2020 Second Quarter Results
Ended June 30, 2020
August 4, 2020
1
Cautionary Statement Regarding Forward-Looking Statements
This presentation may contain forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning International Game Technology PLC and its consolidated subsidiaries (the "Company") and other matters. These statements may discuss goals, intentions, and expectations as to future plans, trends, events, dividends, results of operations, or financial condition, or otherwise, based on current beliefs of the management of the Company as well as assumptions made by, and information currently available to, such management. Forward-looking statements may be accompanied by words such as "aim," "anticipate," "believe," "plan," "could," "would," "should," "shall", "continue," "estimate," "expect," "forecast," "future," "guidance," "intend," "may," "will," "possible," "potential," "predict," "project" or the negative or other variations of them. These forward-looking statements speak only as of the date on which such statements are made and are subject to various risks and uncertainties, many of which are outside the Company's control. Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may differ materially from those predicted in the forward-looking statements and from past results, performance, or achievements. Therefore, you should not place undue reliance on such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include (but are not limited to) the uncertainty of the duration, extent and effects of the COVID-19 pandemic and the response of governments, including government-mandated property closures and travel restrictions, and other third parties on the Company's business, results of operations, cash flows, liquidity and development prospects and the factors and risks described in the Company's annual report on Form 20-F for the financial year ended December 31, 2019 and other documents filed from time to time with the SEC, which are available on the SEC's website at www.sec.govand on the investor relations section of the Company's website at www.IGT.com. Except as required under applicable law, the Company does not assume any obligation to update these forward-looking statements. You should carefully consider these factors and other risks and uncertainties that affect the Company's business. All forward-looking statements contained in this presentation are qualified in their entirety by this cautionary statement. All subsequent written or oral forward-looking statements attributable to International Game Technology PLC, or persons acting on its behalf, are expressly qualified in their entirety by this cautionary statement.
Non-GAAP Financial Measures
This presentation contains non-GAAP financial measures, including adjusted EBITDA, adjusted diluted EPS, and free cash flow. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the appendix to this presentation.
Comparability of Results
All figures presented in this presentation are prepared under U.S. GAAP, unless noted otherwise.
Adjusted figures exclude the impact of items such as purchase accounting, impairment charges, restructuring expense, foreign exchange, and certain one-time, primarily transaction- related items. Reconciliations to the most directly comparable U.S. GAAP measures are included in the tables in this presentation. Constant currency changes for 2020 are calculated using the same foreign exchange rates as the corresponding 2019 period.
Management uses non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate the Company's financial performance. Management believes these non-GAAP financial measures reflect the Company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of business trends. These constant currency changes and non-GAAP financial measures should however be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with U.S. GAAP.
Trademark Language
