International Game Technology PLC Price & Performance (IGT)

You each of which is posted on our Investor Relations website. Now, I'll turn the call over to Vince. You, Jim, and good morning to all. Well, 2024 was a significant year for IGT. Concluded a strategic review that resulted in the announced sale of our gaming and digital business for more than $4,000,000,000 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. 2024, IGT generated over $1,000,000,000 in consolidated cash from operations and about $660,000,000 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 $2,500,000,000 of revenue achieved in the year consistent with 2023 as growth in core instant ticket and draw game sales were offset by lower US multi state jackpot sales. [indiscernible] However, there were many more winners in 2024 resulting in fewer significant advertised jackpots and resulting in lower sales. The lottery business achieved $1,200,000,000 of EBITDA at a 47% margin, highlighting its attractive profit profile. [indiscernible] profit and cash flow contributions enabled significant debt repayment during the year. Year end pro form a net debt leverage, which is adjusted for the $2,000,000,000 in gaming and digital sales proceeds committed for debt reduction, is 2.4 times the lowest level in IGT history. Innovation and 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 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 Jokopee Instant Game were important drivers of Q4 results as were special draws for Tenny Lotto and Numero Oro add on feature for traditional lotto. The first scratch ticket in Italy using IGT's [indiscernible] was well received and has been effective in attracting new younger players as well as upselling existing players to the €5 price point. We believe our exemplary performance in increasing Italy same store sales and state revenue Improving trends in large doors [indiscernible] 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 experienced 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.

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 several European markets including Poland, The Czech Republic and Belgium. [indiscernible] We've invested significant resources in our 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, customers in Georgia and Kentucky have this distinction of being among the fastest growing iLotteries in the powered by our iLottery marketing and CRM services. 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 1,000,000 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 [indiscernible] 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 ten year FM and our lottery contract with Luxembourg's Lottery International. [indiscernible] also secured several long term FM contract extensions including ten 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 International lottery. These additions will significantly increase production volume in 2025 enabling the company to leverage its new state of the art press. [indiscernible] 2024 was a year of significant accomplishments with key strategic initiatives. 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 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 $4,000,000,000 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 for 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. Multistage exports 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. The margin structure of this business is compelling, delivering adjusted EBITDA margins well above 40%. The fourth quarter, IGT generated revenue of $651,000,000 compared to $681,000,000 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. Italy, strength in IGT core recurring business was offset by the timing impact of elevated jackpot activity 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. In mind that product sales in general tend to be lumpy nature and typically only represent a mid single digit percentage of total revenue. For the full year, revenue of $2,500,000,000 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 35,000,000 U. S. Multistage Epoch revenue declined $29,000,000 due to the dollars due to the exceptional levels of jetboat activity in the prior year. Other service rose $3,000,000 primarily due to revenue associated with non wager based service contract in Europe, partially offset by lower LMA incentive revenue. Dynamic that is impacted by a relatively long period of time with lower U. S. Multistage airport performance. Finally, product sales revenue was lower by $17,000,000 dollars as significant product sales in the prior year, partially offset by an increase in instant ticket services in the current year. Profit generation was solid in both the fourth quarter and full year period. IGT delivered Q4 income from continuing operations of 116,000,000 compared to $73,000,000 in the prior year, and adjusted EBITDA of $290,000,000 compared to $316,000,000 with a difference almost in High profit flow through from same store sales growth was offset by lower LMA incentives and investments in the business. On a full year basis, income from continuing ops was $271,000,000 compared to $265,000,000 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 $1.1170000000.00 dollars declined from $1,210,000,000 in the prior year. Service margin was down 25,000,000 as the benefit of higher instant ticket and draw game sales was offset by three main items. First, the $28,000,000 decline related to the high profit flow through from elevated U. S. Multistage effort activity in the prior year, second, the jackpot related impact on LMA incentives and third, additional investments we are making in the business including personnel and project costs supporting contract renewals and extensions activity. As expected, product sales margin was $26,000,000 lower, driven by SG and A improved $17,000,000 reflecting reduced legal costs and R and D was up $7,000,000 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 €1,030,000,000 in consolidated cash from ops.

