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Scientific Games Corp (LNW 4.09%)
Q4Â 2018 Earnings Conference Call
Feb. 21, 2019, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good day, and welcome to the Scientific Games Fourth Quarter Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) Please note, this event is being recorded.
I would now like to turn the conference over to Robert Shore. Please go ahead.
Robert Shore -- Senior Director of Finance
Thanks, Nichole. During today's call, we will discuss our fourth quarter 2018 results and operating performance, followed by a question-and-answer period. With me this morning are Barry Cottle and Michael Quartieri.
Our call today will contain statements that include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For information regarding these risks and uncertainties, please refer to our earnings release issued earlier this morning. The materials related to this call are posted on our website and filings with the SEC.
We will discuss certain non-GAAP 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 on our website. As a reminder, this call is being recorded. A replay of this webcast and accompanying materials will be archived in the Investors section of our website at scientificgames.
Now, let me turn the call over to Barry.
Barry Cottle -- President and Chief Executive Officer
Thanks, Bobby. Good morning and thanks for joining us. This is an exciting time for Scientific Games, 2018 was a year of great progress, growth, and innovation. We focused on producing games players love in the most cost effective manner, making strategic investments in innovation and building the best solutions for our customers. Those initiatives provided a solid framework to effectively grow our business, generate free cash flow, and delever the business through 2019 and beyond.
We're pleased to report that our fourth quarter results marked our 13th consecutive quarter of year-over-year increases in revenue and consolidated AEBITDA. The mix shift of our recurring revenue is also up year-over-year with the addition of NYX. Our free cash flow this quarter were strong. However, they were negatively impacted by $305 million in combined payments to fund our remaining portion of our nine year highly accretive Italian lottery instant ticket concession to settle the Shuffle Tech legal matter, and the timing of our interest payments. While we firmly believe that jury decision in the Shuffle Tech matter was wrong, we're pleased with the outcome of the settlement and to have this matter behind us.
I recently returned from the ICE Show in London, which was very successful. We're pleased with the innovative new products we showcased, the awards we won, including Lottery Supplier of the Year and great customer feedback. Importantly, we believe these products will help us grow revenues and drive free cash flow. We remain focused on improving game ops and we began to see the benefit of that focus in the fourth quarter, with quarter-over-quarter growth in both our footprint and yields in our WAP and premium segment.
We've been successfully rolling out the James Bond franchise and we will complement that with a wave of strong content including Jin Ji Bao Xi, Twin Fire Frenzy, FLINTSTONES and Superlock. For those not familiar with the game Jin Ji Bao Xi, it's the number one linked slot in Asia and we're now rolling it out across the United States with the initial performance being very favorable. These games will be in our premium market segment to complement Bond's recent success in the WAP market segment.
Our new games will work across multiple cabinets, including our new Wave XL, the J43 and the Pro Wave cabinet. This will allow customers to enjoy our games at different price points and for us to be more efficient with our game ops capital spend. We also see a large opportunity to grow in places like Australia and Europe by developing more localized content. Our key focus is on making the best games for our customers in the most cost effective manner.
Our Lottery business remains strong and is in great hands. We recently named Pat McHugh, EVP, Group keep Executive Officer of our Lottery business. For those that don't know Pat, he has been with Scientific Games for 14 years as a proven executive, most recently heading our global Lottery Systems business. Pat will leverage his deep industry expertise and proven success at Scientific Games to provide strong operational leadership, drive innovation, and execute our global growth strategies. Jim Kennedy will remain with the Company as the Chairman of Lottery.
This year marked a record year for domestic retail sales of instant tickets, breaking the $50 billion mark, with Scientific Games providing over 70% of those tickets. We are adding innovation to our instant ticket business to drive growth for retailers. We also see online mobile play as a tremendous opportunity and we're proud of the Pennsylvania iLottery launch, which has seen nearly 200 million wagers in its first seven months of operations, making it the most successful iLottery launch in the US.
We are increasing our pilot program for SCiQ, partnering with lotteries and retailers including 7-Eleven and Circle K and in February, we expanded this pilot program to include Walmart in the State of Florida. We are also in the process of rolling out units under our contract with the Ohio State lottery which includes installations at all 150 plus Kroger markets in the state. And in Turkey, our consortium was recently awarded a 10-year contract to manage its sports betting business, which is one of the largest in the world.
