Q4 2023 Everi Holdings Inc Earnings Release
Welcome everyone to the joint IGT and every conference 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 then the number one on your telephone keypad, if you'd like to withdraw your question.
Star One again, we do ask that you. Please limit your questions to one and one follow up I would now like to turn the conference over to Jim Hurley SVP Investor Relations at IGT. Please go ahead.
Thank you Regina and thank you all for joining us for the joint call between IGT and every holdings. Today's call is hosted by been Sadowski, Igt's, Chief Executive Officer, and Randy Taylor, President and CEO of every holdings.
After some prepared remarks, Vince Randy and other team members will be available for your questions.
During today's call and in relation to the announced transaction, we would be making some forward looking statements within the meaning of the federal Securities laws forward looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements.
The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in the latest IGT and every SEC filings.
During this call we will discuss certain non-GAAP financial measures you will find additional disclosures regarding these non-GAAP measures and IGT and <unk> respective filings with the SEC, which are posted on our respective investor relations websites and now I will turn the call over to then sadowski.
Thank you Jeremy.
Have you all join US this morning, but now you've seen the news that IGT intends to spin off its global gaming and play digital businesses and merge them with every existing operations. The combination of two robust gaming platforms with complementary capabilities and geographic footprint creates a comprehensive global gaming and Fintech enterprise.
That is stronger and more valuable together.
Turning me here today from IGT are met scatter, our Chief Financial Officer, Bob <unk> Executive Vice President strategy and corporate development.
Every we have Randy Taylor, President and CEO, and Mark <unk> Chief Financial Officer.
Well last summer Igt's Board of directors began an evaluation of potential strategic alternatives for our global gaming and play digital businesses.
The goal is to unlock the full value of igt's portfolio of market, leading assets. The transaction announced today is a key milestone in that process.
<unk> of lottery from global gaming play digital and emerging global gaming and play digital with every create two best in class Global pure play companies IGT shareholders will retain 100% ownership of our global lottery pure play while participating in the upside from our faster growing gaming digital and Fintech business.
We believe the creation of two more focused companies each with top notch teams and simplified business models better positions each company to service its customers and create significant value for stakeholders.
It allows for more focused operating and capital allocation strategies capital structures that are optimized for different business models and increased flexibility to pursue organic and inorganic growth strategies.
It also provides the opportunity for investors better appreciate the intrinsic value of each stand alone business.
I'll, let Randy expand a bit on the transaction itself. Thank you Vince I'm excited joining me on this call. This morning and provide more information about the planned merger of every in Igt's Global gaming and play digital businesses.
Transactions announced today includes the separation of Igt's lottery business from the gaming digital and sports betting businesses, which will be spun out into a new company and merged into every holdings.
Once the transaction closes every holdings will rebrand and renamed the company International Game Technology, Inc. Every will continue to trade on the New York stock exchange the transition to a new ticker IGT.
Terms of the expected merger current IGT shareholders will receive a $103 4 million shares of every and the remaining lottery business will receive an approximate $2 6 billion cash distribution in the new and refinance debt of the merged company.
Post closing of this proposed merger current IGT shareholders will hold approximately 54% of total shares outstanding and current every shareholders will hold approximately 46%.
This transaction has an implied enterprise value of approximately $6 billion for the merged company. We expect estimated P&L annualized run rate synergies of $75 million and an additional $10 million of Capex savings that combined company can achieve by the end of the third year post closing.
As part of this expected merger the combined company plans to raise $3 7 billion of debt to pay off existing everyday and to pay an estimated $2 6 billion for the remaining IGT global lottery business.
So from a net leverage at closing for the merged company is expected to be moderate at a range of $3 two to three four times pro forma expected 2020 for adjusted EBITDA.
The IGT global Lottery business will receive an estimated $2 2 billion in net distribution and will use these proceeds to repay debt and for general corporate purposes.
Vince will now provide an overview of leadership and governance and key approvals and conditions necessary for completion of the transaction.
In terms of leadership and governance after closing <unk> will become chairman of the combined business and Randy will remain on the board of directors I will become the company's CEO, Bob <unk>, who will be CFO, Mark Levine will assume the role of Chief integration Officer.
We will be supported by an incredibly talented team across both organizations.
And IGT plc, both Marco Sala and next year. It will continue in their existing roles as executive Chair and Chief Financial Officer, respectively.
