Q4 2024 International Game Technology PLC Earnings Call
Speaker Change: Hello and welcome to the International Game Technology fourth quarter and full year 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Speaker Change: Looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements.
Speaker Change: 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 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 slides accompanying this webcast and our filings with the SEC each of which is posted on our Investor Relations website and now I will turn.
Speaker Change: On the call over to Vince Thank you, Jim and good morning.
Vince: Well 2024 was a significant year for IGT. We concluded a strategic review that resulted in the announced sale of our gaming and digital business for more than 4 billion in cash upon closing the company will have a singular focus on its leading lottery business, which provides products and services to more lotteries than any company in the world.
Vince: In 2020 for IGT generated over $1 billion in consolidated cash from operations.
Vince: About $660 million of free cash highlighting the cash flow generation of the lottery business more than 80% of that free cash flow came from lottery operations.
Vince: The $2 5 billion of revenue achieved in the year was consistent with 2023 as growth in core instant ticket and draw games sales were offset by lower U S. Multistate jackpot sales.
Vince: Multistate jackpot games remained popular however, there were many more winners in 2024, resulting in fewer significant advertise jackpots and resulting in lower sales.
Vince: The lottery business achieved $1 2 billion of EBITDA at a 47% margin highlighting its attractive profit profile.
Vince: The profit and cash flow contributions enabled significant debt repayment during the year.
Vince: Year end pro forma net debt leverage which is adjusted for the $2 billion in gaming and digital sales proceeds committed for debt reduction is two four times the lowest level in IGT history.
Vince: Innovation in content and working with our lottery customers enabled improving core lottery same same store sales throughout the year.
Vince: It didn't take it and draw games sales increased 4% in Q4, including improvement across all regions.
Vince: Lower U S. Multistate jackpot comparisons weight on total reported sustained same store sales for both Q4 and the full year.
While the randomness of large jackpot of timing had a negative impact in 2024, they have been a meaningful driver of lottery sales over the last five years.
Vince: Our product team drove strong growth in Italy in both Q4 and the full year periods, several new game launches, including our highly successful <unk> holiday bundle and the new <unk> instant game were important drivers of Q4 results as we are a specialty draws for tinny Lotto and <unk>.
Vince: Oro add on feature for traditional lot of.
Vince: The first scratch ticket in Italy, using Igt's proprietary infinity print technology named pop was well received and has been effective in attracting new younger players as well as up selling existing players to the five euro price point.
Vince: We believe our exemplary performance in increasing Italy same stores sales and state revenue position us well for the upcoming Italian Lotto bid.
Vince: Improving trends in large jurisdictions, including California, Florida, Georgia, and New York, and Texas drove an increase in instant and draw games sales as the year progressed, especially in the fourth quarter.
Vince: We play an important role in driving this dynamic however.
Vince: Our experience operating lotteries and in working with over 100 jurisdictions around the World provides player insights performance analytics and sales tools that enable a steady pipeline of innovations. The trusted partnerships, we have with our customers enables us to offer guidance on game development portfolio optimization and go to market strategies.
Vince: Hi, Lottery sales rose, 28% in both the fourth quarter and the full year of 2024 periods, maintaining the double digit pace over the last few years.
Vince: Momentum was broad based across the U S, Italy, and several European markets, including Poland, The Czech Republic in Belgium.
Vince: We've invested significant resources and are committed to our lottery platform, which is deployed in 11 jurisdictions, making us the number one I lottery platform supplier in the world.
Vince: During the year, we launched our lottery platform in Connecticut.
Vince: Our customers in Georgia, and Kentucky have the distinction of being among the fastest growing lotteries in the U S.
Vince: Much of this outperformance can be attributed to successful player acquisition program is powered by our high lottery marketing and CRM services.
Vince: Congratulations Howard, Georgia lottery customers, surpassing $1 billion lottery sales during calendar 2024.
Vince: We are excited to bring our top performing the instant games like elephant, King and lucky coins to new content customers.
Vince: IGT now as content partnerships with 18 jurisdictions, including a recent a five year contract for lottery content with Weil cows in Finland.
Vince: Our proven track record executing large and complex deployments is unrivaled for context, our central systems handle billions of transactions annually and are capable of processing approximately 1 million transactions per minute.
Vince: We are also the leading provider of lottery point of sales technology with more than 400000 retailer terminals deployed globally four times as many as any other vendor.
Vince: Another hallmark of our businesses the diversity of contracts in our portfolio supported by an average customer relationship spanning three decades.
Vince: In 2024, we won a seven year FM contract with the Colorado Lottery as well as a 10 year firm in our lottery contract with Luxembourg Lottery nationality.
Vince: We also secured several long term firm contract extensions, including 10 years with the North Carolina Education Lottery, and three years with the Mississippi, and Virginia Lotteries and earlier this month, we announced a nine year extension with the Tennessee lottery.
Vince: We are also a big year for our instant ticket service businesses, where we won a three year primary contract in Portugal, displacing an incumbent.
Vince: We entered a five year contract with <unk>, the operator of Spain's lottery and a three year contract with FDA, the operator of the French National Lottery. These.
Vince: These additions will significantly increase production volume in 2025, enabling the company to leverage its new state of the art press.
