Q3 2024 International Game Technology PLC Earnings Call

Unknown Executive: Hello and welcome to the International Game Technology 3rd Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during that time, simply press star 1 on your telephone keypad.

Hello, and welcome to the International game Technology third quarter 2024 earnings call.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Speaker Change: After the Speakers' remarks, there will be a question and answer session and if you would like to ask a question during that time simply press star one on your telephone keypad.

James Hurley: I would now like to turn the conference over to James Hurley, Senior Vice President of Investor Relations.

Speaker Change: I would now like to turn the conference over to James Hurley Senior Vice President of Investor Relations you may begin.

James Hurley: You may begin. Thank you. And thank you all for joining us on IGT's third quarter 2024 conference call, which is hosted by Vince Sadusky, our Chief Executive Officer, and Max Chiara, our Chief Financial Officer.

Speaker Change: Yes.

Speaker Change: Thank you and thank you all for joining us on Igt's third quarter 2024 conference call, which is hosted by Vince The dusky our Chief Executive Officer, and Max Chiara, Our Chief Financial Officer.

James Hurley: After some prepared remarks, Vince and Max will be available for your questions. We are presenting from multiple locations this morning, so please bear with us if we encounter any technical difficulties.

Speaker Change: After some prepared remarks, Vince and Max will be available for your questions. We are presenting from multiple locations. This morning. So please bear with us if we encounter any technical difficulties.

James Hurley: During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. 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.

Speaker Change: During today's call, we will be making some forward looking statements within the meaning of the federal Securities laws forward looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements. The principal risks and uncertainties that could cause our results to differ materially from.

Speaker Change: Our current expectations are detailed in our latest earnings release and in our SEC filings.

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

Speaker Change: 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, the slides accompanying this webcast and our filings with the with the SEC each of which is posted on our investor.

Vince Thedusky: Relations website, and now I will turn the call over to Vince.

Vincent Sadusky: And now I'll turn the call over to Vince. Thank you, Jim, and hello to everyone on the call. Our Q3 and year-to-date results highlight the scale and attractive margin structure of our. We generated revenue of 1.9 billion for the first nine months of the year, driven by sustained growth in Italy and improved Q3 trends for instant ticket and draw games in the U.S. That translated into solid profit margins and cash flow, including adjusted EBITDA of $880 million for the first nine months of the year with a margin of 47.3%.

Vince Thedusky: Thank you, Jim and Hello to everyone on the call.

Vince Thedusky: Our Q3 and year to date results highlight the scale in attractive market structure of our business. We generated revenue of $1 9 billion for the first nine months of the year driven by sustained growth in Italy, and approved Q3 transfer instant ticket and draw games in the U S.

Vince Thedusky: That translated into solid profit margins and cash flow included adjusted EBITDA of $880 million for the first nine months of the year with a margin of 47, 3%.

Vincent Sadusky: This is the first time we're reporting continuing ops, which includes our lottery and corporate functions, as a result of the announced transaction to sell the gaming and digital business to Apollo. Some key observations include continuing operations generated two-thirds of the $725 million year-to-date cash flow from operations. and over 85% of the 445 million consolidated free cat The results highlight the solid financial performance and scale of our lottery.

Vince Thedusky: This is the first time, we reported continuing ops, which includes that with lottery corporate options as a result of the announced transaction to sell the gaming and digital business. So Paulo.

Vince Thedusky: Key observations include continuing operations generated two thirds of the $725 million year to date cash flow from operations.

Vince Thedusky: And over 85% of the $445 million consolidated free cash flow.

Vince Thedusky: The results highlight the solid financial performance and scale of our lottery business.

Vincent Sadusky: Although the sale of our gaming and digital business to Apollo is expected to close by the end of the third quarter of 2025, we are already taking significant steps to optimize the organizational structure of our lottery and corporate functions with the launch of Optima 3.0. The goal is to right-size costs by realigning and optimizing general administrative activities while supporting key long-term growth objectives and without sacrificing our superior customer service standards. In fact, we are reallocating resources and investing in new talent to support key areas such as iLottery, instant ticket printing, international sales development, and field service.

Vince Thedusky: Although the sale of our gaming and digital business to Apollo is expected to close by the end of the third quarter of 2025.

Vince Thedusky: We are already taking significant steps to optimize the organizational structure of our lottery corporate functions with the launch of Optima three play out.

Vince Thedusky: Goal is to right size costs by realizing it optimizing general administrative activities while some.

Vince Thedusky: A key long term growth objectives, and without sacrificing our superior customer service standards.

Vince Thedusky: In fact, we are reallocating resources and investing in new talent to support key areas such as high lottery instant ticket printing international sales development and field services.

Vincent Sadusky: Our lot of industry leadership is evidenced in the scale of our operation. In the first nine months of the year, our systems have processed nearly 80 billion lottery majors under our operator and FM contracts worldwide. Powerful organic levers such as innovation in game content, portfolio optimization, and expanded distribution strategies have been important drivers of the three and a half percent compounded growth achieved over the last five years. The 6% decline in Q3 global same-store sales was a function of unfavorable U.S. multi-state jackpot comparison. On a year to day basis, the unfavorable multistate jackpot impact is mostly offset by higher revenue from instance and drug.

Vince Thedusky: Our lottery industry leadership as evidenced in the scale of our operations in the first nine months of the year. Our systems have processed nearly $80 billion lottery may curious under our operator and FM contracts worldwide.

Vince Thedusky: Powerful organic levers such as innovation of game content portfolio optimization and expanded distribution strategies have been important drivers of the three 5% compounded growth achieved over the last five years.

Vince Thedusky: The 6% decline in Q3 global same store sales with the exception of unfavorable U S Multistate jackpot comparisons.

On a year to date basis.

Vince Thedusky: Favorable multistate jackpot impact is mostly offset by higher revenue from instants and draw games.

Vincent Sadusky: Q3 sales of incident draw games, which account for over 90% of our global wages, were up about 1%, an improvement from being down about a half percent in the first six months of the year. This reflects good growth in Italy and improved trends in the United States. Italy wages continue to grow, up approximately 3% in both the third quarter and year-to-date period. Top three game launches included new instant games like 50 Euro and 100 Euro, which features bold graphics and an innovative price structure whereby players win either 50 Euros or 100 Euros on a 10 Euro ticket.

Vince Thedusky: Q3 sales of Instinet drug games, which account for over 90% of our global wages were up about 1%.

For being down about 5% for six months of the year.

Vince Thedusky: This reflects good growth in Italy, and improved trends in the United States.

Vince Thedusky: Italy wages continue to grow up approximately 3% in both third quarter and year to date periods.

Vince Thedusky: Top three game launches included new instant games, like 50, Euro and 100 Euro which features both graphics and an innovative price structure, whereby players when either 50 euros or 100 euros audit take your old ticket.

Vincent Sadusky: We also had a new ticket under the Turista Per Sempre franchise and continued performance of the €20 Ultra Numerissimi game. The launch of the fourth lotto draw, which now includes NUETO-ORO option, is also driving incremental draw game wages. Outside Italy, the improvement in Q3 trends came from veterans to game sales and some of our largest customers. including Texas, New York, Michigan, New Jersey, the U.S. and Poland and Europe.

We also had a new ticket under the <unk>.

Vince Thedusky: <unk> franchise and continued performance of the 20 Euro ultra numerous in the game to.

Vince Thedusky: The launch of the fourth a lot of trial, which now includes oral option is also driving incremental draw gateways yours.

Vince Thedusky: Outside Italy, the improvement in Q3, <unk> came from better instant game sales in some of our largest customers, including Texas, New York, Michigan, and New Jersey in the U S and Poland in Europe.

Vincent Sadusky: We continue to lead the industry with our lottery technology as evidenced by the 10 year facilities management contract extension we secured in North Carolina. In the nearly 20 years serving the North Carolina Education Lottery, it has become one of the top 10 most successful lotteries in the U.S., raising more than $1 billion annually for the state's education system. We are excited to support them on the next phase of growth with our high-performing Aurora Central System. up to 8,500 new retailer Pro S2 terminals and hundreds of new self-service ventures. iLottery continued its high growth with sales up over 26% in the third quarter and year-to-day periods, fueled by our expanding game portfolio.

Vince Thedusky: We continue to lead the industry with our lottery technology as evidenced by the 10 year facilities management contract extension, we secured in North Carolina.

Vince Thedusky: In the nearly 20 years, serving the North Carolina education lotteries become one of the top 10, most successful lotteries in the U S raising more than $1 billion annually for the state's educational system.

Vince Thedusky: We are excited to support them on the next phase of growth with our high performing Aurora Central system.

Vince Thedusky: Up to 8500, new retailer pro has two terminals and hundreds of new self service vending machines.

Vince Thedusky: I lottery continued its high growth with sales up over 26% in the third quarter and year to date periods fueled by our expanded game portfolio.

Vincent Sadusky: New e-instants such as Lucky Coins, Elephant King, and Sportstars are among the best ever to do launches for us. In Georgia, Elephant King achieved the best ever performance of any game during its first 30 days. The success of our new E instance is based on effectively leveraging data driven and player We look forward to bringing these games to new markets with our growing roster of E-Instant Content customers, which has reached 18 jurisdictions worldwide.

