International Game Technology PLC

NYSE:IGT

Earnings Call Transcript 2024-Q1

[Operator]

Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the International Game Technology First Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Jim Hurley, Senior Vice President, Investor Relations. James, you may begin your conference.

[James Hurley, executive]

Thank you, Krista, and thank you all for joining us for IGT's First quarter 2024 conference call, which is hosted by Vince Sadusky, our CEO; and Max Chiara, our Chief Financial Officer. After some prepared remarks, Vince and Max will be available for your questions. During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings.

During this call, we will discuss certain non-GAAP financial measures. You'll find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our press release, slides accompanying this webcast, and our filings with the SEC, each of which is posted on our Investor Relations website. And now, I'll turn the call over to Vince.

[Vincent Sadusky, executive]

Thank you, Jim, and welcome, everyone, to the call. Fiscal 2024 is off to a strong start with Q1 results that exceeded our outlook. Revenue of nearly $1.1 billion was better than expected, primarily on Global Gaming and iGaming performance. The 24% operating margin was 400 basis points higher than anticipated, mostly on better lottery results from Italy same-store sales and strong North American jackpot activity in late March in addition to the timing of separation and divestiture costs. The company delivered record operating income of $273 million, excluding separation and divestiture costs. Based upon Q1 performance exceeding expectations, we've upgraded our full year 2024 revenue and profit goals, which Max will walk you through later.

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Focusing on the operating segments. Global Lottery revenue rose 6%, driven by Italy game innovation and strong product sales growth. Global Lottery has now achieved 6 consecutive quarters of operating margin expansion. Global same-store sales were better than expected, largely on strong Italy instant ticket performance and significant U.S. multistage jackpot activity towards the end of the quarter, thanks to $1 billion-plus jackpots for both Power Ball and Mega Millions. Italy's more than 4% same-store sales growth reflects similar trends for both instant and draw games and was achieved on top of 10% growth in Q1 '23. This performance is a true testament to IGT's unique market knowledge and player insights that create compelling game innovation and go-to-market strategies.

Same-store sales in North America and the rest of the world were slightly below prior year mostly due to differences in the year-to-year cadence of new instant ticket game launches, especially for higher priced games. Lotto and lottery sales continue to expand at a fast clip, up over 20% in the period led by a growing portfolio of high-performing e-instant games, like Ghostbusters in the U.S. and Ultra Numerissimi in Italy. IGT's best-in-class lottery hardware and software solutions drove another quarter of strong product sales growth. We had some meaningful updates on the upcoming Italy Lotto license tender. A recent government decree confirmed a 9-year term and minimum EUR 1 billion upfront license fee, which will be payable in 3 tranches. In addition, the effective rate will remain 6%, which is consistent with the current license.

In preparation for the upcoming tender, IGT and our current partners have entered into memorandums of understanding to maintain the existing joint venture structure for the new bid. As the only operator of this license for 3 decades, we are confident in our ability to compete for the next license term. I'd like to spend some time on the key product strategies driving Global Lottery's consistent growth. Broadly, they are new game launches, increased play frequency and a multichannel focus. In Italy, the team has done a fantastic job delivering compelling game innovation, including revitalizing core franchises across draw and instant games. They are successfully amplifying the impact of this innovation with coordinated launches across both retail and digital channels. In fact, our multidimensional omni-channel games won Lottery Product of the Year at February's International Gaming awards.

In instants, updated graphics and new price points and payout structures have maintained the success of iconic games like Numerissimi. We launched a EUR 20 Ultra Numerissimi extended-play game in Q1, which helped drive incremental sales in the period. We are executing a similar strategy with [indiscernible] franchise renewing it with updated graphics and an enriched game experience that will be supported by several new retail and eInstant Games as well as expanded price points over the next few months. Increase play frequency is helping drive growth in Italy draw games. This includes a second million day draw introduced in the second quarter of last year. A fourth weekly lotto draw launched in Q3 and new [indiscernible] Lotto special draws occurring between 4:00 p.m. and 6:00 p.m. each day that began in Q4 of last year.

