International Game Technology PLC

NYSE:IGT

Earnings Call Analysis

IGT Revenue Steady, Operational Success with Strategic Changes

In the second quarter of 2024, IGT reported stable revenue of $1.05 billion, balancing gaming and digital growth against past global lottery product sales. Operating income reached $230 million, with margins improving slightly once separation costs were excluded. Adjusted EBITDA was $446 million, with a 30-basis point increase in margin to 42.5%. The sale of the gaming and digital business to Apollo for $4.05 billion cash is set to streamline the company into a focused lottery business. This transition supports IGT’s strategic goals, enabling significant debt reduction and capital returns to shareholders, while maintaining a strong financial foundation for future growth.

Strong Revenue and Profit Performance

IGT reported impressive second-quarter results for 2024, with total revenue reaching $1.05 billion, consistent with the prior year's figures. This stability reflects a balance between growth in gaming and digital segments and a decline in lottery product sales from the previous year. Moreover, the company achieved an operating income of $230 million, inclusive of $26 million in separation costs, thus demonstrating an operational margin improvement of 40 basis points to 24.4%, excluding these costs. The adjusted EBITDA was reported at $420 million, a slight decrease from $443 million in the prior year but still indicative of robust operating performance.

Lottery Segment Insights

In the Global Lottery segment, revenues fell by 2% to $613 million, primarily due to a large software license sale in the previous year. Nonetheless, the operating income remains strong at $212 million with a 35% operating margin. Crucially, service revenue held steady, attributed to global same-store sales growth of about 1% and contributions from new contracts like the facility management in Connecticut. Notably, the management indicated a resilient demand for lottery, highlighting that innovative new game launches are expected to sustain play levels.

Gaming and Digital Revenue Growth

The Gaming and Digital segment experienced a modest revenue increase of 1% year-over-year to $436 million. This growth was spurred primarily by an increase in the installed base and higher sales from intellectual property (IP) and software licenses, despite a decline in terminal unit shipments. Operating income surged by 16% to over $100 million, leading to a notable 300 basis point improvement in operating margin to 24%. The success of new high-performance games contributed to these results, and further momentum is expected as more video game releases approach.

Strategic Business Developments

IGT's recent strategic shift includes the planned sale of its gaming and digital businesses to Apollo for $4.05 billion in cash, which is projected to enhance shareholder value while significantly augmenting IGT's cash position. The company intends to utilize a substantial portion of the proceeds to repay debt and return capital to shareholders. By focusing solely on its lottery operations, IGT aims to streamline its business and strengthen its position as a premier player in the global lottery market.

Future Guidance and Market Outlook

Looking ahead, IGT maintains a stable outlook for its lottery operations, anticipating low single-digit revenue growth excluding jackpots for the remainder of the year. This projection is supported by an expected uptick in game launches and a strong pipeline of new high-priced tickets. The gaming segment is projected to benefit from improved supply chain conditions and increased international demand, particularly in Latin America and Europe. Overall, IGT's strategic initiatives and market positioning hint at solid long-term growth potential amidst a dynamic industry landscape.

Financial Position and Performance

For the first half of the year, IGT reported adjusted earnings per share (EPS) of $1, setting a new company record, while liquidity remains robust at $1.7 billion, consisting of $400 million in unrestricted cash and $1.3 billion in undrawn credit. The net debt leverage stands at a favorable 2.9 times, at its lowest level in history, which places IGT in a strong financial footing poised for future investments and growth opportunities in its remaining operations.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by, and welcome to the International Game Technology's Second Quarter 2024 earnings conference call. [Operator instructions] I'd now like to turn the call over to James Hurley, Senior Vice President of Investor Relations. You may begin.

[James Hurley, executive]

Thank you, Rob, and thank you all for joining us on IGT's Second Quarter 2024 conference call, which is hosted by Vince Sadusky, our Chief Executive Officer; 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 will 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 to everyone on the call. We are reporting strong first half results today with over $2 billion of revenue and an operating margin of 23%, in line with the upgraded outlook provided in May.



Net of separation divestiture costs, we achieved record operating income and adjusted EBITDA, reflecting strong performance from both the global lottery and gaming and digital segments. We are delivering these results while maintaining a solid commitment to good corporate citizenship, including the publication of our 17th Annual Sustainability Report.



