Brightstar Lottery PLC

Ladies and gentlemen, thank you for standing by. And welcome to the IGT 2020 second quarter results. At this time, all participants line through the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and then one in your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star and then zero. I would now like to hand the conference over to your speaker today. Mr. Jim Hurley, SVP of Investor Relations. Sir, you may begin.

Thank you, and thank you all for joining us on IGT's second quarter 2020 conference call. We're presenting the results today from multiple locations, so please bear with us if we encounter any technical difficulties. On today's call are Marco Sala, our Chief Executive Officer, and Max Chiara, our Chief Financial Officer. After introductory remarks from Marco and Max, 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. 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 may discuss certain non-GAAP financial 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, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. And now I'll turn the call over to Marco Sala.

Thank you, Jim, and hello, everyone. I hope you and your loved ones remain safe and healthy in these uncertain times. our second quarter results clearly reflect the world being in varying stages of lockdown, especially in April and May. With casinos and gaming halls closed, food traffic reduced at lottery retail outlets and sport events cancelled, the shutdown impacted all operations in our key markets. That said, our performance proved better than we expected back in May, at the time of our Q1 call. This is a result of having a diverse global portfolio of products and solutions across the regulated gaming spectrum. We also had an important benefit from the swift cost-saving measures we implemented to manage the pandemic. The $168 million of EBITDA we generated in the period includes positive contributions from our North America gaming and lottery segments as well as from Italy. We delivered over $100 million in positive free cash flow in the second quarter. It is a significant achievement and a clear indication we are executing well. Our better-than-expected results demonstrate the high engagement maintained by IGT team and our customers. I know it is not easy in the current environment, and I'm grateful for their incredible dedication and partnership. Financial performance aside, we have had a chance to appreciate the importance of diversity equity and inclusion among our employees and the community we serve. These have always been core values for us and they are critical in this current context. IGP stands with our employees, customers, players and communities in the fight for racial justice, equality and equity. As I highlighted in May, we are executing on key priorities to navigate the new normal. The health and safety of our employees have always been at the center of those priorities. Today, about 75% of our team is working from home, and we have adapted our policies and procedures accordingly. Customer service levels have not missed a beat. IGT has developed smart technology to provide remotely system monitoring, upgrades and new installations for our customers. This has become even more crucial to their success in the current environment. Aggressive actions on fixed and discretionary costs are helping to ease the impact of global lockdowns. While many of the cost initiatives are temporary in nature, we are also driving more structural savings. Cash flow and liquidity remain the top financial priorities. This is clear in Q2's positive free cash flow and improved liquidity position. By focusing on these priorities, we find ourselves in a much stronger place than we expected to be at this time. They also position us well for the future. I would like to provide a more specific insight on trends during the quarter, beginning with the lottery, whose resilience is evidenced in our results. Same-store revenues were up 6% in North America, including an over 10% increase for instant and draw-based games, and despite significantly lower jackpot activity. Trends improved progressively throughout the quarter. On the contrary, international same-store revenue was down 27% in the quarter, reflecting the shutdown of several games around the world, including Colombia, Mexico, Trinidad and Tobago. Sales have recovered, with European same-store revenue now essentially in line with prior year levels. Latin America is still lower as COVID-19 affected that region later. Italy lottery wages were down 40% in the quarter, reflecting the complete shutdown of draw-based lotto gains during the month of April and the closure of bars and restaurants, which represent about 25% of scratch-and-win wages for most of the period. As with the rest of the world, wages posted substantially progressive improvements throughout the period, especially as 10-and-lotto monitors were turned back on in late May. Scratch and win is now broadly in line with pre-COVID levels. Lotto wages are slightly below the prior year as social distancing protocols are affecting terminal lotto play. We had some important business developments for lotteries. This includes multi-year contract extensions in Tennessee, a customer since 2004, and Czech Republic, partner for 27 years. We were also awarded the primary instant ticket printing contract for Virginia, displacing the incumbent. Going forward, IGT will print approximately 90% of Virginia's instant tickets. It is a high-profile endorsement of our printing capabilities, a key area of investment and opportunity for us. It also builds on a progressively deeper relationship we have had with Virginia over the last 20 years. Let's move on to gaming, where the impact of a global lockdown was most acute during Q2, as most casinos and gaming halls were closed for a large portion of the period. In Europe and in the US, venues began to gradually reopen in mid-May, while Italy gaming halls did not reopen until June. Across the board, I would characterize the early gaming trend as being better than expected. In the US, where over 85% of casinos are now open, strong machine productivity is helping to compensate for fewer active machines and capacity restrictions. Approximately 60% of our installed base is active, and yields on those active units are up from prior year levels. Wide area progressives, tried and true player favorites, are the main driver with yields up double digit. Outside of the U.S., there is a lot of variation by region. EMEA and PAC are have been mostly open since June. Central America is open, but South America is mostly closed. In Italy, while wages are still below the prior year period, VLTs are performing in line with January and February levels. AWPs are a bit weaker