Vince: 2024 was a year of significant significant accomplishments with key strategic initiatives.
Vince: In 2025, we are focused on winning important contracts in Italy in Texas, which will require a significant capital we have.
Vince: We'll also invest in new game content and technologies that we expect will fuel sales growth and strengthen our lottery industry leadership.
Vince: Additionally, we are identifying structural cost savings to drive greater efficiencies across the organization enhancing our financial profile that is already characterized by strong profit margins and significant free cash flow generation and a solid balance sheet.
Vince: We are diligently working to close the gaming and digital sales, which Phil will provide over $4 billion in gross cash proceeds significantly strengthening our balance sheet and shareholder returns.
Max: Now I will turn the call over to Max.
Max: Thank you, Vince and Hello to everyone joining us on the call today.
Max: IGT four quarter and full year 2024 financial results were solid achieving the outlook for revenue and adjusted EBITDA. We provided on our Q3 earnings call, while the timing of large U S. Multi state jackpots in product sales can cause quarter to quarter variability in our financial performance the core recurring businesses.
Max: LTE and growing in line with expectations and the margin structure of this business is compelling delivering adjusted EBITDA margins well above 40%.
Max: In the fourth quarter IGT generated revenue of 651 million compare to $681 million in the prior year driven by broad base same store sales growth in instant ticket and draw games, including a 7% same store sales growth in Italy.
Max: As a result did benefit from a couple of extra selling days versus the prior year.
Max: Italy strength in IGT core recurring business was offset by the timing impact of elevated jackpot activity and higher product sales in the prior year.
Max: It is worth noting that while product sales revenue was lower year over year. It was still very strong achieving the second highest level in company history keeping.
Max: Keep in mind that product sales in general tend to be lumpy in nature and typically only represent a mid single digit percentage of total revenue.
Max: For the full year revenue of $2 5 billion was basically in line with the priority of periods. The primary drivers of the year over year comparison metered dose and acquired in the quarter.
Max: While instant ticket and draw games revenue grew 35 million U S. Multi state jackpot revenue declined 29 million due to the exceptional levels of jackpot activity in the prior year.
Max: Their service rose $3 million, primarily due to revenue associated with non wager based service contract in Europe, partially offset by lower LMA incentive revenue and dynamic that is impacted by a relatively long period of time with lower U S. Multi state jackpot performance.
Finally product sales revenue was lower by $17 million.
Max: As significant product sales in the prior year were partially offset by an increase in instant ticket services in the current year.
Profit generation was solid in both the fourth quarter and full year periods. IGT delivered Q4 income from continuing operations of 116 million compared to 73 million in the prior year and adjusted EBITDA of $290 million compared to 316 million.
Max: With the difference almost entirely driven by the volume and mix of product sales and high profit flow through from same store sales growth was offset by lower LMA incentives and investments in the business.
Max: On a full year basis income from continuing ops was $271 million compared to $265 million in the prior year period, driven by a noncash benefit of changes in exchange rates, partially offset by the impact of a discrete tax item and lower operating income.
Max: Adjusted EBITDA of $1, one $1 7 billion decline from $1 two 1 billion in the prior year.
Max: Service margin was down $25 million as the benefit of higher instant ticket and draw games sales was offset by three main items first a $28 million decline related to the high profit flow through from elevated U S. Multi state jackpot activity in the prior year second the jackpot related impact on <unk>.
Max: <unk> incentives and third additional investments, we're making into business, including personnel and project cost supporting contract renewals and extensions activity.
Max: As expected product sales margin was $26 million lower driven by volume and mix SG&A improved $17 million, reflecting reduced legal costs and R&D was up $7 million, primarily due to continued investments, we're making to drive future growth and efficiencies, particularly around cloud initiatives.
Max: Adjusted EBITDA margin of approximately 47% highlights the impressive profit profile of this business.
Max: On slide 12, now and the full year period IGT delivered a very strong one point <unk> 3 billion in consolidated cash from ops with approximately two thirds being generated by continuing ops consolidated free cash flow totaled about $660 million and over 80% was attributable to.
Max: The lottery business.
Max: Shareholder returns remain a key part of our balanced capital allocation strategy as evidenced by the $161 million of cash dividends paid to shareholders.
Max: We will have a 4.05 billion gross cash infusion when the gaming and digital sale is completed at.
Max: As previously communicated we intend to allocate the net cash proceeds in a balanced manner with significant portions being used to repay debt and to be returned to shareholders. The committed 2 billion debt reduction will meaningfully strengthen our balance sheet and further improve our debt maturity profile pro forma for this debt reduction.
Max: Net debt leverage is two four times using debt balances at year end.
Max: Total liquidity remained solid at $1 9 billion, including $584 million in administrator cash and $1 4 billion in Undrawn credit facility capacity.
Max: Okay.
Max: We're focused on several strategic initiatives to drive structural cost savings and to fund important investments in the business Optima <unk>, all is well underway driving real cash cost savings of $40 million by the end of 2026, we continue to explore additional opportunities currently under review to expand the probe.
Max: Graham with incremental productivity and operational efficiencies in our core business more to come on this in the near future.
Max: Our ongoing success in securing meaningful contract wins and extensions, which is expected to secure revenue and cash flow visibility for the next decade or so has resulted in the need for higher capital investments in the business for the next couple of years.