IGT has firmly established itself as a leader in global sustainability through environmental, social and governance initiatives. We look forward to continuing to build on our achievements.



As many of you know, last week, we announced the sale of our gaming and digital business to Apollo in a transaction that supersedes the spin and merger transaction originally contemplated with every holdings. Apollo's $4.05 billion cash offer is a positive evolution of our previously announced every transaction in many ways. This simple straightforward transaction provides a clear-cut separation of global lottery from gaming and digital 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 to IGT shareholders from the previously contemplated equity 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's remaining operations will be comprised of its current global lottery business and corporate support functions. This establishes the company as the premier pure play lottery business with a diversified contract mix, broad global reach and strong positions in important markets.



IGT's lottery industry leadership is supported by unmatched capabilities, a high-performing suite of products and value-added solutions and a proven ability to maximize proceeds for lottery customers.



The Global lottery segment has a compelling business model with infrastructure like characteristics, including recurring revenue streams backed by long-term contracts and long-standing customer relationships. It's relatively unique to find a business that offers such good visibility into the future. 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 potential iLottery adoption, especially in the U.S. This ultimately establishes a financial profile characterized by strong profit margins, significant free cash flow generation, a 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.



Moving on to the results we are reporting today. We continue to see high levels of lottery play around the world. The 2% increase in revenue for the first 6 months comes on top of a 5% increase in the prior year. Global same-store sales were up modestly, consolidating significant growth in the underlying sales base experienced in the last 4 years. 3.5% growth in Italy same-store sales has been well balanced between instant and draw games, thanks to a steady stream of innovative games.



In Q2, the fourth Lotto draw introduced last summer and 10 new other special draws introduced last fall were important drivers of increased retail and digital sales. For Italy instance, the new EUR 25 Super Gold Instant Ticket Game and the launch of several tickets at different price points under proven franchises fueled growth.



Same-store sales outside of Italy were slightly below prior year as 7.5% growth in multi-jurisdiction jackpot games, mostly offset lower instant ticket sales. We did see sequential improvement in trends in the second quarter, again, fueled by strong Powerball and EuroMillions jackpots in the period.



There are a dozen or so more higher-priced games that will launch over the next several months compared to last year. That should support better instant ticket sales trends in the second half of 2024. Global iLottery sales are maintaining excellent momentum rising 27% in the first half, with strong growth across regions, especially in the U.S. and Italy.



Over the last few months, we've bolstered our global lottery portfolio and advanced some key strategic initiatives with important multiyear contract wins and extensions. We secured a new 7-year contract with the Colorado Lottery to install a full suite of our newest products and solutions that will offer players enhanced retail and mobile experiences.



We also executed a 3-year extension with the Mississippi Lottery Corporation, where we will continue to provide online gaming systems and instant ticket services in addition to deploying a mobile convenience app and expanding the network of self-service vending machines.



We signed a 5-year contract to launch cloud-based iLottery solutions, including our RGS platform in a vast array of e-instant games for Canada's Atlantic Lottery, which is the nation's largest digital instant market. We also recently went live with our iLottery platform in Connecticut, enabling digital draw-based game play there.



On the printing front, we entered a 5-year contract with ONCE, the operator of Spain's Lottery, building on our 20-year history with ONCE as the provider of its lottery central system and software maintenance services.



A robust pipeline of new games is driving gaming and digital performance. The global installed base continues to expand with Q2 marking the eighth consecutive quarter of sequential growth, led by premium games. In fact, IGT has 9 of the top 25 new premium games based on the latest Eilers survey data. Among them is Tiger and Dragon, which secured its third month as the #1 new premium leased in web game, generating productivity of about 3x zone average. Tiger and Dragon has already established itself as one of the best game families in the market.



Mystery of the Lamp is another and demand remains high. In June, we launched Whitney Houston Web game on our new SkyRise Cabinet. Initial performance is excellent, and we are planning a broader rollout over the next several months. We sold over 14,000 gaming machines in the first half of the year, thanks to the top-ranking MLPs, such as Rising Rockets, Magic Treasurers and Golden Link. The progress we are making in core video is evident with 7 spots in the top 25 new core game rankings.



