UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| OR | |||||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| For the fiscal year ended | ||||||||
| OR | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| OR | |||||
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission file number 001-36906
(Exact name of Registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Executive Vice President and General Counsel
Telephone: (401 ) 392-1000 Fax: (401) 392-4812
E-mail: Christopher.Spears@IGT.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||||||||
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
| ordinary shares, nominal value $0.10 per share | |||||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
x Yes o No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o Yes x No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated filer | o | |||||||||
| Non-accelerated filer | o | Emerging growth company | |||||||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| x | International Financial Reporting Standards as issued by the International Accounting Standards Board | o | Other | o | |||||||||||||||||||
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.
o Item 17 or o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes x No
TABLE OF CONTENTS
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PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION
International Game Technology PLC (the “Parent”), together with its consolidated subsidiaries, is a global leader in gaming. In this annual report on Form 20-F, unless otherwise specified or the context otherwise indicates, all references to “IGT”, “IGT PLC”, and the “Company” refer to the business and operations of the Parent and its consolidated subsidiaries.
This annual report on Form 20-F includes the Consolidated Financial Statements of the Company for the years ended December 31, 2023, 2022, and 2021 (the “Consolidated Financial Statements”) prepared in accordance with United States Generally Accepted Accounting Principles as issued by the Financial Accounting Standards Board.
The financial information is presented in U.S. dollars. All references to “U.S. dollars,” “U.S. dollar,” “U.S. $,” “USD,” and “$” refer to the currency of the United States of America. All references to “Euro,” “euro,” “EUR,” and “€” refer to the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended.
Amounts reported in millions are computed based on the amounts in thousands. Certain amounts in columns and rows within tables may not foot due to rounding. Percentages and earnings per share amounts presented are calculated from the underlying unrounded amounts.
The language of this annual report on Form 20-F is English. Certain legislative references and technical terms have been cited in their original language so that the correct technical meaning may be ascribed to them under applicable law.
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Glossary of Certain Terms and Abbreviations
The glossary is used to define common terms and abbreviations that appear throughout the annual report on Form 20-F. Other, less common, terms and phrases are defined in the sections in which they appear, as they may either be Company or industry-specific. Additionally, definitions in “Item 18. Financial Statements” stand alone and are independently defined in that section.
| Abbreviation/Term | Definition | |||||||
| ADM | the Agenzia delle Dogane e Dei Monopoli, which regulates gaming in Italy | |||||||
| Adjusted EBITDA or AEBITDA | EBITDA adjusted for foreign exchange gain (loss), net, other non-operating expenses, net, impairment losses, restructuring expenses, stock-based compensation, litigation expense (income) and certain other non-recurring items | |||||||
Adjusted Free cash flow | Free Cash Flow excluding the net of tax cash payments in connection with material litigation | |||||||
| ASC | Accounting Standards Codification | |||||||
| ASU | Accounting Standards Update | |||||||
| B2B | business-to-business | |||||||
| B2C | business-to-consumer | |||||||
| BEAT | base-erosion and anti-abuse tax | |||||||
Board | the Board of Directors of International Game Technology PLC | |||||||
| Brexit | the United Kingdom’s withdrawal from the European Union | |||||||
| CEO | Chief Executive Officer | |||||||
| CFO | Chief Financial Officer | |||||||
| Company | the Parent together with its consolidated subsidiaries | |||||||
| CA 2006 | Companies Act 2006, as amended | |||||||
| Constant-currency | amounts calculated by applying the prior-year/period exchange rates to current financial data expressed in local currency | |||||||
| De Agostini | De Agostini S.p.A. | |||||||
| EBITDA | earnings before interest, taxes, depreciation and amortization | |||||||
| EMEA | Europe, Middle East and Africa | |||||||
| ESG | environmental, social and governance | |||||||
| E.U. | European Union | |||||||
| FMC | facilities management contract | |||||||
| Free cash flow | cash flow from operations less capital expenditures and payments on license obligations | |||||||
| GAAP | United States Generally Accepted Accounting Principles | |||||||
| GDPR | E.U. General Data Protection Regulation (“E.U. GDPR”) and the E.U. GDPR as retained as law in England and Wales by the European Union (Withdrawal) Act (“U.K. GDPR”) | |||||||
| GILTI | global intangible low-taxed income | |||||||
| iGaming | real money digital (interactive) gaming | |||||||
| IGT | the Parent together with its consolidated subsidiaries | |||||||
| LATAM | Latin America | |||||||
| LMA | lottery management agreement | |||||||
| Loyalty Plan | the terms and conditions related to the Special Voting Shares | |||||||
| Loyalty Register | the register of ordinary shares for which holders thereof have validly elected to exercise the related Special Voting Shares | |||||||
| Net debt | debt minus capitalized debt issuance costs and cash and cash equivalents, including cash and cash equivalents held for sale | |||||||
| NYSE | New York Stock Exchange | |||||||
| Parent | International Game Technology PLC | |||||||
| R&D | research and development | |||||||
| Same-store sales | wagers, at constant currency, recorded in lottery jurisdictions where we are the operator or facilities management supplier, using the same lottery jurisdictions and perimeter for comparison between periods | |||||||
| SEC | United States Securities and Exchange Commission | |||||||
| Special Voting Shares | the special voting shares in the Parent, worth U.S.$0.000001 each and carrying 0.9995 votes | |||||||
| U.K. | United Kingdom | |||||||
| U.S. | United States of America | |||||||
| Wire Act | U.S. Interstate Wire Act of 1961 | |||||||
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FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F includes forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning the Company and other matters. These statements may discuss goals, intentions, and expectations as to future plans, trends, events, transactions, dividends, results of operations, or financial condition, or otherwise, based on current beliefs of the management of the Company as well as assumptions made by, and information currently available to, such management. Forward-looking statements may be accompanied by words such as “aim,” “anticipate,” “believe,” “plan,” “could,” “would,” “should,” “shall,” “continue,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “will,” “outlook,” “possible,” “potential,” “predict,” “project,” or the negative or other variations of them. These forward-looking statements speak only as of the date on which such statements are made and are subject to various risks and uncertainties, many of which are outside the Company’s control. Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may differ materially from those predicted in the forward-looking statements and from past results, performance, or achievements. Therefore, you should not place undue reliance on such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include (but are not limited to):
