Light & Wonder Inc

NASDAQ:LNW

Earnings Call Transcript 2019-Q3

[Operator]

Good day, and welcome to the Scientific Games Third Quarter 2019 Earnings Conference Call and webcast. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. Trent Kruse, Senior Vice President, Investor Relations. Mr. Kruse, the floor is yours, sir.

[Trent Kruse, executive]

Thank you, operator, and good afternoon, everyone. During today's call, we will discuss our third quarter 2019 results and operating performance, followed by a question-and-answer period.

With me this afternoon are Barry Cottle; and Michael Quartieri. Our call today will contain statements that includes 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 earlier this afternoon, the materials relating to this call posted on our website and our filings with the SEC. We also will discuss certain non-GAAP financial measures. 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 of our website.

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 website at scientificgames.com.

Also, supplemental reference slides are available on our Investor Relations website. While management will not be speaking directly to the slides, these slides are meant to facilitate your review of the company's results and to be used as a reference document following the call.

Now let me turn the call over to Barry.

[Barry Cottle, executive]

Thanks, Trent. Good afternoon, everyone, and thanks for joining us. We had a strong third quarter with year-over-year increases in revenue, net income and AEBITDA driven by growth in all business units as well as continued progress on deleveraging driven by further debt paydown and solid cash flow generation. We're on track to achieve our target of 5.5 net debt leverage, and we'll continue our focus on deleveraging beyond our current goal.

At Scientific Games, we have established ourselves as a market leader across the board, sports, lottery and gaming, by providing the leading enabling platform as well as the key content that players consume.

In fact, we're the only provider set to deliver a one-stop solution of leading platform and content for our partners across all 3 major verticals with the ability to deliver a seamless player experience across digital and land base, however and wherever the player wants to play. No other competitor comes close to our ability to deliver this experience, which gives us a significant future advantage as the digital world evolves.

Now before diving into the quarter results, I wanted to highlight that we enjoyed a great G2E this past month. We got excellent feedback on several of our new products, including a new J43 Motion Wheel, Drop 'N' Lock, new 5 Reel Mechanical and Gold Fish Frenzy as well as our technology innovation across SGVision, Unified Wallet and SG Game Service among others, and our efforts to build an ecosystem to bring together our industry-leading portfolio.

Also at G2E, we shared a clear vision of our company strategy with investors and analysts to show how we win. First, it all starts with delivering great games like Dancing Drums Explosion, MUNCHKINLAND and Ultra Hot Mega Link. Second, we will win emerging markets just as we're doing in New Jersey iGaming, Pennsylvania iLottery and sports betting overall. Third, secure a strong balance sheet through above-market top and bottom line growth, cost efficiencies and efficient cash management.

Fourth, we are creating advantages for player and partner experiences through our one SG approach. A great example of this is Unified Wallet where we are creating a single wallet and player account management that cuts across retail and digital. Fifth, differentiate our business through near-term product innovation like augmented reality table games, SGVision and more. And lastly, none of these can be accomplished without top talent. Because great people do great things. I'm especially proud that we are building a culture that attracts and retains the best talent in the industry.

The ultimate goal from these strategic initiatives is simple and straightforward. We are committed to achieving our net debt leverage target of approximately 5.5 by year-end 2020. We took another important step in that direction in the third quarter by generating strong results across-the-board. We decreased our net debt leverage ratio to 6.4, have paid down $355 million in debt year-to-date, and are on track to achieve our deleveraging target. We are firmly committed to reducing leverage in this business, and we'll continue this focus beyond our current target of 5.5. With that, let me highlight some of the key developments during the third quarter.

In game ops, we're focused on creating best-in-class game franchises, optimizing our product roadmap to attract [ the segments ] and maximizing deployment ROI through efforts such as content interoperability. This approach is yielding results on both the top line and through reduced CapEx. Looking ahead, our new games are rising to the top of the charts as we hold 3 of the top 4 new WAP games and 9 of the top 25 new premium, leased and WAP games in the latest Eilers & Krejcik report. In fact, Dancing Drums Explosion continues to be the #1 indexing new WAP game overall, delivering around a 3.5 house average.

