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spk01: Thank you, and good morning, everyone. Thanks for joining us on IGT's fourth quarter and full year 2020 conference call, which is hosted by Mark Osala, our Chief Executive Officer, and Max Chiara, our Chief Financial Officer. After their remarks, we'll open the call for your questions. We are presenting results 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 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 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.
spk08: Thank you, Jim, and hello to everybody. Today we are reporting a strong finish to 2020, supported by excellent Q4 lottery performance, sequential stability for our global gaming, and continued momentum for our fast-growing digital and betting activities. 2020 was a remarkable year in many ways. Like many companies, we were tested. Nevertheless, the dedication and agility of our people and the diversity of our portfolio, combined with disciplined operational management, drove us to achieve solid results. Throughout the pandemic, Lottery proved to be resilient. Global SIM stores were stable for the year. Accelerated North American growth in the second half offset the impact of game closures and restrictions in other markets. Global gaming revenue and profits were impacted by operating restrictions implemented in varying degrees since March of 2020. These constraints drove many customers and regulators to look to digital solutions to meet player demand. The growing acceptance of digital across iGaming, sports betting, and iLottery propelled a nearly 50% increase in service revenue for our B2B digital and betting activities in 2020. Market dynamics cause us to think differently about how we manage day-to-day operations. In April, we set an ambitious target to preserve cash with a 500 million program in temporary cost saving and avoidance for the year, and that goal was achieved. The experience enabled us to rethink our cost structure in a way that has opened additional opportunities. In fact, we have already identified programs for over 200 million structural cost reductions. The combination of strong lottery performance and disciplined cost capital management enabled us to deliver $576 million of combined free cash flow for the year. This is among the highest levels of free cash flow generation in the last five years. During this time, we have remained true to our core values. Our commitment to environmental, social, and governance matters remains a priority and was recognized as being among the highest in the gaming industry by Fuzzi Russell and MSCI during the year. And our work in this area continues. I want to acknowledge the tremendous contributions of the IGT team for all we achieved in 2020. Considering what the world was facing a year ago, it was not an easy task. Focusing now on the pandemic, we responded swiftly. We implemented safety and business continuity measures that enabled us to protect our employees while maintaining service standards. As customers looked to us for guidance and support, we emphasized innovative solutions. As I mentioned, we preserve cash through $500 million in temporary cost savings and avoidance. These ads improve our cash position while still maintaining access to abundant liquidity throughout the pandemic. Building on our short-term action, we made some important changes to the business. These initiatives provide us with an improved business profile and financial outlook. To begin, the company was reorganized by product line, establishing global responsibility for lottery and gaming. The simplified structure enhances IGT's growth potential by increasing our competitiveness and leveraging economy of scales. It will also help to improve your understanding of our strategy, performance, and intrinsic value. Benefits from the new structure materialize quickly. In a matter of months, we identified over $200 million in structural cost savings. We expect to realize those savings in 2021, an acceleration from the original two-year time frame. Another important change is the announced agreement to sell our Italy B2C gaming machine and sports betting activities for $950 million in cash. The transaction is expected to close in the first half of this year. The sale is compelling. The mix of our business will be better balanced and the representation of Lottery as a percent of our overall revenue and profit mix will grow. Our exposure to Italy will be reduced, thereby removing businesses with the highest regulatory volatility and profit erosion over the last few years. As a result, we will have a simplified gaming portfolio concentrated on our core competencies as a B2B provider of land-based gaming, sports betting, and digital solutions. The transaction improves our financial profile. It will provide for a stronger revenue and profit growth outlook as well as an improved margin structure for our business. It also reduces capital intensity, as we will be avoiding between 200 and 300 million euros for gaming license renewals over the next few years. This reduced capital intensity, in addition to the substantial cash proceeds, enable us to optimize our capital structure by reducing debt and the average cost of borrowing. Moving on to more specific operational highlights for the year, let's begin with global lottery. Same-store sales were stable in 2020, even with restrictions at certain points of sales. North American trends accelerated in the second half, achieving the strongest annual growth for instant and draw games in many years. The recovery in Italy is also noteworthy, with positive same-store sales growth in Q4. Strong player demand during the second half translated into record revenue and profit