Earnings Call: H1 2021

May 24, 2021

Thank you for standing by, and welcome to the Aristocrat Half Year twenty twenty one Results Briefing Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Trevor Croker, Chief Executive Officer and Managing Director. Please go ahead. Good morning, and welcome to Aristocrat's financial results Thank you for the half year to 31 March 2021. My name is Trevor Croker, Chief Executive Officer and Managing Director of Aristocrat. It's a pleasure to present Aristocrat's half year results today along with Julie Cameron Do, our Chief Financial Officer, who is on the line together with Mitchell Bowen, CEO of Aristocrat Gaming and Chief Transformation Officer and Mike Lane, CEO of Aristocrat Digital. Thank you everyone for joining us. Turning to our agenda on slide 2. Please note that the full details of the half year results are contained in the review of operations document released this morning. Today, we will step through the presentation deck, beginning with a strategic overview of our business Before moving to group results, highlights of our operational performance and outlook and finally opening the line for questions. Before we begin, please note the usual disclaimer statement available at the back of today's presentation deck. References to prior corresponding period, or PCP related to 6 months to 31 March 2020. Turning now to slide 4. I'd like to begin by referencing Aristocrat's established and proven growth strategy. In a nutshell, we aim to deliver high quality profitable growth by improving the competitiveness and breadth of our product portfolios and diversifying our business. To do this, we invest in great people, game content, Technology and capability building on the foundations of culture, governance and exceptional financial strength. We are also prepared to invest aggressively both organically and inorganically to accelerate our progress. The diagram describes our strategy Flywheel, which we have shared previously. In the context of the challenges and opportunities highlighted by the COVID pandemic, We took the opportunity to review the strategy during the reporting period. While we have made some refinements in terms of emphasis and priority, The strategy remains absolutely sound and today's results demonstrate this. In particular, Arista Credit has taken the right decisions over the recent months Double down on our strategic strengths and invest strongly in people, product, customers and culture. Over the course of today's presentation, I'll touch on a number of these choices and priorities. As a result, Aristocrat today is a better and more resilient business Than we were pre COVID. With the benefit of a refreshed and effective strategy together with the belief and capacity to execute vigorously, The business is ideally placed to continue our momentum going forward. Before stepping through the detail of performance for the period, I'd like to take a moment to characterize Aristocrat's business as it continues to grow and transform on slide 5. Today, Aristocrat is a gaming entertainment and technology company of global scale. With diversified In both gaming and digital markets, we are successfully growing and leveraging world class titles across multiple platforms and distribution channels. We continue to lift the percentage of overall revenues that derive from recurring sources. This not only builds further resilience in our model, It also gives the business more opportunity to benefit from its exposure to fast growing segments and improved market conditions. In the reporting period, almost 80% of revenues were derived from recurring sources. Our appetite to invest behind our strategic differentiators And to accelerate growth is also a hallmark for the risk press business. Underpinning our confidence to invest is, of course, our strong balance sheet, Cash flow generation and available liquidity, which enable continued execution of our growth strategy over the period despite COVID driven uncertainties. Finally, this slide also provides a snapshot of the characteristics and performance of our 2 operational businesses in digital and gaming over the half year. The roughly even split in terms of revenue contribution further highlights the success of our diversification efforts and improved overall business resilience. Turning to slide 6. As I mentioned, over the 6 months to 31 March 2021, Arisk Red has chosen to protect and extend our strategic advantages and position the business for sustained growth. I'd now like to provide more color on these choices. From a people first perspective, we energized our culture and offered more support, flexibility and recognition to our people. An average engagement score of 8.4 was achieved across our global business in the period, holding at a level above technology industry benchmarks. We also lifted investment in great talent, including leadership development, training and new talent acquisitions, particularly in strategic skill sets. From a customer centricity perspective, we continue to offer tailored flexible solutions to gaming customers to support their recovery. This has driven deeper strategic partnerships and customer advocacy. In terms of portfolio diversification, We have further broadened our business by penetrating more adjacent markets, segments and digital genres. During the period, we opened 2 new gaming creative studios and launched and scaled a further world class digital title in Evermerge, building on earlier digital talent investments in Nest and Proteus. To support this momentum and underpin long term growth, $243,000,000 was invested in D and D during the period. Well, towards the lower end of our historic 11% to 12% of revenue range, it remains robust in absolute terms and market leading compared to peers. We also committed US252 $1,000,000 in the half in UA, representing a US50 $1,000,000 increase from the PCP and 28% of digital revenues, which was at the high end of our 25% to 28% target range. Turning now to slide 7. Our strategy is fundamentally geared to delivering sustainable performance, which means that a robust approach to ESG is an important part of our approach. During the reporting period, we completed a fresh assessment of our material ESG issues. This incorporated input from a wide range of Stakeholders, including market stakeholders, employees, customers, regulators and business partners Existing priorities across responsible gameplay, governance, employee relations and diversity and inclusion, ethical sourcing and energy and environment We lastly confirmed, but we'll apply the many insights glean to refine priorities, drive progress and improve our disclosures going forward. On slide 7, you'll see we have referenced some of the progress achieved across material issues during the reporting period. This includes bringing forward more product innovations and initiatives to inform and empower players, delivering comprehensive anti bribery and corruption training and foundational work to better understand and quantify our greenhouse gas emissions profile. This work will support more detailed disclosures on emissions Consistent with stakeholder feedback, work to further strengthen our robust approach to governance