We're also excited about future expansion in the Class 2 market. Last year, we entered into a strategic relationship with GCG, a distributor with deep ties to this market. We have recently released 5 Class 2 specific games in the last 2 quarters, targeted to the local casino player. And our plan is to release additional games this year that are targeted for this important market.

In game sales, we had a great quarter driven by the industry's 2 best portrait cabinets and outstanding content. Our new WAVE XL cabinet is #1 on the charts with TwinStar J43 at #2. This reinforces the fact that WAVE XL will be a strong follow-up to J43, which continues to deliver excellent results with over 2,000 units shipped in Q3.

Internationally, the Dualos X is now approved in all major Australian jurisdictions and the sales process is ramping up. In Illinois, our results continue to be very strong and we're the clear market leader in new unit shipments from the expansion bill.

Looking ahead, we are very excited with -- about the continued opportunities in Illinois and international.

And finally, in gaming, we continue to deliver outstanding results in table products and systems.

We saw a 15% increase in tables as well as a 10% increase in our system's business. Within our lottery group, we're driving significant revenue and profitability growth. We saw a 6% increase in revenue and an 8% increase in AEBITDA driven by strong year-over-year growth in systems and in lottery instant products with strength both domestically and internationally.

In the last 52 weeks, the high-margin instant product market has grown domestic retail sales by over $2 billion year-over-year. And SG represented more than 80% of that growth. The team is delivering its best ever win rate on contract rebids and winning significant new deals domestically and internationally.

Recently, we captured the attention and imagination of our partners like never before at the 2019 Nashville trade show, showcasing our many innovations such as the new James Bond multistate instant linked game, PlayCentral HD with SGVision, a vast portfolio of instant game finishes and concepts, 2nd Chance in iLottery games and a future of retail room featuring SG's integrated suite of product innovations had attendees buzzing with excitement after catching a glimpse of our latest tech. In fact, PlayCentral's self-service vending machines are seeing increased placements and are now deployed in Walmart stores across Kansas, Pennsylvania and Arizona.

We continue to focus on our retail solutions suite of add-on products to accelerate our lottery customers' sales growth. Most recently, we executed a sale of SCiQ instant game ecosystems and PlayCentral's self-service vending units to the Arizona lottery. SCiQ will be implemented for a national chain that is a key retailer for the Arizona lottery. Since switching to Scientific Games' lottery systems from another supplier in 2016, the Arizona lottery has achieved all-time record sales and profits. A key component of their growth has been expanding points of distribution with innovative products that allows the lottery and their retailers to maximize sales performance.

In addition to Arizona, our SCiQ pilots continue favorable results with the retailers experiencing 12% to 15% increase in instant game sales. And customers are gaining new consumer insights as a result of the big data generated by SCiQ.

Our iLottery launch in Pennsylvania, the most successful iLottery launch ever, which has exceeded $500 million in sales handle had a record day in September with over $2 million in sales in a single day.

And lastly, Scientific Games continues to expand our lottery footprint with wins in Italy, Turkey and recently awarded Brazilian Lotex concession.

Brazil is the world's eighth largest economy, and we are excited and honored by this opportunity.

In Italy, SG was awarded with an exclusive agreement to supply 30,000 WAVE retail terminals, making it one of the largest lottery terminal point-of-sale networks in the world.

And domestically, in Florida, we will continue our 30-year partnership with the award of a new 7-year SGEP contract, which has an option to be extended for an additional 7 years. Since 1997, Scientific Games enhance partnership has powered the Florida lottery instant games to perform 52% better than the lottery industry average with a 10-year compound average growth rate of 122%. In fact, when looking at all of our SGEP customers, they've experienced a 10-year CAGR that was 80% higher than lottery served by other contract vendors.

In Digital, revenue increased 7%, AEBITDA increased 42%, and we're growing existing accounts as we continue to win deals in the market.

In iGaming, we recently launched open gaming, our end-to-end digital ecosystem, which is home to trusted content aggregation technology, a robust player account management platform, 2,500 plus games and innovation-rich features across jackpots, free rounds, tournaments and peer-to-peer gaming.

Underpinning this ecosystem is OPS and OGS technology, which recently received a gold medal in the 2019 Best Interactive Product category at GGB Gaming & Technology Awards.

With our robust, reliable iGaming solutions, we saw an increase of $400 million wagers placed on our OGS platform year-over-year, with $9 billion wagers placed this quarter.

