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. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Jim Hurley, Senior Vice President of Investor Relations. You may begin.

Thank you, and thank you all for joining us on IGT's Q4 and full year 2024 Conference Call, which is hosted by Vince Sadusky, our Chief Executive Officer; and Max Chiara, our Chief Financial Officer. After some prepared remarks, Vince and Max will be available for your questions. During today's call, we'll be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. 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'll turn the call over to Vince.

Thank you, Jim, and good morning to all. 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. In 2024, IGT generated over $1 billion in consolidated cash from operations and 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. 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. multi-state jackpot sales. Multi-state Jackpot games remain popular. However, there were many more winners in 2024, resulting in fewer significant advertised jackpots and resulting in lower sales. The lottery business achieved $1.2 billion of EBITDA at a 47% margin, highlighting its attractive profit profile. The profit and cash flow contributions enabled significant debt repayment during the year. 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 2.4 times, the lowest level in IGT history. Innovation and content and working with our lottery customers enabled improving core lottery same-store sales throughout the year. Instant ticket and draw game sales increased 4% in Q4, including improvement across all regions. Lower US multi-state jackpot comparisons weighed on total reported same-store sales for both Q4 and the full year. While the randomness of large jackpot timing had a negative impact in 2024, they have been a meaningful driver of lottery sales over the…

Thank you, Vince, and hello to everyone joining us on the call today. IGT fourth 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 US multistage jackpots and product sales can cause quarter-to-quarter variability in our financial performance, the core recurring business is healthy and growing in line with expectations, and the margin structure of this business is compelling, delivering adjusted EBITDA margins well-above 40%. In the fourth quarter, IGT generated revenue of $651 million compared to $681 million in the prior year, driven by broad-based same-store sales growth in instant ticket and draw games including a 7% same-store sales growth in Italy. This resulted benefit from a couple of extra selling days versus the prior year. Strength in IGT core recurring business was offset by the timing impact of elevated jackpot activity and higher product sales in the prior year. 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. Keep in mind that product sales general tend to be lumpy in nature and typically only represent a mid single-digit percentage of total revenue. For the full year, revenue of $2.5 billion was basically in line with the prior year period. The primary drivers of the year-over-year comparison mirror those in quarter. While instant ticket and draw game revenue grew $35 million, US multistage airport revenue declined $29 million due to the exceptional levels of jackpot activity in the prior year. Other service rose $3 million primarily due to revenue associated with non-wager based service contract in Europe, partially offset by lower LMA incentive revenue, a dynamic that is impacted by a relatively long…

Thank you. [Operator Instructions] Your first question comes from Jeff Stantial with Stifel. Your line is open.

Hi. Good morning, Vince and Max. Thanks for taking our questions. And maybe just starting off on the $25 million investment into new contract extensions and rebids as well as some sort of initiatives. Vince or Max, whoever wants to take this, can you just expand a little bit more on some of these costs. I guess, in particular, are these mostly onetime in nature? Is there some portion of this that expected to recur in the out years? And then the -- 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 the ROI on some of that investment? Thanks.

Yes. Hi, Jeff, this is Max speaking. I'll take this one. So as you can imagine, we have to spend some money in relation to R&D and some other project expenses in anticipation to securing a contract bid or extension. And those costs have to be expensed 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 are typically necessary to facilitate the setup of the technology for capacity installation and 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. 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. There are two other significant initiatives that we are bringing forward. One is the cloud-based solution extension to all iLottery contracts. We have done many conversions already, particularly in the European countries with significant success achieved in terms of full integration between the retail business and the iLottery business mentioned in Poland, for example. And we are in the process of finalizing the transition to cloud-based also for our large US contracts during the year. So again, that will require some additional expenses during 2025. And finally, we continue to look for ways to innovate and provide opportunities to optimize the activity and the operations at the point-of-sale level. And so we have some expenses associated with recognition of the transition in the communication technology moving away from Visa into mobile for the US market that will also drive additional cost this year until the process is complete. So again, all in all, we expect this $25 million to be temporary in nature.

Perfect. That's really great color. Thank you for that. And then for a follow-up, maybe turning to the pending sale of the gaming and the digital business. Now that we're rapidly approaching deal close? I think it might just be a bit helpful to refresh on how you're thinking about the expected use of proceeds, in particular, focusing on return of capital bucket, 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 the 365 billion net proceeds that you expect to be allocated to return of capital as well as the preferred mechanism and the cadence of any capital returns? Just any thoughts or perspective you could provide there, keeping in mind the fluidity of the situation would be great. Thanks.