Vince Thedusky: Neue instant such as Lucky clients Elephant King and sports stars are among the best ever do launches for us.

Vince Thedusky: In Georgia Elephant King achieved the best ever performance of any game during its first 30 days.

Vince Thedusky: The success of our new instances based it on effectively leveraging data driven and player insights.

Vince Thedusky: We look forward to bringing these gains to new markets with our growing roster of E&C content customers, which has reached 18 jurisdictions worldwide.

Vincent Sadusky: In the area of instant ticket printing, we have one new business based upon our innovative game content, marketing, and other service capability. We entered into a three-year primary reprinting contract with Portugal's lottery where we displaced an incumbent in a competitive procurement process. We have been SANSACASA's lottery technology partner for nearly 25 years, and this is an exciting evolution of our longstanding relationship. We also signed a three-year printing contract with FDJ, operator of the French National Lottery, where we will make available our full suite of instant dictionaries. We intend to support the anticipated increase in printing volume with a new press scheduled to become operational early next year.

Vince Thedusky: In the area of instant ticket printing, we have won new business based upon our innovative game content marketing and other service capabilities.

Vince Thedusky: We entered into a three year primary pretty contract Portugal's lottery, where we displaced an incumbent and a competitive procurement process.

Vince Thedusky: We have been causes lottery technology partner for nearly 25 years and this is an exciting evolution of our longstanding relationship.

Vince Thedusky: We also signed a three year printing contract with Ft, J, operator, with a French national lottery.

Vince Thedusky: We will make available our full suite of it.

Vince Thedusky: Ticket games.

Vince Thedusky: We intend to support the anticipated increase in printing volume with the new press scheduled to become operational early next year it.

Vincent Sadusky: It will be the industry's most state-of-the-art press that will increase our production capacity by more than 50%.

Vince Thedusky: It will be the industry's most state of the art press that will increase our production capacity by more than 50%.

Vincent Sadusky: Our future forward growth driven global lottery leadership is on display at recent industry including the North American Association of State and Provincial Lotteries annual conference in Kansas City and the World Lottery Summit in Paris. focus is on land based and digital solutions that provide lottery operators the tools they need to run their business today and into the future. Highlights included our connected play capabilities enabled by Omdia, our integrated lottery solution that provides valuable insights to help drive improved marketing, product offerings, and increased sales. Our suite of land-based solutions is designed to modernize the retail environment, enhance player engagement, and bring games closer to players.

Vince Thedusky: Our future forward growth driven global lottery leadership on display at recent industry events, including the North American Association of State and provincial Lotteries Annual conference in Kansas City, and the World Lottery Summit in Paris.

Vince Thedusky: Our focus is on land based and digital solutions that provide lottery operators the tools they need to run their business today and into the future.

Vince Thedusky: Highlights included our connected play capabilities enabled by <unk>, our integrated lottery solution that provides valuable insights to help drive improved marketing product offerings and increased sales.

Our suite of land based solutions is designed to modernize the retail environment enhanced player engagement and brain games closer to players.

Vincent Sadusky: I-Lottery was another important. especially our updated cloud-based player portal, top-rated mobile app, and enhanced mobile feature. Of course, our high performing retail and instant game portfolio got a lot of attention too, especially infinity instance, player favorite license brands, and omnichannel.

Vince Thedusky: Hi, Lottery was another important focus, especially our updated cloud based player portal top rated mobile app and enhanced social features.

Vince Thedusky: Of course, our high performing retail at ESC came portfolio has got a lot of attention to especially Trinity intense player favorite licensed brands and Omnichannel gas.

Vincent Sadusky: Our executive and operational leadership will remain largely intact following the sale of our digital and gaming assets. The launch of Optima 3.0 and the associated Q3 restructuring charge aims at right size in the organization while supporting our long-term growth objectives. Along those lines, we've established a new lottery organizational structure under Renato Ascoli's leadership. This includes the reallocation and acquisition of best-in-class industry talent in key areas, such as international sales and operations, bilateral technology, instant ticket printing, and strategic market development initiatives. We are excited about the solid foundation we can build upon as we transform into a leading lottery pure play company.

Vince Thedusky: Our executive and operational leadership will remain largely intact. Following the sale of our digital gaming assets.

Vince Thedusky: The launch of Optima three pointed out with the associated Q3 restructuring charge aimed at right sizing the organization, while supporting our long term growth objectives.

Vince Thedusky: Along those lines, we've established a new lottery organizational structure.

Speaker Change: Bernardo escalates leadership.

This includes the reallocation and acquisition of best in class industry talent in key areas, such as international sales and operations Lottery technology instant ticket printing in strategic market development initiatives.

Speaker Change: We are excited about the solid foundation, we can build upon as we transform into a leading lottery pure play company.

Vincent Sadusky: Our global scale complemented by strong profit margins and cash generation positions us to capitalize on attractive lottery industry dynamics. We remain committed to innovating and developing strategic product initiatives to drive revenue and profit growth for ourselves and our customers. At the same time, we are proactively building a leaner, more focused and stronger organization.

Speaker Change: Our global scale complemented by strong profit margins and cash generation.

Speaker Change: This is us to capitalize on attractive lottery industry dynamics.

Speaker Change: We remain committed to innovating and developing strategic product initiatives to drive revenue and profit growth for ourselves and our customers.

At the same time, we are proactively building, a leaner more focused and stronger organization.

Massimiliano Chiara: With that, I will turn the call over to Matt. Thank you, Vince, and hello to everyone joining us today. As you have seen from today's press release, beginning in the third quarter, we have moved to presenting our financial results on a continuing operations basis. Not only is this a requirement under generally accepted accounting principles, but it also provides information needed to understand the dynamics of the pure play lottery business going forward. The agreement to sell IGT gaming and digital assets triggers certain changes to classifications within our financial statement. Result of operations, cash flows, and assets and liabilities related to gaming and digital are now presented as discontinued ops or items held for sale.

Speaker Change: With that I will turn the call over to Max.

Max Chiara: Thank you, Vince and Hello to everyone joining us today.

Max Chiara: As you have seen from today's press release, beginning in the third quarter, we have moved to presenting our financial results on a continuing operations basis.

Max Chiara: Not only is this a requirement under the generally accepted accounting principles, but it also provides information needed to understand the dynamics of the pure play lottery business going forward.

Max Chiara: The agreement to sell IGT gaming and digital assets trigger certain changes to classifications within our financial statements.

Max Chiara: Results of operations cash flows and assets and liabilities related to gaming and digital are now presented as discontinued ops or items held for sale.

Massimiliano Chiara: A few items of particular note are that separation and divestiture costs, purchase price amortization related to gaming intangible assets, and interest expense associated with a committed $2 billion debt reduction following the close of the sale are now included in discontinued ops. Therefore, the results being presented during today's earnings call reflect continuing operations unless otherwise noted. The summary results presented on slide 12 reflect the operations of an integrated lottery pure play business. In that regard, we are presenting some financial information a bit differently and will be focusing on drivers like gross profit, SG&A, and R&D to provide a better appreciation of the business going forward.

Max Chiara: A few items of particular note.

Max Chiara: At separation and divestiture cost purchase price amortization related to gaming intangible assets and interest expense associated with a committed 2 billion debt reduction following the close of the sale are now included in discontinued ops.

Max Chiara: Therefore, the results being presented during today's earnings call reflect continuing operations unless otherwise noted.

Max Chiara: The summary results are presented on slide 12 to reflect the operations of <unk>.

Integrated lottery pure play business in that regard, we're presenting some financial information on a bit differently and we will be focusing on drivers like gross profit SG&A and R&D to provide a better appreciation of the business going forward.

Massimiliano Chiara: Service revenue will be parsed into three categories, instant ticket and draw wager-based revenue, U.S. multi-state jackpot wager-based revenue, which solely represents activity from the Powerball and Mega Million franchises, and other service revenue, inclusive of up-front license fee amortization, which is a control revenue item. Product sales include the sale or license of intellectual property, system sales, terminal sales, and instant ticket printing revenue. In addition, we have modified the geographic breakdown of the same-store sales KPI into three categories, the US and Canada, Italy, and the rest of the world. We believe this not only provides better insight into our two main markets, but is also aligned with how we are managing the business.

Max Chiara: Service revenue will be parsed into three categories instant ticket and draw wage of base revenue.

Max Chiara: <unk> multi state jackpot wager base revenue, which solidly represents activity from the Powerball and Mega millions franchises and other service revenue inclusive of upfront license fee amortization, which is a contra revenue item.

Max Chiara: Product sales include the sale of our.

Max Chiara: Our license of intellectual property system sales terminal sales and instant ticket printing revenue.

Max Chiara: In addition, we have modified the geographic breakdown of the same store sales kpis into three categories.

Max Chiara: In Canada.

Max Chiara: Italy and breast award.

Max Chiara: We believe there's not only provides better insight into our two main markets, but is also aligned with how we are managing the business.