With approximately two thirds being generated by continuing ops. Consolidated free cash flow totaled about $660,000,000 and over 80% was attributable to the lottery business. Order returns remain a key part of our balance strategy as evidenced by the $161,000,000 of cash dividend paid to shareholders.

We will have a €4,050,000,000 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 $2,000,000,000 debt reduction will meaningfully strengthen our balance sheet and further improve our debt maturity profile. [indiscernible] for this debt reduction net debt leverage is 2.4 times using debt balances at year end.

Total liquidity remains solid at $1,900,000,000 including $584,000,000 in unrestricted cash and $1,400,000,000 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 three point zero is well underway driving real cash cost savings of $40,000,000 by end of twenty twenty six. Continue to explore additional opportunities currently under review to expand the program with incremental productivity and operational efficiencies 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 $400,000,000 to $450,000,000 in each of fiscal year 'twenty five and fiscal year twenty twenty six.

We includes investments to secure important contracts in Italy, Texas and New York.

Anticipate annual CapEx in the range of $200,000,000 to $225,000,000 for the next several years thereafter, reflecting the benefit from temporary cost increases related to investments in cloud infrastructure and point of sale network optimization that are underway. Additional investment of at least €1,000,000,000 would be required over 2526 to fund the upfront license fee for the Italy Lotto contract. These capital outlays represent investments 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 $2,550,000,000 to $2,650,000,000 dollars which reflects low to mid single digit growth that is aligned with our long term [indiscernible] for the business. This includes a low single digit increase in global same store sales, Overall service revenue is expected to be negatively impacted impacted by our current expectation of significantly lower U. S. Multistage effort activity and associated LME incentive revenue in the first half of the year.

As a reminder, our New Jersey and Indiana LMA contract include complex incentive or shortfall schemes 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 effort 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 $1,100,000,000 to $1,150,000,000 This includes the just described combined impact of significantly lower multistage jackpot and LMA incentive revenue and about $25,000,000 of temporary costs related to contract extensions and rebids 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 The impact of these items is primarily concentrated in the first half the year.

In terms of profit cadence, we expect the greatest pressure to materialize in Q1 which we expect to be down approximately $70,000,000 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. [indiscernible] expect profits 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 U. S. Multistage 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 forecast dollars dollars primarily driven by €800,000,000 or approximately $850,000,000 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 €800,000,000 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 $550,000,000 to 5,000,000 and compared to 2024 is in of by lower forecasted EBITDA and two thirds by the timing of working capital items. CapEx is expected to be around $450,000,000 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. [indiscernible] In summary, we delivered solid financial results in 2024 with revenue and profit that met our outlook accompanied by strong cash flow generation and pro form a net debt leverage of 2.4 times. We are committed to allocating at least $2,000,000,000 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 head into 2025. That concludes our prepared remarks. Operator, would you please open up the line for questions?

Thank you. [indiscernible] Your first question comes from Jeff Santil with Stifel. Your line is open.

Hey, great. Good morning, Vince and Max. Thanks for taking our questions. Maybe just starting off on the $25,000,000 investment into new contract extensions and rebids as well as some growth initiatives. Vince or Max, whoever wants to take this. Can you just expand a little bit more on some of these costs? I guess in particular, are these mostly one time in nature? Is there some portion of this that expected to recur in the out years? And then the how do you think about I think the contract rebid and extension pieces is self explanatory, but for some of these growth initiatives, how do you think about underwriting the ROI on some of that investment?

Yes. Hi, Jeff. This is Max speaking. I'll take this one. So you can imagine, we have to spend some money in relation to R and D and some other project expenses in anticipation to securing a contract bid or International. And those costs have to be expensed in the P and L until there is certainty of acquisition of the new contract. So we expect those costs to be temporary in nature because they are typically necessary to facilitate the setup of the technology for the capacity International and other technology evolutions that will be required with the start of a new contract. And that makes up the major part of the $25,000,000 for 2025 And again, as we as I said in my prepared remarks, most of this amount will be spent in the first part of the year. There are two other significant initiatives we are bringing forward. One is the cloud based solution extension to all iLottery contracts We have done many conversions already, particularly in the European countries. With significant success achieved in terms of full integration between the retail business and the iLottery business. I mentioned in Poland, for example. And we are in process of finalizing the transition to cloud based also for our large U. S. Contract during the year.

