Q3 2023 International Game Technology PLC Earnings Call

Hello, and welcome to the International game Technology, Q3, 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

We would like to ask a question. During this time simply press star one on your telephone keypad. If you would like to withdraw your question again Press Star One I'll now turn the conference over to James Hurley Senior Vice President of Investor Relations. Please go ahead.

Thank you and thank you all for joining us on Igt's Q3, 2023 conference call, which is hosted by Vince a dusky our chief Executive Officer, and Max Chiara, Our Chief Financial Officer.

After some prepared remarks, Vince and Max will be available for your questions. We are presenting from multiple locations. Today. 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 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.

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 will discuss certain non-GAAP financial measures you will find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our press release slides accompanying this webcast and our filings with the SEC each of which is posted on our Investor Relations website.

And now I'll turn the call over to Vince.

Thanks, Jim and Hello to everyone, joining us well, we're reporting strong Q3 and year to date results today.

Excellent momentum in key performance indicators across all segments drove year to date revenue up 8% when adjusted for the sale of Italy commercial services.

That included 5% growth for our global Lottery segment, a 12% increase for global gaming at 17% expansion for <unk> digital.

Q3 was aligned with year to date trends with revenue up 6% net of Italy commercial services.

Translated into good profit growth Q3, operating income rose, 13% or 20% net of commercial services and achieved a record operating margin for third quarter period.

Year to date operating income was up 8% or 13% net of Italy commercial services and the operating margin expanded over 100 basis points to 23%.

We delivered 200 basis points of EBITDA margin expansion to 42% in the first nine months with each operating segment contributing to the improvement.

This puts us firmly on track to achieve our full year 2023 revenue and margin goals.

Moving on to segment level performance Global Lottery same store sales were up 3% in the third quarter in line with the 4% growth for the year to date period and building on our strong multi year growth trajectory.

Italy performance in the first nine months continues to impress with 8% same store sales growth fueled by increases for both scratch and win and Lotto games, but.

Consistent flow of game innovation complemented by our unique player insights and strategic portfolio optimization initiatives have been the key drivers of Italy's growth this year.

In the U S and the rest of the world. The same store sales were up over 3% on robust powerball and Mega millions of sales in the U S.

During the quarter IGT extended several longstanding business partnerships, California is the second largest lottery in the U S. In Igt's relationship there spans more than three decades old.

Over that time, our solutions are powered over 41 billion in support for California's public schools.

A seven year extension in California secures this important partnership through at least October of 2033.

We also secured 210 year contract extensions with the Kentucky Lottery Corporation, where IGT will remain the primary technology provider for both retail and lottery solutions through 2036.

Another 30, plus year partnership to fund higher education throughout Kentucky.

Our current lottery contract portfolio has a revenue weighted six years remaining with extension options, the California, and Kentucky extension speak to the confidence and trust the world's Premier lotteries have an IGT is best in class modern lottery solutions.

This includes our cloud based systems platforms, and Omnia, our new player centric Omnichannel solution.

Hi, lottery sales continue to expand at a brisk pace rising over 50% in the first nine months, reflecting broad based momentum around the world.

We continued to deploy Igt's latest cloud based <unk> platform and remote game server for customers in Lithuania, Paraguay, Poland and Switzerland.

In addition, we are installing new platforms in markets like Connecticut, where we'll launch a lottery later this year.

Today I'm joining you from the annual North American Association of State and provincial Lotteries conference in Milwaukee, where IGT is demonstrating its global lottery industry leadership.

This includes the launch of the retailer progress to a sequel to the most popular lottery terminal in the U S.

We will also be showcasing the industry's first 48 been self service vending machine as well as the digital menu board that is modern sleek way for retailers to highlight instant ticket games and other promotional content at the point of sale.

Lottery link is another exciting innovation. It is the first and only solution to enable instant and draw games sales without a dedicated lottery terminal or software changes to the retail or point of sale.

And it's a key enabler of our focus to expand in lane lottery purchases at big box retailers nationwide.

This was not in the global gaming were compelling games and innovative new cabinets are driving strong results Q3 revenue growth of 8% fueled in over 40% increase in operating income.

The year to date performance is equally impressive with revenue up 12% and operating increasing operating income increasing 34% on a broad based momentum across the business.

Year to date global unit shipments were up 10% complemented by a 7% increase in average selling prices.

We've maintained the leading north American ship share for four and a half years and we have some terrific new games and hardware that we believe can maintain our momentum.

The new Diamond RF mechanical wheel stepper has been well received claiming about 40% share of North American mechanical reel stepper shipments over the last year.

We have another multilevel progressive success story with magic treasures to game themes secured top spots and our recent new core Videogames survey.

Progress is equally good for our leased games, where the global installed base grew for the fifth consecutive quarter.

Primarily linked continues to perform strongly with over 3500 units deployed world worldwide.

We are building on that momentum with mystery of the lamp introduced in June on our New peak curve 49 cabinet, which was recently recognized as leading fortunate outbreak cabinet in North America.

We already have over 600 nits here of the lamp units in the field generating productivity over two five times Fluor average.

The two base games continue to be among the top new premium leased and Wap games and a recent <unk> survey.

Well, we just came back from a strong showing at <unk>, where our product strategies were clear for leap games, we intend to drive our success in Mlps and secure our fair share of that category with five new concepts, including two new prosperity link based games.

We expect to enhance our presence in a video web category with six new concepts.

The launch of Whitney Houston slots in the new Sky rise cabinet.

And we intend to extend our separate leadership with the introduction of the Diamond RF premium cabinet building on the success, we've had with sales of the Diamond Rs.

On the for sale side of the business, we plan to build on our leading North American ship share by making the peak care 49 available for sale.

We're doing this with a library of proven game families such as Magic treasures Samurai 888, and Kitty litter supported by player centric game features.

Till now that <unk> 49, or <unk> 49 was exclusive to lease games.

Video poker and mechanical reel steppers are areas, where IGT is very strong market leadership positions in many cases, our new video poker content is outperforming legacy content by over two times and we've expanded the cabinet to offer.

Cabinet offer to maximize our global opportunity the zinc bar top it's one of the most impactful new video poker hardware introductions in the category and Crystal curve and cobalt cabinets offer new ways to grow our domestic and international video poker presence.

As I mentioned earlier, the Diamond IRS has revitalized our mechanical real offer and presents a compelling replacement opportunity for us.

At <unk>, we expanded our for sale offer with the Diamond RF 27 developed for high limit rooms, where IGT typically enjoys outside of shares.

Profit expansion as the main story at play digital in the third quarter with operating income up 32%.

In the first nine months of the year at play digital revenue rose, 17% and operating profit increased 46%.

Our gaming growth has been fueled by key content strategies and the incremental contribution from MISO bad in the first half of the year.

We expect to launch about 60, new games this year more than double our historical pace.

This expanded capacity in addition to some unique capabilities enables us to provide compelling value to our customers and players alike.

One example is with the development of bespoke games, such as Caesars clear passion for Caesars Palace online casino.

Fort Knox Cleopatra for <unk>.

Another example is the launch of wheel of Fortune Triple Gold spin and New Jersey.

First ever Omnichannel jackpot game in the U S. Leveraging the success of our popular powered Lux game in Canada.

We're looking to expand Omnichannel games to new U S markets this year and launch money mania as new Omnichannel link in Canada This quarter.

We are just starting to deploy our sophisticated user engagement tools that offer real time personalized player recommendations and promotions we.

We expect this unique leading edge technology to drive productivity through a Richard player experience and build a strong and sustainable competitive advantage for our content.

We continue to expand our sports betting customer base and our power nearly 100 casino sports books across North America.

We recently introduced live streaming sports and sports betting functionality on the deep bar top and Crystal Flex terminals.

Players can now watch it sporting event bet on sports and play video poker or slides all at the same terminal.

<unk> generated a lot of interest in <unk>.

We had a great third quarter and it's been a productive first nine months of the year. Our results places us firmly on track to achieve our full year 2023 financial goals. We are doing it with a steadfast commitment to being a good corporate citizen evidenced by momentum with key ESG initiatives, including the validation of our <unk> targets and improve rate.

Things from several third party agencies.

As many of you know we are evaluating strategic alternatives for the global gaming and play digital segments that work is underway and progressing.

At the same time, we have established a strong foundation for achieving our 2025 financial targets the.

The innovative new solutions featured at recent trade shows will be important catalyst in reaching our goals and creating significant value for all stakeholders.

Now I will turn the call over to Max.

Thank you Vince and welcome to everyone joining us today.

Once again, we're very pleased with the results on display today, we have been able to achieve or exceed our outlook. As a result of a resilient performance in global lottery fueled by elevated play levels and a persistent jackpot performance the continuation of the global gaming turnaround story with a further acceleration on its profitable growth.

Trajectory.

<unk> a play digital performance continuing to deliver substantial profit flow through.

We generated more than $1 billion in revenue in the third quarter consistent with the prior year driven by strong key performance indicators across our three business segments.