Outside of Italy, the mid-March launch of 500x the money Georgia's second $50 instant ticket game is currently driving improved sales in that category. New Jersey's $50 million explosion launched in the end of Q1 with a $20 price point and that's having a similarly positive impact. Cash Pop of proprietary ITT draw-based game recently expanded to a 13th jurisdiction. The highly customized game play in multiple daily drug times creates an engaging player experience which explains Cash Pop's popularity and success in helping to drive lottery sales growth. Georgia's multichannel Quick Win game launched in September, currently has 8 iterations in the market. The retail and iLottery games share a progressive jackpot and sales are well balanced across channels. Based on the strong results, there are another 6 Quick Win games playing for 2024.

Broad-based demand for games and cabinets is driving sustained profit momentum for our Gaming and Digital segment, where year-to-year profit margins expanded for the 12th consecutive quarter. The global installed base grew to over 54,000 units in the quarter. This includes the seventh consecutive quarter of growth for U.S. and Canada premium units. In fact, the U.S. and Canada installed base of multilevel progressive games was up 6% from the year-end levels on the continued success [indiscernible] and Mystery of the Lamp, which was named the top-performing new premium game at this year's EKG Slots awards show. Gaming machine unit sales have been of a strong multiyear growth trajectory, thanks to a consistent pipeline of exciting new games. Rising Rockets is 1 of the latest in that roster securing the #3 and #5 spots in top indexing new core video games. Our new cabinets, in particular, the PeakCurve 49 remain among the top performing North American cabinets, and this helped drive record U.S. and Canada average selling prices in Q1.

IGaming revenue grew 10% in the quarter with GGR reaching an all-time high in March driven by strong IGT game performance in the U.S. That momentum was supported by the top-performing Cash Eruption. In addition to our popular video poker and table game offerings. We continue to see success with our bespoke game program and recently launched Wheel of Fortune Triple Extreme spin with Bet [indiscernible] with FanDuel.

IGT has had consistent success bringing gaming and digital games to market through focused R&D investment, including process improvements and more discipline in game and hardware development. Backed by strengthening portfolio of terrific IP, IGT is currently enjoying the most success we've had in game development in over a decade. In the premium space, we've consistently delivered high-performing link progressives. Tiger & Dragon, which was just released in April, is one of our top scoring test bank titles and is off to a strong start. 4 of our non-WAP premium games are in the latest others top 25 new premium games, and we expect Tiger and Dragon to make its way to that list soon.

In the WAP arena, IGT has 11 of the top 25 indexing games, including the #1 and #3 spots with Megabox Double Diamond Deluxe and Wheel of Fortune Double Diamond. We've got exciting new titles on the horizon with Whitney Houston and Prospery Link Blessings. We made significant inroads in the core video category, which represents the largest portion of industry sales and it's a space for IGT is underrepresented. I already mentioned the recent success of rising rockets, but it's worth noting the longevity of titles like Magic Treasurers and the growing library of new games such as Golden Eagle and Golden Phoenix. The success of our games in North America is translating to the rest of the world. Magic Treasurers and Mystery of the Lamp are among the top 10 indexing premium games in the EMEA region while Magic Treasurers and Egyptian Link are among the top 10 corrugates in Latin America.

The encouraging land-based results are also evident in our iGaming business. IGT has 3 of the top 5 performing U.S. online games. We've had particular success with a multichannel focus leveraging strong land-based franchises in the Digital arena. Later this year, we'll be rolling out new digital games under the successful cash eruption, Cleopatra and Fortune Coin franchises. So 2024 is off to a strong start with record operating income, net of separation and divestiture costs. Our upgraded full year '24 revenue and profit outlook reflects broad-based momentum across key performance indicators in the balance of the year. We continue to make progress in separating global gaming from gaming and digital and preparing for the proposed transaction with Everest. Now, I'll turn the call over to Max.