We are the market leader in North America and are well-positioned to take advantage of an expanding market opportunities in iGaming where we can leverage our leading position to be the preeminent player in future iGaming expansion.

And in sports, we'll continue to launch in additional states with Caesars, grow with our partners Wynn and the Oneida Nation and delivered exceptional results in previously underserved international markets like New Zealand and Turkey. In fact, in Turkey, we have seen consistent and significant growth since launch, smashing several weekly records.

Our OpenSports product suite continues to gain well-deserved recognition as we are -- as we were awarded Digital Product of the Year at the Global Gaming Awards.

Lastly, we recently announced an expanded partnership with the Nederlandse Loterij to bring Dutch lotteries players a full digital sports betting solution. We are now investing to be the preeminent player in the emerging $20 billion digital market with key wins materializing and firmly believe we are poised to best support operators with our robust, reliable and comprehensive sports, iGaming and iLottery platforms.

As we look at our social business, SciPlay continued to outperform the market with 11% growth, while also delivering a 35% increase in AEBITDA. We saw an 18% increase in mobile revenue and our average monthly revenue per payer reached a quarterly record of almost $85, and payer conversion rates remain strong at 5.8%.

We are adding a number of exciting game updates that will lead to continued growth in our evergreen franchises as we explore opportunities in new geographies, new games and potentially new genres.

In closing, we are excited by the near-term opportunities we have in front of us as well as our best-in-class positioning for future growth across existing and emerging markets.

As you can see, Scientific Games is the best positioned player in the market to deliver best-in-class games, lottery and sports betting to players across any channel or platform they want to play, with the vision to deliver a seamless player experience that only SG can deliver.

This position, along with our commitment to delivering outstanding games, innovation and a more efficient enterprise across our diversified portfolio of businesses, sets us up for profitable growth and significant cash flow generation to reduce debt and continue on our deleveraging path.

Now let me turn the call over to Mike to provide his review of the third quarter results.

[Michael Quartieri, executive]

Thanks, Barry. Good afternoon, everyone. I know many of you were at our investor presentation at G2E last month. Our results highlight the path to 5.5x net debt leverage that we laid out driven by growth in our business, free cash flow and a reduction on our leverage.

For the quarter, consolidated revenue increased 4% and AEBITDA increased 6%. We experienced revenue growth in all of our business segments and greater growth in AEBITDA as a result of process improvements.

Net income was $18 million compared to a loss of $352 million with the prior year period including $339 million in restructuring and other charges, primarily related to the verdict in the Shuffle Tech legal matter. Gaming revenue increased $6 million to $454 million, and AEBITDA was down $7 million on a mix shift of revenue compared to the year-ago quarter.

We shipped 8,261 machines globally, including 4,152 replacement units in the U.S. and Canada, and 1,378 open and expansion units, which includes shipments to the Illinois VGT market.

Our replacement sales were up 24% from the prior year, when excluding the units that were part of entering into our strategic relationship with GCG last year. Internationally, shipments totaled 2,731 compared to 2,625 units a year ago. Our average selling price for the quarter was $17,500.

We continue to see great results from the TwinStar J43, are seeing momentum in the WAVE XL, and we will have 14 exclusive WAVE XL games released by the end of 2019 and expect to regain share internationally with Dualos X that is now approved throughout Australia.

Game ops revenue was down $1 million on a quarter sequential basis as our U.S. and Canadian installed base was down 547 units, primarily driven by the removal of some legacy product. Internationally, revenue increased as a new contract win offset erosion in our installed base in the U.K. with the implementation of the GBP 2 stake limit in April 2019.

Gaming systems' revenue increased $7 million from the prior year primarily driven by higher growth in recurring maintenance and services revenue. As we look to the fourth quarter, I remind everyone that Q4 last year was a record quarter for systems revenue driven by larger site installations in Canada, and as we previously mentioned, the major new site installations are coming to a conclusion.

Table products continue to grow with revenue up $8 million from the prior year period to $60 million on continued strength in the business.

Turning to lottery. Our third quarter revenue increased $13 million to $220 million, and AEBITDA was up $7 million to $99 million compared to the year-ago quarter. Within our lottery business, our systems revenue increased $5 million or 8% year-over-year to $70 million driven primarily by international product sales.

