International Game Technology PLC
NYSE:IGT
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
18.9
28.09
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
International Game Technology PLC
You don't have any saved screeners yet
Good day, ladies and gentlemen, and welcome to the IGT 2018 Third Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded.
I would now like to turn the call over to Jim Hurley, Senior Vice President of Investor Relations. Sir, you may begin.
Thank you, and thank you all for joining us on IGT’s third quarter 2018 conference call. Marco Sala, our CEO, will provide an overview of the quarter and comment on boarder strategic initiatives. Then Alberto Fornaro, our CFO, will provide operational and financial perspective on the results. After our prepared remarks, we’ll open the call for your questions.
During today’s call, we’ll be making some forward-looking statements within the meaning of 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 SEC filings.
And now, I’ll turn the call over to Marco Sala, CEO of IGT.
Thank you, Jim, and welcome, everyone. We are reporting a strong third quarter result today. Adjusted EBITDA of $443 million, reflects solid KPIs for both Lottery and Gaming. We also benefited from high-margin Lottery products sales and disciplined expense management.
Our year-to-date performance is equally noteworthy with adjusted EBITDA up 7% at constant currency and scope, reflecting exceptional results at our Italy and International segments.
Same-store revenues for instant and draw-based lottery games were up mid-single digits in our North America and International segments during the third quarter. Italy lottery revenues were also up mid-single digits in the period. Multi-state jackpot activity were considerably lower, mostly due to the comparison with a large North American Powerball jackpot last year. Instant tickets continue to be the main driver of growth in North America, on-demand for higher-priced, large-format tickets.
We have also had a great success with high profile license properties, such as The Voice and Wheel of Fortune, which we’ll leverage across the IGT franchise. The vision of our new printing press at the beginning of the year has driven a 20% increase in the number of games printed. We have recently secured instant ticket printing contract extensions in Texas, New York and Idaho.
The international lottery business was strong across our operations and notably in the EMEA region. We realized good growth in the UK. Thanks to strong instant ticket and EuroMillions jackpot sales. We also secured a large multi-year software license as part of contract amendment with Veikkaus, a Finnish lottery operator we have supported for the last 30 years. Veikkaus is widely recognized as one of the world’s most sophisticated lotteries and we are proud of their endorsement of our capabilities.
In Italy, totally lottery wagers increased 2%, continued 10eLotto momentum and the contribution from MillionDAY more than offset a modest decline in Scratch & Win, which had tough comparisons to last year’s third quarter relaunch of the Miliardario games. Year-to-date, lotto wagers were up over 7% and Scratch & Win wagers are up nearly 2%.
I’d like to spend a little time on the Italy segment, because its performance is especially noteworthy. Revenue increased approximately 4% in constant currency for both of the third quarter and year-to-date period. Operating income has grown at even a stronger rate, up 17% in the third quarter and 9% year-to-date.
The results underscore the vitality of the gaming market in Italy and the extraordinary operational discipline and effectiveness of our Italy team. They have been able to grow the top and bottom lines, while overcoming the impact of higher taxes and some regional restrictions on gaming machine, as well as a significant reduction in AWP units.
Now, I’d like to give you our perspective of the – on the impacts of the regulatory measures that have been enacted in the Dignity Decree or are proposed in the new budget law based on what we know today. You may recall that the Dignity Decree involved a number of items, including increased taxation, advertising ban, warning labels on instant ticket and an age verification provision for the lotto machine.
The proposed budget law includes a provision for an additional 50 basis point increase in taxation for VLTs and AWPs. When we assess these items in total and consider the teams we can do to mitigate some of them, we expect that the EBITDA impact to be in the range of $15 million to $20 million in 2019.
To be sure, these are issues that require the close attention of the team. But I’m confident that it is a challenge that can be successfully managed and our team has a great track record of doing just that.
Let’s turn now to the Gaming business. Our global installed base was approximately 2% above the prior year, including the first year-to-date increase in North America since the acquisition. Sequentially, the installed base and yields were stable in North America, supported by Wheel of Fortune franchise, especially the Gold Spin and MEGATOWER games, as well as from Megabucks, Fort Knox and The Voice.
