -- around 50% in euro and 50% in dollars.

We see the interest expense, depending on the mix between the various instruments and the currency to be between 525% and 550%. .

5 25 is the cost?.

5 25 to 5 50 depending on the mix by currency and by product, by funding source. .

The next question comes from David Hargreaves from Sterne Agee. .

They're mostly answered, I just wanted to find out, and I'm sorry if I missed it.

Did you give any sort of guidance for capital expenditures for the year? And could you let us know what the major components of that would be?.

No, we didn't give guidance for the year. That would be done in July. However, until now, basically, we have always guided that the markets on the GTECH side that we have so-called maintenance CapEx needs that are historically have been between EUR 170 million and EUR 230 million.

And by maintenance CapEx, we mean the CapEx of the business necessary to keep the current portfolio of contracts. So we don't see any reason why this year it should be different from that. Regarding the growth CapEx, we have again not provided the number, but you can imagine there will be some CapEx related to Greece, to the VLT in Greece. .

And do you expect to be -- now that the deal is closed, do you expect that you may need to borrow additional funds this -- over the course of the year? Or do you know at this point?.

It will depend on how the cash flow for every quarter will move. So again the point would be to provide you a point in time, which will be the guidance for year-end 2015 when we will produce the second quarter earnings. .

Okay. Last question, just a quick clarification.

The EUR 296 million of EBITDA you've reported, is that before -- have you added back the IGT acquisition costs or is that before or after?.

That is before any cost associated with the IGT acquisition. You'll find in the presentation, in the appendix, a very detailed, at an operating income level, what are the impacts in operating income level, not in EBITDA, it's EUR 21 million, and that related to some restructuring costs related to the acquisition as well as transaction costs. .

So they're fully added back. .

The next question comes from Duncan Lake from Nomura. .

Just a quick one. I mean just going back to the leverage, I mean, I know you guys can't give an exact sort of level, but -- and it looks assuming the decline in the IGT, EBITDA and everything else being pretty stable in terms of GTECH EBITDA in debt levels and cash.

I just wanted to ask in relation to the rating agencies and your discussions with them, would it be fair to say, I mean, have they -- are they going to give you time to go for your projections on pro forma accounts and wait until August before anything happens, or how do you feel about that? Have there been any discussions because clearly -- it's a little bit -- looks like it was a little bit weaker.

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No, there has been no discussions with the rating agencies regarding that. As always, we do -- we will present once we have, on an homogeneous basis, the forecast for the next 2 or 3 years and we will discuss with them, but I will see it's a pretty normal process that we have when we complete the forecast. .

Yes, and the reminder, what we have already anticipated that it would be a mistake to give the financial results of March indicative of the future. We expect stronger results in the balance of the year on an underlying base before synergies. .

Okay. I guess, I was just wondering, you obviously had the discussion when you had the ratings when you get the bond issue a couple of months ago. .

Yes, we had the discussion, and we are not planning short-term anything. Once we will be ready with the new forecast in dollar, we will see if it's necessary to meet with them. .

The next question comes from Alex Hooper-Greenhill from Societe Generale. .

My question has actually been answered, but could you just confirm, I didn't quite hear, you are going to report in U.S.

dollars in the next quarter or you're not quite sure yet?.

No. We can confirm that we -- we confirm that we will. .

The next question comes from Beth Fusco from Cairn Capital. .

Two questions for you, please. One on the IGT side of the business. What is your visibility on machine sales? You've said that you think that the rest of the year is going to be stronger. The first quarter or the second quarter results for IGT were quite a bit weaker than what we expected.

So do you have weeks of visibility, months of visibility? My second question, sorry. .

We have something... I am sorry. Go ahead. .

The other question was on the new Italian taxes that GTECH has paid. I thought I read someplace that you have actually paid the full amount due -- the 40% that was due in April with the balance due in June, I believe.

And where are your partners on the amounts that they are owed? That they owe on the tax?.

Okay. Regarding the first question, we have some visibility regarding the fact that there will be some new openings, and we are working in order to get our market share in those new openings. And in addition to that, we are discussing with the customers the new cabinet and the new contents that are combined with the new customers.

So we have some visibility and some initiative tax and give us confidence regarding the remainder part of the year. .

Okay.

And how are those new openings?.

Yes, it's mainly Massachusetts. .

Okay.

And sorry, on the Italian tax?.

On the Italian tax, we have paid the 40%, which in total is EUR 38 million, which includes our share of it and the share of the network. In the network, there has been a large part that has already paid and there is a part that has not yet. We are finalizing the contracts with them.

However, we have anticipated it, but we have notified the government about what is happening and therefore, we expect the resolution of this by the time we will have the second payment. .

Okay.

So you have to collect the part that your partners owe out of the EUR 38 million that you paid?.

Out -- let me say, part of the network is paid, there is part that is not paid. The problem is not only related to the payment, it's related to the fact that we have modified and negotiating with them the new contract that encompass different services that we provide based on the new law.

And so we are diligently working with them to get to a resolution for -- before the next payment is due. .

Okay.

So you would anticipate then that when the 60% payment is due, you would only pay your portion, and your partners would pay their portion?.

Correct. .

Okay.

And what is your portion of the 60%, please?.

We have paid in the quarter, EUR 5 million as our portion of the tax, the additional tax. .

Okay. All right, great. And sorry, just going back to the machine visibility.