In the quarter, we completed the delivery of sports betting terminals in Turkey. We recently were awarded a new agreement to exclusively supply lottery instant games, and up to 15,000 WAVE retail terminals to the Turkish national lottery, which is separate from our sports betting contract and for up to 30,000 WAVE terminals to SISAL in Italy. We expect to begin delivery in both of these markets in the second quarter of 2020, and will continue through 2021.

Our Lottery instant products revenue grew $8 million or 6% to $150 million driven by the mix of contracts and higher revenue for licensed content.

We are pleased to announce along with our 50-50 joint venture partner, we were awarded the instant lottery contract in Brazil. Just a few things I'd note, Brazil is the eighth largest economy in the world. Two, the lottery is expected to commence operations in Q3 of 2020, but the market will take time to scale. And three, our cash investment into the joint venture will be manageable as the concession amount is payable over eight annual installments.

For SciPlay segment, we generated strong growth with revenue up 11% year-over-year to $116 million and AEBITDA was up 35% to $32 million. These results were driven by increased monetization of paying players and payer conversion increasing to 5.8%.

In Digital, we generated a 7% increase in revenue to $65 million and a 42% increase in AEBITDA to $17 million. The strong flow-through was driven by higher revenue, sales mix and decreased operating expenses. We see a number of opportunities for continued growth across iGaming, iLottery and sports through both share gains and market expansion.

For the second consecutive year, we received the Digital Product of the Year prize at the Global Gaming Awards 2019 for OpenSports, our end-to-end sports betting products suite.

Moving to cash flow and the balance sheet. We generated $53 million in free cash flow in the quarter, which included a negative $48 million impact due to the timing of interests and an increase in receivables due to the timing of sales throughout the quarter. At quarter end, we had $363 million in cash and cash equivalents and our net debt leverage ratio was down to 6.4x as we continued our deleveraging efforts.

CapEx was $75 million compared to $93 million in the prior year. We are lowering our CapEx guidance to $295 million to $315 million, which is down from our prior range of $340 million to $360 million. We paid down another $55 million in debt during the quarter, bringing our year-to-date total to $355 million. Also, we are pleased to announce that we received commitments from some of our revolving lenders to extend $588 million of commitment under the revolving credit facility for a 5-year period. We are still in discussion with other lenders regarding potential additional extended revolver commitment.

We have a number of organic opportunities to grow our business around share gains in Gaming, new retail solutions in Lottery and growth in SciPlay and Digital. There are also a number of new market and expansion opportunities in front of us across our businesses. These growth drivers in conjunction with business improvements to enhance free cash flow provide us tools to get to our 5.5x debt leverage target by the end of 2020.

This concludes our prepared remarks. Operator, could you please open up the lines for questions?

[Operator]

[Operator Instructions] The first question we have will come from John DeCree of Union Gaming.

[John DeCree, analyst]

Congratulations on the solid quarter. Two questions for me, if I could. I guess having just spent a lot of time on slots at G2E, I'll start with Lottery, first. I think the business has been growing quite a bit quicker than we were modeling. You just announced a couple of contracts. Q, in your prepared remarks, you talked a little bit about some of the products sales driving that. Just wondered if you could speak a little bit more to the growth that you're seeing there and how sustainable it is and kind of why it's accelerating now.

[Barry Cottle, executive]

John, this is Barry. Thanks for your question. Yes. Look, the Lottery business, as you said is healthy and growing. Really 2 things driving it. Number one, we're delivering an unprecedented win rate right now across domestic and international.

And number two, we're growing organically, basically driving the -- our strategy of providing value-added services like SGEP and the retail suite of solutions such as PlayCentral and SCiQ.

In terms of the contract wins, we're very proud of, obviously, the ones we just announced. Florida, Turkey, Italy and Brazil. In Turkey, we delivered strong system sales, system results primarily related to the hardware sales as part of our sports betting contract, but we're really just getting started in Turkey and elsewhere internationally as we'll see significant WAVE terminal sales in Turkey and Italy beginning next year.

We're also proud to be awarded the concession as part of the joint venture in Brazil. We believe Brazil could be a very sizable market for SG with the concession payments also spread over 8 years, so there's really no significant 1-year cash outlay either on that.