was a key focus in the half. RiskScrat's 2021 ESG disclosures will be published on our group website in December. We look forward to sharing full details and taking a further step forward in our ESG maturity at that time. I'll now turn to a summary of our group performance for the half year building on the market disclosures released on 17 May. Turning to slide 9. Over the 6 months to 31 March 2021, the group delivered a high quality result that reflects the business' diversification and resilience as well as successful execution and the impact of sound investment choices that I outlined. Normalized profit after tax and before of acquired intangibles or NPAT A of $412,000,000 was delivered. This represents an increase of 12% in reported terms and 27% in constant currency compared to the PCP. Reported revenue decreased fractionally by 1% to approximately $2,200,000,000 On a constant currency basis, revenue was 11% higher than the prior half year, reflecting strong growth in digital and a rebound in gaming across the U. S. And ANZ markets. This strength has been partly offset by performance in the International Gaming segment in the period, which reflected the fact that many markets across EMEA and Asia Remain closed or subject to travel restrictions. Earnings before interest, tax, depreciation and amortization or EBITDA We're 6% higher than the PCP at $750,000,000 90% higher on a constant currency basis, reflecting margin improvement across gaming and digital operations. Fully diluted earnings per share before amortization Our acquired intangibles of $0.645 represented a 12% increase compared to the PCP. Normalized operating cash flow of $425,000,000 was 31% lower than the PCP as a result of strategic investments to support customer recovery, including working capital initiatives. The group's balance sheet remained extremely strong over the period with over $2,000,000,000 in available funds and a net debt to EBITDA ratio of 1.2 times at the 31st March 2021. The directors have authorized a fully franked dividend of $0.15 per share, dollars 95,600,000 In respect to the period ended 31 March 2021, the record date will be Monday 31st May And the payment date will be Friday, 2nd July 2021. I'll now invite Julie to take us through further details of our group results. Julie? Thank you, Trevor, and good morning, everyone. Slide 10 sets out the composition of As Trevor mentioned, the 12% higher NPAT A result, a 27% increase in constant currency, was largely driven by an incremental $117,000,000 profit in the digital business with modest growth across the Americas and AMZ Gaming businesses, partly offset by weakness in the International Gaming segment and $52,000,000 in currency headwinds. Profit in the Americas Gaming segment increased $11,000,000 compared to the PCP, an outstanding result that reflects a higher gaming operations contribution. Growth was delivered across both premium Class III and Class II installed bases, along with a market leading fee per day result. ANZ Gaming Markets also benefited from improved consumer sentiment and strong portfolio performance, with profit in the segment up $6,000,000 compared to the PCP. Effective execution drove strong revenue performance across the period with a notable acceleration through March and to a lesser extent April. As Trevor referenced, D and D investment in talent and technology was maintained at strong levels, accelerating over the period as we gained more certainty around performance. The increase in the group's effective tax rate from 24.2% The 24.7% is a function of the geographic profit mix during the half. Finally, results for the period were not impacted by any reductions to provision. Turning now to Slide 11. The group's cash generating fundamentals remained strong over the 6 months to 31 March 2021. Normalized operating cash flow decreased 31 percent to $425,000,000 compared to the prior corresponding period. The change in net working capital of $130,000,000 reflects investments to support the recovery and growth of gaming customers and the decline in inventory levels due to the impact of COVID in the prior year. The decrease in other cash and non cash inflows was driven by the appreciation of the Capital expenditure was over $100,000,000 in the half, primarily comprised of continued investment in hardware to support growth in the Americas gaming operations in store space. Significant non cash items in the period Related to remaining contingent Plarium retention arrangements, while significant cash items in the period related to the Caeta and Spinnigab illegal settlement as previously disclosed, and Plarium retention payments. Moving now to capital investments and our balance sheet, Slide 12. Over the reporting period, Aristocrat continued to allocate capital according to our established priorities in order to promote long term growth and appropriate shareholder returns. These priorities are set out on the slide, starting with our top priority of organic business investments. Accordingly, over the reporting period, we committed $243,000,000 in D and D to further strengthen our product portfolio. We also invested US252 $1,000,000 in user acquisitions to drive performance in digital and over US100 $1,000,000 in CapEx as previously noted. Our next priority is to deploy capital on inorganic opportunities to accelerate achievements of our strategy in line with our rigorous investment criteria. We continue to proactively assess inorganic opportunities to bring new strategic capabilities to the business, facilitate growth into attractive adjacencies or further expand our product pipeline, particularly in digital. Our third priority is capital return. In light of market conditions and the group's debt holding, we continue to prioritize liquidity over debt reduction during the reporting period. Trevor referenced the Group's strong balance sheet and liquidity position as at 31 March 2021, which continues to provide us with financial strength, Flexibility and full optionality going forward. Net debt of around $1,300,000,000 at period end compares favorably to net debt of $1,600,000,000 reported as of 30 September 2020 and represents a net debt to EBITDA leverage of 1.2 times. At 31 March 2021, Aristocrat had total liquidity of over $2,000,000,000 comprised of cash and available revolving credit facilities of $277,000,000 Our debt facilities, Largely drawn from the U. S. Term loan B market, we remain competitively priced at a weighted average LIBOR plus 2 35 basis points. Credit agreements remain covenant light and provide the group with ample financial flexibility. Our credit ratings also remain unchanged at CB Plus BA1 with a recent positive shift to stable outlook given our strong operating performance. That completes the overview of group results. I will now pass back to Trevor to take us through operational performance and outlook for the remainder of 2021 financial year. Trevor? Thanks, Julie. Turning first to the Global Gaming business on Slide 14. You'll notice we are presenting the 3 segments of Americas, ANZ and International on a combined basis, reflecting how these operations have been managed in our business for some time. Full segment performance details Continue to be