With approximately 80% of gaming and digital revenue coming from the U.S. and Canada, there is considerable opportunity for IGT to grow in the EMEA, Asia Pacific and Latin American regions. We have targeted initiatives in each and have made some good progress recently, such as expanding into the Spanish AWP market, launching HHR games outside of the U.S. for the first time ever and rolling out the largest peak bar top video poker installation in Europe.



On the digital front, our cash eruption in Blackjack games continue to maintain their spots as the #1 slot in table games in the U.S., supporting 20% growth in U.S. iGaming GTR in the first half of the year. Earlier this month, we launched our highly successful land-based Prosperity Link into 5 U.S. iGaming markets. Providing customers and players with multichannel game content is a cornerstone of our global content strategy.



The record first half operating income and adjusted EBITDA we achieved before the separation divestiture costs confirms we are very much on track with our core operational and strategic objectives. At the same time, we are working through separation activities for digital and gaming to support our goal of unlocking the intrinsic value of IGT's best-in-class business. Now I'll turn the call over to Max.

[Massimiliano Chiara, executive]

Thank you, Vince, and hello to everyone joining us today. IGT reported second quarter of 2024 results this morning, solidly meeting expectations for both revenue and profit. Revenue of $1.05 billion was in line with the prior year as growth in gaming and digital was offset by elevated global lottery product sales in the prior year.



We delivered operating income of $230 million, including $26 million in separation and divestiture costs compared to $251 million in the prior year. Excluding those costs, operating income margin improved 40 basis points to 24.4%. Adjusted EBITDA was $420 million versus $443 million in the prior year period.



Net of separation and divestiture costs, adjusted EBITDA was $446 million, and the margin expanded 30 basis points to 42.5%. We generated diluted earnings per share of $0.20 and an adjusted EPS of $0.36. On a 6-month basis, our adjusted EPS, excluding separation and divestiture expense reached $1 per share, a record for the company.



Now let's take a look at the results of which business segment, starting with Global Lottery. Revenue declined 2% in the second quarter to $613 million, primarily due to elevated product sales from a multiyear software license sale in the prior year period. Service revenue was in line with the prior year as a global increase in same-store sales of about 1% and revenue generated by the new facilities management contract in Connecticut were offset by a onetime benefit from the resolution of a customer contract dispute recognized in the prior year.



Operating profitability was strong with operating income of $212 million and a 35% to OI margin. Year-over-year, operating income comparisons reflect the impact of the software license and the customer contract resolution I just mentioned.



Lottery profitability reflects resilience of demand towards elevated play levels despite moderation in certain markets. Our ability to innovate and sequence compelling new games represent a solid support to demand conditions via new launches of high price point tickets in the second part of the year.



Turning to Gaming and Digital. Revenue increased 1% year-over-year to $436 million as growth in the installed base, resilient yields and higher IP and software license sales were partially offset by lower terminal unit shipments. After the recovery from the supply chain delays that characterize some of the excellent performance of last year, we are ready to continue to pick up momentum in product sales going forward as we expect to reap the benefit of recent core video game launches.



The global installed base increased over 2,100 units year-over-year, primarily due to the popularity of our multilevel progressive games. The success, coupled with resilient yields and higher software sales led to a 2% increase in service revenue in the quarter.



On the product sales front, revenue was up 1% compared to the prior year. We continue to leverage our broad portfolio of our intellectual property with the licensing of game feature patents, helping to drive nonterminal revenue up 45% in the second quarter.



Global terminal unit shipments of 7,600 units declined 640 units year-over-year, reflecting a return to more normal levels following a multi period of pent-up demand due to supply chain challenges. Stronger gaming performance in the U.S. was offset by game mix and timing of jackpots in Canada.



Operating income increased 16% to over $100 million with OI margin improving 300 basis points to 24%, driven by high-margin IP and software sales and easing of supply chain costs, partially offset by lower terminal sales. This is the highest operating income margin achieved by the Gaming and Digital segment since providing long-term targets at the November 2021 Investor Day.



In the first half of the year, we generated $463 million in cash from operations, representing a solid 54% cash conversion. We invested about $200 million in capital expenditures and license obligations, resulting in free cash flow of around $264 million. Net debt leverage was confirmed at 2.9x, the lowest level in company history. Liquidity of $1.7 billion consisted of $400 million in unrestricted cash and $1.3 billion in undrawn capacity under our credit facilities. This, coupled with manageable near-term debt maturities, puts us in a very strong financial position.