Florida was -- is another. We'll continue our 30-year partnership with Florida Lottery with the award of a new 7-year managed services contract.

As we mentioned on the call, since 1997, SGEP has powered the Florida Lottery's instant games to perform 52% better than the lottery industry average with a 10-year compound average growth rate of 122%.

In fact, we're looking at all of our SGEP customers, they've experienced a 10-year CAGR that was 80% higher than lottery served by other contract vendors.

So -- and beyond those wins, as I mentioned, we have a lot of organic -- significant organic growth across the board as well in domestically and internationally. We're actively engaged as we highlighted with a handful of state lotteries on the procurement of additional retail products. We just closed the deal with Arizona for both SCiQ and PlayCentral terminals across the state. So you can see, the lottery team is really doing a phenomenal job expanding their footprint and our partners that we are working with are seeing significant growth in results by partnering with us.

[John DeCree, analyst]

Barry, when you look at international lottery product sales, some of the contracts you've won, I guess, funding growth probably, I think, on the prepared remarks, 2Q of '20 starting to ship a lot of those terminals through 2021. Are there more large contracts out there that could be up for grabs, so for the next 12 or 24 months that we're not aware of?

[Michael Quartieri, executive]

Yes. It's Q here, John. Yes, there absolutely is. We got a specific dedicated team in the Lottery business that's going through, and it's -- I would tell you since I got here in 2015, they've been working on Brazil. And I'm sure they've been working on Turkey long before that as well. So it is a longer drawn out process, which is why we've got a team of roughly about 5 individuals that, that's all they do. So I'm sure there's going to be more new and exciting contracts for us to speak about either on the next call or the one afterwards.

[John DeCree, analyst]

Great. That's helpful. And, if I could, I wanted to ask about the CapEx reduction. Just wondering if you could unpack that a little bit, what's driving that.

I know, Barry, you've talked a lot about your plan to improve efficiencies, particularly in the gaming business with the content interoperability. And curious how much of this CapEx reduction is coming from your efforts on that front? I mean it would seem like if CapEx is coming down, and you're still going the free cash flow profile and ROI opportunity here is poised to turn the quarter and accelerate.

So just curious if you could talk a little bit [indiscernible] the CapEx? What's driving it? And if that kind of level is sustainable?

[Michael Quartieri, executive]

Yes. Mike here again. So when you look at the lowering of the CapEx guidance, it's really around kind of 2 primary areas. The biggest piece of it being that game ops CapEx. Definitely lower than we anticipated at the beginning of the year as we're continuing to make progress as you said on content interoperability. But as well as the other initiatives within the supply chain itself as well as value engineering of our cabinets. So that will be a key driver for us. And as Barry has been drilling into pretty much everybody in the company, it's about ROI-driven returns on our deployed capital. And so we're very diligent in that process.

In regards to kind of the rest of the, I'd say, the free cash flow profile for this year or should say for the quarter. Unfortunately, this quarter, we did see some negative working capital swing just based on the timing of interest and the sales throughout the quarter. But in the end, John, it's just timing, as you would know. Any time you look at working capital on a quarter-by-quarter basis, it will fluctuate just based on the natural timing of transaction. So I would definitely make sure that everyone's well aware. There is absolutely no fundamental change in our business that's going to result in a permanent change in the working capital requirement. And to your point earlier, if you really look at that where the -- the main point of where we're going and the diversity of what we're bringing forward, it's really when you look at the AEBITDA minus the CapEx for this year versus last year. We're up almost 15% this year, which is nearly $100-plus million in additional free cash flow that we're generating from, as a result of that. And so that clearly demonstrates the progress that we're making behind Barry's leadership.

[Operator]

Next, we have Barry Jonas of SunTrust.

[Barry Jonas, analyst]

You gave your one turn deleverage target last quarter. Just curious if you feel more or less confident now about hitting that target? And if maybe that confidence is tilted more towards growing EBITDA? Or else paying down debt?

[Barry Cottle, executive]

Look, I would say we remain very confident in hitting the 5.5 and quite frankly, just let me emphasize, 5.5 is just a point. Our goal is to continue to drive that even lower.