Revenue grew 6% excluding prior year contributions from the Italy commercial service business that was sold in September 2022.

Q3, operating income rose, 13% to $239 million and adjusted EBITDA of $433 million was up 8% led by double digit increases in global gaming and play digital these growth rates are even higher when you exclude $12 million in profit that was contributed by the commercial server.

Business in the prior year.

Profit margin expansion was also a notable achievement with operating income margin growth of 250 basis points to more than 22% the highest level for a third quarter period in company history.

And adjusted EBITDA margin up 270 basis points to 41%.

As we mentioned last quarter, along with good organic performance driven by solid Kpis improvement, we benefited from some operational process improvements in our product development that now required capitalization and amortization of certain costs that were historically expense as incurred.

The resulting impact was financial benefit of about 10 million to operating income and approximately $20 million to adjusted EBITDA.

The effective tax rate in the quarter was 35% in line with our expectations that it would normalize in the second half of 2023.

On a year to date basis, the effective tax rate adjusted for unusual or nonrecurring items is in line with our full year estimate in the mid 30% range.

We delivered 46 in diluted earnings per share versus $1 30 in the prior year as a priority yet included some large non operating items such as the gain on the sale of the commercial service business and the accrual of the DDI Benson matter settlement adjusted diluted earnings per share of <unk> 52 cents.

It was up 21% from 43 cents in the prior year, primarily driven by the higher operating income performance.

Now I would like to review the results of each business segments, beginning with global lottery.

Third quarter revenue of about 600 million was down 4%, but up 5% adjusting for the sale of Italy conventional service to underscore the underlying business performance and market properly.

Global same store sales rose, 3% driven by nearly 5% increase in Italy with strong contributions from both instant ticket and draw games and a nearly 3% increase in North American based award, which benefited from elevated jackpot activity.

Yes.

Double digit growth rates continue in a law setting where same store sales grew 24% in the quarter on broad based strength across geographies and game types.

Reiteration in IGT served territories continued to expand at a rapid pace, reaching double digits in the U S and growing.

Profitability was very strong with operating income of 206 million and Oi margin of 34% up 60 basis points compared to the prior year.

At this point, we have been cruising well within the 25 2025 target range established at our 2021 Investor day for at least the last seven quarters in a row.

Adjusted EBITDA margin was 51% up 150 basis points and maintaining a level in excess of 50% for the third consecutive quarter.

In Q4, we expect to maintain low single digit same store sales sales growth for instant ticket and draw games keep in mind, we have difficult North American Investor Awards jackpot comparisons as the prior year included a 2 billion Powerball jackpot, which contributed about $20 million in revenue and profit.

Instead, most of the benefit from this October Powerball jackpot was realized in Q3.

Turning to gaming, we generate a strong revenue and profit growth during the third quarter with broad based contributions across our product portfolio revenue of 409 million increased 8% over the prior year propelled by growth in the installed base and higher system and software sites.

Our global installed base rose more than 470 units sequentially to over 52600 unit with balanced growth across U S, Canada, and the rest of the world and yields continue to hold at nice levels.

Global unit shipments exceeded 99.

990, 100 units led by a 23% increase in U S and Canada casino replacement.

Global Asps were down slightly due to a higher mix of VLT in poker games as we continue to ramp up our efforts in delivering the new successful games and cabinets in the core video category in fact, asps can vary quarter to quarter due to cadence of new product launches and at this.

James Hurley: Hello, and welcome to the International Game Technology Q3 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, again, press star one.

Juncture, we expect Q4 asps to be more aligned with the levels. We saw in the first half of the year.

Higher system sales were primarily related to enhancements and upgrades to our advantage casino management system from existing customers and software revenue grew on strong customer and player demand for IGT, leading portfolio of poker products.

James Hurley: I'll now turn the conference over to James Hurley, Senior Vice President of Investor Relations. Please go ahead.

Vincent Sadusky: Thank you, and thank you all for joining us on IGT's Q3 2023 conference call, which is hosted by Vincent Sadusky, our chief executive officer, and Max Chiara, our chief financial officer. After some prepared remarks, Vincent Max will be available for your questions. We are presenting from multiple locations today, so please bear with us if we encounter any technical difficulties.

Operating income of $93 million increased 42%, including about $10 million and benefit coming from the capitalization of R&D cost from the process improvement previously discussed.

Operating income margin expanded 550 basis points to 23% fueled by the easing of supply chain challenges.

James Hurley: During today's call, we will be making some forward-looking statements within the meeting of 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. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed and our latest earnings release and in our SEC filings.

The higher margin system sales.

And as said R&D process improvements.

In play digital gaming <unk> trends remained strong with double digit increases across geographies I gaming revenue was up year over year, even in the absence of new jurisdictions coming online driven by strong player demand for wide area Progressive games. However, overall play digital revenue was.

James Hurley: During this call, we will discuss certain non-gap financial measures.

Vincent Sadusky: You'll find additional disclosures regarding these non-gap measures, including reconciliations with comparable gap 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, and now I'll turn the call over to Vince. Thanks, Jim, and hello to everyone joining us. We're reporting strong Q3 and your-to-date results today. Excellent momentum and key performance indicators across all segments drove your-to-date revenue of 8 percent when adjusted for the sale of Italy commercial services.

Flat year over year as I gaming growth was offset by the cessation of operations in certain legacy ice of Badger addictions and sports betting was lower primarily due to unusually high hold levels in the prior year, along with unusually low levels this quarter.

Operating income rose, 32% to $16 million, an increase of operating leverage and ICF pet acquisition cost in the prior year.

Vincent Sadusky: That includes 5 percent growth for our global lottery segment, a 12 percent increase for global gaming and 17 percent expansion for play digital. Q3 was aligned with your-to-date trends with revenue of 6 percent net-of-it- Italy commercial services. That translated into good profit growth. Q3 operating income rose 13 percent or 20 percent net-of-commercial services, and achieved a record operating margin for a third-quarter period. Your-to-date operating income was of 8 percent or 13 percent net-of-it- Italy commercial services, and the operating margin expanded over 100 basis points to 23 percent. We delivered 200 basis points of EBITDA margin expansion to 42 percent in the first nine months, with each operating segment contributing to the improvement.

Operating income margin expanded 660 basis points to 28% progressing nicely towards the 2025 target of 30 plus percent.

We continued to deliver solid cash flows with year to date cash flow from operations totaling approximately $640 million, which includes an after tax impact of the final settlement of the <unk> in matter of about $185 million cash from operations was 825 million.

When you adjust for this item.

We expect robust cash flow generation to continue in the fourth quarter as strong profit contribution is accentuated by working capital benefits.

We amended the definition of free cash flow last quarter to include the refer deferred license payments, which represents capital investment invested in IP for game development.

Vincent Sadusky: This puts us firmly on track to achieve our full year 2023 revenue and margin goals. Moving on to segment level performance, global lottery same-source sales were up 3 percent and a third quarter in line with the 4 percent growth for the year-to-date period and building on a strong multi-year growth trajectory. Italy performance in the first nine months continues to impress with 8 percent same-store sales growth fueled by increases for both scratch and win and lot of games.

And are a component of financing activities on the cash flow statement year to date, Capex and payments on deferred license fee total around $315 million, resulting in free cash flow of $324 million adjusted free cash flow, which excludes payment on legal settlements is a better measure of the operation on cash generated.

By this businesses and exceeded $500 million for the first nine months of the year.

Vincent Sadusky: A consistent flow of game innovation complemented by our unique player insights and strategic portfolio optimization initiatives have been the key drivers of Italy's growth issue. In the U.S, and the rest of the world, same-store sales are up over 3% on robust power ball and mega-million sales in the U.S. During the quarter, IGT extended several long-standing business partnerships. California is the second largest lottery in the U.S, and IGT's relationship there spans more than three decades.

Net debt leverage has improved to three times as we have been able to fully absorb the impact of the <unk> matter in just two quarters, excluding that item net debt leverage would have been slightly below two nine times, which is a new record.

On a year to date basis $120 million in capital has been returned to shareholders in the form of cash dividends.

Late last week, we announced a make whole call of the remaining $112 million of.

Vincent Sadusky: Over that time, our solutions have powered over 41 billion in support for California's public schools. A seven-year extension in California secures this important partnership through at least October of 2033. We also secured two 10-year contract extensions with the Kentucky Lottery Corporation, where IGT will remain the primary technology provider for both retail and eye lottery solutions through 2036. It's another 30-plus-year partnership to fund higher education throughout Kentucky. Our current lottery contract portfolio has a revenue-weighted six-years remaining with extension options.

Three 5% Euro bond due in 2024.

The repayment of this bonds is scheduled to occur in November as we expect to build incremental free cash flow from our business operations during the quarter.

Financial flexibility remains high backed by total liquidity of $1 9 billion comprise of about $600 million in unrestricted cash and additional borrowing capacity from undrawn credit facilities of approximately $1 3 billion.