levels for global lottery business in the last two years. This drove a bid-a-margin expansion for the year. 2021 is off to a good start. Q1 to date, same-store sales for core instance and draw games are up double digits, reflecting strong momentum in North America and Italy. This is before the added benefit of elevated North American jackpot activity in the period. We are encouraged by a steady growth profile and the outlook for our global lottery segment, which is supported by a remaining average contract term of six years. For the global gaming segment, most venues around the world are closed. Those that are open, such as in the US, have some form of operating restrictions in place. With that backdrop, Q4 results were essentially in line with Q3 levels, supported by a stable global install base, and increased replacement unit demand with resilient average selling price. In the US, player demand is good. This is validated by improving January GGR trends in many local markets, and the strong yield we are seeing on our active units. But operators are still enforcing strict capital and cost controls. This will have an impact on revenue and profits for the global gaming segment in the near term, as it has for most of 2020. We are focused on the way forward, investing in our product offer to build on our leading market position and to bring compelling new solutions to market. Along these lines, our growing family of peak cabinets is rolling out and having an impact across the franchise. One area is with our expanded portfolio of multi-level progressive games, including Dragon Lies, Gong C. Fakai, and Wheel of Fortune Mystery Link on the Peak 49 slant. Another is NVIDIA Poker, where our long-standing market leadership continues to expand with the new Peak bar top. Regal Riches, X-Breaker 3, and Wolfram Gold are among the top-performing for-sale games. We continue to emphasize safe solutions that provide reduced contact and more cost-effective gaming. Electronic table games are one example as they have the dual benefit of facilitating social distancing while helping to reduce operating costs. We have grown our ETG presence during the pandemic with the launch of the PICA Dynasty Cabinet, which allows for blackjack, roulette, and baccarat all to be played on the same terminal. Our growing suite of innovative system solutions is grounded in a digital and mobile-first mindset to drive smarter casino floor management and greater player engagement. Best-of-breed applications, such as our bonus suite of products and mobile responders, among others, are proven drivers of higher floor productivity and operational efficiencies. Resolve Wallet, which encompasses all our cashless capabilities, recently achieved a major milestone with Nevada regulatory approval. Several deployments are planned for this year. Yesterday, we announced a cross-licensing agreement for patents related to cashless slot machine technology in the U.S. with Scientific Games that has a significant IP in this area. This enables IGT to monetize many years of R&D investment in building a robust IP portfolio in this space. It should also support accelerated industry adoption of cashless. Players are embracing iGaming, sports betting, and iLottery offerings, fueling an extraordinary increase in GGR. IGT's solutions are widely recognized among the most reliable in the context of such rapid growth. This is driving substantial revenue increases for us, including nearly 50% growth in digital embedding service revenue in 2020, mostly led by expanding player base in existing markets. Increased regulation, especially in the U.S., will be an important driver of continued growth for our digital and betting activities. According to H2 Gambling Capital, the number of U.S. jurisdictions with a legal high gaming, sports betting, and high lottery is forecasted to expand a lot in the next few years. IGT expects to remain a market-leading B2B provider of technology and other solutions in all three main verticals. We are confident that our gaming content library will continue to support a 20% to 30% share of the North America iGaming market. In Michigan, the newest iGaming jurisdiction, we are already live with seven customers. We intend to maintain the broadest land-based presence of any B2B sport betting platform in the U.S., Our ability to do so is enhanced by the addition of a proprietary trading service team last year, enabling us to offer turnkey sports betting solutions to customers of any size. We are well positioned for high lottery expansion given our long-standing relationships with the most successful lotteries around the world. While much of the recent interest in iLottery has been in the U.S., we see a compelling opportunity to grow iLottery in Italy and other international markets as well. 2020 provided an opportunity for IGT to highlight the distinct advantage of having a diverse portfolio of businesses and broad geographic presence, in addition to a highly seasoned management team. Our global lottery leadership and significant focus on cost saving and avoidance provided extraordinary resilience to our consolidated performance, including some of the strongest cash flow ever. It was also a year of significant strategic and operational progress. We built up leadership position across the enterprise and amplified solutions for the new normal. We reorganized the company with a focus on core competencies that enabled us to unlock substantial structural cost saving and yielding a stronger revenue and profit growth outlook. This, coupled with the reduced capital intensity of the business, provides us a clear path to reducing debt and enhancing shareholder value. To Max now for a discussion of our financial achievements.