The trademarks and/or service marks used herein are either trademarks or registered trademarks of IGT, its affiliates or its licensors. | 2 |
Agenda
Business
1Marco Sala, CEO
Update
Financial
2Max Chiara, CFO
Results
3Q&A
3
Q2'20: Proactively Managed Global Lockdown
Results reflect impact of global casino closures and mobility restrictions during the second quarter
Diversity of products and geographic reach support better- than-expected results
• NAGI, NALO, and Italy segments achieve positive EBITDA
- Benefit of cost-savings actions
Delivered positive free cash flow in tough circumstances
Strong customer and employee engagement
4
Reinforced Priorities & Enhanced Continuity Plans to Navigate the "New Normal"
People
- Global COVID-19 crisis management team first priorities delivered
- Employee safety remains top of mind on each initiative; work from home demonstrated effectiveness of approach
- Customer service levels maintained during the quarter
Cost Initiatives
- Executed on temporary labor cost measures, inclusive reduction of discretionary expenses (marketing, travel, outside services)
- On-going CapEx and R&D re- prioritization based on return/ payback metrics
- Switching gears to structural cost saving initiatives
Cash Flow & Liquidity
- Generated positive free cash flow even with peak global lockdown during the quarter
- Increased liquidity position and reduced near-term debt maturity
All actions focused on maintaining flexibility to manage uncertainty
and prepare for "new normal"
5
Lottery: Remarkable Resilience Confirmed
Global SSR ex-Italy down 2%
• 6% growth in North America SSR
• 27% decrease in International SSR; several markets closed during period
Italy wagers down ~40% on shutdown of Lotto games in April, POS closures, and severe mobility restrictions
- Swift, progressive recovery since May
Important YTD contract wins/extensions
• Multi-year extensions in Tennessee and Czech Republic
- Virginia instant ticket printing
6
Gaming: Global Activities Closed for Most of Period
Revenue and profits down on full impact of global lockdown
Major markets progressively re-opening since late
May; early indications are encouraging
• 85% of U.S. casinos now open
• Italy gaming halls open since June
- Strong machine productivity largely compensating for capacity restrictions and social distancing protocols
Good progress on key initiatives
• Entry into historical horseracing market
• Launch of PeakBarTop cabinet
- Emerald Queen I-5 casino system
7
Gaming: Growing Interest and Progress in Digital & Betting Activities
All digital activities continue to post strong growth rates
• Italy digital wagers up 33%
• Global B2B digital wagers up 75%; 100%+ in NA
Significant commitment from Svenska Spel across multiple solutions
• Remote game server, digital content; cashless play
Bolstering status as leading U.S. sports betting technology provider
• IGT present in 14 states; 30%+ share of 2019 wagers
FanDuel multi-year sports betting and iGaming agreement
8
New Org Structure Maximizes Growth Potential
Announced new streamlined organization on July 1 with reporting on new segmentation scheduled for Q3
Simplified structure grounded in core competencies and global leadership positions; main objectives:
- Provide greater responsiveness to customers and
players
- Harmonize best practices across both B2B and B2C channels in each product category
- Reduce complexity and increase organizational efficiency to support IGT's intrinsic value
Leverage key learnings and novel approaches from COVID-19 pandemic
2019 Pro-Forma Revenue
Gaming LotteryLottery
52% 48%
2019 Pro-Forma Operating Income
Gaming
33%
Lottery
67%
9
Focus on Driving Efficiency and Process Optimization
Working on several initiatives to drive $200M+ in structural/discretionary cost savings:
- Eliminate duplicative functions / streamline back office activities
- Global technology optimization to re-focus on value accretive know-how
- Rationalizing R&D investment based on risk/return priorities