We shipped over 7,000 gaming machines in the third quarter, 10% more than the prior year, with good growth in both the North America and International segments. Replacement unit sales for North American Casino customers were up mid single-digit in the period. We experienced strong demand for our Crystal series cabinets and new games content such as Scarab, Solar Disc, Wild Fury and Mistress of Egypt. We have seen higher ASPs as a result.
International unit shipments increased double digits, and they are also enjoying higher ASPs. We saw particular strength in Australia, where new games like Star Stax and Fortune Gong are gaining momentum. Building on the recent introduction of CrystalCurve in Australia, we launched the Crystal 27 and the CrystalSlant cabinet at the Australian – Australasian Gaming Expo in August. Both are well received by customers.
Speaking of trade shows, we recently attended both the NASPL and the G2E North America and customers response was encouraging. The sales funnel for our video core products are coming out of G2E is the strongest we have seen in the last four years for both North America and international customers. The depth and quality of the games on the CrystalCurve and Crystal 27 cabinets were the highlight. Upcoming titles of Fortune Coin and [indiscernible] were especially popular at the show.
On the premium side, we featured the several monthly progressive and upgraded merchandising. Progressive titles garnering the most interest were: Fortune Link, Dragon Link and Wheel of Fortune Cash Link. The price is right, especially the Showcase Showdown on the MEGATOWER cabinet was another highlight.
Our PlayDigital organization was a focal point at both NASPL and the G2E. PlayDigital encompasses IGT’s full suite of digital platforms, content and solutions that address evolving lottery and casino customers and player needs in this dynamic channel. In fact, it was the first time we presented our suite of digital offerings in a such comprehensive way.
PlayShot, our fully integrated sports betting solution for Lottery and Gaming customers, received the most attention. Lottery customers were especially impressed with our ability to deliver a full outsource of sports betting solution through our exclusive partnership with William Hill. And while our mobile capabilities are important element of our offerings, lottery and casino customers were equally interested in our land-based sports betting offer.
The GameTouch Draw is a new lottery self-service terminal modeled after what we recently deployed in Italy. It supports the sales of keno and other draw games in bars and social spaces and can also be a key hold for sports betting. The CrystalBetting cabinets were debuted at the G2E features, the opportunity to place bets, while simultaneously watching a live event in a personalized space. Our more compact QuickBet kiosk was also be interested to casino customers.
Our goal is to consistently bring innovative content and technology to the market. The solutions we presented at the recent trade shows were our strongest offer to date of market-ready games, cabinets and systems. With strong organizational foundations in place and fully realized roster of compelling solutions, we are better positioned than ever to deliver on our goals. As our year-to-date results suggest, we are firmly on track to achieve the financial and strategic objectives we set for 2018.
Now, I’ll turn the call over to Alberto.
Thank you, Marco, and hello to, everyone, joining us on the call today. The summary of our third quarter results are presented on Slide 8. Consolidated revenue decreased 4% at constant currency, about one-third of the of the overall decline was related to ASC 606. Solid growth in Italy in global lottery same-store revenue was more than offset by comparisons with the specific non-recurring items and elevated product sales in the prior year.
Adjusted EBITDA grew 4% at constant currency and strong Italy performance, an improvement in product sales margin and disciplined expense management. Adjusted operating income reflects higher depreciation related to recent lottery wins and extensions and upgrading our global installed base or gaming machines. Adjusted earnings per share was $0.31, compared to $0.40 in the prior year, primarily due to a higher effective tax rate.
Let’s now review the results of each of our operating segments, beginning with Italy here on Slide 9. It was another very strong quarter forty Italy. Revenues increased 4% at constant currency, with contribution coming from all gaming business.
10eLotto wagers increased by nearly 8%. MillionDAY, which we introduced in February generated €47 million in wagers. Scratch & Win wagers were only modestly below the prior year on the difficult comparison with the relaunch of the Miliardario franchise in the third quarter last year.
In machine gaming, overall wagers were up slightly due to strong productivity gains from both AWP and VLT machines. These more than offset the impact from state mandated reduction in the number of AWPs, higher gaming machine taxes and certain regional restrictions on the gaming machines. The higher sports betting revenue is a combination of a 10% increase in wagers, coupled with a lower payout percentage. Based on October trends, we expect the fourth quarter payout to be above the prior year period.