We're not to escalate, we will serve as CEO of the global lottery business and I will continue to lead IGT plc as CEO until the closing of the transaction.
In the meantime, IGT plc board will conduct a search for its next CEO.
All voting members of the IGT plc, and every boards have unanimously approved the transaction, which is subject to regulatory approvals and approvals by both IGT and every shareholders.
The August Danny has agreed to vote in favor of the transaction, which is expected to close in late 2024 or early 2025.
Now, let's focus on the exciting elegance of this transformational merger.
The combination creates a comprehensive <unk> product portfolio that is a one stop shop for customers land based gaming gaming sports betting and Fintech needs. The business has an attractive recurring revenue model with recurring revenue streams from gaming operations high gaming and Fintech solutions rep, or you're setting over 60% of pro.
All of our revenue.
The growth outlook for the combined entity is compelling.
We expect revenue to grow at a mid single digit compound annual rate through 2026, with adjusted EBITDA, increasing at an even stronger high single digit rate.
That's sort of a mix of organic topline growth for the existing businesses enhanced by significant synergies.
We expect to manage the business with a strong balance sheet and conservative leverage profile improved cash flow should allow for investments in both organic and inorganic growth significant debt repayment and share buybacks.
We have an amazing group of employees at both companies today. So the company will have a best in class team with long standing industry knowledge relationships and a proven track record and BTB gaming in Fintech.
Combination of Igt's Global gaming and play digital with average games and Fintech businesses will increase the scope of our capabilities, creating a combined entity with a more diverse portfolio of products and services with strong recurring revenues. This slide provides a snapshot of the pro forma combined entity as well as the buildup of both the <unk>.
Stand alone in IGT Global gaming and <unk> digital and every for the last 12 months as of September 32023.
By combining the two companies together revenues would have been $2 6 billion. The pro forma installed base would be approximately 70000 units with approximately 35% of these units being higher performing premium units and game sales of over 41000 game units. The combination of the two businesses is expected to provide a more diverse.
And balanced revenue base globally with gaming operations contributing approximately 41% gaming sales approximately 35% fintech, approximately 14% and digital approximately 10% of revenues.
Okay.
Although the complementary capabilities to create an integrated omnichannel, one stop shop addressing all aspects of the gaming ecosystem. There is significant opportunity to leverage our respective customer relationships to cross sell the portfolio and support that with our superior customer service proposition.
Together, we have the ability to generate touch points across the entire player journey, whether that's on the casino floor or on the go in a digital format.
The combined studio network ensure significant ongoing R&D capabilities to develop top content across categories.
With over 25 dedicated studios around the World. The combined company is positioned to enhance game development capacity.
That will support continued investment in the momentum of our most popular land based digital franchises such as wheel of Fortune Cleopatra and cash machine. In addition to unique offerings like Omnichannel jackpot games.
We will also be able to allocate a larger R&D budget to support our key strategic initiatives like the development premium and multilevel progressive games, while maintaining our popular class III and stepper offerings.
I'm going to spend a few moments providing a brief overview of every fintech solutions business. Every provides a comprehensive suite of financial access Reg Tech player loyalty and mobile solutions to casino operators that improve efficiencies for our customers operations and amplifies the experience for their patrons.
23, reprocessed, nearly 147 million financial access transactions driving close to 47 billion to casino floors are financial access products include Standalone and self service kiosks that allow patrons to access cash as lots of cashless solutions for patrons can fund the digital wallet directly or purchase Tito tickets.
Our loyalty products enabled patrons to directly enroll in the casinos players club or manage their existing players club account directly through self service kiosks that we sell and service for our customers. Additionally, casino operators can utilize our loyalty platform to create and manage promotions to increase engagement with their patients.
<unk> Tec products include software solutions that enable casino operators to manage the regulatory compliance requirements required for anti money laundering programs as well as certain tax compliance requirements.
One of the more exciting opportunities. The combination has the potential to integrate every fintech business with Igt's systems by combining fintech with IGT systems business, which includes casino operating systems cash management systems Cashless solutions and other proprietary technology, we can seamlessly connect the patron with our casino customers.
Reducing friction and creating a better patient experience, we believe our combined products and services will provide superior customer support.