Max: We estimate annual Capex spend in the range of $400 million to $450 million in each of fiscal 'twenty five and fiscal year 2006, which includes investments to secure important contracts in Italy, Texas and New York.
Max: We anticipate annual Capex in the range of $200 million to $225 million for the next several years thereafter, reflecting the benefit from temporary cost increases related to investments in cloud infrastructure and point of sale network optimization that that are underway.
Max: Additional investment of at least 1 billion euros would be required over 25, and 26 to fund the upfront license fee for the Italy Lotto contract.
Max: These capital outlays represent investments in our core recurring business and would extend the duration of our revenue weighted average contract life to more than eight years, including extensions.
Max: I would now like to introduce our 2025 outlook.
Max: To be clear IGT quarter cutting business is strong providing a solid foundation for the year as we had into the elevated capex cycle in front of us.
Max: We currently expect revenue of $2 55 to $2 65 billion, which reflects low to mid single digit growth that is aligned with our long term expectations for the business.
Max: This includes a low single digit increase in global same store sales.
Max: Overall service revenue is expected to be negatively impacted by our current expectation of significantly lower U S. Multi state jackpot activity and associated LMA incentive revenue in the first half of the year.
As a reminder, our new Jersey, and Indiana LMA contracts include complex incentive or shelf shortfall schemes that can be influenced by protracted times are very high or very low multi state jackpot activity given the difference in the LMA customer fiscal year and IGT calendar year, our Q.
Max: One in Q2 are the quarters, where we typically you have to adjust our expected LMA incentive or shortfall based on the current estimate of the lottery full fiscal year results, which again can be significantly influenced by the multi state jackpot behavior.
Max: We have provided a page in the appendix of the slides accompanying this call that goes through this impact in more detail.
Max: As a result, we expect Q1 revenue to be down low to mid single digit versus the prior year period.
Max: Product sales revenue is expected to rise primarily due to increased instant ticket services. Thanks to several new contract awards, which should provide sustainable growth over time.
Max: Adjusted EBITDA is expected to be.
Max: In a range of one one to one $1 5 billion Disney.
Max: This includes the just described combined impact of significantly lower multi state jackpot, and LMA incentive revenue and about $25 million of temporary cost related to contract extensions and rebates as well as enhancements of cloud based solution and point of sale network optimization that are ultimately expected to delay.
Max: <unk> future growth and Capex efficiencies down the road.
Max: The impact of desired terms is primarily concentrated in the first half of the year in terms of profit cadence, we expect the greatest pressure to materialize in Q1, which we expect to be down approximately $70 million in total primarily on the jackpot and LMA impacts I outlined as well as a negative mix in product sales.
Max: To be recovered in the balance of the year and the timing of temporary project cost I discussed earlier.
We expect profits in the balance of year period to be essentially aligned with the prior year, including growth in the second half.
Max: This outlook does not include any potential benefit from large U S. Multi state jackpots, given the lack of visibility around timing in.
In addition to Mega million price increase to $5 in April 2025 could drive higher more frequent jackpots.
Max: Cash from operations is forecasted at a negative 300 million, primarily driven by 800 million euro or approximately $850 million expected to be paid in 2025 related to the first two installments of the Italy Lotto up.
Max: License fee.
Max: The first payment is due at the time of the award and the second at the start of the new concession is.
Max: As a reminder, the euro 800 million reflects 100% consolidation of the joint venture the pro rata share that our partners contribute to the upfront fee shows up in cash from financing activities on the capital increase Noncontrolling interest line of the cash flow statement.
Max: Excluding the upfront license fee cash from operations is expected in a range of about 550 to 570 million and compared to 2024 is impacted approximately one third by lower forecasted EBITDA and two thirds by the timing of working capital items.
Max: Capex is expected to be around $450 million, including the increased investments related to recent contract wins and extensions as well as important upcoming bids.
Max: And lastly, we have assumed.
Max: One point or seven euro dollar rate for full year 2025.
Max: In summary, we delivered solid financial results for 2024 with revenue and profit that met our outlook accompanied by strong cash flow generation and pro forma net debt leverage of two four times, we are committed to allocating at least $2 billion of debt reduction following the significant cash infusion.
Max: That will be received after the closing of the gaming and digital sales.
Max: And we are investing in our future positioning ourselves to further strengthen our global lottery leadership position as we head into 2025.
Max: That concludes our prepared remarks, operator would you. Please open up the line for questions.
Max: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star. One again. Please ensure that your phone is not on speaker and is not on mute when called upon.
Max: Your first question comes from Jeff <unk> with Stifel. Your line is open.
Speaker Change: Hey, great good morning Vincent.
Thanks for taking our questions, maybe just starting off on the $25 million investment into new contract extensions and Rebids as well as some some growth initiatives, Vince or macro ever wants to take this can you just.
Speaker Change: <unk> a little bit more.
Speaker Change: Some of these costs I guess in particular are these mostly onetime in nature or is there. Some portion of this that they expect it to recur in the out years and then.
Speaker Change: How do you think about I think the contract rebid and extension piece is self explanatory, but for some of these growth initiatives. How do you think about underwriting.
Speaker Change: Why on some of that investment.
