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  • IGT raises 2023 earnings guidance despite 4% lottery revenue decline in Q2

International Game Technology (IGT) has raised its earnings guidance for the full-year 2023 after reporting “strong” financial results in Q2.

Topline numbers

Total revenue in Q2 grew by 3.3% year-on-year, from $1.02bn in Q2 2022 to $1.06bn in the latest quarter.

That was driven by a significant 13% increase in revenue from IGT’s Global Gaming segment, which supplies slot machines to land-based casinos.

There, quarterly revenue grew from $330m to $373m.

Meanwhile, the firm’s casual online PlayDigital segment also saw impressive growth year-on-year, as revenue jumped 37.2% from $43m to $59m.

Those segments helped offset a 3.7% decline in Global Lottery revenue, as the firm’s largest business segment saw its income fall from $648m to $624m.

Total operating income across all segments was $251m, up 10.1% compared to the prior year, on an operating income margin of 23.8%, up from 22.3%.

Adjusted EBITDA, meanwhile, grew by 8.3%, from $409m to $443m. That gave the business an adjusted EBITDA margin of 42%, up from 40.1% in Q2 2022.

Net income for the quarter totalled $90m, up almost threefold from $34m in Q2 2022.

The supplier ended the period with net debt of $5.36bn, down from $5.72bn in the prior-year period.

News nugget

IGT celebrated several of its achievements during Q2, including the 20-year licence it received to operate games for the Minas Gerais State Lottery in Brazil, as part of a consortium together with Scientific Games and Brazilian company SAGA.

Other achievements included the securing of a 10-year brand licensing extension with Sony, granting IGT exclusive rights to the Wheel of Fortune brand across gaming, lottery, iGaming and iLottery.

It was also able to deploy its IGT Advantage CMS solution at the Rio Hotel & Casino in Las Vegas.

No concrete update was forthcoming, however, on one of the biggest changes set to take place within IGT.

In June, the business announced it was evaluating strategic alternatives for its Global Gaming and PlayDigital segments.

At the time, the business said it was considering a wide range of options, including a potential sale, merger or spin-off, as well as retaining and further investing in the business segments.

On the firm’s Q2 earnings call, CEO Vince Sadusky said there was no update to offer on that process, but that the goal was to “unlock the full value” of IGT’s assets.

There are significant synergies between its PlayDigital and Gaming segments, he added, whereas there are less significant synergies between those and its Global Lottery segment.

Best quote

“Las Vegas Strip GGR is a great barometer of the health of the industry. In Las Vegas’ June results, even though GGR was down around 1%, slot GGR was up around 4%, so I think the slot market remains really strong.”

– IGT CEO Vince Sadusky on the strength of the Las Vegas slots market

Best question

The best question on this call came from Truist Securities analyst Barry Jonas.

He asked management if they could provide any updates on the interest level around IGT’s strategic review and possible sell-off of its Gaming and PlayDigital segments.

CEO Sadusky’s response left a little to be desired, however, as he announced there was “not much we can say” on the matter.

“But,” he added, “we are fully engaged in the process – we’ve got a team that’s been very busy.

“And again, we feel very strongly about the performance of our three businesses as evidenced again by another strong quarter,” he added. 

“I think the only comment I would say around the assets that we’ve mentioned in the past is we think with Gaming and PlayDigital, there’s a lot of synergies and those businesses belong together. 

“In terms of synergies between lottery and gaming, there are not that many. So I think it’s a fairly easy separation,” Sadusky concluded.

Current trading and outlook

In Q3 2023, IGT expects revenue of approximately $1bn and an operating income margin of 22-23%.

For the full-year 2023, the supplier has increased the lower end of its expected revenue range. Previously expected to fall between $4.1bn and $4.3bn, the business now expects revenue between $4.2bn and $4.3bn.

Operating income margin for 2023 is expected to be around 23%, while the business expects to generate cash from operations between $900m and $1bn. Capital expenditures for the year are expected to fall between $400m and $500m.

IGT reported revenue of $1.06bn in Q1 2023, which it said puts the business firmly on track towards realising its full-year revenue target of between $4.1bn and $4.3bn.

Topline numbers

In Q1 2023, IGT’s total $1.06bn in revenue represented a modest 1% growth ahead of Q1 2022.

The business operates across three main segments, the most lucrative of which is its Global Lottery division, which generated $624m in revenue. However, that figure represented a year-on-year decline of 8%.

Revenue from IGT’s Global Gaming segment, on the other hand, rose 17% to $381m, while PlayDigital revenue increased 17% to $55m, primarily driven by iCasino with contributions from the company’s acquisition of iSoftBet alongside organic growth, partially offset by higher jackpot expense.

Adjusted EBITDA was $449m, at a margin of 42.3%, which was among the highest levels in the company’s history.

Although IGT’s Q1 net income of $67m represented a year-on-year decrease of nearly 75%, it marked a significant improvement from the $31m net loss posted in Q4 2022.

The company’s net debt leverage also improved to 3.0x, which is the lowest level recorded in the company’s history.

News nugget

IGT said it has started the year off on a positive note despite the flat revenue performance.

“The strong start to the year includes significant cash flow generation and further improvement in our credit profile,” said IGT CFO Max Chiara (pictured right).

The Q1 performance has strengthened IGT’s belief that it can achieve its target net leverage ratio of 2.5x to 3.5x by 2025, particularly towards the lower end of the range.

“From a balance sheet perspective, we are nicely positioned with total liquidity of $2.1bn, including unrestricted cash of $700m and $1.4bn in additional borrowing capacity from undrawn credit facilities,” he added.