We're tightening our full year outlook for revenue to about $4 3 billion at the top end of the previous range based on the strong year to date financial performance. The outlook for operating income remain margin remain at about 23% with cash from operations of $900 million to 1 billion and Capex of 401.

Vincent Sadusky: The California and Kentucky extensions speak to the confidence and trust the world's premier lotteries have an IGT's best-in-class modern lottery solutions. This included our cloud-based systems platforms and Omnia, our new player-centric Omni-channel solution. ILottery sales continue to expand at a price base, rising over 50% in the first nine months, reflecting broad-based momentum around the world. We continue to deploy IGT's latest cloud-based ILottery platform in remote game server for customers in Lithuania, Paraguay, Poland, and Switzerland. In addition, we are installing new platforms and markets like Connecticut, where we'll launch ILottery later this year.

$450 million.

The full year outlook, coupled with year to date results implies a revenue target for the fourth quarter of around $1 1 billion.

This assumes global lottery revenue growth grows low to mid single digits, including higher planned product sale revenue with global gaming and play digital revenue in line with prior year.

As a reminder, fourth quarter operating income is expected to include a total of about $25 million from restructuring cost in Italy and project costs related to the exploration of strategic alternatives for our global gaming and play digital segments.

Vincent Sadusky: Today, I'm joining you from the annual North American Association of State and Prevention Lottery's Conference in Milwaukee, where IGT is demonstrating its global lottery industry leadership. This includes the launch of the Retailer Pro-S2, a sequel to the most popular lottery terminal in the U.S. We'll also be showcasing the industry's first 48-bit self-service venue machine, as well as additional menu board that is modern, sleek, way for retailers to highlight instant ticket games and other promotional content at the point of sale.

Yes to date, we have spent about $14 million on project cost.

To summarize we are pleased with the financial results, we delivered in the third quarter, which included revenue growth margin expansion and strong cash flow generation. We are tightening our full year revenue outlook to the top end of the previous range and maintaining our profit margin outlook given the strong year to date performance.

Vincent Sadusky: Lottery link is another exciting innovation. It's the first and only solution to enable instant and draw game sales without a dedicated lottery terminal or software changes to the Retailer point of sale. It's a key enabler of our focus to expand in-lane lottery purchases at Big Box retailers nationwide.

We're well positioned for the future with net debt leverage already comfortably within our long term target range, no meaningful near term debt maturities and access to significant liquidity.

Vincent Sadusky: Let's move on to the global gaming where compelling games and innovative new cabinets are driving strong results. Q3 revenue growth of 8% fueled an over 40% increase in operating income. The year-to-day performance is equally impressive with revenue of 12% and operating increasing, operating income increasing 34% on a broad-based momentum across the business. Year-to-day global unit shipments are of 10%, complemented by a 7% increase in average selling prices. We've maintained the leading North American ship share for four and a half years, and we have some terrific new games and hardware that we believe can maintain our momentum.

And now I would like to ask the operator to open the line for questions.

Yes.

Thank you if you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from the queue simply press Star One again one moment. Please for your first question.

Yes.

And your first question comes from the line of Barry Jonas of True Securities. Your line is open.

Hey, guys good morning.

There's been some talk about potential competition for the Italian Lotto contract when it comes up for renewal in a few years. Just curious if you can talk about your positioning there overall thanks.

Vincent Sadusky: The new diamond RS Mechanical Wheel Stepper has been well received, claiming about 40% share of North American Mechanical Wheel Stepper shipments over the last year. We have another multi-level progressive success story with Magic Treasures, whose two-game theme secured top spots in a recent new core video game service. Wednesday. Progress is equally good for our least games, where the global install base grew for the fifth consecutive quarter. Prosperity link continues to perform strongly with over 3500 units deployed worldwide.

Yes sure. Thanks.

I'll take it.

Yes.

We've had we've run the Utah in Lotto concession.

For a very long period of time.

The results I think as a result of that.

Team being absolutely outstanding.

<unk> taken a very old lottery and continue to innovate.

Vincent Sadusky: We are building on that momentum with Mystery of the Lamb introduced in June on our new peak curve 49 cabinet, which was recently recognized as the leading portrait upright cabinet in North America. We already have over 600 Mystery of the Lamp units in the field, generating productivity over two and a half times floor average. The two base games continue to be among the top new premium leased and WAP games in a recent Eilish survey.

And drive incremental sales. This is a very mature marketplace with very sophisticated players and I think the ability to to innovate both on the retail side and on the game development side has generated great results for for all the stakeholders certainly the state the tabak.

<unk>.

Yes, I think ultimately we'll see what the competition.

Vincent Sadusky: We just came back from a strong showing a G2E where our product strategies were clear. For least games, we intended drive our success in MLPs and secure our fair share of that category with five new concepts, including two new Prosperity link base games. We expect to enhance our presence in the video WAP category with six new concepts, including the launch of Whitney Euston Slots on the new Skyrise cabinet. And we intend to extend our separate leadership with the introduction of the Diamond RS premium cabinet, building on the success we had with sales of the Diamond RS.

As we feel very confident.

With with our opportunity.

Our knowledge and ability to work very closely with the with the regulator as well in growing.

The games.

And we really don't have more insight to offer up at.

At this point, but we believe our leadership.

And our and our tenured physicians.

As clearly.

<unk> an advantage for us.

Vincent Sadusky: On the fourth sales side of the business, we plan to build on our leading North American[inaudible] of proven game families such as Magic Treasures, Samurai 8-8-8-8 and Kitty Glitter supported by player centric game features. Until now, the peak 49 was exclusive to least games. The opoker and mechanical wheel steppers are areas where IGT has very strong market leadership positions. In many cases, our new video poker content is outperforming legacy content by over two times.

Got it got it that makes sense and then just as a follow up.

You mentioned the strategic evaluation continues to progress just curious if you can give any more color. There I know folks are wondering if the financing environment is influencing the review at all and then I'm also curious to get your thoughts on how the gaming and digital businesses are performing relative to your expectations when you.

Actually started this process it seems like they are doing quite well. Thank you.

Yes, sure it's a great question.

When we talk about this internally we talking about the things you can control the things you can't control that.

Vincent Sadusky: And we've expanded the cabinet to offer, cabinet offer to maximize our global opportunity. The peak bar top is one of the most impactful new video poker hardware introductions in the category and Crystal Curve and Coball cabinets offer new ways to grow our domestic and international video poker presence. As I mentioned earlier, the Diamond RS has revitalized our mechanical wheel offer and presents a compelling replacement opportunity for us. At G2E, we expanded our four sale offer with the Diamond RS27, developed for high limit rooms where IGT typically enjoys outside shares.

Most important thing for our business internally when entering into one of these processes is to ensure that we.

We've done what we can do from a management perspective to keep our teams focused on the business of growing lottery and on growing gaming and Fortunately that's gone that's gone very well the market continues to be good.

From an industry perspective, but more importantly, I think the innovation innovative products, we brought to market continue to resonate as you've witnessed now for the for the third quarter four for all of our divisions, most particularly the opportunity for a distraction would certainly be greatest in gaming and the team is.

Vincent Sadusky: Profit expansion is the main story of Play Digital in the third quarter, with operating income of 32%. In the first time months of the year, Play Digital revenue rose 17% and operating profit increased 46%. IGaming growth has been fueled by key content strategies and the incremental contribution from ISOC bed in the first half of the year. We expect to launch about 60 new games this year, more than double-hour historical pace. This expanded capacity in addition to some unique capabilities enables us to provide compelling value to our customers and players alike.

Done a great job and we like to say I mean, nothing keeps people focused.

On operations better than having success in and we've had we've had really really good success on the strategic process as we mentioned in the past just taking you back to kind of the origination of the process right. It was.

It's not done because of a dissatisfaction with any one of the business is in fact.

Vincent Sadusky: One example is with the development of bespoke games such as Seasors Cleopatra for Seasors Palace Online Casino and Fort Knox Cleopatra for Pandual. Another example is the launch of Wheel of Fortune and Triple Gold spent in New Jersey. The first ever on the Channel Jackpot game in the U.S, leveraging the success of our popular power-bucks game in Canada. We're looking to expand omnichannel games to new U.S, markets this year, and launch money media has a new omnichannel link in Canada at this quarter.

The company has been at these businesses of lottery and gaming for many many years and certainly over.

Over the last several years post COVID-19.

Really really excited about the performance of the teams that products in the market.

So it's purely done from a perspective of being frustrated with with devaluation, we were receiving in the in the public marketplace.

Thought it was a good opportunity from a position of strength and momentum to take a look at potential other alternatives to two to increase shareholder value. So purely done from from that perspective.

Vincent Sadusky: We are just starting to deploy our sophisticated user engagement tools that offer real-time, personalized player recommendations and promotions. We expect this unique leading edge technology to drive productivity through a richer player experience and build as strong as sustainable competitive advantage for our content. We continue to expand our sports betting customer base in Alpower nearly 100 Casino sports books across North America. We recently introduced live streaming sports and sports betting functionality on the deep bar top and Crystal Flex terminals. Players can now watch a sporting event that on sports and play video poker or slots all at the same terminal. Both generated a lot of interest at G2E.