Operating income increased significantly, up 17% at constant currency, reflecting the high profit flow-through from all Gaming business, as well as disciplined cost management.
Our North American Gaming and Interactive segment is shown on Slide 10. Adjusted for the jackpot expense reclass, revenues were down 5%, primarily due to a large software sale in Oregon in the prior year. The installed base increased by more than 430 units, or 2% from the prior year, the first year-over-year increase since the IGT acquisition in 2015.
Gaming service revenue was essentially stable on an underlying basis. Yield and installed base were stable sequentially. Product sales reflected the Oregon software sales in the prior year. This year, product revenue from terminal sales rose 16%, supported by growth in casino replacement and VLT units. We also benefited from higher ASPs.
Operating income reflected the comparison with last year high margin product sales mix, increased depreciation associated with upgrading the installed base and larger jackpot expenses due to the timing of the jackpots.
Now, let’s turn to North American Lottery on Slide 11. The underlying health of this business is strong. The declines depicted on this slide come from known items such as tough jackpot product sales comparison to the prior year at lower pass-through revenue, LMA revenue.
Same-store revenue from instant ticket and draw games was up a nearly 5% in the quarter, while multi-state jackpot games faced a tough comparison to very strong Powerball activity in the prior year. Instant ticket growth was primarily driven by high price points ticket – tickets and large customers like Texas and Michigan.
Lottery service revenue included the impact of the lower effective rate in California, which we will anniversary during Q4. LMA revenue was impacted by lower pass-through revenues from Illinois. As we have mentioned in the past, that pass-through revenue has no associated profit.
In product sales, we saw growth in instant ticket printing in the quarter faced – but faced a tougher comparison to the prior year, where we had a larger VLT central system and lottery terminal sales. Operating income was down on lower revenue and higher depreciation associated with recent contract wins and extensions.
Let’s now turn on our International segment on Slide 12. The revenue comparison primarily reflects specific non-recurring items that benefited the prior year period. In Lottery, overall same-store revenues grew almost 4%, driven by contribution from instant, draw-based games and jackpot games. Lower non-wager-driven revenue offset this growth.
Gaming service revenue declined primarily as a result of those specific non-recurring items that I just mentioned. In addition, the jackpot reclass of the $3 million impact, gaming service revenue from terminal rose 7% at constant currency from growth in the installed base.
Product sales revenue was up sharply, benefiting from a large multi-year contract amendment and associated software license to Veikkaus in Finland. It is important to note, we originally expected this amendment in the fourth quarter. Gaming machines unit were also strong, increasing by over 400 units, or 14%, primarily a new and expansion activity. The average selling price was also higher. Operating income was up significantly, driven by the high margin software sales and disciplined expense management.
Our debt and leverage profile is on Slide 13. Net of FX, leverage was stable, despite the upfront fees and payments to minority partners.
On Slide 14, we have included our current debt maturity profile. Year-to-date, we have refinanced over $1.3 billion in debt and have extended our average debt maturity to over 40 years, derisking our near-term capital markets exposure. These leads approximately $1.4 billion in debt maturing by the end of 2020.
We have plenty of liquidity be closer to billion-dollar in capacity and that our existing revolving credit facility, as well as $450 million in cash on hand at the end of the third quarter. Approximately 70% of our debt is fixed rate that the remaining 30% of floating rate that is denominated in euro, which has a lower cost.
Cash flow for the first nine months of the year is shown on Slide 15. Cash from operation was $249 million, including $366 million and upfront payments related to the Italian Scratch & Win license. In the fourth quarter, we have the final upfront payment totaling €450 million. As a reminder, we are responsible for 64% of these upfront fees.
Gross dividends and return of capital payments to minority partners totaling $192 million, were largely offset by $136 million in contributions to fund the Scratch & Win upfront payments.
Our updated outlook for 2018 is included on Slide 16. We have narrowed our outlook for adjusted EBITDA to $1.74 billion to $1.78 billion, the top of the prior year range. These includes a shift in timing of the 4,000 Sweden VLT unit shipment originally planned for the fourth quarter of this year to 2019.