Massimiliano Chiara: extensive recast financials including KPIs can be found in today's Q3 earnings press release. I'm going to walk you through the year-over-year changes in revenue and profit using detailed bridges on the next couple of slides. But before moving off this page, I would like to highlight the $0.46 per diluted share achieved in the year-to-date period with an 11% increase in year-to-date adjusted EPS from continuing ops that you see in the bottom right-hand portion of this slide. I believe this is a better indicator of the underlying performance of Remainco over the nine-month period, as it removes volatility related to adjustments that are not reflective of ongoing recurring operational activities, such as an $0.11 impact from foreign exchange and $0.13 from restructuring in the year-to-date period.

Max Chiara: Extensive recast financials, including Kpis can be found in today's Q3 earnings press release.

Max Chiara: I'm going to walk you through the year over year changes in revenue and profit using detailed bridges in the next couple of slides, but before moving off this page I would like to highlight the 46 cents per diluted share achieved in the year to date period with an 11% increase in year to date adjusted EPS from continuing ops that you.

Max Chiara: In the bottom right hand portion of this slide.

Max Chiara: I believe this is a better indicator of the underlying performance of remain coal over the nine month period as it removes volatility related to adjustments that are not reflective of ongoing recurring operational activities, such as an 11% impact from foreign exchange and 13 cents from restructuring in the year to date period.

Massimiliano Chiara: On a year-to-date basis, revenue grew from $1.849 billion to $1.861 billion. U.S. multi-state jackpot same-store sales declined 23%, driving revenue down $22 million versus the prior year. Insta-ticket and draw game revenue grew $16 million, driven by a 3.1% same-store sales growth in Italy. Out-of-service rose $8 million, primarily due to revenue associated with non-wager-based service contracts in Europe. And finally, product sales revenue rose $8 million, fueled by higher instant ticket printing services. In the third quarter, the timing impact of elevated jackpot activity in the prior year was more pronounced. On a year-to-date basis, we generated operating income of $507 million compared to $555 million in the prior year, primarily due to a $38 million pre-tax restructuring charge taken in the third quarter.

Max Chiara: On a year to date basis revenue grew from one 849 billion to $1 861 billion U S. Multi state jackpot. The same store sales declined 23% driving revenue down $22 million versus the prior year instant ticket and draw game revenue grew 16 million.

Driven by a three 1% same store sales growth in Italy.

Max Chiara: Other service the rose $8 million, primarily due to revenue associated with known wage or base service contracts in Europe, and finally product sales revenue rose 8 million fueled by higher instant ticket printing services.

Max Chiara: In the third quarter and the timing impact of elevated jackpot activity in the prior year was more pronounced.

Max Chiara: On a year to date basis, we generated operating income of $507 million compared to 555 million in the prior year, primarily due to a $38 million pretax restructuring charge taken in the third quarter. This charge is related to optimal III, which I will discuss in more detail in a bit.

Massimiliano Chiara: This charge is related to Optima 3.0, which I will discuss in more detail in a bit. Given investor focus on adjusted EBITDA, we have added this KPI to the discussion of our financial performance to accommodate that interest. I would also like to point out that the categories presented on this bridge exclude the depreciation and amortization component, so they won't foot to the face of the income statement. You will find an indication of DNA by major income statement line item in the footnotes to the financial statements in the 6K to be filed later today. Year-to-date adjusted EBITDA of $880 million declined from $898 million in the prior year.

Max Chiara: Given investor focus on adjusted EBITDA, We have added these kpis to the discussion of our financial performance to accommodate that interest.

Max Chiara: I would also like to point out that the categories presented on this bridge exclude depreciation and amortization component. So they want to vote to the face of the income statement you will find an indication of DNA by major income statement line item in the footnotes to the financial statements in the 6K to be filed later today.

Max Chiara: Year to date, adjusted EBITDA of 880 million declined from $898 million in the prior to you soon.

Massimiliano Chiara: Service gross margin declined $24 million, primarily driven by the high profit flow-through from the elevated U.S. multistage equity activity in the prior year and the inflationary impact on payroll and benefit costs in the current year. As expected, product sales gross margin was $6 million lower, driven by product makers. SG&A improved $17 million, reflected continued discipline around cost management, and reduced legal expense, while R&D was slightly higher as we continued to invest in growth initiatives. Net of the year over year U.S. multistage airport impact, our EBITDA performance was stable. The adjusted EBITDA margin of 47% for the first nine months showed great resilience despite the tough multistage export comparison.

Max Chiara: Service gross margin declined 24 million, primarily driven by the high profit flow through from the elevated U S. Multi state jackpot activity in the prior year and the inflationary impact on payroll and benefit cost in the current year.

Max Chiara: As expected product sales gross margin was $6 million lower driven by product mix as.

Max Chiara: SG&A improved $17 million, reflecting continued discipline around cost management and reduced legal expense, while R&D was slightly higher as we continue to invest in growth initiatives.

Max Chiara: Net of the year over year U S multi state jackpot impact our EBITDA performance was stable.

Max Chiara: The adjusted EBITDA margin of 47% for the first nine months showed great resilience. Despite the tough multi state jackpot comparison.

Massimiliano Chiara: We are proactively addressing the stranded corporate cost associated with the sale of gaming and digital, realigning and optimizing general and administrative activities with the launch of Optima 3.0. This program targets $40 million in annualized cost savings by the end of 2026, half of which we expect to be realized by the end of next year. The key areas of focus include the 3% reduction in the workforce over the next 12 to 18 months, optimization of our real estate footprint, and other efficiencies commensurate with the linear business profile. The associated $38 million pre-tax restructuring charge, which is $27 million after tax, equivalent to $0.13 per diluted share impact, taken in the third quarter, does not impact customer-facing activities, nor does it in any way jeopardize the support of growth initiatives.

We are proactively addressing the stranded corporate costs associated with the sale of gaming and digital realigning and optimizing general and administrative activities with the launch of Optometry point all.

Max Chiara: This program targets 40 million in annualized cost savings by the end of 2026 half of which we expect to be realized by the end of next year.

Max Chiara: The key areas of focus include a 3% reduction in the workforce over the next 12 to 18 months optimization of our real estate footprint and other efficiencies commensurate with a leaner business profile.

Max Chiara: The associated $38 million pretax restructuring charge, which was $27 million after tax equivalent to 13 cents per diluted share impact taken in the third quarter. It does not impact customer facing activities, nor does it in any way Joe Paradise, the support of growth initiatives.

Massimiliano Chiara: As a reminder, Optima 3.0 will solely pertain to continuing ops. Whereas the very successful initiatives under Optima 1.0 and 2.0 were primarily focused on gaming and digital efficiency. In the third quarter, we generated $173 million in cash from continuing operations, bolstered by strong working capital performance. Year-to-date, cash from Ops, which includes both continuing operations and discontinued operations, reached approximately $725 million, closely tracking to the initial $1 billion target set for the full year. We're also tracking to the $500 million in free cash flow, which was implied in that initial outlook. As Vince mentioned in his opening remarks, the vast majority of cash flows are driven by continuing ops, which accounted for more than 85% of year-to-date consolidated free cash flow.

Max Chiara: As a reminder, optometry all will solely pertained to continuing ops.

Max Chiara: He asked the very successful initiatives under optimal 1.2 point on we're primarily focused on gaming and digital efficiencies.

Max Chiara: In the third quarter, we generated $173 million in cash from operations from continuing operations bolstered by strong.

Max Chiara: Working capital performance year to date cash from ops, which includes both continuing operations and discontinued operations reached approximately 725 million closely tracking to the initial 1 billion targets set for the full year. We're also tracking to the $500 million in free cash flow, which was implied.

Max Chiara: Any shut outlook.

Speaker Change: As Vince mentioned in his opening remarks, the vast majority of cash flows are driven by continuing ops, which accounted for more than 85% of year to date consolidated free cash flow.

Massimiliano Chiara: Schiroldo returns remain a key focus of our balanced capital allocation strategy, as reflected in the $121 million of cash dividends paid to Schiroldo so far this year. Following the closing of the gaming and digital sale transaction, IGT is to receive gross proceeds of $4.05 billion. As previously communicated, we intend to allocate the cash proceeds in a balanced manner, with significant portions being used to repay debt and to return capital to shareholders. We have committed to $2 billion in debt reduction, which will significantly strengthen our balance sheet and further improve our debt maturity profile. Pro forma for this debt reduction, net debt leverage is 2.6 times, using debt balances as of September 30th, 2024.

Speaker Change: Shareholder returns remain a key focus of our balanced capital allocation strategy as reflected in the 121 million of cash dividends paid to shareholders. So far this year.

Speaker Change: Following the closing of the gaming and digital sales transaction IGT two received gross proceeds of $4 5 billion as previously.

Speaker Change: <unk> communicated we intend to allocate the cash proceeds in a balanced manner with significant portions being used to repay debt and to return capital to shareholders.

Speaker Change: We have committed to $2 billion in debt reduction, which will significantly strengthen our balance sheet and further improve our debt maturity profile.

Speaker Change: Pro forma for this debt reduction net debt leverage is two six.

Speaker Change: <unk> using debt balances as of September 32024, it makes sense to look at leverage on a pro forma basis through the closing of the gaming transaction in order to properly align adjusted EBITDA from continuing ops with the anticipated debt reduction.