As far as the market conditions go.

We are clearly in a environment now later in 2023.

The expectation of a higher interest rate environment for a longer period of time, but.

But when you think about the market.

From a economic perspective in the first half of this year there were significant concerns around the recession and a decline in the overall economy in the back half of 2023, which Fortunately for for us in so many other businesses has not occurred and.

Vincent Sadusky: We had a great third quarter and it's been a productive first nine months of the year. Our results placed us firmly on track to achieve our full year 2023 financial goals. We are doing this with a steadfast commitment to be a good corporate citizen, evidence by momentum with key ESG initiatives, including the validation of our SBTI targets and improve ratings from several third party agencies.

The businesses, we operate in remain very very robust and high high personal demand for for entertainment services, which is great for our business and certainly for four hour our customers' business.

So we think.

Vincent Sadusky: As many of you know, we are evaluating strategic alternatives for the global gaming and play digital segments. That work is underway in progressing. At the same time, we have established a strong foundation for achieving our 2025 financial targets. The innovative new solutions feature that recent trade shows will be important catalysts in reaching our goals and in creating significant value for all stakeholders.

There is always a market for assets that are high quality.

Theres not a lot of.

High quality assets in the in the marketplace and the capital markets are open so in thinking about kind of our strategic alternatives.

The alternative.

Transaction for gaming, we believe there is still is still valid and still potentially available and we will we will go through the process. Obviously in a very that we feel very strongly about the value of these businesses will will go through the process and we'll make a determination ultimately as to what we think.

Massimiliano Chiara: Now I'll turn the call over to Max. Thank you, Vince, and welcome to everyone joining us today. Once again, we're very pleased with the results on this play today. We have been able to achieve or exceed our outlook as a result of our resilient performance in global lottery, fuel by elevated play levels and a persistent jackpot performance. The continuation of the global gaming turnaround story with a further acceleration on its profitable growth trajectory and a play digital performance continuing to deliver substantial profit flow through.

He is the best the best alternative for.

Our sole goal, which is to maximize shareholder value.

Great. That's really helpful. Thank you Vince.

Your next question comes from the line of Chad Beynon of.

Mercury Your line is open.

Yes.

Yeah.

Last quarter <unk> wanted to start with the guide.

Massimiliano Chiara: We generated more than a billion dollar in revenue in the third quarter consistent with the prior year, driven by strong key performance indicators across our three business segments, revenue grew six percent, excluding prior year contributions from the Italy commercial service business that was sold in September 2022. Q3 operating income rose 13 percent to 239 million and adjusted EBITDA of 433 million was up 8 percent led by double digit increases in global gaming and play digital.

I guess, the Q4 guide coming in at the top end.

It seems like the biggest component of that is the low single digit growth for lottery that youre expecting on a same store basis in Q4.

That's kind of where that was in Q3, but just wanted to kind of focus a little bit more on that given.

The ever moving consumer have you seen any changes in <unk>.

North America or in Italian sales, maybe throughout the third quarter and then if you're willing to kind of talk about some near term trends into the fourth quarter.

Massimiliano Chiara: These growth rates are even higher when you exclude 12 million dollar in profit that was contributed by the commercial service business in the prior year. Profit margin expansion was also a notable achievement with operating income margin growth of 250 basis points to more than 22 percent the highest level for a third quarter period in company history and adjusted EBITDA margin up 270 basis points to 41 percent. As we mentioned last quarter along with good organic performance driven by solid KPI improvement we benefited from some operational process improvements in our product development that now require capitalization and amortization of certain costs that were historically expense as incurred.

Has anything changed given that we're all keeping an eye on that consumer thanks.

Yes specific to to lottery.

We saw.

Amazing growth in the first half of the year.

In North America, and in Italy, our two largest markets by by far a lot of that was driven by <unk>.

Instance, as well as a refreshing of the portfolio and the go to market strategy for for Lotto in Italy.

We got into the third quarter, we had some pretty tough comps given Jack.

Massimiliano Chiara: The resulting impact was a financial benefit of about 10 million to operating income and approximately 20 million to adjusted EBITDA. The effective tax rate in the quarter was 35%, in line with our expectations that it would normalize in the second half of 2023. On a year-to-date basis, the effective tax rate adjusted for unusual or non-recurring items is in line with our fully-arrestime in the mid-30s percent range. We deliver 46 cents in diluted earnings per share versus a dollar 30 in the prior year. As the prior year included some large, non-operating items such as the gain on the sale of the commercial service business and the accrual of the DDI-Benson matter settlement.

Jackpots in North America were significant several multi more than $1 billion jackpots last year. Fortunately in the third quarter. We had the same phenomenon take place. So we're able to drive incremental growth there.

And in the fourth quarter, we had.

Very significant jackpots again last year Multistate jackpots. So we don't we're certainly not planning on that for four for this year.

In the back half of the year, we've seen outside of the multistate jackpots and moderation in the growth for both scratch and.

In Lotto.

But again, we anticipated that normally new product launches new price points.

Our.

Massimiliano Chiara: Adjusted diluted earnings per share of 52 cents was up 21% from 43 cents in the prior year, primarily driven by the higher operating income performance.

If if we've done a good job with the product it drives incremental sales and a lot of that took place in the in.

In the first half of the year.

And then in the back half of the year there was a lot of.

Massimiliano Chiara: Now I would like to review the results of each business segment, beginning with global lottery. The quarter revenue of about 600 million was down 4%, but up 5% adjusting for the sale of Italy commercial service to underscore the underlying business performance more properly. Global same-store sales 3% driven by nearly 5% increase in Italy, which strong contributions from both instant ticket and draw games, and an nearly 3% increase in North American rest of the world, which benefited from elevated jackpot activity.

Consumption of Multistate jackpot purchases in the.

In the United States So.

As far as what we're seeing the trends in October.

Same store sales for Italy, we're seeing up in the.

The mid single digits.

We think we will probably.

End up somewhere in the neighborhood of low single digit growth.

In the fourth quarter, which we think is in line with our longer term outlook for Italy, and again as we launch new products will have certain quarter as well, where we expect significant.

Massimiliano Chiara: Double digit growth rates continue in I-latering, where same-store sales grew 24% in the quarter on broad-based strength across geographies and game types. Penetration in IGT serve territories continue to expand at a rapid pace, reaching double digits in the U.S, and growing. Profitability was very strong with operating income of 206 million, and OI margin of 34% up 60 business points compared to the prior year. At this point we have been cruising well within the 25 target range established at our 2021 investor day for at least the last seven quarters in a row.

Significant increases and then those products play.

Play levels moderate.

But I think.

On the U S side again the.

Multistate jackpot.

Driven a significant amount of sales four for the third quarter in particular, we're not counting on that for the for the fourth quarter and on the incident draws side, we think that will be in line with.

With with the prior year, given we had significant product launches and in larger states, especially in the area of scratch in 'twenty 'twenty. Two so overall, we think the health of the business is very good.

And I think the most important data point.

Massimiliano Chiara: Adjusted EBDA margin was 51% up 150 business points, and maintaining a level in access of 50% for the third consecutive quarter. In Q4 we expect to maintain low single-digit same-store sales sales growth for instant ticket and draw games. Keep in mind we have difficult North American rest of world jackpot comparisons as the prior year included a 2 billion power bulge jackpot which contributed about 20 million in revenue and profit. Instead most of the benefits from this October power bulge jackpot was realized in Q3.

As.

Our thesis that play levels would continue at these elevated levels that we experienced post COVID-19 that continues to play out and be and be true.

And to complement.

To complement what Vince was.

Alluding to we also have a slew of product sales expected to execute in Q4.

Areas countries as we deliver term announce at both in North America and in Europe.

That will represent a significant increase to last year.

Obviously roundup the performance from a top line perspective.

Massimiliano Chiara: Turning to gaming we generated strong revenue and profit growth during the third quarter with broad-based contributions across the product portfolio. Revenue of 409 million increased 8% over the prior year, propelled by growth in the install base and higher system and software sales. The global install base rose more than 470 units sequentially to over 52,600 units with balanced growth across US, Canada and the rest of the world. And yields continue to hold at nice levels.

Thanks for that and then on the gaming March or the global gaming margin goal.

That you've kind of laid out at the Investor day, and you've talked about the last several quarters. It seems like that's kind of according to plan.

And our recent meetings you talked about half of that being supply chain and then half being just from scale it looks like a lot.

Lot of the supply chain and the scale kind of came in in this quarter.

Massimiliano Chiara: Global Unitshipments exceeded 1900 units, led by a 23% increase in US and Canada casino replacement. Global ASPs were down slightly due to a higher mix of VLT and poker games as we continue to ramp up our efforts in delivering the new successful games and cabinets in the core video category. In fact, ASPs can vary quarter to quarter due to cadence of new prior launches. And at this juncture, we expect Q4 ASPs to be more aligned with the levels we saw in the first half of the year.