CEO Vince Sadusky highlighted that although revenue from the Global Lottery division decreased, IGT recorded an 8% increase in same-store sales, which was “the fastest growth in the last six quarters”.

Most notably, Sadusky commented: “Italy same store sales were up over 10% as new game innovation and portfolio optimisation strategies drove sales higher for both draw games and instant tickets.”

“Our first quarter results exceeded expectations and put us firmly on track to achieve our full-year outlook,” he added.

For the second quarter, IGT expects to report revenue of approximately $1bn.

Additionally, the company anticipates an operating income margin of 22% to 24%, which it said reflects solid operational efficiency and effective cost management.

Best quote

Sadusky discussed the potential for M&A during the earnings call, given the company’s strong cash position and the current market conditions with reduced valuations.

“We’re very aware of what’s out there in the marketplace. We’re pretty selective. We feel we’ve got a pretty strong portfolio of games and a best-in-class operating platform. But we continue to look at studios, and we continue to look at technology to see if there is anything that potentially could be additive at the right value.”

IGT CEO Vince Sadusky

Best question

Sadusky was asked by Domenico Ghilotti from Equita whether the success of the Italian lottery can be emulated in other markets.

Sadusky responded by saying that IGT is focusing on communication across the company to utilise innovation from one market to the other.

“We believe IGT is in a bit of unique position. We actually run the lottery. So we have the direct relationship with the consumer, we get all the data in places like Italy and New Jersey, for example. And so, we’re able to utilise that data immediately in the development of new games,” he said.

Sadusky also gave an example of a successful scratch game in Italy and explained how they are analysing the data from that game to develop similar games in other markets.

“I think our global footprint, and being in more jurisdictions than any other lottery, gives us that database and that opportunity to learn from these experiences and drive product innovation across all of our markets around the world,” he concluded.

Current trading & outlook

Looking ahead to the full year, IGT’s revenue is expected to be in the range of $4.1bn to $4.3bn.

The company also expects to maintain a healthy operating income margin of 21% to 23%.

Furthermore, IGT aims to generate cash from operations between $900m and $1bn.

The company also plans to invest in its growth by allocating capital expenditure between $400m and $450m.

IGT reported revenue of $1.06bn in Q3 as the business reduced its net debt leverage ratio to an all-time low of 3.1x.

Significant events during the quarter included the completion of the sale of IGT’s Italian proximity payments business, generating some €700m in gross proceeds, while the firm also completed its €160m acquisition of iGaming content supplier and aggregator, iSoftBet.

Q3 revenue represented a 7.7% increase year-on-year, or some 14% on a constant currency basis. 

IGT achieved the result through growth in its Global Gaming and Digital & Betting divisions, which grew by 31.1% and 25.6% respectively, helping to offset a 4% revenue reduction in Global Lottery revenue, the firm’s largest division which still continued to bring in the lion’s share of income.

The Global Lottery segment generated $626m for the business in Q3, representing 59.1% of overall revenue, while the Global Gaming division generated a further 35.8% and Digital & Betting made up the remaining 5.1%.

It is worth noting that on a constant currency basis, Global Lottery revenue climbed around 4% year-on-year.

By geography, the US and Canada represented IGT’s best earning region, generating $651m in revenue or 61.4% of the total. That represented a year-on-year increase of 17.1%.

Italy, another of IGT’s key markets, generated a further $247m, 23.3% of total revenue, though the segment was down 16% year-on-year. The Rest of World segment generated the remaining 15.2% of revenue at $161m, an increase of 20.1%.

Those revenue figures left the business with a total operating income of $211m, down just marginally from $212m in the prior-year period.

The firm’s operating income together with a more than 100% increase in the net cash provided by operating activities (to $236m) gave the business a huge boost in diluted earnings per share for the quarter, up from just $0.31 in Q3 2021 to $1.30 in the latest quarter.

As a result, the firm returned a record $224m to shareholders via dividends and share repurchases through to mid-October.

Adjusted EBITDA for Q3 came in at $402m, a slight reduction from $407m in the previous year.

Crucially, IGT was able to pay down its net debt during the quarter, reducing the figure year-on-year by 16.9% to $5.08bn.

“Our strategy to innovate, optimise, and grow is fuelling progress across the portfolio,” said Max Chiara, IGT’s CFO.

“Robust year-to-date cash flows and proceeds from the sale of the Italy proximity payments/commercial services business, in addition to proactive liability management, enabled us to reduce debt to the lowest level ever. 

“This enhanced credit profile provides greater financial flexibility to execute on the broadened, balanced capital allocation strategy presented at the Investor Day last November.”

IGT CFO Max Chiara: “Robust year-to-date cash flows and proceeds from the sale of the Italy proximity payments/commercial services business, in addition to proactive liability management, enabled us to reduce debt to the lowest level ever.”

Other significant achievements for the business in Q3 include the strengthening of its lottery contract portfolio, with deals including a four-year extension to its lottery contract in New York, a seven-year extension in Georgia as the state lottery’s primary technology supplier, and a new 10-year instant ticket printing and services contract in Texas.

IGT also agreed a deal to deliver up to 7,200 retail lottery terminals to Santa Casa de Misericórdia de Lisboa in Portugal.

Looking to the current quarter, IGT said it expects revenue of approximately $1bn in Q4, with an operating income margin of around 18-19%.

That would leave the business with full-year revenue between $4.1bn and $4.2bn, cash from operations of around $850m-$950m and capital expenditure of around $350m.