provided in the appendix. Overall, Gaming segment revenue and profits fell around 14% 13% respectively, reflecting the impacts of COVID on key markets and segments, including the effective closure of many international class stream markets during the year. In local currency, Americas profit increased by 2% to $310,000,000 driven by growth in the Class III premium and Class 2 Gaming Operations footprint. The business grew share across key segments and expanded margins, Reflecting growth in gaming operations installed base to 50,554 units with approximately 87% operating. Operational momentum was supported by a stronger than expected economic recovery and strengthening consumer sentiment in the later part of the reporting period. Bruce Kraut's premium installed base grew 5% to 25,004 units with circa 80% of the installed base operational as at 31 March 2021. Over the same period, The Class 2 gaming operations in store base grew 2% with circa 93% of units operational at period end, reflecting customer decisions to switch on higher performing products. On a combined and adjusted basis, the average Class 2 In Class III, fee per day increased 8.9% to almost US55 dollars over the period were just over US47 dollars on an adjusted basis. North America outright sales revenue Increased by 10% compared to the PCP, driven by the impact of COVID related customer capital budget constraints. However, ASP remained strong and share gains were achieved as previously noted. Aristocrat averaged 17 of the top 25 games On the ILS premium title list in the 6 months to March 2021, again demonstrating exceptional portfolio strength. In ANZ, revenue increased by 2% to $210,000,000 in constant currency compared to the PCP, While profit increased over 10 percent to $85,000,000 margin expanded 3 10 basis points to 40.6 percent, reflective of the COVID impacts in prior periods, deferred investment and foreign exchange benefits. Average cabinet selling prices decreased slightly from the prior corresponding period, driven by promotional activity to aid customer recovery and support long term growth. The A and D business extended its market leading ship share performance over the 6 months to 31 March 2021, Once again highlighting the portfolio strength and the business' outstanding operational momentum. Overall, we're proud of the and resilience of our global gaming business and the strength of our customer relationships, we look forward to continuing to benefit from our Sustained investment in innovative product development over the half, including the most anticipated game in the industry BuffaloLink from HRG Studios, which was launched in the U. S. Last fortnight. Moving now to the digital segment on slide 15. And I note that the figures on this slide are in U. S. Dollars. The digital business recorded above category bookings growth of 29% and a 52% lift in segment profit compared to the PCP to an exceptional $899,000,000 $301,000,000 respectively. This was a result of effective investment in live ops, features, new game content and UA over the period, Combined with ongoing investment in growing and diversifying the digital portfolio, consumer demand for digital games remained elevated compared to pre COVID levels, albeit somewhat moderated compared to the second half of fiscal twenty twenty. As previously referenced, the business is an incremental $50,000,000 in UA over the half compared to the PCP. This supported the profitable growth of Raid: Shadow Legends, Strong performance in social casino games, especially Lightning Link and Cashman Casino and the scaling of Evermerge in the growing casual merge genre. A strategic rebasing of Big Fish business completed in the second half of fiscal year twenty twenty also contributed to revenue and profit gains in the reporting period. This result highlights our progress in diversifying and broadening our portfolio of games across multiple genres, Demographics and Geographies. Raid Shadow Legends moved into profitability and EverMerge continued to scale strongly during the 6 months For 31 March 2021, when added to the successful launch of Lightning Link in 2018, Aristocrat As organically developed and grown 3 world class titles across major genres over the past 3 years. Margins expanded more than 500 basis points in the half. UA Investment represented 28% of digital revenue, demonstrating highly efficient and effective allocation during a period in which the business had no scheduled new gains. Our daily active users, DAO, Reduced modestly to $6,700,000 at period end, reflecting our ongoing focus on DAO quality. Along with DAO quality, a favorable genre mix, Effective live ops, features and new games content combined to deliver an impressive lift in average bookings per daily active user or ADDAU performance over the period. ADDAU grew 44% or $0.22 compared to the PCP to $0.72 a new record for our business. We are excited by the ongoing progress in our digital business, Particularly its momentum, scale, portfolio breadth and growing capabilities. Looking ahead, we have a solid pipeline of new games. Whilst performance will dictate the timing of any worldwide launches, we plan to release at least 1 new title towards the end of this fiscal year. We will continue to invest to grow our product pipeline and further build on our capability to fully capture our opportunities in digital segment. Slide 17 provides a recap and a summary of our performance highlights in the 6 months to 31 March 2021. A headline double digit increase in MPAT A together with margin and share expansion across key gaming and digital segments pointed to our increasingly competitive and high performing product portfolios and customer engagement. The further diversification of the group's revenue profile also underlines our strengthening resilience. As I said at the outset, The result demonstrates that we made the right decisions to sustain our differentiating investments in outstanding people and products, customer, Talent and culture throughout the COVID impacted period. Turning now to outlook for fiscal year 2021 on slide 18. Arista Pratt plans for strong growth over the full year to 30 September 2021, assuming no material changes in economic and industry conditions, Reflecting the following factors: enhanced market leading positions in gaming operations, measured by the number of machines that are operating and game performance Sustainable growth in floor share across key gaming outright sales markets globally, further growth in digital bookings with UA spend expected to be modestly above The historical range of 25% to 28% of overall digital revenues, pending timing and success of new game launches in the second half of fiscal 2021. Continued D and D investment to drive sustained long term growth with investment likelihood being modestly above historic levels On a percentage of revenue basis, an increase in SG and A across the business, so we continue to scale and deliver our growth strategy. This includes continuing to identify adjacencies that expand our capabilities to create new business and grow through product, distribution and investments. Non operating expense assumptions are also set out on the slide, specifically regarding interest