In Digital, I want to take a moment to welcome our new EVP, Group Chief Executive Officer, Jordan Levin, Jordan has been with the Company for 12 years and has been a driving force behind our digital strategies, new business development, and enhancements in our iLottery, iGaming and sports betting solutions. He was our key point person for the acquisition and integration of NYX. We recently launched our OpenBet platform with Caesars in Philadelphia and are now live in New Jersey, Pennsylvania, and Mississippi.
We also successfully launched with the New Zealand Racing Board, which is changing how customers in that market bet on and enjoy sports. OpenBet is now regularly processing an average of 20,000 bets glitch free per minute. We have the most comprehensive sports wagering solution for our customers and we expect to win business as the market expands to more states. A recent example is the Oneida Nation in New York, which signed on as a new sports betting customer in the quarter.
In iGaming, we just reached a deal with DraftKings, we recently launched Paddy Power Betfair on our OGS platform and will offer the best games to our players including Jin Ji Bao Xi on mobile in March. In New Jersey, the only state where iGaming on slots and table games is active, we had a record month in total amount wagered in December. As the market leader in New Jersey with over 50% share, we are confident we will maintain this position as additional jurisdictions open based on our unrivaled content and platform.
In Social, we grew revenue quarter-over-quarter by 8% or 4 times the market according to estimates from Eilers & Krejcik. The strong results were driven both by customers who love our core apps and the success of new games like Bingo Showdown and MONOPOLY slots. Our games are complementary to our existing business as they address different customer segments than our legacy games. We've seen increased revenue for both the core legacy games we have and the newly launched games.
In mid-December, our Social gaming business confidentially filed an S-1 as we are considering a possible initial public offering of a minority interest. The process is moving along and last week, our Social Gaming business submitted Amendment 1 to the draft registration statement. We anticipate that the proceeds from the IPO would primarily be used to repay debt.
Overall, we are very pleased with the quarter. The investments we make give us a clear lane to drive revenue growth, generate free cash flow, and delever the balance sheet in 2019 and beyond. We are focused now on doing what we do, which is making the best games to help our global customers win in lottery, casino, real money digital gaming and sports betting.
And with that, let me now turn the call over to Mike to provide his review of the fourth quarter results.
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Thanks, Barry. Good morning, everyone. As Barry noted, our results continue to be strong. Consolidated revenue rose 8% and our AEBITDA increased 6%. In our Gaming business, fourth quarter AEBITDA decreased by 2% or $5 million despite revenue declining 5%. Our AEBITDA margin improved 150 basis points to 49.6%. Revenue from gaming machine sales decreased $23 million or 12% in the fourth quarter. The decline from the prior year reflects 700 fewer units for new opening and expansion, with last year featuring two large domestic openings. Domestic replacement units were down 633 units as the prior year included 700 VLT units sold into Canada versus no comparable shipment to this year.
We shipped 9,023 machines globally, including 3,788 replacement units in the US and Canada, 286 expansion units and 659 VGTs to Illinois. Internationally, shipments totaled 4,290 compared to 4,409 units a year ago. Year-over-year, our average selling price for the quarter was down 4% driven by a greater mix of lower priced international units, primarily due to a large order in the UK. We expect to receive our fair share of floor space at Encore Boston Harbor and the majority of these shipments will occur in the first quarter of this year. We are making the New Wave XL cabinet available for sale in early April as well as more content on the TwinStar J43 to drive growth in 2019.
Gaming operations revenue was down approximately $8 million on a quarter sequential basis to $151 million. On a year-over-year basis, revenue was down 11% or $17 million, of which $6.8 million was the result of the new revenue recognition accounting for WAP jackpot expense. For comparison purposes, the WAP jackpot expense was $5.4 million and treated as cost of services in the prior year. This change in classification has no impact on operating income, AEBITDA, or cash flow.