Massimiliano Chiara: It makes sense to look at leverage on a pro forma basis through the closing of the gaming transaction in order to properly align adjusted EBITDA from continuing ops with the anticipated debt reduction. In September, we successfully refinanced a portion of our debt with the issuance of $500,000,000, 4.25% senior secured notes due 2030, and subsequent redemption of $500,000,000, 6.5% notes due 2025. Liquidity solid at $1.9 billion, consisting of $500 million in unrestricted cash and $1.4 billion in undrawn capacity under our credit facility.

Speaker Change: In September we successfully refinanced a portion of our debt with the issuance of 500 million, 4.25% senior secured notes due 2030 and subsequent redemption redemption of 500 million six 5% notes due 2025.

Speaker Change: Liquidity is solid at $1 9 billion, consisting of $500 million in unrestricted cash and $1 4 billion in undrawn capacity under our credit facilities.

Massimiliano Chiara: For the first time, we are introducing an outlook for the fourth quarter and full year 2024 on a continuing operations basis. Q4 revenue is expected to be $640 million to $690 million, reflecting a low single-digit increase in same-store sales for instant ticket and draw games, which includes improved recovery in the U.S. and Canada, and continuing momentum in Italy, offset by another challenging comparison for U.S. multistage equity. Significant product sales volume is expected in the fourth quarter, but still below the very high level experience in the prior year. Adjusted EBITDA is forecasted at $280 to $300 million, with profit flow through reflecting lower U.S.

Speaker Change: For the first time, we are introducing an outlook for the fourth quarter and full year 2024 on a continuing operations basis.

Speaker Change: Q4 revenue is expected to be <unk>.

Speaker Change: $640 million to $690 million, reflecting a low single digit increase in same store sales for instant ticket and draw games, which includes improved recovery in the U S and Canada and continuing momentum.

In Italy.

Speaker Change: Set by another challenging comparison for U S multi state jackpots.

Speaker Change: Significant product sales volume is expected in the fourth quarter, but still below the very high level experienced in the prior year.

Speaker Change: Adjusted EBITDA is forecasted at 280 to 300 million.

Speaker Change: With profit flow through reflecting lower U S multi state jackpot activity and unfavorable product sales margin mix and the timing of certain operating cost.

Massimiliano Chiara: multistage equity activity, an unfavorable product sales margin mix, and the timing of certain operating costs. for the full year. Revenue is expected to be 2.5 to 2.55 billion with adjusted EBITDA of 1.16 to 1.18 billion. We are providing an outlook for adjusted EBITDA, both due to the market interest in this metric and because we believe it is a more reliable forward-looking proxy for cash profit, given that it removes volatility related to adjustments that are not reflective of ongoing operational activities, such as restructuring activities, as well as non-cash items like DNA and stock compensation.

Speaker Change: For the full year revenue is expected to be.

Speaker Change: Two five to $2 55 billion with adjusted EBITDA of 116 to $1 18 billion.

Speaker Change: We are providing an outlook for adjusted EBITDA, both due to the market interest in this metric and because we believe it is a more reliable forward looking proxy for cash profit given that it removes volatility related to adjustments that are not reflective of ongoing operational activities, such as restructuring activities as well as known.

Speaker Change: Cash items like DNA and stock compensation.

Massimiliano Chiara: To summarize, we continue to deliver strong financial results, are proactively taking steps to align our cost structure with a smaller and more simplified business profile, and are well positioned to capitalize on opportunities with a strong balance sheet, low performance leverage profile, and robust cash flow. This concludes my prepared remarks.

Speaker Change: To summarize we continue to deliver strong financial results are proactively taking steps to align our cost structure with a smaller and more simplified business profile and are well positioned to capitalize on opportunities with a strong balance sheet low pro forma leverage profile and robust cash flows.

Speaker Change: This concludes my prepared remarks, operator, please open the line for questions.

Unknown Executive: Operator, please open the line for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you wish to withdraw your question, simply press star 1 again. One moment, please, for your first question. Your first question comes from the line of Barry Jonas with Truist. Your line is open. Hey, good morning, everyone.

Speaker Change: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you wish to withdraw your question simply press Star one again.

Speaker Change: One moment. Please for your first question.

Speaker Change: Your first question comes from the line of Barry Jonas with Taylor Your line is open.

Speaker Change: Hey, good morning, everyone Patrick <unk> on for Barry. Thank you for taking my question.

Patrick Keoghan: Patrick Keoghan for Barry. Thank you for taking my question. Could you just talk a little bit about your post deal capital allocation strategy? And touching on how you're thinking about the dividend and share repurchases moving forward? Also, what would or could an M&A strategy look like for just a lottery focused company? Thank you.

Speaker Change: Can you just talk a little bit about your post deal capital allocation strategy.

Speaker Change: And touching on how youre thinking about the dividend and.

Speaker Change: Share repurchases moving forward also water could an M&A strategy look like for a lot of refocused company. Thank you.

Vincent Sadusky: Yes, so hi, good morning. So again, first of all, let me wrap up again. We continue to believe that we are focused with a balanced capital allocation approach. And we highlighted the fact that through the proceeds of the sale, we expect to repay $2 billion of debt, which will put ourselves in a very strong position from a balance sheet perspective going forward to support our upcoming CAPEX cycle, which is expected to last at least a couple of years in front of us, as a result of the renewal of large contracts in the US and in Italy.

Speaker Change: Yeah, So hi, good morning, so again.

Speaker Change: First of all let me wrap up and wrap up again, we continue to believe that we have.

Speaker Change: Our focused with a balanced capital allocation approach.

Speaker Change: We highlighted the fact that through the proceeds of the sale, we expect to repay $2 billion of debt, which will put ourself in a very strong position from a balance sheet perspective going forward to support our upcoming Capex cycle, which is expected to last at least a couple of years and from.

Speaker Change: <unk> as a result of the renewal of large contracts.

Speaker Change: In the U S and in Italy.

Vincent Sadusky: We also mentioned that the preponderant portion of the remaining cash proceeds after paying transaction cost, tax leakage and cash conveyance to the buyer will be allocated to shareholder returns. We think it's a bit preliminary to be more specific about that. We would like to get closer to the closing, provide some additional inputs around that process before we can fully disclose and elaborate our strategy in terms of cash return to shareholder. But again, going forward, we continue to be very much focused on our balanced approach to capital allocation.

Speaker Change: We also mentioned that.

Speaker Change: Preponderant portion portion of the remaining cash proceeds after paying transaction costs.

Speaker Change: Leakage and cash convenience to the buyer would.

Speaker Change: Would be allocated to shareholder returns, we think is a bit preliminary to be more specific about that we would like to get closer to the closing provides some additional inputs around that.

Speaker Change: That process before we can fully disclose and elaborate our strategy in terms of cash return to shareholders.

But again.

Speaker Change: Going forward will be continued to be very much focused on our balanced approach to capital allocation.

Speaker Change: Okay.

Vincent Sadusky: Okay, very helpful. With regard, yeah, just to add in your second question with regard to, yeah, with regard to M&A. So, yeah, we feel like our portfolio in both the traditional areas and the growth areas is very solid. Our capabilities is very solid. We've invested for four years. We talked about the investment in our incremental capabilities and capacity around printing, the continued investment. in iLottery, and we can take a look at other, you know, other growth areas as well, including Moments of Liberty. very, very reasonable leverage level that will enable us to potentially engage in M&A if we see there's an opportunity where there's an ROI that that makes sense for us.

Okay.

Speaker Change: With regard yes.

Speaker Change: And your second question with regard to yes with regard to M&A. So yeah, we feel like our portfolio in both.

Speaker Change: Traditional areas and the growth areas is very solid our capabilities as various out we've been investing in these areas or four years, we've talked about the investment in our incremental capabilities and capacity around creating continued investment.

Speaker Change: Lottery.

Speaker Change: You can look at other other growth areas as well, including enhancing.

Speaker Change: Enhancing our hour.

Speaker Change: <unk> ability to internationally on the product sales side. So we feel like we've got the capabilities, but we also are excited about.

Speaker Change: The good work the company has done over the course of years to get it to its balance sheet to the business, where it where it currently is and post closing we anticipate having.

Speaker Change: Very very reasonable leverage level that would enable us to.

Speaker Change: Potentially engage in M&A, if we see there is an opportunity where there is an ROI that that makes sense for us. So I think we have the capabilities, but again always open towards.

Vincent Sadusky: So I think, you know, we have the capabilities, but again, always open towards potential and organic growth opportunities that we think we'll have to balance sheet to be able to do.

Speaker Change: Potential inorganic growth opportunities that we think about the balance sheet to be able to do it.

Patrick Keoghan: Okay, that's great. Thanks for the color, Vince.

Speaker Change: Okay. That's great. Thanks for the color Vince.

Vincent Sadusky: As my follow-up, as you think ahead to guiding for 2025, could you walk through some of the puts and takes for the business you're considering? Thanks. Yeah, so I think, you know, if you look forward to 2025, you know, you step back, you know, we say the, you know, the industry dynamics remain intact. We think that the growth that the industry has achieved over the last five years or so has been, is sustainable. So since 19, I think our lottery taker has been somewhere between three and 4%, and even greater than that, in North America.

Speaker Change: Follow up as you think ahead to guidance for 2025 could you walk through some of the puts and takes for the business Youre considering thank you.

Vince Thedusky: Yes, So I think if you look forward to 2025.

Vince Thedusky: If you step back we'd say the the industry dynamics remain intact.