Look, it's -- it is as Q kind of alluded to, it's a balance of first and foremost driving top and bottom line growth of the business. Implementing cost-efficient initiatives, smart cash management, refinance and repaying debt, it's a balance of doing a lot of things.

In terms of the top and bottom line growth, we've outlined as we spoke at it, at G2E. But our focus on just launching great new games and winning markets that we're now prioritized, it's winning the emerging digital markets like iLottery, Sports and Gaming. And it's new businesses internationally that we just got through talking about, right, with Italy, Turkey, Brazil. And then the innovative new products that we're bringing to market all with that kind of ROI focus, SCiQ, PlayCentral, et cetera. So continuing to drive that and more.

[Michael Quartieri, executive]

Yes. And I'll just add on to that. Is this -- really gets down to the free cash flow and paying down the debt. So in addition to just the growth drivers that Barry alluded to, and all the different growth drivers we walked through at the G2E presentation, we really do see some significant opportunities to enhance just the free cash flow in and of itself just through operating efficiencies, as I mentioned earlier, around the supply chain to interoperability of content, the value, reengineering of our cabinets.

We also always look to keep an opportunistic eye on the capital markets to lower our cost of capital.

And as we're looking out into this year and next -- we don't see any real sizable cash outflows like we experienced in the prior year, when we had the LNS concession, the legal settlement unfortunately and the higher CapEx spend associated with that abnormally large number of new contract wins and renewals that we had last year.

So to my point earlier on John DeCree's question, when you really focus down on it, AEBITDA minus CapEx is up more than $100 million year-over-year, and that's an important factor for us.

And as Barry mentioned, this isn't a just -- let's get to 5.5x and be done. We've got to be focused in going on beyond that. So...

[Barry Jonas, analyst]

Great. Great. So speaking of G2E, I think, you talked about trying to get your ship share back to that, sort of, 27% to 29% range. Very solid quarter in the Q3. Just curious if you think you're back in that range? And maybe who you're taking share back from?

[Michael Quartieri, executive]

Well, I think we're the first to report, so we'll find out exactly how much ship share we took from everybody. But we do feel good about it, and like we said, throughout the calls in the first half year, we kind of recognize that it's going to be a slow first half of the year as WAVE XL content gets up to speed and we get more and more of it out there. But besides the excitement we have about WAVE XL, J43, we sold nearly 2,300 units this quarter, and that cabinet is 3 years old. Pretty unheard of, and we're really excited with the motion wheel that is coming out as a supplement to that. So we do feel really good about our Game sales pipelines going forward.

[Barry Jonas, analyst]

Great. And then just last one for me on Brazil. Any color you -- anymore color you can give on the JV at this point? Just curious if the supply agreement will be split evenly? Or maybe you'll have a higher share? And then also curious if there's an iLottery component here.

[Michael Quartieri, executive]

I'll take care of the last part. Yes, there is an iLottery component that will be coming shortly. But the key thing with the partnership is it is a 50-50 joint venture. Obviously, we believe given it is the -- a 15-year contract and the world's eighth largest economy, this could be something that's very meaningful, not only to us but to our JV partner.

But with all that excitement, we are cautious that it is a greenfield opportunity and that's going to take time to build. But we think it's going to be an incredible potential for both of us.

[Operator]

Next, we have David Katz of Jefferies.

[David Katz, analyst]

I wanted to just go back to the CapEx discussion, which often we find to be a double-edged discussion with 2 sides.

Can you just provide us a little insight as to the CapEx guidance decrease? And if there is some makeup for it going forward, what changed the run rate there?

[Michael Quartieri, executive]

It's really around game ops placements as well as the -- our ability to get content interoperability out there to keep some of the cabinets out there that were previously coming back because of just not having enough good content to bring forward.

In addition to that, and that's the -- I would say, the vast majority of the revised guidance down, in addition to that, there are some other projects that we had planned for within Lottery, relatively small in nature but a number of them, in just, I'd say, quantity. And those look like they're spilling into more of 2020 rather than the proposed timing that we were looking at 2019 that we had viewed through the first half for the year.

[David Katz, analyst]

Got it. And on the subject of refinancing opportunities. I'm not sure if you touched on this in your earlier remarks. But we're always keeping a careful eye on you still have some expensive debt out there that could be replaced at some point, and whether there might be any bank financing refi opportunities in your future?