I'd like to highlight some of the key financial impacts associated with the gaming and digital sales. As with the initial Everi transaction, tax leakage from the sale is expected to be modest up to $100 million or less than $0.50 per IGT share. This is because as a U.K. company, IGT PLC has the benefit of the participation exemption regime upon sale of assets.



Total transaction-related cash outflows continues to be estimated at approximately $400 million, including the tax leakage I just mentioned, $200 million in transaction-related costs and about $100 million of other items, primarily cash within the gaming and digital business that we will convey upon closing.



The $405 billion of gross proceeds significantly improves our pro forma net debt leverage compared to the prior Everi transaction, using the $1.2 billion of [ the main core ] LTM EBITDA as a reference point. While we aren't yet specifying the amount of capital we expect to return to shareholders, we're targeting to maintain our leverage around current levels, enabling us to maintain strong financial condition through the lottery investment cycle, primarily around the Italy Lotto bid and certain other large contract rebids.



So, we delivered strong revenue, profit and cash flow performance in the first half of the year, all while making excellent progress on key strategic objectives. In light of the planned sale of gaming and digital to Apollo, we expect to classify and report gaming and digital results as discontinued operations beginning in the third quarter of this year.



As a result, we are withdrawing the full year financial outlook we provided in May. I'd like to emphasize this decision is not related to a change in underlying KPI or margin expectations for the business. It is simply a matter of a change in accounting treatment as we expect to classify the sole business as discontinued operations from Q3 onwards.



I will now ask the operator to please open the line for questions.

[Operator]

We will now begin the question-and-answer session. [Operator instructions]. Your first question comes from the line of Jeffrey Stanchel from Stifel.

[Jeffrey Stantial, analyst]

Maybe starting off here on last Friday's announcement, just -- can you just walk us through how you're thinking about timing and process to receive various antitrust and regulatory approvals? I would think having just cleared HSR and with Apollo being licensed currently as an operator and historically as a manufacturer, the process should prove quicker than some historical transactions. But just curious to get your thoughts here as it relates to the Q3 2025 closing time line that you laid out in the merger talks.

[Vincent Sadusky, executive]

I think that's good observations. Apollo is in the gaming business so they have experience with regulators. We had our transaction, as you know, our original transaction with Everi, that combination was evaluated by the DOJ so we were in good shape there.



So, we think it's logical that the focus from an antitrust perspective would be on Apollo's business since both the Everi and the IGT business have already been evaluated and they really -- they're not in the equipment manufacturing business and own casinos. So, we're hopeful that, that will move along pretty quickly on both fronts. But we've estimated roughly a year just given the timing and of course, per the agreement, it could be as far out as 15 months.

[Jeffrey Stantial, analyst]

And then for my follow-up, turning to the lottery business. Max, I appreciate the comment that you just made related to guidance and no changes to the underlying KPIs or margin assumptions. I just -- I guess I want to be crystal clear on this. I think previously, you had guided, if I'm not mistaken, same-store sales flattish, excluding jackpots below single digits for the year. I believe that implies some acceleration in the back half of the year. I guess does this -- does this guidance for the lottery business still hold? Has anything changed incrementally since you last updated at mid-May? Just any color there would be great.

[Massimiliano Chiara, executive]

So for lottery, we don't expect any change in our outlook assumptions. We expect it to be up low single digit ex-jackpot function in terms of the remaining part of the year. As you know, we tend not to project large jackpot events. So, if they come, they represent an upside to our outlook.



And right now, again, the underlying business conditions are slated to be slightly better than the first half, partially aided by a sequencing of higher price point launch expected in North America in the second part of the year and the continuation of a successful new game launch campaign in both games in Italy similarly to what we have generated in the first half of the year.



So, all in all, the underlying market conditions for lottery are -- remain very solid. We are consolidating elevated play levels and we don't project significant jackpots between now and the end of the year.

[Operator]

Your next question comes from the line of Barry Jonas from Truist.

[Barry Jonas, analyst]

Big change for you personally going from running the gaming entity to now the lottery business. Maybe walk us through that change? And just generally, how are you're thinking about your strategic goals for lottery over the next few years?