So again, that will require some additional expenses during 2025. And finally, we continue to look for ways to innovate and provide opportunities to optimize the activity and the operations at the point of sale level. And so we have some expenses associated with recognition of the transition in the communication [indiscernible] moving away from VSAT into mobile for The U. S. Market that will also drive additional cost this year until the process is complete. So again, all in all, we expect this €25,000,000 to be temporary in nature.

Perfect. That's That's really great color. Thank you for that. Max. And then for our follow-up maybe turning to the either the pending sale of the gaming in the digital business. Now that we're rapidly approaching deal close, I think it might just be a bit helpful to refresh on how you're thinking about the expected use of proceeds in particular focusing on that return of capital bucket recognizing there are some moving parts here with ongoing contract procurements.

Could you just update us on kind of your latest thinking here, both in terms of the quantum or the amount of the $365,000,000,000 net proceeds that you expect to be allocated to return of capital as well as the preferred mechanism and the cadence of any capital returns, just any thoughts or perspective you could provide there, keeping in mind the fluidity of the situation would would be great. Thanks. Yes. We know investors are eager to understand the utilization of the proceeds from the sale of digital and gaming. We've completely understand that. What we've communicated is the $2,000,000,000 debt pay down and that's the reason of course for the pro form a disclosures around continuing [indiscernible] financial metrics and also then providing some insight into what day one debt would likely look As I mentioned on the call with that, that enables us to achieve a 2.4 times leverage ratio as of the end of the year, which is just incredible. Journey of debt reduction the company has undertaken very diligently over the last five years or so.

In terms of that incremental amount above $2,000,000,000 debt repayment commitment, Again, that's something that we will we will discuss as at or around the closing date. We've got some some thoughts around the potential utilization But I think that's something out there. We're not prepared to do at this point.

Right. That makes sense. Appreciate that. Vincent, if I could just squeeze in perhaps a third one in that case, maybe and it might be too early to expand upon here as well. But could you just add some color on how you think about the pro form a org structure for the Remainco lottery business Do you have any sense yet for sort of what roles are appropriate for the current team as you transition over to a single operating segment marine Marineco? Just any kind of high level thoughts there would be great. Thanks.

Yes, sure thing. As soon as we wrapped up the announced if any closing deal for Voyager. We got to to work diligently on what RemainCo's structure would look like. We've determined we are in a singular line of business that was by strategic [indiscernible] We're very excited about our focus on that business and having the opportunity. To operate a company that's got more interactions with lottery than any other company around the world. And so anything that has to do with with gaming and digital has been We've done the internal work on separation. We're virtually completed with that internal work. So we feel very confident of being prepared for our day one operation of Romainco, systems, ERP, etcetera. And then in terms of the structure, we've done a lot of work internally and had some internal announcements As you recall, we appointed Renato Escoli as the as the head of Lottery we've made some organizational changes to what we think is better facilitate the core operations really continuing to innovate and leverage our product expertise around the world as well as appoint very capable leaders in charge of our various growth initiatives from our ongoing iLottery operation that continues to achieve very, very strong growth to as I'd mentioned in my prepared comments, pretty significant increase in the number of instant ticket printing contracts that we've our facility in Lakeland.

To things like that people really don't see, but our customers appreciate things like cloud transition to really increase our analytical capabilities and our tools that ensure that we are trusted lottery partner for decades to come with our our customers. And then on top of all that is to reduce our our overall corporate infrastructure costs given that by definition we're a smaller public company. So of course, we still have all the public reporting requirements, but we are smaller. And that's a lot of that work has come through and will manifest itself in the numbers through what we're calling our Optima three point zero efficiency initiatives. And Max touched base upon that and as we work towards closing Voyager and sharing more information about our long term expectations for financial performance. I think you'll be able to share more around what those cost saving opportunities are for beyond the current year. That's great. Thanks very much. I'll pass it on. Hey guys, good morning. I wanted to start with Italy. Can we get an update on the Lotto rebate process in [indiscernible] and with that a potential bidder has talked about possible synergies with Lotto and their digital business.

