Brightstar Lottery PLC

Good day and thank you for standing by. Welcome to the International Game Technology Q2 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. Should you require any assistance, please press star zero on your telephone keypad and an operator will assist you. After the presentation, there will be a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. I will now turn the conference over to James Hurley, Senior Vice President of Investor Relations. Please go ahead.

Thank you, and thank you all for joining us on IGT's second quarter 2022 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. Once again, we are presenting from multiple locations, so please bear with us if we encounter any technical difficulties. 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 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 and in our SEC filings. During this call, we will discuss certain non-GAAP financial measures. In our press release, the slides accompanying this webcast, and our filings with the SEC, each of which is posted on our investor relations website, you'll 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 Vince Sadusky.

Thank you, Jim, and hello to everyone joining us today. Our second quarter and first half results confirm strong operating fundamentals across the portfolio. This includes accelerated multi-year same-store sales growth for lottery, continued sharp recovery in gaming, and important strategic progress for digital embedding. Q2 revenue was up 11% net of FX and discrete lottery benefits in the prior year, led by 23% growth in global gaming. Operating income and EBITDA match the prior year at constant currency as substantial improvement in gaming profits mitigated about 60 million in discrete lottery benefits that, as expected, did not recur this year. Operating margin of 22% was at the high end of our expectations for the quarter, while EBITDA margin of 40% remains among the highest in company history. In addition to significantly improved global gaming profitability, Strong global lottery margins were an important contributor to our overall consolidated results. We continued our shareholder capital return policy. Year-to-date, this includes $81 million in dividends, which annualized implies above a 4% yield at the current share price. In addition, $54 million was returned through share repurchases. It's a compelling return profile, both in absolute and relative terms. Let me take a moment to give you some perspective on our business that I think is particularly relevant at this moment in time. IGT has leading positions in each market segment where we participate, and about 80% of our total revenue is recurring in nature. The global lottery segment accounts for most of our profits in the range of 75% to 80%. This isn't always appreciated by the market. It is important to highlight because lottery is an attractive business. It has infrastructure-like characteristics with steadily growing and predictable revenue, profit, and cash flows that are backed by long-term contracts. Our lottery contract portfolio currently has an average remaining life of six years. It's an enviable foundation to build on as we execute our long-term growth objectives. Historically, the lottery industry has demonstrated low economic sensitivity and proved to be incredibly resilient to macro challenges. You can see from the data here that in the U.S. and Italy, our two main lottery markets accounting for 85% to 90% of IGT's total lottery revenue held up very well during past recessions. IGT defines and drives the global lottery industry with our extensive and distinctive expertise and vast portfolio of contracts. We compete in all market segments, providing us with the entire spectrum of growth opportunities and unique and comprehensive market knowledge. We are the only lottery solutions provider with both B2B and B2C capabilities. We service over 80 customers, including the world's largest and most successful lotteries. Our solutions power eight of the top 10 lotteries in the world. In aggregate, our systems process over 150 billion in annual sales, including 75% market share in the U.S. and over 90% share in Italy. In fact, IGT is the world's largest operator of lotteries, six across three continents representing 30 billion in sales. This is three continents representing 30 billion in sales. This is valuable experience. And we use our unique sales development team to help our B2B customers succeed and deliver steady growth. In Q2, Lottery achieved an accelerated multi-year growth profile. Average annual same-store sales growth from Q2 of 2019 was over 5% fueled by instance. We expect the trend of accelerated growth to continue in the second half and that mid-single-digit growth can be maintained over the next several years. Our conviction is based on extensive player research and knowledge and the unique role we play in driving industry growth. Lottery is a supply-driven business, and we have a recurring revenue model that is perfectly aligned with customer and market expansion opportunities. Innovation across many dimensions, including game mechanics, game themes, pricing and payout, distribution, and retail execution are all important catalysts to drive demand. A few compelling examples of recent innovation include the launch of Million Day Extra in Italy, where they've used proven game mechanics to build on an existing franchise. In May, the Texas Lottery launched the first ever $100 instant ticket game, with over 800 million in prizes available and a top prize of $20 million. And Florida introduced a $50 instant ticket a few months ago. Sales for both games have consistently been strong. In iLottery, eInstant performance is improving with each new game launch. This is driving record player spend in Georgia and Kentucky, thanks to games such as Bank Buster, Cry Potion, and Beach Bonanza. Soon we will expand our eInstant distribution to Michigan, one of the country's largest iLottery markets. It's always nice when our lottery expertise is recognized, as it was with the Lottery Supplier of the Year Award at the 2022 SBC Awards North America. Turning now to global gaming, this segment had another terrific quarter thanks to the strength of our offerings and the broader global market recovery. Revenue increased over 20% on impressive momentum across several KPIs, and that translated into even stronger profit growth. We sold nearly 7,200 machines in Q2, led by strong replacement demand in the U.S. and Canada. In fact, total U.S. and Canada shipments were 8% higher than the pre-COVID Q2 2019 levels. We could have shipped even more units if we weren't constrained by supply chain challenges. I think it's important to note that IGD has steadily gained ship share in North America over the last three plus years, reaching 27% in Q1, which is the latest data available. Average selling prices were also higher in the quarter, building on the positive trajectory over the last two and a half years. The new Diamond RS mechanical reel cabinet began hitting casino floors in June, supported by an extensive game library featuring new renditions of proven legacy themes and a host of exciting new titles. Early performance indications are encouraging, and we expect the Diamond RS to build on IGT's decades-long reign in the mechanical reel segment. Yields on leased units were up across the board in the quarter. WAP and MLP performance has been especially good. Prosperity Link, one of our newest multi-level progressive games, is among the top-performing new premium games in the North American market, with productivity almost three times floor average. And several new wide-area progressive games from IGT are dominating that category, led by Wheel of Fortune High Roller on the Peak 65 cabinet and Money Mania, whose frequent second-level jackpot payouts are resonating with players and customers. In systems news, the IGT Advantage Casino Management System was selected to power New Star Resort and Casino, the Philippines' most anticipated new casino featuring 1,500 slots and 250 table games. IGT Advantage will enable New Star to build patron loyalty, optimize its casino operations, and access valuable real-time performance analytics. It also positions NuStar to offer cashless gaming in the future via IGT's resort wallet systems technology. IGT has won the central system for every large new Asian casino over the last several years. We have a pipeline of compelling new games supported by a robust sales funnel for the balance of the year. Customer sentiment is strong, bolstered by solid casino visitation and GGR trends across major markets. About 70% of the revenue in our global gaming segment is generated in the U.S. The revenue in our global gaming segment is generated in the U.S. 85% of our U.S. revenues are generated in regional markets, and about half of that comes from tribal customers. And while the gaming segment is somewhat more sensitive to economic cycles than lottery, U.S. GGR trends have been reasonably resilient, especially among tribal customers during recessionary periods. Right now, the big challenge we have is being able to meet strong customer demand given continued supply chain challenges. On balance, it's a good problem to have and a clear reflection of the positive momentum in our business. Looking now at digital embedding, the segment continues to benefit from double-digit iGaming GGR growth in the U.S., primarily a function of new market expansion and IGT's leading position in video poker, table game themes and slots. Total Q2 revenue growth was lighter than expected due to weaker trends outside the U.S. We attribute this to three main factors. The slower pace of new game launches, partially because we were focused on closing the ISOF debt acquisition, to stricter gambling laws in the U.K., and to challenging comparisons in the COVID-related benefits iGaming had last year when lockdowns and other restrictions were still in effect in certain regions. We expect better trends in the balance of the year. Our game portfolio significantly expands with the iSoftBet acquisition, which closed on July 1st. iSoftBet provides us considerable scale and broadens our capabilities to advance our market positions. It greatly enhances our library of proprietary digital native games. The aggregation platform will enable us to provide hundreds of other game titles, allowing IGT to develop exclusive assortments for our customers. Integration efforts are well underway. An acceleration of IGT content distribution into more European jurisdictions using the iSoftBed platform is expected during the fourth quarter. The North America game aggregation platform launch is on track for early 2023. It's an exciting evolution of this high growth market opportunity. Well, six months into the year, we are on track to deliver on the 2022 outlook initially provided in November of last year. The team has done an excellent job identifying incremental sales and cost savings opportunities to offset nearly 200 million in unanticipated profit headwinds from Omicron, higher supply chain and project costs, and significant FX movements. At the same time, we've proactively managed the capital structure to drive the meaningful improvement in leverage and overall financial condition. We have a multi-year plan targeting mid-single-digit compounded annual revenue growth and mid-teens compounded annual operating income expansion for the 21 to 25 period. That plan also targets about $2.4 billion in cumulative free cash flow in the next four years. Executing these goals should drive meaningful value creation for all stakeholders, and I have every confidence in our ability to achieve them. We'll do it with a clear focus on sustainable practices and good citizenship as well. Last month, we issued our 15th annual sustainability report, highlighting our commitment to operating as an industry-leading sustainable business and consistently reporting on our progress. We recently received a gold medal rating from EcoVitas, putting us in the top 5% of global companies assessed by the firm. We take great pride in this achievement as we continue our journey of contributing to a more sustainable future. Our mission is simple. We are investing responsibly to generate profits and cash flows that consistently deliver compelling returns for shareholders. Now I'll turn the call over to Max.