Q4 2020 International Game Technology PLC Earnings Call
Okay.
Ladies and gentlemen, please standby your conference call will begin momentarily. Thank you for your patience and please standby [music].
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the IGT fourth quarter 'twenty and 'twenty result conference call. At this time all participants lines are in a listen only mode. After the speaker presentations and will be a question and answer session.
Ask the question during the session you'll need the press Star and then one of your telephone.
Please be advised the today's conference maybe recorded.
Part of any further assistance, please press star and the zero.
And I'd like to hand, the conference over to your Speaker today, Mr. Jim Hurley as the VP of Investor Relations, Sir you may begin.
Thank you and good morning, everyone. Thanks for joining us on Igt's fourth quarter, and full year, 'twenty and 'twenty conference call, which is hosted by Marco Sala, Our Chief Executive Officer, and Max Chiara, Our Chief Financial Officer.
After their remarks, we'll open the call for your questions. We are presenting results from multiple locations. So please bear with us if we encounter any technical difficulties.
During today's call, we will be making some forward looking statements within the meaning of the federal Securities laws forward looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements based on the number of factors and uncertainties, including those related to the effects of the COVID-19 pen.
Demick of the.
The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings.
During this call we may discuss certain non-GAAP financial measures and our press release slides accompanying this webcast and our filings with the SEC each of which is posted on our Investor Relations website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures and now.
I'll turn the call over to Marco Sala.
Yeah.
Thank you, Jim and the law to everybody.
Today, we are reporting a strong finish to 2020 supported by excellent Q4 of lottery performance. So.
Quench has the ability for our group of gaming and continue the momentum for our fast growing digital impacting activities.
'twenty and 'twenty was any amount of couple of Riyadh in many ways like many companies that we will test and the nevertheless, and the dedication and the agility of our people and the diversity of love of portfolio combined with disciplined operational maintenance and drove us to achieve a solid zone.
12th of the pandemic, the lottery proved that to be resolved and stuff.
Globally, the same store sales were stable for the year.
Accelerated the North American growth and the second does of say the impact of game of closures and the restrictions.
And Mark.
Global gaming revenue and profits were impacted by operating restrictions implemented the embedding of degrees since March of 'twenty 'twenty.
These constraints of many customers and regulators to look into digital solutions to meet the player demand the.
The growing acceptance of digital and Ross.
Gaming and I, suppose bathing and the lottery profit of nearly 50% increase in service of Ann and your phone.
Our b to B digital and baked enough Dvds in 'twenty and 'twenty.
Market dynamics cause us to think differently about the how we manage the day to day operation.
In April we set an ambitious target to preserve cash with the 500 million program and temporary cost savings ahead of all of it.
And as for the year.
And that goal was achieved.
The experience enabled us to rethink our cost structure and the way that has opened additional put you right. So in fact, we have already identified the program. So a photo of the 200 me doing the structural cost reductions.
The combination of strong lottery performance and disciplined cost capital management enabled us to deliver 500, the 76 million of combined free cash flow free cash flow for the year.
This is among the highest level of the cash flow generation in the last the five yes.
During this time, we have remained the true to our conveys our commitment to environmental social and governance matters remains the priority and was the recognize as being among the day is the in the in the gaming industry by FTSE Russell and MSCI during the year.
And our work in the SaaS continues.
I want to acknowledge of the tremendous contributions of the IGT team for the whole we achieved in 2020.
Considering the walk of the World was facing the you Gotta go it was not an easy task.
Focusing now and the pandemic, we respond and that it was weak and we.
We implemented the safety and business continuity measures that enabled us to protect our employees, while maintaining of service done them.
And as customers look to us for guidance and support we and.
Innovative solutions.
As I mentioned, we preserve the cash through 500 million and temporary cost saving and the avoidance of these that the improve our cash position, while still maintaining access to abandon the liquidity throughout the pandemic.
Building on our short term action, we made the some important changes to the business. These initiatives provide us with an improved business profile and financial outlook.
To begin the company was the organized by product line and establishing global responsibility for the lottery and gaming the simplifies that China and and says.
IGT has growth potential and by increasing our competitiveness and leveraging economies of scale.
It was it will also help to improve your understanding of our strategy per four months and intrinsic value.
Benefits from the new structure of materialize quickly in a matter of months, we identified and the empty.
Five of the over 200 million and structural cost savings, we expect to realize those savings in 2021 and acceleration from the original two year timeframe.
And that's an important change is the announced the agreement to sell a lot of Italy would be to see gaming machine and sports betting activities for the 950 million and cash the transaction is expected to close in the first half of DCF.
The sale is a compelling and the mix of our business that we'd be better balance and the representation of the lottery is the person the ala by the overall the revenue and profit mix with growth.
Our exposure to Italy will be reduced, thereby removing business is that we the.