[Vincent Sadusky, executive]

So I think both businesses have terrific upside potential. I was excited to help the company in the separation and integration activities associated with the combination with Everi and the time it would take to execute that. But that would have necessitated finding CEO to run RemainCo, the public lottery company.



Now that this is a different transaction with Apollo acquiring both entities, both Everi and our gaming, the digital entities going private. It provided the opportunity for me to stay with RemainCo, with a public company and help to drive our goals there. So, I'm very excited about the prospects for both businesses.



Unfortunately, I can't be in both places and I think they both got very different profiles, and I really believe both are terrifically undervalued, which really was the driving force behind this entire strategic alternative initiative that we undertook with the Board 1.5 years ago or so, beginning it in earnest. So definitely excited about the opportunity for both and in particular, now the opportunity to remain with the public lottery company.



Of course, as we kind of get closer to the closing we'll have a pretty detailed and pretty thoughtful long-range plan and activities and goals, cash flows that will take the investment community through to try to present our case as to why we think it's a very good business.



But when I step back and think about where the business has been over the last 3 or 4 years, there are certainly some ups and downs in the business just given the timing around multi-state jackpots both in Europe and the U.S. as well as things like scratch and win, game launches, different price points, especially in significant jurisdictions that really move the needle like Florida, Texas, California, New York.



But overall, the business has grown at something around a 4% CAGR since if you go back to 2019 through the first half of 2024. And the research that we've looked at has supported the fact that there's more players that got introduced to lottery and enjoy the game.



And then when you take a look at the digital opportunity, I'm fortunate that states have been slow to -- slower than we would have hoped to approve iLottery. Nonetheless, the ones who have, the numbers are significantly and we're a significant player, having just launched the Connecticut lottery and as I mentioned, getting our content in more and more approved jurisdictions where we don't run iLottery.



So, there are several opportunities for revenue growth in that and we've seen no decline in play in retail as a result of digital as well. So, it's been slower than we expected in North America in terms of rollout the approval, but we think that will pick up over time.



And meanwhile, you've had -- you've got the courier services continue to show that the digital activity for their businesses continues to grow, and that benefits us when we are the provider of the system in these markets.



So, I'm excited about it. I think it's a very good growth business, and I think it's a great yield story, in particular, for something that's very solid. I think it's been hampered by the conglomerate discount that our company received. We heard from all of you and our investors certainly long before I got here, but certainly since I got here that we're not one thing or another. We're effectively primarily a lottery company that is trading at the low end of an equipment supplier business.



And so, we think this separation activity will be a step in the right direction. And as I say, we're excited to get out until our lottery story as to why it's a compelling investment.

[Barry Jonas, analyst]

That's extremely helpful. And just as a follow-up, any updates on the Italian Lotto in terms of process, timing? And then I guess, just related to that, as we think about ROI on any new potential Lotto renewal deal, assuming you're successful. How do you see the growth potential for Lotto in what's already, I guess, in developed markets?

[Vincent Sadusky, executive]

So Lotto to me in Italy is really remarkable. It's one of the oldest lotteries in the world. You could argue the penetration is higher than almost any lottery in the world, yet because we run it, we actually operate it.



We've had -- the team has had the amazing ability and has continued to perform and continue to drive growth which is what makes, I think, that lottery a good business and also makes it a difficult business for an unproven competitor to come into the marketplace and invest $1 billion-plus in upfront fee and then significant capital investment.



I think as we mentioned last time, we've got pretty good insight now into what the new license terms would be 9 years nonrenewable. It's consistent with the existing license, $1 billion minimum upfront fee, and we're currently working on things like what the technology plan would be, etc.



So, things are on track and I think that, again, we've said over and over again, we're pretty confident in our capabilities, obviously, given the expertise we bring and the results being as effective as they have, but it's been truly a win-win for Italy as well as certainly, we benefited as well.



Really, the increase in fee is something that we experienced last time around as well and the ROI was fine. The reason is the team -- we bet on our team to be able to assist in making games more interesting and innovative and continuing to develop games that would be compelling to players. And fortunately, they've done that so the level of play has gone up something like $1 billion or so in sales from when we first got this latest renewal to today.