Our outlook includes approximately $20 million benefit from recent North American jackpot activity. As a reminder, we have absorbed $28 million in adverse FX translation since providing our initial EBITDA expectation for the year. Our outlook for capital expenditure remains unchanged.
At this point, we’d like to open the call for your questions. Operator, could you please start the Q&A session.
Certainly. [Operator Instructions] Thank you. And our first question will come from the line of Carlo Santarelli with Deutsche Bank. Your line is open.
Hey, good morning, everyone. Just for starters, I wanted to just kind of go over something you said Alberto. You talked a little bit about, I believe it was Finland that was expected to be fourth quarter and ended up in the third quarter. And previously, you guys had talked about within the context of your guidance to fourth quarter being modestly better than the 3Q, when you were kind of putting the guidance framework together for the back-half of the year as of your 2Q earnings report.
Do any of the changes or timing of anything that you saw change that view? Obviously, you have a little bit of a tailwind you’re coming from the domestic jackpot in the fourth quarter. So how should we be thinking about kind of that, that cadence of 3Q to 4Q now?
Carlo, as I said, Finland, we were expected in Q4, and that’s why our estimation – initial estimation for Q3 were lower and we provided a better outlook for Q4 from a qualitative point of view. Now the fact that Finland has been included in Q3, obviously, reduced the contribution for Q4. And also, let me mention that originally we were planning for Sweden to be in Q4, it’s 4,000 machines, so it’s a larger shipment that will go to 2019.
Obviously, the fact that the jackpot in the fourth quarter is performing better and we have estimated that the impact is around $12 million – $20 million, sorry, $20 million is supporting the fact that we are guiding to the upper-half of the guidance that we previously provided and observing again a little bit more of the foreign exchange impact that we originally estimated in $26 million.
Great. Great, thank you. And then, Alberto, just to go back to the comments that Marco made earlier, as it pertained to the most recent regulatory changes, $15 million to $20 million was I believe the mitigated impact, correct? And that is not inclusive of the prior decree. That would – this would be the incremental $15 million to $20 million on the current budget law, correct?
Carlo, it’s Marco replying to your question. No. The answer is these $15 million, $20 million in 2019 includes everything. The Dignity Decree plus what we know so far about the budget law. It is clear that you – as you have said, that this imply a set of actions we have already decided in order to minimize the impact of the increased taxation. So this is a very key point. So $15 million, $20 million in 2009 between $20 million in 2019 is the full impact of Dignity Decree, plus what we know so far about the budget law.
Perfect. Thank you very much. And then lastly, obviously, a lot of buzz around your product at G2E, and I think you guys spoke to it in the prepared remarks a little bit. But I did want to ask obviously that the 3Q tends to be seasonally slower from a participation placement standpoint, and obviously, you guys were able to kind of inch out a little bit of sequential growth. Do you guys still feel fairly comfortable coming out of G2E with the ability to continue to drive sequential expansion of your participation base in the U.S.?
I think that what we feel is that we will stabilize for this year the – our installed base and we have a positive outlook for next year of a moderate growth.
Great. Guys, thank you very much.
Thank you.
Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Your line is open.
Hi.
Good morning, Chad.
Congrats on a strong third quarter and the outlook. I wanted to start with capital allocation. I know you guys have been very vocal about this. And I think we all know the answer, but just wanted to ask it again. Is there any change in terms of how you think about leverage target, which I believe you said at the end of the quarter was 4.27 before the last payment, sort of tick up a little bit.
And with respect to kind of your leverage goals, do we need to hear kind of a resolution or finalization of the Italian budget law before you get more comfortable? Do anything – doing anything there? Just kind of an updated view on capital allocation and what the levers are there? Thanks.
Chad, there is no change basically. And what we are doing is, looking at the overall business that we have looking at 2019 and so on. At a certain point, we will have a more updated projection for the future, but there is no change.
Okay, thanks. And then also in the regulatory department, could you just update us on the status of the Brazilian instant ticket RFP, if there’s a deadline in terms of the proposals there? And if you view the end of the election and kind of the outcome as potentially a positive, whether it’s for lottery or for gaming as as you guys see it internally? Thank you.