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 is the $2 billion debt paydown, and that's the reason, of course, for the pro forma disclosures around continuing ops, all the financial metrics and also then providing some insight into what day one debt would likely look like. As I mentioned on the call with that, that enables us to achieve a 2.4 times leverage ratio as of the of the end year, which is just an incredible journey of debt reduction that the company has undertaken very diligently over the last five years or so. In terms of that incremental amount above the $2 billion debt repayment commitment, yes, again, that's something that we will – we will discuss as at or around the closing date. We've got some thoughts around the potential utilization. But I think that's something that we're not prepared to do it at this point.

Right. That makes sense. I appreciate that. And if I could just squeeze in perhaps a third one in that case, maybe and it might be too early to expand upon here as well. 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 RemainCo, just any kind of high-level thoughts there would be great. Thanks.

Yes, yes, sure thing. As soon as we wrapped up the announced deal -- pending closing deal for Voyager. We got to work diligently on what RemainCo's structure would look like. We've determined we are in a singular line of business that was by strategic design. We're very excited about our focus on that business 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 gaming and digital has been -- 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 our day one operation of RemainCo systems, ERP, et cetera. And then in terms of the structure, we've done a lot of work internally and had some internal announcements. As you recall, we appointed Renato Ascoli 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 leverage our product expertise around the world as well as a point very capable leaders in charge of our various growth initiatives from our ongoing iLottery operation that continues to achieve very, very strong growth, too, because I mentioned in my prepared comments, pretty significant increase in the number of instant ticket printing contracts that we've obtained and the investment in our facility in Lakeland to 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 -- a trusted lottery partner for decades to come with our customers. And then on top of all that is the need to reduce 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 numbers through what we're calling our OPtiMa 3.0 efficiency initiatives. And Matt touched based upon that. And as we work towards closing Voyager and sharing more information about our long-term 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.

That's great. Thanks very much. I'll pass it on.

The next question comes from Barry Jonas with Truist. Your line is open.

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. I know IGT doesn't have a digital business anymore, but are there potential partnerships that could monetize such synergies? Thanks.

Yeah, sure, thanks. So I'll get started and let Max talk about the details of the bid. So yeah, as you all know, the tender has been published. We've working internally on our bid for the better part of a year now. We've done a lot of work on our technology solution, what we would do to increase and improve our top-rated technology in this next -- this next tenure. And we expect obviously to compete very effectively for the opportunity. We believe, as we've said in the past, we've demonstrated with our market and player insights. We've demonstrated the ability to continue to grow this very old lottery through excellent product innovation and cost of refinement of our offering to play or the same as we've done for, I think, about three decades now. I think when it comes to the digital operation, we are not a significant -- one of the significant players in sports betting and iCasino in Italy. However, we have significantly increased our iLottery penetration and play in the marketplace. And that is something that we believe is clearly an opportunity for us as we think about the future beyond just the ability to be able to exploit the retail lottery operation. And with that, I'll 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. The bids are due by March 17. So depending on -- and then once the bids are in, the awarding commission will be established, and the composition of the commission will be published after March 17, and is expected to be different from the last bid process of seven years ago, eight years ago. Obviously, the commission will need to assess all the offers and then make an award -- there is not a specific time line for the award of the license. So right now, our expectation is that it's probably likely to happen in Q2. But again, it depends also on the number of bidders that will ultimately show up on March 17. A 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 whole scheme of things here. So with that in mind, we have included in our cash flow estimates for the year, the first two tranche payment in connection with those deadlines. So the first one is at the time of award in Q2 for €500 million. And 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 related for Q4 at this point in our forecast.

Thank you. Great. That's super helpful. And then just as a follow-up, we've recently seen some pushback in Texas against the 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 a lot of legalization opportunities that we should be thinking about going forward? Thanks.

Yes. So carriers have a -- there's a different approach to carriers, depending on the desires of each individual jurisdiction. So obviously, in states where iLottery is permissible, carriers have a minimal or really no footprint as the digital experience is one that's very efficient and effective, there is no incremental fee of the significance of the carrier model, which is where the revenue comes from on a carrier model since the carrier actually needs to go and purchase the ticket, scan the ticket, store the ticket. So there's a real physical cost associated with operating a carrier model. Then you have states that have explicitly permitted carriers to operate. 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 as many sales of lottery tickets as possible and maximize return to state. You have other states like Texas that have been silent around couriers. And so the couriers have expanded into a market like Texas. And then you have other markets where there's an absolute statutory prohibition on couriers. So, it really depends on the market. From IGT's perspective, the key to keep in mind is, we're contracted by the state lottery organizations. So, we operate based upon their direction and our contracts. So that's really what our job is. And we comply with whatever law on couriers, each individual market wants to desires to execute, the actual amount of -- or the impact on IGT from couriers 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 a courier. So I'd say with specific to Texas and the announcement -- the recent announcement, they are going to ban couriers, the impact to IGT because our percentage of sale is so small, our revenue is so small, and couriers have certainly grown in markets like Texas, but are still a relatively small percent of their overall retail sales. The impact of IGT is insignificant.