spk03: Thank you, Marco, and hello, everybody. A summary of four quarter and full year 2020 results is shown on slide 14. Due to the pending sale of our Italy B2C gaming business, the financial results, cash flows, and balance sheet items attributable to those businesses have been classified as discontinued operations in our consolidated financial statements. Combined adjusted EBITDA and free cash flow results are presented on this slide to help you compare our results with your current estimates. Going forward, our focus will be on continuing operations, which is what I will be speaking to throughout the rest of these prepared remarks, unless noted otherwise. Our four-quarter results reflect the combination of a very resilient global lottery business, which achieved the highest level of quarterly revenue and adjusted EBITDA in two years. and our global gaming operations, which continue to be severely impacted by pandemic-driven casino closures and operating restrictions. Global gaming performance was relatively stable with Q3 levels. We generated $885 million in total revenue in our continuing operations in the fourth quarter, driven by growth in global lottery across all revenue streams. Digital and betting service revenue increased nearly 55%, helping to partially offset the impact of COVID-related restrictions on global gaming revenue. Operating income of $96 million and adjusted EBITDA of $295 million benefited from the high profit flow-through of same-store sales growth in global lottery and disciplined cost-saving actions, partially offset by a $19 million catch-up adjustment that I will describe in more detail in a minute. Combined adjusted EBITDA, which includes a $26 million contribution from discontinued operations, totaled $321 million and would have been $19 million higher without the catch-up. We continue to convert a higher percentage of adjusted EBITDA to operating cash flow, achieving an 85% conversion rate in the quarter compared to 76% in the prior year. These, along with CAPEX discipline, resulted in free cash flow that exceeded prior year levels. Our 2020 full year results delivered $3.1 billion in revenue and an adjusted EBITDA of $1 billion with a significant contribution from our resilient global lottery business. As a reminder, our operating loss of $107 million includes a goodwill impairment charge of $296 million accounted for in the first quarter of the year at the start of the pandemic. Cash flow generation was solid, with $595 million in cash from operations and $340 million in free cash flow. Robust cash flow in the back half of the year was supported by lottery performance, cost-saving initiatives, and management of invested capital. Combined free cash flow of $576 million was among the strongest in the last five years. Now let's turn to the results from our global operating segments, starting with global lottery. Revenue increased 11% to $630 million. Global same-store sales rose 8% in the quarter. Strong demand from core players and the launch of higher price point games in states such as Florida, Virginia, and Tennessee, helped drive continued double-digit same-store sales growth in North America. In Italy, same-store sales were up modestly, as growth in scratch and win was partially offset by lower lotto contributions, which were impacted by renewed mobility restrictions and social distancing mandates. Italy's same-store sales trend improved month over month, with double-digit growth achieved in December. The advertising ban implemented in Italy in 2018, stemming from the Dignity Law Decree No. 87, prevented us from fulfilling certain marketing commitments related to the Italy Scratch and Win contract. The regulator has requested reimbursement of the unspent amount, resulting in a $19 million catch-up adjustment that affected both revenue and profit. Absent this adjustment, lottery service revenue would have been up 7% and better aligned with the same-store sales growth. Strong momentum continued in iLottery, where same-store sales increased over 100%. Other service is higher on growth in commercial services, which is primarily a convenient bill payment processing service. Product sales revenue doubled, driven by Oregon Terminal Sales and a system sale delivered to Swiss Loro. Operating income of $195 million was up 26% on strong flow through of same store sales growth and the benefit of cost savings actions and would have grown 39% X the said advertising adjustment. Adjusted EBITDA of $313 million rose 17% from $268 million in the prior year period. 2020 full-year revenue was $2.2 billion driven by the sharp recovery in the back half of the year and higher commercial service revenue. Operating income and adjusted EBITDA for the full year were $642 million and $1.1 billion respectively. Turning to global gaming, revenue of $255 million was down 46% with difficult year-over-year comparisons due to the pandemic. Sequentially, revenue, operating income, and adjusted EBITDA were stable despite widespread closures and restrictions, supported by stable to slightly improving KPIs. Digital embedding service revenue continued its strong momentum, increasing nearly 55%. Overall, digital embedding revenue rose 4% as the double-digit growth in service revenue was partially offset by lower product sales due to a non-recurring software sale in the prior year. Sequentially, the global install base was stable. In North America, yields on active unit increased