And I as the regulatory volatility and profit erosion over the last a few EPS.
As a result, we will add the simplified of gaming portfolio concentrated the on our core competencies and.
It would be to be provider of the land based gaming and sports betting and digital solutions.
The transaction improves our financial profile will provide the for a stronger revenue and profit growth outlook as well as and improve the margin structure for our business.
At the also reduces the capital intensity as we will be avoiding between the 200 and 300 million euros and for gaming license revenue is over the next few EPS.
These are reduced capital intensity and addition to the substantial cash proceeds and enable us to optimize our capital structure by reducing debt and yet but it is the cost of about a week ago.
Moving onto more of specific operational highlights for the year, let's begin with the global lottery.
Same store sales of were stable in 2020, even with the restrictions at certain point of six north.
North America trends accelerated in the second of achieving the strongest the annual growth for the eastern thing draw games and many yes.
The recovery and Italy is also noteworthy with positive same store sales growth in Q4.
Strong player demand during the second of translated into record the revenue and profit the levels for our global lottery business in the last two years.
And this drove the EBITDA margin expansion for the.
2021 is off to a good start.
And to date, the same store sales for the core eastern and draw games out off of double digits, reflecting strong momentum in North America and Italy.
As before the added benefit of elevated and North America and jackpot activity in the period.
We are encouraged by a steady growth profile and the outlook for our global Lottery segment, which is supported by our remaining average contract term of Ccs.
For the global gaming segment, the most venues around the world of clause.
Those that are open and such as in the U S of some form of operating restrictions in place.
With that backdrop of Q4 and results of were essentially in line with the Q3 levels supported by a stable global installed base and increase the replacement unit demand with the resilient average selling price.
And the U S play of the demand is good and this is validated by improving January of <unk> trends and many local markets and the strong yield and we are seeing going and our active units.
But the operator of I've seen and enforcing strict capital and cost controls.
This will have an impact on revenue and profit for the global gaming segment and the near term as it is for the most of 'twenty and 'twenty.
We are focused on the way forward from there.
<unk> and our product offer to build on our leading market position and to bring compelling new solutions to market the.
Along these lines our growing family of peak cabinets is rolling out and the having an impact across the franchise.
One the area is with our expanded portfolio of multi level multilevel progressive games, including a drag on the Liza gone and see if a guy and wheel of fortune mystery of ink on the peak of 49 slack.
And that the recent video poker and our longest standing market leadership continues to expand the with the new peak, but.
The bigger reaches ex BRCA, <unk>, III and the Wolf run and gold.
Among the top performing force eight games.
We continue to emphasize the safe solution that provide the reduced contact and more cost effective gaming.
Electronic table games, and one example of the day, yes.
The yes, the dual benefit of facilitating of social distancing, while helping to reduce operating costs, we have grown our atg presence during the pandemic and with the launch of the peak of the dynasty cabinet, which allows us for blackjack and roulette and baccarat all to be played.
The same thing.
Our growing suite of innovative system solution is grounded in a digital and mobile first mindset.
Who drives Mark the casino floor management and greater player engagement best of breed applications, such as our volume single suite of products and mobile respond debt among the others out of Peru.
Moving drivers Avaya, Florida productivity and operational efficiencies.
First of all wallet, which and compresses all of our the cashless capabilities recently achieved a major milestone with the Nevada regulatory approval.
Several deployments out of plan for this year.
Yesterday, we announced the cross licensing agreement for patent related the cashless slot machine and they can.
<unk> and the U S. So with scientific games, the tears of significant IP in this area.
This enables the IGT to monetize the many years of R&D investment and building a robust IP portfolio in the space.
It should also support accelerated the industry adoption of cashless.
Please have embraced and guide gaming and sports betting and I lottery offerings of fuel and gas throat and the increase in <unk>.
IGT is the solution of a widely recognized among the most reliable in the context of these such of such end up at the growth.
This is driving the substantial revenue increases for us.
Clothing, nearly 50% of growth in digital and betting service revenue in 2020, mostly led by expanding player base in existing markets.
Increases the regulation and especially in the us so will be an important driver of continued growth for a lot of digital and betting of Dvds.
And the two H two gambling capital that the number of U S jurisdictions will be the legalized gaming sports betting and day lottery is forecasted to expand the lot in the next few years.
IGT aspects to remain the market, leading <unk> provider of technology and the other solutions in all three main zone, because we're confident of that our gaming content library will continue to support the 20% to 30% share of the North America gaming Mark.
And Michigan the newest the gaming jurisdiction and we are already live with seven customers.
We intend to maintain the broadest land based presence of any b to B sports betting platform and the U S.
And our ability to do so is the non stop by the addition of a proprietary trading of service team last year.
Enabling us to offer turnkey of sports betting solutions to customers of any size.
