Brightstar Lottery PLC

Ladies and gentlemen, thank you for standing by, and welcome to the IGT 2021 First Quarter Results Conference Call. At this time, all participants are in a 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 1 on your telephone keypads. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero for the operator. Thank you. It is now my pleasure to turn the call over to Mr. Jim Hurley, Senior Vice President of Investor Relations. Sir, the floor is yours.

Thank you, and thank you all for joining us on IGT's first quarter 2021 conference call, which is hosted by Mark Osala, our Chief Executive Officer, and Max Chiara, our Chief Financial Officer. After their prepared remarks, we'll open the call up for your questions. We are, again, presenting results from multiple locations, so please bear with us if we encounter any technical difficulties. During today's call, we'll 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 presented. based on a number of factors and uncertainties, including those related to the effects of the COVID-19 pandemic. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release 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. With that, I'll turn the call over to Marco Sala.

Thank you, Jim, and hello to everyone. As you have seen from today's announcement, we had an outstanding quarter. Strong player demand drove improved momentum across all our main activities in Q1. This translated into 25% revenue growth from the prior year period and a 6% increase from Q1 2019. Lottery reached record levels with same-store sales up over 30%, including double-digit gains across games and regions. The land-based slot business nearly recovered to prior year levels thanks to strong yields on the active install base and a 40% increase in machine units sold in the U.S. and Canada. Growth accelerated for our digital and banking activities where revenues nearly doubled in Q1. We continue to monitor costs as the top line recovers, and we are making excellent progress on structural cost reductions with the Optima program, which Max will discuss later. You can see this in the over 70% increase in EBITDA and 44% EBITDA margin for the first quarters. It was an outstanding performance and among the highest levels ever achieved. With such strong Q1 results and an expectation of progressive recovery for land-based gaming as we move through the year, we believe we can return to pre-pandemic revenue, profit and leverage levels this year. This swift recovery from the impact of the pandemic is due to the unique and resilient nature of our business model across products and regions. I'd like to spend some time on Q1's lottery performance. The 32% same-store sales increase was fueled by 52% growth in italics and 28% in North America and the rest of the world. Even without the benefit of strong multi-jurisdiction jackpot activity, same-store sales for North America and the rest of the world were up over 20%. Compared to 2019, global same-store sales were up 24%. The sustained strength in lottery same-store sales for the last three quarters confirms a complete recovery from the pandemic. This is supported by the highest segment revenue and profit levels we have ever achieved. And the momentum continues. Global same-store sales are increasing. trending up over 20% for the Q2 to date period compared to the second quarter of 2019. We must acknowledge that some of the recent strength comes from the relative lack of other entertainment alternatives. In the U.S., higher disposable income, which includes the benefit of government stimulus, is another factor. But Lottery has always maintained a steady growth profile. This is because it is a content-driven business. The games have high entertainment value with broad player appeal. A consistent stream of new games offers fresh opportunities for player engagement. Throughout the pandemic, Lottery has become a valued and routine activity in the new normal. We expected that to continue. According to our research, many intend to play lottery at higher levels than they did before COVID. This is an encouraging sign. Innovation is another important contributor. In the draw-based arena, add-on and progressive jackpot games are fueling double-digit growth in the U.S., while the new 10-and-lotto extra is an important driver in Italy. Instant ticket sales are benefiting from higher average ticket prices as well as player interest in second chance and free ticket games. Multi-jurisdiction jackpot games were almost double the prior year, thanks to 1 billion megamillions and 750 million powerful jackpots in the US and strong euromillions sales in Europe. It is reasonable to expect sales to moderate from current levels as other entertainment options become more widely available, especially in Italy. We believe we will see a return to more normal steady increases after we cycle through the pandemic-related peaks and valleys over the next several quarters. Our expectation is that when the restrictions of the pandemic will be largely over to see some stickiness to the recent increased play levels, particularly in North America, and the market will resume a more normal growth rate, mid-single digit in the