Max: Yes, Hi, Jeff This is Max speaking I'll take this one so as you can imagine.
Max: We have to spend some money in relation to R&D and some other projects expenses in anticipation to securing a contract.
Max: Bid or extension and those cost has to be.
Max: Expense in the P&L until there is certainty of acquisition of the new contract. So we expect those costs to be temporary in nature, because they're typically.
Max: Necessary to facilitate.
The setup of the technology for the.
Max: Capacity installation and.
Max: Other technology evolutions that will be required with the start of a new contract and that makes up the major part of the $25 million for 2025.
Max: And again as we as I said in my prepared remarks, most of this amount will be spent in the first part of the year.
Max: There are two other significant initiatives that we are bringing forward one.
Max: One is the cloud based solution extension to all I lottery contracts, we have done many conversions already particularly in the European countries with significant success achieved.
Max: In terms of full integration between the retail business NDA lottery business mentioned in Poland for example.
Max: We are in the process of finalizing the transition to cloud based also for our large U S contracts during the year.
So again that will require some additional expenses.
Max: During 2025 and finally.
Max: We continue to look for ways to innovate and provide opportunities to optimize.
Max: Activity in the operations at the point of sale level and so we have some expenses associated with.
Max: A recognition of the transition in the communication.
Max: Technology moving away from VSAT into mobile for.
Max: For the U S market that will also drive additional cost this year until the process is complete so again all in all we expect.
Max: This $25 million to be temporary in nature.
Max: Perfect.
Max: That's really great color. Thank you for that Max and then.
Max: A follow up maybe turning to the pending sale of the gaming in the digital business now that we're <unk>.
Max: Rapid Lee approaching deal close I think it might just be a bit helpful to refresh on how youre thinking about the expected use of proceeds in particular, focusing on that return of capital bucket.
Max: Recognizing there are some moving parts here with ongoing contract procurements could you just update us on kind of your latest thinking here both in terms of the quantum or the amount of $3 65 billion net proceeds that you expect to be allocated to return of capital as well as the.
Max: The preferred mechanism and the cadence of any capital returns just.
Max: The thoughts or perspective, you can provide there keeping in mind the fluidity of the situation would be would be great. Thanks.
Max: Yes, we know investors are eager to understand the utilization of the proceeds from the sale of digital and gaming we completely understand that what we've communicated as the $2 billion debt pay down and Thats. The reason of course for the pro forma disclosures around continuing ops all the financial metrics and also then providing some in.
Max: <unk> into what day, one that we'd likely look like as I mentioned on the call with that that enables us to achieve a two four times leverage ratio as of the end of the year, which is.
Max: Just an incredible journey of debt reduction the company's undertaken very diligently over the last five years or so.
Max: In terms of that incremental amount above the $2 billion debt repayment commitment.
Max: Again, that's something that we will we will discuss.
Max: At or around the closing date, we've got some some thoughts around the potential utilization.
Max: But.
Max: I think thats.
Max: Something that we're not prepared to do it at this point.
Max: Right that makes it I appreciate that and then if I can.
Max: Could just squeeze in.
Max: That everyone in that case, maybe and it might be too early.
Max: Expand upon here as well, but but could you just add some color on how you think about the pro forma org structure for the remain co lottery business do you have any sense, yet for sort of what roles are appropriate for the current team as you transition over to a single operating segment Marine.
Max: We remain co.
Max: Just any kind of high level thoughts there would be great. Thanks, Yes, yes sure thing as soon as we wrapped up.
Max: Announced deal if any closing deal for voyage here, we got to work diligently on on what remained COSE structure would look like we have determined we are in a singular line of business that was by strategic design. We're very excited about our focus on that business.
Max: And having the opportunity to operate a company that's got more interactions with lotteries than any other company around the world and so anything that has to do with with gaming and digital is spin.
Max: We've done the internal work on separation, we're virtually completed with that internal work. So we feel very confident of being prepared for day one.
Max: Operation of a remain co.
Max: Systems, ERP et cetera.
Max: And then in terms of the structure.
Max: We've done a lot of work internally and had some internal announcements as you recall, we appointed <unk> as the head of lottery. We've made some organizational changes to what we think is better facilitate the core operations really continuing to innovate and lever.
Max: Our HR product expertise around the world as well as a point very capable leaders in charge of our various growth initiatives from our ongoing I lottery operation that continues to achieve very very strong growth too.
Max: I'd mentioned in my prepared comments pretty significant increase in the number of instant ticket printing contracts that we've obtained in the investment in our our facility in Lakeland.
Max: Two things like that people really don't see but our customers appreciate things like cloud transition to really increase our analytical capabilities and our tools that ensure that we are.
Max: Rusted lottery partner for decades to come with our our customers and then on top of all that is.
Max: Need to reduce our our overall corporate infrastructure costs given that by definition, we're a smaller public company. So of course, we still have all the public reporting requirements, but we are smaller and that's a lot of that work has come through and will manifest itself in the number.
Max: Through what we're calling our optima 3.0.
Max: <unk> initiatives and Max touch based upon that and yes, as we work towards.
Max: Closing Voyager and sharing more information about our our long term.
Max: Expectations for financial performance, I think you'll be able to share more around what those cost saving opportunities are for beyond the current year.