I know IGT doesn't have a digital business anymore, but are there potential partnerships that could monetize such synergies? Thanks. Yes, sure. Thanks. So I'll get started and let Max talk about the details of of the bid. So yes, as you all know, the tender has been published. We've been working internally on our bid for the better part of a year now. We've done a lot of work on our technology solution increase and improve our top rated technology in this in this next [indiscernible] And we expect obviously to compete very effectively for the opportunity. We've We believe, as we've said in the past, we've demonstrated with our market and player insights, we've demonstrated the ability to continue to grow this very old lottery through excellent product innovation and and constant refinement of our offering to players, same as we've done for [indiscernible] think about three decades now. I think when it comes to the digital operation, we are not a significant one of the significant players in sports betting and iCasino in Italy. However, we have significantly increased our I lottery penetration and and play in the marketplace. And that is something that we believe is is clearly an opportunity for us as we think about the future beyond just the ability to to be able to exploit lottery operation.

And with that, I'll turn it over to Max for some. Yes. So just to complete the answer, in terms of the process going forward. So as you know, the RFP was issued in early January. The bids are due by March 2017. So depending on and then once the bids are in, The awarding commission will be established and the composition of the commission will be published after March 17. And is expected to be different from the last bid process. Of seven years ago.

Eight years ago.

Obviously, the commission will need to assess all the offers and then make an award There is not a specific timeline for the award of the license. So right now, our expectation is that it's probably likely to happen in Q2, But again, it depends also on the number of bidders that would ultimately show up on March 17. The final comment, the time between the award and the new license [indiscernible] needs to allow for the transition of the infrastructure, which is also an important [indiscernible] in the whole scheme of things here. So with that in mind, we have included in our cash flow estimate for the year the first two tranche payment in connection with those deadlines. So the first one is at the time of the award in Q2. For €500,000,000 and the second one is at the time of inception of the new license, which right now is supposed to start before the end of the year. So call it in November, And so we have the other €300,000,000 related for Q4 at this point in our [indiscernible] Thank you. Great. That's That's super helpful. And then just as a follow-up, we've recently seen some pushback in Texas against the the courier model.

Can you help us understand how meaningful couriers have become for driving IGT's draw based sales And are there any potential risks or maybe a lot of re legalization opportunities that we should be thinking about going forward? Thanks. Yes. So, carriers have a different there's a different approach to carriers depending on the desires of each individual jurisdiction. So obviously, in states where iLottery is permissible Carriers have a minimal or really no no footprint as the digital experience is one that's very efficient and effective. And there is no incremental fee of the significance of the carrier model, which is where the revenue comes from on a carrier model since the courier actually needs to go and purchase the ticket, scan the tickets, store the tickets. So there's a real physical cost associated with operating a courier model.

Then you have states that have explicitly permitted couriers to operate I'd say states like New Jersey, for example, very forward leaning and essentially their view is we're looking for every opportunity to stimulate as many sales of lottery tickets as possible return to state, you have other states like Texas that have been silent, around couriers. And so the couriers have expanded into a market like Texas. And then you have other markets where there's an absolute statutory prohibition.

On couriers. So really depends on the market. From IGT's perspective, the key to keep in mind is we're contracted by the state lottery organizations. [indiscernible] and our our contract. So that's really what what our job is and we comply with whatever law on couriers each individual market wants to desires to execute. The actual amount or the impact On IGT, from couriers is certainly based upon our percentage of sales, which is typically how we are compensated. And that's regardless of whether a sale is generated at a retail outlet or through through a courier. So I'd say with specific to Texas, and the announcement, the recent announcement they are going to ban couriers. The impact to IGT because our percentage of sale is so small. Our revenue is so small and couriers have certainly grown in markets like Texas but are still a relatively small percent of their overall retail sales. The impact IGT is insignificant.