Vince Thedusky: We think that the.

Vince Thedusky: The growth that the industry is achieved.

Vince Thedusky: Over the last five years or so has been.

Sustainable associates.

Vince Thedusky: 19, I think our lottery CAGR has been somewhere between three and 4% or even greater than that in North America.

Vincent Sadusky: I say, you know, this year, certainly multi state jackpots have gone against us. It's just, you know, kind of the luck of the draw without the same level of significant advertised billion dollar plus jackpots that we enjoyed over the last several years. But other than that, I think it's been very exciting that with that incredible cater since 2019, that we've been able to maintain that level of sales consolidating. And, you know, when you think about the growth in Italy, a very mature marketplace, I think really exciting opportunity where we have a significant influence over lottery operations to really drive that growth.

Vince Thedusky: This year, certainly multistate jackpots.

Have got against US, it's just kind of the luck of the draw without.

Vince Thedusky: The same level of significant advertise billion dollar plus jackpots that we've enjoyed over the last.

Vince Thedusky: Several years.

Vince Thedusky: But other than that I think it's been very exciting that with that incredible CAGR. Since 2019 that we've been able to maintain that level of sales consolidated and when you think about.

Vince Thedusky: The growth in Italy, a very mature marketplace I think really is.

Exciting opportunity, where we have a significant influence over lottery operations to really drive that growth and I believe that in markets, where we don't run run and operate the lottery I think our capabilities and our knowledge as our unique knowledge as an operator.

Vincent Sadusky: And I believe that in markets where we don't run, you know, run and operate the lottery, I think our capabilities and our knowledge as our unique knowledge as an operator, I think really enables us to provide quality insights to our customers. And we see those trends continuing into the into the fourth quarter, and we continue to work with our customers around areas of optimizing their instant ticket portfolios as well as incremental automation and more points of sales. And there's there's many, I think, good, exciting launches, ticket launches that are that are planned going forward into the fourth quarter and into into 2025.

Vince Thedusky: I think really.

Vince Thedusky: Enables us to provide quality insights to two hour our customers and we're starting to see instant and draw games, even though we continue to operate it.

Vince Thedusky: Muted multistate jackpot at Viper in North America.

Vince Thedusky: You have to be up modestly in the third quarter and we see those trends.

Vince Thedusky: You would get to the into the fourth quarter and we continue to work with our customers around areas of optimizing the risk to ticket portfolios as well as.

Vince Thedusky: Incremental automation and more.

Vince Thedusky: Sales.

Vince Thedusky: And there is many I think good exciting launch it's ticket launches that are that are playing going forward into the fourth quarter and into 2025.

Vincent Sadusky: Also, I think one of the things that's that that'll be an incremental opportunity for for the lottery business. on a go-forward basis is the increase of mega-millions from a $2 price point to a $5 price point. They announced that that'll take place likely in April of 2025. So we think that'll be a positive catalyst. And it's only the second price adjustment that's taken place since this product was introduced more than 20 years ago. And in addition to a higher cost to play, I think there's several enhancements that the game will have. We believe it'll result in larger jackpots.

Vince Thedusky: Also I think one of the things.

That'll be incremental opportunity for for the lottery business.

Vince Thedusky: Go forward basis is the increase.

Vince Thedusky: Mega millions from from a $2 price point to a $5 price point, they announced that that'll take place likely in April.

Vince Thedusky: 2025, So we think we think that'll be a positive catalyst and it's only the second price adjustment that's taken place.

Vince Thedusky: This product was introduced more than more than 2020 years ago and in addition to a higher.

Vince Thedusky: Cost to play I think there's there's several enhancements that debt to Gamble will have bill. We believe it will result in larger jackpots fleet take that'll occur more frequently.

Vincent Sadusky: We think that'll occur more frequently. We think that the jackpots will grow quicker. We also think there's improved opportunities for players to win. And then on top of that, we've got, I think, other growth opportunities. We announced some good wins on the printing side, as well as continued high growth outlook for iLottery. So I think all those things point to our encouragement looking out into 2025.

Vince Thedusky: We think the jackpots will grow quicker.

Vince Thedusky: We also think there is there.

Vince Thedusky: There is improved opportunities for for players to win.

Vince Thedusky: And then on top of that we've got other growth opportunities we announced.

Vince Thedusky: Some good wins on the printing side as well as continued high growth.

Vince Thedusky: Outlook for for lottery.

Vince Thedusky: So I think all those things point to our encouragement.

Vince Thedusky: Looking out to 2025 around a path to continued continued growth.

Patrick Keoghan: path to to That's great. Appreciate the color. Thank you again.

Vince Thedusky: Yeah.

Speaker Change: That's great I appreciate the color. Thank you again.

Max Chiara: The next question comes from Jeff Stantial with Stiefel. Your line is open. Yay, great.

Speaker Change: The next question comes from Jeff Van <unk> with Stifel. Your line is open.

Speaker Change: Hey, great. Good morning, Thanks for taking my questions.

Max Chiara: Good morning, this is Max. Thanks for taking our question. Maybe starting off as a follow-up to Patrick's second question there, focusing on the North American lottery business, I'm just curious how much makeshift into higher price point gains has contributed to the overall rate of growth in instant tickets more recently and kind of on that subject or as a corollary, have you seen any deceleration or any noteworthy change in terms of trade-offs into higher price point tickets? Just any thoughts there would be helpful. Thanks. Yeah, so you know, there's so many variables. You know, each week, there's about eight to 10 markets that are significant in the States, and they've all had different timing of new game launches, especially for for high price tickets in the $20 to $50 price point range.

Speaker Change: Starting off as a follow up to Patricks second question there on.

Speaker Change: Focusing on the North American water business I'm, just curious how much mix shift into higher price point gains has contributed to the overall rate of growth in instant tickets more recently and kind of on that subject or as a corollary have you seen any deceleration or any call. It north.

Speaker Change: Worthy change in terms of trade up into higher price point tickets, just any thoughts there would be helpful. Thanks.

Speaker Change: So theres so many variables.

Speaker Change: There is about eight to 10 markets that are significant in the states and <unk> all have different timing of new game launches, especially for our high price tickets in the 20 to $50 price point range, that's certainly helped to drive.

Vincent Sadusky: That certainly helped to drive play levels over the last three, three or four or five years. But we've also noted in the games where we really have terrific insight where we, we operate lotteries in places like Indiana, New Jersey, and of course, in our experience in Italy, that changing, constantly changing and refreshing the instant ticket portfolio, including payout levels, as, as well as the frequency of wins, whether it's, you know, kind of a high volatility, low volatility game, you know, those things all all matter. And we think, you know, with a robust portfolio, and mixing in different price points in terms of higher price as well as lower price points.

Speaker Change: Play levels over the last three three or four or five years.

Speaker Change: But we've also noted in the game. So we really have terrific insight, where we operate lotteries in places like Indiana, New Jersey and of course in our experience in Italy that changing constantly changing and refreshing.

Speaker Change: Ticket portfolio, including pay.

Speaker Change: Payout levels.

Speaker Change: As well as frequency.

Speaker Change: Frequency.

Speaker Change: Wins, whether it's kind of a high volatility low below till the culture litigate those things all all matter.

Speaker Change: We take with a robust portfolio and mix again.

Speaker Change: Price points in terms of.

Speaker Change: Higher price as well as lower price points.

Vincent Sadusky: We've had really good growth in Italy, both at the high end and the low end, going back to really innovative games, for example, in the five-euro price point. I think it's really continuing to refresh the portfolio, make it interesting for your players and ensure that they're getting good entertainment value. They've got the capability and ability to win. And again, as I pointed out, the multi-state jackpot, the super large jackpots have been our best advertising, especially so many markets in the United States have very small marketing budgets. So to get that organic recognition through press coverage, news coverage.

Speaker Change: We've had really good.

Speaker Change: Good growth in Italy, both at the high end and the low end going back to really innovative games for example.

Speaker Change: Five euro.

Speaker Change: Price point, so I think it's really continuing to refresh the portfolio.

Speaker Change: Make it interesting for your four year players and ensure that they're getting good entertainment value they've got the capability in it.

Speaker Change: Ability to to win.

Speaker Change: And again as I pointed out the multistate jackpot.

Speaker Change: Super large.

Speaker Change: Jackpots.

First advertising, especially so many markets in the United States at very small.

Speaker Change: Marketing budgets, so to get that organic recognition through press coverage news coverage I think it's just invaluable and thats become something Thats really important I think for four.

Vincent Sadusky: invaluable. And that's is something that's really important, I think, for higher level supply in the in the multi-state jackpot area. And as I mentioned, I do think a bad run here in 2024. And I think that with the increase in, you know, in Vegas price point, I think that that will be super helpful as well going forward. So, to answer your question, I think, you know, it's certainly been an important driver, the higher price point, but it hasn't been the only thing. And I guess I'd kind of say again, in conclusion, the proper launch cadence different price points at the high end and low end, as well as different experiences for the players to win is certainly something we've learned can absolutely sustain growth.

Speaker Change: Higher levels of play in the.

Speaker Change: In the multi state jackpot area and as I mentioned I do think.

Speaker Change: So that's a bad run here.

