International Game Technology (IGT) 12 Nov 202020 Q3 Earnings call transcript

Thank you, and thank you all for joining us on IGT's third quarter 2020 conference call. Once again, we are presenting the results from multiple locations, so please bear with us if we encounter any technical difficulties. Participating on today's call are Marco Sala, our Chief Executive Officer; and Max Chiara, our Chief Financial Officer. After their remarks, we'll open the call for your questions.

During today's call, we will be making some forward-looking statements within the meaning of federal securities laws.

guarantees, expressed actual forward-looking or not materially may statements. are those from implied statements and results our differ Forward-looking in the to latest earnings The cause and in current uncertainties and filings. release are differ SEC results expectations our principal our materially in that detailed our from risks our could

on may website, certain each financial call this filings GAAP over will to the SEC, measures. will and this I disclosures non-GAAP webcast our press During regarding our Sala. turn Relations discuss With measures. of measures, call, In which our is find additional including posted of the that, we comparable you these accompanying non-GAAP Investor release, slides these with measures with Marco reconciliations

us are you your Thank you, Jim, safe and keeping thank you I joining loved and today. ones to well. for and you hope all

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identified of that So two have savings far, over the benefiting over segment. the million years, XX% we in next over Gaming $XXX with structural Global

work a We turn stronger on With continue will as additional to the we call I leaner, create opportunities that, over to IGT. Max.

on hello call Thank everyone you, to and Marco, today. the

third Before organizational results, want from quarter our structure. it recent and show expect few organization, the numbers. spend Marco we reviewing I’d a the change into I you how discussed like the our minutes new to to translates our benefits in on

our and XXXX non-GAAP included reconciliations to few laid changes on results. appendix also the measures based financial to we the statements data, the historical On next in this we of presentation. KPIs financial slides, actual recast have And out

income presentations Slide prior recast global our on operating the the both website. in find XXXX old how and under will You the spreadsheet four we also adjusted Relations each The XX and available on have under category XX business a the from structure. Investor moved year mapping our EBITDA indicates form divisions Slide and organizations. look revenue full how shows segments new to two new revenue, data

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better to at achieved $XXX pre-COVID where used in Starting wager was Lottery seven level marking same-store turn the on KPIs adjusted revenue, all X%, we of as were are business. Lottery a quarters. this Italy rebound believe outside segments. where quarter, and our near growth demand. player Historically, to EBITDA highest Lottery this same-store revenue growth revenue Global of operating transitioning let’s we a or of income for is Slide Now levels. our up Global and XX operating the Beginning sales in Italy, indication million to

sales in same-store data presentation. will section You slide prior our of find recast periods for the

were down as the reflected decline million flow-through extent the up product protocols. solid We and the was saving down X.X% were prior ongoing in While states, XXeLotto million was higher, clearly high was greatly nearly adjusted games casino quarter from remained revenue year-over-year in levels of showing the of & $XXX during single growth and in are actions. North increased was The in XX% prior service social cost sequentially second Double-digit as Revenue benefit of Sales geography million up revenue the higher lotto of United multiple year to affected prior overall later compared with Michigan, recovered to revenue $XXX sales from profit of rose XX results driven EBITDA digits by in was terminal Czech year Operating stable. Significant the X.X%, installed year and Republic Betting the stronger $XXX impacted X.X% volatile several in of by $XXX while impacted Sequentially, revenue. closures protocols. the and the impact Same-store sporting sales in income global and during social period, million, level, return than on on sales. had million sales instant the in as levels. America draw by ticket sales to reflect an impact million play EMEA and and jackpot bit the a that in distancing declined new rebound distancing and Latin point high quarter. Indiana. activity. from EBITDA Texas with of declined price in increase the over by year gaming. COVID-XX segment popularity and LMA relatively revenue, closed tickets digital sales region. $XX year-on-year. remained $XX fueled same-store XX%, and was Win region million the Slide America and the Gaming continued the were events across Same-store printing lower games Kingdom base basis, Adjusted momentum Digital Italy varies including prior of a up Scratch in period, Global still COVID a in the $XXX on by X.X% year increase & quarter. growth games the benefited