[Massimiliano Chiara, executive]

Thank you, Vince, and good morning, everyone. We generated strong revenue and operating income margin in the first quarter, exceeding the outlook we provided in March and we delivered record operating income when you exclude $18 million in separation and divestiture costs related to the planned spin and merger transaction of Gaming and Digital. Revenue of $1.07 billion increased 1% year-over-year, reflecting continued growth in global lottery partially offset by the timing of product sales in gaming and digital. We delivered operating income of $256 million and an operating margin of 24%, in line with the prior year as strength in global lottery and improvements in R&D and SG&A cost were offset by the lower revenue contribution from gaming and digital and separation and divestiture costs.

Excluding separation and divestiture costs, operating income rose to an all-time quarterly record of $273 million and operating margin expanded 150 basis points to 25.6% propelled by strong Italy same-store sales and higher product sales margin in Global Lottery and easing our supply chain cost and R&D growth improvement in gaming and digital.

Adjusted EBITDA was $443 million, in line with the prior year, but up 3% to $461 million, excluding the separation and divestiture cost. We generated EPS of $0.40 per share as a result of the strong operating performance indicated above and the tax rate normalization. Adjusted EPS was $0.46 per share compared to $0.49 per share in the prior year and would have been $0.04 higher year-over-year to $0.53, excluding the after-tax impact of separation and divestiture costs.

I will now turn to a segment level review of first quarter results. Global Lottery delivered solid revenue and profit growth in the first quarter. Revenue rose 6% to $661 million, driven by strong product sales and continued Italy same-store sales growth. First quarter product sales revenue nearly doubled, bolstered by the delivery of GameTouch 28 self-service terminals in Canada and system software upgrades in Singapore and Germany. About 20% of this increase is due to a planned acceleration of sales, originally expected to occur later in the year. As a reminder, the timing of our sales in this segment can be lumpy, and we expect to see some moderation on a full year basis given the high levels experienced in the prior year.

Robust Italy same-store sales, coupled with contributions from a 2023 contract with win in Connecticut helped drive service revenue up 3%. Operating income rose 8% to $258 million, and operating margin expanded 60 basis points, prepared with strong Italy same-store sales and product sales margin. [indiscernible] activity related the Porter Health neutralized, a previously expected year-over-year decline. In Q1, Gaming and Digital delivered the 12th consecutive quarter of year-over-year operating margin expansion and achieved a profit in line with prior year despite lower revenue related to the timing of our sales. Revenue of $406 million declined 7% versus the prior year. The global installed base continues to expand on the strength of high-performing games and cognate, particularly in the area of multilevel progresses. Terminal service revenue rose 2% year-over-year on growth in the global installed base.

On a sequential basis, the rest of world installed base added over 230 units while the U.S. and Canada was relatively stable as growth in premium casino units mostly offset expected removals in the New York WLA market. We shipped over 6,600 units in the quarter and U.S. and Canada ASPs hit a record of nearly $17,000. However, as anticipated, product sales revenue declined year-over-year as the prior year benefited from more new and expansion opportunities and pent-up demand for replacement units in the U.S. and Canada and elevated IP and software licenses. Igaming revenue increased 10%, primarily driven by strong performance in the U.S., coupled with favorable timing of [indiscernible]. Despite lower revenue, operating income of $81 million was in line with the prior year and profit expansion continued with operating margins increasing 80 basis points to 20%, driven by using our supply chain cost and LNG process improvement.

We have decided to pull Investor Day target margin in reference from this quarter onwards as the [indiscernible] combinations have rendered the comparison with the previous margin view less relevant. However, we are maintaining our outlook for 250 to 400 basis points of margin progression expected to occur in 2024. Following the closing of the merger transaction, the new management team will provide our thoughts around appropriate long-term aspirational targets for the new combined entity.