- Supply chain optimization focused on design to cost efficiency
Improving trends are encouraging; we remain prudent with expectations
10
Financial Results
11
Q2'20 Financial Highlights
Revenue |
-48% |
Adjusted EBITDA |
-63% |
Operating Income (Loss)
Includes $43M in
restructuring
-94 | |
Q2'19 | Q2'20 |
Diluted EPS/ | |
Adj. Diluted EPS |
Note: Adjusted results remove impact of purchase price amortization, impairment charges, restructuring expense and transaction expense (see appendix for details)
EUR/USD FX daily average: 1.12 in Q2'19; 1.10 in Q2'20
12
Q2'20 North America Gaming & Interactive Highlights
Revenue |
Key Performance Indicators
% Change | % Change at | ||||||||
Q2'19 | Q2'20 | as Reported | Constant FX | ||||||
Revenue | 274 | 96 | -65% | -65% | |||||
Operating income/(loss) | 85 | -20 | NM | NM | |||||
Machine Units Shipped | Q2'19 | Q2'20 | |||||||
New & expansion | 438 | 1,382 | |||||||
Replacement | 4,223 | 1,344 | |||||||
Total | 4,661 | 2,726 | |||||||
Casino Installed Base | Q2'19(1) | Q3'19(1) | Q4'19 | Q1'20 | Q2'20 | ||||
Installed base (units) | 21,073 | 21,071 | 20,493 | 18,676 | 18,410 | ||||
L/T lease installed base (units) (2) | 917 | 930 | |||||||
Total | 21,073 | 21,071 | 20,493 | 19,593 | 19,340 |
- 2,076 and 147 unit reductions in Q2 '19 and Q3 '19, respectively, per OK strategic agreement
- Yield calculations should exclude these units due to accounting treatment as sales-type leases
- Service revenue impacted by casino closures and multi-year poker contract in PY
- New & expansion units driven by 977 HHR units; higher systems revenue in PY
- Shipped 1,344 replacement units, ahead of internal expectations
- Operating loss reflects casino closures as well as OK strategic transaction and high-margin poker and systems sales in PY, partly offset by cost-saving initiatives
13
Q2'20 North America Lottery Highlights
Revenue |
Key Performance Indicators
% Change | % Change at | ||||
Q2'19 | Q2'20 | as Reported | Constant FX | ||
Revenue | 309 | 273 | -12% | -11% | |
Operating income | 78 | 75 | -4% | -3% | |
Same-store revenue growth | Q2'19 | Q2'20 | |||
Instant ticket & draw games | 5.4% | 10.5% | |||
Multistate jackpots | 23.8% | -28.0% | |||
Total SSR growth | 7.2% | 6.2% | |||
Q2'19 | Q3'19 | Q4'19 | Q1'20 | Q2'20 | |
VLT installed base (units) | 14,215 | 14,294 | 13,553 | 13,559 | 13,559 |
- Strong SSR growth for instant ticket and draw games despite mobility restrictions and lower jackpot activity
- LMA reflects reduced play levels in NJ and lower pass-through revenue
- Gaming service down on VLT venue closures, partly offset by growth in Canada iGaming
- Product sales primarily reflects lower systems revenue
- Operating income roughly in-line as same-store revenue growth offsets higher-margin LMA and gaming machine contributions in the prior year are largely offset by cost-saving initiatives
14
Q2'20 International Highlights
Revenue |
Key Performance Indicators
% Change | % Change at | |||||
Q2'19 | Q2'20 | as Reported | Constant FX | |||
Revenue | 229 | 84 | -64% | -62% | ||
Operating income/(loss) | 30 | -20 | NM | NM | ||
Machine Units Shipped | Q2'19 | Q2'20 | ||||
New & expansion | 700 | 61 | ||||
Replacement | 5,863 | 208 | ||||
Total | 6,563 | 269 | ||||
Same-store revenue growth | Q2'19 | Q2'20 | ||||
Instant ticket & draw games | 2.4% | -28.2% | ||||
Multistate jackpots | 11.0% | -7.8% | ||||
Total SSR growth | 2.8% | -27.1% | ||||
Q2'19 | Q3'19 | Q4'19 | Q1'20 | Q2'20 | ||
Installed base (units) | 14,475 | 14,332 | 14,857 | 14,763 | 14,834 |
- Product sales lower on fewer unit shipments, primarily in LAC, as well as higher Sweden VLT shipments and software sales in PY
- Lottery SSR trends improving month after month
- Service revenue down on casino closures; Installed base stable
- Operating loss reflects margin impact of lower unit volume and revenue mix, partly offset by cost-saving initiatives