So that's really -- again, you've got to have a high level of confidence in your capabilities to be able to continue to drive these ROIs. I'm not sure if I was a third-party coming in, I would have that level of confidence, it's a big bet. For us, we've got the experience, and we do have the confidence so we think we can maintain a good ROI on this business despite the fact that the fee has increased over the previous renewal.

[Operator]

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

[Chad Beynon, analyst]

Congrats on everything. I wanted to start on the gaming business. You mentioned some opportunities outside of North America, a few different avenues in terms of where you can increase your presence. Can you just talk about, a, maybe the timing around this, if this is more of a back half '24 or more something further into '25? And then more importantly, what was kind of the genesis of this? Was it getting games approved? Was it implementing kind of a local sales team or just maybe something that the customers have asked for? Just trying to size up what these opportunities could be.

[Vincent Sadusky, executive]

So we've recognized over the years that when you have games that perform very well in North America, they have a tendency to perform well internationally, especially in Europe and in LatAm, and that's been the case for our games. So, this really good run that the company has experienced, especially in the premium space has created demand in international markets.



We've been increasing our installed base pretty steadily in Latin America, for example. And when you look at the titles that have done really well in the U.S. such as Magic Treasures, Prosperity Link, Mystery of the Lamp, those are all growing really well, and that's allowed us to continue to grow our installed base footprint, and we think that can continue.



In places like EMEA, very similar Magic Treasurers, Mystery of the Lamp, Prosperity Link, have all been really strong performers. And I think recently, the teams did a good job of convincing operators to take things like video poker and mechanical real game. Some things that really weren't consumed all that highly in EMEA and early signs are good.



And then in Australia, it's a market that we've really struggled to get our fair share. I'll be down there in a couple of weeks, and we feel like we've got the right organization, we've got the right game developers, and its early days in terms of our reorganization. But we've had a combination of good early signs, both from North American games like Prosperity Link. We are doing very well down there and some locally produced games as well that are starting to get some traction.



But the other area really in addition to the kind of the premium space and the installed base is in game sales. And the fact that we've now benefited so much from our good premium game production we've been able to focus on core games as well. And you heard of it, we've got -- we've 7 out of 25 ranked games in core now, which is -- I don't know about an all-time high, but for the last 10-plus years, certainly a high for IGT to be doing so well in that category and those games we're beginning to introduce into international markets as well.



So, we do believe that our growth at the back half of the year, fourth quarter, in particular, going into 2025. A lot of that growth is going to be driven by international.

[Chad Beynon, analyst]

And then on iLottery, given some state deficit changes here and some of the conversations that were had particularly in the last 6 months with legislators. Has the temperature changed at all in terms of acceptance towards iLottery and are conversations with state lottery executives or potentially legislators picking up? Could that be an opportunity or a catalyst for '25? Or in your conversations, are these groups kind of looking at other areas in terms of raising revenues for their states.?

[Vincent Sadusky, executive]

I think as we've seen historically, when states are challenged with their budgets they certainly look towards gaming and lotteries as a potential opportunity. As you know, states ran a budget surplus for many years post-COVID and lottery sales did particularly well. And a lot of the focus was on sports betting, right?



So now sports betting has done fine. In some places, it hasn't done great in terms of meeting the revenue projections and states are certainly struggling now to fill budget gaps. So, we're hopeful that, that accelerates legislation being brought to the various legislators to be able to pass iLottery in those states.



We -- in the meantime, I mean we continue to refine our business. As I mentioned, we were up, I think, 27% for the first half of 2024, and we've added a bunch of new customers. And even I think one of the most interesting things that the team's been able to accomplish is in states where we don't have the iLottery platform. We've been able to add content customers and our content is doing very well. So, there's -- we've got the opportunity to participate.



But overall, we've got 12 platform customers live. We're getting better and better at this, especially with the diversity of customer needs and requirements both internationally and in the U.S. So, our focus is to continue to grow this business, to continue to make great content, to continue to answer RFPs. Many of those are international and improve our products so that as the states do open up, we're considered a premier player.

[Operator]

[Operator instructions] Your next question comes from the line of David Katz from Jefferies.

[David Katz, analyst]

Congrats on all the hard work, which I'm sure is not -- should not be unnoticed. With respect to the Italy process that we go through, you mentioned earlier that you have some insight and you're working through on some of the technology. I just want to make sure, in your prior release, I think it was a quarter ago, you gave us the sense that the sort of economics of the partnership structure was going to remain the same as last time. How firm is that today? And should we still consider that to be the case?

