International Game Technology PLC

will be available for your questions. During today's call, we'll 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. 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, and 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.

Thank you, Jim, and good morning to all. Well, 2024 was a significant year for IGT. We concluded a strategic review that resulted in the announced sale of our gaming and digital business for more than $4 billion in cash. Upon closing, the company will have a singular focus on its leading lottery business, which provides products and services to more lotteries than any company in the world. In 2024, IGT generated over $1 billion in consolidated cash from operations and about $660 million of free cash. Highlighting the cash flow generation of the lottery business, more than 80% of that free cash flow came from lottery operations. The $2.5 billion of revenue achieved in the year was consistent with 2023, as growth in core instant ticket and draw game sales were offset by lower U.S. multi-state jackpot sales. Multi-state jackpot games remained popular. However, there were many more winners in 2024, resulting in fewer significant advertised jackpots and resulting in lower sales. The lottery business achieved $1.2 billion of EBITDA at a 47% margin, highlighting its attractive profit profile. The profit and cash flow contributions enabled significant debt repayment during the year. Year-end pro forma net debt leverage, which is adjusted for the $2 billion in gaming and digital sales proceeds committed for debt reduction, is 2.4 times the lowest level in IGT history. Innovation in content and working with our lottery customers enabled improving core lottery same store sales throughout the year. Instant ticket and draw game sales increased 4% in Q4, including improvement across all regions. Lower U.S. multi-state jackpot comparisons weighed on total reported same store sales for both Q4 and the full year. While the randomness of large jackpot timing had a negative impact in 2024, They have been a meaningful driver of lottery sales over the last five years. Our product team drove strong growth in Italy in both Q4 and the full-year periods. Several new game launches, including the highly successful Tombola Holiday Bundle and the new Gioco Piu e-Instant game, were important drivers of Q4 results, as were special draws for Teni Lotto and Numero Oro add-on feature for traditional lotto. The first scratch ticket in Italy using IGT's proprietary infinity print technology named POP was well received and has been effective in attracting new, younger players as well as upselling existing players to the five euro price point. We believe our exemplary performance in increasing Italy's same-store sales and state revenue position us well for the upcoming Italian Lotto bid. Improving trends in large jurisdictions including California, Florida, Georgia, New York, and Texas drove an increase in instant and draw game sales as the year progressed, especially in the fourth quarter. We play an important role in driving this dynamic. Our experience operating lotteries and in working with over 100 jurisdictions around the world provides player insights, performance analytics, and sales tools that enable a steady pipeline of innovations. The trusted partnerships we have with our customers enables us to offer guidance on game development, portfolio optimization, and go-to-market strategies. iLottery sales rose 28% in both the fourth quarter and the full year 2024 periods, maintaining the double-digit pace of the last few years. Momentum was broad-based across the U.S., Italy, and several European markets, including Poland, the Czech Republic, and Belgium. We've invested significant resources and are committed to our iLottery platform, which is deployed in 11 jurisdictions. making us the number one iLottery platform supplier in the world. During the year, we launched our iLottery platform in Connecticut. Our customers in Georgia and Kentucky have the distinction of being among the fastest-growing iLotteries in the U.S. Much of this outperformance can be attributed to successful player acquisition programs powered by our iLottery marketing and CRM services. Congratulations to our Georgia Lottery customers surpassing $1 billion in iLottery sales during calendar 2024. We are excited to bring our top-performing e-Instant games like Elephant King and Lucky Coins to new content customers. IGT now has content partnerships with 18 jurisdictions, including a recent five-year contract for iLottery content with Bakehouse in Finland. Our proven track record executing large and complex deployments is unrivaled. For context, our central systems handle billions of transactions annually and are capable of processing approximately one million transactions per minute. We are also the leading provider of lottery point of sales technology with more than 400,000 retailer terminals deployed globally, four times as many as any other vendor. Another hallmark of our business is the diversity of contracts in our portfolio, supported by an average customer relationship spanning three decades. In 2024, we won a seven-year FM contract with the Colorado Lottery, as well as a 10-year FM and a lottery contract with Luxembourg's Lottery Nationali. We also secured several long-term FM contract extensions, including 10 years with the North Carolina Education Lottery and three years with the Mississippi and Virginia Lotteries. And earlier this month, we announced a nine-year extension with the Tennessee Lottery. It was also a big year for our instant ticket service businesses, where we won a three-year primary contract in Portugal, displacing an incumbent. We entered a five-year contract with ONCE, the operator of Spain's lottery, and a three-year contract with FDJ, the operator of the French National Lottery. These additions will significantly increase production volume in 2025, enabling the company to leverage its new state-of-the-art press. 2024 was a year of significant accomplishments with key strategic initiatives. In 2025, we are focused on winning important contracts in Italy and Texas, which will require significant capital. We will also invest in new game content and technologies that we expect will fuel sales growth and strengthen our lottery industry leadership. Additionally, we are identifying structural cost savings to drive greater efficiencies across the organization, enhancing our financial profile that is already characterized by strong profit margins, significant free cash flow generation, and a solid balance sheet. We are diligently working to close the gaming and digital sale, which will provide over $4 billion in gross cash proceeds significantly strengthening our balance sheet and shareholder returns. Now I'll turn the call over to Max.