Perfect. Thank you so much. The next question comes from Chad Bannen with Macquarie. Your line is open.

Hi, good morning. Thanks for taking my question. Max, within the guidance and particularly the optimism around the back half of the year making up for the $70,000,000 shortfall in Q1 Can you talk about the contemplation or impact around the Mega Millions mega millions drawing going to $5 from $2 And at this point, what your understanding is in terms of Just overall advertising or marketing around this new product, given it could be a big growth driver for the industry? Hey, Chad, I'll take this. Yes, Mega Millions, the increase in the price point is one that I think ourselves in the industry is pretty exciting to see what the potential is [indiscernible] There is limited experience with price point adjustments in products over the years. It just doesn't happen all that often. And our historical experience has shown that The net of a price point change is positive to very positive. So I think it was one of the more recent ones that was done when you look at the individual states in New Jersey. I think it was their PIK5 last year increased $1 and the revenue increase was significant for that particular product. And historically, when Powerball has increased their price or mega millions, increased their price a long time ago, It certainly had a significant impact on the net sales.

So what we what we've modeled out or what the commission has modeled out and we've assisted with is likely there will be a fewer number of tickets sold but at a greater price point. And there will likely be a temporary adjustment as there is take some time for for the increase to kind of work its way through the system. I think individuals to recognize the higher starting point of Jackpots and hopefully, the math is right, the faster build of jackpots And as we all know, the higher the advertised jackpot, is where we get a significant increase in velocity in sales. So we think that it will be a positive. Not sure if that'll it'll be an add positive immediately. A good chance it won't be. As things progress throughout the year and because the implementation is early, early in the second quarter, we think that will has a really good chance to play through the system and have a positive impact on multistate jackpots, which will be very helpful. As you know, the multistate jackpot increase in excitement level around play and the increase in interest rates over the years allowing for a higher advertised jackpot.

Has all been an incredible positive in terms of sales. Up to this year. And just so happens we had one of the best multi state jackpot advertised large jackpots occur several times over in 2023 and then in 2024, we had the exact opposite. Phenomena where we had a lot of winners and a lot of hits. And so our plan for 2025 has the expectation of a more kind of normalized somewhere between the two playing out. And we're hopeful that the mega millions move to $5 will positively impact that, especially in the back half of the year. Yes. And Chad, two other elements that help us sustain that revived optimism towards the second half of the year. Are related primarily to the Optima cost savings initiative So the cost savings of about €20,000,000 that we expect to achieve in the current year manifest themselves with full fruition in the second half of the year. As we ramp up the the program. And then finally, the activity on product sales this year evolves more rat during the year compared to the last two where there was a more lumpy sales towards the fourth quarter. So the combination of these two factors will give us revived confidence that we will hopefully be able to deliver a better second half to last year in 2025.

Okay. Thank you, both. Appreciate it. And then moving on to the new printing press we're just trying to understand maybe the returns on this or a better way to think about it is should the new press drive higher same store growth because of essentially faster printing, more volumes, lower cost of tickets and it will give you the opportunity to maybe just bid differently for some of those instant ticket contracts Or should we be thinking about it as a margin improvement just reducing some of the costs. And I'm thinking maybe in the back half of $25,000,000 but more longer term, the competitive, how this changes your competitive offering? Yes. It's a great question. I would say it's it's really both. Both on the ability to win and have the capacity to deliver on these larger print contracts as well as have a more efficient International. So So our capacity moves up significantly. And anyone who's ever been associated with with print plants, whether it be newspaper coupons, decision to initiate the investment in the new press is it's always a challenging thing to do because the existing press really can last forever. However, the waste associated with those runs when you have technological challenges is very significant relative to a new state of the art press.