[Michael Quartieri, executive]

We'll work -- just as everyone else, we're constantly monitoring the market, and we'll be opportunistic as we look to lower and improve our overall cost of capital. That was an important step for us to get the commitments on the revolver as that was current as of October, and so getting that new 5-year revolver in place was an important domino for us to get behind us.

[Operator]

And next, we have Chad Beynon of Macquarie.

[Chad Beynon, analyst]

Shifting back to gaming operations. It looks like you're continuing to trade out some of the lower performing legacy games with the WAP games, Barry, that you touched on, that are kind of shooting the lights out here. And we're trying to find a point of inflection here to kind of balance this out.

So do you think that, I guess, first off, you are starting to see an inflection with some of the older units coming off and the newer games that are doing well will kind of offset any of that leakage?

And then the second part of that question is given that we heard from Caesars yesterday that they will continue to rightsize their floor. Do you think that, that could push back this inflection question?

[Barry Cottle, executive]

Yes. Absolutely. So first of all, yes, I mean, as you know we talked about now on some of the earnings call, we're, I would say, hyper focused on game ops and first stabilizing and moving that business to growth and as you describe, we have some older cabinet coming off over this past -- the full goal here is the #1 priority is getting great content out, building great games to drive that business.

And you mentioned WAP, and yes, we have some really strong WAP games out, 3 out of the top 4 new WAP games according to the October Eilers performance report. By the way, that's versus 1 of last year. But there's also the larger premium category, which we were also under index last year that we've had a new -- renewed focus with our product roadmap to go after in a big way. And we have 9 now, the top new 25 premium WAP games, and the majority of these games are interoperable as we were talking about in the CapEx discussion.

So Dancing Drums Explosion, #1 Eilers WAP game performance of 3.5. We've got MUNCHKINLAND, performing at 3x. We have 2 Bonds that are round out, our number 3 and number 4 WAP, also around 2x.

And then on the premium side, we've got Jin Ji Bao Xi, which we've talked about now with a footprint of over a 1,000 performing at a 2x-plus. And we're really excited about -- we have a lot of really strong games out there with Money Link and the Ultra Hot Mega Link, which we showed at G2E. So it's really about getting great games out there that can outperform the floor. And then doing it in a way that's flexible for our customers. So as example, we've been talking about interoperability as it relates to CapEx. But interoperability solves 2 issues. Interoperability also helps us give operators the flexibility to grab new great performing content on cabinets that they already have on the floor. So we've made this overall -- moved toward kind of digital -- digitization of cabinets in merchandising overall. That helps us basically with conversion efficiencies, speed to market, getting great games out to replace games that may not be performing. All of that will help us drive and get to where our goal for game ops.

[Michael Quartieri, executive]

Yes. And just to your point regarding Caesars, it was roughly just over 80 units that our footprint was reduced at Caesars, so it's certainly not material. And again, it was primarily older legacy cabinets that have been sitting out there for -- to the better part of probably 4-plus years. So...

[Chad Beynon, analyst]

Okay. Yes. It's very helpful. And then just back on domestic game sells. I know it's tough to figure out market share and heading into the quarter, we're getting the sense that everyone could have some soft year-over-year replacement trends, just because of the timing of G2E that was in mid-October this year, which could push orders into the fourth quarter instead of third quarter, and obviously, given your growth that completely goes against that thinking, which I think has been kind of the narrative going into the quarter.

So do you believe that this could have even been stronger from a replacement standpoint? If G2E timing would've been the same as last year? And maybe some of these units will actually help the fourth quarter?

[Barry Cottle, executive]

Honestly, I don't know in terms of -- to be honest with -- whether the impact of G2E or not. I think for us, we have been mentioning all along in the last few quarters that we're going -- we felt like we had a strong back half of the year. That was basically a combination of, as Q alluded to, having basically a J43 that just continues to have extremely strong sales, third highest quarter, quite frankly, ever since its launch. And it's been out there for years. And then we layered on top of that the WAVE XL with unique content on the WAVE XL coming in, in the back half for the year and the combination of those 2 things, I think, drove our success, and we're seeing strong momentum with those products with a good strong pipeline.

