IGT upbeat on Italy lottery plans as licence decision looms, Q1 revenue takes a hit – Lottery

IGT is anticipating significant updates regarding the Italian lottery license process shortly. The company has earmarked €500 million from a €1 billion term loan specifically for investments in the Italian lottery sector.

During International Game Technology’s Q1 earnings call on Tuesday, CEO Vince Sadusky detailed the company’s strategic preparations aimed at retaining control of the lottery in Italy. The allocation of $500 million signals IGT’s serious intent should they be awarded the coveted license.

This update coincides with the release of IGT’s first-quarter results, which revealed a 10% drop in group revenue year-on-year, totaling €583 million. The decline was evident across three of its four core operating segments.

All regions registered revenue declines, but Italy experienced the least impact, showing only a 3% decrease. Sadusky emphasized that this market presents a fertile opportunity for IGT, particularly with the impending lottery license bid.

IGT has held the Italian lottery license since 1993; however, it now faces intense competition from firms such as Novomatic, Allwyn, and Flutter as the current term approaches its end in November. The stakes are high as these competitors vie for a significant share of the lucrative Italian market.

According to statements made by IGT, the license procurement process is “well under way.” Italian gaming authorities have informed participants that the economic proposals submitted for the concession tender are scheduled to be reviewed on May 19. However, preliminary news is expected prior to this date.

“We also understand that the evaluation of the technical proposals is complete,” Sadusky stated. “We anticipate the announcement of the technical evaluation results before the specified date.”

To prepare for the potential license acquisition, IGT has initiated a €1 billion term loan. Of this amount, €500 million will be allocated for debt repayment under existing credit facilities, while the remaining €500 million will strictly be reserved for use upon securing the new license term.

Impact of Tariffs on IGT

The Q1 update also addressed broader concerns affecting IGT, particularly the implications of tariffs and the potential for recession. These topics were initially brought to light in Light & Wonder’s recent Q1 earnings call.

Sadusky articulated that while macroeconomic and geopolitical uncertainties raise valid concerns, IGT remains optimistic about its performance in two key markets— the US and Italy.

“As you know, the world is currently faced with significant macroeconomic and geopolitical uncertainty,” he remarked. “We feel confident about factors within our control and our long-term business prospects, yet we acknowledge that these challenges may impact us.”

Historical trends have demonstrated that lottery sales in both the US and Italy tend to remain resilient during economic downturns, providing hope amidst the potential for broader economic instability.

Sadusky also discussed the upcoming sale of IGT’s gaming and digital assets to private equity powerhouse Apollo Global. Originally set last July, the deal is projected for completion in Q3 of this year.

Once finalized, IGT would pivot to focus exclusively on its lottery segment, potentially streamlining operations and enhancing its market focus.

Factors Contributing to Q1 Revenue Decline

Delving deeper into its Q1 performance, IGT attributed the decline in group revenue chiefly to reduced revenue from instant ticket sales and draw-based games. Revenue in this segment decreased by 3%, totaling $500 million.

Furthermore, the company reported a staggering 46% decrease in revenue from US multi-state jackpot wagers. This downturn is attributed to heightened activity in the previous year, alongside incentives tied to lottery management agreements and various multi-year central system software licenses slated for 2024.

Other revenue sources also fell by 28%, amounting to $89 million, although there was a slight improvement in up-front license fee amortization compared to the previous year.

Overall, service revenues experienced a decline of 10% to $557 million, while product sales revenues plummeted by 38% to $26 million.

In terms of geographic performance, the US and Canada remained the largest revenue sources, contributing $259 million. However, this figure represents a 20% decline year-on-year. Italy faced a lesser drop, down 3% to $246 million, while revenue from the rest of the world saw a 7% decrease to $79 million.

Bottom-Line Net Profit: A 204% Decrease

Examining expenditure, operating costs remained stable year-on-year at $445 million, although non-operating expenses surged by 78% to reach $82 million.

After accounting for finance costs, pre-tax profit plummeted to $8 million, a staggering decline of 93%. However, with the inclusion of $52 million from profit generated by discontinued operations, the net profit experienced a less severe drop of 53%, totaling $60 million.

When factoring in profits attributable to non-controlling interest, the bottom-line net profit was reported at $27 million, which represents a 204% decrease compared to last year. Additionally, adjusted EBITDA fell 24% to $250 million.

“Despite the prevailing global uncertainties, we are enthusiastic about our strategic initiatives aimed at fostering sustainable, long-term growth and enhancing shareholder value,” Sadusky concluded.