million nearly Turning quarter, to on with globally double EBITDA. bad and An ASP sold inventory on update include units XX. initiatives the is level. pandemic’s Replacement product adjusted the year-over-year, results was sales. debt we quarter. the third nearly on and in of loss were These $XX $X obsolescence higher markets. Slide X,XXX were million stable impact in the primarily QX our positive charges, certain in $XX reflecting units cost-saving million Operating

targeted the $XXX are reduction to weather temporary and the track regions. on This We portion the global value $XXX an product capital for and cash in million the to to storm The CapEx. avoidance organization chain cost is our achieve us caused savings by about in new opportunity across spend of XXXX related the million, pandemic. a optimize $XXX and of expenses to provides remaining million businesses includes

We to two the over structural XXXX expect our $XXX run relative in initial OpEx CapEx work related savings, rate. next million and to the cost years over yield

we savings focus come complexity also mix of is logistics. Global geographic in supply reductions first We XX% years. the our we In development Other footprint, million areas discretionary million flow. the cash in net expenditures will chain, debt. on year, and our of capital flow cash $XXX achieved the real migration XX, opportunities with in cost initiatives XXXX. initiatives operations in summarized in year-to-date as future will workforce expect $XXX from realize There and to to SG&A. and savings cash on that of most we margin positive benefit Over and the On from estate operational Gaming product opportunity the months of manufacturing structural include and in have nine and improvement like Slide these and excellence discipline free reduce product segment

pleased a first flow third prior compared operating period. cash the we we of flow to with higher free beneficial We free year and to In comparable report capital converting million are QX rate generation months by are XX% quarter, in to the partly XX% percentage that the positive adjusted nine of and EBITDA the $XXX to year Italy from conversion period. The delivered partly a driven a the results $XX prior flow by cash compared certain cash taxes was shift in timing million in of year in solid financial gaming items, strong CapEx. in working

reduce million strong to flow on as generation $XXX debt year-to-date Our cash at by us basis million allowed over and constant $XXX currency net has a reported.

to borrowing Slide billion, capacity approximately under under Thanks revolving last as borrowings facilities of flow made including comprised the XX, those the recently our week. liquidity in to $XXX solid during of credit as on capacity we credit to at facilities. cash $X.X and about repaid improved our cash we quarter $X.X our in million reestablishing additional beginning pandemic, billion generation, full facilities unrestricted the Turning

this top In XXXX. demonstrated successfully quarter, third flow second to our help are addition, to our and future. maintained, generation in and the our reduction generation that ratings our us priority, business, quarter believe not-too-distant let debt levels. position aiming pre-pandemic strong in Cash of we covenant flow year, objective package the remind renegotiated me liquidity in resiliency We earlier solid you and if restore we the credit the the is cash achieve the the of through should

evident like XX. clearly points to quarter The presentation. Slide today’s to resilience summarize our turning would I our the of Lastly, in third results. of was business key

growth, remarkable EBITDA the achieved and delivering same-store quarters. sales in adjusted Lottery of Global highest level seven First,

seeing increasing Betting Second, Gaming rapidly, and positive sequential segment. are revenue improvements Digital Global & we in the is

to strong our flow cash liquidity bolstering debt, flexibility. Third, increase generation our reduce and allowed us financial

two savings actions savings to the meet identified XXXX. years. to $XXX be over cash million cost run next have Further, of in We XXXX versus we temporary on rate track for in avoidance are achieved our over target and $XXX structural the million cost

expect savings realize of in most We those XXXX. to

capital disciplined We have allocation. continued focus on

We the business. are for improved toward working margin profile an

is ability of world, adapt demonstrated the While surrounding there pandemic to our around deliver we’re uncertainty lot still this the global and to a solid results. have and of managing pace these challenges recovery through

to like for open we Operator? questions. the Now would line your

first Bank. our And Instructions] Santarelli comes Deutsche [Operator question Carlo from from

is line open. Your

morning. Good

their kind you were of kind as domestically and strategy to acknowledging replacement of their as last the and around of this have in percentage operators, navigate their casino lot through little mind a cetera, more overall new have several changed stability are How’s et that spend slot from trends? floor kind of slot to environment a see the of changed even some a activity, the of of earning these on months obviously footprint. over front as a allocation If of kind towards bit you lot newer of customers discussions their content, assets started most

Good morning, Carlo. Can you hear me?