Thank you, Vince, and hello to everyone joining us on the call today. IGT four-quarter and full-year 2024 financial results were solid, achieving the outlook for revenue and adjusted EBITDA we provided on our Q3 earnings call. While the timing of large U.S. multi-stage outputs and product sales can cause quarter-to-quarter variability in our financial performance, the core recurring business is healthy and growing in line with expectations, and the margin structure of this business is compelling, delivering adjusted EBITDA margins well above 40%. In the fourth quarter, IGT generated revenue of $651 million compared to $681 million in the prior year, driven by broad-based same-store sales growth in instant ticket and draw games, including a 7% same-store sales growth in Italy. This resulted benefit from a couple of extra selling days versus the prior year. Strength in IGT core recurring business was offset by the timing impact of elevated jack productivity and higher product sales in the prior year. It is worth noting that while product sales revenue was lower year over year, it was still very strong, achieving the second highest level in company history. Keep in mind that product sales in general tend to be lumpy in nature and typically only represent a mid-single digit percentage of total revenue. For the full year, revenue of $2.5 billion was basically in line with the prior year period. The primary drivers of the year-over-year comparison mirror those in the quarter. While instant ticket and draw game revenue grew $35 million, U.S. multistage jackpot revenue declined $29 million due to the exceptional levels of jackpot activity in the prior year. Other service rose 3 million primarily due to revenue associated with non-wager-based service contract in Europe, partially offset by lower LMA incentive revenue, a dynamic that is impacted by a relatively long period of time with lower U.S. multistage output performance. Finally, product sales revenue was lowered by $17 million as significant product sales in the prior year were partially offset by an increase in instant ticket services in the current year. Profit generation was solid in both the four quarter and full year period. IGT delivered Q4 income from continuing operations of $116 million compared to $73 million in the prior year. and adjusted EBITDA of $290 million compared to $316 million, with the difference almost entirely driven by the volume and mix of product sales. High-profit flow-through from same-store sales growth was offset by lower LMA incentives and investments in the business. On a four-year basis, income from continuing ops was $271 million compared to $265 million in the prior year period. driven by a known cash benefit of changes in exchange rate, partially offset by the impact of a discrete tax item and lower operating income. Adjusted EBITDA of 1.17 billion declined from 1.21 billion in the prior year. Service margin was down 25 million as the benefit of higher instant ticket and draw game sales was offset by three main items. First, a $28 million decline related to the high-profit flow-through from elevated U.S. multistage jackpot activity in the prior year. Second, the jackpot-related impact on LMA incentives. And third, additional investments we're making in the business, including personnel and project costs, supporting contract renewals, and extensions activity. As expected, product sales margin was $26 million lower, driven by volume and mix. SG&A improved $17 million, reflecting reduced legal costs, and R&D was up $7 million, primarily due to continued investments we're making to drive future growth and efficiencies, particularly around cloud initiatives. Adjusted EBITDA margin of approximately 47% highlights the impressive profit profile of this business. On slide 12 now. In the full year period, IGT delivered a very strong $1.03 billion in consolidated cash from ops, with approximately two-thirds being generated by continuing ops. Consolidated free cash flow totaled about $660 million, and over 80% was attributable to the lottery business. Shareholder returns remain a key part of our balance strategy, as evidenced by the $161 million of cash dividends paid to shareholders. We will have a $4.05 billion gross cash infusion when the gaming and digital sale is completed. As previously communicated, we intend to allocate the net cash proceeds in a balanced manner, with significant portions being used to repay debt and to be returned to shareholders. The committed $2 billion debt reduction will meaningfully strengthen our balance sheet and further improve our debt maturity profile. Performa for this debt reduction net debt leverage is 2.4 times using debt balances at year end. Total liquidity remains solid at $1.9 billion, including $584 million in unrestricted cash and $1.4 billion in undrawn credit facility capacity. We're focused on several strategic initiatives to drive structural cost savings and to fund important investments in the business. Optima 3.0 is well underway, driving real cash cost savings of $40 million by the end of 2026. We continue to explore additional opportunities currently under review to expand the program with incremental productivity and operational efficiencies in our core business. More to come on this in the near future. Our ongoing success in securing meaningful contract wins and extensions, which is expected to secure revenue and cash flow visibility