expense, Amortization of acquired intangibles and income tax expense. The group has entered the second half of the twenty twenty one fiscal year with export momentum, Flexibility and resilience and a balance sheet that continues to provide full strategic optionality. We expect the business will continue to benefit from the decisions we have made to invest to extend our advantages. Aristocrat's global team is aligned behind a refreshed growth vision with established momentum and the confidence to continue to invest and accelerate execution in the period ahead. With that, I'll conclude my formal presentation and hand it back to the moderator Thank Your first question comes from Desmond Tao with Goldman Sachs. Please go ahead. Hi, Trevor, Julie. Thanks for taking my questions. I think you made mention that your installed base for Class II and III active machines were at 93% 80%, respectively. Just keen to dig a bit deeper into these trends and as well as your record fee per day numbers, just Understand the underlying momentum. If you could just make comments perhaps around, I guess, how these trends fared through the half, how it looked as you exited March and what the Yes. Thanks, Desmond. Appreciate the question. I'll step into a couple of ways. So first of all, I think, look at the macro picture, the world has been changing a lot through COVID. And if you look back at the early part of the half, there was very limited machines switched on. And as casinos started to open, more machines started to switch on. There was obviously some ups and downs From installed base during the Q1, if you think about what happened in North America towards Christmas time and over Thanksgiving where There were further shutdowns from that point of view. But what it did do is it kept building through the period towards the second half. We were able, as you You can see from the results to increase our installed base in both Class II and Class III machines and also to get to a percentage Switched on, which was as you reflected 80% 93%, which was above competitor rates and industry average for those. I think if you then look at it, we continue to place, as I said, product. And if you look at what's been driving that product placement, it's been new games like Cash Express Luxury Line, Crazy Rich Asians, these guys have been able to drive in store base and what we've seen towards that higher Fee per day is that high performing games are being switched on by operators. High performing games are there for performing for operators And for Aristocrat, we've also got a strong pipeline of games coming through. As I referenced in the last 2 weeks, we've launched Buffalo Link in North America, Very, very strong pipeline and game content coming through for that. And early results for that is very solid as well. That's great. Appreciate that. Second question just around digital. I think you guys are now Expecting UA to be modestly above the 25% to 28% historical range. I think this compares to your prior guidance of between 25% to 28 So perhaps if you could just flesh that range out a bit more. And to what extent is that opportunities to invest in some of these existing games? Or It's more sort of weighted towards new games that's coming through soft launch on Slide 28. Yes, sure. So with the guiding to 25% to 28%, it's pretty dynamic investment thesis, if you think from those games' points of view. We didn't have any new games in the first half, but we were able to be very efficient in our investment behind scaling Like in link by and also scaling Evermerge as a new game and they continue to support RAID through other forms of marketing. Yes, that's 3 games in 3 years that are organic games that have been successfully developed and released by RiskScout into the marketplace. We talk about our guidance for the second half modestly above. We have got a pipeline of games coming through. As you can see, we have a couple of games in the pipeline now. We've got 2 that are close We expect 1 in the second half to go to launch and that will adjust what happens from a UA point of view. And we think that, That happening will put us towards the top end or modestly over the top end of UA, should those games come to launch. Great. Thanks, Trevor. Thanks, Desmond. Thank you. Your next question one for me. As we think about some of the industry tailwinds and your performance in digital, how should we think about the second half? Maybe talk to us about what's one off and maybe what's a permanent Yes, I think hi, Don. Hello. I think the way to think about it is that through the COVID Period. It has accelerated the adoption of affordable entertainment. And I think that's what you can call mobile games. That has happened in first part and I think when we were talking to you this time last year, we were signaling to already a big step up from the first part of the second half of In the early part of second half of twenty twenty. I think what you're seeing now is we're seeing some growth rates moderating. We're cycling over some very strong comps The same period last year. The things that have driven good performance for us have really been live ops, The efficient use of UA, new features, new game content. So in the half, we did 75,000 live operations 7,500, sorry. And then we also roughly produce about 125 new games in the full year Into our slot content as well. So we're continuing to bring in new features, new game content and also scale existing platforms like Rave. So you'll notice that we've got tower defense and other activities now bringing in extra activity to support the features in Rave. Okay. Thank you. And then, how should we think about D and D spend going forward? Can you talk a little about, maybe what eventuated from the last result where I think it was guided to increase relative to where it came in and How we should think about the future, maybe the second half and next year? Yes. So we've been taking a cautious approach in the way we've been investing, but we've been accelerating through the second half Of this period of time. So since the start of the calendar year, we've been investing behind higher end activity and you See that we continue to keep a flow of gains coming through in the land based business. We also see adjacencies, which we're adjusting into our adjacencies. We do expect it to be higher in the second half as a percentage of revenue, and that's because of the flow through to more adjacencies and also to Get us back into a cadence of new games coming through on a regular basis. So we've had new Mars cabinet release. We've had the Neptune cabinet release. We had new game content coming through, increased cadence of games into the digital business as well. Great. Thank you, everyone. Appreciate your time. Thanks, Don. Thank you. Your next question comes from Larry Gandler with Credit Suisse. Please go ahead. Hey, Trevor. Thanks for taking the call. Look, forgive me for bringing in Mentioning one of your competitors here, but one of your competitors in digital are reporting a very similar company to Aristocrats digital business reporting 34%, All in operating margins. And Aristocrat is now 34%, but of course, the D and D is Being moved off into a central