We are well positioned for a lottery expansion given our longest standing relationship so with the the most successful lottery is around the world.
While much of the recent interest and a lottery has been and the U S. We see a compelling opportunity to grow I lottery, and Italy, and other international markets as well.
2020 provided an opportunity for IGT to a light of the distinct advantage of.
The adding a diverse portfolio of businesses and brought the geographic presence and a decent way highly seasoned management team.
Our global Lottery leadership, and the significant fault zone cost saving and the avoidance of provided the extraordinary resilience into our consolidated performance, including some of the strongest the cash flow and the.
It was also a year all the.
The significant strategic and operational progress, we built the <unk> leadership position across the enterprise and the amplified the solutions for the new normal we reorganize the company with the focus on core competencies that enabled us to unlock substantial of structure of cost saving and yielding is stronger.
Revenue and profit growth outlook. These of coupled with the reduced capital intensity of the business provides us a clear path to reducing debt and enhancing shareholder value.
The Max now for a discussion of our financial achievements.
Thank you Marco and Hello, everybody.
And summary of fourth quarter, and full year, 'twenty and 'twenty results as shown on slide 14 due.
Due to the pending sale of our Italy, B to C gaming business, the financial results and cash flows and balance sheet items attributable to those businesses have been classified as discontinued operations and our consolidated financial statements combined.
Adjusted EBITDA and free cash flow results are presented on the slide to help you compare our results with your current estimates.
Going forward and our focus will be on continuing operations, which is what I will be speaking to throughout the rest of the prepared remarks unless noted otherwise.
Our fourth quarter results reflect the combination of a very resilient global lottery business, which achieved the highest level of quarterly revenue and adjusted EBITDA in two years and.
The global gaming operations, which continue to be severely impacted by pandemic driven casino closures and operating restrictions global gaming performance was relatively stable with Q3 levels.
We generated 885 million and total revenue and our continuing operations and the fourth quarter driven by growth and global lottery across all revenue streams digital and betting service revenue increased nearly 55% helping to partially offset the impact of COVID-19 related restrictions on global gaming revenue.
Operating income of 96 million and adjusted EBITDA of $295 million benefit from the high profit flow through of same store sales growth and global lottery and disciplined cost saving actions, partially offset by of 19 million and catch up adjustment that I will describe in more of a.
Detailed in the minutes combined.
Adjusted EBITDA, which includes the $26 million contribution from discontinued operations totaled 321 million and would have been 19 million and higher without the catch up.
We continue to convert the higher percentage of adjusted EBITDA to operating cash flow, achieving and 85% conversion rate in the quarter compared to 76% and the priority of.
This along with Capex discipline resulted in free cash flow debt exceeded prior year levels.
Our 2020 full year results delivered $3 1 billion and revenue and and adjusted EBITDA of 1 billion with a significant contribution from our resilient global lottery business.
As a reminder, our operating loss of 107 million includes a goodwill impairment charge of 296 million accounted for in the first quarter of the year at the start of the pandemic.
Cash flow generation was solid with 595 million and cash from operations and $340 million and free cash flow.
<unk> cash flow and the back half of the year were supported by lottery performance cost saving initiatives and management all of the invested capital.
Combined Creek combined free cash flow of $576 million was among the strongest in the last five years.
Now, let's turn to the results from our global operating segments, starting with global lottery rare.
Revenue increased 11% to $630 million.
The same store sales rose, 8% in the quarter strong demand from core players and the launch of higher price point games and states, such as Florida, Virginia, and Tennessee helped drive continuous double digit same store sales growth and North America.
In Italy, the same store sales were up modestly as growth and scratch and win was partially upset by lower lot of contributions which were impacted by renewed mobility restrictions and social distancing mandates.
Italy same store sales trend improved month over month with double digit growth achieved in December.
The advertising ban implemented in Italy, and 2018 stemming from the dignity law. The clean number 87 prevented us from fulfilling certain marketing commitments related to the Italy scratch and win contract. The regulator has requested the reimbursement of the unspent amount, resulting in the 19 million and catch up adjustment.
And that affected both revenue and profit.
Absent this adjustment lottery service revenue would have been up 7% and better aligned with the same store sales growth.
Strong momentum, continuing and I lottery, where same store sales increased over 100%.
Out of service is higher on growth and commercial services, which is primarily a convenient and bill payment processing service.
Product sales revenue doubled driven by Oregon terminal sales and our system sales the liver to Swiss Laura.
Operating income of 195 million was up 26% on strong flow through of same store sales growth and the benefit of cost savings actions and boot of growing 39% ex the said advertising adjustment adjusted.
Adjusted EBITDA of 313 million rose, 17% from 268 million in the priority of period.
2020 full year revenue was 2.2 billion driven by the sharp recovery in the back half of the year and higher commercial service revenue.
Operating income and adjusted EBITDA for the full year were 642 million and $1 1 billion respectively.