One example of this is with our digital wallet, where today. The every well connects to a game either by connecting directly to a casino operating system or through a third party connections are complementary combined offerings should create a best in class wallet solution for casino operators and improve the patron experience, which will ultimately increase the adoption of cashless Walt <unk>.
<unk>, we plan to improve the Operability of features and functions and drive more innovation that broadens the ecosystem of product and service offerings for customers and their patrons. Additionally, there is an opportunity to leverage itt's existing global reach to more rapidly expand every fintech products and services into new international markets.
One of the more compelling aspects of bringing these companies together is the significant synergies that enhance the revenue and profit growth potential of the business.
Pro forma 2020 for revenue is projected at $2 7 billion and we expect to deliver mid single digit compound annual growth rate through 2026.
That's before any revenue synergies such as distributing every game content into igt's existing VLT International and digital networks and its Fintech solutions in international and distributed gaming markets.
Similarly, there is opportunity to expand igt's content into every class II network.
And we believe our best in class digital and cashless solutions will provide the most compelling product golfer for existing and new casino customers.
The profit outlook is equally compelling pro forma adjusted EBITDA is projected for each approximately $1 billion in 2024, we expect it to grow at a high single digit compound annual rate through 2026, including $75 million of identified cost savings in three main areas.
Biggest opportunity is with supply chain and input cost optimization that comes with greater purchase volumes.
Other areas include streamlined operations and the consolidation of the existing real estate footprint.
P&L improvement in addition to Capex efficiencies with the install base are expected to drive higher conversion of adjusted EBITDA to cash flow from the pro forma mid fifties level to approximately 70% over the next three to five years.
This should generate over $800 million and pro forma adjusted cash flow in 2026.
The modest leverage profile and high cash flow generation allows for a balanced capital allocation strategy that includes investment in both organic and inorganic growth significant debt repayment and share buybacks.
The conclusion of the strategic evaluation that transaction is clearly the news of the day, but I'd like to spend a few minutes on a post transaction profile of Igt's remaining global lottery business.
Upon the successful completion of the transaction Igt's remaining operations will be comprised of its current global lottery business and corporate support functions.
That establishes the company as a premier pure play lottery business with a diversified contract mix broad global reach and leading positions in important markets.
The lottery business will have an attractive financial profile, including an enhanced capital structure with low pro forma net debt leverage of approximately two five times shortly following the closing of the transaction.
We will have more time to expand on our lottery business, what IGT reports earnings on March 12.
As noted earlier the transaction needs to clear regulatory approvals and shareholder votes. We currently expect it to close in the late 2024 or early 2025.
Before we open the calls your questions. There are clearly many compelling benefits to bringing these businesses together, we strongly believe it has the potential to create the most long term value for both IGT and every shareholders to the organic growth outlook synergies and the potential re rating of the business due to the increased scale and diversification the combination offers.
Now we will open the call for your questions.
Yeah.
At this time I'd like to remind everyone in order to ask a question process Star followed by the number one on your telephone keypad. We do ask that you. Please limit your questions to one and one follow up our first question will come from the line of Barry Jonas with the Truest Securities. Please go ahead.
Hey, guys good morning, and congrats on this transformative.
Announcements I wanted to start with maybe you could give some background on how the deal came together and why you think this was the best move for each company.
Yes, I'll start off from the from the IGT perspective.
As you know we've we've had two years now really.
Of record results for the company and yet we continue to deteriorate and inferior multiple by any measure.
Cash return yield shortly.
Shorthand multiple et cetera.
Both our lottery peers and.
Gaming peers, and so that made.
Made it even clearer that.
We really needed to do something strategically.
We've been talking about this for quite some time as a board we're really methodical about it we made the announcement all the way back in the beginning of the summer.
We feel like we really no stone unturned in terms of the conversations we've had with Counterparties.
Thinking about.
All of the various alternatives.
Along with our advisors that is how to invest.
Generate real value for our shareholders going forward it was pretty clear on the separation of the businesses for all the reasons.
I mentioned here and we've chatted about in the past.
<unk> was really a key to unlocking value and having these two company. These two separate businesses within the same company be disaggregated and go along their own pathway from.
The opportunity to generate incremental focus in each individual business as well as capital.
Policies.
This journey.
Let us too.
The conviction that our gaming business.
It has significant growth opportunity going going forward.
And.
It would take a significant.
<unk> offer in <unk>.