reporting area. I'm just wondering with this result given that UA was still quite high at 28%, Are these higher margins sustainable? And really should we be thinking about further upward trajectory in margins given where of your competitors are reporting digital margins. Yes. Thanks, Larry. I appreciate the question. First of all, I think we've been focusing on digital from day 1 as profitable growth, and we continue to focus on making sure profitable growth. And I referenced earlier about the Roughly 125 odd games annually that we use in social casino that move through into the digital casino business. Thing that changes the profit mix is really the genre mix and different genres have different margins. Obviously, social casino is different Casual games and that's where we get a lot of the differentiation. As far as is it sustainable, I think as we continue to build out our portfolio, we're going to be building out into We're going to be building out into more casual genres, and that's going to have some impact on margins. But I think what you can see from Mike's what Mike's done and his team's done is they've actually put together a very strong business with 52% increase in margins, 5.20 basis increase in margin as a percentage. And they're actually growing their business responsibly by using UA and other ways to drive it. So I don't think you can keep modeling it forward to be honest with you because our expansion is going to cause some downward pressure on margin, but I would put us at the top end of margin From a performance point of view and also our strong focus on profitability for growth. Okay. Thanks for that. And In terms of land based business, I understand you guys are working with your customers to extend the duration on Some of your gaming operations arrangements, revenue share arrangements. I'm just wondering if you can give us some color about How we should think about yield expansion? I know you're perhaps taking price increases on new contracts as well. How we should think about yield expansion in probably more Class III than Class II and the duration of those arrangements, If you can give us some color there. Yes. Look, it's a customer by customer scenario, Larry, so I won't get into each one of those. But What we are is we're signing longer and bigger arrangements with our customers now. We're focused on making sure that there's long term profitability for our customers. And We said right at the start of this pandemic that we were going to help lead the industry out of this period of time and support our customers and that remains our focus as well. They are important to us, obviously, because they're the grassroots of what we do, but they've also been good partners through us To us through this period of time as well. Really, it's about building into a partnership relationship or removing this transaction piece. So We continue to see good installed base growth. When you talk about yield, I think yield is a factor, to be frank with you, of consumers. As more consumers come to the properties, as more machines are switched on, then yields will change appropriately. But you can still see On a yield basis, we still hold a healthy gap to our competitors and to the average for whether it's adjusted or unadjusted point of view. So Yes, we have been using activities like Aristocrat Assist, etcetera, to help our customers through this period of time. We'll continue to partner with them on a with a longer term view of sustainable growth. Okay, fantastic. Thanks for the help guys. Thanks, Larry. Thank you. Your next question comes from Rowan Sundram with MST. Please go ahead. Hi, Trevor and Julie. Just one question for me. How would you describe your visibility in land based at the moment? And what's the feedback you're getting from Yes. Thanks, Jerome. Appreciate the question. The sales group under Mitchell Bone have done a really good job over the last couple of years of implementing processes and systems such things like Salesforce, etcetera. So Our visibility of our funnel is the best that we've had and we continue to see be able to see right through that funnel whether it's in gaming or for sale Product. If you think about what we're seeing, we're still seeing good opportunity in gaming ops off the back of great games like Crazy Rich Asians, Cash Express Luxury line and the recently released Buffalo Link, and we've seen strong momentum for each of those, not just performance, but also pipeline to come through. When it comes to For Sale, it's a little bit harder, a little bit harder because our customers aren't necessarily into that capital releasing capital for games at So we are seeing some visibility of that and we got good visibility as far as new openings and expansion goes. But as far as the change in for sale market And capital allocation for customer, it's still a bit cautious from this point of view. And similarly with the Class 2 business, we've had good performance there from Neptune's Gold, Strong fleet performance. So we are still placing games as you saw. We did increase our in store base in Class II and Class III during the period. We feel confident that going forward for the balance this year that we'll continue to see install base increases. And also fee per day is a little bit harder because Consumer sentiment, but good quality games will drive foot traffic and we believe will benefit from that. Thanks Trevor. Thanks, Rob. Thank you. Your next question comes from Sachin Crean with Evan and Partners. Please go ahead. Good morning. Maybe a couple of questions for Julie. Just wondering, first of all, what the increase Receivables is attributable to? Is that a sort of a combination of the longer terms you're talking about for customers? Or is it perhaps An indication of some better shipments towards the end of the period? Julie, over to you. Yes, I can hear you. Sorry, having trouble with that mute button. Hi, Sasha. Thanks for the question. Yes, look, the I think think your question is a good one about the growth in receivables. Clearly, we did see sales accelerate through the period and we finished the period stronger And that has had an impact on the level of receivables at the period end. Okay. Thanks. And just wanted a couple of questions on the outlook The SG and A guidance, can you maybe clarify that a little bit in terms of, first of all, are you talking Your constant currency costs or is that an AUD expectation for growth? Sure. I mean in SG and A guidance, it's really around the fact that we are We've said before, we've said it for a couple of years now that we need to invest to grow this business in a sustainable way. And we've identified the areas that we need to invest in. Now clearly, as we went through the period last year when we went into cash preservation mode, we had to pause a number of those projects. And so as we kicked off the year this year, we would still we remained cautious as Trevor referenced. But as we saw the momentum pick up and as we saw The execution going well, we pushed through and sort of put the switch back on in terms of some of those investments. So we do see We very much see the need for more investment in those areas. And as we say in our outlook statement, it