Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- International Game Technology PLC (IGT, Financial) reported strong first half results with over $2 billion in revenue and an operating margin of 23%.
- The company achieved record operating income and adjusted EBITDA, reflecting strong performance from both the Global Lottery and Gaming and Digital segments.
- The sale of the gaming and digital business to Apollo for $4.05 billion in cash is expected to provide a clear-cut separation and substantial increase in cash, reducing shareholder exposure to execution risk.
- Global iLottery sales rose 27% in the first half, with strong growth across regions, especially in the US and Italy.
- The company secured several important multiyear contract wins and extensions, including a new seven-year contract with the Colorado Lottery and a five-year contract with Canada's Atlantic Lottery.
Negative Points
- Revenue of $1.05 billion in Q2 2024 was in line with the prior year, indicating no significant growth.
- Operating income decreased to $230 million from $251 million in the prior year, partly due to $26 million in separation and divestiture costs.
- Global terminal unit shipments declined by 640 units year-over-year, reflecting a return to more normal levels following a period of pent-up demand.
- Same-store sales outside of Italy were slightly below the prior year, with lower instant ticket sales offsetting growth in multi-jurisdictional jackpot games.
- The company is withdrawing its full-year financial outlook due to the planned sale of gaming and digital to Apollo, creating uncertainty for investors.
Q & A Highlights
Q: Can you walk us through the timing and process for receiving various antitrust and regulatory approvals for the Apollo transaction?
A: Vincent Sadusky, CEO: Apollo is already in the gaming business and has experience with regulators. Our original transaction with Everi was evaluated by the DOJ, so we are in good shape there. We estimate roughly a year for the approval process, with a possible extension to 15 months.
Q: Does the guidance for the lottery business still hold, particularly regarding same-store sales and margins?
A: Massimiliano Chiara, CFO: Yes, we expect the lottery business to be up low-single-digit excluding jackpot functions for the rest of the year. The underlying business conditions are solid, and we anticipate better performance in the second half due to higher price point launches and successful new game campaigns.
Q: How are you thinking about your strategic goals for the lottery business over the next few years?
A: Vincent Sadusky, CEO: We see both the gaming and lottery businesses as having terrific upside potential. The lottery business has grown at around a 4% CAGR since 2019. We are excited about the digital opportunity, despite slower-than-expected iLottery adoption in North America. We believe the separation will help unlock the intrinsic value of our lottery business.
Q: Any update on the Italian lotto renewal process and its ROI potential?
A: Vincent Sadusky, CEO: The Italian lotto is a remarkable business with high penetration. We are confident in our capabilities to continue driving growth and maintaining a good ROI despite the increased fee. The process is on track, and we expect the tender to be issued by the end of the year or early next year.
Q: Can you discuss the competitive landscape for the lottery business and how it has changed?
A: Vincent Sadusky, CEO: The lottery industry is not very large in terms of revenue opportunity for B2B providers. There are few players with both B2C and B2B expertise. Our diversification and product capabilities are unparalleled, and we believe this will be recognized by investors as we tell our story.
Q: What are the key financial impacts associated with the gaming and digital sales?
A: Massimiliano Chiara, CFO: The initial average transaction tax leakage is expected to be modest, up to $100 million. Total transaction-related cash outflows are estimated at approximately $400 million. The $4.05 billion of gross proceeds will significantly improve our pro forma net debt leverage.
Q: How do you see the growth potential for the lottery business in developed markets?
A: Vincent Sadusky, CEO: The lottery business has grown significantly over the past few years, and we expect this trend to continue. We see opportunities for growth through innovation, higher price point launches, and iLottery adoption. The competitive landscape remains favorable for us.
Q: Can you provide more details on the expected leverage levels post-transaction?
A: Massimiliano Chiara, CFO: We aim to maintain leverage around current levels, below 3 times net debt. This includes funding for upfront fees for contract rebids and significant investments in the lottery business. We believe this target is achievable and will maintain strong financial conditions.
Q: What are the plans for capital allocation post-transaction?
A: Massimiliano Chiara, CFO: We plan to repay $2 billion of debt, including half of the term loan and a combination of bonds and revolver usage. Additionally, we will allocate funds for capital returns to shareholders and maintain some for corporate general purposes.
Q: How is the iLottery business performing, and what are the future prospects?
A: Vincent Sadusky, CEO: iLottery sales are up 27% in the first half of 2024. We continue to refine our business and add new customers. We are optimistic about future growth, especially as more states approve iLottery. Our focus is on maintaining our position as a premier player in the market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