And like I said, our year-over-year comparison's even greater when you compare that to the GCG deal that we did in -- of last year. So I don't know that it had -- G2E had an impact on it, as much as it's really a roadmap rollout.

[Operator]

Next, we have Brad Boyer of Stifel.

[Brad Boyer, analyst]

First one is just around Illinois. As you guys have explained previously, you guys obviously have a nice competitive advantage in that market, and with the VGT market, they're expanding. It's a nice little near-term growth opportunity for you.

I guess I just wanted to see to what extent the Illinois VGT market benefited the quarter and sort of how you see that tail there from the expansion kind of helping your product sales kind of on a go-forward basis.

[Barry Cottle, executive]

Yes. So just during the quarter, we had roughly about 830 units that are included in opening an expansion. So we're not taking the benefit of that 6 machines being available. And having that inflate our replacement sale numbers that we've quoted for you guys today.

There's 7,000 locations out there, and figure they were just a tad over 50% of the market. There's a 3,500 unit opportunity. However, I believe that the content we have is superior to the competition. And therefore, we should get a better share than that 50%.

The time frame for that to roll out, that's probably going to take probably another year as those things roll out because there's only so much in the pipeline that can get out and installed in those locations through the distributorship network that we have.

[Brad Boyer, analyst]

Okay. That's helpful. And not to belabor the point around game ops. And appreciate that you guys are [ churning ] out some older games here. But I guess just as we kind of look ahead, I mean, when in your estimation and sort of as you guys underwrite it internally, when do you guys think we could start to see some actual growth in the installed base itself?

[Barry Cottle, executive]

Look, as I mentioned before, it's -- we've been able over the last several quarters to move it to a point of where it's fairly stabilized. And the goal is just to, as you know, this is a game hits business, and we believe we've got some good strong games out of the gate that are performing well.

Our goal is to push it and combine that with, as I mentioned before, interoperability, potentially some -- working out flexible pricing and things of that, business model things to go after it.

So we also have, we mentioned before, attacking markets, in which we're [ such as ] Class 2 in Oklahoma. Again, with our partnership of the GCG. So this is an all-out effort of ours to focus on that category.

[Brad Boyer, analyst]

Helpful. And then lastly, just -- you guys, obviously, have some new products coming out. You have a market like Illinois, you had Dualos X, you can correct me if I'm wrong. But I believe those are lower priced products. I guess how should we be thinking about ASP here kind of going forward?

It looks like it's kind of been hovering around that 17.5 level for the last couple of quarters. I kind of would've thought with WAVE XL kind of being more prominent in the back half that it might push that ASP a little bit higher but maybe there's some offsets the other way. Just help us think about that.

[Barry Cottle, executive]

Yes. Sure. I mean if you look at it, Dualos X is also -- is a premium cabinet, but it's -- barely starting to get off the ground on its sales internationally. But at the same time, the J43 is a 3 -year-old cabinet. So after 3 years old, the price starts to come down a little bit.

WAVE XL is a high premium cabinet, and we believe that's going to drive the ASP to where it is today.

But we would expect it to be around this 17.5 kind of number, just based on the pipeline of what we have plus TwinStar with the 5 Reel Mechanical that's coming out. And so I think we're pretty steady state at that 17.5, plus or minus $100 here and there.

[Operator]

And our last question will come from Joe Stauff of Susquehanna. And gentlemen, it appears that there is a lost connection there. So we'll then conclude our question-and-answer session.

I would now like to turn the conference call back over to Barry Cottle for any closing remarks. Sir?

[Barry Cottle, executive]

Great. Thank you. Thanks, everyone, for joining us today. We appreciate your support. The entire organization is laser focused on our key strategic priorities that enable us to accelerate our progress and extend our industry best positioning.

These priorities will allow us to deliver the greatest returns for our stakeholders, set ourselves up for profitable growth and generate significant cash flow to continue on our deleveraging path.

We're firmly committed to reducing leverage in this business, and we'll continue this focus beyond our current net debt leverage target of 5.5.

I look forward to speaking to you next quarter. Thank you.

[Operator]

And we thank you, sir, and to the rest of management team for your time also today. Again, the conference call has now concluded. At this time, you may disconnect your lines. Thank you. Take care, everyone, and have a great day.