Turning to global gaming revenue of 255 million was down 46% with difficult year over year comparison due to the pandemic sequentially revenue operating income and adjusted EBITDA were stable despite widespread closures and restrictions supported by stable to slightly improving kpis.
Digital and bedding service revenue continued its strong momentum increasing nearly 55% overall digital and betting revenue rose, 4% as the double digit growth and service revenue was part of partially offset by lower product sales due to a non recurring software sales in the prior year.
Sequentially. The global installed base was stable in North America yields an active unit increased double digits compared to the priority of period, they were down modestly and the rest of the world.
On a global basis, we sold just over 4300 units in the quarter of sequential increase of 17% with replacement unit sales up 28% led by demand in North America.
Operating loss and adjusted EBITDA reflect the decline in revenue, partially offset by the benefit of cost saving actions revenue and profit drivers for the full year of essentially the same as in the quarter.
On our last earnings call, we mentioned moving now to slide 19, we mentioned debt, we had identified over $200 million savings relative to 2019 levels to be achieved through 'twenty and 'twenty two.
We've got a third of this set of efficiency initiatives as Optima and are pleased to report and we now expect to realize the savings by the end of 'twenty and 'twenty one as a result of good momentum and our initiatives.
Optima is comprised of three main initiatives. The first is operational excellence, which includes the optimization of procurement and assembly processes as well as the supply chain and logistics does represent about 30% of the savings at run rate with the ramp up phase that depends on the level of production volume who will achieved during the year.
Second is an effort aimed at reducing the complexity of our product offering and geographic mix.
This will include.
The return driven ranking assessment of products and markets and reassessment of structural support cost and the reallocation of resources from high to low cost jurisdictions and of that 30% of the savings that the run rate should come from this effort.
The third of the initiative relates to other margin improvement initiatives, such as reducing our global facilities footprint and continuing with disciplined cost controls were implemented in 2020 the.
This accounts for the remaining 40 per cent of the savings that the run rate and all of the three initiatives will be the category with the quickest implementation time and it will build on the robust initiatives delivered in 2020.
About 75% of the savings will benefit the P&L and the balance for Capex on the P&L about 50% of the savings should benefit gross profit with 30% for SG&A and the balance for R&D at the segment level of about 85% of the expect the savings accrue to global gaming with the balance split.
Between global Lottery and corporate.
We also expect to incur a total of 60 to 80 million of charges associated with the structural improvements.
About $50 million of debt amount was already booked in 2020.
We expect to update you on the progress of the Optima program throughout 2021.
Moving to slide 20, we deliver strong cash flow and the year, including $595 million and operating cash flow and 340 million and free cash flow and our continuing operations among the highest level and five years.
As a result, when combined with discontinued operations free cash flow, we reduced net debt by over $430 million net of effects and after distributing a combined over 200 million figure and dividends to shareholders and minority interest.
Leverage was elevated at the end of 'twenty and 'twenty compared to the end of the prior year due to the pandemic impact on adjusted EBITDA we.
We expect leverage to return to pre COVID-19 levels over the next 12 to 18 months.
On slide 21 way of our liquidity and debt position.
At the end of 2020 total liquidity was 272 billion and increase of over $300 million from the previous year. This.
And this provides ample liquidity to cover our debt maturities through 2022, or so of that obligation and 21 was a 393 million term loan amortization, which was paid in January 2021.
Proceeds from the announced agreement to sell certain Italy would be to see gaming activities will primarily be used to reduce debt.
In summary, 2020 was a challenging year for the gaming industry, and we were able to deliver solid financial results with particular strength from global lottery and the back half of the year and continue the momentum in digital and betting revenue.
We launched Optima and extensive business efficiency program expected to deliver over $200 million and structural cost savings in 'twenty and 'twenty, one helping to drive near term margin expansion.
Strong cash flow enabled us to reduce net debt by over 430 million net of effects and increased our liquidity by 300 million to $2 72 billion.
Moving to slide 23, given the uncertainty associated with pandemic related the restrictions mainly on our global gaming segment, we're not providing a full year outlook at this time, but instead some perspectives on the first quarter.
For Q1 revenue and operating income should be higher on both the year over year and sequential basis, even excluding the goodwill impairment and the previous year.
Global Lottery revenue and profit are expected to increase on strong double digit same store sales growth trends for instant ticket and draw games, coupled with an exceptional contribution from hijack put levels in January and North America.
And global gaming results I'd expect it to be relatively in line with Q4 and the ongoing copies of the restrictions there.
Depreciation and amortization as well as capex and expected to remain relatively stable year over the year.
I concluded my remarks, and now we would like to dedicate sometime to answering your questions back to the operator and thank you.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key once again the ask a question. Please press star and then one now.
And our first question comes from Carlo Santarelli from Deutsche Bank. Your line is open.