as social distancing is harder to maintain in more generalistic point of sales. Despite the global shutdown, we continue to make good progress on several strategic initiatives. One is our entry into the U.S. historical horse racing arena. We shipped nearly 1,000 units to Churchill Downs for the Kentucky market during the quarter, leveraging our top-performing Crystal Series hardware, and highly popular game teams such as Fortune Coin and Griffin Strong. We are pursuing an additional historical horse racing opportunity in Virginia. Early last month, we launched our highly anticipated Pick Bar Top Cabinet, featuring an assortment of our top performing video poker, slots, kino, and roulette content. The new cabinet builds on IGP decades of leadership in video poker by integrating a range of highly relevant, technologically advanced features such as cashless wagering, USB mobile device charging ports, and player level indicator for service staff. The new Emerald Queen i5 casino in Tacoma, Washington, that opened in June, is being powered by our advantage central casino management system. IET also secured a majority of the class three-floor share at the casino. Interest in our cashless system solutions continues to expand around the world, and we are in the final stages of negotiating several deployments over the next few months. Customers are increasingly looking to IGP to provide the digital solutions players desire. We are seeing this in a strong growth for our digital business around the world. Digital as a channel represented a mid-single digit percent of 2019 revenue and was double that rate in Q2. It grew double digits last year and the increases are much stronger since COVID, including 35% growth in Q2. Momentum remains strong, even as casino reopen and mobility restrictions ease. Our B2C digital business in Italy accelerated in the second quarter. with wages increasing about 33% despite a lack of sporting events until late in the period. Growth for iGaming and iLockery wages was strong, helped by a growing number of new players. Revenue for our global B2B iGaming platforms increased 75% in Q2, In North America, which represents about 75% of our B2B iGaming business, revenue more than doubled on strong Canadian trends, including a growing number of new players. In Pennsylvania, where GGR is now exceeding New Jersey's levels, we are live with eight operators and have over 50% market share. In Sweden, Svenska Spell recently signed up for an expanded suite of IGT's digital solutions, including our extensive library of Play Casino content served via our remote game server, in addition to IGT Pay, a cashless solution to fund land-based VLT from mobile devices. we continue to make great progress in the U.S. sports betting market. In terms of volume of wages entered and number of states where it is approved, our play sports platform is the most widely used B2B sports betting platform in the U.S. In 2019, IGP processed over 30% of total U.S. sports betting wages. and we are currently present in 14 states, with Colorado being the most recent. Additional states are looking at legalizing sports betting, and IGT is well positioned to meet that demand. We recently deepened our relationship with Fanjuel, the market-leading U.S. sportsbook operator, through a multi-year sports betting and iGaming partnership. IGP's PlaySport platform and hardware will power Alphanduel's new and existing retail sportsbook across the U.S. Alphanduel will leverage a vast assortment of our PlayCasino digital games for its iGaming activities. We have enjoyed a strong partnership over the last two years, pioneering the development of the U.S. sports betting market. We look forward to remaining their trusted growth partner. Last month, we announced an important reorganization of the company into two global business units, one dedicated to lottery, run by Fabio Cairoli, and the other to gaming, led by Renato Ascoli. They will handle all functions previously assigned to our international, Italy, North American gaming and North American lottery business units, but with a global view that enables each operation to maximize how its product and services are positioned to meet the expectations of customers and players around the world. By focusing on our core businesses, we will be better able to promote the exchange of expertise and best practices among IGT employees around the world. And we will enhance our ability to provide greater responsiveness to customers and players. Another important aspect of our new structure is that it will make it easier for you all to understand and value our business. While Proforma 2019 revenue was evenly split between lottery and gaming, lottery accounts for a much higher percentage of our profits, reflecting our global leadership position in this business. We are still working on realigning into the new design, but for context, lotteries account for about two-thirds of our profits, while gaming activities are about one-third. Lottery has historically maintained a steady growth profile and proved to be remarkably resilient in weaker macroeconomic conditions. You can see that in the results we are reporting today. It is supported by long-term contracts that provide good visibility to future revenue and cash flow streams. A transition to product line reporting will make this clearer for you. We will start reporting in the new structure next quarter. The COVID pandemic is teaching us a lot about new ways of working and how we serve our customers. We are focused on leveraging these learnings to operate more efficiently in our new organizational design. Along those lines, we are executing several initiatives to enhance our operational flexibility, enabling us to be more responsive to market conditions. We have identified over $200 million in structural cost savings from pre-COVID levels across four main work streams, including eliminating duplicative functions and streamlining back-office activities, optimizing our global investment in technology to focus on value-accretive know-how, rationalizing R&D based on disciplined risk-return priorities, and optimizing our supply chain for maximum cost efficiency. Current trends suggest the global gaming market is recovering, We are hopeful the progress and growth we are seeing will continue, but we need to be prudent with expectations given the economic impacts of the pandemic. The actions we are taking to protect the business are working, and we are prepared to take additional measures if the situation gets worse. For now, we continue to innovate to deliver the unrivaled gaming experience IGT is known for. As always, our goal is to focus on initiatives that create value for all our stakeholders. At this point, I will turn the call over to Max.