Speaker Change: In 2024, and I think that with the increasing mega as price point, I think that that will be super helpful.

Speaker Change: As well going forward. So yes to answer your question I think.

Speaker Change: It's certainly been important driver the higher price point.

But it hasnt been the only thing and I guess I'd kind of say get it in conclusion.

The proper launch cadence.

Speaker Change: Different price points at the high end low end as well as different.

Speaker Change: Experiences for the players to win it's certainly something we have Larry can absolutely sustained growth to get as evidenced by our operation in Italy, where we control.

Max Chiara: Again, as evidenced by our operation at Italy, where we control the entire player experience and this is a very mature lottery and a very mature marketplace. really get growing. Great. That's helpful. Thanks for that, Vincent.

Speaker Change: The entire player experience and.

Speaker Change: This is a very mature elaborate a very mature marketplace, where we continue to see really good growth.

Speaker Change: Great. That's helpful. Thanks for that.

Max Chiara: And then for my follow-up, turning to the Italian lotto contract, could you just update us on your latest expectations for when you expect that RFP to be issued? And that's all from us. Thanks. Yeah, so I think, you know, on the the license, just to just remind folks, I think it's, you know, the insight that we've gotten has been, it's been great. The law has been said we've got a nine year non renewable term, and a 6% effective rate. So all that's consistent with the past $1 billion minimum upfront fee. and we've announced our joint venture with our partners, Paula and Arianna Novomatic.

Speaker Change: Sort of a follow up turning to the Italian Lotto contract could you just update us on your latest expectations for for when do you expect that RFP to be issued and that's all for me. Thanks.

Speaker Change: Yes, so I think on the.

Speaker Change: The license just to just to remind folks I think it's the insight that we've got has been has been great.

Speaker Change: Lawson said, we've got nine year non renewable term.

Speaker Change: And a 6% effective very solid consistent with the past.

Speaker Change: $1 billion minimum upfront fee.

Speaker Change: And we announced our joint venture with our partners.

Speaker Change: All areas.

Speaker Change: Got it.

Max Chiara: That's, we intend to. In terms of the timing, we think, you know, the next phase where we'll be able to see the requirements will come out either by the end of this year 2024 or early into 2025, and we believe an award will take place. by the first half. Great. Thanks for that insult back, Mom.

Speaker Change: We intend to keep that partnership in place in terms of the timing. We think the next phase, where we will be able to see other requirements will come out.

Speaker Change: Either by the end of this year 2024 or early into 2025, and we believe an award will take place.

By the first half of 2025.

Speaker Change: Great.

Speaker Change: And so I'll pass it on.

Aaron Lee: The next question comes from Chad Beynon with Macquarie. Your line is open.

Speaker Change: The next question comes from Chad Beynon with Macquarie. Your line is open.

Aaron Lee: Hey, good morning, this is Aaron on for Chad. Thanks for taking the question. As you noted, Mega Millions is making some changes, and there's a pretty significant increase in the ticket price from $2 to $5. Did you have any input in that process as they were contemplating those changes? And do you think there will be some digestion period as consumers get used to the new price before the positive impacts start flowing through? Thanks.

Hey, Good morning. This is Aaron on for Chad. Thanks for taking the question.

Speaker Change: As you noted Mega millions is making some changes and there is a pretty significant increase in the ticket price from $2 to $5 did you have any input in that process as they were contemplating those changes and do you think there'll be some digestion period as consumers get used to the new price before the positive impacts start flowing through thanks.

Speaker Change: Okay.

Vincent Sadusky: Yeah, so that committee is made up of lottery directors from across North America. That body evaluates the performance. and makes decisions regarding changes to the game. We certainly have noticed a lot of directories well and interact with. on a frequent basis. They digest a lot of research and information based upon past lottery price increase, increases. The impact on lotteries across the world, including the increases from one to two dollars for the multi-state jackpots in the United States, that historical experience of which many of the lottery directors were part of that process in the past. And again, we certainly provide input and support as the commission continues to work We do anticipate, just based upon prior experience, that there is the potential for a decline in ticket sales initially.

Speaker Change: Yes, So that committee is made up of.

Speaker Change: Lottery directors from across North America.

Speaker Change: That body.

Speaker Change: <unk> that performance.

Speaker Change: It makes decisions regarding changes to the to the game.

Speaker Change: We certainly have.

Speaker Change: I know, there's a lot of direct as well.

Speaker Change: Interact with them.

Speaker Change: A frequent basis.

Dave Digest: Dave Digest, a lot of research and information based upon past lottery price increase increases.

Dave Digest: The impact on lotteries across the world, including the increases was a $2 for the multistate jackpots in the United States that historical experience of which many of you a lot of directors were part of that.

Dave Digest: That process in the past and.

Dave Digest: Again, we certainly provide input and support.

Dave Digest: SC.

Dave Digest: As to the commission.

Dave Digest: Requests.

Dave Digest: We do anticipate just based upon prior experience that there will be there is the potential for a decline in se.

Dave Digest: And ticket sales initially.

Vincent Sadusky: However, on a net basis, if you look at the history, that's recovered over time. But more importantly, the increase in revenue associated with the increase in ticket sales has outpaced, has been an exception. of the decline. So I think that, you know, net net, the group anticipates that there will be there will be in sales volume, the absolute dollar value of sales overall initially, but we can't anticipate a decline initially and then a recovery.

Dave Digest: However on a net basis, if you look at the history.

Dave Digest: <unk> recovered over time, but more importantly, the increase in revenue associated with the increase in ticket.

Dave Digest: Sales.

Dave Digest: Outpace has been in excess of that.

Dave Digest: Of the decline so I think that net net.

Dave Digest: The group anticipates that there will be there'll be a decrease.

Dave Digest: And sales volume.

Dave Digest: The absolute dollar value of sales overall, initially, but we can't anticipate.

Dave Digest: Apply initially and then a recovery and again based upon experience net net it's fit.

Vincent Sadusky: Taste the Body Experience, Net, Net. very positive. Okay, appreciate the color. Thank you.

Dave Digest: A very positive impact.

Speaker Change: Okay. Appreciate the color. Thank you.

Max Chiara: The next question comes from David Katz with Jeffreys. Your line is open. Morning, everybody. Thanks for working my question in. I did want to just double click on the Italian Lotto updates. You know, you had given out some information early on, you know, that your expectation for the partnership structure would remain as prior. Is that still the expectation? Or is that a, you know, is that an open matter? Or is that ironclad closed? Yeah, I think we've disclosed in the past we have a memorandum of understanding. with our existing partners with the expectation that that joint venture.

Speaker Change: The next question comes from David Katz with Jefferies. Your line is open.

David Katz: Good morning, everybody. Thanks for taking my question.

Dave Digest: I did want to just double click on the Italian Lotto.

Dave Digest: Updates.

Speaker Change: You had given out some information early on your expectation for the partnership structure would remain.

Speaker Change: It was prior.

Speaker Change: Is that still the expectation or is that a.

Speaker Change: Is that.

Speaker Change: Open matter or is that iron clad closed.

Speaker Change: Yes, I think we've disclosed in the past we have a memorandum of understanding with our with our existing partners with the expectation that that joint venture will continue.

Speaker Change: Okay.

Max Chiara: So it's still the current expectation, but, you know, until it's closed, it's, you know, it's...

Speaker Change: So it's still the current expectation but.

Speaker Change: Until it's closed.

Okay.

Max Chiara: Right, it is what it is.

Speaker Change: Alright. It is what it is what it is.

Vincent Sadusky: Can we just talk about the US market for a moment? And, you know, bigger picture question, right? There's always been sort of large jackpot volatility over the years. And, you know, is that what we should expect, you know, if we draw a line out, you know, one to three years, that, you know, that volatility should remain, right? Or, you know, does that, is there anything, you know, that can sort of, can or would smooth that out over time? Yeah, I'll comment and anything Max has to add to that. jumping back. So Yeah, when you look at at the at the recent history, really, the last five years, what's drawn, what's what's driven, I think that four or 5% or so CAGR.

Speaker Change: Can we just talk about the U S market for a moment.

Speaker Change: Bigger picture question right, there's always been sort of large jackpot volatility over the years.

Speaker Change: Is that what we should expect if we draw a line out one to three years that that volatility should remain right or does that is there anything.

Speaker Change: Ken Ken or wood.

Speaker Change: Smooth that out over time.

Yeah, I'll comment and then anything that has to add to that.

Speaker Change:

Speaker Change: But feel free to.

Speaker Change: Jeff back so.

Speaker Change: Yes, when you look at it at the recent history really the last five years, what's John what's driven I think that.

Speaker Change: Four years to 5% or so CAGR.

Vincent Sadusky: Yeah, it's been the growth really in in multi-state jackpot games as well as as instant. as well. And I think overall that's a pretty strong clip considering how large the amount of wagers have grown to over decades in North America in particular. And we saw some softness certainly in the first half of the year. We've seen a bit of a recovery where we're into positive territory on instance in the third quarter and trending into the fourth quarter as well. And I do think the states are very focused on new launches. They're very focused on the slowdown in instant growth, especially in the really large jurisdictions that really move the needle like Texas, California.

Speaker Change: Yes, it's been the growth really in multistate jackpot games as well as as incidents.

Speaker Change: Well.