for the next decade or so has resulted in the need for higher capital investment in the business for the next couple of years. We estimate annual CapEx spend in the range of 400 to 450 million in each of fiscal year 25 and fiscal year 26, which includes investments to secure important contracts in Italy, Texas, and New York. We anticipate annual capex in the range of 200 to 225 million for the next several years thereafter, reflecting the benefit from temporary cost increases related to investment in cloud infrastructure and point of sale network optimization that are underway. Additional investment of at least a billion euros would be required over 25 and 26 to fund the upfront license fee for the Italy lotto contract. These capital outlays represent investment in our core recurring business and would extend the duration of our revenue-weighted average contract life to more than eight years, including extensions. I would now like to introduce our 2025 outlook. To be clear, IGT core recurring business is strong, providing a solid foundation for the year as we head into the elevated capex cycle in front of us. We currently expect revenue of $2.55 to $2.65 billion, which reflects low- to mid-single-digit growth that is aligned with our long-term expectations for the business. This includes a low single-digit increase in global same-store sales. Overall service revenue is expected to be negatively impacted by our current expectation of significantly lower U.S. multistage equity activity and associated LMA incentive revenue in the first half of the year. As a reminder, our New Jersey and Indiana LMA contracts include complex incentive or shortfall schemes that can be influenced by protracted times of very high or very low multistage effort activity. Given the difference in the LMA customer fiscal year and IGT calendar year, Our Q1 and Q2 are the quarters where we typically have to adjust our expected LMA incentive or shortfall based on the current estimate of the lottery full fiscal year results, which again can be significantly influenced by the multistage output behavior. We have provided a page in the appendix of the slides accompanying this call that goes through this impact in more detail. As a result, we expect Q1 revenue to be down low to mid single digit versus the prior year period. Product sales revenue is expected to rise primarily due to increased instant ticket services thanks to several new contract awards, which should provide sustainable growth over time. Adjusted EBITDA is expected to be in a range of 1.1 to 1.15 billion. This includes the just described combined impact of significantly lower multistage jackpot and LMA incentive revenue, and about $25 million of temporary costs related to contract extensions and rebits, as well as enhancements of cloud-based solution and point-of-sale network optimization that are ultimately expected to deliver future growth and CapEx efficiencies down the road. The impact of these items is primarily concentrated in the first half of the year. In terms of profit cadence, we expect the greatest pressure to materialize in Q1, which we expect to be down approximately $70 million in total, primarily on the jackpot and LMA impacts I outlined, as well as a negative mix in product sales to be recovered in the balance of the year and the timing of temporary project costs I discussed earlier. We expect profit in the balance of year period to be essentially aligned with the prior year, including growth in the second half. This outlook does not include any potential benefit from large US multistage jackpots, given the lack of visibility around timing. In addition, the mega-million price increase to $5 in April 2025 could drive higher, more frequent jackpots. Cash from operations is forecasted at the negative $300 million. primarily driven by 800 million euro or approximately 850 million dollars expected to be paid in 2025 related to the first two installments of the Italy Lotto upfront license fee. The first payment is due at the time of the award and the second at the start of the new concession. As a reminder, the euro 800 million reflects 100% consolidation of the joint venture. The pro rata share that our partners contribute to the upfront fee shows up in cash from financing activities on the capital increase non-controlling interest line of the cash flow statement. Excluding the upfront license fee, cash from operations is expected in a range of about 550 to 570 million, and compared to 2024, is impacted approximately one-third by lower forecasted EBITDA and two-thirds by the timing of working capital items. CAPEX is expected to be around €450 million, including the increased investment related to recent contract wins and extensions, as well as important upcoming bids. And lastly, we have assumed a €1.07 rate for full year 2025. In summary, we deliver solid financial results in 2024 with revenue and profit that met our outlook, accompanied by strong cash flow generation and perform a net debt leverage of 2.4 times. We have committed to allocating at least $2 billion of debt reduction following the significant cash infusion that will be received after the closing of the gaming and digital sale. And we are investing in our future, positioning ourselves to further strengthen our global lottery leadership position as we had into 2025. That concludes our prepared remarks. Operator, would you please open up the line for questions?