On a quarter sequential basis, our installed base of WAP premium and daily fee participation unit was up 111 units and average daily revenue per unit was up $1.65, despite the fourth quarter typically being the slowest in gaming ops given the holiday season. As James Bond roll out continues to be successful, with more than 700 units in the field, in more than 150 casinos, and other titles like MONOPOLY Millionaire and The Lord of the Rings contributing to our growing footprint.
Revenue from other participation units was down $2 million on a quarter sequential basis. The installed base was up 121 units as we placed an additional 380 units in Greece, bringing our footprint to more than 3,700 units. For a year-over-year perspective, there were 1,464 more units in Greece and 2,249 fewer units in the UK. This decrease in the UK is related to fewer shops operating in the market. This mix shift of the installed base negatively impacted our yields as the units in Greece carry a lower yield.
Gaming systems revenue increased $8 million year-over-year or 10%. The growth is primarily related to ongoing installations in Canada coupled with increased hardware sales for shipments of our innovative iVIEW 4 player interface display units. iVIEW 4 remains very strong and we have sold 105,000 units to-date including 17,000 in the fourth quarter. We have a large opportunity to replace our existing base of 300,000 units previously sold as well as the roll out of the product to new customers. We expect maintenance revenue associated with our new contract to continue to increase through 2019 and beyond. Table products revenue increased $10 million or 20% year-over-year, driven by strong demand of our global shufflers.
Turning to Lottery, our fourth quarter revenue increased $14 million and AEBITDA was up $10 million compared to the year ago quarter. Within our lottery business, our systems revenue increased $14 million or 22% year-over-year. This was driven largely by growth in hardware sales and recent lottery installations in Maryland and Kansas, the new investment in Keno and virtual sports in Pennsylvania and the benefit from the run-up of a large POWERBALL jackpot during the quarter.
Our instant ticket revenue of $150 million was down 1% from the prior year. The launch scheduled for instant games can make year-over-year comparisons challenging. We will launch Deal or No Deal, our next multistate instant lottery game in May, which follows the success of our WILLY WONKA GOLDEN TICKET that exceeded $860 million in retail sales in 2017 and 2018.
Turning to our Social segment, we generated strong growth. Revenue increased 19% year-over-year to $114 million while AEBITDA increased 30% to $28 million. We experienced record revenue this quarter driven by increased monetization of our paying players with ARPDAU up 10% on a year-over-year basis. On a quarter sequential basis, our fourth quarter revenues were up 8%. The growth was driven by legacy games, including Jackpot Party Casino showcasing new game updates and features, and the strong success of newer titles like Bingo Showdown and MONOPOLY slots.
In Digital, we generated $72 million in revenue and $12 million in AEBITDA. During 2018, we successfully launched our gaming content across 23 new client sites and signed 16 new customers. We successfully launched sports for the New Zealand Racing Board and in January, we began powering sports betting in Pennsylvania with Caesars. During the quarter, we reached a final settlement on the Shuffle Tech legal matter. As a result, we paid $151.5 million during the quarter, which represented 45% of the original amount. Because we had fully reserved the judgment in the third quarter, the $183.1 million excess amount was reversed and recorded as a credit in restructuring and other.
This past year had a number of unusual items related to cash flow, including nearly $180 million associated with the nine-year extension of our Italy instant ticket concession, the $151.5 million for the Shuffle Tech settlement and overall higher cash interest payments of $52 million resulting from our February 2018 refinancing activities, the higher than normal CapEx spend associated with long-term highly accretive lottery constricts in Maryland and Kansas, virtual sports and Keno in Pennsylvania, a new seven-year agreement with Ladbrokes Coral and the development of our US sports betting platform. We expect 2019 to be a much cleaner year from a cash flow perspective.
For 2019, we expect capital expenditures to be below 2018 and within a range of $345 million to $375 million. Based on the timing of lottery hardware sales and gaming product launches, we would expect our results to be stronger in the second half of the year.
In summary, I would remind everyone that our commitment is firmly focused on deleveraging, which will be accomplished by continued revenue growth and effectively operating the business.
And with that, Nichole, you could open up the line for questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Carlo Santarelli of Deutsche Bank. Please go ahead.