I could yes. you you, hear

lineup that, casino very fresh will speaking, and you it’s time better-than-expected will we It’s compelling they that that again, content players period engaged. more offer that with on And good them of the always, remain new to will I product what for that matter with costs. look we be, It need combined focused think lease In the been feel especially have a their will they said be capital the travel increasing with our allocation generally clear active And And and open, games. is where of there know is challenge. lease most much. will cabinets period we that games a are, for very offering strong development think gains think disciplined situation I able business important. and of markets, see pressure because strong because the for of the as Having there good I a market, to we’ll strong in where definitely gains. products, We of became that Thank we seen that demand, operators of recovery think, flows. on of both regional sales. general, operating and be to on in the a the But the a their of And transition. have concentrated. machines, GGR, quite keep period some in the bring happened particular that our of has to QX in have of consider ability terms I business, time, sales this part it the

Thank with very and if gets where of a of state you. just on some iLottery of you to successful lot in a gaming guys kind the iLottery. the That’s of deficits. helpful. Obviously, U.S. I percentage in iLottery, tenor of that’s for around budget across considerable for And states could budget broader been that been rollout follow-up the one of the of verticals out. domestically around discussions state has in kind yourselves then talk the of fill there’s those change lottery potential any the a numerous extent to and whatnot across having officials potential those funds. deficits the help those rolled expansion Have are it’s U.S.? been and obviously, the conversation any pretty raised noticed the Obviously, likes something

No.

iLottery in had I for timing ourselves. for willingness customers decision integrate general, But business. it. the in to difficult, governments I’m It’s the pretty think predict their first always going positive and to about forward a very great Carlo, going this the of of the present and our iLottery opportunity offering the forward, to

much. Great. very Thank you

Thank you.

comes Chad Macquarie. Our Beynon question from from next

line Your open. is

your gave disclosure us. taking you America. and I in to for to all or the thanks start in my BXB appreciate strength question that morning, North wanted iGaming, particularly U.S. with the Good

many XX% a – bit what’s success? then to You talked all have content growth I Are Thanks. of also space? your players in you with the the agreements your XX%, Can in games? different the share elaborate on just major land-based terms believe. the that, content you about and of players features? little year-over-year known do to attracted the leading iGaming lastly you to And of have Do jackpot of market

Yes.

all We them. one. start of Let’s the serve from last

And this so for that strength the enjoying is perspective regulation success see the is with are for and offering. reason future the other gaming – in of and of that reason the we our the That our that we states. business

So games the our success reason solidity is the by of the and of players. of our the appreciation games the

we should on instant levels games? how then of when American that we jackpots, think kind the return And Great. and weakness draw-based do that, this that you benefiting believe normalized seen can to we’ve North other about more in Thank saw drawn thing player that’s And And game to prior have they years? in past? random kind Is to earlier? just the years as just that’s it of a in much as is just not you. Or hitting this forecast?

and is Millions I situation. ideas studied are is those the think, that that fatigue to past, know Chad, jackpot from with now order the on helping the in combination of the is them standpoint. related The frequently are actively consortium, jackpot games there to both things. in innovate in there one games. Mega is sort cope to the good and two of And more a that this player. good statistic is Powerball, than we I Then providing is a

it. appreciate Marco, you Thank

Chad. Thank you,

Thank you.

question next line you Jonas Barry from Truist is from Our open. Securities, comes

you've any hearing start you just morning. maybe I see cases closures we're as separate Hey, wanted new customers? guys, or seen good to seeing from wherever, COVID to with in in real-time generally concerns your Italy or rising COVID, are participation any from where starting softness revenues

aware of not the it last I'm weeks. in

But speaking, I I'm know, not softness the games days. think few with last area. in performance aware generally line was that don't in weeks, the previous the a of I of our

people priorities sequentially Great. like the lot a expected, That’s really recovering helpful. here? capital And Lottery is improvement. then just of generally seeing about speaking, you Marco, Seems how thinking quicker than gaming allocation is are

pure and the that allocation, just on when any capital a you'll dividend. So include thoughts Thanks. also reinstitute from

can Max take think questions. I these

yes. Yes,

our So in have the past them Barry, Of changed quarters. few so not priorities reestablished have we allocation, terms capital in as

obviously, be continue our very CapEx we to So on focused discipline.