Max: Yes.
Max: That's great. Thanks, very much I'll pass it on.
Speaker Change: The next question comes from Barry Jonas with Taylor Your line is open.
Barry Jonas: Hey, guys. Good morning, I wanted to start with Italy can we get an update on the Lotto rebid process and timing and with that a potential bidder has talked about possible synergies with lotto and their digital business IGT does it how does digital business anymore, but are there potential partnerships.
Barry Jonas: That can monetize such synergies thanks.
Barry Jonas: Yes sure. Thanks, So I'll get started and led mix talk about the details of the of the bid.
Barry Jonas: Yes as you all know the tender has been published we have been working internally on our bid for the better part of a year now.
Barry Jonas: We've done a lot of work on our technology solution, what we would do too.
Barry Jonas: Kris and improve our top rated technology in this in this.
Barry Jonas: In this next.
Barry Jonas: This next tenure and we expect obviously to compete very effectively for the for the opportunity. We have we believe as we've said in the past we've demonstrated with our with our market and player insights.
Barry Jonas: Demonstrated the ability to continue to grow this very old lottery through excellent product innovation and constant refinement of our our offering to two player as same as we've done for for about three decades now.
Barry Jonas: Now.
Barry Jonas: Yes, I think when it comes to the digital operation.
Barry Jonas: We are not a significant one of the significant players in sports betting and casino in Italy. However, we have significantly increased our I lottery penetration and play in the marketplace and.
Barry Jonas: That is something that we believe is.
Barry Jonas: <unk> is clearly an opportunity for us as we think about the future.
Barry Jonas: Beyond just the ability to to be able to exploit the retail the retail lottery operation.
Speaker Change: And with that ill turn it over to Max for some yes. So just to complete the answer in terms of the process going forward. So as you know the RFP was issued in early January.
Bids are due by March 17.
Speaker Change: So depending on and then.
Once the bids are in.
Speaker Change: <unk>.
Speaker Change:
Speaker Change: The award and commission will be established.
Speaker Change: And the composition of the commission will be published after March 2017.
Speaker Change: And is expected to be different from the last bid process seven years ago eight years ago.
Speaker Change: Obviously, the commission will need to assess all the offers and then make an award there is not a specific timeline for the award of the license. So right now our expectation is that is probably likely to happen in Q2, but again. It depends also on the number of bidders that will ultimately show up on March seven.
Speaker Change: 17.
Speaker Change: The final comment the time between the award and the new license starts needs to allow for the transition of the infrastructure, which is also an important point in the in the whole scheme of things here.
Speaker Change: So with that in mind, we have included in our.
Speaker Change: Our cash flow estimates for the year.
Speaker Change: First two tranche payment.
Speaker Change: In connection with those deadlines. So the first one is at the time of the award in Q2.
Speaker Change: For 500 million Euro in the second one is at the time of inception of the new license, which right now is supposed to start before the end of the year. So call. It in November and so we have the other 300 million euros slated for Q4 at this point in our forecast.
Speaker Change: Thank you great.
Speaker Change: That's super helpful. And then just as a follow up we've recently seen some pushback in Texas against the.
Speaker Change: Carrier model can you help us understand how meaningful carriers have become for driving igt's draw based sales and are there any potential risks or maybe.
Speaker Change: I would not read legalization opportunities that we should be thinking about going forward. Thanks.
Speaker Change: Yes, so carriers have a different there's a different approach to carriers, depending on the desires of each individual jurisdiction. So obviously in states where.
Speaker Change: Lottery is permissible.
Speaker Change: Carriers have a minimal or really no no footprint has.
Speaker Change: The digital experience is one that is very efficient and effective.
Speaker Change: There is no no incremental fee of the significance of the carrier model, which is where the revenue comes from on a on a carrier model since the carrier actually needs to go and purchase to take head scan their tickets toward the ticket. So theres a real physical costs associated with operating a carrier model.
Speaker Change: Then you have states that have explicitly permitted carriers to operate.
Speaker Change: I'd say states like New Jersey for example, very forward leaning and essentially their view is we're looking for every opportunity to stimulate.
Speaker Change: Many as many sales of lottery tickets as possible and maximize return to state you have other states like Texas that.
Have been silent around carriers and so the carriers have.
Speaker Change: Expanded into into a market like Texas. So then you have other markets, where there is an absolute statutory prohibition on carrier so really depends on the market.
Speaker Change: From Igt's perspective.
Speaker Change: The key.
Speaker Change: To keep in mind is we're contracted by the state lottery organizations. So we operate based upon their direction and our our contracts. So that's really that's really what what our job is and we comply with whatever law on career.
Speaker Change: <unk> each individual market.
Speaker Change: Wants to desires to two to execute.
Speaker Change: The actual amount of.
Speaker Change: The impact on IGT.
Speaker Change: From carriers is certainly based upon our percentage of sales, which is typically how we are compensated and that's regardless of whether a sale is generated at a retail outlet or through through a carrier.
Speaker Change: So I'd say with specific to Texas.
Speaker Change: The announcement, the recent announcement theyre going to band carriers.
Speaker Change: The impact of IGT, because our percentage of sale is so small or our revenue is so small and carriers have certainly grown in markets like Texas, but are still a relatively small percent of their overall retail sales the impact of IGT is.