Carlo Santarelli -- Deutsche Bank -- Analyst
Hey, guys, thanks. Michael, just on the CapEx comments you made there toward the end, with respect to the Pennsylvania tender, I'm assuming there's something baked into that $345 million to $375 million for that potential rebid and restart?
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Not at this point. When you go back and look at our normal CapEx spend, it's been roughly around that $300 million mark. And that was historically before the addition of NYX. So there is an uptick to the normal amount for NYX plus a couple of other strategic items that we are working on. But right now, there's nothing in our budget this year for Pennsylvania and that is really a function of where we stand today with the RFP.
Carlo Santarelli -- Deutsche Bank -- Analyst
Understood. And could you possibly provide maybe two updates, one on the status of that RFP and how you think about the timing and then, secondly, maybe on the latest that you guys kind of understand coming out of Brazil?
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Sure. Why don't I go ahead and take the PA lottery update and then I will hand Brazil over to Barry? At this point, the contract actually ends in June. So right now we're still waiting for the rerelease of that RFP, which we're expecting in the next couple of months. So given the timing with the state to be able to go through and do an RFP, get the responses and evaluate them, we wouldn't anticipate there to be much in the way of CapEx spend in 2019 for the Pennsylvania systems contract.
Barry Cottle -- President and Chief Executive Officer
And related to Brazil, on the lottery, bets are expected to be due on March 20. The winner currently to be decided on March 26 and we're currently evaluating the opportunity right now.
Carlo Santarelli -- Deutsche Bank -- Analyst
Understood. Thanks, guys, very much.
Operator
Our next question comes from Barry Jonas of SunTrust. Please go ahead.
Jeffrey Stantial -- SunTrust -- Analyst
Hey, guys, this is actually for Jeff Stantial on for Barry. Thanks for taking our questions. Yes, I guess, first off I appreciate the color on the Social IPO. Could you just give us any thoughts on potential timing, and then in your own words, would you say this is more about monetization or getting more credit in your multiple?
Barry Cottle -- President and Chief Executive Officer
As we mentioned before and obviously where -- we have obviously restrictions related to the SEC that prevents from saying a lot on this right now. As we -- but we mentioned our motivation, one is obviously unlock value of Social, which is I think a benefit and then secondarily, to help us use the proceeds to pay down debt and delever the business from a motivational perspective. As we noted earlier on December 17, we confidently submitted a draft registration statement on Form S-1 to the SEC to a possible public offering and then on February 14. We submitted amendment number one to the draft registration statement. We anticipate that, obviously, as I mentioned before, the proceeds would primarily be used to repay debt. We can't really comment beyond that in terms of date.
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Yeah, the only thing I'd just kind of add to that, the duration of time between the initial submission in December and then the second submission in February, recently, unfortunately, when the government shuts down, the SEC shuts down. So that review process has -- was taken a little bit that longer than we expected only as a result of the government shutdown.
Jeffrey Stantial -- SunTrust -- Analyst
Okay, that makes sense. Thanks. And then just on the 10% notes that are callable. Could you give us any updated thoughts on potentially refinancing those? And then just how are you sort of weighing the extending the maturities versus looking at the net interest savings net of the call premium?
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Sure. Look, as I've said before, we continually look into the credit markets for the right opportunity. Unfortunately that right opportunity wasn't available around December 1 when the 10% became callable for the first time. However, since the New Year the markets have recovered somewhat and continuing to show improvement. So at this point in time, we're going to continue to monitor the markets and take advantage of it when the timing is right for us. That's about the extent to what I can say on that matter, though.
Jeffrey Stantial -- SunTrust -- Analyst
Okay, great. I think that's it for me. I appreciate the color, guys.
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Okay, thank you.
Operator
Our next question comes from Brad Boyer of Stifel. Please go ahead.
Brad Boyer -- Stifel -- Analyst
Yeah, thanks for taking the questions, guys. First one is just around North American product sales within the gaming segment. I think all of us, myself included, kind of overlooked that shipment into Canada last year when modeling out the fourth quarter this year. So if we look ahead into '19, could you just give us a sense of kind of how you guys are thinking about sort of core North American replacement demand and sort of any anecdotes you can provide based on conversations you've had with your customers? That will be helpful. Thanks.