Chad, good morning. It’s Marco. You’re right, a new RFP for the instant ticket concession was issued in late September and this is due at the end of November. The most important change in the new RFP was a staggering of the upfront fee over a three-year period.
Of course, there is a lot to consider when investing in a greenfield opportunity like this, because at the end of the day, this is a greenfield opportunity, especially when there is a significant upfront payment associated with it. Having said that, it is a compelling opportunity and we are assessing it quite seriously.
Regarding the outcome of the political election, it’s too early to say. Let’s see when the government takes place, and we will assess their willingness to move forward with privatization and regulation in the gaming market more clearly than what we can do today.
Okay. Thank you very much. I appreciate it.
Thank you, Chad.
Thank you. Our next question comes from the line of Cameron McKnight with Credit Suisse. Your line is open.
Good morning. Thanks very much. Question for Alberto first. In terms of cash flow in the quarter, it looked like there was a bigger working capital swing in the third quarter. Can you talk about drivers of that? And should we expect that to release in the fourth quarter or first quarter next year?
Cameron, we have expected, as I said, we still and despite the VLT in Sweden, we still are expected a strong fourth quarter in terms of product sales. So as you have probably noticed, there is an increase in inventory and obviously, we are planning in Q4 that this increase will be absorbed.
Other than that, the third quarter actually, it has been quite good, because the cash flow generation was in terms of free cash flow was higher than $100 million. And normally, it’s a quarter where because we paid the interest expense is seasonally not so strong. So overall, I think in Q4, things should get better and particularly for what is related to the inventories.
Okay, perfect. Thank you. And is 450 to 550 still the 2019/longer-term guidance for free cash flow?
Yes, no change.
Fantastic. And then finally, could you talk about the drivers of the significant or perhaps elaborate on the drivers of margin upside in Italy and an international Lottery and Gaming in the quarter-end? Should we extrapolate these out going forward, or was this more driven by high-margin software sales and some things that hit in the third quarter?
Okay. Regarding Italy, obviously, an increase in revenue, particularly coming from certain part of the business, has a very important impact on the profitability. So if the revenue increase is maintained, that improvement in the margin, if we continue to control cost will be still visible. For what is related to the international and you look at the overall margin, certainly, when we talk about license software, it is an important impact on the margin.
However, I need to stress that on the product sales side, we have in this third quarter, sure, there is an improvement in the margins for the international, which is quite encouraging. And lastly, let me clarify one thing related to your question before. The 450 to 550 for clarity, I just want to remind everybody includes the minority payment, okay?
Got it. Perfect. Thank you very much.
Thank you. Our next question comes from the line of Domenico Ghilotti with Equita. Your line is open.
Good morning. My first question is on the current market…
Domenico, we can’t hear you, Domenico. Can you please pick up?
Sorry, sorry, sorry. I was on mute. My first question is related to the Italian market. And I’m trying to, well, looking at your numbers clearly, there is a good improvement in gaming consumption in general. But what your feeling on what’s going on considering also the concern that are on the challenging to be in general?
And the second question, in particular in the Italian market, since September 1, we had an increase in the first impact of the Dignity Decree. I’m trying to understand, if you have mitigated this through a reduction in payout, in particular on VLTs? So what are the actions that you have taken to mitigate the impact?
And the second question is more, if you can share with us some preliminary consideration on 2019 moving forward? I’m talking about quantitive numbers target, but just to give us some feel on the main contributors to the picture for 2019?
Good morning, Domenico. Talking about the Italian market, the first thing I have to say is that, the market has always demonstrated remarkable resilience to macroeconomic and political shocks. Our pro forma was not impacted by 2008, 2009 crisis that affected other industries and companies.
And notwithstanding you – what you just said about the keno of the Dignity Decree measures, our performance this quarter is in excellent performance. All in all, the reason for that is, because there is a very strong demand for gaming in Italy that is totally resilient because of the improvement of the resilient to the economic downturn or the economic situation in general.
It’s clear that when you are facing increasing taxation, you are putting in place all the measures to mitigate the impact on your P&L. In this regard, for sure, the adjustment in the payout of VLTs, but by the way, we did very successfully, because it’s a couple of years that we are adjusting other payout of VLTs without having an impact on wagers.
