Brightstar Lottery PLC

Hello and welcome to the International Game Technology Q3 2023 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 1 on your telephone keypad. If you would like to withdraw your question, again press star 1. I'll 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 Q3 2023 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. We are presenting from multiple locations today, 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. 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.

Thanks, Jim, and hello to everyone joining us. Well, we're reporting strong Q3 and year-to-date results today. Excellent momentum and key performance indicators across all segments drove year-to-date revenue up 8% when adjusted for the sale of Italy Commercial Services. That includes 5% growth for our global lottery segment, a 12% increase for global gaming, and 17% expansion for Play Digital. Q3 was aligned with year-to-date trends with revenue up 6% out of Italy Commercial Services. That translated into good profit growth. Q3 operating income rose 13% or 20% net of commercial services and achieved a record operating margin for a third quarter period. Year-to-date operating income was up 8% or 13% net of Italy commercial services and the operating margin expanded over 100 basis points to 23%. We delivered 200 basis points of EBITDA margin expansion to 42% in the first nine months with each operating segment contributing to the improvement. This puts us firmly on track to achieve our full year 2023 revenue and margin goals. Moving on to segment level performance, global lottery same-store sales were up 3% in the third quarter, in line with the 4% growth for the year-to-date period, and building on a strong multi-year growth trajectory. Italy performance in the first nine months continues to impress with 8% same-store sales growth, fueled by increases for both scratch and win and lotto games. A consistent flow of game innovation, complemented by our unique player insights and strategic portfolio optimization initiatives, have been the key drivers of Italy's growth this year. In the U.S. and the rest of the world, same-store sales are up over 3% on robust Powerball and MegaMillion sales in the U.S. During the quarter, IGT extended several longstanding business partnerships. California is the second largest lottery in the U.S., and IGT's relationship there spans more than three decades. Over that time, our solutions empowered over $41 billion in support for California's public schools. A seven-year extension in California secures this important partnership through at least October of 2033. We also secured two 10-year contract extensions with the Kentucky Lottery Corporation, where IGT will remain the primary technology provider for both retail and iLottery solutions through 2036. It's another 30-plus year partnership to fund higher education throughout Kentucky. Our current lottery contract portfolio has a revenue-weighted six years remaining with extension options. The California and Kentucky extensions speak to the confidence and trust the world's premier lotteries have in IGT's best-in-class modern lottery solutions. This includes our cloud-based systems platforms and Omnia, our new player-centric omni-channel solution. iLottery sales continue to expand at a brisk pace, rising over 50% in the first nine months, reflecting broad-based momentum around the world. We continue to deploy IGT's latest cloud-based iLottery platform and remote game server for customers in Lithuania, Paraguay, Poland, and Switzerland. In addition, we are installing new platforms in markets like Connecticut, where we'll launch iLottery later this year. Today, I'm joining you from the annual North American Association of State and Provincial Lotteries Conference in Milwaukee, where IGT is demonstrating its global lottery industry leadership. This includes the launch of the retailer Pro S2, a sequel to the most popular lottery terminal in the U.S. We'll also be showcasing the industry's first 48-bin self-service vending machine, as well as a digital menu board that is a modern, sleek way for retailers to highlight instant ticket games and other promotional content at the point of sale. Lottery Link is another exciting innovation. It's the first and only solution to enable instant and draw game sales without a dedicated lottery terminal or software changes to the retailer point of sale. And it's a key enabler of our focus to expand in-lane lottery purchases at big box retailers nationwide. Let's move on to global gaming where compelling games and innovative new cabinets are driving strong results. Q3 revenue growth of 8% fueled an over 40% increase in operating income. The year-to-date performance is equally impressive, with revenue up 12% and operating income increasing 34% on a broad-based momentum across the business. Year-to-date global unit shipments are up 10%, complemented by a 7% increase in average selling prices. We've maintained the leading North American ship share for four and a half years, and we have some terrific new games and hardware that we believe can maintain our momentum. The new Diamond RS mechanical wheel stepper has been well-received. claiming