<unk> scenario.
Two.
To convince us.
Our board and management.
We should realize a game and be done with his business.
The combination of the separation.
It has really enhanced by.
Combining with another entity and.
When we had our conversations with with Randy and Mike and Andy every team it became really clear to US that this is absolutely the best the best alternative we don't feel like.
There is a lot of.
Any leakage in terms of.
Negative synergies or divestitures that are necessary, we are amazing.
Amazingly complimentary.
<unk> lives.
Given their strength in Fintech, we are not in Fintech.
Our systems were both pursuing cashless, but with different <unk>.
Industry, leading competencies their strength and class II or is really.
As of late in the last couple of years.
In the MLP premium space and historical strength in the lab space.
Our international footprint.
Good game titles being desirous of expanding into international markets, but it is an expensive endeavor to undertake without having significant scale.
I can go on and on and on but it really we really ultimately decided this was this was the best alternative so separation made a lot of sense and separating with a great partner like every with these complementary strengths really really was the best alternative.
Not even close to anything else that we had we had pursued or or or worked out.
So look I don't think there is a lot to add there very I think Vince covered all the things that I would have to cover to I just think that is.
The management teams have worked very well together and trying to understand how complementary we are with each other.
I think Vince hit on the areas, we talked about Fintech.
And really enhance the systems business, we think it will actually allow us to get outside of the U S faster clearly for us to get global.
That was going to be a big endeavor and that's a big cost. So we look at this as just a great opportunity for our shareholders.
Let's see how this combined company can really improve the overall shareholder value. So it's been a it's been a great process.
Great and then just as a follow up.
So you're talking about.
Taking minimum negative synergies I think historically in this space negative synergies have been somewhat of a factor in M&A. So maybe just honing in a little bit more on that.
Specifically, you've been you've been working on separating lottery and gaming for a while is there any negative aspects are there and are there ways to manage that from a relationship or contractual perspective. Thank you.
Yeah.
No I would agree with you when you look back in the industry and you've had equivalent supplier acquire equipment supplier and kind of one or two entities. In particular historically were aggressive in that area and I think if you look back on it you find that.
There was pretty aggressive cost cutting and ultimately a lot of the historical titles once they became older.
There was a reduction in the overall R&D.
And the streamlining of the hardware so.
You fast forward and you look back in and ultimately the combination didn't yield.
Classic kind of marketing thing one plus money once people straight in this particular case when you look at where the significant revenue streams lie for each one of these companies they are very different.
Where we overlap in areas like mechanical stepper and a class III games is very very small it's a very small percentage of the overall business and even in those particular categories. We expand our IP library significantly and I think over time.
The opportunity to streamline hardware for sure is something that will drive a lot of the benefit.
But clearly increasing that IP library and also having this very significant network of <unk>.
International Studios I think positions the company really well for continuing its growth journey and being very competitive in this space and ultimately that's what it's all about I think it's all about the opportunity to continue to develop.
World Class, leading games and the way you increase your chances to have this very strong studio network as well as really terrific. Great. IP Library is a lot of learnings that have got into the <unk>.
Investment in R&D over the years to develop successful games that also determine what's what's what's not successful as well as this international footprint capability that international growth opportunity is something that ICT.
As I think a very bright future going forward.
Competing very very well in North America in the last several years.
The international Space is one where we deserve a much greater share and I take the combination makes us stronger to be able to really exploit those titles that have been.
Created in North America for February into into adjacent adjacent markets. So I think that's pretty neat and then also given that I'm trying to get into it today, but the combination of our systems and Fintech that Randy touched touched upon as well as the future of cashless.
Really no complete cashless solution out there everyone is kind of delivering a half low.
We feel very strongly about our IP every is very strong with their IP I think that combination coupled with the fintech infrastructure that that they've built which is unprecedented in north America. It was really exciting about.
<unk> offer clearly the best the best in class product and then also when you look at the portfolio of offerings I think as businesses and industries evolve the larger players want to deal with other large players, it's just more efficient and theres pricing efficiencies, there's a combination.
There's creative combinations that can be offered in terms of commercialization and I think having this this portfolio that covers really the agency in a casino and I think that one slide that shows all the different customer touch points. This makes us more valuable, especially to the to the larger casino customers around the world.
Yes.
Okay.
Great. Thank you so much and congratulations.
Thank you.