double digit compared to the prior year period. They were down modestly in the rest of the world. On a global basis, we sold just over 4,300 units in the quarter, a sequential increase of 17%, with replacement unit sales up 28%, led by demand in North America. Operating loss and adjusted EBITDA reflect a decline in revenue, partially offset by the benefit of cost-saving actions. Revenue and profit drivers for the full year are essentially the same as in the quarter. On our last earnings call, we mentioned, moving now to slide 19, we mentioned that we had identified over $200 million in savings relative to 2019 levels to be achieved through 2022. We referred this set of efficiency initiatives as Optima, and are pleased to report that we now expect to realize the savings by the end of 2021 as a result of good momentum on our initiatives. Optima is comprised of three main initiatives. The first is operational excellence, which includes the optimization of procurement and assembly processes, as well as the supply chain and logistics. This represents about 30% of the savings at run rate, with a ramp-up phase that depends on the level of production volume we will achieve during the year. Second is an effort aimed at reducing the complexity of our product offering and geographic mix. This will include a return-driven ranking assessment of products and markets, a reassessment of structural support cost, and a reallocation of resources from high- to low-cost jurisdictions. Another 30 percent of the savings at run rate should come from this effort. The third initiative relates to other margin improvement initiatives such as reducing our global facilities footprint and continuing with discipline cost controls we implemented in 2020. These account for the remaining 40% of the savings at run rate and of the three initiatives will be the category with the quickest implementation time as it will build on the robust initiatives delivered in 2020. About 75% of the savings will benefit the P&L and the balance for CapEx. On the P&L, about 50% of the savings should benefit gross profit with 30% for SG&A and the balance for R&D. At the segment level, about 85% of the expected savings accrue to global gaming with the balance split between Global Lottery Incorporated. We also expect to incur a total of 60 to 80 million of charges associated with this structural improvement About $50 million of that amount was already booked in 2020. We expect to update you on the progress of the Optima program throughout 2021. Moving to slide 20, we deliver strong cash flow in the year, including $595 million in operating cash flow and $340 million in free cash flow in our continuing operations, among the highest level in five years. As a result, when combined with discontinued operations free cash flow, we reduced net debt by over $430 million net of effects, and after distributing a combined over $200 million figure in dividends to shareholders and minority interests. Leverage was elevated at the end of 2020 compared to the end of the prior year due to the pandemic's impact on adjusted EBITDA. We expect leverage to return to pre-COVID levels over the next 12 to 18 months. On slide 21, we have our liquidity and debt position. At the end of 2020, total liquidity was $2.72 billion, an increase of over $300 million from the previous year. This provides ample liquidity to cover our debt maturities through 2022. Our sole debt obligation in 21 was a $393 million term loan amortization, which was paid in January 2021. Proceeds from the announced agreement to sell certain Italy B2C gaming activities will primarily be used to reduce debt. In summary, 2020 was a challenging year for the gaming industry. We were able to deliver solid financial results with particular strength from Global Lottery in the back half of the year and continued momentum in digital and betting revenue. We launched Optima, an extensive business efficiency program expected to deliver over $200 million in structural cost savings in 2021. helping to drive near-term margin expansion. Strong cash flow enabled us to reduce net debt by over 430 million net of effects and increase our liquidity by 300 million to 2.72 billion. Moving to slide 23. Given the uncertainty associated with pandemic-related restrictions, mainly on our global gaming segment, we're not providing a full year outlook at this time, but instead some perspectives on the first quarter. For Q1, revenue and operating income should be higher on both a year-over-year and sequential basis, even excluding the goodwill impairment in the previous year. Global lottery revenue and profit are expected to increase on strong double-digit same-store sales growth trends for instant ticket and draw games, coupled with an exceptional contribution from high jackpot levels in January in North America. In global gaming, results are expected to be relatively in line with Q4, amid the ongoing COVID restrictions. Depreciation and amortization, as well as CAPEX, are expected to remain relatively stable year over year. I concluded my remarks, and now we would like to dedicate some time to answering your questions. Back to the operator. Thank you.
spk00: Thank you. Ladies and gentlemen, if you have a question at this time, please press the star followed by the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star and then one now. And our first question comes from Carlo Santorelli from Deutsche Bank. Your line is open.