Max can you just give us an update in terms of where you are kind of what the upcoming opportunities are for further margin improvement.

Stay on the path for the 2025 margin goal. Thank you.

Yes sure so.

Obviously, the 25 number is not in the bag as of yet, but we have a couple of good carryover impact that we will continue to progress along the way into next year as well, we anticipate the supply chain to continue to be to have a tailwind on our margins.

For 2024 as well as.

This situation has fully normalized and we expect now to be able to bring home those efficiency measures that we have put in place during the past couple of years.

Massimiliano Chiara: Higher system says we're primarily related to enhancements and upgrades to our advantage casino management system from existing customers. And software revenue grew on strong customer and player demand for IGT leading portfolio of poker products. Operating income of 93 million increased 42%, including about 10 million in benefit coming from the capitalization of R&D cost from the process improvement previously discussed. Operating income margin expanded 550 business points to 23% fueled by the easing of supply chain challenges, the higher margin system sales, and the said R&D process improvements.

Another area, where we expect.

Some tailwind is the improved mix of products in North America.

With the various launches of new cabinets the peak 49.

And our new games, we expect that the strength of our product.

<unk> to really be a tailwind on our margin progression going forward and then obviously we continue to.

Enjoy the benefit from the increased scale.

Those are the items that we control items that we have less of a control are more related to the.

Massimiliano Chiara: In Play Digital, IGaming GGR trends remain strong with double digit increases across geographies. IGaming revenue was up year over year, even in the absence of new jurisdictions coming online driven by strong player demand for wide area progressive games. However, overall Play Digital revenue was flat year over year as IGaming growth was offset by the cessation of operations in certain legacy ice of bad jurisdictions, and sports betting was lower primarily due to unusually high whole levels in the prior year, along with unusually low levels this quarter.

Geopolitical situations in the microeconomic issues around the globe and obviously, we have to watch them carefully but definitely those markets. The international markets in general are still running.

Behind that the pre COVID-19.

Video and so.

As the market at the individual markets stabilize we expect to be able to have improved.

As shown in those individual markets as well.

Around up our performance on our margin journey trajectory.

Massimiliano Chiara: Operating income rose 32% to $16 million on increased operating leverage and ice of bad acquisition cost in the prior year. Operating income margin expanded 660 business points to 28%, progressing nicely toward the 2025 target of 30% plus percent.

Thank you very much appreciate it.

Your next question comes from the line of Jeff substantial of Stifel. Your line is open.

Hey, great. Thanks, Good morning, Vince and thanks, Thanks for taking my questions.

Starting off here I wanted to follow up on one of <unk> questions earlier on the upcoming Lotto renewal. Obviously you are coming at it this time around from a position of financial strength, just given where the balance sheet is but I guess my question is are there other reasons I guess, besides financial that you might look to incorporate.

Massimiliano Chiara: We continue to deliver solid cash flows with year-to-date cash flow from operations totaling approximately $604 million, which includes an after-tax impact of the final settlement of the DDI Benson matter of about $185 million. Cash from operations was $825 million when you adjust for this item. We expect robust cash flow generation to continue in the fourth quarter, as strong profit contribution is accentuated by working capital benefits. We amended the definition of free cash flow last quarter to include the third license payments, which represent capital investment invested in IP for game development, and are a component of financing activities on the cash flow statement.

Our minority partner again this time around.

Yes, I would say the partnership the consortium that we put together last time has gone fine and I think it's benefited serve the intended purpose and benefited all parties to have a very strong offering.

We obviously can't comment on the on the development of that for this next lotto tender but.

But as we've pointed out before the companies certainly.

Massimiliano Chiara: Year-to-date, capex and payments on the first license fee total around $315 million, resulting in free cash flow of $324 million. Adjusted free cash flow, which excludes payment on legal settlement, is a better measure of the operational cash generated by these businesses and exceeded $500 million for the first nine months of the year. Net that leverage has improved to three times, as we have been able to fully absorb the impact of the DDI-Bansson matter in just the quarters.

<unk> capital structure is the best ever it's got the lowest leverage level ever. So the company has a lot of flexibility to be able to think about and determine the best the best pathway forward.

As I say, it's hard to really comment beyond that at this point.

Okay, Great. That's helpful. Thanks, and then turning to the to the gaming business replacement sales in North America. We're well ahead of kind of where we were thinking about things up more than 1000 units quarter on quarter.

Massimiliano Chiara: Excluding that item, net that leverage would have been slightly below 2.9 times, which is a new record. On a year-to-date basis, 120 million in capital has been returned to shareholders in the form of cash dividends. Late last week, we announced a make-hole call of the remaining 112 million euro of the three and a half percent euro bond due in 2024. The repayment of this bond is scheduled to occur in November as we expect to build incremental free cash flow from our business operations during the quarter. Financial flexibility remains high back by total liquidity of 1.9 billion comprised of about 600 million in unrestricted cash and additional borrowing capacity from a drawn credit facilities of approximately 1.3 billion.

Just hoping you could sort of bucket out some of the sequential growth drivers here, what I mean by that specifically is how much of the sequential growth was driven by Lps versus poker versus steppers video et cetera.

Any color there to help kind of frame this out would be appreciated. Thanks.

Okay.

Yes, I guess.

Yes, it's interesting from quarter to quarter, there is the demand for our machines changes.

And it's really I think.

Positive for IGT that we are now in a position, where we are very competitive and market leading in fact in several game categories. So I think one of the really cool things. The team did at <unk>. For example was we were the only ones to two.

Massimiliano Chiara: We're tightening our full year outlook for revenue to about 4.3 billion at the top end of the previous range based on the strong year-to-date financial performance. The outlook for operating income remains at about 23 percent with cash from operations of 900 million to a billion and capex of 400 million to 450 million. The full year outlook coupled with year-to-date results implies a revenue target for the fourth quarter of around 1.1 billion.

Set up a high limit room rate and so all casinos.

Aspire to have a high limit room as it normally.

Highest yielding per capita by far in a big profit center.

In fact, a lot of regional casinos don't have our highland their room because.

It just doesn't do all that well, but it's usually the premium casinos that have it.

Massimiliano Chiara: These assumes global lottery revenue growth grows low to mid-single digits including higher planned products revenue with global gaming and play digital revenue in line with prior year. As a reminder, four-quarter operating income is expected to include a total of about 25 million dollars from the trasharing cost in Italy and project costs related to the exploration of strategic alternatives for global gaming and play digital segments. Year-to-date we have spent about 14 million on project costs.

Anyway, we normally over index in the high limit room, and we were able to utilize that high limit room concept at G. III to visually show that you could outfit the entire room.

From mechanical stepper, two video poker to core games to MLP games to Wap games with all of the latest new high performing titles by IGT I think it was very effective visualization. So.

For example in this quarter Max had mentioned one of the reasons that our ASP was a little bit lower than what you expected.

Massimiliano Chiara: To summarize, we are pleased with the financial results with the lever in the third quarter which included revenue growth, margin expansion and strong cash flow generation. We're tightening our full year revenue outlook to the top end of the previous range and maintaining our profit margin outlook, giving the strong year-to-date performance. We're well positioned for the future with net debt leverage already comfortably within our long-term target range, no meaningful near-term debt materialities and access to significant liquidity.

Because we actually sold a lot of our new video poker cabinets into the marketplace.

Our we mentioned our Diamond RF Cabinet for example.

That cabinet, we introduced several quarters ago. It took a little while to get some momentum for that cabinet, but once operators got a chance to see it to understand it to build in replacements for mechanical steppers, which don't happen all that often they are long lived machines that players really enjoy.

Operator: And now I would like to ask the operator to open the line for questions. Thank you. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. One moment please for your first question.

And oftentimes, we don't want to see replaced.

We ended up having very significant ship share I think I had mentioned we.

We estimate somewhere around 40% of the replacement market for four for stepper cabinets were where our diamond Rs.

Barry Jonas: Your first question comes from the line of Barry Jonas of True Securities. Your line is open. Hey guys, good morning.

Along with really good consistent deliveries of our MLP games, and Wap games et cetera. So.

Vincent Sadusky: There have been some talk about potential competition for the Italian Lotto contract when it comes up for a new one a few years. Just curious if you can talk about your positioning there overall. Thanks. Yeah, sure thing. I'll take it. We've run the Utah in Lotto concession for a very long period of time. You've heard the results. I think as a result of the team being absolutely outstanding, we've taken a very old lottery and continued to innovate and drive incremental sales.

Rather than kind of comment specifically on the quarter.

That experience for the third quarter was different from the second quarter.

Lot of MLP games, really kind of drove a lot of our production capacity in and deliveries along with core games as well so it definitely fluctuate from quarter to quarter I think the takeaway is we're competitive in all of these game categories and when you add up all the numbers, we had terrific yield we had terrific ship share.