[Vincent Sadusky, executive]

I mean we mentioned previously that we did execute [indiscernible] understanding to maintain our joint venture with each one of our joint venture partners and I think everyone is positively inclined to move forward with the partnership. And as we get closer to the actual renewal, the RFP process, that becomes even, I think, even more important. But I have no update to that other than we've -- we're in agreement with our partners and the intention is to move ahead together.

[David Katz, analyst]

And in some of your remarks, you mentioned an LTM EBITDA remains solid about $1.2 billion. And I just wanted to walk through that a little bit, right? What we're thinking about, and this is a discussion with investors since the deal announcement and ongoing. Is there's a minority interest back out that's neighborhood of $175, and then there should be some corporate considered in their also? Any sort of qualitative help you can give us around what those pieces remain core? Is our corporate number of $75 would be some place for us to estimate when we do our math?

[Massimiliano Chiara, executive]

So on the minority interest, as you know, majority of that item is covered by the 2 Italian contract JVs that we have, a consortium that we have down there. So that's unchanged and I think your number is a good proxy going forward. It's something in the neighborhood of $200 million per year.



Obviously, with the consideration that in the year of renewal, that number is affected by their own contribution of funds to the new bid from a cash flow perspective. So obviously, you have only to take the product portion of our piece of the bid going forward.



As far as the corporate costs are concerned, the $1.2 billion is an all-in number for RemainCo right now, as we have discussed last quarter. And as a matter of reference, what we are expecting is an amount of stranded cost, net of TSA contributions of about $20 million that we expect to absorb in the next 12 to 24 months, so that to take into account the TSA period and then an extra, call it, a year extra until we are able to absorb this $20 million of stranded cost that effectively comes back to us.

[Operator]

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

[Joseph Stauff, analyst]

Just maybe a quick follow-up on the Italian Lotto renewal process. Is it fair to say that we all know everything, say, in the first quarter of '25, if not later this year. Is there any, I'd say, tighter sense of timing you can give us on that?



And then I just wanted to go back, I believe, Barry asked it earlier on the lottery business and kind of your outlook and how you think about the strategy. Can you also discuss maybe the competitive landscape and how that has changed over the last couple of years in particular, and the advantages that you have?



Obviously, part of the exercise here is to try to figure out what naturally the right trading multiple is for the lottery business there or a number of international comps and so I was looking if you could help kind of beef up some of that discussion, please.

[Massimiliano Chiara, executive]

I'll start with the process on the Italian Lotto. So, as we said last time, early in April, the Italian government issued a decree that has established the rules for the new bid. Since then, the process has kicked off in terms of preparing the new bid document that has to go through a couple of legislative steps to confirm is in sync with European Union rules for public bids and also, it's consistent with the Italian principles.



So, all in all, we expect that the tender may be issued by the end of the year worst case early next year. Then it's a matter of the typical step after step process. So, all in all, we don't expect to have a definitive outcome until probably the second quarter of next year, with obviously some time left beyond that for the integration from the existing contract on to the new period.



So, all in all, again, we expect 12 months probably to get an outcome and then maybe 18 months up to the run rate of the new contract.

[Vincent Sadusky, executive]

I would pick up on the kind of the opportunity going forward for lottery. Again, we'll have plenty more time to talk about our thoughts in detail. But we expect to maintain kind of low mid-single-digit long-term growth profile for lottery over time. And that's really based upon a combination of innovation and the greater number of people that have discovered the lottery is fun and enjoyable post-COVID, coupled with iLottery as well.



So again, we've had really, really good growth since going back to 2019. When you take a look at the current elevated levels of play in our areas, the first half of 2024, we had 2% revenue growth, but that was on top of 5% in the prior year, putting aside product sales, which is kind of a lumpy, a spiky business.



And we've had terrific growth in North American instance. That's now moderated.

We don't see any structural issues associated with that and we do think the improved focus and new game launches, higher price points, etc., that we're working with states will have a positive impact as well as the really nice CAGR and growth trajectory in Italy.