In terms of the specific forces behind 2024 operating margin improvement, we can consider the following: an expected revenue growth backed by a favorable KPI momentum, primarily in the international markets, the continued moderation of supply chain cost, which is mostly an H1 event and a consistent approach focused on diligent cost management. With increased operating leverage as revenue [indiscernible] in the balance of the year. On the back of gaming demand stabilization in North America and continued expected recovery and expansion in international markets, we remain positive on our margin improvement trajectory going forward.

Turning to the balance sheet now. We generated cash from operations of $120 million in the quarter, which included around $195 million in cash outflows primarily related to the timing of cash taxes and ARAP dynamics. The standing impacts were expected, and we are confident in our ability to achieve our full year target of at least $1 billion in cash from operations with about 40% of the target generated in the first half and 60% in the second half of the year.

We are in a solid financial position with net debt leverage of 2.9x, mentioning the lowest level in IGT history, manageable near-term debt maturities and $1.7 billion in liquidity. Based on the strong first quarter results, we are upgrading our full year outlook to the upper end of the previous range, increasing revenue expectations to approximately $4.4 billion with an operating margin of around 21%. We continue to expect about $130 million in pre-closing separation and divestiture costs related to the planned spin and merger transaction. Excluding those advanced specific costs, operating margin will be about 24%, a record level for [indiscernible].

More immediately, for the second quarter, we expect to deliver revenue of approximately $1.05 billion and operating income margin of around 22%, which includes about a 250 basis point impact from the pre-closing separation and divestiture costs. We believe that the current run rate on the separation and divestiture costs will continue in the short term and see the balance of those costs back loaded towards the closing date.

Before moving to Q&A, we would like to spend some time on key areas of investor interest regarding the spin of in digital assets and subsequent merger with Everi. The deliberate creation of 2 separate pure-play companies have the potential to create significant value for IGT shareholders through the delivery of cash proceeds to RemainCo, the issuance of MergeCo shares in exchange for units of SpinCo and the potential rerating of the 2 companies as well as the synergies expected at MergeCo. Many of you have asked about the past closing the transaction. As you can see here that our various work streams and milestones required, we're making progress on each, and we expect closing to occur in late 2024 or early 2025.

Speaking of progress, we have advanced in the financing portion of the transaction. We see the strong support through the extension of bank financing commitments to 7 more high-caliber financial institutions. The deal was more than 2x oversubscribed with the revolver successfully upsized by 50% to $750 million. The strong interest in the IGT recombination that we have seen from the banking side during this process is a testament to the strength of the proposed transaction.

Regarding the timing of the estimated $200 million in separation and divestiture cost, we expect to pay about 2 terms before closing with the remaining portion incurred upon closing. These costs are aligned with those of similarly complex transactions, and here you have some perspectives on the scope of the various work streams behind them, it is important to recognize we are executing 2 transactions in one. The carve-out spin-off of 1 segment from a publicly company and a merger with another public listed company.

That also explains partially the time needed to close the transaction as the new entity will need to be stock ready on day 1. We have had many questions about the taxable nature of the transaction. We chose this path since there is minimum tax leakage to IGT, and it allows both new companies for freedom to pursue strategic M&A and other capital allocation initiatives from day 1. We currently expect the distribution to be treated as digital.

There are tax consequences to shareholders, and we have provided some insight on implications for U.S. holders as a reference here. Also, please refer to additional tax disclosure in IGT 20-F filed in March 2024. In general, the tax impact to shareholders can be viewed as a matter of timing as shareholders will receive a fair market value and tax basis in the new stock.

The cash distribution to be paid to RemainCo upon closing of the merger has a very favorable impact on the leverage profile of the standalone [indiscernible] company. We intend to allocate about $2 billion of net distribution to paying down debt, that puts RemainCo 2023 perform a net debt leverage at about 2.5x strengthening the company's financial condition. Based on that, the pro forma adjusted EBITDA figure will remain consists at around $1.2 billion. At this point, we'd like to open the call for questions. Operator, can you help with that please.

[Operator]

[Operator Instructions] Your first question comes from the line of Barry Jonas with Truist Securities.