So difficult we lowest conserve towards cash that especially this have the highest in return our and even to environment. delivers investment very discipline payback, strengthened

is priority company. our obviously, around Secondly, deleveraging the

after the us renegotiated goal of which dividends, of is, that forward. sort interest the company XXXX, of the to leverage the covenant but five message starting on target XXXX covenant when basically will cash be And second our reducing included, a in obviously, important dividend our package halt we not going in QX until with that And until quarter in So a the payments allow of put on period. on a of target, help the we ratio leverage generation, and that going managing will to remember our there standstill then exchange, will quarter will the coverage may threshold a achieved times substantially, you substantially forward. dividends least, the last leverage kick resume be and strong that

so segmental disclosures. Great. thanks guys. the much Thanks for EBITDA And

welcome. You’re

Instructions]And next from comes question Ghilotti from Equita. our [Operator Domenico

open. line is Your

Good morning.

First QX, one Typically, the in question call cash a say, have to you movements you good the cash in quarter on but generation. the from to were in working some, is generation capital referring another.

So understand your question to the structural I'm expect second on QX. trying savings. that deleverage And another in can is we

is So how are Lottery and you structural affecting, much give how is we your just seeing, say, to and you draw lockdowns it much cost are the can the referring how But you big question in that XXXX up understand referring to. in current $XXX on I'm tickets trying savings, seeing if And activity, total still they on running on you if with in all, are well, were and instant games? on chunk if most businesses? elaborate on some is in us much still million? particularly a your is, particular, particular the sense of last were to also You can CapEx – related your related, not situation what Italy,

Okay. elaborate again. interject the will can summarize Domenico, I the question, in two of on regarding situation first I leave Italy impact I last and Max and take to COVID, Anyway, follows. the the as I

least country As evaluated represent would halls corners closed of us and $XX you gaming million throughout impact And at shops for the that sports are December per and currently, aware, until betting month. we around are X. this the

other be Scratch If must certain bars the remains are which even wagers region approximately where games at in in technically for in of station, and situation both – remains with & trying to is distribution some the say, regarding case the little red in in XX% complex Italy, bit it of the lotteries, – minor as the There if red general, zone Regarding accounts regions the a predict. mentioned, open are just on current happen, the and let only regions. meaning that six expect let's all to exercise close million me the lotteries, per and lottery lotteries. I with Italian today Win and zone, – tobacconist turned I the severe today, The main restriction that take for the distribution month under an going $XX it restrictions but we lotto restrictions this are the situation more, of channels Because expect to the assume situation on impact the that as situation to we if under have less is what is did rest an on no a up more impact. and We understand to shops. running. conditions, and million, is to have in $XX if are is

mean You level? EBITDA? EBITDA On

yes. Yes,

Okay, thanks.

Okay. Domenico, and take I will second. the the first

due, as April. working the has have reprofiling the of coming March, positive So primarily the due payment also capital allowed a quarter, a Obviously, items when Italian was of note generation expectation that was of the Italy we in drove a in that flow the kicked initial the in in, to government terms gaming important but combination cash in beneficial which first and free shift better-than-expected year. in tax results in will generated the much the the balance QX generation, financial cash pandemic figure there timing of strong taxes from that the through we QX of question result cash about

to So flow year-to-date, through for we the we generated of are year. to about just $XXX figure $XXX maintain shy We the free cash the think months able of nine million be period. of million, going that end

the to We terms related in of is keep the to several those enforced discussed the timing into measures expectations also I neutral cash. items that probably QX And are should in that jurisdictions were obviously, So a recent QX. slightly we in quarter taking deteriorating, going compete. be that where lockdown account current mind