spk04: Hey, guys. Good morning, and thank you for all the color. Acknowledging, obviously, with the discontinued ops and the Italy sale, there's a little bit of apples and oranges here. If I were to think about kind of 2021 and your 2019 business, I believe your reported adjusted EBITDA at the time was about $1.7 billion. Extracting the $225, $230 million for the sale of the Italy business, you'd be looking at like a 1.48 number or something along those lines. If we were to think about the fourth quarter and kind of run rate the fourth quarter, maybe obviously the change for the $19 million that you guys referenced, You're kind of in the 1.2 range. You obviously have the cost implementation, the cost program that you've embarked on and expect to see obviously more flow through from that in 2021. Off to a strong first quarter on the lottery side, and I would anticipate the lottery business will remain strong for most of this year. Is that kind of 2019 adjusted results something you guys think is reasonable as we think about a run rate? you know, in the back half of 2021, obviously, depending on the return on the gaming side.
spk03: Max. Hi, Carlo. Good morning. Good afternoon. Good morning. Yes, I'll take this question, Marco. So given the uncertainty associated with the restrictions pandemic related, as we said, mainly affecting our global gaming segment. It's really difficult at this point to provide a full year outlook. But I definitely understand the need you guys have to start rebuilding our models based upon the split between continuing ops and discontinued ops. So let me offer some high-level qualitative perspective here. So obviously with the big premise at the beginning, barring any unforeseen changes in the trajectory of the pandemic, we would say that for global lottery, we expect revenue and profit higher than both 2020 and 2019 levels. This would be a complete recovery from the pandemic impact last year and a return to a consistent growth profile for the business. On the global gaming instead, revenue and profit should definitely be above 2020 levels. but we don't expect a full recovery to the pre-pandemic levels in this segment until probably later in 2022 or 2023. As a partial offset to that, obviously, we have our digital embedding business where we expect momentum to continue, and we think that we will be able to continue to pursue double-digit growth in 2021. And, Carlo, I would stop at that and don't provide any more color at this point, given the uncertainties that are still around the pandemic.
spk04: That did help tremendously. Thank you. If I could, guys, just one follow-up. One of your competitors last night did talk a little bit about iLottery opportunities in the United States and mentioned that as many as 10 states were currently looking at kind of the expansion of iLottery. Could you guys share perhaps your perspective on that business and perhaps what you foresee as the opportunity that that could provide?
spk08: No, I take this, Carlo. I think iLottery represents a great opportunity overall for our company because we are already well established with nine WLA customers, three of which are in the United States and the rest in international. We are appreciating an higher acceptance of iLottery. As we said in our prepared remarks, we enjoyed an increase of over 50% in 2020, and we expect to maintain double-digit iLottery growth over the next several years. And this is driven by an expanding player base in existing jurisdictions, and the New jurisdiction as well. As you know, it's very difficult to predict when new jurisdictions will start regulating this part of the business, but we are seeing an incremental interest on it, and we are pretty sure that it will happen over time. And for that, we intend to invest in many high lottery companies, We are investing in expanding the portfolio of games. We are enhancing our platform. And by the way, some of our current customers will transition to our newest platform in the next several months. And we are also increasing our marketing activities to support player acquisition and retention for our customers. So we are expecting a solid growth. for sure, double-digit growth over the next five years, and we consider iLottery in the future as one of the drivers for the overall growth of the lottery segment.
spk04: Great. Thank you very much, guys. Appreciate the call this morning.
spk08: Thank you, Carlo.
spk00: Thank you. Our next question comes from Chad Bainon from Macquarie. Your line is open.
spk06: Hi, good afternoon. Thanks for taking my questions. Mark, I wanted to go back to Lottery. You gave great guidance and talked about all the successes throughout 2020. I wanted to focus on the manufacturing of the instant tickets. I know from a facility management standpoint, your contracts are very long, nothing coming up from a renewal standpoint. Are there more opportunities to manufacture and print tickets in the future? I know those contracts are sometimes shorter-term rolling. and states include multiple manufacturers. Just trying to understand how you're viewing your market share over the next couple years in that segment. Thanks.
spk08: Sure, thank you. We are making good progress with instant ticket printing, and we consider it a growing area of opportunity for us. In the last 18 months, we've been awarded three of the four primary printing contracts, Two of these were incremental. We have invested in a greater printing capacity that has better position as to benefit from instant market growth in 2021 and beyond. So all to say that over time in the last years, we kept on investing in this area. We have invested on innovative products. We are getting good response from customers, and we rely on this area as one of the additional drivers, together with the iLottery I mentioned before, to grow our overall lottery business over time.