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Yeah. So I think when you look at this year's -- I should say, this year being the 2019 sales projections and what you're looking at, I think the Eilers guys have it right where it's going to be -- and I will say, slow growth or a low single-digit growth, which is what it's been over the last couple of years and we wouldn't expect there to be any significant movement in that as a catalyst. I'd say there's no catalyst that we're seeing this year that's going to make any type of significant changes from what we've seen from '17 to '18 we would think would continue from '18 into '19. I think the things around that is what we can do from a market share perspective and that's why when we introduced the Wave XL in the for-sale market, we think that's going to be a key driver for us in '19 to be able to capture market share and hopefully drive a bit more growth in the overall replacement market itself.
Barry Cottle -- President and Chief Executive Officer
Yeah. The thing that I would add to what Q said is just, I think, as we look forward, we are pretty excited about our product roadmap going forward, and the fact that we will have the Wave XL and sales coming in that mid-year timeframe combined with some really nice titles.
Brad Boyer -- Stifel -- Analyst
Okay, helpful. Second question is just around the Social and Digital segments, and then the associated margins within those segments. It came in a little bit lighter than, I think, again, where kind of everyone was. I mean, within Social, were there any unusual costs in there tied to the S-1 filing and the potential IPO offering? But I guess, what I'm getting at is sort of how should we think about sort of margins in those segments as we roll forward?
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Yeah, I think I'll take the first part and then I'll hand it over to Barry from an operational perspective. So there are no costs associated with the proposed IPO that would be impacting the operating results within the Social segment.
Barry Cottle -- President and Chief Executive Officer
Yeah. And, look, the business continues to scale nicely and from an operational perspective, all of our games quite frankly right now are healthy and growing with the KPIs within each game. Both individually and collectively, we had record month in December, record month in -- a record quarter in Q4 and what that enable us to do, obviously, is we're also being able to spend from a marketing -- return on investment marketing perspective at higher yields and so we've been leaning into that as well and obviously was able to achieve, as we mentioned before, kind of the 4x market growth in that time period. And so it is really quite frankly a function from an operational perspective of leaning into the business in the most kind of effective and efficient way that we can. So we expect to be able to continue to scale that business and get scale over time, meaning leverage and drive higher margins as we grow.
Brad Boyer -- Stifel -- Analyst
Okay, thanks. And then lastly, I appreciate the fact that no one on the call's an attorney. But just given the breadth of your product and services offering, just curious if you guys had any thoughts around the Wire Act reinterpretation. That's all for me.
Barry Cottle -- President and Chief Executive Officer
No, no worries at all. And, look, we believe the Department of Justice's new opinion is wrong on the law and that Justice actually got it right in its 2011 opinion. Unfortunately the new opinion leaves obviously important questions unanswered and shows a little understanding of how the gaming industry operates today. Two law suits, as you know, have already been filed challenging the DOJ's new opinion and seeking clarification that it does not apply to certain industry practices. So for now, we're continuing to monitor the situation closely and have no current plans to alter our strategy as it relates to iGaming, iLottery or domestic sports betting.
Brad Boyer -- Stifel -- Analyst
Helpful. Thanks, guys.
Barry Cottle -- President and Chief Executive Officer
Thank you.
Operator
Our next question comes from Joe Stauff of Susquehanna. Please go ahead.
Joseph Stauff -- Susquehanna -- Analyst
Thank you. Good morning. Can you guys talk about just the game ops premium, why they are progressing? You've got a number of new products obviously that are hitting markets that you're marketing now. Once the ramp obviously occurs on the machines on gaming first, then it stabilizes. Where you think basically the new products and how they're looking once they have stabilized thus far? And then I have two follow ups.
Barry Cottle -- President and Chief Executive Officer
Yeah, the way I would look at it is this, so obviously as I think Q mentioned in his notes, in Q4, we actually grew our footprint and yields quarter-over-quarter in Q4. We've got, what I call, a one-two punch going after this space today. We've always been pretty strong in WAP and less strong on the premium segment. And one of the things that we did quite frankly last summer when I came on was kind of what I call product portfolio optimization, which was taking a look at the products that we have, what are the segments we want to go after and win and making sure we have the right titles lined up against that. And then basically go after it, introduce, what we call, content or cabinet interoperability, which is a single platform that cuts across our cabinets, which enables us to launch a product and then deploy it across multiple cabinets. Those cabinets can exist on the floor or their new cabinets that we're introducing.