Speaker Change: Is insignificant.
Speaker Change: Perfect. Thank you so much.
Speaker Change: The next question comes from Chad Beynon with Macquarie. Your line is open.
Chad Beynon: Hi, good morning, Thanks for taking my question.
Speaker Change: Max within the guidance and particularly the the optimism around the back half of the year, making up for the $70 million shortfall in Q1 can you talk about the cost inflation our impact around the mega millions.
Speaker Change: Mega millions, drawing going to $5 from $2 and at this point, what your understanding is and in terms of.
Speaker Change: Just overall advertising or marketing around this new product given it could be a big growth driver for the industry.
Speaker Change: Hey, Chad I'll take this mega.
Speaker Change: The increase in the price point is one that.
Speaker Change: So I think ourselves and the industry is pretty exciting to see what what the potential is.
Speaker Change: Yes, there is there.
Speaker Change: There is limited experience with price point adjustments and products over the years. It just doesn't happen all that often and our historical.
Experience has shown that the net.
Speaker Change: Of our price point change.
Speaker Change: Is it is positive to very positive.
Speaker Change: So I think it was one of the.
The more recent ones that was done when you look at the individual states in New Jersey.
I think it was their pick five last year.
<unk> dollar and the revenue increase was significant for that particular product and historically when powerball has increased their price or mega millions increase their price a long time ago.
Speaker Change: It certainly had a significant impact on the on the net sales. So what we what we've modeled out or what the what the commission has modeled out and we've assisted with is likely there will be a few.
Speaker Change: <unk> number of tickets sold but at a greater price point and there will likely be a temporary.
Speaker Change: Adjustment as theirs.
Speaker Change: It takes some time for.
Speaker Change: Further the increase to kind of work its way through the system I think individuals to recognize the higher starting point of jackpots and hopefully the math is right. It's a faster build of jackpots and as we all know the higher the advertise jackpot is where we get.
Speaker Change: A significant increase in velocity.
Speaker Change: In sales so we think that it will be a positive.
Speaker Change: Not sure if that will be a net positive immediately there's a good chance it won't be but as things progressed throughout the year because the implementation is early.
Speaker Change: Early in the second quarter, we think that will that has a really good chance to play through the system.
Speaker Change: And have a positive impact on multistate, jackpots, which will be very helpful. Because as you know the multistate.
Speaker Change: Multistate jackpot.
Speaker Change: Increase in excitement level around play and the increase in interest rates over the years, allowing for a higher advertised jackpot has all been an incredible positive in terms of sales up to this year and just so happens do we add one of the best.
Speaker Change: Multistate jackpot advertised large jackpots occur.
Speaker Change: Occur several times over in 2023, and then in 2024, we had the exact opposite phenomena, where we have a lot of winners in a lot of hits and so our plan for 2005 has the expectation of a more kind of normalized somewhere between the two.
Speaker Change: Playing out and we are hopeful that the mega millions moved to $5 will positively impact that especially in the back half of the year.
Chad Beynon: Yes, Chad.
Chad Beynon: Two other elements that help us.
Chad Beynon: Sustained that revived optimism towards the second half of the year.
Chad Beynon: Related primarily to the Optima cost savings initiative. So the cost savings of about $20 million that we expect to achieve in the current tier will manifest themselves with full fruition in the second half of the year as we ramp up per diem.
Chad Beynon: The program and then finally.
Chad Beynon: Activity on product safety this year evolves more ratably during the year compared to the last two where there was a more lumpy sales towards the fourth quarter. So the combination of these two factors will give us.
Chad Beynon: And if I have confidence that we will hopefully be able to deliver.
Chad Beynon: A better second half two last year in 'twenty five.
Chad Beynon: Yes.
Chad Beynon: Okay. Thank you both I appreciate it.
Chad Beynon: And then moving on to the.
Chad Beynon: The new.
Chad Beynon: Printing press, we're just trying to understand.
Maybe the returns on this for a better way to think about it is.
Chad Beynon: Sure sure.
Chad Beynon: The new press drives higher same store growth because of.
Chad Beynon: Essentially faster printing more volume lower cost of the tickets and it'll give you the opportunity to maybe just bid differently for some of those instant ticket contracts or should we be thinking about it as a margin improvement.
Chad Beynon: Just reducing some of the cost and I'm thinking maybe in the back half of 'twenty, five but more longer term.
Speaker Change: The competitive how this changes your competitive offering thank you.
Speaker Change: Yes, it's a great question I would say its really its really both both on the ability to win and have the capacity to deliver on these larger print contracts as well as have a more efficient operation. So.
Speaker Change: Our capacity moves up significantly.
And anyone who's ever been associated with with print plants, whether it be newspaper coupons et cetera recognize the decision too.
Speaker Change: Initiate the investment into new pressures, it's always a challenging thing to do because the existing press really can last forever. However, the waste associated with those runs when you have technological challenges.
Speaker Change: Is very significant relative to our new state of the art press and for the folks that have actually been down to the print facility and are familiar with other industries printing.
Speaker Change: Theres nothing more technological than printing lottery tickets when you think about.
Speaker Change: How the random number gets generated.
Speaker Change: The coding the covering the ability to scratch.