[Barry Jonas, analyst]

Vince, what's the reaction been from customers regarding the proposed transactions? I guess, what are they most excited about? And are there areas of concerns you've had to address?

[Vincent Sadusky, executive]

Yes, good question. Both the IGT commercial teams and the every commercial teams have spent a lot of time with customers. They both have good sized sales force, especially in North America. And I've spoken with customers as well. And universally, we've not received negative feedback. I think the opportunity for customers is to have a competitor that has a greater collective amount of R&D resources focused in the right areas. I'd say, over the last couple of years, in particular, IGT has been very competitive. We've got our cabinets, our PeakCurve 49 cabinets ranked #2. We've had a string of hit games in the MLP space. We've revamped our mechanical real. We come out after more than a decade, a new, very effective video poker product, et cetera.

So we've had really good momentum. The infrastructure side of the casino centered around cash access has been a real strength of Everi's and really integral to the operation best-in-class as well. So we've not had any customers concerned around kind of market pressure or any of those types of things, since we're complementary in those areas.

And then when you think about the various regions, you have some regions or VLT markets, some are VP markets, some are Class 2 markets. And each 1 of us has strong offerings in 1 of these respective areas. So the opportunity to, over time, be able to bring game themes that individually we're producing on a stand-alone basis. Into those markets is something that operators understand and are excited about.

So they see us as a better equipment supplier with a more full some offering. And I think anecdotally, we've got a good amount of cheer leaders on the casino side, just, I think, a real testimony to the service orientation of after units are sold, the support that takes place on the every side and on the IGT side with our amazing field services group, and ability to constantly upgrade and service these machines in the field being best-in-class. So I think overall, it's been met with a really positive response. So we can't wait to get disclosed and we're excited to get together and be able to be 1 unit.

[Barry Jonas, analyst]

That's great. And then just as a follow-up, while you guys are working on your separation, a gaming competitor just closed on an acquisition of a iLottery competitor, so I'm curious how you see that transaction impacting your iLottery positioning given your proposed separation.

[Vincent Sadusky, executive]

Yes. I mean, combinations, right? It's all about execution. So it will be interesting to see how that plays out. But that competitor has a good iLottery product and we've competed against that product effectively with our iLottery products over the last 3 or 4 years. So again, iLottery enjoys good growth, right? Still being kind of early days of customer uptake. And we've continued to enjoy really good double-digit growth in the iLottery space. And we've been successful in continuing to bring more iLottery, both platform and content customers to IGT Lottery.

So as you'd imagine, any high-growth space has competition. And again, I have no idea what the plans are for that entity. But on a stand-alone basis, they've been a good competitor and they help to keep our team sharp, and we constantly rank our games versus our competition games performance, and we've got many of the top-performing iLottery games as well as benchmarking platform. So again, we welcome the competition.

[Operator]

Your next question comes from the line of Jeff Stantial with Stifel.

[Jeffrey Stantial, analyst]

Maybe starting off on the announcement around the -- or on the Lotto JV structure, Vince, could you just expand a bit further on the strategic rationale for leaving the JV structure intact. Obviously, the balance sheet looks a lot different than the last time you went through this process. So just curious what led you to decide to incorporate funding partners again this time around.

[Vincent Sadusky, executive]

Yes. I would say, when you look back at partnerships over the duration of the term, you have the ability, of course, with the advantage of hindsight to evaluate how successful the partnership has been. And we think the partnership between [indiscernible] think it's been a successful partnership. The team has worked, I think, as good partners. Of course, we operate it, we run it. The joint venture has advantages in terms of funding and also the ability to bring in incremental folks with lottery experience in different areas.

So again, it operated well. And so quite simply, we decided we would -- we and our partners decided to continue it, and we're moving ahead with this. We think the stability of what we've had for many years is beneficial to all and no reason to offset that.