Speaker Change: And I think overall thats, a pretty strong clip considering how large the amount of wafers have grown to over decades.

Speaker Change: In North America in particular.

And we saw some softness certainly in the first half of the year, we've seen a bit of a recovery we're into positive territory.

Speaker Change: One instance, in the third quarter and trending into the into the fourth quarter as well.

Speaker Change: And I do think the states are very focused.

Speaker Change: New launches are you focused on the on the slowdown.

Speaker Change: Ticket growth, especially the.

Speaker Change: Really large jurisdictions that really move the needle like Texas, California.

Vincent Sadusky: Florida, New Jersey. So I think that we'll continue to see a recovery, and we do think that we can have sales growth in the instant category. kind of that low-to-mid single-digit CAGR over the longer term, and that on the multi-state jackpot side... As we've all experienced, it's very hard. Project. Again, we had a change in the construct of the the games themselves and the objective of the Powerball. and Mega Millions Communities was to drive larger jackpots and that by and large has been has been achieved also of course aided by the higher interest rate environment as well over the last couple of years but I think primarily driven by the change.

Speaker Change: Florida, New Jersey, Michigan.

Speaker Change: So I think that will continue to see a recovery and we do think that we can have sales growth in the category.

Speaker Change: That low to mid single digit CAGR over.

Speaker Change: The longer term.

Speaker Change: And that on the Multistate jackpot side.

Speaker Change: As we've all experienced its very hard.

Speaker Change: To predict kept we had a.

Speaker Change: <unk> in the construct.

Speaker Change: Yes.

Speaker Change: The games themselves and the objective.

Speaker Change: Sure.

Speaker Change: Powerful.

Mkay millions committees was too was to drive larger jackpots and thereby largest spin that's been achieved also of course aided by the higher interest.

Speaker Change: Rate environment as well over the last couple of years.

But I think primarily driven by the changes in the composition analysis of all of course, it gets a chance. So you can't control the frequency of this of the payouts. So we've come to appreciate.

Vincent Sadusky: Chance. So can't control the frequency. of the payout. So we've come to appreciate those higher jackpot levels. You know, it is, of course, random. However, the changes to the game that have been made in the past has helped to drive more frequent billion dollar plus levels. And I do think on the mega side, the increase to $5 will also facilitate in that as well. And then the offset, of course, would be, we'd like So I think it's hard to predict, but I think the organization is doing what it should be doing to help to sustain the higher jobs.

Speaker Change: Higher jackpot levels here.

Speaker Change: Yes. It is of course random however.

Speaker Change: The changes to the game that has been made in the past has helped to drive more frequent a $1 billion plus levels.

Speaker Change: Do think on the Mega side.

Speaker Change: The increased to $5 four will also facilitate.

In that in that as well.

Speaker Change: The offset of course would be.

Likely entering a period of decreasing interest rates so.

Speaker Change: I think it's hard it's hard to predict but I think yes.

Speaker Change: The organization is doing what it should be doing to help to starting at a higher higher jackpot levels.

Massimiliano Chiara: Max, I don't know if you have anything to add. Yes, I'd just like to add a couple of data points. So first of all, with the new disclosure starting this quarter, we wanted to make the point that despite of the importance of this part of the business, it just represent up to 10% of our total sales. So it's important to put that into perspective. So again, it's a volatile part of our business, but it's a small portion of our total revenue. The second point is that it's a very cyclical business. From time to time, it express also some level of fatigue, which is probably what is happening right now, as the price doesn't roll for long enough time to create that extra level of excitement that drives additional casual player into the game.

Speaker Change: Mkay et cetera.

Speaker Change: Yes, I'd just like to add a couple of data points. So first of all.

Speaker Change: With the new disclosure starting this quarter, we wanted to make the point that despite of the importance of this part of the business. It just to represent up to 10% of our total sales. So it's important to put that into perspective. So again, it's a volatile part of our business, but it is small portion of our total revenue.

Speaker Change: The second point is that it's a very cyclical business from time to time.

Speaker Change: Express also some level of fatigue, which is probably what is happening right now.

Speaker Change: As.

Speaker Change: The the price doesn't roll for long enough time to create that extra level of excitement that drives additional casual player into the game, but again long term, we believe as we have seen in the past.

Massimiliano Chiara: But again, long term, we believe, as we have seen in the past, through innovation on the games, which are made up by different components, including the price point at which the game is sold, but also payout levels and other characteristics, the reset of the price once the jackpot is hit, and so on and so forth, that are all meant to create incremental excitement going forward. So again, despite the fact that we don't forecast going forward, large jackpot being hit, we obviously appreciate the fact that there is definitely a potential for that business to improve and go back to what it has been for some time in the recent past.

Speaker Change: Through innovation on the games, which.

Speaker Change: I've made up by different components, including the price point at which the game is.

Speaker Change: Hold but also payout.

Speaker Change: Payout levels and other characteristics the reset of the price once the jackpot is hit and so on and so forth that are all meant to create.

Speaker Change: Create incremental excitement going forward. So again, despite the fact that we don't forecast going forward the lottery jackpot being hit we obviously appreciate the fact that there is there is definitely a potential for that business to improve and go back to what.

Speaker Change: It has been for some time in the recent past.

Massimiliano Chiara: volatile so it grows.

Speaker Change: Volatile so it grows perfect. Thank you.

Unknown Executive: Perfect. Thank you.

Joseph Stauff: Again, it is star one on your telephone keypad to ask a question. Your next question comes from the line of Joe Stauff with Susquehanna. Your line is open. Thank you. Good morning, Vince and Max. I wanted to ask, you know, in terms of, say, the price increase on multistate, obviously, mega is moving, you know, Vince heard that you, or the expectation, obviously, is that You know, there'll be some slight decline in volume, but the pricing will be more offset and certainly makes a lot of sense. that the pots, the jackpots will be a lot larger, which triggers volume demand.

Speaker Change: Again, it is star one on your telephone keypad to ask a question.

Speaker Change: Your next question comes from the line of Joe Stauff with Susquehanna. Your line is open.

Speaker Change: Thank you good morning, Vince and Max.

Speaker Change: I wanted to ask.

Speaker Change: In terms of say the price increase on multi state obviously mega is moving Vince heard.

Speaker Change: That you or the expectation obviously is that.

Speaker Change: Yes, there'll be some slight decline in volume, but the pricing of a more upset and certainly makes a lot of sense.

Speaker Change: That part the jackpots will be a lot larger which triggers volume demand I was wondering.

Joseph Stauff: I was wondering, I think Powerball has indicated they're not. changing price, but if you could update us on what they're thinking, that's number one. And then number two. If I think about, say, the U.S. and Canada growth, and I exclude multi-state, Just trying to think, you know, you posted called a flash up slightly 0.2% in a quarter, how to think about, say, the growth within that business, say going forward. is it, you know, where do you get most of the growth within that, say, segment? Is it? Mostly say pricing out of your instant business, if you could talk about that a little bit.

Speaker Change: I think power ball has indicated they are not <unk>.

Speaker Change: Changing price, but if you could update us on what Theyre thinking.

Speaker Change: For one and then number two.

Speaker Change: If I think about say the U S and Canada growth exclude multi state.

Speaker Change: Just trying to think.

Speaker Change: You posted a flattish up slightly 0.2% in the quarter.

Speaker Change: How to think about say the growth within that business say going forward.

Speaker Change: Is it.

Speaker Change: Where do you get most of the growth within that segment is it.

Speaker Change: Mostly say pricing either your incident business, if you could talk about that a little bit.

Vincent Sadusky: Yeah, sure thing. So yeah, Mega Millions has made the announcement of the increase of the $5 price point, as you point out, and Powerball has not. So as far as we understand, at this point, they're going to stick with the current pricing. So we'll have one of the two multi-state in Price, for now. With regard to growth, yeah, I think, again, you know, the future is hard to predict. So, you know, we look at a couple of things. One is the pretty significant growth that's been achieved in instance over the last four or five years.

Speaker Change: Yes sure. Thanks, So yeah Mega millions has maybe I'd ask it.

Speaker Change: The $5 price point, as you point out and powerful.

Has not so.

Speaker Change: As far as we understand at this point, they're going to stick with with the with the current the current pricing. So we'll have one.

Speaker Change: The two multistate jackpots increasing.

Speaker Change: In a price for now Thats, all Thats been announced.

Speaker Change: With regard to growth.

Speaker Change: Again, the future is hard to predict so we look at a couple of things one is.

Speaker Change: So pretty significant growth has been achieved an instance over the last four or five years.

Vincent Sadusky: And it's been a combination in North America. In particular, it's been a combination of price points and game variety, including different games with varying volatility. And so players that enjoy more frequent, smaller payouts gravitate towards those games. Players who really want a more meaningful payout with less frequency, you know, are willing to trade off frequency for that and are really interested. like stakes games. So I think that the continued understanding and research that the lotteries do, and we provide a terrific amount of insight for our data management tools, I think will continue to enable them to execute with excellence and provide the optimum amount of game mixes based upon sellout levels.

Speaker Change: It's been a combination.

Speaker Change: In North America in particular, it's been a combination of price points and gain for Iot, including different cadences with Gary volatility and so players that enjoy more frequent smaller payouts gravitate towards those games.