spk06: Great, thanks. And then on the iGaming market share that you alluded to, can you talk about – Are players just comfortable and familiar with your games? Are your placements of the games on their user interface better? And then, you know, is this a share that we could expect for you guys to achieve, you know, going forward somewhere up in the 20% given players' familiarity with your content?
spk08: This is what we think. We think that this is the market share we can handle between 20% and 30%. Considering that the players are starting playing the games that they are used to play in their floor, but apart from that, we are investing in order to develop new games, but also enhancing our portfolio with introduction of third-party contents in order to keep our offering updated and to keep and possibly increase But when we look at the iGaming overall, we see the opportunity of very important growth, and we see that as soon as one jurisdiction is opening, our objective is to reach, on average, market share in excess of 20%. Thank you very much.
spk06: Appreciate that.
spk08: Thank you.
spk00: Thank you. Our next question comes from Barry Jonas from Truist Securities. Your line is open.
spk05: Hey, thank you so much. So maybe just following up on Carlo's first question, a few years ago you issued adjusted free cash flow guidance. I think it was $450 to $550 million. Can you maybe just give us any additional puts and takes to think about if and when you could get back to those levels?
spk03: Max. So I would... I would not respond directly to your questions in terms of the long term trajectory of the cash flow. Rather, I would rather stay focused on the short term. And obviously, as you notice, we generated a good performance of cash flow in 2020. We see cash flow obviously going up from here next year. That is primarily going to be supported by higher profits, although I would warn you that with our profits obviously comes our taxes and there is another important driver of the 2020 cash flow that was associated with our tight invested capital management both for working capital and capex. So in order to support the full recovery and facilitate the future revenue growth, we will naturally need to invest more capital in 21 than we did in 2020. So with this in mind, I think you can probably formulate your own assumptions around the 2021 expectations. But as I said at the beginning, we expect 2021 cash flow to be higher than 2020.
spk05: Great, great. And then, Marco, maybe just more a high-level question. As the world returns to more normalcy, it sounds like you guys think the business could eventually return to prior levels. But I'm curious if you think there are any permanent structural changes you or your customers may face as a result of COVID.
spk08: That is a very good question. I mean, looking at our portfolio, for sure, the digital part of our portfolio will continue growing at a very solid rate over time because Players are getting used with that because new jurisdictions will regulate it. And by the way, for this business, it's very good news because we have seen in the various markets where the digital offering is already well established, it carries a very, very minor level of cannibalization, if any. So this is very good news. As I said, a lot of them are doing very well, and we see the appetite of our customers to find an even sharper way to increase their revenues. And they are now really asking us to innovate their portfolio in order to steadily grow. And I think this, in terms of attitude... is a very important evolution. On gaming, of course, it will be very much related to the player demand. We see generally that once the venues are reopening, once the restrictions are removed, the pent-up demand is strong. And so I expect the business to get back and we have invested heavily in order to provide our customers also with innovative solutions, such as the cashless we have discussed also previously about, in order to better serve players. So I think overall the outlook for our part of the portfolio is, generally speaking, positive.
spk05: Great. Thank you so much.
spk08: Thank you.
spk00: Thank you. And again, ladies and gentlemen, to ask a question, please press star and then one now. And our next question comes from Domenico Galati from Equita. Your line is open.
spk02: Good morning. A few questions. The first is on the digital business. You were mentioning 50% growth year-on-year. Can you try to give a sense of how much is today the lottery and what is the size that you are starting from? in 2020. The second question is on the global lotteries. You were mentioning Q1, if I understand properly, a double-digit same-store sales before any jackpot, let's say, contribution that would be on top. I wonder if this is a level, so the double-digit level that you think is sustainable compared to 2019 level, so to pre-COVID level. That was really a very, very strong message from Q1. And the last question is on the structural savings that you were mentioning. How much have you already booked, let's say, on this at the end of 2020? And should we expect a smooth, gradual trend to reach the target by the end of 2021?