In the past, as an example, Jin Ji Bao Xi, we would have launched that on the Wave XL and you would have had to have the Wave XL in order to get that game. Now, we're able to launch Jin Ji Bao Xi and you can have it on existing J43 et cetera. So stepping back, we've gone after the segment with really incredible IP like Jin Ji Bao Xi, Pink Panther, Twin Fire Frenzy et cetera to really bolster that premium segment to complement Bond and some of our top titles that we have on the WAP side of the business and then deploy them such that it can be leveraged across multiple cabinets in the marketplace today. And I think that puts us in a really nice position to go attack the game ops space, which was, as we've mentioned now for several quarters, both a challenge in 2018, but a huge opportunity for us in 2019 as an organization. So, that's how we've been strategically attacking it and we're very excited about it, because I think honestly Bond with Jin Ji Bao Xi gives us a really nice one-two punch and then we had a really strong lineup beyond that as well.
Joseph Stauff -- Susquehanna -- Analyst
That makes sense. Thank you. I wanted to ask you about maybe just (inaudible) segment, the ASPs certainly were lower and I was wondering if that was just due to mix shift, that mix shift in particular out of international, if you can comment on that?
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Yeah, I can take that one. So it really stems from international sales and it was primarily around in the UK where the units there are slightly lower ASP than what we typically receive say from an international market like Australia. So although the number of units sold internationally were relatively consistent, that mix shift between higher UK percentage is what drove down the ASP in Q4.
Joseph Stauff -- Susquehanna -- Analyst
Okay, makes sense. And then finally, on the digital side particular -- can you just maybe talk a little bit or what you can share with us on kind of strategy? You're obviously ramping, trying to build capacity obviously for (technical difficulty) talk about betting in particular. Is it fair to assume that it will be relatively modest as you kind of ramp up that capacity?
Barry Cottle -- President and Chief Executive Officer
You broke up, so I am not sure I caught the whole question, but I think if you're referring to kind of basically our strategy on digital today, look, our goal on digital is to be the leading enabling platform, aggregator of content on iGaming and the number one sports full service provider in the marketplace today. We have an incredibly solid position in Europe and the UK today across the board from a market share perspective and we continue -- while there's a lot of focus on North America, we continue to win a lot of business in Europe as well and extremely successful.
And then, on North America, bringing our -- taking our solution and -- which we believe having kind of become the market leader in the UK over decades, we know -- having the best product in the marketplace, most scalable, customizable, reliable, compliant product in the marketplace, we will -- which we've been investing on the frontend of North America, we've put ourselves in a position to continue to partner with really strong players such as Caesars and Oneida and other deals that we're working on now. So the North America sports, which we think is a big opportunity, is still nascent in the marketplace today. So, still in investment mode. We expect it will take a few -- a couple -- two to three years before that market becomes material, but obviously with the opportunity in the US and North America, it's something that we and others believe in -- will bear fruit.
And then, along with that, and I think one of the things that is not kind of a big focus, but I think it's extremely important is that in addition to North America sports is iGaming. iGaming in New Jersey, as we mentioned before, we have about a 50% market share on the platform side, around 22% on the content side. As these states are starting to legalize sports, they are also contemplating iGaming and legislation starting to form around that which is another big opportunity and in that space, we're extremely well positioned. So, we're really setup as North America starts to adopt sports and iGaming that we're in a great position
And then the third leg that we also mentioned on the outset is iLottery. We've also developed a leading iLottery solution that we've launched in Pennsylvania and just recently achieved the most successful iLottery launch in North America today. And so we've built a really world class solution across all three and it really nicely set up to capture the value chain of the enabling platform, but also leading content in those spaces as well. And granted it's been in investment mode in 2018 and will through this year, all of those markets are growing and adopting and we will be in a position as that future market starts to scale.