There can we had.

Fifth quarter in a row of increasing installed base that was that was really significant it really really nice. So that's the way we look at it when we look at our overall Kpis, we're really pleased with the direction in <unk>.

Vincent Sadusky: This is a very mature marketplace with very sophisticated players. I think the ability to innovate both on the retail side and on the game development side has generated great results for all the stakeholders, certainly the state, the tobacco and the IDT. I think ultimately we'll see what the competition is. We feel very confident with our opportunity, our knowledge and ability to work very closely with the regulators as well in growing the games. We really don't have more insight to offer up at this point, but we believe our leadership and our tenured position is clearly an advantage for us. Got it, that makes sense.

Fourth quarter funnel looks looks looks good we don't have a lot of visibility going way up in the future as you all know.

The nature of the business, but.

Fourth quarter look so it looks like demand has remained strong for us.

Great. That's really helpful color, Thanks, again, and congrats on a strong quarter.

Again, if you would like to ask a question.

First Star then the number one on your telephone keypad.

Next question comes from the line of Era Macias of Jefferies. Your line is open.

I think David Katz, I think we may have just logged in that way. Good morning, everyone. Thanks for taking my question.

I wanted to ask.

First about <unk>.

Lottery volatility jackpot volatility I recall, a number of years ago.

That's become more of a thing can you help us just understand the degree to which lotteries.

Vincent Sadusky: You mentioned the strategic evaluation continues to progress. Just curious if you can give any more color there. I know folks are wondering if the financing environment is influencing the review at all. I'm also curious to get your thoughts on how the gaming and digital businesses are performing relative to your expectations when you actually started this process. It seems like they're doing quite well. Thank you. Great question. When we talk about this internally, the things you can control, the things you can't control, the most important thing for our business internally when entering into one of these processes is to ensure that we've done what we can do from a management perspective to keep our teams focused on the business of growing lottery and on growing gaming.

Year to date have had some.

One time wallets volatility and that I have.

Quick follow up.

Yeah. So.

Hi, David This is mark speaking.

No.

And I guess in trying to.

Interplay to your question is volatility mostly has to do with jackpots in North America I guess.

Yes, so we have we have seen this.

Steady interest in jackpot and jackpot games for the better part of last year.

That is likely attributable to the advertised jackpot.

<unk> exceeded the $1 billion Mark six times in the last 18 months.

Obviously advertise jackpots levels have helped by the rising interest rate environment.

Vincent Sadusky: Fortunately, that's gone very well. The market continues to be good from an industry perspective, but more importantly, I think the innovation products we brought to market continued to resonate as you've witnessed now for the third quarter for all of our divisions. Most particularly, the opportunity for a distraction would certainly be greatest in gaming and the team has done a great job and we like to say nothing keeps people focused on operations better than having success and we've had really good success.

As the advertised jackpot levels are based on a 30 year annuity stream.

Yeah.

That doesn't mean by the fall at the same level of underlying sales today to advertise a 1 billion jackpot is the same as it did a few years ago when interest rates were lower.

So for example at <unk>.

Parable jackpot levels above $500 million.

Both powerball and Mega millions underlying sales have decreased over time.

In 2022, both games to generate over 600 million dollar in sales for the 1 billion plus jackpot sales have now less than $300 million, forcing me to have jackpots.

Vincent Sadusky: On the strategic process, we mentioned the past just taking you back to the origination of the process. It was not done because of a dissatisfaction with any one of the businesses. In fact, the company has been at these businesses of lottery and gaming for many, many years and certainly over the last several years, post-COVID, we've been really excited about the performance of the teams, the product and the markets. We've clearly done from a perspective of being frustrated with the valuation we were receiving in the public marketplace and thought it was a good opportunity from a position of strength and momentum to take a look at potential other alternatives to increase shareholder values.

Another way to understand is is with a lump sum payout today. The lump sum payout is less than half of the advertised jackpot and is down from over 60% in 2016 before.

The significant rise in interest rates and.

So the last comment I'd like to make is obviously igt's remunerated as a percentage of lottery ticket sales not the advertise jackpot sorry, so despite the high volatility in the advertised jackpot, our our remuneration is based on the on the lottery sales the underlying lottery sales.

Vincent Sadusky: So purely done from that perspective. As far as the market conditions go, we're clearly in a environment now later in 2023 of the expectation of a higher interest rate environment for a longer period of time. But when you think about the market from an economic perspective and the first half of this year, there were significant concerns around a recession and a decline in the overall economy in the back half of 2023, which fortunately for us and so many other businesses has not occurred.

That obviously goes up and down but.

With a lower volatility than the advertised jackpot.

Very helpful.

If you could just give us a quick comment also on your outlook for slot sales, we obviously are having.

Periodic debates and active debates about.

Slot sales being a bit elevated.

America this year.

What's the outlook for next year.

Could be like please.

Okay.

Yes, I think.

Eilers had estimated this year slot.

Vincent Sadusky: And the businesses we operate in remain very robust and high personal demand for entertainment services, which is great for our business and certainly for our customers' business. So we think there's always a market for assets that are high quality. There's not a lot of high quality assets in the marketplace and the capital markets are open. And so in thinking about our strategic alternatives, the alternative of a transaction for gaming, we believe is still valid and potentially available.

Sales overall, North America to be up a couple of percentage points I think they are currently estimating next year up a little bit less than.

Than that.

For us, we certainly outpaced that as a result of.

Good games in.

And growing share.

I think that.

That's really really key for us and I think one of the other keys is the increase in that.

The installed base, so having a greater number of machines out on a lease basis with yields holding up.

Close to record levels I think is really positive.

Vincent Sadusky: And we'll go through the process, obviously, and we feel very strongly about the value of these businesses. We'll go through the process and we'll make a determination ultimately as to what we think is the best alternative for our sole goal, which is to maximize shareholder. Valio.

Yes, the economy, obviously, everyone has their own estimates as to whats going to happen to the consumer going forward, but.

All we know is it slide <unk> levels.

Remained good customer sentiment remains good.

Our challenges at really what we've seen is really outside of the U S. We continue to.

Vincent Sadusky: Great, that's really helpful. Thank you, Ben.

Do a great job in Latin America, our installed base has increased significantly their demand is really good.

Chad Beynon: Your next question comes from the line as Chad Beynon of Macri. Your line is open. Morning, nice quarter. Vincent Max wanted to start with the guide, I guess the Q4 guide coming in at the top end. It seems like the component of that is the low single digit growth for lottery that you're expecting on a same store basis than Q4. That's kind of where that was in Q3, but just wanted to focus a little bit more on that given the ever-moving consumer.

But you've got some.

The country concerns with with the market like Argentina.

EMEA is another marketplace, where there's challenges west.

Western Europe, we've done really well that market is back.

Back to.

Pre COVID-19 levels, but eastern Europe.

He needs to have significant issues geopolitical is probably the driver of that.

Chad Beynon: Have you seen any changes in North America or in Italian sales, maybe throughout the third quarter, and then if you're willing to talk about some near-term trends into the fourth quarter, has anything changed given that we're all keeping an eye on that consumer? Thanks. Yes, specific to lottery, we saw amazing growth in the first half of the year, both in North America and in Italy or to largest markets by far. A lot of that was driven by instance, as well as a refreshing of the portfolio and the go-to-market strategy for Lotto in Italy.

Overall.

Kind of I think what the industry is saying and then what.

I think what we're seeing.

Thank you.

And your last question comes from the line of.

Joe Stauff your.

Your line is open.

Thank you good morning, Vince good morning Max.

Yeah.

I had two questions.

If I could one one.

The gaming competitive landscape.

Really is so fragmented.

May be tough for me.

Others to kind of put the puzzle together and I was wondering.

Coming from <unk>, It seems as though in terms of your competition against specifically within gaming some of the small players are.

Chad Beynon: We got into the third quarter, we had some pretty tough cops, given jackpots in North America were significant, several more than a billion dollar jackpots last year. Fortunately, in the third quarter, we had the same phenomenon take place, so we're able to drive incremental growth there. In the fourth quarter, we had very significant jackpots again last year, multi-state jackpots, so we're certainly not planning on that for this year. In the back half of the year, we've seen outside of the multi-state jackpots a moderation in the normally new product launches, new price points are if we've done a good job with the product, it drives incremental sales, and a lot of that took place in the first half of the year.

Are much softer.

And I'm wondering if that's what you see in terms of the competitive landscape and whatever you can share with us versus obviously.

You.

Doing strong just based on results and obviously, maybe your two bigger competitors. So that's number one.

And then number two Max you had mentioned on the supply chain that.

It had normalized and I was wondering if you could just kind of remind us of.

First quarter second quarter, just sort of the cadence of where the supply chain was in terms of being normal <unk>.

Tighter relative to our.

Sort of expecting the benefit in those margins as we sort of adjust your models going forward.

Yes, I'll answer the first question, let <unk> take the take the supply chain question. So, yes I think.