So, when you take a look at all of that, coupled with iLottery, which has grown something like 60% or so over the last 4 years, and the number is becoming more meaningful and has the opportunity to become even more meaningful as more states eventually approve some type of iLottery play. I think all of that is pretty attractive.



And then you had asked about the competitive set assuming you meant worldwide. As you know, it's an interesting industry. It's not that big in terms of the revenue opportunity for the B2B providers. There's a few international players that are primarily focused on B2C, so there's not that many players that have both the B2C experience as well as the B2B expertise.



The ability to be able to consistently help jurisdictions to not only improve sales, but consistently deliver a high-quality product with virtually no disruption and offer up -- have the ability to offer up anything on the product suite from instance to various draw games, to multi-jurisdictional games.



There's just not that many players out there and the ones that are out there and the few -- even fewer are public, most of those public ones are focused in 1 or 2 jurisdictions and certainly don't have the broad-based expertise. And also, on top of that, in many cases, those particular providers, their expertise is B2C. And in some cases, we're actually the technology provider to some of these players.



So, I really think as we get out and have the ability to tell our story, investors will recognize the uniqueness of our product offering. Certainly, we're heavily -- we have a lot of cash flow coming from Italy, a lot of cash flow coming from the North American jurisdictions. But relative to our competition, we think our diversification is outstanding, and our product capabilities is unparalleled.

[Operator]

Your final question comes from the line of David Hargreaves from Barclays.

[David Hargreaves, analyst]

I hope this isn't nitpicking at all. But just looking back to your monologue, it said that you plan to maintain leverage at current levels and I'm just looking back to prior announcements. I'm just wondering, it's that it looks like around 3x depending on net or gross. Is that a bit of a revision from what you were previously revealing?

[Massimiliano Chiara, executive]

No, absolutely not. It's a different perspective. I mean, right now, the leverage is around 2.9%, so below 3%. What we said today, just a few minutes ago is that we expect -- we like where we are today, all in all. And we have to consider that in the next 12 to 18 months, we are going to have to put a significant amount of money on the table for upfront fees for contract rebids and also a significant investment amount in the lottery business for some contract rebids in the U.S.



So, when you consider everything, including the cash proceeds from the transaction, the cash to be used to pay down debt and provide the shareholder remuneration and fund the future business of lottery, all in all, we think that the below 3 targets is where we would like to be.



So again, I gave you an all-in perspective, which is a different way to look at this number versus the proforma exercise that we did when we issued the announcement on the Everi transaction originally, which was a purely proforma calculation for the transaction.



So, I think we believe the information today is more helpful for investors going forward because they understand where the company is expecting to be on the long run when you consider everything.

[David Hargreaves, analyst]

And when you talk about repaying $2 billion of debt, does that assume that the bank debt rolls and then that's just $2 billion of bonds? Or should we be thinking $2 billion of bonds and bank debt combination?

[Massimiliano Chiara, executive]

Look, in the disclosures that have been provided to the market between deal 1 and deal 2, there are sufficient information to understand that we have some requirements to repay a portion of the bank debt on the term loan only. So, the revolver is not going to be touched. It's just a voluntary decision if we want to apply some of that money to reducing the revolver instead of paying down bond, which is part of our flexibility.



So, we expect to pay down half of the term loan remaining at the time of closing, everything else will be -- of the $2 billion will be allocated to either bonds or reduction in the revolver usage. Besides the $2 billion, there are -- obviously, we have to fund the $400 million in transaction-related cash outflows that I mentioned during the call and then the balance will be used for capital returns to shareholders plus some amount will remain for corporate general purposes.



But again, I think at the end of the day, for investors, the most important thing is to understand the mindset of the company in terms of net leverage going forward, including the round of investments, including the upfront fee for the Lotto renewal, that will have to entertain between the second part of '24 and '25 and early '26.

[Operator]

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

[Vincent Sadusky, executive]

Thank you. So just to sum it up. The record first half operating income and adjusted EBITDA we achieved before the separation divestiture cost, we think confirms we're very much on track with our core operational and strategic objectives. Consistent investments in our technology, our game content and innovation -- innovative solutions provide us a really good foundation to build from. The recently announced sale of gaming and digital businesses for $4.05 billion in cash is an important step in unlocking the intrinsic value of IGT's best-in-class business.



So, thank you all today for joining us, and we always appreciate your interest in IGT.

[Operator]

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