about 40% share of North American mechanical real stepper shipments over the last year. We have another multi-level progressive success story with Magic Treasures, whose two-game theme secured top spots in a recent new core video game survey. Progress is equally good for our leased games, where the global install base grew for the fifth consecutive quarter. Prosperity Link continues to perform strongly with over 3,500 units deployed worldwide. We are building on that momentum with Mystery of the Lamp, introduced in June on our new Peak Curve 49 cabinet, which was recently recognized as the leading portrait upright cabinet in North America. We already have over 600 Mystery of the Lamp units in the field, generating productivity over two and a half times floor average. The two base games continue to be among the top new premium leased and WAP games in a recent Eilish survey. But we just came back from a strong showing at G2E where our product strategies were clear. For leased games, we intend to drive our success in MLPs and secure our fair share of that category with five new concepts, including two new ProsperityLink base games. We expect to enhance our presence in the video web category with six new concepts, including the launch of Whitney Houston slots on the new Skyrise cabinet. And we intend to extend our Stepper leadership with the introduction of the Diamond RS Premium cabinet building on the success we've had with sales of the Diamond RS. On the for sale side of the business, we plan to build on our leading North American ship share by making the Peak Curve 49 available for sale. We're doing this with a library of proven game families such as Magic Treasures, Samurai 888, and Kitty Glitter, supported by player-centric game features. Until now, the Peak Curve 49 was exclusive to Lease Games. Video poker and mechanical real steppers are areas where IGT has very strong market leadership positions. In many cases, our new video poker content is outperforming legacy content by over two times, and we've expanded the cabinet offer to maximize our global opportunity. The big bar top is one of the most impactful new video poker hardware introductions in the category, and crystal curve and cobalt cabinets offer new ways to grow our domestic and international video poker presence. As I mentioned earlier, the Diamond RS has revitalized our mechanical reel offer and presents a compelling replacement opportunity for us. At G2E, we expanded our for-sale offer with the Diamond RS27, developed for high-limit rooms where IGT typically enjoys outsized shares. Profit expansion is the main story of Play Digital in the third quarter, with operating income up 32%. In the first nine months of the year, Play Digital revenue rose 17% and operating profit increased 46%. iGaming growth has been fueled by key content strategies and the incremental contribution from iSoftBed in the first half of the year. We expect to launch about 60 new games this year, more than double our historical pace. This expanded capacity, in addition to some unique capabilities, enables us to provide compelling value to our customers and players alike. One example is with the development of bespoke games such as Caesars Cleopatra for Caesars Palace Online Casino and Fort Knox Cleopatra for FanDuel. Another example is the launch of Wheel of Fortune Triple Goldspin in New Jersey, the first ever omnichannel jackpot game in the U.S., leveraging the success of our popular PowerBucks game in Canada. We're looking to expand omnichannel games to new U.S. markets this year and launch Money Mania as a new omnichannel link in Canada this quarter. We are just starting to deploy our sophisticated user engagement tools that offer real time personalized player recommendations and promotions. We expect this unique leading edge technology to drive productivity through a richer player experience and build a strong and sustainable competitive advantage for our content. We continue to expand our sports betting customer base and now power nearly 100 casino sports books across North America. We recently introduced live streaming sports and sports betting functionality on the peak bar top and crystal flex terminals. Players can now watch a sporting event, bet on sports, and play video poker or slots all at the same terminal. Both generated a lot of interest at G2E. We had a great third quarter, and it's been a productive first nine months of the year. Our results place us firmly on track to achieve our full year 2023 financial goals. We are doing this with a steadfast commitment to being a good corporate citizen, evidenced by momentum with key ESG initiatives. including the validation of our SBTI targets and improved ratings from several third-party agencies. As many of you know, we are evaluating strategic alternatives for the global gaming and play digital segments. That work is underway and progressing. At the same time, we have established a strong foundation for achieving our 2025 financial targets. The innovative new solutions featured at recent trade shows will be important catalysts in reaching our goals and in creating significant value for all stakeholders. Now I'll turn the call over to Max.