15
Q2'20 Italy Highlights
Revenue |
Key Performance Indicators
% Change | % Change at | ||||
Q2'19 | Q2'20 | as Reported | Constant FX | ||
Revenue | 422 | 184 | -56% | -56% | |
Operating income/(loss) | 133 | -7 | NM | NM | |
€M | Q2'19 | Q2'20 | % Growth | ||
Lotto wagers | 2,064 | 914 | -55.7% | ||
10eLotto | 1,507 | 610 | -59.5% | ||
Core | 479 | 256 | -46.5% | ||
Late numbers | 31 | 21 | -32.4% | ||
MillionDAY | 47 | 26 | -43.6% | ||
S&W wagers | 2,257 | 1,649 | -27.0% | ||
Gaming wagers | |||||
VLT - operator (B2C) | 1,427 | 150 | -89.5% | ||
AWP | 916 | 83 | -90.9% | ||
Interactive | 508 | 729 | 43.7% | ||
Sports betting wagers | 252 | 79 | -68.5% | ||
Sports betting payout | 82.2% | 88.1% | 5.9 pp |
- Lottery wagers reflect timing of game reopening and POS restrictions; trends improved each month in period
- Machine gaming affected by closure of gaming halls through the middle of June
- Interactive wagers up a sound 44%
- Increase in commercial services revenue more than offset by lower sports betting due to lack of sporting events
- Operating loss primarily reflects COVID-19 restrictions, partly offset by cost-saving initiatives
16
On Track to Deliver $500M in 2020 Cost Savings/Avoidance
Average Monthly | |||
~$235M | Fixed/Discretionary Costs | ||
1/3 reduction from | |||
original maintenance | ~$155M | ||
CapEx plan | |||
Similar reduction | Primarily related to: | ||
expected H2'20 | |||
Cuts deepest for | • | Temporary, | |
company-wide | |||
Gaming activities | salary reductions | ||
Lottery CapEx mostly | and furloughs | ||
contractual | • | Reduction of | |
marketing, travel, | |||
outside services | |||
expenses |
Achieved Q2 run rate in-line with expectations
Expect normalization of certain expenses in H2'20 (up from $155M run rate) as recovery continues
- March - December 2020 average monthly run rate of $185M
(1) Excludes variable costs and restructuring expense; operating expenses include fixed costs, discretionary costs, incentive compensation, and interest payments on debt | 17 |
Cash Flow, Net Debt and Leverage Profile
Net | |
Debt | Net |
Net | |
Debt | Debt |
$325 net cash provided by operating activities
Net Debt/LTM EBITDA | 4.42x | 4.31x | 5.52x |
- Delivered $325 million in operating cash flow; $165 million in free cash flow
- $93 million in net debt reduction since 12/31/19 as reported; $80 million at constant currency
- Leverage (net debt/LTM EBITDA) of 5.52x compared to 4.31x at 12/31/19 and 4.42x at 6/30/19
18
Ample Liquidity, No Significant Near-Term Maturities
Total liquidity of $2.3 billion as of 6/30/20
- $1.3 billion in unrestricted cash; $1.0 billion in additional borrowing capacity
Issued $750 million 5.25% Notes due 2029 in the quarter
• $500 million of net proceeds used to fund partial tender of 6.25% Notes due 2022
- Lowest USD-denominated coupon ever issued by company
- Longest duration issuance since 2015
Debt Maturity Profile at June 30, 2020
Bank
Debt Euro
24% Notes
35%
USD Notes 41%
Undrawn RCF | ||||||||||||||||||||||
Notes | ||||||||||||||||||||||
1,010 | Bank Debt | |||||||||||||||||||||
1,012 | 560 | |||||||||||||||||||||
1,000 | 1,100 | |||||||||||||||||||||
79 | 740 | 840 | 750 | 750 | ||||||||||||||||||
605 | ||||||||||||||||||||||
560 | ||||||||||||||||||||||
358 | 358 | |||||||||||||||||||||
2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 |
19
Key Messages
Resilient, diversified business model
- Large, geo-diversified revenue base
- Resilience in lottery evident in improving wager trends
Strong liquidity position
- $2.3 billion in total liquidity provides buffer against an economic downturn
- Ample resources to cover maturities through 2022
Disciplined cost management
- On track to meet $500 million cost savings target for 2020
- Focused on structural changes to drive permanent savings
Delivered positive EBITDA and FCF
- Despite extremely challenging market conditions
- Allows for execution of deleveraging strategy