Your next question comes from the line of Jefferies Danielle with Stifel. Please go ahead.
Hey, good morning, everyone and thanks for taking my question and congrats on the announcement.
Starting off with Vince Randy in your prepared remarks, you walked through a mid single digit organic growth for a three year CAGR before any sort of topline synergies between the two companies can you just unpack this a bit more I guess, where do you see the most growth coming from and have you baked in any assumptions in that figure on market share gains across any of your.
Your kind of core product verticals.
Yeah. Good question I mean really the the mid single digit growth on the top line. It's the combination of our of our individual business plans. So really no assumptions made around the synergy opportunity on the other.
The top line.
As we get into it we've done some preliminary work and we really do think there is opportunity as we mentioned not only to exploit some of everybody's titles internationally. But also every is very strong in the class II environment and IGT has not been that strong in class two despite having a pretty terrific historical.
IP lottery and game titles. So we think there is there is some real real opportunities there as well as.
The good work that our teams will do together and making our systems business really the best.
In the world.
So I think those.
Growth profile is based upon what we believe we will achieve and Thats a combination of <unk>.
Growth in the in the market as well as as I think pretty modest, but continuing to grow share.
I would just say that as we both looked at it in a realistic manner.
And didn't really baked in a lot of revenue synergies, but I think we think there are a lot of opportunities out there. So I think the way we built the model and how we're looking at the growth right now is.
Really moderate and I think theres upside yes.
To me. This is this is one of these combinations that it's very straightforward and simple math and I think that should give us all confidence that there is great opportunity for for cash flow growth because we've really built it based upon.
The very specific identification of cost synergies and without the promise or need to drive revenue synergies, but we do feel very strongly that we have the opportunity for revenue synergies as well.
Okay, great. Thanks for Thanks, Randy and then for my follow up.
You talked about this a little bit in the prepared remarks, but based on the public.
I will say lack of overlap here no required.
<unk> are expected, but maybe looking at that a little bit differently. I mean, you are going to be posting.
Arguably the most diverse portfolio out there following the merger with that in mind do you think theres any assets in this portfolio that you might look to or be willing to monetize.
For the right price that maybe a fair bit more noncore under the pro forma strategy.
No. We don't we are as you know IGT has been engaged in divestitures over the years out of it.
C.
Primarily on the lottery side, but right now its got a gaming portfolio that it it feels as really complementary from our casino offering to our sports betting offering right on down for each one of our our product lines.
And I would say the.
Slipping forever to Fintech.
I just I don't think that we look at any of this any of our products or services is something that at this point in time, we would we'd be looking to do anything with.
No theres regulatory approvals it will have to we have to go through but we feel we feel pretty confident where we sit right now yes. It is a competitive industry. So we feel like there's plenty of air pollution combination.
Very clear thank you both and congrats again.
Thank you.
Your next question comes from the line of Chad Beynon with Macquarie. Please go ahead.
Hi, Good morning, all thanks for taking my question congrats on the announcement.
First just wanted to ask about the leverage I know that that's in the release just in terms of what the.
Pro forma leverage will be it's obviously, an interesting time with potential rate cuts.
How are you thinking about kind of the medium term leverage of this new company the potential free cash flow.
It could if it could pay a dividend just kind of how the capital allocation.
Mantra.
We will come out of this deal thanks.
Yeah, So I think I'll start it and then.
Bob you are matched.
To add onto this.
One of the things that we both agreed on it early on.
Was it will be really important to ensure that our average profile.
Out of the gate.
<unk> was reasonable.
Yeah.
Sure.
Worst case scenario based off of our combined cash flow without any <unk>.
Liberty's with synergies and less back into what the rights. The right capital structure is and that really will be important and have the flexibility to continue.
That's been in the business.
Be able to do shareholder friendly things to do.
<unk> investors excited.
With our with our capital policy as well.
Sure.
As the operations of the cash flow generated from the from the Operation Center.
Of the business.
We have mentioned, what we but we believe that the leverage profile could be at closing and Thats simply just based upon the view of our individual businesses operating throughout 2024 until until the closing and then going forward and we've got our financing package in place of course and going forward.
So the opportunity due to reduce interest as well as reducing our principle we think.
The real potential to really further enhance our returns.
Yeah.
So.
We start from a remain co perspective from a plc visit Mexicana speaking from a plc at Atlantica perspective.