Chad Beynon: And then in the back half of the year, there was a lot of consumption of multi-state jackpot purchases in the United States. As far as what we're seeing, the trends in October, same-store sales for Italy, we're seeing up in the mid-single digits. We think we'll probably end up somewhere in the neighborhood of low-single digit growth, in the fourth quarter, which we think is in line with the longer-term outlook for Italy. And again, as we launch new products, we'll have certain quarters where we expect significant increases and then those product play levels moderate.

It's a great observation.

Felt the same way I get to <unk>, a day early to meet with the teams and the setup.

Walk the floor quietly and it's just remarkable the number of small players there are.

Out there still.

One of those companies are private you don't know what their financials look like oftentimes had got a niche.

That's made it a business, but not a significant business and to be honest being in this business for decades now it's very hard to envision.

The consistency of game performance over a long period of time, when you don't have a large infrastructure and a very significant R&D investment on an ongoing basis.

Chad Beynon: But I think on the U.S, side, again, the multi-state jackpot driven significant amount of sales for the third quarter in particular, we're not counting on that for the fourth quarter. And on the infinite draw side, we think that'll be in line with the prior year given we had significant product launches. In larger states, especially in the area of scratch, in 2022. So overall, we think the health of the business is very good.

Larger companies such as ourselves have thats not to say that that they haven't had and that they won't have individual game successes from time to time, but when you think about the opportunity to exploit a great game concept internationally.

That's a unique area for just a handful of US a lot of the smaller players design games for specific markets, Let's say, it's Latin America, or eastern Europe, or North America, and don't even have operations in other parts of the world and they aspire to that but they've been aspiring to that for for a long.

Chad Beynon: And I think the most important data point is our thesis that play levels would continue at these elevated levels that we experience post-COVID. That continues to play out and be true. And to complement what they advanced was alluding to, we also have a slew of product sales expected to execute in Q4 in various countries as we deliver terminals both in North America and in Europe that will represent a significant increase to last year that will obviously round up the performance from a top line perspective.

Period of time, so I do think it's it's hard to to.

Really generate any significant scale consistently without.

Without having this big this large R&D investment.

And I think.

Thing that probably similar they goes for the casino that play digital business as well.

A lot of competitors in that front because the barriers to entry are of course lower however.

We're seeing over time that the same phenomenon is playing out.

Chad Beynon: Thanks for that. And then on the global gaming margin goal that you kind of laid out at the investor day and you've talked about the last several quarters, it seems like that's kind of according to plan. In our recent meetings you talked about half of that being supply chain and then half being just from scale. It looks like a lot of this supply chain and the scale kind of came in in this quarter.

If you were a significant operator in that space, you've got scale, you've got huge tech teams game development teams and your chances for success are greater plus there is the the customer interaction element of it as well right. So.

And as casinos consolidate under.

Under under holding companies.

It takes time to evaluate and listen to kind of one one off game developers be it on the casino side or on the certainly on the land based side.

Chad Beynon: Max, can you just give us an update in terms of where you are kind of what the upcoming opportunities are for further margin improvement to stay on the path for the 2025 margin goal. Thank you. Yeah, sure. So obviously the 25 number is not in the bag as of yet, but we have a couple of good carryover impact that will continue to progress along the way into next year as well. We anticipate supply chain to continue to be to have a tailwind on our margins for 2024 as well as the situation has fully normalized and we expect now to be able to bring home those efficiency measures that we have put in place during the post-COVID years.

Then there is the approval process and all of that so I just think that there is.

Scale is really helpful and really matters, especially in an industry that requires a lot of a lot of R&D to be successful.

Thanks Barry.

Very good and Joe in terms of the supply chain dynamics just to keep it very simple.

On the gaming side.

Supply chain is easing.

Last year.

In the second half of last year, we were running at about $20 million a quarter.

Less than half right now but.

Chad Beynon: Another area where we expect some tailwind is the improved mix of products in North America with the various launches of new cabinets, the peak 49, and new games we expect that the strength of our product offensive to really be a tailwind on our margin progression going forward. And then obviously we continue to enjoy the benefit from the increased scale. Those are the items that we control items that we have less of a control are more related to the geopolitical situations and the macroeconomic issues around the globe.

But we're still having some supply chain cost in the system baked into the system. We have had them since Q1 of <unk>. So again.

You'll see now the same benefit coming to fruition in Q3 and.

In Q4.

Is <unk>.

Supposed to continue next year because.

Of that easing process.

Getting to the final stage and now companies are able to get back in the in the pre COVID-19.

The period, where we.

We were looking for opportunities to really.

Find efficiencies in the supply chain organization and so.

Chad Beynon: And obviously we have to watch them carefully but definitely those markets, the international markets in general, are still running behind the pre-COVID period. And so as the market, the individual market stabilizes, we expect to be able to have improved the progression in those individual markets as well that would round up our performance on a margin journey trajectory. Thank you very much, appreciate it.

We expect that benefit.

To continue into 2024 as well.

While we have call it a tailwind in our margin progression going forward.

I see that makes sense.

Is it fair to say that.

Yes, you would you would expect it maybe.

Okay.

The level of spending that Youre doing now call it $10 million a quarter as you suggested extra extra spending.

<unk>.

Maybe that ticks down during the course of 'twenty four.

Yes, it may not be irregular ticked down.

Vincent Sadusky: Your next question comes from a line of Jeff Stanchel of Steeple. Your line is open. Hey, great. Thanks, good morning, Vince. Max, thanks for taking our questions. Starting off here, I wanted to follow up on one of the various questions earlier on the upcoming lot of renewal. Obviously, you're coming at it this time around from a position of financial strength, just given where the balance sheet is. But I guess my question is, are there other reasons I guess besides financial that you might look to incorporate a minority partner again this time around?

<unk> ticked down and may be a little bit less early on in the year and more towards the second half of the year, but yes fundamentally that's what we expect to happen.

Great. Thanks Max.

Yes.

There are no further questions at this time I will now turn the conference back to the CEO Vince dusky for closing remarks.

Well. Thank you all for joining us today, our Q3 and our year to date revenue and profit results highlight the good momentum we have across each one of our business segments.

Clear indication that our focus on driving growth through innovation and optimizing our processes and scale is paying off we're on a solid path to delivering on our full year commitments and are on track with our 2025 targets as we remain focused on one last thing the intrinsic value of Igt's market, leading businesses. We appreciate your interest in IGT and we look forward to meeting with me.

Vincent Sadusky: Yeah, I would say the partnership, the consortium that we put together last time has gone fine. I think it's benefited through the intended purpose and benefited all parties to have a very strong offering. We obviously can't comment on the development of that for this next lot of tender, but as the company is certainly its capital structure is the best ever. It's got the lowest leverage level ever, so the company has a lot of flexibility to be able to think about and determine the best pathway forward and if it's hard to really comment beyond that at this point.

Any of you in the coming weeks and have a great day.

This concludes today's conference call you may now disconnect.

Please wait the conference will begin shortly.

Okay.

Okay.

Vincent Sadusky: Okay, great. That's all, Paul. Thanks, Vincent. Then turning to the gaining business, replacements, sales in North America were well ahead of where we were thinking about things up more than 1,000 units quarter a quarter. I was just hoping you could sort of bucket out some of the sequential growth drivers here. What I mean by that specifically is how much of this sequential growth was driven by VLTs versus poker versus steppers, video, et cetera, just any color there to help kind of frame this out.

Thank you.

Okay.

Okay.

Yes.

Sure.

Yes.

Yes.

Yes.

Yes.

[music].

Vincent Sadusky: That would be appreciated. Yeah, I guess, you know, it's interesting. From quarter to quarter, there is the demand for our machines, changes. And it's really, I think, a positive for IGT that we are now in a position where we are very competitive and market leading, in fact, in several game categories. So I think one of the really cool things the team did at G2E, for example, was we were the only ones to set up a high limit room, right?

Yes.

Yes.

Yes.

Sure.

Okay.

[music].

No.

[music].

Okay.

Yeah.

Okay.

Yes.

Okay.

Okay.

Vincent Sadusky: And so all casinos aspire to have a high limit room as it's normally the highest yielding per capita by far and a big profit center. In fact, a lot of regional casinos don't have a high limit room because it just doesn't do all that well, but it's usually the premium casinos that have it. Anyway, we normally over index in the high limit room, and we were able to utilize that high limit room concept at G2E to visually show that you could outfit the entire room from mechanical stepper to video poker, to core games, to MLP games, to walk games, with all of the latest new high performing titles by IGT.

Okay.

Yes.

Vincent Sadusky: I think it was very effective visualization. So, you know, for example, in this quarter, Max had mentioned one of the reasons that our ASP was a little bit lower than we expected was because we actually sold a lot of our new video poker cabinets into the marketplace. Or we mentioned our Diamond RS cabinet, for example. You know, that cabinet we introduced several quarters ago, it took a little while to get some momentum for that cabinet, but once operators got a chance to see it, to understand it, to build in replacements for mechanical steppers, which don't happen all that often.