spk08: Okay, Domenico. I will take the second question regarding lottery. I will leave Max to articulate on the numbers of... high lottery and digital business and the savings. But regarding the lottery, the fact is the momentum we had in the second half of 2020 has accelerated into 2021. And you perfectly understood what I said. Q1 to date, global same-store sales are For the underlining business, it's up double digits across the various regions. North America is doing well and continues to do well. In addition to that, we have enjoyed the upside coming from the jackpot. Italy is up strong in Q1. The gaming gold closure as well as new game launches such as Tenel Lotto Extra are supporting recent trends. The international part of the business is doing well and the lottery is doubling the prior year level in the U.S. and in Italy. I think at this point lotteries have benefited from a lack of other gaming and leisure alternatives. I do not believe that the double-digit trend will be what we should plan for future years, but I think that we can, as we've always done, rely on a steady growth between single-digit, mid-single-digit growth over the years. And this is the trend we have appreciated in the previous years and this is something we believe will continue because the player interest has remained robust and even when gaming goals are reopened in some jurisdictions, and all our information and research are telling us that players keep on enjoying our games. And that is the reason why we are doing very well in this period of time, and it provides us comfort in considering the trajectory of the game the next year's positive, maybe even slightly better than we have planned or we have seen in the previous years.
spk03: Okay.
spk08: Max?
spk03: Yes, so let me start with the digital. Hi, Domenico. So as you know, we provide a specific carve-out for the digital business on the revenue line. that cut across our segment. So for 2020, we booked 170 million plus revenue. Of that number, slightly more than 50% is iGaming. Of the remaining portion, more than half is iLottery, and the balance is sports betting. I urge you to consider that in sports betting, as we deliver software as a service so far, Obviously, we run with a revenue recognition that kind of prorate the benefit over time through the duration of those contracts, and some of the revenue effectively end up being delayed in terms of booking. In terms of margin, obviously, we didn't provide a specific guidance on the margin, but what we said is that the margin all in all for our digital business is At par at least at par with the global business with the global company and is definitely accretive to the global gaming segment And that would be it for digital now on the structural program the structural savings program Let me start with the charges first and then I move to the savings on The charges we already booked about slightly less than 50 million in 2020 primarily that was done in q2 and That was split in three initiatives. Two of the three kind of are complete in terms of the charges relate to the Operational Excellence Initiative and the LOTUS reorganization slash the tertiary bucket in our cost savings program. So the Operational Excellence Initiative has a slower ramp up because it depends on the volume that we can deliver period to period. But again, the charges have been taken. On the other margin improvements and the LOTUS reorganization, charges have been taken and savings are progressing well as anticipated. There is a little bit more longer tail on the third initiatives that is still in progress of being complete and will probably require another one to two years to finish, but the majority
spk02: of it will be spent this year and so the saving will majority of the savings will accrue in 2021 for a total amount of 200 million expected for the full year in terms of savings have you already booked any saving in uh in 2020 just or let's say the end uh and point so at the end of 2020 the run rate of savings as we should consider
spk03: So you need to see the two years from a different perspective. The focus in 2020 was on cash preservation, so we kind of looked at ways to stop spending and made some haircuts to certain cost items, primarily personnel related. The savings we're talking about here going forward are more structural in nature, so some of the cost-cutting initiatives that we Delivering 20 will continue over time and will continue to accrue. So a portion of that has already been achieved but is kind of not incremental in 2021 versus 2020. On the longer-term initiatives, the savings are in progress of being achieved and they will be all incremental versus 2020. So that's the kind of difference between the two years.
spk02: Okay, thank you. And just to follow up on, you were mentioning in 2021 to be aware that CapEx will go up compared to 2020. Do we have also significant or we should consider also some deferred payments due to some initiative by the regulator due to COVID? So do we have something relevant to be taken into account?
spk03: So I'll give you the answer on the CAPEX and then let Marco eventually comment on the last part of the question. So for CAPEX in 21, definitely after the significant reduction that we run through in 2020, there will be a step up in the CAPEX number for 21. But we are comfortably convinced that we will be able to stay below the 2019 levels.
spk08: On our continued operations, I do not see any change regarding our relationship with the regulator.
spk02: I mean, all the payments have been regular, so you did not benefit on your continued operation from deferred payments or any relevant amount that should be taken into account?
spk08: No.
spk02: Okay. Thank you.
spk08: Thank you, Domenico.
spk00: Thank you. And our next question comes from David Katz with Jefferies. Your line is open.