So we are in the early innings of the separation work, but again when you think about our net debt at the end of September five 3 billion you could see the the cash debt.
Be made available through the separation and the combination back to the IGT P&C.
Which is a net.
$2 2 billion figure.
You can.
We expect.
The resulting net leverage position shortly afterwards for remain co to be.
Around two five times.
You May remember this was our.
Low end of the range and our long term target so that would allow us to Randy.
Tick the box on one of the most important target that we announced back in 2021, when we had our Investor day.
And again I would like to conclude this.
Does that answer it with consideration about.
Importance of heading.
For IGT remain coal, having a low leverage is maintaining a strong financial position.
Position and low leverage profile will provide maximum opportunity to pursue any and all compelling growth opportunities that may materialize in the future. Most importantly, we have some large contracts that are coming up for renewal as well as we recently renewed and extended existing contracts.
So.
We have been talking about our traffic cycle for some time and.
That is going to come out and so having a low leverage at the start of the cycle is a very good thing.
Thank you for that Max those actually going to be my next question.
Follow up.
Maybe just kind of thinking about non gaming opportunities recently every has expanded with their venue ties acquisition into let's call. It non gaming payments businesses.
The Tam and the growth opportunity investors found that to be strong are there other.
Maybe non gaming kind of nontraditional synergistic opportunities that could come out of this or should we expect for the combined company to really focus on the traditional pieces of gaming land based and digital thanks.
Yeah I think.
To be honest, that's a smaller part of the universe of opportunities that we've looked at just.
Given the time constraints of getting to this combination.
And we will get into of course, our planning activities post closing so.
Don't want to make too strong of a statement about our strategic objectives going forward on a combined basis.
Just say that in the B to B gaming space.
We feel as if there can be a handful of industry leaders that are creating great games.
That are enjoying really the resurgence in slot play around the world Post Covid.
And then also enjoying the expansion of casino is that we will certainly take place continue to take place throughout the world and over the next several years in North America in particular, and there's really only a few.
Players that can honestly offer omnichannel jackpot play and we are one of those so now with more titles and more geographies.
It's our goal to to lead in this in this space and this is something thats, becoming I think more and more important to two operators to have seamless transition between digital and land based gaming and then the.
If you can be an expert in the ancillary services.
That also are very helpful to casino customers.
Think that is a significant enhancement.
In North America every has certainly done that and the thing that's really great about every in addition to their long standing leadership position in Fintech is their entrepreneurial perspective, and I think their willingness to reach out into adjacencies make some small.
All deaths.
See what the opportunity is there and I think that's pretty pretty neat and personally have interested in exploring that more but I think the industrial logic of the large cash flow generation capability from this combination.
It's pretty clear in the <unk> space.
Look when we looked at then utilize it still isn't really.
Entertainment.
Based and so I think it fits well I think given the size of the company going forward I think there'll be opportunities to be looked at.
But I agree with you I think there's just a lot of opportunity.
In the current gaming space that we're at.
Thanks, guys.
Just some things that will add on that kind of money on the outskirts.
Thank you both I appreciate it.
Okay. Thank you.
Your next question comes from the line of George Sutton with Craig Hallum Capital. Please go ahead.
Thank you I'm very intrigued by the combination of the every digital wallet with what IGT brings to this I wondered if you could get a little more specific on that patron experience.
What you are getting by bringing these together competitively.
Yeah I think.
You understand.
The products and services that both companies offer so ideally you have a system that.
Enables the machines to be able to interact with the digital wallet.
And also a lot of touch points to actually get people to enroll in a digital wallet.
All of those things really are present in IGT and <unk> current capabilities. So when I say, we truly will be the only one software complete solution.
All of those things really are present in IGT and <unk> current capabilities. So when I say, we truly will be the only one software complete solution.
Don't have to install hardware into machines.
Retrofit them.
Ed at cost and with with third party hardware.
We don't need to ask someone else's permission to be able to provide that opportunity I think both companies have invested a significant amount in R&D and I think we have a lot of credibility.
In the gaming space the system space at Igt's front, and certainly in the Fintech side on every front. So I think bringing these things together will offer not only a compelling offering because again the two solutions. We're working on are limited by our capabilities, but also.
Interacting with our very valuable casino customers I think we both frame a lot of credibility to the to the table and I think they will definitely.