Hey, guys. Good morning, and thank you for all of the color.
And acknowledging obviously with the with the discontinued ops and the Italy sales.
There's a little bit of apples and oranges here, but if I were to think about kind of 2021 and <unk>.
2019 business I believe your reported adjusted EBITDA at the time was about $1 7 billion.
Extracting that the 225 $230 million per the sale of the Italy business you'd be looking at like the 148 number or something along those lines.
If we were to think about the fourth quarter and and kind of run rate the fourth quarter make the obviously the change for the $19 million net that you guys referenced the kind of and the one two range.
And obviously have the the cost implementation of the cost program that you're embarking embarked on and expect to see obviously more flow through from that in 2021. After a strong first quarter on the lottery side and I would anticipate that the lottery business will remain strong for most of this year is that kind of 2019.
And adjusted results something you guys think is reasonable.
Think about of run rate in the back half of 2021, obviously, depending on the return on the gaming side.
Max.
Hello, Good morning.
And good afternoon good morning.
Yes, I'll take this this question Marco.
So given the uncertainty associated with the the restrictions pandemic related.
As we said mainly affecting our global gaming segment, it's really difficult at this point to provide the full year outlook.
But I definitely I understand the need you guys have to start rebuilding of models based upon the the split between continuing ops and discontinuing of adult So let me offer some high level qualitative perspective here.
So and obviously, where the big premise at the beginning.
Barring any unforeseen changes and the trajectory of the pandemic.
We would say that for global lottery, we expect revenue and profit.
The higher than both the 2020 and 2019 levels right. This would be a complete recovery from the pandemic impact last year and the return to a consistent growth profile for the business.
On the global gaming instead of <unk>.
Revenue and profit should definitely be above 2020 levels, but we don't expect the full recovery to the pre pandemic levels and this segment and the.
Probably later in 'twenty two of 23.
And as a partial offset to that obviously, we have our digital and betting business, where we expect our momentum to continue.
And we think debt.
We will be able to continue to pursue double digit growth in 2021.
And kind of I would stop of debt and don't don't provide and any more color at this point given the the uncertainty step of still around the day.
The pandemic.
Total debt.
That did help tremendously. Thank you if I can.
Guys just one follow up one of your.
Competitors last night, they talked a little bit about I lottery opportunities of the United States and mentioned that as many as 10 states.
States were currently looking at kind of the expansion of high lottery.
Share, perhaps your perspective on that business and perhaps.
Whats your.
<unk> is the opportunities that that could provide.
No I think the catalog I think lottery and represent a great opportunity overall for our company because we.
We are already well established with the nine WLR and <unk> customers three of which are in the United States and there is the.
Information, although we are appreciating and I had acceptance of.
Hi lottery.
And as we said in our prepared remarks, we enjoyed an increase of over 50%.
In the 2020, and we expect that to maintain double digit I lottery growth over the next several years and this is driving driven volume.
Pending the player base and existing jurisdiction and the.
Neutral as the come as well as you know is very difficult to predict the when the new jurisdictions.
And we'll start the regulating the.
And he is part of the business about though we are seeing.
And incremental interest.
And we are pretty sure that if we lap and overtime and for debt we intend.
To invest the many lottery in niche at the user we are investing in expanding the portfolio of games, we are enhancing our platform and by the way some of our current customers.
The transition to our new with the platform in the next several months and the we are also increasing our marketing.
And at TVT is to support the player acquisition and retention for our customers. So we are expecting a solid growth.
Sure the double digit growth over the next.
Five years and the we can see the I lottery in the future of as one of the debt either for the overall growth of the lottery segment.
Yeah.
Great. Thank you very much guys.
And this morning.
Thank you Paolo.
Thank you.
Our next question comes from Sam <unk>.
From Macquarie Your line is open.
Hi, good afternoon, and thanks for taking my questions.
Mark I wanted to go back to the Lottery, you gave great guidance and.
Talked about all of the successes throughout 2020 I wanted to focus on the manufacturing of the instant tickets and I know from our facility management standpoint.
Your contracts are very.
Very long nothing coming up from a renewal standpoint are there more opportunities to manufacture and print tickets and the future I know those those contracts are sometimes shorter term rolling and states include multiple manufacturers just trying to understand how you're you're viewing your market share over the next couple of years and that segment. Thanks sure. Thank you.
But we are making good progress with the instant ticket printing and the.
And we'll see the return of growing our area of opportunity for us in.
And the last 18 months, we've been awarded the three of the four price.
The printing contracts of two.
Two of these were incremental.
We are investing in a greater of printing capacity and that is a better position as of today.
And its feet from east and market growth in 2021, and beyond the sort of all to say that the overtime.
Over time and the last he as are.
We kept on investing in this area, we have invested the innovative products. We are getting good the response for from our customers.