pass the the and of structural savings, terms to question. I next In

come in the of generation be of come in going reductions labor initiatives grounded one-fourth say which $XXX achieve million in geographic this product the savings again, areas The logistics, kind year. other going about least, real be high savings, course probably But like outside but fruition that. reduction marketing savings are to from the and CapEx. operational savings of to main to area that in related low-cost XXXX. excellence margin segment. the complexity in CapEx – manufacturing consultants, structural like So to the to the as to XX% more product such supply a OpEx, mix to in will $XXX in countries, in P&L, will be than of And of said, from and our revision, it again, going arbitrage, estate actions as and accrue forward, particular Gaming repeat, majority we XX% and a And footprint improvement million, to of discretionary not costs. be last and it's of identified will step-up is will will our the is with area those majority during I'd such that I then cost there would development costs, roundabout areas savings portion a chain, around is traveling affect

cost for a the integrations, do envisage the significant cost extracting And you for synergies?

as three $XX booked mean, programs in to different restructuring a already related QX million around of initiatives. reminder, those we I costs

circumstance. So the I Thank in you. think this are we particular game ahead of

you. Thank

Thank you.

comes Susquehanna. Joseph from from question Stauff Our next

is open. Your line

questions, to the that. that whether your Marco, Max. please. structure, not could synergies Good be of know reorganized you I effectively about the morning, know sort with or share scenario if the reorganized spinout and us separating if a I you – flexible, I a business regarding question, wanted of about about have could sort lottery, but now that company's Good or a outlined. – wonder structure, is that you a morning, are if even think how in I think again, with entire it going the share to you and talk separation. if Marco. you thinking, difficult as of possibly I you be maybe you're it's us that operating you in Two I wonder forward about ask realized result whether about possible flexible

doubt. the the reconsider, can business we operate me work And is efficient. our very as the the enjoying business. and feel, segments the an because business clearly Gaming a time of creating recovery to the We difficult create being best Lottery let especially effective, the to can Max make a Gaming this This to no for the over say condition opportunity But we shareholders, focus of have described, both is more growth of time that more in we business. question, value

more business take was perspective always discussing preparing spirit it's With could on advantage can are focused value have we of pieces new the Board time, with opportunities of was it. you our that different thinking new the than been I for of mean, we effectiveness, But about And improving that shareholders. organization if not the the were creating for and term, happened. the our the the that or a organization efficiencies, we discussing we short The organization. you what asking synergies me consider are are extract have what that, when

that realize Gaming assuming in they forward, the portfolio, in half like something And kind And fourth lockdowns look, what then normalize, and you'd be that gaming, add your sometime like of again, – portfolios? first are. to where of the respective are lottery, how your prospects? as you you But though portfolio you think in to within kind next do those hopefully, of kind of things to about more going versus in year, to, sort of is their quarter feel whether you product it are it there I whether and offering, be Lottery need the add think about

good This in in we everything existing the something another moment, time. we not something is significant at of of in the Reality over of we we think capabilities. could grow right always might are I interest but are our our in that our business have part – look plan we we this is of that feel But for that business is there quarters. of We some that portfolio do question. considering missing is, or – the now, course, need there consider. have are that to we integration if need But at the going couple maybe and portfolio, nothing forward, our next kind possibility we the constantly some always niches of the we be look

going major, enhance or to forward, we time offering. that the I of some interested being, products be in current For say cannot technology might nothing pieces our

Thank you.

Welcome.

next our question David from Katz from And Jefferies. comes

Your line is open.

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more you. Thank one other ask And of I Okay. question. strategic to wanted sort

about of broken that that short-term or a Given decision. terms you continuing value the digital, value digital attracting you in those? might to that, How in ways And your that assigning necessarily where that quarter. or envision all revenues I that's some the would is capturing do are you've the assigned there think et environment things see cetera, out from iGaming, sports, to grow? of today more not around it be and being

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Thank you very much.

Thank David. you,

closing that our the Sala back I'd now And session over to conference. remarks. turn does conclude any conference you. for question-and-answer Thank to for today's Marco like

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