[Jeffrey Stantial, analyst]

Right. That makes sense. And then turning to the guidance revisions. If you back out Q1 and your Q2 guidance from the full year guidance, it looks like you're expecting about 52% of revenues to come in the back half of the year. Can you just expand a bit more on the expected seasonality or, I guess, acceleration. Is this mostly casino slot purchasing seasonality? Or what else is driving your expectation for more back half weighted '24?

[Vincent Sadusky, executive]

Yes. I mean, I'd say on the Lottery side, when you look forward, we expect a low single-digit same-store sales growth as we look with the limited visibility we have, given the momentum we've got in Italy and what we're seeing in North America and in the rest of the world. We've had several of our markets have launched new instant tickets, which is -- which I think will be super helpful given the strong high-priced instant ticket launches in some significant jurisdictions in the early part of last year. So we think that's super helpful. The multi-state jackpot has been such so attractive to consumers.

We saw towards the end of last year, and into the beginning of this year, a bit of jackpot fatigue in that area as there's been a lot more frequent $1 billion or close to $1 billion advertised jackpot. But then that accelerated, and we actually saw on a weekly basis, sales towards the large jackpots improve at the end of the run in 2024 for these last couple of Power Ball and Mega Millions $1 billion plus jackpots. So that's I think, a good, encouraging sign.

On the gaming side, we had just an incredible amount of pent-up demand going into 2023. So a bit of a difficult comp. However, when we look forward, and it's really all about how well the games are performing now and the upcoming game launches, we're really excited. Again, as I mentioned, I think not just myself and the team would say that we're in the best shape we've been in a decade with consistent high-ranking launches of not only MLP games, premium games, which are critical and evidenced by the continued expansion of the installed base on the premium side in North America.

But now in core as well, the team has been able to put together some core games that look pretty exciting. Again, I think I mentioned Rising Rockets is 1 of them, premiering #3 and #5, close to 2.5x house average in early days. So that's something that's new for us and pretty pretty exciting. And so we're looking ahead at unit shipments. And we know from what our casino customers have reported some mixed results, but again, they had a very challenging January with weather as well as record-setting numbers for last year. So I'm actually encouraged.

I see the continued performance at or around last year's level is really good. And in chatting with our customers, some got off to a bit of a slow start with capital expenditures. But the conversations have gone well. And again, I think as long as we're in a position where our games are performing. We're entitled to get our fair share of both the purchasing and installed base replacements that are projected to take place this year.

So as we look out, we do see for the second quarter unit shipments -- I'm sorry, kind of this sales funnel building, kind of around similar levels to prior year. And we think that throughout the course of the year, that will continue to improve for us through a combination of both the industry and the performance of our games. And I'll hand it over to Max for any other.

[Massimiliano Chiara, executive]

I would say that -- the only item I'd like to add is that on the back of the strong KPI momentum, we have been experiencing in the last few quarters in gaming, including ASP installed base and all of that we can -- with that, we can continue to achieve positive revenue momentum in the balance of the year.

[Operator]

Your next question comes from the line of David Katz with Jefferies.

[David Katz, analyst]

I appreciate it. I wanted to, Vince, just talk about the update on the Italy concession. I'm a bit curious how that came about. I don't recall sort of getting this early insight last time. Obviously, is there any potential for it to change as we move down the road since there is a fair amount of time. And I guess, to the degree that you can plan or provide for it ultimately being resolved, that obviously is a pretty good thing, right? Any insight there would be helpful.

[Vincent Sadusky, executive]

Yes, so going back to the years ago, the last renewal, I think the process of the announcement of the term and the rate and the fee is the first step. And then, of course, there's multiple approvals to steps that take place, including the drafting of a formal RFP and then the bid and award process, which will take some time. And I'll let Max take you through more of the details of the process.

[Massimiliano Chiara, executive]

So on the beginning of April, governmental decree has been issued in Italy, which basically highlights the key features of the new bid will include. Now the ADM, the appropriate agency [indiscernible] the tender. There are a few steps in the legislative agenda to follow the drafting of the tender, including opinion of compatibility with EU tender rules.

