IGT’s impending sale of its gaming and digital businesses to Apollo Global Management dominated Tuesday’s investor call. IGT CEO Vince Sadusky wasted little time getting to the $6.3 billion transaction that will define IGT’s future.
“It’s a positive evolution of our previously announced Everi transaction in many ways,” Sadusky said. “This simple, straightforward transaction provides a clear-cut separation of global lottery from gaming…. For IGT shareholders, there is a substantial increase in cash, nearly $1.5 billion, which provides a quicker realization of value upon closing, thereby eliminating IGT shareholder exposure to execution risk regarding integration efforts and synergies. The all-cash structure also eliminates the tax timing impact of the IGT shareholders from the previously contemplated equity. The distribution we intend to allocate the cash proceeds in a balanced manner with significant portions being used to repay debt and for returning capital to shareholders upon the successful completion of the transaction.”
IGT was scheduled to merge with Everi Holdings later this year, but Apollo’s deal preempted that transaction. What remains of IGT will focus on the lottery.
“It’s relatively unique to find a business that offers such good visibility into the future,” Sadusky said. “That visibility is bolstered by attractive fundamentals. Lottery is a large, consistently growing and resilient industry with recession proof characteristics. It also has significant tailwinds from centralized lottery adoption, especially in the US. It establishes the financial profile characterized by strong profit margins, significant free cash flow generation, solid balance sheet with substantial liquidity, and focused capital allocation. This puts us in a good position to extend and secure our contract portfolio over the coming years.”
IGT reported revenue of $1.049 billion in 2Q24, compared to $1.055 billion in the same time period of 2023, a year-over-year decrease of approximately 1%. The company generated $613 million from global lottery and $436 million from games and digital.
There will be a change, naturally, in IGT’s strategic goals. Sadusky said he envisions upside for both businesses, and he believes that both are undervalued.
But one cannot do both, Sadusky believes.
“As we kind of get close to the closing, we will have a pretty detailed, pretty thoughtful long-range plan activities and goals,” he said.
Among them are keeping abreast of the new seven-year agreement signed recently with the Colorado Lottery, and a three-year contract extension with the Mississippi Lottery. IGT also has signed a five-year contract for ilottery in Connecticut with the Atlantic Lottery Corporation, and a five-year contract agreement with ONCE is Spain.
IGT also intends to maintain a strong presence in Italy, which has one of the world’s oldest lotteries. However, a billion-dollar fee is charged to keep IGT running it.
“We actually operated it,” Sadusky said. “We’ve had the team, and it has had the amazing ability to perform it and continue to drive growth, which is what makes, I think, that lottery a good business. And also, it makes it a difficult business for an unproven competitor to come into the marketplace and invest a billion.”
Analyst David Katz of Jefferies is cautiously optimistic about IGT’s prospects.
“There were modest improvements in the US business in installed base placements, partially offset by lower-than-expected product sales,” Katz wrote in a statement before the conference call. “ Both the US and ROW (rest of the world) saw higher yields than our forecast.”