is about identifying adjacencies and investing behind them And really building out those capabilities we need to grow this business. So an example would be in the customer experience area, We're investing in that area. We've talked and you'll see that we have a page in our investor presentation for the first time Time on ESG, so there's investment in that area as well. Data is a key investment area for us as well. And we've talked many times More about the need for investment in cyber and privacy and all of those kind of basic housekeeping things that organizations of our size and scale need. So absolutely, it's constant currency, reported currency, Aussie dollar, U. S. Dollar. It is growth in investment, Maybe aligned to building out the continued growth of the business. Okay. I might Step through with that you a bit later offline because I do have trouble getting to growth in that number given some of the bad debt provisions and inventory write downs that you had last year. I just had one final question. In terms of your liquidity position and the debt you currently have fully drawn, is there a call option on that So the 2nd tranche of the U. S. Term loan B, which I think is at a much higher margin than the rest of the term loan B Good. So the nature of the Term Loan B is it's fully drawn down. And as you know, this time last year, that's when we took it on When we were everybody was in a position of very uncertainty and not really knowing what was going to happen to liquidity in the markets across the world. That's why we did it. It is at a higher margin than our existing Term Loan B. The way it operates is it's covenant light. It is Tightly priced compared to what was in the market at the time. It only requires minimal amortization, covenant light and so on. We're now in a position, having got through the 1st year of it, where opportunistically, we'll be able to go out and potentially reprice When the time is right in the market. And we will look to do that in any case because I'm sure you can see with the cash that we're sitting on, which is we've chosen to be in this position for the time being. That's not a position we'd expect to be in over the long term, and it's really as a result of taking on the additional debt And that form of debt being TLB, which is fully drawn down. So we will when at the appropriate time, we'll be looking to refinance and Rebalance the balance sheet, pending the market conditions as we said and the opportunities for us to utilize the cash on organic and inorganic opportunities. Yes. Okay. Thanks very much. Thank you. Your next question comes from David Fabrice with Macquarie. Please go ahead. Hi, Trevor. Hi, Julie. Look, I had a question on digital and then I'll follow-up with another question as well. I think you mentioned there's one new game possible for the end of the fiscal year. What about into FY 2022? And When we're thinking about digital, you've got those charts on Page 30. Can you sort of talk us through which segments are the most attractive and where you think you could win share or scale quickly? Yes. Thanks, David. I'll make a couple of comments and hand over to Mike Lang, who's on the call as well. We continue to keep a pipeline going of about 10 to 15 games at any one point in time, and we continue to drive towards having that shift to that Genre diversity. And as I said earlier, Lightning Link, Raid and Evermerger, 3 new genre games that Come exclusively from Mariskrat, and we've been able to build those from ground up. So yes, I'll get Mike just to talk you through about where he is on pipeline and also it's 'twenty two. We continue To focus on how do we build that pipeline and also the talent to support it. So I'll hand over to Mike now. If you can just unmute yourself, Mike, and you'll be up there. Thanks, Trevor. I appreciate the question. Yes, we're very encouraged about our Pipeline as we look out into the future, all driven organically as we've developed that across our various businesses. In particular, We continue to want to invest in our core segments that we're in today. That's at Pilarium, the mid core segments That has done very successful. That's both strategy, role playing games. But we are also looking now at the segment with a new game, Mech Arena, that's launching this year, which we're encouraged about the potential for us entering that segment. Within our Social Casino segment, we continue to, as Trevor mentioned, do very well within our core games and we will continue to look at new Games, as we look forward in that segment, there are market leading position, in particular, in the slots area that we're Very strong at and continue to want to invest in. And then finally, on the casual segment, with the success we've had at Evermerge, which is now Trending at $150,000,000 plus gain a year, we're very, very bullish on the Merge segment. We think that's an area that we want to continue to invest in And come in very strong this year in that area, and we continue to want to invest in that. Broadly, we'd like to continue to be diversified across various genres And organically drive our business as we've done over the last year. It's very Sorry. It's very similar to the way we think about our land base business with adjacencies. Whereas there is an adjacency that's going to be a size market that we like, it's got capability So we believe we can either buy or build and then we start to attack it. And I think Jeff and Mike and the team have identified a couple in there like you said around NEC Arena, Another alternative that we continue to build out from our core competencies. Great. Thanks. And just my final question. Just Thinking about long run segment margins, I know you've covered up on digital and there was a question on SG and A. But if you look at that Americas business, you think you can eclipse the FY 2019 peak margins in that business as outright volumes normalize? Or do you think we still So to sit between that 50% to 55% level. Yes. I'll make a couple of comments and then hand it over to Julie for the detail, I think we're seeing strong margins coming back as the business has rebounded. But I also believe Where we exited pre COVID with our margins were at a very high level. I think that we are getting operating leverage back, but I'll let Julie just talk So about where we're going on the future of it. Thanks, Trevor. Hi, David. Yes, look, I think when you look at the Americas Business in this period, clearly, you can see the strength of recurring revenue in the numbers. And as you know, the gaming operations gross Class II and Class III really does throw off the highest margin in our overall business. So when you have a strong relative share of that, the margin is really going to be strong. We are expecting to expand into adjacencies for outright sales to come back, and therefore, we would expect that to be a bit of a drag on the margin. And as I mentioned earlier, we were very conservative in terms of the investment in SG and A and the in terms The projects we need to take on to build out those adjacencies. So we did pause and stuff and we paused some discretionary spend. And we've been switching that back on and it's been Through the year, and so as that