Vincent Sadusky: They're long-lived machines that players really enjoy, and oftentimes don't want to see replaced. You know, we ended up having very significant shipshare. I think I'd mentioned... We estimate somewhere around 40% of the replacement market for stepper cabinets were our diamond RS, along with really good consistent deliveries of our MLP games and wild games, etc. So it's rather than kind of comment specifically on the quarter, that experience for the third quarter was different from the second quarter, where a lot of MLP games really kind of a lot of our production capacity and deliveries along with core games as well.

Vincent Sadusky: So it definitely fluctuates from quarter to quarter, I think the takeaway is we're competitive in all these game categories. And when you add up all the numbers, we had terrific yield, we had terrific ship share, and we had a fifth quarter in a row of increasing install base, that was really significant and really really nice. So that's the way we look at it when we look at our overall KPIs, where we're really pleased with the direction.

Vincent Sadusky: And you know, fourth quarter final looks, you know, looks good. We don't have a lot of visibility going way on the future, as you all know, that's the nature of the business, but fourth quarter looks like demand is remains strong for us. Great, that's really helpful, caller. Thanks again, and congrats on the strong quarter.

Operator: Again, if you would like to ask a question, press star, then the number one on your telephone keypad.

David Katz: Your next question comes from the line of era, macias of Jeffries. Your line is open. I think it's David Katz. I think we may have just logged in that way. Good morning, everyone. Thanks for taking my question. I wanted to ask first about just lottery volatility and jackpot volatility. I recall a number of years ago that that's become more of a thing. Can you help us just understand the degree to which, you know, lotteries, you know, year-to-date have had some, you know, one-time volatility, and then I have a quick follow-up.

David Katz: David, it doesn't mark speaking. And I guess in trying to interpolate your questions, is volatility mostly have to do with jackpots in North America, I guess. Yes, so we have seen this steady interest in jackpot games for the better part of last year. That is likely attributable to the advertised jackpot that exceeded the $1 billion mark six times in the last 18 months. Obviously, advertised jackpot levels are held by the rising interest rate environment as the advertised jackpot levels are based on a 30-year annuity stream.

David Katz: That doesn't mean by the fall that the same level of underlying sales today to advertise a $1 billion jackpot is the same as a few years ago when interest rates were lower. So, for example, comparable jackpot levels above $500 million, both powerball and mega-millions underlying sales have decreased over time. In 2022, both games will generate over $600 million in sales for a $1 billion plus jackpot. Sales are now less than $300 million for similar jackpot.

David Katz: Another way to understand this is with the lump sum payout. Today the lump sum payout is less than half of the advertised jackpot and is down from over 60% in 2016 before the significant rise in interest rates. And so the last comment I'd like to make is obviously I get is remunerated as a percentage of lottery ticket sales, not the advertised jackpot size. So despite the high volatility in the advertised jackpot, our remuneration is based on the lottery sales, the underlying lottery sales, that obviously goes up and down, but with a lower volatility than the advertised jackpot.

Vincent Sadusky: Very helpful. And if you could just give us a quick comment also on your outlook for slot sales. We obviously are having periodic debates and active debates about slot sales being a bit elevated in North America this year and what the outlook for next year could be like. Please. Yeah, I think Eilers had estimated this year slot sales overall North America to be up a couple of percentage points. I think they're currently estimating next year up a little bit less than that.

Vincent Sadusky: You know, for us, we certainly outpaced that as a result of good games and growing share. And I think that's that's really, really key for us. And I think one of the other keys is the increase in the in the install base. So having a greater number of machines out on a least basis with yields holding up, you know, close to record levels, I think is is really a positive. The economy, obviously, everyone has their own estimates as to what's going to happen to the consumer going forward.

Vincent Sadusky: But all we know is that you know slot GGR levels, you know, remain good customer sentiment remains good. And, you know, our challenges are really what we've seen is really outside of the US. We continue to do a great job in Latin America or install bases increase significantly there demand is really good. But, you know, you've got some country concerns with the market like Argentina. And Mia is another marketplace where there's challenges Western Europe.

Vincent Sadusky: We've done really well that market is, you know, back to pre COVID levels. But Eastern Europe continues to have significant issues geopolitical is probably the driver of that. But, you know, overall that's kind of I think what the industry is saying and then what I think what what we're seeing.

David Katz: Thank you.

Joseph Stauff: And your last question comes from the line of Joe Stauff of SIG. Your line is open. Thank you.

Joseph Stauff: Good morning, Vince. Good morning, Max. I had two questions if I could. One, you know, the gaming competitive landscape naturally is so fragmented. It's maybe tough for me, not others to kind of put the puzzle together. And I was wondering, you know, coming from G2E, it seems as though in terms of your competition against specifically within gaming, some of the small players are much softer. And I'm wondering if that's what you see in terms of the competitive landscape and whatever you can share with us versus obviously you doing strong just based on results and obviously maybe you're two bigger competitors.

Joseph Stauff: So that's number one. And then number two, Max, you had mentioned on the supply chain that it had normalized. And I was wondering if you could just kind of remind us of first quarter, second quarter, just sort of the cadence of where the supply chain was in terms of being normal and or tighter relative to our, you know, sort of expecting the benefit in those margins as we sort of adjust our models going forward.

Joseph Stauff: Yeah, I'll answer the first question. Let Max take the supply chain question. So yeah, I think it's a great observation. I felt the same way, you know, I get to G2E a day early to me with the teams and the setup and, you know, walk the floor quietly. And it's just remarkable, the number of small players there are out there still. A lot of those companies are private. You don't know what their financials look like.

Joseph Stauff: Oftentimes they've got a niche that's made it a business but not a significant business. And, you know, to be honest, being in this business for decades now, it's very hard to envision a consistency of a game performance over a long period of time when you don't have a large infrastructure and a very significant R&D investment on an ongoing basis as the larger companies such as ourselves have. It's not to say that they haven't had and that they won't have individual game successes from time to time.

Joseph Stauff: But when you think about, you know, the opportunity to exploit a great game concept internationally, that's a unique area for just a handful of us. A lot of the smaller players design games for specific markets. Let's say it's Latin America or Eastern Europe or North America and don't even have operations in other parts of the world and they aspire to that. But, you know, they've been aspiring to that for a long period of time.

Joseph Stauff: So I do think it's hard to really generate any significant scale consistently without having this big, this large R&D investment. And I think, you know, something that probably similarly goes for the eye casino, the play digital business as well. There's a lot of competitors on that front because the barriers to entry are of course lower. However, I think we're seeing over time that the same phenomena is playing out that if you're a significant operator in that space, you've got scale, you've got, you know, huge tech teams, game development teams, and your chances for success are greater.

Joseph Stauff: Plus there's the customer interaction element of it as well, right? So, you know, as casinos consolidate under, you know, under, underholding companies, you know, it takes time to evaluate and listen to kind of one, one off game developers beat on the eye casino side or on the, certainly on the land base side. And then there's the approval process and all of that. So I just think that there's, you know, scale is really helpful and really matters, especially in an industry that requires a lot of, a lot of R&D to be successful.

Joseph Stauff: Thanks. Very good. And Joe, in terms of the supply chain dynamics, just to keep it very simple, on the gaming side, the supply chain is easing. Last year, in the second half of last year, we were running at about 20 million a quarter. We are less than half right now, but we're still having some supply chain cost in the system, baked into the system, and we have had them since Q1 of the year.

Joseph Stauff: So again, you see now the same benefit coming to fruition in Q3 and Q4 is supposed to continue next year because of that easing process, getting to the final stage, and now companies are able to get back in the pre-COVID period where we were looking for opportunities to really find efficiencies in the supply chain organization. And so we expect that benefit to continue into 2024 as well. That's why we have called it tailwind in our margin progression going forward.

Joseph Stauff: I see. That makes sense. And is it fair to say that you would expect it maybe to say the level of spending that you're doing now, called 10 million a quarter, as you suggested, extra spending, that maybe that ticks down during the course of 24? Yeah, it may not be a regular tick down or constant tick down. It may be a little bit less early on in the year and more towards the second half of the year, but yes, fundamentally that's what we expect to happen. Great. Thanks, Max. Thanks, Ben. Thank you. There are no further questions at this time.

Vincent Sadusky: I will not turn the conference back to the CEO, Vince Duskey for closing remarks. Yeah, well, thank you all for joining us today. Our Q3 and our year-to-day revenue and profit results highlight the good momentum we have across each one of our business segments. It's a clear indication that our focus on driving growth, renovation, and optimizing our processes and scale it is paying off. We're on a solid path to delivering on our full-year commitments and our on track with our 2025 targets as remain focused on unlawished being the intrinsic value of IGT's market-leading businesses. We appreciate your interest in IGT and we look forward to meeting with many of you in the coming weeks and have a great day. This concludes today's conference call. You may now disconnect. Please wait.

Operator: The conference will begin shortly.