Costumers and the we rely on these of the AD as one of the additional dry the together with the I lottery I mentioned before to get all of our overall.
Lottery business.
At the time.
Great. Thanks, and then on the I gaming market share that you alluded to.
Can you talk about the success of our players just comfortable and familiar with your games.
Your placements of the games on the user interface better and then is this a share that we could expect for you guys to achieve going forward somewhere up in the and the 20% given players familiarity with with your content.
This is what we think we think that the this is the market share we can and the between 20 and 30% the.
Considering that they the players out of starting playing the games. They are used to play in the in the floor, but apart from that though we are the.
Investing in all of the.
And to develop new games, but also.
Enhancing our portfolio with introduction of third part of the contents in order to keep our offering up the data and to keep and possibly increase our market share, but when we look at the the gaming of it all we see the opportunity of a very important and growth and.
We see that as sue.
Soon as one jurisdiction is opening of our objective is to reach.
And on average of market share in excess of 20%.
Thank you very much I appreciate it though.
Thank you.
Thank you. Our next question comes from Barry Jonas from sort of security. Your line is open.
Hey, Thank you so much so maybe just following up on Carlos first question. A few years ago, you issued adjusted free cash flow guidance I think it was $4 $50 million to $550 million could you maybe just give us any additional puts and takes to think about if and when you could get back to those levels.
Max.
So.
I would I would not read.
Spun directly to your questions in terms of of the long term.
Factory of the cash flow, rather I I would rather stay focus on the short term and.
And obviously as you'll notice we generated the.
The good performance of cash flow and 2020.
We see cash flow, obviously going up from here next year.
Debt is primarily going to be supported by higher profit, although I would I would warn you debt with higher profit obviously comes out of taxes.
And and there is another important driver of the 'twenty and 'twenty cash flow.
That was associated with our tight invested capital management, both for working capital and Capex.
So in order to support the full recovery and facilitate the future revenue growth, we will naturally need to invest more capital in 'twenty one than we did in 2020. So with this in mind I think you can probably formulate your own assumptions around the 2021 expectations, but.
As I said at the beginning.
We expect 2021 cash flow to be higher than 2020.
Great Great and then.
And maybe it's more of a high level question as the world returns to more normalcy. It sounds like you guys think the business could eventually return to prior levels, but I'm curious if you think there are any permanent structural changes you of your customers.
And may face as a result of Covid.
Oh, there is a very good question the.
I mean looking at our portfolio of for sure the digital part of our portfolio.
We'll continue growing.
The.
There is solely the rate.
Eight of the time of because.
Players are getting used with debt because.
The new jurisdictions with rig late at the and.
And by the way for these businesses of very good news, because we haven't seen and the various market the where the digital offering is already well established at the Academy is a very very minor level of cannibalization of the failure. So this is.
The very good the good news is I say the lot of the are doing very well and we see the upside of.
Our customers.
To find the even more EBIT sharp and way to increase.
The.
Revenue and they are now really asking guys too.
In the weight the portfolio in order to.
And to steadily grow and I think of these in terms of attitude is very important.
The evolution on them on the gaming of course of it will be very much related the.
To the plate demand, we see generally that the ones.
The the debentures out of the opening wise of the restrictions.
And removed the pent up demand is strong and so I expect the business.
And to get back and though we are investing in.
In order to provide our customers also with the <unk>.
The the solutions such as the cashless.
Yeah and discuss now the superior.
Usually about day in order to better serve.
The players so I think overall.
And the outlook for the half an hour and a path.
The portfolio is generally speaking a positive.
Great. Thank you so much.
Thank you.
Thank you and again, ladies and gentlemen to ask the question. Please press Star and then one now.
And our next question comes from Dominic of Galotti from Ecuador. Your line is open.
Yeah.
Good morning, and for your question and the first day on the digital business.
<unk> and 50% growth year on year can you try.
Try to give a sense of all of what how much as of today the lottery and what is the size of the starting from.
And the 2020. The second question is on the global Lottery, and you were mentioning and Q1 and they find the.
And properly of double digit same store sales before any jackpots with the contribution that would be on top.
And I Wonder if this is the level of sort of the double digit level of interest you think is sustainable compared to.
2019 level.
The pre COVID-19 level.
It wasn't really very very strong and message of from Q1 and the last question. The he's on the and structural savings that you were mentioning.
And how much of your already.
Book lets say on this at the end of 'twenty and 'twenty and should we expect the.
Smooth gradual.
The trend that will each of the target by the end of the printing went to one.
Okay, Domenico I will take the second question regarding lottery I will leave.
Max, particularly the numbers of.
And I lottery and digital business and the the savings.
And regarding regarding.
The lottery.
And the fact is the momentum we had in the second half of 2020 as accelerated into.
2021 and.