Once the tender is issued, then interested parties make their assessments, offer a bid, the bids get assessed, all the offers get assessed by the ADM. So all in all, we expect that the time is still to be around 12 to 18 months at full execution of this process. But definitely, we welcome this -- the announcement of the KPIs, the key indicators for the bid as it provides a lot of clarity. And on the back of that, as Vince said, we have extended the memorandum -- with the memorandum of understanding, the existing consortium for the upcoming business.

[David Katz, analyst]

Understood. And if I can just follow up quickly on the margin side and make sure we're perfectly clear. I mean the margins are very, very good. I want to make sure that I'm comping what you've said today with what was last time. And if I'm reading correctly, right, it was 20% to 21%, including roughly 300 basis points of impact from the pending deals and now, right, we're excluding those and going to a top end of 24%. So there is a bit of improvement, but I just want to make sure we're all perfectly clear on what the change is and what the update is.

[Massimiliano Chiara, executive]

Yes, correct. So effectively, when you take the midpoint of the original margin guidance range, we're moving the margin up 50 bps with this upgrade so again, we think that, that improvement is solid and is backed by a very strong Q1, which came in better than expected. Some of that was timing related, so timing of separation costs. The take shot on the jackpot was not originally expected on a year-over-year basis. So that also helped fill the gap. And then there is obviously underlying strength in our performance as a combination of the different markets, who came to fruition a strong -- obviously, a strong Italy market in lottery helps our margin a lot.

So again, going forward, we believe that we'll continue to stay focused on improving our margin and again, we need to watch out the impact of the separation and divestiture expenses because I think it's appropriate for the market to appreciate what is the organic earnings power of this group of assets versus the -- obviously, the reported number, which includes those costs, both onetime costs.

[Operator]

Your next question comes from the line of Chad Beynon from Macquarie.

[Chad Beynon, analyst]

I wanted to focus on some of the underlying North American trends you guys both mentioned the impact that a lot of your clients, the operators saw in January, given the inclement weather. But as it relates to lottery, did you see that in that segment as well in North America, meaning lower kind of same-store demand in January and then that picked up. And then second part of the weather-related question is around yields. So did you see revenue per unit or the yields for the gaming ops business start to inflect positively in any month when we got past the weather.

[Massimiliano Chiara, executive]

Yes. So absolutely, Chad, this is right. We have seen as well a very slow start of the year in January, which probably is due to that weather situation, which impacted a little bit of all the activity, but we saw also a pickup momentum in February and March, which realigned the trends correctly during the quarter. Again, both in North America for gaming and lottery.

The one thing that is more important to mention for lottery is the year-over-year difference in the game -- new game launch cadence. So last year, we were on the verge of having launched new high-ticket games so that initial momentum was very strong. Obviously, this year, the launch cadence has a different tempo, and we expect that to happen later in the year. So we're confident that we will be able to recover that game launch impact for the balance of the year result.

And as far as gaming is concerned, the yields -- the recent yield dynamic has been very strong. We continue to make good progress on our stand-alone unit. And by the way, by the fall replacing stand-alone units coming in with VST going out, there is a net positive impact to the margin mix in the portfolio.

[Chad Beynon, analyst]

That's great. On the digital business, any updated views in terms of potential impact from the white paper implementations in the back half of the year? Is that factored in the guidance? I know it's not a huge contributor, but has anything changed from that respect?

[Vincent Sadusky, executive]

No, nothing. We can't think of anything that has impacted our projections for the rest of the year and our business plan as a result of that.

[Operator]

Your next question comes from the line of Joe Stauff with Susquehanna.

[Joseph Stauff, analyst]

Great. I wanted to ask about the Italian results, lottery results, really strong organic growth over 4% on a tough comp. I was wondering if you could maybe disaggregate or discuss. Was this a product specific? Was it newer products? Was it across the board? And then I had maybe 2, say, more deal-specific questions, maybe, Max, when do you expect the carve-out portion of the transaction to be done. Is that -- would you expect everything in terms of the various org chart boxes that you have to move around to be done by the third quarter or whatever? And when would you expect the S-4 to be filed.

