425: IGT Announces Strong 2023 Results and Strategic Spin-Off of Gaming and Digital Businesses

International Game Technology PLC (IGT) reports record-breaking financial achievements for 2023 and unveils plans to spin-off its Global Gaming and PlayDigital segments, merging them with Everi's operations.

Summary

• IGT delivered a strong finish to 2023, with Q4 operating income growing 11% and significant free cash flow generation.
• The company met its fiscal year 2023 financial goals, which were raised twice during the year.
• IGT achieved record-breaking results, including $1 billion in operating income, $1.8 billion in EBITDA, and a 41.3% EBITDA margin.
• Cash from operations exceeded $1 billion, bringing the company's net debt leverage to its lowest level ever.
• Global Lottery revenue grew by 7% in Q4 and 6% for the full year, excluding the Italy commercial services sale.
• iLottery sales increased by over 40% in 2023.
• Global Gaming saw a 9% revenue growth for the year, with operating income up approximately 30%.
• PlayDigital revenue grew by 9%, fueled by a double-digit increase in iCasino GGR.
• IGT announced a transaction to spin-off its Global Gaming and PlayDigital businesses and merge them with Everi's existing operations.
• IGT shareholders will retain 100% ownership of the global lottery business and 54% of the new gaming, digital, and FinTech business.
• The combined gaming business is expected to grow revenue at a mid-single digit CAGR through 2026, with adjusted EBITDA increasing at a high-single digit rate.
• The transaction is expected to close in late 2024 or early 2025.
• For 2024, IGT expects revenue of $4.3 to $4.4 billion and an operating income margin between 20% and 21%, including separation costs.
• Excluding separation costs, the operating margin is expected to be between 23% and 24%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and a strategic move to unlock further value. While there are some challenges and risks, the overall tone is optimistic and confident.

Positives

• Record-breaking financial performance in 2023.
• Strong growth across all business segments.
• Significant cash flow generation and debt reduction.
• Strategic spin-off expected to unlock value and create stronger companies.
• Positive outlook for the combined gaming business.
• Strong balance sheet and liquidity.
• Upgraded credit ratings from Moody's and Fitch.
• Successful game launches and product innovation.
• Expansion of installed base in Global Gaming.
• Growth in iLottery and iCasino markets.

Negatives

• PlayDigital revenue decreased by 10% in Q4 due to a prior-year benefit and lower sports betting volumes.
• Global same-store sales declined 3% in Q4, reflecting the impact of strong U.S. multi-state jackpot sales in the prior year.
• Slower than expected new iGaming legislation may impact PlayDigital growth.
• 2024 outlook includes $130 million in pre-closing separation and divestiture costs.
• Global Lottery same-store sales are expected to be flat to slightly lower year-over-year in 2024 due to strong jackpot activity in 2023.
• Gaming & Digital revenue is likely to be lower than the prior year in Q1 2024 due to seasonality and elevated IP and software licenses last year.

Risks

• The transaction is subject to regulatory and shareholder approvals.
• The ability to realize the anticipated benefits of the spin-off and merger is not guaranteed.
• Integration of the Spinco Business may present challenges.
• Competition in the gaming and lottery industry.
• Dependence on licensing arrangements and key customers.
• Economic changes in global markets.
• Regulation and litigation matters.
• Risks related to intellectual property and cyber security.
• Unpredictability of jackpot activity in the lottery business.
• Potential delays in new iGaming legislation.

Future Outlook

IGT expects revenue of $4.3 to $4.4 billion in 2024, with an operating income margin between 20% and 21% (including separation costs). Gaming & Digital revenue is expected to increase at a high-single-digit rate. The spin-off and merger with Everi are expected to close in late 2024 or early 2025.

Management Comments

• We delivered a strong finish to 2023 with Q4 operating income growing 11% , yielding 160 basis points of operating margin expansion and strong free cash flow generation.
• This enabled us to meet our fiscal year 2023 financial goals, which were raised two times during the year.
• We believe the creation of two stronger, more focused companies, each with top-notch teams and simplified business models, better positions each company to service its customers and create significant value for stockholders.

Industry Context

The announcement comes amid a dynamic landscape in the gaming and lottery industry, with increasing consolidation and a growing focus on digital solutions. The spin-off and merger aim to create a more competitive player in the gaming and FinTech space, while allowing IGT to focus on its core lottery business.

Comparison to Industry Standards

• Lottery peers trade between 12and 18-times EV to EBITDA compared to IGT at six times, and none match IGTs scope of capabilities.
• Gaming peers trade between 11and 13-times EV to EBITDA.
• The combined gaming business will have a similar scale and growth trajectory as its peers.

Stakeholder Impact

• Shareholders will benefit from the creation of two stronger, more focused companies.
• Employees will have opportunities in the new combined gaming entity and the focused lottery business.
• Customers will have access to a broader range of products and solutions.
• The transaction is expected to create significant value for stakeholders.

Next Steps

• Obtain regulatory and licensing approvals for the spin-off and merger.
• Secure shareholder approval from IGT PLC and Everi.
• Complete the financing for the combined gaming entity.
• Execute integration plans for the Spinco Business.
• Focus on organic growth and cost efficiencies in both the lottery and gaming businesses.

Key Dates