On the other hand, we are also reviewing all our processes to serve our customers in their gaming machine fields. We have organized our structure also because of the reduction of AWPs. And we are constantly revisiting our way to operate in order to extract cost that allow us to recover part of the impact of the increased taxation.
So all in all, I think that the measures that are now embedded in the budget law that goes to the parliament are for an increase in taxation of 50 basis points that we feel manageable for the reason that I’ve just mentioned. At the end of the day, it remains as it is at the end of December when it will be formally approved, we will have an impact of $15 million, $20 million for the full 2019 that I consider manageable as it has been managed in the previous years.
May I just follow-up on this? Just to say, how do you see the market also reacting or moving? Have you seen that in general repricing reformulation of the payout in the market?
As you perfectly know, Domenico, there is a little room for AWPs – or no room, sorry, say, for AWPs. So there is – you have just to look at the cost. I guess that everybody in the market will try to adjust the payout of VLTs in order to minimize the impact of the increased taxation in their P&L.
Domenico, this is Alberto. Regarding the outlook of 2019, obviously, we will provide the update on our next call. However, there are some qualitative elements that we can share with you. And the outlook is pretty much in sync with what we have said at the Investor Day in a sense that we still anticipate same-store revenues for instant and draw-based games in lottery expected to grow at the low to mid single digit over the medium-term, and so the same we are expecting for 2019.
For gaming, we expected to – the market to be at least stable with 2018 levels. The good news is now that having shifted the VLT in Sweden from 2018 to 2019, we will have a benefit from the VLT market in the international region.
Regarding some of the headwinds, we have already talked with Marco about the headwinds on the gaming machine taxes in Italy, estimated in $15 million to $20 million at the EBITDA level for next year. We are now going to plan, as you know, an elevated jackpot activity like the one that we had in the fourth quarter, because it’s not in our control.
The other two item that we recall that you already know is that Illinois supply contract that will end. And the other one is if the FX remains at this level, we will have a negative impact on EBITDA compared to 2018, but we will have a benefit on our total debt.
Okay. Thank you.
Thank you. [Operator Instructions] And our next question comes from the line of Barry Jonas with SunTrust. Your line is open.
Hi, guys. Just a couple of questions. So starting with North American lottery. Clearly, we’ve seen larger jackpots with Mega Millions Royale changes and Powerball continuing strong. But are you seeing any more jackpot fatigue otherwise or any cannibalization with Mega Millions?
No, so far, we are not seeing it. We – I think that there will be a normal evolution of jackpots, and we do not expect a major cannibalization between the two games.
Let me add this. Maybe compared to the past, sales were a little bit lower, given the level of the jackpot. But the fact that we had two jackpot at the same time has probably impacted it.
Understood. And then just next on North America. For U.S. sports betting, the teams made great progress there. I guess, I’m just curious, if you have any sense when we’ll start seeing a meaningful impact to your EBITDA?
I think, it takes time, Barry. We need to see how the regulation will evolve. We are positive, because I think, as you have said, we did good progress. Our solution are up and running in about 20 properties across Nevada, New Jersey, Mississippi, West Virginia and also our digital and mobile solution is live in Nevada, New Jersey. But talking about significant impact on EBITDA will take time. And so we cannot anticipate at this juncture.
Great. And then last one for me. Can you maybe just talk a little bit about the Canadian VLT market? It seems like that market is moving to maybe more regular replacement as opposed to historical lumpier trend. So just would like to get your take on that evolution?
I think, you’re right. I think instead of a having a replacement concentrated in a period of time, we are looking at these with a more, let me say, with a pace that is more spread across the years, and so I agree with you. It will – we will start having these from the next years in a more, let me say, in a more regular pace than before.
Great. Thank you so much.
Thank you.
Our next question comes from the line of David Katz with Jefferies. Your line is open.
Hi, good morning, everyone, and congrats on the quarter. You’ve covered a lot of stuff already. I just wanted to go back to the domestic premium installed base, the U.S. premium installed base. And I believe when we talked about it before, we’re starting to see units grow. And thinking about the win per day on that as perhaps lagging some of the growth, but eventually should turn north, presumably a fairly accretive metric, so I’d like to shape the cadence on that properly?