And perfectly understood what they said the Q1 to be the global same store sales force.
And the underlining business is off of double digits across of the various regions North America is doing well.
Well and continues to do well and addition to debt.
Enjoy the out of that.
Yeah.
And the upside coming from the jackpot, the Italy is up strong in Q.
Q on Q1 the.
The gaming all closure as well as our new game launches and as such as and a lot.
Auto ex.
The pull out of supporting our recent trends and the international part of the business is doing well and day lottery is.
Doubling the free.
The price level in the U S and in Italy.
Think of this point lotteries have benefited from the lack of the gaming.
Gaming and leisure and ill let.
I do not believe that the the double digit.
So and our CAG and <unk> will be what the.
We showed the plan for the.
The future.
But I think of debt the weak and as we always the Hana.
And I rely on stay the growth between the.
C C.
The single digit.
Mid single digit growth over and over and over the years.
And this is the trend we have appreciated in the previous year and this is something.
We believe we'll continue because of the play of interest.
As the remained robust even when the gaming.
<unk> goes we opened.
In some jurisdictions and the rollout of information and reserve.
So out of the trailing Gaza the play has a coupon of enjoying gallois.
Our games and this is.
The reason why we are doing very well in this period of time and it provides us comfort and considering the trajectory of the.
The few.
Next the next years.
Positive, maybe even slightly better than we have planned at the.
And now we have seen in the previous years.
Okay.
Max.
Yeah. So let me start with the digital I'm, probably the medical so.
As you know we provide a specific carve out for the digital business on the revenue line.
And that cuts across our segments.
So for 2020, we booked a $170 million plus revenue of.
Of that number slightly more than 50% is I gaming.
Of the remaining portion more than half is I lottery and the balance of sports betting.
And I urge you to consider that and sports betting as we deliver our software as a service so far.
Obviously, we are on with the revenue recognition debt kind.
Kind of prorate.
And the benefit over the time through the duration of those contracts and some of the revenue.
Effectively end up being delayed in terms of bookings.
And in terms of margin and obviously, we didn't provide the specific guidance on the margin, but what we said is that the margin all in all four of our digital business is.
At par at least at par with the global business with the global company and its definitely accretive to the global gaming segment.
And that would be it for digital now on the structural program the structural savings program let.
Let me start with the child of just first and then I moved to the savings.
And the charges, we already booked about slightly less than $50 million in 2020, primarily that was done in Q2.
Well that was split and three initiatives are two of the three kind of a complete in terms of the charges relate to the operational excellence initiatives and the low twos the reorganizations less the the tertiary bucket in our cost savings program.
So the operational excellence initiative is a slower ramp up because it depends on the volume that we can deliver a period to period, but again the challenges have been taken.
On the on the other margin improvements and the Lotus reorganization charges have been taken and savings are progressing well as anticipated.
There is a little bit more longer.
Tail on the third initiatives.
Debt is still in progress of being complete and would probably the quiet and other one to two years to finish but the majority of it will be spent this year and so the savings.
The majority of of the savings will accrue in 2021.
For the total amount of 200 million expected for the full year in terms of savings.
And we already booked any savings in 2020, just all of the TDD and and point of sale at the end of 2020 and the run rate of savings.
We should consider.
So you need to see the two years in the from a different perspective. The the focus in 2020 was on cash preservation and so we kind of looked at ways to stop spending and made some and haircuts.
Haircuts to certain cost items, primarily personnel related.
The savings we're talking about here going forward are more structural in nature. So some of the cost cutting initiatives that we deliver and 'twenty will continue over time and will continue to accrue. So a portion of debt has already been achieved but is kind of not incremental.
And in 'twenty and 'twenty, one versus 2020.
On the longer term initiatives the savings are in progress of being achieved and they will be all incremental versus 2020. So that's the kind of difference between the two years.
Okay. Thank you and just the follow up on you were mentioning and 2021 to be aware of that Capex will.
Go up compared to 2020 do you have also.
And if you go you should consider also some let's say relate and defer payments due to some and initiative by the regulator due to Covid. So do we have some something relevant to be taken into account.
So I'll I'll give you the answer on the Capex and then and let Mark of eventually comment on the last part of the question.
And so for Capex in 'twenty one are.
Definitely after the.
The significant reduction that we run through in 2020, there will be a step up and the Capex number for 'twenty one, but we are comfortably are convinced that we will be able to stay below the 2019 levels.
Great.
On our continue the.
Operations I do not see any of any change regarding our relationship with the regulator.
No I mean, all of the payments have been regular so you'll did not benefit from.
And your continued operation on the from a deferred payment Oh and you're right.
Given the amount of it should be taken into account.
No.
Thank you.
Thank you and America.
Thank you and our next question comes from David Katz with Jefferies. Your line is open.
Hi, good morning, everyone.
David.
And look I appreciate.