Speaker Change: Compliance the activation the shipping so it's the printing press itself as well as the robotics and all the automation associated with the speaking of orders from all of our lottery customers, where we provide print services around the world the lead time that logistics.
And the efficiency that goes along with it so.
Speaker Change: We think this is something that we will have a terrific ROI for us both in terms of cost and efficiency and printing is certainly.
Speaker Change: <unk> business right. The first X percent of tickets you produce for any customer.
Speaker Change: Your your deficit funding, then youre, breaking even and it's really.
Speaker Change: The last X number of batches, which is your profit as a way to think about it and.
Speaker Change: For us having the increased volume will make our plant much more efficient to be operating much closer to capacity and not have these smaller batch runs that are relatively inefficient by nature, coupled with new technology, reducing the amount of waste in and and reprints that need to take.
Speaker Change: And then really just like any technology by virtue of being the really the most recent print facility coming online will be the most modern so so we're excited and by design we have.
Speaker Change: We've we've had an effort and Fortunately we've won a larger allocation in some unique print customers over the last year to be able to utilize this this investment.
Speaker Change: Thank you guys I appreciate it.
Speaker Change: The next question comes from David Katz of Jefferies. Your line is open.
David Katz: Hi, Good morning, everyone. Thanks for taking my question.
David Katz: Can you just talk about within the guidance that you've laid out.
David Katz: I know one of the dynamics are levers.
David Katz: The development.
David Katz: And launch of new product.
David Katz: Alright, we then.
The lottery business and I mean that.
Speaker Change: Italy as well as elsewhere can you just help us understand what you did in terms of new product launch and development within there.
Speaker Change: Yes, I would say there is I kind of think of new products in two categories. One is.
Speaker Change: Our ongoing.
Speaker Change: Investment and partnership with our lottery customers around product development, So thats, taking kind of a deep database of analytical tools to identify.
Speaker Change: <unk> to potentially stimulate.
Speaker Change: Growth. So for example, quite a few of our FM lottery.
Speaker Change: Customers in the U S.
Speaker Change: You saw the results during the year as.
Speaker Change: As we saw a decrease in sales for certain of their their products and certain <unk>. They certainly.
Speaker Change: It is well and they have a desire to improve that so they all have capable teams that our product teams operating the ultimately responsible for product launches and approvals.
Speaker Change: And all of that but again.
Speaker Change: Operating in so many jurisdictions and having the unique capability of actually being the lottery operator in Italy in Indiana, and New Jersey.
Speaker Change: We're able to provide a consult consulting type services to try to aid in that and so I'd say, there's no real incremental costs associated with that however, Max had mentioned the investment in the cloud, which we're in a period now we're in transition. So we've got we've got the need to maintain our dataset.
Speaker Change: Centers as well as our cloud investment and the cloud investment certainly isn't just for the efficiency of data storage, but of course to be able to leverage faster and quicker all the analytics and do comparisons from market to market and in markets, where there's high lottery operations as well that's kind of the ultimate.
Speaker Change: In terms of being able to understand and player behavior.
Speaker Change: Repeat buying activity for let's say.
Speaker Change: $5 ticket versus a decline in a $2 ticket products they need to then.
Speaker Change: <unk> implementing are suggesting to the lotteries that they that they have put in place a new product to replace and then you've got the.
Speaker Change: The actual hardware investment as well so one of the other things to help stimulate some growth in the markets that have seen us.
Speaker Change: Softening in 2024.
Speaker Change: Was too.
Speaker Change: Execute a strategy, whereby we partner up and provide more.
Speaker Change: Automation automated machine. So there is of course, a direct correlation between actual point of sales is lottery tickets are largely an impulse buy and sales. So when times are really good over the last several years, yes.
Speaker Change: So there wasn't a strong desire to invest in incremental hardware technology, but now that things have.
Speaker Change: It's kind of these loads and in these type of impulse purchases like lottery tickets there has been a real focus on the execution of.
Speaker Change: Incremental hardware and what we've developed is super interesting in terms of really good kind of interplay its point of sales marketing, which in many jurisdictions as youre only opportunity for for marketing.
Speaker Change: Automatic diagnostics for.
Speaker Change: To ensure the machines are operating properly in markets, where they require identification for.
Speaker Change: For to assure folks are meet the required the age requirements for purchase.
Speaker Change: That's in place as well as restocking.
Speaker Change: Et cetera, and then I'd say kind of the.
Speaker Change: Not to go out and out about as well.
Speaker Change: One more area when we think about the future.
Speaker Change: Is the technology, we've developed around around in lane and.
Speaker Change: I think that that could be very very interesting again being an impulse purchase you think of a grocery store department store those are outlets that people still frequent even in kind of the digital age at a very very high rate and to smooth.
Speaker Change: The transaction by enabling it.
Speaker Change: At right at the at the checkout.
Speaker Change: We've been working on for a long time.
Speaker Change: It's a lot of stakeholders. It takes time to kind of get the promise has been out there for quite some time, but.
Speaker Change: And the testing we've done with with our latest generation.
Speaker Change: We believe we will begin to get some traction in this area and this is.
Speaker Change: An area that we've been investing pretty significantly in as well.
Speaker Change: Appreciate it and if I may just follow up quickly.