spk07: Hi. Morning, everyone. Hi, David. Hi. Look, I appreciate all of the commentary around the games and the lotteries, which have done well. There is an awful lot of attention on the digital sports betting and iGaming aspects. Can you talk about what your strategic vision is for that business? You obviously have sets of relationships, sets of key capabilities. What do you aspire that to really turn into over time? Secondarily, I wanted to follow up on the announcement of patent sharing that you've made with Cygames. and just have you elaborate a bit on what that does, how it works, and how we might think about that in the context of our forecast. Thank you. Sure.
spk08: Sorry, David, I didn't catch one thing. Do you want me to elaborate on the overall digital offering or sports betting only?
spk07: Primarily sports betting and iGaming.
spk08: Fine. Okay, fine. Look, David, I think in both areas, we intend to have our important role as a B2B provider, platforms, of games, of services. I think I've already elaborated on iGaming. We have a very comprehensive portfolio. We have the ability to distribute it. We have the possibility to cut bills with studios around the world to integrate going forward our offering. We are enjoying already a very good market share in the jurisdictions that are regulated and we do expect we will take benefit from the progressive regulation of iGaming in additional jurisdictions. In reality, sports betting is not very much different because We have our very comprehensive offering. An offer that is based on our platform, that is reliable, scalable. We have our trading service team and we have our market leading hardware for the land-based distribution. And all in all, this enables us to offer a turnkey sportsbook solution to customers of any size. And as a matter of fact, we are live in 16 states with nearly 20 customers. We have a strong partnership with market leaders such as Fanjuel, Point Betts, NBA, Boyd. And the market, as you perfectly know, is expected to grow very fast over the next five years. And we are proactively securing partnership in all the new jurisdictions that are thinking about this regulation. And the way we interpret our role here is to be the partner of any of our customers that intend to have a sports betting offering from digital to land-based with all the possible services that a customer can ask to a B2B supplier.
spk07: So if I can follow that up, is it fair to assume that it's not going to be in the instance where, let's say, larger integrated operators look to own their own enterprise? It will be more for small and medium-sized operators who would prefer to, right?
spk08: Yeah, I think you are right, especially in the digital space, big operators. tend to integrate their platforms and we can provide other services and very likely our biggest opportunity going forward is with mid-size operators. I agree on that. But on the other hand, our platform was able to bring Fanjuel to the success it is enjoying. So anyone might require a digital offering, we can provide them. Going forward, I think the opportunity will be more on mid-size operator that wants to have a turnkey solution.
spk07: Perfect. And my second question was around the announcement for the patent sharing agreement and how you might elaborate on that.
spk08: Yeah, I tried to give my view, and my view is very simple. Through this agreement, each company... will have immediate access to each other's cashless gaming patents. While the commercial service will remain separate, both IGT and Scientific Games will enhance their respective solutions, leveraging the two companies' combined portfolio of patented cashless gaming technologies. players who are wanting to provide a cashless solution will be able to take a license to the comprehensive IP portfolio too. So this agreement enables IGT to generate value not only from our products, such as a resort wallet, but also from our IP portfolio where we have made significant investments over the years. We think at the end of the day that these will favor operators for a quicker adoption of the cashless technology to their benefit and at the end to the benefit of their players as well.
spk07: So is the point ultimately that the offering becomes brand agnostic with respect to which casino management system you might be using, yours or theirs? as long as it's not some third provider?
spk08: No, I think the point is we will keep our separate offering. Today, IGT and Scientific Games can get from this portfolio pool of IPs to enhance their own offerings. Going forward, if other operators are interested in in taking some of those IP, there will be commercial conditions through which they will announce their portfolio as well.
spk07: Perfect. Thanks very much.
spk08: Appreciate it. Thank you. Thank you very much.
spk00: Thank you. And at this time, I am showing no further questions in the queue. I would now like to turn the conference back over to Marco Sala for any closing remarks.
spk08: Thank you for joining us today. 2020 provided an opportunity to highlight the advantages of IGT's diverse portfolio of businesses and broad geographic presence. Our global lottery leadership and diligent focus on cost provided extraordinary resilience to our results. We made important strategic and operational progress in the year, reorganizing the company with a sharpened focus on core competencies and unlocking substantial structural cost savings. With a stronger revenue and profit growth outlook, we have a clear path to reducing debt and enhancing shareholder value. Thank you and have a great day.
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