U.S., but starting from an higher individual consumption. The recovery for our global gaming segment is progressing well in the U.S., which accounts for about 70% of the segment revenue. U.S. casinos are open for business as the pace of vaccination is driving confidence among players and operators. This has led to a substantial improvement in slot GGR since January, not only in the regional U.S. markets where most of our business is conducted, but also in Las Vegas. Core players have returned and new players, mostly younger, are entering the market as other entertainment options are limited. This is translating into a swift recovery in our business. Recurring revenues are improving month over month thanks to a stable install base and more of those units being activated. Even as more units are powered up, ease on active U.S. units wear up high single digits sequentially. New multilevel progressives, such as Dragon Lights, Gong Chifa Kai, along with Wheel of Fortune franchise, are driving these strong results. We also had good unit sales in the quarter, fueled by a 40% increase in the U.S. and Canada units, including double-digit growth in replacement, which were not far from Q1-19 levels. The resilience speaks to the diversity in our customer mix across regional, tribal, and commercial casinos, as well as VLTs. Regal Riches and Lion Dance were among the top selling core video titles, while Wild Life Extreme and Big City Fives were the best VLT titles. We expect continued progressive improvement throughout the year across all aspects of our global gaming segment. It is clear from our meetings over the last few months that digital embedding is of great interest to you. It is for us, too, as IGT plays an important role in the iGaming, sports betting, and iLottery ecosystems. During Q1, GGR across the portfolio was 2 to 3 times the prior year levels. Most of that growth came from an expanding player base in existing markets. There are no signs of the digital channel cannibalization in the land-based business. Digital embedding revenue nearly doubled in Q1, posting the strongest quarterly increase in the last year. We expect the business to maintain a strong double-digit growth profile for the next several years. through a combination of organic growth including the contribution from new jurisdictions. We are investing to support this growth and maintain leadership positions in all three verticals. In iGaming, we are expanding our content portfolio through a combination of internally developed games and those developed with third-party studios. There is additional opportunity for IGT to act as a distributor of third-party content, and this is an emerging area of focus for us. All this should result in IGT having 20-30% share of the North American iGaming market. Outside North America, there is also opportunity to penetrate emerging international markets such as Germany, Greece, and the Netherlands. We intend to maintain a leading role in the high lottery industry, leveraging the long-standing relationship we have with the world's leading lottery today and through our commitment to investing in three main objectives. First, expand the portfolio of games. Second, to enhancing our platform capabilities. And third, by increasing marketing and other activities to support player acquisition and retention for our customers. As we look out over the next three to five years, we see the potential for the number of U.S. jurisdictions authorizing iLottery to double from current levels. Today, our presence in the U.S. sports betting market spans 16 states, representing over 40 sportsbooks. IGT's land-based sports betting platform is the most widely used in the country. We see the greatest opportunity for us in offering turnkey sports betting solutions to commercial and tribal casino operators. Since the launch of our in-house trading team last summer, we have made good progress assigning customers, including Maverick Gaming, Snoqualmie, and Emerald Queen, among others. We have many more deals in the pipeline. There are 17 states where legislation is pending this year, and four more where legislation has been passed, but sports betting is not yet operational. We are proactively securing partnership in jurisdictions where regulatory approval is pending, ensuring our customers a swift launch as markets go live. Our first quarter results mark a strong start to the year, and illustrate the compelling foundation IGT can build on over the next several years. This is especially true for our global lottery segment, where record sales and profits confirm the high entertainment value and broad player appeal of the games, bolstering our favorable long-term growth outlook. The fast recovery in our land-based U.S. gaming activities is accentuated by by accelerating momentum for high-growth digital and betting businesses. Stronger revenue trends are further enhanced by significant structural cost reductions that improve our outlook for profit margins and cash flows. With the proceeds of the recent sale of certain Italy B2C gaming businesses that will be used for debt reduction, our leverage profile should be significantly improved by year-end. Now, I'll turn the call over to Max.