Speaker Change: On the guidance you have laid out on page 13.
Speaker Change: Talking about the average annual Capex.
Speaker Change: That.
Speaker Change: Excludes any.
Speaker Change: Other sort.
Speaker Change: Significant renewals that that may occur along the way that sort of a run rate capex number.
Speaker Change: Yes. So after 2005 and 2006 were effectively our capex cycle will come to an end, we expect to be on a run rate basis in that range 200 to 225 that excludes right now competitive acquisitions.
Speaker Change: Understood Okay perfect. Thank you.
Speaker Change: The next question.
Speaker Change: Co Gen lobby with equities your line is open.
Speaker Change: Good morning, just go a couple of questions. The first is that there is any update on the.
Speaker Change: Texas.
Speaker Change: Renewal process and secondly, just a clarification.
Speaker Change: On the incentives.
Speaker Change: Our shortfall for <unk>.
Speaker Change: <unk> so the first semester. So what is actually so the situations are you facing.
Speaker Change: Just a shortfall or just no incentive compared to last year. So we should assume that 2025 and your plan is say a neutral year and do you have any say a risk of growing threshold to reach.
Speaker Change: The incentives are to risk of the shortfall.
Speaker Change: I don't know if I was clear enough.
Speaker Change: Yes, so on Texas.
Speaker Change: It has been submitted in the state.
Speaker Change: State is evaluating.
Speaker Change: The bid submission and we expect we'll hear back in the first half of 2025.
Max: And I'll, let Max.
Max: Take you through the financials on the <unk>.
Max: Okay. So on the on the LMA.
Speaker Change: Actively a combination of both impacts Domenico.
Max: When we compare.
Max: The first in the second quarter of <unk> 25 versus <unk> 24.
Max: We were enjoying a significant incentive last year as we were getting to the close of the lottery fiscal year, we saw the behavior on the previous call. It 12 months of jackpot activity not only the jackpot hits above a billion, but significantly the jackpot runs above a 1 billion.
Max: Which were.
Max: To the doses.
Max: And so we were able to true up kind.
Max: The accrual too.
Max: And incentive position.
Max: The situation this year is a little different because when we look back.
Max: And look forward.
Max: And take a very conservative view in terms of no significant jackpot brands happening between now and the end of June we have to kind of take a conservative view and again, we have an estimated impact which is a $40 million to $50 million. We mentioned is.
Max: A combination of the two so it's a.
Max: Small shortfall.
Max: <unk> is a delta.
Max: Compared to last year of a lower incentive.
Max: Okay. This is a very clear at that point.
Max: Some estimate at this point I mean, we still need to see if that comes to fruition or not in the last four months of the year.
Speaker Change: And do you have a growing threshold going forward. So do you have it.
Max: A threshold that is growing over time.
Max: The LMA contracts, yes, there are there are different elements that make up.
Max: The structure of the incentive shortfall.
Max: In terms of net income and crash on net income that triggers partial penalty partially incentive so again, it's complicated but in a nutshell as the market grows the threshold becomes more compelling yes.
Max: Okay. Thank you.
Speaker Change: The final question comes from Joe Stauff Susquehanna Your line is open.
Thanks, Good morning, Vince and Max just real quick.
Speaker Change: Answered a lot of questions.
Speaker Change: I just wanted to clarify.
Speaker Change: In terms of the Italian renewal process with the government.
Speaker Change: Publish or provide any say indication.
Subsequent to the March 17 deadline of <unk>.
Speaker Change: Competing bids or not.
Speaker Change: And then I was wondering.
Speaker Change: If power ball.
Speaker Change: They initially said that they are sticking with their pricing structure.
Speaker Change: But is there any expectation to assume power ball also moves to increase their pricing at some point. Thank you.
Speaker Change: Yes, so with regard to the Lotto process.
Speaker Change: There's really no public forum.
Speaker Change: In the process you guys folks ask questions.
Speaker Change: That's that's made publicly available and the number of bidders.
Speaker Change: We'll find out after the deadline. So after the Rfps are submitted.
Speaker Change: With regard to power ball.
Speaker Change: Yes, there is.
Speaker Change: I think on that one.
Speaker Change: To speak on behalf of the.
Speaker Change: The group that manages powerball, but it's been a long time since there's been a price increase.
Speaker Change: In either Mega or Powerball in fact, even even longer for powerball. So I think it's reasonable to expect that.
Speaker Change: Powerball will pay close attention to the impact on the increase to Mega million sales and.
Speaker Change: Think about that in the going out into the future.
Speaker Change: Makes sense, thanks, a lot guys.
Vince: This concludes the question and answer session I will turn the call to CEO, Vince the dusky for closing remarks.
Speaker Change: Yes. So again just to summarize 2024 was a was a big year for IGT. We concluded our strategic review to sell gaming and digital for more than $4 billion in cash.
Speaker Change: Once we close as we've mentioned we're going to have a singular focus on our leading lottery business, which provides products and services to more lotteries than any company in.
Speaker Change: In the world as we look out into the future. We think we're in a very good position to extended secure contract portfolio for for many years, which will enable us to deliver compelling returns for customers and shareholders.
Speaker Change: While maintaining a very strong balance sheet.
Speaker Change: We appreciate your interest in IGT have a great day.
Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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