David, so far what we have seen is basically stable yields, and in the quarter, stable sequentially installed base, that’s where we are today.
Right. Should – we should at some point expect to see that win per day grow along with the installed base. Is that a fair assumption or am I misinterpreting that?
Well, it depends obviously on the quality of the games. For us, for this year, we wanted to stabilize the installed base and it was the first important step to reach. But I agree that, in the long run, if you wanted to improve the numbers in the units, obviously, the yields were up.
Okay. And just one last one, Alberto, I heard all of your commentary qualitatively about 2019. Do you expect to guide when should we expect a more fulsome set of guidance around 2019?
We normally give it with the results of the fourth quarter and we are anticipating the same for this year.
Very good. Thanks very much. Thanks for taking my questions.
Thank you. Our next question comes from the line of John DeCree with Union Gaming. Your line is open.
Good morning, everyone, and thank for the questions. Just two quick ones for me. I wanted to follow-up Barry’s question about sports betting, maybe ask it a little differently. I was wondering, Alberto, if you could give us a little color on how we should think about, albeit small right now, the kind of contribution?
Is there kind of a one-time sales associated with sports betting contracts and then a recurring revenue component? And even though it’s small, is it – is that revenue profitable today, or is there some kind of start-up costs that will need to ramp as you go forward with sports betting?
As I mentioned before, I don’t know if I did with you. We don’t have the perfect average contract for sports betting. The contract is quite different one from the other. In general, we have fees associated with that, that are in some way linked to the net revenues generate to them – the net wagers generations.
So far, it is – in terms of revenues, it’s relatively modest. What we can say is obviously that the most important, you can imagine that the most important wagers are generated in region where the sports betting was already either ready to go or allowed like Nevada and New Jersey and much more in the new states like Mississippi and West Virginia.
A quick follow-up, Alberto. When you kind of deploy a new contract with new customer or enter new state, is there some CapEx associated on your side with that sports betting roll out or contract and would that be kind of on a case by case basis as well?
There could be some CapEx that is very, very modest if there is a lot of customization required or it’s the first contract in the jurisdiction, there could be some, but it’s very, very small.
Okay, that’s helpful. Thank you. And then to shift gears one more question on kind of North America gaming business. You’ve talked a little bit about higher ASPs in the quarter. I was wondering if you could give us a little bit more color on that? Sorry, if I missed it in the prepared remarks. Is it a product mix shift relative to last year, or higher-priced units on your side, any color on pricing would be helpful?
Yes. The higher ASPs is basically driven by the new cabinets that have been introduced and that’s it. Sometimes, I mean, sometimes could be impacted by the mix between the VLT or casino games. But if VLT sales for us are important, but for what is related to the recent quarter, it has been driven by the new product introduction – new cabinets in particular.
Great. Thank you for the questions, again.
Thank you. And we have a follow-up question from the line of Domenico Ghilotti with Equita. Your line is open.
Yes, I have a follow-up. Just a clarification on international division, the reason for the decline in the installed base quarter-on-quarter?
If you look at the progression of the last quarters, you see that we grew quite significantly. And in this sequential decline of the commercial casino installed base primarily reflects the impact of conversions, mainly in Africa and Latin America. When some units of the customer asked to buy and after having improved our installed base significantly over the previous quarters, we agreed that to convert some of the machines they had in their floors.
Okay. Should we expect that the trend is – the underlying trend is a still positive trend?
Yes. I think over the next quarters, we will continue to grow the installed base in the international part of the business.
And are you a bit more satisfied with the performance in Greece or?
We’re improving. Yes, thank you for asking. We are improving our performance significantly. As I said in one of the previous calls, we were not completely happy with the performance of our machines in Greece. And now the performance, thanks to the new games we introduced in the market is more positive and overall performance is satisfying us.
Okay. Okay, thank you.
Thank you, Domenico.
Thank you. And I’m showing no further questions at this time. I would now like to turn the call back to Marco Sala for closing remarks.
Thank you for joining us today and for your interest in IGT. Have a good day. Bye-bye.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone, have a great day.