20
Q & A
21
Appendix
22
Q2'20 Income Statement (As Reported)
Income Statement | Q2'20 | Q2'19 | % Change | ||
Service revenue | 560 | 980 | -43% | ||
Product sales | 77 | 254 | -70% | ||
Total Revenue | 637 | 1,234 | -48% | ||
Adjusted EBITDA | 168 | 454 | -63% | ||
Operating (Loss) Income (1) | (94) | 224 | NM | ||
Interest expense, net | (96) | (104) | |||
Foreign exchange | (74) | (41) | |||
Other | (29) | 24 | |||
Financial Charges, Net | (199) | (121) | |||
(Loss) Income Before Tax | (293) | 102 | |||
Net (Loss) Income | (282) | 39 | |||
Net (Loss) Income attributable to IGT PLC | (280) | 5 | |||
Diluted EPS | (1.37) | 0.02 |
(1) Includes $43 million and $2 million in restructuring charges, respectively
23
Q2'20 Reconciliation of Non-GAAP Measures
As Reported
$ in thousands | Q2'20 | Q2'19 | ||||
Net (loss) income | (282) | 39 | ||||
(Benefit from) provision for income taxes | (11) | 63 | ||||
Interest expense, net | 96 | 104 | ||||
Foreign exchange loss, net | 74 | 41 | ||||
Other non-operating expense (income), net | 29 | (23) | ||||
Operating (loss) income | (94) | 224 | ||||
Depreciation | 100 | 104 | ||||
Amortization - purchase accounting | 42 | 48 | ||||
Amortization - non-purchase accounting (1) | 75 | 73 | ||||
Restructuring expense | 43 | 2 | ||||
Stock-based compensation | 1 | 3 | ||||
Other (2) | 1 | - | ||||
Adjusted EBITDA | 168 | 454 | ||||
Cash flows from operating activities | 168 | 445 | ||||
Capital expenditures | (61) | (112) | ||||
Free Cash Flow | 107 | 333 | ||||
(1) Includes amortization of upfront license fees
(2) Primarily includes transaction-related costs
24
Q2'20 Reconciliation of Non-GAAP Measures
As Reported
$ and shares in thousands, except per share amounts | Q2'20 | Q2'19 | |
Net (loss) income attributable to IGT PLC | (280) | 5 | |
Foreign exchange loss, net | 74 | 41 | |
Depreciation and amortization - purchase accounting | 43 | 48 | |
Restructuring expense | 44 | 2 | |
Loss on extinguishment of debt | 23 | 10 | |
Other (2) | 1 | - | |
Income tax impact on adjustments (3) | (26) | (15) | |
Adjusted net (loss) income attributable to IGT PLC | (121) | 91 | |
Weighted-average shares - diluted | 204,748 | 204,412 | |
Adjusted weighted-average shares - diluted (4) | 204,748 | 204,412 | |
Net (loss) income attributable to IGT PLC per common share - diluted | (1.37) | 0.02 | |
Adjusted net (loss) income attributable to IGT PLC per common share - diluted | (0.59) | 0.44 | |
(2) Primarily includes transaction-related costs
- Adjustments for income taxes are determined based on the statutory tax rate in effect in the respective jurisdiction where the adjustment originated
- Adjusted weighted-average shares - diluted includes shares that were excluded from the GAAP computation, due to the net loss as reported
25
YTD '20 Financial Highlights
Revenue |
-34% |
Adjusted EBITDA |
-45% |
Operating Income (Loss)
Includes $296M in goodwill
impairment
Includes $47M in restructuring
-291
YTD 2019 | YTD 2020 |
Diluted EPS/ |
Adj. Diluted EPS |
Note: Adjusted results remove impact of purchase price amortization, impairment charges, restructuring expense and transaction expense (see appendix for details)
EUR/USD FX daily average: 1.13 YTD in 2019; 1.10 YTD in 2020
26
YTD '20 Cash Flow Statement
Cash Flow | YTD '20 | YTD '19 |
Net Cash Flows from Operating Activities | 325 | 592 |
CapEx | (160) | (231) |
Free Cash Flow | 165 | 361 |
Debt Proceeds/(Repayment), Net | 591 | 33 |
Other - Net | (129) | (245) |
Other Investing/Financing Activities | 462 | (212) |
Net Cash Flow | 627 | 149 |
Effect of Exchange Rates/Other | 8 | (4) |
Net Change in Cash and Restricted Cash | 635 | 145 |
Cash and Restricted Cash at End of the Period | 1,530 | 657 |
27
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IGT - International Game Technology plc published this content on 04 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 August 2020 10:51:05 UTC