Speaker Change: Players, who really want a more meaningful payout.

Speaker Change: With less frequency.

Speaker Change: Going to trade off frequency.

<unk> for that.

Speaker Change: Our affiliates so that things like Stakes case, so I think that they're continuing to understanding and research.

Speaker Change: The lottery steel and we.

Speaker Change: Got it terrific about.

Speaker Change: Insights through our data management tools.

Speaker Change: We will continue to enable them to execute with.

Speaker Change: With excellence and provide the optimal.

Speaker Change: About <unk>.

Speaker Change: Gain access based upon sellout levels.

Vincent Sadusky: And again, it's our operating experience of operating one of the largest lotteries in the world in Italy, you know, we're able to provide these insights, and we're able to see that great portfolio management, you know, really has an on keeping the experience fresh and interesting for your most important players, those frequent players. So as Max pointed out earlier, there are certainly time periods in the evolution of this business where we've seen there's been a kind of a consolidation of play levels. And I think we're seeing that at the moment. But nothing we're seeing indicates that there's a negative impact on the overall long-term growth prospects of non-multi-state games in the area of state draw.

Speaker Change: Again, as our operating experience of operating in the largest lotteries in the world in Italy, we are able to provide this insight. So we're able to see that great portfolio management.

Speaker Change: It really has any impact.

Speaker Change: Keeping the experience fresh and interesting for you or most important players those those those frequent players. So it's not as pointed out earlier.

Speaker Change: There are certainly time periods in the evolution of this business, where we've seen there is.

Speaker Change: Kind of a consolidation of play levels.

Speaker Change: And I think we're seeing that at the moment, but nothing we're seeing indicates that the.

Speaker Change: There is a negative impact on the overall long term growth prospects.

Speaker Change: Not multistate capes in the area of state drawn.

Vincent Sadusky: So we think, you know, with the right... with the right cadence of launches, especially in the significant markets, coupled with retail distribution as well. We've had, again, we've had a great experience in Italy, a very mature market, not only with the games, with great portfolio management and game introductions and cadence, but also by, you know, again, a very mature market continuing to expand the retail distribution, which has really driven increased retail sales performance. And so, you know, we've done some of that work recently with our large customers in North America, but I think there's plenty more opportunity to...

Speaker Change: Yes.

Speaker Change: So we think with the right.

Speaker Change: With the right cadence of launches, especially in this significant market.

Speaker Change: Coupled with retail distribution as well.

Speaker Change: We've had again, we've got a great experience in Italy, a very mature market.

Speaker Change: Not only with with the games with great Great portfolio management.

Introduction of cadence, but also by <unk>.

Speaker Change: And in a very mature market continuing to expand our retail distribution, which is really drove driven increased retail sales performance and so.

Speaker Change: So we've done some of that work.

Speaker Change: Recently with our large customers to north in North America, but I think there's plenty more opportunities to do those states, including.

Vincent Sadusky: the installation of more self-service machines, things like automation and diagnostics where we can identify low ticket buy levels and get ahead of replacing those things before a sellout occurs. And I think, you know, our analytical capabilities, I think, really help to provide those things.

Speaker Change: The installation of more self service machines things like.

Automation in diagnostics, where we can identify low.

Speaker Change: Ticket volume levels and get ahead of replacing those dates before sellout occurs.

And I think our analytical capabilities. So I think really helped to provide those things.

Vincent Sadusky: having good conversations with their customers around around those increased and enhanced retail Okay, I appreciate it. Maybe one quick follow up just on timing for the close of the gaming sale. Is there anything to suggest that maybe things are ahead or behind in terms of You know, what you, I think, previously described as maybe an August 2025 timing in terms of the close of that event. Yeah, sure thing. I think, I think we've said in the past, we would close sometime in the third quarter, we said, by the end of the third quarter of 2025.

Speaker Change: I think having good conversations with our customers around rados increased and enhanced retail activities.

Speaker Change: Okay I appreciate it maybe one quick follow up just.

On timing for the close of the gaming sale is there anything to suggest that maybe things are ahead or behind in terms of.

Speaker Change: What you didn't previously described as maybe.

Speaker Change: In August 2025 timing in terms of the.

Speaker Change: Close with that.

Speaker Change: Units.

Speaker Change: Yes sure. Thanks.

Speaker Change: We've said in the past we would close sometime in the third quarter, we I think we said.

Speaker Change: By the end of third quarter of 2025.

Vincent Sadusky: You know, that closing period, we think is pretty, pretty standard for a heavily regulated industry like, like gaming, and the fact that we have to receive approval from different gaming jurisdictions. in the United States and around the world. You know, we don't we don't have any modification of that of that date. It would continue going through the the regulatory approval process. Every has announced that they have their shareholder vote coming up pretty soon, I think November 14th or so. And, you know, Apollos, they've been in this industry, so they do have a history of successfully receiving approval.

Speaker Change: That's closing period, we think is pretty pretty standard for a heavily regulated industry like like gaming.

Speaker Change: That we have to receive approval from many different data jurisdictions.

Speaker Change: In the United States and around the World.

Speaker Change: We don't we don't have any modification of that of that date.

Speaker Change: Continue going through the.

Speaker Change: Regulatory approval process.

Speaker Change: Of every has announced that they have their shareholder vote coming up.

Speaker Change: I think I've ever 14th or so.

Speaker Change: And apollo's.

Speaker Change: In this industry.

Speaker Change: They do have.

Speaker Change: We do have a history of successfully receiving approvals so.

Unknown Executive: So no modification to that estimated closing date. Thank you.

Speaker Change: No modification to that to that estimated closing date.

Speaker Change: Thank you.

Speaker Change: Yes.

Domenico Ghilotti: And your final question comes from the line of Domenico Ghilotti with Equita. Your line is open. Good morning. I have a question on the capital intensity. You were mentioning the renewal cycle affecting your free cash flow over the next couple of years.

Speaker Change: And your final question comes from the line of demand curve Gulati with <unk>. Your line is open.

Good morning, Adam.

Speaker Change: On the capital intensity, you were mentioning the renewal cycle.

Speaker Change: Free cash flow over the next couple of years, so if I take out the Lotto deserves special situations. So just to renew to renew your.

Massimiliano Chiara: So if I take out the lottery situation, so just to renew your existing lottery portfolio, can you provide us some sense of what is the capital intensity we should expect? So sure, we have gone back a long cycle to kind of come up with a run rate average of CAPEX, pure CAPEX excluding upfront fees, that kind of it runs around 200 to 250 million per year. We see right now going forward a couple of years where that number is probably going to run at 2x roundabout, and then we'll come down, back again down, into the more normal long-term average of 200 up to 250.

<unk> ceased in Lotto portfolio can you provide us some sense of what is the capital intensity that we should expect.

Speaker Change: So sure we have gone back.

Long cycle to kind of come up with the run rate average.

Speaker Change: Capex pure capex, excluding upfront fees.

Speaker Change: That kind of runs around $200 million to $250 million per year.

Speaker Change: We see right now going forward what are the couple of years, where that number is probably going to run at two X.

Speaker Change: Around about and then we'll come down back again down into the more.

Speaker Change: Normal long term average of 200.

Massimiliano Chiara: So that's where we stand right now. So that's why it's so important for us to keep a close eye on the leverage. And it's important also to highlight the fact that as a result of the transaction, we expect to be below the levels we are today so that we can factor in and absorb the incremental CAPEX and still maintain our target of below 3x on a run rate basis through the CAPEX cycle going forward, including the potential for the upfront fees coming up. Okay, thank you. Very clear.

Speaker Change: Up to $2 50, so that's where we stand right now so that's why it's so important for us to keep a close eye on the on the on the leverage and it's important also to highlight the fact that as a result of this transaction, we expect to be below the levels. We have today. So that we can factor in and absorb the incremental comp.

Speaker Change: And still maintain our target of below three X.

Speaker Change: On a run rate basis through the Capex cycle going forward.

Speaker Change: <unk> the potential for the upfront fees coming up.

Speaker Change: Mhm.

Speaker Change: Thank you Medicare.

Unknown Executive: This concludes the question and answer session.

Speaker Change: This concludes the question and answer session I'll turn the call to CEO, Vince the dusky for closing remarks.

Vincent Sadusky: I'll turn the call to CEO Vince Sadusky for closing remarks.

Vincent Sadusky: Vince, I think you're on mute. Thanks, Jim. Thank you all very much for your interest in ICT. I think as we've discussed in the past, we believe very strongly in the capability of Lottery Continue to Grow, and we're very excited about our separation activities and our pure play entity on a go-forward basis. So we look forward to updating you again soon.

Speaker Change: And Vince I think youre on mute.

Vince Thedusky: Thanks Chip.

Speaker Change: Thank you all very much for your interest in IGT I think as we've.

Speaker Change: You had discussed.

Speaker Change: Pass, we believe very strongly in that.

Speaker Change: In the capability.

Lottery continue to grow and we're very excited about.

Speaker Change: Our separation activities and our our pure play entity on a go forward basis. So we look forward to updating you again soon.

Unknown Executive: This concludes today's conference call. Thank you for joining.

Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.

Unknown Executive: You may now disconnect.

Unknown Executive: Please wait, the conference will begin shortly.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: [music].