You said it's mainly in Massachusetts, but am I -- is this something that is likely to happen in the current quarter, so the third quarter for IGT or would it be the quarter after that? Where in the calendar year will this be announced? And how much do you think you could be down for the full year then in product sales at IGT?.

No. We are not anticipating this number. What I can say is that we will have a better performance compared to what we have experiencing today. And regarding Massachusetts, it will happen between this quarter, second quarter, calendar and the following. .

Okay.

So -- but you always thought you were going to be down in product sales in IGT for this year, correct, because of the big sales last year?.

Yes, but I am comparing what we are experiencing today announcing the results with what we expect in the second part of the year.

My point is don't take what we are commenting today as far as product sales is concerned because even though we do not have issued a guidance yet, we are confident that for the remainder of the year the performance will be better in North America as well as internationally. That is the sense of my message. .

Okay.

And at the time of the roadshow, how much did you think the IGT machine sales were going to be down for full year 2015?.

No. We are not providing this figure. .

You did not provide it at the time of the roadshow?.

Listen, I mean, we have said that we will provide the guidance in July, okay. So we have said that the quarter -- for the quarter, the product sales has been below our expectation. There has been a clear decline year-over-year on the new and a decline in the international product sales.

So what we see is that the results of the quarter cannot be multiplied by 4. We have 9 months in front of us, and we expect a better product sales for the remaining 3 quarters.

And we will provide much more visibility on a combined basis, including SPIELO, because part of the equation is also what we are doing in SPIELO that in terms of sales and in terms of installed units, is doing better. And therefore, you will have the full picture. .

So -- and -- okay. One more question.

How much were machine sales up at IGT last year 2014?.

Maybe we can follow up with you on that question. The IR team can get that for you off-line. .

Fine.

Who do I contact, please?.

You can contact Jim Hurley, and my telephone number is on the press release. .

[Operator Instructions] We'll take the next question from Antonio Casari from Northlight. .

A quick follow-up again on IGT sales. And is there any extraordinary sales, last year, that we should think of when comparing performance in the last -- in the remaining part of the year, 2014 versus 2015? And the second part is, on top of -- as a result of the drop in sales, there is also a significant compression in margin.

Is that as a result of a fixed cost structure or is it driven by other elements, which cannot -- will continue to be there irrespective of the recovery in sales? And then the second question is relating to your cost synergies.

Would it be possible -- I appreciate you said 2/3 to be achieved by the end of this year on an annualized basis, by the end of year 1, you mean April '16 or end of '15? And the second question is, how much in terms of actual so in terms of by the end of '15 is going to be 50% or so we -- on an annualized basis we have -- we get to the 2/3? How does it work the math there?.

Let me say talking about the synergies. We were saying by the end of year one, so you're right in saying that we will execute actions by the end of first quarter of next year that on a run rate base will represent 65% of our anticipated revenues -- sorry, synergies. Having said that, we didn't anticipate the portion of it that will impact this year.

We will be more clear on that on the end of next quarter while providing guidance. .

Regarding your first question that was related to the units, in reality what happened in the United States last year were the sales of around 1,000 units in Oregon, which is -- in Illinois, sorry, in Illinois.

Going a bit to the other question related to the gross profit, let me tell, first of all, that for the interactive business and for the gaming operation, the gross profits have been basically stable at the very high level. The gross profit of the product sales has gone down for several reasons.

First of all, for the mix of business revenues that in the past quarter were positively impacted by the gross profit of the intellectual property fees that we got -- that have been lower than last quarter. And there is no cost associated with that. So the mix has played an impact in the product sales.

In addition to that, IGT has taken around a $7 million write-down that is part of the gross profit calculation in inventory that has been quite exceptional due to the fact that for in certain components, they both denied themselves as a stronger supplier and they had to do the write down because the sales were not, as I had suspected, when the last order was put with the supplier.

So overall, mix with some specification have impacted the gross profit as well as the mix in the product sold because, as we have mentioned, there has been 1,000 units that have been moved from the installed base to the product sales related to Maryland. .

Okay. And you mentioned 100,000 -- sales of 100,000 machines in Illinois. .

1,000, 1,000, I said. .

1,000?.

1,000. .

I mean how much is -- so this is like how much is the machine on average, 3,000 or more? We are talking about EUR 3 million or so?.

You're asking for the average price of the machine?.

Yes, exactly, in order for us to have... .

It depends on the type of machines. But we're talking about -- and consider between $15,000 and $25,000 depending on the type of machines. .

So we're talking of $15 million to $20 million? Okay. .

As there are no further questions, I would like to hand the call back over to Marco Sala. .

Thank you very much. I would like to leave you with the 3 takeaways from this final quarter where we operated as 2 separate entities. One, the underlining GTECH business is solid with strong performances in gaming and lottery.

Two, we are ready to take on the challenges of the Legacy IGT gaming machines, stabilize it and give it a new momentum for growth. As I mentioned, the last quarter was a transition period and the results are not an indicative of the future. We expect the stronger results in the balance of the year on an underlying basis before synergies.

And third and the last point, we have the right offering, the right organization, the right approach to meet our customers' needs in the new global gaming landscape. Together with our synergies and goals, we believe, our distinctive approach to market can create significant shareholder value over the long-term.

We look forward to next quarter's combined reporting. And having said that, I wish you all a good day, and thank you for listening and for your interest in IGT. .

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect..