Brightstar Lottery PLC

Good morning. My name is Devin and I will be your conference operator today. At this time, I would like to welcome everyone to the International Game Technology Q3 2022 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and then the number one on your telephone keypad. Thank you. James Hurley, Senior Vice President of Investor Relations. You may begin the conference.

Thank you. And thank you all for joining us on IGT's third quarter 2022 conference call hosted by Vince Sadusky, Chief Executive Officer, and Max Chiara, our Chief Financial Officer. After some prepared remarks, Vincent Max will be available for your questions. During today's call, we will 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 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 our SEC filings. During this call, we will 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'll find additional disclosures regarding these non-GAAP measures. including reconciliations of these measures with comparable gap measures. And now I'll turn the call over to Vince Sadusky.

Thank you, Jim, and hello to everybody joining us here today. We delivered accelerated revenue and profit growth in the third quarter with nice momentum for each of our business segments. Revenue rose 14% at constant currency, led by over 30% growth for both global gaming and digital embedding. The 20% operating income reached the high end of our expectations on strong lottery margins and a substantial increase in gaming profitability. Adjusted EBITDA increased 7% at constant currency, even as we continue to invest in several key growth initiatives and contend with higher supply chain costs. Our strategic focus on driving growth through innovation and optimizing our processes and scale is paying off. When the company reorganized around three main business segments with global product responsibility, it enabled our teams to focus on delivering best-in-class products and services more efficiently and profitably. This is evidenced in a year-to-date EBITDA margin that is over 350 basis points better than the full year 2019 level. And there is still more opportunity as our 2025 targets include further profit improvement. Solid cash flows and proceeds from strategic asset sales were used to reduce debt, improving our leverage to 3.1 times the lowest level in IGT's history. And we continued to return capital to shareholders. Through mid-October, we returned over $220 million via dividends and share repurchases, which marks a record level in a fiscal year period. At the current share price, our annualized dividend implies about a 4% yield, and we've repurchased approximately 6% of our float since last November. It's a compelling returns profile for a company with a clear growth trajectory and where most profits and cash flows come from recurring revenue streams backed by long-term contracts. That's a good segue into global lottery, where same-source sales were up 3% and a quarter, mostly on strong multi-jurisdictional jackpot activity. iLottery sales nearly doubled from the prior year on strong e-instant performance in Georgia and Kentucky, and new game launches in Belgium. Cleopatra Clusters Jackpot, a new e-instant game based on our popular slot title, became our most successful launch to date. Italy's same-store sales improved greatly as we anniversary significant discrete benefits in the prior year. Instant ticket sales remain strong, and draw games are progressively improving, now tracking only modestly below 2019 levels. Taking a longer-term view, the multi-year same-store sales growth accelerated in Q3 across all game types. The increase in North America is especially noteworthy, with Q3 same-store sales up more than 30% from Q3 of 19. That implies an average annual growth rate of about 10%, which is significantly greater than pre-COVID growth rates. Lottery's strong multi-year sales expansion has fueled about 500 basis points of operating margin improvement from 2019. This highlights the significant profit flow through of an elevated sales base, even as we've increased our investment in the business. Those investments were on full display at the recent World Lottery Summit. Our theme of future forward results driven showcased our industry leadership with a compelling suite of land-based and digital solutions. The scope of IGT's capabilities is unique, and it is grounded in our expertise and player insights from operating some of the world's largest and most successful lotteries. There was a lot of excitement around our launch of Omnia, the industry's first truly player-centric omnichannel lottery system. It's a concept our customers are eager for as their portfolios expand into digital. Omnia provides the capability to manage the whole enterprise from a single point. Lotteries can easily gain insights into their entire portfolio and player base as data is integrated from all sales points in ways that improve a lottery's ability to market, launch, and enhance games to meet player preferences. It also provides unprecedented opportunity to strengthen responsible gaming programs. We think it's the future of the lottery industry. Speaking of the future, we've had some important strategic developments including long-term contract extensions with the New York and Georgia lotteries, as well as a new 10-year instant ticket printing contract with the Texas lottery. In addition, the sale of our Italian commercial services business not only helped us reduce debt, but it should have about a 200 basis point beneficial impact on the lottery segment's margin structure. It also reduces our Italy and Euro exposure. Global Gaming had another terrific quarter with revenue up over 30%, and operating profit more than doubling thanks to broad-based momentum across all main KPIs. The increase in profit is noteworthy since global gaming has had to sustain higher supply chain costs than our other businesses. Our roster of core video and multi-level progressive games on award-winning new hardware drove record unit shipments in the U.S. and Canada for a Q3 and year-to-date period. This resulted in the highest U.S. and Canada ASPs ever in the third quarter. We continue to maintain the leading North American ship share, a spot we've held for close to four years. We also marked an important milestone with sequential improvement in the installed base. Expanding footprints for new WAP and MLP titles such as Prosperity Link, Money Mania, and Wheel of Fortune High Roller are fueling the installed base growth and also driving higher yields. and our success is being recognized. Prosperity Link won Best Slot Product at the 2022 GGB Gaming and Technology Awards. Most importantly, we believe the strength of current titles and what we have in the pipeline can drive continued improvement in the installed base. Our confidence is bolstered by excellent feedback from G2E, where our product strategies resonated with customers. In the premium category, our focus is on three key areas. building on MLP strength, expanding our video WAP presence, and supporting the iconic Wheel of Fortune franchise. We intend to drive gaming machine unit sales with four main initiatives. First, we're expanding the Peak Cabinet family with the launch of the Peak Dual 27 and the Peak Curve. Second, we will leverage player-favorite brands like CATS to expand our MLP portfolio. Third, we will grow unit sales of the top-performing Diamond RS cabinets. And finally, we will support the Diamond RS with a robust roster of classic and new games. All in all, it is a compelling strategy that we are confident will continue to produce results. In systems, cashless continues to attract a lot of attention, and IGD is leading the cashless gaming transformation. Our resort wallet and IGT pay solutions are making it easier for players to activate cashless functionality and are integrating cashless at more places throughout the casino. Operator adoption is progressing well with an enterprise-wide rollout of IGT's cashless solution at station casinos and a recent deployment at Indigo Sky Casino. Global Gaming's strong top line and profit momentum is a product of being a leaner, more focused, and more nimble organization. We have centralized global product responsibility that enables better decision making and allows us to leverage our scale across game and hardware development and deployment. It is also helping us manage through supply chain challenges more effectively. Strong operating leverage is evidenced by a Q3 operating profit margin that is 370 basis points higher than 2019. There is still a lot of opportunity for further margin improvement as we work towards our 2025 goals. Turning to digital embedding, increased investments are delivering accelerated top-line growth. The integration of IsofBet during the quarter was an important driver of the more than 30% revenue expansion at constant currency in the period. GGR was up for our existing North American iCasino and sports betting operations, which account for most of the segment's revenue. With the addition of iSoftBet, our iCasino offer is now live in over 25 jurisdictions, and there are a number of new market launches in Europe and Latin America planned for next year. We are also on pace to double the number of new game launches to about 50 per year. Omni-channel games are a key area of focus and competitive advantage as we look to leverage the success of land-based titles such as Prosperity Link and Money Mania in the digital arena. The expansion of our game development capabilities along with our newly acquired aggregation platform enables us to develop exclusive selections for our customers who are always looking for ways to differentiate themselves in the market. IGT's proposition becomes even more compelling with world-class data analytics and user engagement tools that can create a real-time personal offering and recommendations for individual players. For sports betting, IGT's solutions are powering over 80 sportsbooks, and the portfolio of turnkey customers continues to expand. The new Peak Bartop with sports betting cabinet we just introduced to G2E is getting a lot of attention, including winning the Land-Based Product of the Year award at the 2022 Global Gaming Awards in Las Vegas. The digital embedding segment is already profitable, even as we are making outsized investments for future growth. The SaaS-like business model means that profit margins should expand as we gain scale. You should see that dynamic unfolding beginning next year as we continue to work on the iSoftBed integration for the rest of 2022. Our year-to-date results highlight good momentum across each business segment. With revenue and profits up in constant currency, we have successfully anniversaried the substantial discrete benefits in the prior year, and we've overcome around $180 million in revenue and $140 million in operating profit headwinds from FX, higher supply chain and project costs, and Omnicron. It is an impressive achievement, and I want to thank the IGT team for their passion and dedication to delivering it. Current customer and player demand trends remain strong. IGT has a diverse and resilient business model. As I noted, most of our profits and cash flows are generated by recurring revenue streams backed by long-term contracts. This puts us on a solid path to delivering on our fiscal year 2022 commitments. It also enables us to deliver a compelling shareholder value with capital returns at record highs. Now I'll turn the call over to Max.