comes through as well, that will also impact on the margins. And I mean, Segment margins for the Americas are like in that 50% to 55% range. They're pretty nice margins, right? So wouldn't be pushing and guiding to take them higher. Great. Appreciate the color. Thanks a lot. Thank you. Your next question comes from Brian Raymond with Citi. Please go ahead. Good morning, Trevor and Julie. Just going back on digital. Thinking about rate profitability, you called out that you've reached profitability in the first half. In the past, you've given us some comments around sort of the UA in rate itself. Can you just maybe help us understand how that's evolved over Given you continue to grow bookings, yes, so the run rate is continuing to step up, I'd assume it's not falling out too quickly, but I'd just be interested in that. And then also just player in Given most of the users on that I understand are likely to be vague players, how that's factoring into that comment around profitability? Thanks. Yes. Thanks, Brian. Appreciate the question. I'll make a couple of comments and hand over to Mike again. Look, at the end of the day, Ray did move to profitability and is now into cumulative profit as well. So it's a Well scaled game and it's got good metrics behind it. It's also still an investable game from a UA perspective and we continue to invest Based on, as I said earlier, the features that we're putting out there, the UA investment that the game is stacking up from that perspective. I think the other part here is that Mike might just want to give you some context around the Plarium Play, but also some of the other alternative ways that There have been marketing, Greg, in other channels and other influences to drive players. Mike? Thanks, Trevor. Generally, one of the things that's really been very successful for Ray this This year is the significant investment we've made in content, new content that has not only driven additional ARPDAU, but has really engaged customers Significantly beyond our expectations. It's really been one of the big success stories. So not only has that allowed us to continue to invest In U. A, but in a very profitable way, manage that appropriately, as we've continued to drive more profit in that game. Long term in regards to Planner and Play, we're very encouraged by the results. It represents close to 30% of the total revenue within Ray today. And we want to look at other games within our portfolio to use within that New platform as a way to not only create greater experiences for our customers, but more profitable experiences For us in regards to reducing the platform fees that we otherwise would pay. In regards to Marketing, I think the team at Clarion has done a really good job of exploring not only new platforms like YouTube and TikTok and other Overall marketing mix and again, as you can see by the numbers, prove that, that game can continue to drive profitability even with the UA investment that we're spending. Great. And I appreciate that color. Thank you. Just my second question then is continuing on this theme with Evermerge, it's likely to become probably your 2nd biggest game or close to it over the next 12 months at the rate I'm just interested in how you compare the bookings and earnings opportunity for Evermerge compared to RAID. I understand very different genres, Three different games, different in app purchase profiles, etcetera. But I'd just be interested to see how big this game could be from a financial perspective hand it over to Mike again. I think the key point here is these are genre by genre metrics, which you identified as well as that Yes, different target audience sizes, different types of lifetime value. But I'll hand over to Mike and talk about where merge categories and his vision is around EverMerge. Thanks, Sarah. Yes, listen, we're very happy with the success of EverMerge, Especially in the context of its by far the most successful new game launch we've had with the Big Fish organization since acquiring the company. It's clearly not at the scale of rate, and we should set expectations in regards to that. But in regards to the success it's had, it's Significantly higher than our original expectations. I think we're at the point in the life cycle that over the next few months, we're going to be making more decisions about Where is that game? How big can it become versus not only the choices we have within our own existing portfolio, New games that are coming through and I think that's one of the strategic benefits of our company right now is that we have the flexibility to make decisions about where we want to invest across our entire portfolio. And we'll make that decision again based on how we look at the Overall situation on a game by game basis, but looking at this game today from a year ago, we're very, very pleased with the results that we've So just the comparisons there, Brian, to help you out. Raige sitting sort of like $230,000,000 for the half, Evimer is sitting about 130,135 for the half. Yes. Sorry, I was more talking about that since in terms of the run rate, the ramp up has been pretty quick, maybe not quite as quick as Rave, but after 12 months, the EBITDA margin is running at a pretty healthy run rate versus how rate was. Obviously, rate continued on with it for another couple of years. So Just interested in sort of that longer term picture, but I think I've got a pretty good idea of that now. Thanks a lot. All right. Thank you. Thank you. Your next question comes from Shrutesh Janakandan with UBS. Please go ahead. Hi, Trevor. Hi, Julie. It seemed like it was a pretty strong result on cost control, particularly on the land based side of the business. Could you just talk to maybe how much of that cost control is temporary versus permanent? Yes. Thanks, To test, I'll make a comment and hand it over to Julie. But as we said earlier on, coming into this period of time, It was uncertain and volatile. So we took an approach where we contained spending, which was some of the cost cutting that we did in the second half of last year. We contained spending Until we saw started to see the confidence coming through from the top line and the business point of view, since then we've continued to increase our spending with the confidence not just in the core business, But also expanding into the adjacencies. And Julie is far more articulate in these things than I am, so I'll hand it over to her. Yes. Just not very good at unmuting myself at the moment. Hi, Sitesh. Thanks, Trevor. Yes. Look, I think we need to sort of put this back into context of where we were last year and the actions that we took. And clearly, we went into cash preservation mode We cut discretionary spend. We had people furloughed while our customers were closed. And our employees took pay cuts, our Board of Directors took reductions in fees as well. So we have this whole raft of measures in place. But as we saw our customers coming back And needing our help, we unfurloughed people and we returned to full pay effective at the beginning of the fiscal year. And then as we as Trevor said, as we started to see the recovery and we saw the momentum and we grew confident in our execution, We unpaused a number of