And for the folks that have actually been down at the print facility, are familiar with other industries printing, there's nothing more technological than printing lottery tickets. When you think about how the random number gets generated and the coding, the covering, the ability [indiscernible] the compliance, the activation, the shipping, So it's the printing press itself as well as the robotics and all the automation. Associated with the speaking of orders from all of our lottery customers where we provide print services around the world the lead time, the logistics, and the efficiency that goes along with it. So we think this is something that will have a terrific ROI for us both in terms of cost and efficiency and printing is certainly a volume business, right? The first X percent of tickets you produce for any customer you're deficit funding then you're breaking even and it's really the last X number of batches, which is your profit is a way think about it And for us, having the increased volume, will make our plant much more efficient to be operating much closer to capacity and not have these smaller batch runs that are relatively inefficient by nature. Coupled with new technology, reducing the amount of waste and and reprints that need to to take place.

And then really just like any technology by virtue of being really the most recent print facility coming online, will be the most modern. So we're excited And by design, we've we've had an effort and fortunately we've won. A larger allocation and some unique print customers over the last year to be able to utilize this this investment.

Thank you, Vince. Appreciate it.

The next question comes from David Katz of Jefferies.

Your line is open.

Hi, good morning everyone. Thanks for taking my question.

Can you just talk about within the guidance that you've laid out, I know one of the dynamics or levers the development and launch of new product right, within the lottery business and I mean that Italy as well as elsewhere. Can you just help us understand what you did in terms of new product launch and development in there? I would say there is I kind of think of new products in two categories. One is our ongoing investment and partnership with our lottery customers [indiscernible] product development. So that's taking kind of a deep database of analytical tools to identify opportunities to potentially stimulate growth. So for example, quite a few of our FM lottery customers in The U. S. You saw the results during the year As we saw a decrease in sales for certain of their products and certain LMAs they certainly experience it as well and they have a desire to improve that. So they all have capable teams [indiscernible] responsible for product launches and approvals and and odds and all of that. But again, operating in so many jurisdictions, and having the unique capability of actually being the lottery operator in Italy and Indiana and New Jersey, we're able to provide a consult consulting type services to try to aid in that.

And so I'd say there's no real incremental cost associated with that. However, Max had mentioned the investment in the cloud. Which we're in a period now we're in transition. So we've got we've got the need to maintain our data centers as well. As our cloud investment. And the cloud investment certainly isn't just for the efficiency of data storage, but of course to be able to leverage faster and quicker all the analytics and do comparisons from market to market and in markets where there's iLottery operations as well, that's kind of the ultimate in terms of being able to understand player behavior, repeat buying activity for, let's say, a $5 ticket versus a decline in a $2 ticket product, the need to then consider implementing or suggesting to the lotteries that they that they put in place, a new product to replace. And then you've got the actual hardware investment as well. So one of the other things to help stimulate some growth in the markets that have seen a softening in 2024. Was to execute a strategy whereby we partner up and provide more automated machines. So there's, of course, a direct correlation between actual point of sales as lottery tickets are largely at impulse buy and sales.

So when times are really good over the last several years, wasn't a strong desire to invest in incremental hardware technology. But now that things have get kind of these lows in in these type of impulse purchases like lottery tickets. There's been a real focus on the execution of incremental hardware what we've developed is super interesting in terms of really good kind of interplay It's point of sales marketing, which in many jurisdictions is your only opportunity for for marketing.

Automatic diagnostics for to ensure the machines are operating properly in markets where they require identification for for to ensure folks are meet the required age requirements for purchase That's in place. As well as restocking.

Etcetera.

I'd say kind of not to go on and on about this, but probably one more area when we think about future is the technology we've developed around around Inlane. And I think that that could be very, very interesting. Again, being an impulse purchase, you think of a grocery store department even in kind of the digital age at a very, very high rate. And to smooth the transaction by enabling it right at the checkout. Is something we've been working on for a long time.

There's a lot of stakeholders. It takes time. Like the promise has been out there for quite some time. But in the testing we've done with our latest generation we believe we'll begin to get some traction in this area and this is an area that we've been investing pretty significantly in as well.

Noted.