Perfect. Thank you so much.

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

Good morning. Thanks for taking my question. Max, within the guidance and particularly the optimism around the back half of year making up for the $70 million shortfall in Q1, can you talk about the contemplation or impact around the Mega Millions -- Mega Millions drawing going to $5 from $2. And at this point, what your understanding is in terms of -- just overall advertising or marketing around this new product given it could be a big growth driver for the industry? Thanks.

Chad, I'll take this. Yes, Mega Millions, the increase in the price line is one that I think our sales in the industry is pretty exciting to see what the potential is. There is limited experience with price point adjustments in products over the years. It just doesn't happen all that often. And our historical experience has shown that the net of a price point change is positive to very positive. So I think it was one of the more recent ones that was done when you look at the individual states in New Jersey, I think it was their pick 5 last year, increased $1 and the revenue increase was significant for that particular product. And historically, when Powerball has increased their price or Mega Millions increased their price a long time ago, it certainly had a significant impact on the net sales. So, what we've modeled out or what the commission has modeled out and we've assisted with is, likely there will be a fewer number of tickets sold, but at a greater price point, and there will likely be a temporary adjustment as there is -- it takes some time for the increase to -- 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, the faster build of jackpots. And as we all know, the higher the advertised jackpot is where we get a significant increase in velocity in sales. So we think that, it will be a positive. Not sure, if that will be a positive immediately. There's a good chance it won't be. But as things progress throughout the year and because the implementation is early in the second quarter, we think that will -- that has a really good chance to play through the system and have a positive impact on multi-state jackpots, which will be very helpful. Because as you know, the multi-state jackpot 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 we had one of the best multi-state jackpot advertised large jackpots occur several times over in 2023. And then in 2024, we had the exact opposite phenomenon where we had a lot of winners and a lot of hits. And so our plan for 2025 has the expectation of a more kind of normalized somewhere between the two playing out. And we're hopeful that the Mega Millions move to $5 will positively impact that, especially in the back half of the year.

Yes. And Chad, two other elements that help us sustain that revised optimism towards the second half of the year are related primarily to the OPtiMa cost savings initiative. So the cost savings of about $20 million that we expect to achieved in the current year will manifest themselves with full fruition in the second half of the year as we ramp up the program. And then finally, the activity on product sales this year evolves more ratably during the 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 revive confidence that we will hopefully be able to deliver a better second half to last year in 2025.

Okay. Thank you both. Appreciate it. And then moving on to the new printing press, we're just trying to understand maybe the returns on this for a better way think about it is, should the new press drive higher same-store growth, because of essentially faster printing, more volumes, lower cost of tickets, and it will give you the opportunity to maybe just bid differently for some those instant ticket contracts? Or should we be thinking about it as a margin improvement just reducing some of the costs. And I'm thinking maybe in back half of 2025 but more longer term, the competitive -- how this changes your competitive offering? Thank you.

Yeah. Yeah, it's a great question. I would say it's 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 our capacity moves up significantly. And anyone who's ever been associated with print plants, whether it be newspaper coupons, et cetera, recognize the decision to initiate the investment in a new press. 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, is very significant relative to a new state-of-the-art press. And for the folks that have actually been down at the print facility and are familiar with other industries printing, there's nothing more technological than printing lottery tickets when you think about how the random number gets generated and the coding, the covering, the ability to scratch, the 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, the logistics and the efficiency that goes along with it. So we think this is something that will have a terrific ROI for us, both in terms of cost and efficiency, and printing is certainly a volume business, right? The first x percent of tickets you produce for any customer, your deficit funding, then you're breaking even, and it's really the last x number of batches, which is your profit is a way to think about it. And 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 and reprints that need to take place. 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 we're excited. And by design, we've had an effort and fortunately, we've won a larger allocation and some unique print customers over the last year to be able to utilize this investment.

Thank you, Vince. Appreciate it.

The next question comes from David Katz of Jefferies. Your line is open.

Hi. Good morning, everyone. Thanks for taking my question. Can you just talk about within the guidance that you've laid out? I know one of the dynamics or levers is the development and launch of new product, right, within the lottery business, and I mean that Italy as well as elsewhere. Can you just help us understand what you did in terms of new product launch and development in there?