the roles that we've been pausing on to come back. So when you talk about How much of this result is due to cost control? We're always prudent with our cost and we always invest prudently and on an informed basis. I think you probably need to look at some of the one offs that we had in the prior year That I think Sasha called out, we had some larger provisions that didn't repeat in the period that would have impacted the prior year, for example. And so I think when you think about throughout the period, we've actually been in the position I'm starting to reinvest and taking the business that was rebased at the end of last year because if you think We did have the actions we took at Big Fish to right size the Big Fish business. We've done some necessary pruning across corporate and land based as well as the gaming business. And then really as we got into this year, we have been starting to reinvest behind the areas that we need to really grow the business. And as Trevor As I've said before, we're looking really and as we say in our guidance, we're looking at how we can grow into adjacencies and build out the capabilities We need to be effective in those adjacencies, and those are things like customer experience, data. We talk about cyber and privacy, Just a few of the key areas where we need to reinvest. In another area, we've talked about it's been last year, we obviously paused and we didn't have a lot Variable compensation going through because of the financial performance, whereas that's coming back this year as well. And we have been We've increased the amount of equity we've been rewarding our people to make sure that we can retain and attract really strong talent. That's all for me. Thank you, guys. Thanks, Sishej. Thank you. Your next question is a follow-up from Brian Raymond with Citi. Please go ahead. All right. Thanks for taking a quick follow-up. It Surprisingly, we haven't had anything on iGaming acquisitions yet on the call, so I thought the remiss of us not so at least half. Given your $0.15 dividend and strong cash flow, should we interpret that as preserving capital for any potential future acquisitions you might see? Or is that a Yes. Yes. Thanks, Brian. Our priority still remains around liquidity and Julie sort of walked through where we sat with our capital priorities, capital management. We have a very strong balance sheet. The discretion it's a discretionary allocation from the board point of view from a dividend. We did do $0.10 fully franked We have done $0.15 fully franked for the half. It's a progressive in nature dividend. From our perspective, As I said to you at the start, we're really focused on liquidity here. We want to have continue to have the ability to self fund our future growth across the digital and gaming business and other adjacencies. We see ourselves as an asset light free cash flow generating technology company and really where we see ourselves as well positioned to take advantage of Opportunities should they come up, but more importantly to continue to invest behind the content, the talent and the distribution which drives our continuous growth As an organization, if you go back to that fundamental, what we do is by driving profitable growth, we drive sustainable return to shareholders and we have the ability to reinvest next wave, profitable freight. Okay. And have your thoughts evolved on the iGaming space at all since you last addressed the market a couple of months ago? So I couldn't quite hear you, Brian. If your thoughts have evolved much on the iGaming space in the U. S. And whether that opportunity is still there for you or if it's Pretty much the status quo sort of where you saw a couple of months ago when you last spoke to the market at the start of Blackout? Yes. No, we could see thank you for that. I've got that. We continue to monitor the market as we do all adjacencies. We've got a number of adjacencies we continue to monitor. There's only 6 states which have really moved forward with online gaming at the moment. So it's just one of the options that we continue to look at for our business. The growth in digital, you can see the results of our diversified business model. Now the growth in digital It's phenomenal, and we believe that there's still a lot of growth there and continue to invest for both talent and content to go into that business And the gaming business as well. We've got strong growth as the gaming business has rebound. We continue to listen to our customers about what they're looking for And work with them on solutions that we can continue to build on. So we are we're well positioned. I think from my perspective, Yes. The key here is to continue to grow our core businesses and then be ready for those opportunities when they come through. As far as iGaming goes, It's just one of those adjacencies that we continue to monitor. And I'd say it's still very early in its lifespan in the North American market. Okay. Excellent. Thanks a lot. Thanks Brian. Thank you. Your next question A follow-up from Larry Gandler with Credit Suisse. Please go ahead. Hi, Trevor. Just Clarification on digital. I think, Mike mentioned something about a portion of, Plarium and RAID's revenues going through the internal Could you guys just perhaps repeat that and maybe expand on it? Yes, sure, Larry. So that's Plarium Play, which is we've been talking to the market now for about 12 to 18 months and has continued to scale. I'll get Mike just to walk you through Plarium Play and how that how we think about that and also what it does from Plarium's point of view with no platform fees obviously. Mike? Thanks, Trevor. Yes, Polarian Play is an internal platform that we have that allows PC customers to be able to access the game. It's a much even robust game experience for them And allows them then not only to have that stronger customer experience, but allows us then to Not pay platform fees as a result of that. So the economics of those customers are better as a result of that. And so we believe that both are very complementary and we'll continue to expand, Polarian Play for our own titles as well as over time explore The possibility for others to join and to be part of that platform as well. And Mike, did you mention what portion of, rates revenues are going through Fantastic. Thanks. Thanks, Larry. There are no further questions at this time. I'll now hand back to Mr. Kroger for closing remarks. Right. Thank you. And I'll now close the formal proceedings. I'll just make a couple of quick comments before doing so. Just want to reiterate how proud we are of our team The efforts that they've put in through this period of time and the success that they've been able to generate, also depreciation and support of our customers who have been great partners through this period of time. As we continue to strive towards being a trusted and leading gaming and entertainment and technology company. We came into the second half with excellent momentum. We're very confident about the outlook statements we've given you here today. So with that, I'd like to thank you on behalf of the broader risk strat team of That does conclude our conference for today. Thank you for participating. You may now disconnect.