Want to listen and understand our proposition and I think that puts us in an advantageous position versus versus the competitive set.
Yes.
Totally agree and I just think it I think it allows us to accelerate what we're doing today in the cashless area.
So.
It's very exciting from from an average standpoint.
So relative to your expectations for late 'twenty for early 'twenty five close in.
Just the regulatory requirements.
Required can you just walk through what some of those key regulatory requirements, obviously, we're familiar with HSR and FTC, but beyond that from a gaming perspective.
Yes look I think from a regulatory standpoint.
The global footprint of Igt's, they've clearly got more licenses, but we have a significant amount of licenses in North America, there's overlap in that license area.
It's one of those things.
To work our way through.
But we both.
Well license companies and that should not be something thats.
Overly overly burdensome.
We know there's antitrust out there we'll work through that process, but we feel that the timing that we've laid out late 'twenty four in early 'twenty five is very manageable.
Yes, I would just say on the antitrust front there is.
Theres clearly even with this combination there is there is competitors who are larger out there.
And with regard to gaming regulators.
One of the things that is very positive because both companies are.
<unk> long standing.
Yep very highly compliant reputable known entities and they are public companies. So.
We think that that.
Give the regulators in any jurisdiction a lot of comfort around this combination this is not.
Combining with a.
Let's say a large digital entity based outside of the U S. That's involved in.
And gray market Black markets, where theres a lot of promises of divestitures that in order to get regulators, especially in North America to get comfortable with the deal. These are two known entities that have been incredibly compliant in and to invest actors in the industry.
Our next question will come from the line of David Katz with Jefferies. Please go ahead.
Hi, good morning, everyone and congratulations all around.
Obvious this was.
A lengthy and complex process and alignment and a lot of work.
I do want to try and step down a layer if we can.
Into the.
The studios the Lee.
<unk> teams within the various components of gaming.
Sort of following the people has usually been critically important Vince you talked about this just a little bit.
Anything you can share about which studios or which.
Which people will be running gaming et cetera, et cetera, and then I have one quick follow up.
Yes sure.
Thanks for recognizing the lengthy.
The length and the complexity.
I will say the the.
Carve out nature of Igt's needing to go through that process in order to do something strategic with it.
Land based gaming and play digital operation.
Was one of the drivers of what's taking a lot of time and an incredible amount of effort, but obviously all worth it to get us to this point to be able to do.
This filing strategic transaction with regard to the studios.
That is the kind of my old business media and gaming business that creative element is of course, the key towards your future success.
Yes, I would say from from the IGT side, we've been at this for a long time attempting to improve our capabilities in each one of these gaming categories in particular in premium and we've had some really good recent success over the last couple of years.
And with that we've we're continuing to refine our our process.
Even during kind of the pre Covid Covid era when IGT.
Yes.
In a difficult position with high leverage.
One of the things that did not do when it enacted several cost reduction plans is reduces the amount of investment in R&D, recognizing that that was absolutely key towards towards future growth in game development.
<unk> is a process. It takes a lot of time to develop great games and as you start to develop better games, but you've got you start to recognize the attributes of whats working et cetera and success.
Not always repeat in the same studios, so having really good smart creative people located in a lot of different geographies.
It has been a key for us to be competitive.
All of these spaces from from premium to <unk> and.
And certainly in digital.
With regard to every.
Everything a smaller company we're really.
We think it's really remarkable.
The great success that they've had with fewer resources yet being.
Being very competitive.
And various game categories.
As I mentioned most of these are complementary to.
IGT is most competitive so kind of on a go forward basis, obviously talking about the people and the product development process. All of that is critically important to get right.
And we just get very excited about the ability to to have a larger R&D budget and have more people involved in the creative process and the learnings that we've individually.
We take our best practices and have our teams really have the opportunity.
To maximize the R&D spend to increase our chances for success.
Got it that's all it looks like it makes a ton of sense. One quick follow up please if I may.
Light you can shed on what the tax impact to IGT shareholders might be or could be or some tools for us.
Figure it out or maybe this is just a simple question on <unk>.
Capital gains.
Yes, it will help.
Yesterday. This is Max <unk> again, so we have added a page to the appendix of the presentation illustrates it today that.
Basically.
Highlight.
From a tax point of view that there is limited tax leakage at the plc level due to the.