I would say there's -- I kind of think of new products in two categories. One is our ongoing investment and partnership with our lottery customers around product development. So that's taking kind of a deep database of analytical tools to identify opportunities to potentially stimulate growth. So for example, quite a few of our FM lottery customers in the US, you saw the results during the year, as we saw a decrease in sales for certain of their products in certain LMAs, they certainly experience it as well, and they have a desire to improve that. So they all have capable teams that our product teams operating are ultimately responsible for product launches and approvals and odds and all of that. But again, operating in so many jurisdictions and having the unique capability of actually being the lottery operator in Italy and Indiana and New Jersey, we're able to provide 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 the need to maintain our data 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 iLottery operations as well. That's kind of the ultimate in terms of being able to understand player behavior, repeat buying activity for, let's say, a $5 ticket versus a decline in a $2 ticket product, the need to then consider implementing or suggesting the lotteries that they put in place a new product to replace.…

Noted. Appreciate it that. And if I may just follow-up quickly. On the guidance you have laid out on page 13, talking about the average annual CapEx. That sort of excludes any other sort of significant renewals that may occur along the way, that's sort of a run rate CapEx number?

Yes. So after 2025 and 2026 where the effectively our CapEx cycle would come to an end, we expect to be on a run rate basis in that range, $200 million to $225 million. That excludes right now, competitive acquisitions.

Understood. Okay. Perfect. Thank you.

The next question comes from Domenico Ghilotti with Equita. Your line is open.

Good morning. Just a couple of questions. The first is there is any update on the Texas lottery renewal process? And second, just a clarification. Well, on the incentives of shortfall for affecting the first semester. So what actually the situation? Are you facing just a shortfall or just no incentive compared to last year? So we should assume that 2025 in your plan is, say, a neutral year? And do you have any risk of growing threshold to reach the incentives or to risk the shortfall. I don't know if I was clear enough.

Yes. So on Texas, the bid has been submitted and the state is evaluating the bid submission, and we expect we'll hear back in the first half of 2025, and I'll let Max take you through the financials on the LMAs.

Okay. So on the LMA, it's effectively a combination of both impacts, Domenico. When we compare the first and the second quarter of 2025 versus 2024, 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 jackpots activity, not only the jackpot hit above $1 billion, but is significantly the jackpot runs above $1 billion, which were to the dozens. And so we were able to true up kind of the accrual to an incentive position. The situation this year is a little different because when we look back and look forward 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 the $40 million to $50 million we mentioned is a combination of the two. So it's a small shortfall and is a delta compared to last year of a lower incentive.

Okay. This is a very clear.

But that remains an 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.

Clear. And do you have a growing threshold going forward? Or do you have a threshold that is growing over time for the LMA contracts?

Yeah, there are different elements that make up the structure of the incentive shortfall in terms of minimal net income and pressure net income that triggers partial penalty, partial incentive. So again, it's complicated. But in a nutshell, as the market grows, the threshold becomes more compelling, yes.

Okay. Thank you.

The final question comes from Joe Stauff of Susquehanna. Your line is open.

Thanks. Good morning, Vince and Max. Just real quick, you've answered a lot of questions. I just wanted to clarify, in terms of the Italian renewal process, will the government published or provide any, say, indication subsequent to the March 17 deadline of competing bids or not? And then I was wondering if Powerball, I know they initially said that they're sticking with their pricing structure, but is there any expectation to assume Powerball also moves to increase their pricing at some point? Thank you.

Yeah. So with regard to the lotto process is really no public forum in the process as folks ask questions, that's made publicly available and the number of bidders we'll find out after the deadline. So after the RFPs are submitted. With regard to Powerball, there's -- I think I want to speak on behalf of the group that manages Powerball. But it's been a long time since there's a price increase in either mega or Powerball, in fact, even longer for a Powerball. So I think it's reasonable to expect that Powerball will pay close attention to the impact on the increase to Mega Million sales. And think about that going out into the future.

Make sense. Thanks a lot guys.

This concludes the question-and-answer session. I will turn the call to CEO, Vince Sadusky, for closing remarks.

Yeah. So again, just to summarize, 2024 was a big year for IGT. We concluded our strategic review to sell gaming and digital for more than $4 billion in cash. 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 the world. As we look out into the future, we think we're in a very good position to extend and secure our contract portfolio for many years, which will enable us to deliver compelling returns for customers and shareholders while maintaining a very strong balance sheet. And as always, we appreciate your interest in IGT. Have a great day.

This concludes today's conference call. Thank you for joining. You may now disconnect.