Right all of the commentary around the games and the lotteries, which have done well.
There is an awful lot of attention on the digital sports betting and gaming aspects can you talk about what your.
Kind of strategic vision is for that business and.
And you obviously have sets of relationships sets of key capabilities.
What do you aspire that to really turn into over time.
And secondarily I wanted to follow up on the announcement of patent sharing that you've made with the <unk> games.
And just have you elaborate a bit on.
What that does how it works and how we might think about that and the context of our forecast. Thank you.
So David the I Didnt catch the one thing do you want me to elaborate on the overall digital offering on sports betting only.
Our.
Primarily sports betting and gaming.
Fine.
Yeah.
I think in.
In both the in both areas.
We intend to two of our important role as a b to B provide of <unk> provides out of our platforms.
Platforms of.
The games of the services I think I have already elaborated on.
And I gaming go we have a very comprehensive portfolio, we have the ability to distribute it.
We have and the possibility to cut deals with the studios around the world to integrate the growing for the Alba and offering we are enjoying all the way the.
Very good market share and the jurisdiction of the regulator and we do as beta we will take benefit from the progressive regulation of.
<unk> gaming.
In addition.
In addition of jurisdictions.
Reality of sports betting is not the is not very much different because.
We have our.
And very comprehensive.
Offering and offer the debt.
And that is based on our platform of it is reliable and scalable.
We have our trading service team and we have.
Our market, leading hardware for the land base distribution and all and all of this enables ass.
Too often and turnkey.
The solution to customers of any size and as a matter of fact, we are the Liza in 16 states with and yearly.
20 customers, we have a strong partnership with <unk>.
The market leaders of such as from July at that point.
NBA <unk>.
Boyd and the market. The as you perfectly know is expected to grow very fast over the next the.
Five years, and we are proactively securing partnership.
This is the judy's new jurisdictions that are thinking about the.
This regulation and the way we interpret the our role here is.
To be the partner of any of our customers that the.
And tend to have.
The sports betting offering from.
And on digital and two land base and with all the possible services that the cash flow matter that Ken.
Oscar.
Yes.
Because the suppliers.
So if I can follow that up.
Is it fair to assume that it's it's not going to be any instance, where let's say larger integrated operators look to own their own enterprise.
It will be more for small and medium size the operators, who can offer the right.
Yeah, I think of you are right, especially in the digital space.
Operator.
And to integrate the platform.
Can provide.
Services and the very likely.
Our biggest opportunity going forward day is.
With the mid size operators and I agree on that.
But on the other day and our platform that was able to bring.
And due to the success it is and.
Enjoying so and you are now might require and each of that offering and we can provide them.
Going forward, the I think of the opportunity will be more of that on.
Mid size operators debt whatsoever.
Turnkey solution.
Perfect and my second question was around the announcement for the patent sharing and Cayman and how you might elaborate on that.
Yeah, I tried to give my and my view and.
Very simple true disagreement each company will have the immediate access to each other's cashless gaming patents.
While the commercial service, we remain separate both IGT and scientific games that will announce their respective solutions.
Leveraging the two companies of combined portfolio of patents of the cashless gaming technologies.
Yeah.
Other players.
Players huh.
The one thing to provide the cashless solution, we'll be able to take a license to the comprehensive IP portfolio too. So does the agreement that enables the IGT to generate value not only from our products.
Such as the vessel.
Wallet, but also from our IP portfolio, where we have made the significant investments over the years, we think at the end of the day that this will favor the operators for the quicker adoption of the cashless technology to their benefits and the at the end of <unk> to the benefit of their players.
And when.
And so.
Is the point to ultimately that the the offering becomes brand agnostic with respect to which casino management system, you might be using yours or theirs.
As long as <unk> got some.
And third provider.
I think the point is and we will keep our separate the offering.
Today IGT can get.
And scientific games that can get from this.
The portfolio of pool of Ips of two and outside of their own offerings going forward. The if other operators are interested in.
And taking some of those AP debt.
And we'd be commercial conditions through Asia, and it will enhance the portfolio as well.
Perfect. Thanks, very much I appreciate it.
Thank you. Thank you very much.
Thank you.
And at this time I am showing no further questions and Mikael.
I would now like to turn the conference back over to Marco Sala for any closing remarks.
Thank you for joining us today 2020 provided an opportunity to highlight of the advantages of IGT has a diverse portfolio of businesses and broader geographic presence and our global lottery leadership and diligent focus on cost provide the extraordinary resilience to our results.
We made important strategic and operational progress and the other reorganizing the company with a sharpened focus and core competencies and unlocking substantial structural cost savings.
With the stronger revenue and profit growth outlook, we have a clear path to reducing debt and the enhancing shareholder value and then.
Great thing sorry, Thank you and have a great day.
And.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect everyone have a wonderful day.
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And.
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