The benefit of participating to the tax exemption regime.
U K Corporation as the UK P&C company.
So we are estimating.
About $100 million of tax leakage, which obviously are deducted from <unk>.
$2 6 billion payment.
The reason why one of the reason why we.
At the end of the day decided to go with a taxable transaction is because.
That provides the most flexibility for both remain calm and for <unk>.
To pursue other strategic alternatives as standalone entities and.
Including of the different capital allocation.
Location strategies with greater flexibility.
And lastly.
Transaction is taxable to IGT shirt August as well so there is.
And in fact.
<unk> debt.
Approx.
Approximately 30% of the fair market value of the distributions.
Thank you very much.
Okay.
Our next question will come from the line of Joe Stauff with Susquehanna. Please go ahead.
Thank you good morning.
Congrats.
Very interesting transaction I wanted to ask maybe.
A little bit earlier, but maybe to say the path to completion and kind of the bigger steps and are the mileposts that youll need to accomplish to be able to close so yes.
Maybe maybe most importantly.
The regulatory process that you have.
Obviously, there is going to be some angst about.
Just.
The regulatory environment overall here in the U S.
If you could maybe put some some of the more relevant dates on the calendar as we kind of think about.
Timing of close and so forth.
Yes, I'm not sure there's much to add my.
My earlier comment other than the person will need to do is to.
Do our filings, which we our teams have already been working on that pretty pretty close so that will start the clock in and as you know.
Prepare proxy statements that of our shareholders.
If there is any SEC comments et cetera, the normal process I can't really offer them with anything more than what I've said earlier rigs.
Regarding our <unk>.
Implemented nature are in good standing with with regulators.
Fact that post closing there there will be larger competitors out there so.
Okay.
That's our perspective, Okay fair enough.
Do you realize that's a little difficult to comment on but I appreciate.
Got it.
And outside of the U S are there any.
It doesn't seem to us that there are really any.
Other jurisdictions.
<unk>.
Where investors would look at as.
A higher hurdle with respect to regulatory clearance is that a fair assessment.
Yes. It is again when you think about it every primarily operates in North America, So the impact internationally.
De Minimis IGT it continues to be the <unk>.
Im sure all of the commercial activity in those markets.
Understood Thanks very much.
And congrats.
Thank you.
Our final question will come from the line of David Hargrave with Barclays. Please go ahead.
Hi, I'm wondering if there are any <unk>.
Specific terms of the 5% notes that require there has to be redeemed in connection with this transaction or whether they might potentially remain outstanding afterwards.
And then wood.
I assume to the extent they need to come out it would be a one or two and a half call could you. Please confirm that.
The notes that I think I'll turn it over to Mark, but I don't think we have any issues there but go ahead mark.
I think as we contemplated this transaction we are talking about the debt profile of the transaction refinancing what we have outstanding and a lot of it obviously depends on the timing of the close.
There is no.
We would if it closes early in late 2024, there is a little bit of.
Premium on the call are bringing a little early but otherwise it should be pretty straightforward transaction for us.
But do you anticipate call not a change of control offer.
It will be there will be a change of control there too so we.
We do.
We do believe that that could be the.
Possible outcome, we're looking at all.
Okay, and then with respect to the to the IGT debt Paydown are there any specific.
Bond instruments that you would target there.
We should be thinking about.
Yes. So first this is Max again, so first of all we have to secure the consent from our bank group to proceed with this transaction.
We have committed to.
Reduce by 50% our existing term loan exposure.
We have about 800 million so $400 million allocated is going to be allocated to the term loan the rest will be allocated to debt instruments.
As we see fit and as we get closer to the execution of the transaction keeping in mind.
Keep become boundaries.
Maturity extension economic terms and viability of the transactions. So all in all we think this is a great deal.
But jim opportunity for educating manko and also by the way we have also.
Part of the concern we have also agreed to reduce our revolver commitment by about 20%.
And obviously, we are looking forward to it.
And it could be smaller company going forward, what do I think we have resized that involved they're appropriately to the annuity main copayment.
All in all we're confident we can that we can move forward with that transaction efficiently and as we get closer to the execution date.
That's helpful. Congrats this company is going to be relevant.
Thanks.
Great job.
Thank you.
And that does conclude today's conference call. We thank you all for joining and you may now disconnect your lines.