Appreciate it. That. And if I may just follow-up quickly. On the guidance you have laid out on Page 13, Talking about the average annual CapEx, that sort of excludes any other sort of significant renewals that may occur along the way, that's sort of a run rate CapEx number? Yes.

So after 2025 and 2026, we're the effectively our CapEx cycle would come to an end, We expect to be on a run rate basis in that range $200,000,000 to $225,000,000 that excludes right now competitive acquisitions.

Understood.

The next question comes from Domenico Giolotti with Equitas. Your line is open.

Good morning, Jessica.

A couple of questions. The first is, there is any update on the tech lottery renewal process? And second, just a clarification. Well, on the incentives or shortfall for affecting the first semester, so what is actually the situation? Are you facing just a shortfall or just no incentive compared to last year? So we should assume 2025 in your plan is a neutral year. And do you have any, say, risk of growing threshold to reach the incentives or to risk the short I don't know if I was clear enough. Yes. So on Texas, the bid has been submitted and the state is evaluating the the bid submission and expect we'll hear back in the first half of of 2025. And I'll let Max you through the financials on the LMA's.

Okay. So on the LMA, it's a effectively a combination of both impacts, Domenico. When we compare the first and the second quarter of twenty five versus '24, we were enjoying a significant incentive last [indiscernible] As we were getting to the close of the lottery fiscal year, we saw the behavior on the previous, call it, twelve months of jackpots activity not only the jackpot hits above €1,000,000,000 but is significantly the jackpot runs above €1,000,000,000 which were to the dozens. And so we were able to true up kind of the accrual to an incentive position The situation this year is a little different because when we look back and look forward and take a very conservative view in terms of no significant jackpot rents happening between now and the June. [indiscernible] We have to kind of take a conservative view. And again, we have an estimated impact, which is the €40,000,000 to €50,000,000 we mentioned. Is a combination of the two. So a small shortfall and is a delta compared to last year of a lower incentive. Okay. This is very clear.

But that remains an estimate at this point. I mean, we still need to see if that comes to fruition or not in the last four months of the year. Clear. And do you have a growing threshold going forward? So do you have a threshold that is growing over time? For the LMA contracts. Yes, there are different elements that make up the structure of the incentive shortfall. In terms of minimal net income and threshold net income triggers partial penalty, partial incentive. So again, it's complicated. But in a nutshell, as the market grows, the threshold becomes more compelling, yes. Okay.

The final question comes from Joe Stoss of Susquehanna. Your line is open. Thanks. Good morning, Vince and Max. Just real quick, you've answered a lot of questions. Just wanted to clarify, will In terms of the Italian renewal process, will the government publish or provide any, say, indication subsequent to the March 17 deadline of competing bids or not, And then I was wondering If Powerball I know they initially said that they're sticking with their pricing structure but is there any expectation to assume Powerball also moves to increase their pricing at some point? Thank you.

Yes. So with regard to the lotto process, it's really no public forum in the process. As folks ask questions, that's made publicly available And the number of bidders, we'll find out after.

The deadline. So after the RFPs are submitted.

With regard to Powerball, Yes, there's I think I don't want to speak on behalf of the of the group that manages Powerball.

But it's been a long time since there's been a price increase in either mega or Powerball. In fact, even even longer. For a Powerball So I think it's reasonable expect that Powerball will pay close attention to the impact on the increase to Mega Million sales And think about that in the going out into the future.

Makes sense.

This concludes the question and answer session. I will turn the call to CEO, Vince Zadusky for closing remarks.

Yes. So again, just to summarize, 2024 was a big year for IGT. We concluded our strategic review to sell gaming and digital for more than $4,000,000,000 in cash. Once we close, as we've mentioned, we're going to have a singular focus on our leading lottery business, which provides products services to more lotteries than any company in the world. As we look out into the future, think we're in a very good position to extend and secure our contract portfolio for for many years, which will enable us to deliver compelling returns for customers and shareholders while maintaining a very strong balance sheet.

And as always, we appreciate your interest in IGT. Have a great day.

This concludes today's conference call. Thank you for joining. You may now disconnect.