Joseph Stauff -- Susquehanna -- Analyst
Understood. Thanks a lot, guys.
Barry Cottle -- President and Chief Executive Officer
Thank you.
Operator
(Operator Instructions) Our next question comes from Mike Malouf of Craig-Hallum Capital Group. Please go ahead.
Eric Des Lauriers -- Craig-Hallum Capital Group -- Analyst
Hi, guys, this is Eric Des Lauriers on for Mike. Thanks for taking my question. I was wondering if you could dive into the opportunity with the SciQ machines and lottery. Could you talk a little bit more about your current footprint, the results to-date and how your assessment of the opportunity has evolved over this trial period? Thanks.
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Yes, sure. As we've commented before, if you look at the total addressable market for SciQ, to kind of break that down, there's 200 plus thousand retail locations that sell instant lottery tickets today. Now, SciQ is more for a high volume type location, which we would think is roughly around 30% of those, so roughly about 60,000 locations. From a trial perspective, as Barry commented, we've just added Walmart to the pilot program with locations in Florida that we're excited about and then from a roll out perspective, the one contract that we have where we've actually been able to get the sale done is through the Ohio State lottery. And as Barry commented, they are in the process of going through and rolling out and making determinations as to where they want those 300 units. They have determined that they want to put over 150 of them, which represents basically every Kroger market in the State of Ohio, which is exciting news for us to see how that's going to play out accordingly.
For all those that were in the pilot program to-date, all have seen increase in retail sales anywhere from 10% to 15% and the hidden benefit in this and I -- remember from our last call is really around the operational efficiencies at the retailer. If you think about it, the tip of the tickets that are sitting at the retailer is no different than cash in the register and therefore, every time they read -- they countdown their till to record their revenues for the day, there is a significant amount of labor that goes into counting down those retail instant ticket and then reconciling that to the data in the POS. So, getting the retailers that benefit and the additional benefits around the security features are two really important items that will help stimulate that growth within SciQ.
Eric Des Lauriers -- Craig-Hallum Capital Group -- Analyst
All right. Great. That's helpful. Thanks, guys.
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Thank you.
Operator
Our next question comes from David Katz of Jefferies. Please go ahead.
Erik Hellquist -- Jefferies -- Analyst
Hi, good morning. This is Erik Hellquist on for David. Just wanted to touch quickly on the James Bond franchise. I know you had discussed in detail on your prepared remarks, but just wanted to get any kind of additional color you can give us as well as any kind of metrics you are willing to share?
Barry Cottle -- President and Chief Executive Officer
I think the things that essentially, as we mentioned kind of, I think, earlier, I'd say is, as Q had said, we have well over 700 games installed in over 150 casinos. They are performing quite -- basically comparable to the terms that Wonka did on Gamescape, which was our best WAP game ever. And so we're seeing the two to three times floor average on Bond, which is exceptional. So we've been extremely pleased with the Bond franchise and right now, which again I think is largely attributed to the fact that we were able to grow our footprint in yields over the quarter because we had such a hit and we've got more Bond products coming out the door as well for -- in Q1. So, again, we're very happy about it. I think we got LIVE AND LET DIE and maybe one or two other titles here coming out again. So, very happy with it.
Erik Hellquist -- Jefferies -- Analyst
Okay, thanks. And just another question on the leverage profile. Could you just give us kind of a sense for your target leverage and what kind of pathway you would expect to get there?
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Yeah, unfortunately, we don't really give guidance as far as what our leverage targets are, but from a Company perspective and from, I should say, from Barry and I specifically, our key objective is to drive free cash flow in order to use that to delever our balance sheet. So given where leverage is today, our initial target is let's get below 6. And when we get below 6, then we are going to drive to get below 5. Now that's the pathway we go, that will take a couple of years based on where we're at from an operations perspective. But setting an initial target of, saying, we want to be at x times, we don't have that and actually disclose anything to that effect to the market.
Erik Hellquist -- Jefferies -- Analyst
Great. Thanks, Q, and thanks, Barry.
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Thank you.
Operator
Our next question comes from James Taylor of Bank of America. Please go ahead.
James Taylor -- Bank of America Merrill Lynch -- Analyst
Hey, guys how are you doing?