[Vincent Sadusky, executive]

I'll take the first question around Italy. So yes, the continued growth in Italy, I think, is a real testimony to the team's capabilities when you think about the significant increase that was experienced in gameplay and sales in Italy in the first quarter of 2023. And then, following that up with strong growth here in the first quarter of 2024. And I recently spent time with the team going through our strategic plan in Rome, and it's a little bit of everything. They've got really good game innovation since we've been operating the lottery since the inception, the library of games and the knowledge of the proper games to evolve and refresh and deep franchises like [indiscernible] lotto, I think, are things that are incredibly valuable.

And the research and analysis is done around price points and various payout strategies and being aware and observing best practices around the world. I think is all led to this plus the retail distribution network, the partnership we have with the tobacconists and our point of sales teams that are constantly working with our point-of-sales operators is second to not. It's very impressive.

And then we look out going forward, the team has a very, I think, impressive slate of continued game launches and game evolution with different price points. They're looking at lower end price points like $0.50 launches all the way up to kind of [indiscernible] price point, EUR 15, EUR 25 different payout structures in different gameplay. And all that's been coupled really recently in the last really less than 2 years with much more effective game launches on the lottery side as well, emulating a lot of the teams that we have developed on the retail side, but in a digital format, I think, appealing to an even broader group of players. So we've seen really good growth on that front as well. So it's really, I think, a bit of everything and just great execution.

[Massimiliano Chiara, executive]

Great. And in terms of the second part of your question, so we've been working on the carve-out preparation for some time now, obviously, we have to take into account that there are 3 years here that we need to complete. Plus, obviously, we have to follow through with the [indiscernible] cadence in '24 as well depending on when the S4 gets filed.

So again, work is in progress, and we're making progress as expected at this point of the year. In terms of the S4, it's currently is in preparation, as we speak, we expect probably to be in a good position towards the second half of the second quarter towards the end of the second quarter to be able to do the initial filing. And then obviously, the typical 20 to 60 days back and forth with the staff to finalize the document, hopefully, by the end of the summertime.

[Operator]

Our last question today comes from David Hargreaves with Barclays.

[Unknown Analyst]

I wanted to check the financing commitments you've announced, are those all of the financing you're going to need for the transaction and then secondly, is there any update on the disposition of the every bonds? What's going to happen with those?

[Massimiliano Chiara, executive]

Yes, I'll take the first part of the question. So the financial commitment of $3.7 billion before the revolver and are going to be split between notes to be issued and a TSB instrument that also will be issued around about the closing time. We think -- we believe that, that package is sufficient to get MergeCo going.

On top of that, we have a revolver for $750 million, which was upsized from the original amount, which we think is sufficient to support the growth of MergeCo and the financial needs of MergeCo day 1. The good thing is that once we went out and promote the package. We got a superior response from financial institution, primary financial institutions, and we were very pleased to kind of provide commitments to the upside.

[Unknown Analyst]

That's helpful. Now, I think there's just a little concern among investors. Are you able to say at this point if there's going to be a 101 change of control made for the Everi notes?

[Vincent Sadusky, executive]

That's really Everi's question.

[Operator]

That concludes our question-and-answer session today. I will now turn the call back over to Vince Sadusky for closing comments.

[Vincent Sadusky, executive]

Yes. Thanks for joining us today. As you heard, '24 is off to a good start with record operating income, net of separation and divestiture costs. Our upgraded full year revenue prop outlook reflects good momentum across key KPIs and the balance of the year, and the work to separate global Everi from gaming and digital is underway as we prepare for the proposed transaction with Everi. As we've said before, we believe the creation of 2 most focused companies better positioned then to service customers and create significant value for stakeholders. So thanks for your interest in IGT, and have a great day.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.