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Hey, James.
James Taylor -- Bank of America Merrill Lynch -- Analyst
I guess, first, just on the -- you mentioned the Canadian system roll out, which I know is sort of ongoing. I was wondering if you could sort of help to quantify what that impact will be like in '19 versus '18, just when we think about the number of units that will be impacted and then what's the sort of run rate service fees on that contract are expected to be?
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Yeah, I mean, I would look at it this -- the more significant and larger sized installations really were taking place throughout '18. So we would expect the Canadian systems deals to start running downward. I would say it's probably going to be somewhere in that -- I'd say, best guess would be around $20 million year-over-year decline associated with just the Canadian systems. However, some of that will get made up on with the additional maintenance fees that we're going to start collecting as the roll out continues. From a, I'd say like a couple quarterly view of the roll out, it is fairly lumpy throughout the quarter. I should say, throughout each of the quarters throughout the year.
Barry Cottle -- President and Chief Executive Officer
And one thing to add on that is just in addition to the Canadian just as it relates to systems, the other opportunities related and I think we've mentioned this earlier, but we have continued healthy growth of the iVIEW 4 placements. We did -- 17,236 were deployed in Q4, bringing our total installed base to over 105,000, but it basically puts us in the early stages of the replacement cycle, with over around 300,000 iVIEW 1, 2 and 3 still existing. So, still a lot of upside as it relates to the iVIEW 4 beyond what we're doing in Canada.
James Taylor -- Bank of America Merrill Lynch -- Analyst
Very good. And then, Mike, just one follow-up. And you mentioned in the prepared remarks, obviously there are a bunch of one-time cash flow items in '18. Other than interest in CapEx, are there anything that we should be thinking about from a cash flow perspective in '19 and if you could just give us an update? I assume that your NOLs will be in place for years to come.
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Yeah. So I'll answer the end one quickly. From an NOL perspective, our net operating losses was roughly about 1.5 billion as of the end of the year. But from a free cash flow perspective, we kind of listed out a couple of things, so if you just took Q4 free cash flow yet -- but we had negative free cash flow of almost $229 million. When you take into account the $151.5 million payment for the Shuffle Tech matter, the $105 million last payment for the LNS concession, and then just the timing of accrued interest as we've covered throughout the course of the year when we changed and refinanced the 7%s, which was a Q1, Q3 timing of interest payments to more of the senior notes of the 5%s, which are Q2, Q4, that accounted for about $50 million in additional cash payments in Q4. You take the sum of those three items, and kind of exclude those from that number, you get to a much more normalized free cash flow number, which compares quite favorably to the $9.7 million we had in this Q4.
As we look into 2019, we don't anticipate anything like the Shuffle Tech type settlement. We don't have anything on the horizon that's very similar to the LNS concession payments. The only thing that you could have is, if we're able to refinance accordingly, the timing of that refinance could impact the timing of interest payments, but again that's a timing perspective, it's not a significant use of cash that we've seen in 2018. So we would expect 2019, as I said in the prepared marks, to be a much cleaner year from a cash flow perspective.
James Taylor -- Bank of America Merrill Lynch -- Analyst
Excellent. Thank you for the update, guys.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Barry Cottle for any closing remarks.
Barry Cottle -- President and Chief Executive Officer
Thanks, everyone, for joining us today. We appreciate your support. The entire organization is excited for the opportunities ahead of us. Look forward to updating you on upcoming accomplishments and our first quarter results during our next call. Thank you very much.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Duration: 47 minutes
Call participants:
Robert Shore -- Senior Director of Finance
Barry Cottle -- President and Chief Executive Officer
Michael Quartieri -- Executive Vice President and Chief Financial Officer,
Carlo Santarelli -- Deutsche Bank -- Analyst
Jeffrey Stantial -- SunTrust -- Analyst
Brad Boyer -- Stifel -- Analyst
Joseph Stauff -- Susquehanna -- Analyst
Eric Des Lauriers -- Craig-Hallum Capital Group -- Analyst
Erik Hellquist -- Jefferies -- Analyst
James Taylor -- Bank of America Merrill Lynch -- Analyst
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