•the possibility that the Company may not achieve its anticipated financial results in one or more future periods and create incremental value for shareholders;
•the possibility that the Parent will be unable to pay dividends to shareholders or that the amount of such dividends may be less than anticipated;
•the Company’s ability to execute on mergers, acquisitions, divestitures, corporate spin offs, and/or strategic alliances, including our ability to integrate and operate such acquisitions or alliances consistent with forecasting to achieve future growth;
•the Company’s ability to execute on key initiatives and deliver on-going improvements;
•the effects of geopolitical or military conflicts, including events concerning Ukraine, Taiwan and Israel, that could affect the Company, its suppliers and/or customers;
•changing economic conditions in the global markets where the Company operates, including economic slowdowns, rising interest rates, inflationary and other economic factors that pressure customer spending, changes in customer demand for products and services and a slowdown in customer payments;
•unanticipated changes relating to competitive factors in the industries in which the Company operates;
•the Company’s ability to hire and retain key personnel;
•the Company’s ability to attract new customers and retain existing customers in the manner anticipated;
•the impact of supply chain constraints on the Company’s ability to meet demand for its products;
•an increase in costs resulting from supply chain constraints, including, but not limited to, increases in input costs, labor costs and freight costs, among others;
•reliance on and integration of information technology systems, including the ability to prevent, mitigate or timely recover from cybersecurity incidents;
•changes in legislation, governmental regulations, or the enforcement thereof that could affect the Company;
•enforcement of an interpretation of the Wire Act in such a manner as to prohibit or limit activities in which the Company and its customers are engaged;
•conditions in the credit markets;
•risks associated with assumptions the Company makes in connection with its critical accounting estimates;
•the resolution of pending and potential future legal, regulatory, or tax proceedings and investigations; and
•the Company’s international operations, which are subject to the risks of currency fluctuations and foreign exchange controls.
The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the Company’s business, including those described in “Item 3. Key Information—D. Risk Factors”, “Item 5. Operating and Financial Review and Prospects” and other documents filed by the Parent from time to time with the SEC. Except as required under applicable law, the Company does not assume any obligation to update these forward-looking statements. Nothing in this annual report is intended, or is to be construed, as a profit forecast or to be interpreted to mean that earnings per share of the Parent for the current or any future financial years will necessarily match or exceed the historical published earnings per share of the Parent, as applicable. All forward-looking statements contained in this annual report on Form 20-F are qualified in their entirety by this cautionary statement.
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PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. Reserved
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
The following risks should be considered in conjunction with “Item 5. Operating and Financial Review and Prospects”, the Consolidated Financial Statements, including the notes thereto, included in this annual report, and the other risks described in the Forward-Looking Statements safe harbor under the Private Securities Litigation Reform Act of 1995. These risks may affect the Company's operating results and, individually or in the aggregate, could cause its actual results to differ materially from past and anticipated future results. The following discussion of risks may contain forward-looking statements which are intended to be covered by the Safe Harbor Statement. Except as may be required by law, the Company undertakes no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. The Company invites you to consult any further related disclosures made by the Parent from time to time in materials filed with or furnished to the SEC.
Risks related to the Company's Business and Industry
The Company has a concentrated customer base in certain business segments, and the loss of any of its larger customers (or lower sales from any of these customers) could lead to significantly lower revenue.
A substantial portion of the Company’s revenues is derived from exclusive licenses awarded to the Company by the ADM, the governmental authority responsible for regulating and supervising gaming in Italy. For the years ended December 31, 2023 and 2022, approximately 10% and 9%, respectively, of the Company’s total consolidated revenues was earned for service provided for the operation of the Italian Gioco del Lotto game and approximately 10% and 9%, respectively, was earned for service provided for the operation of the Italian Scratch & Win instant ticket game.
The Company expects that a significant portion of its revenues and profits will continue to depend upon the licenses awarded to the Company by ADM. Licenses may be terminated prior to their expiration dates upon the occurrence of certain events of default affecting the Company, or if such licenses are deemed to be against the public interest, or terminated or annulled if successfully challenged by competitors. In addition, the conditions for any new license will be established by law and included in the rules of the new license. Any material reduction in the Company’s revenues from these licenses, including as a result of an annulment, early termination, or non-renewal of these licenses following their expiration, could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
In addition, recurring revenues from the Company’s top 10 customers outside of Italy accounted for approximately 24% of its total consolidated revenues for the year ended December 31, 2023. In 2024, the Company expects to lose one of these customers, Camelot UK Lotteries Limited in the United Kingdom, which represented approximately 1% of consolidated revenue in 2023, and the Company may not be able to replace those revenues. If the Company were to lose any of its other larger customers, or if these larger customers experience lower sales and consequently reduced revenues, which are primarily
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service revenues, there could be a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
The Company’s operations are dependent upon its continued ability to retain and extend its existing contracts and win new contracts with its customers.
The Company derives a substantial portion of its revenues from its portfolio of long-term operating contracts, FMCs, and LMAs in the Global Lottery segment (equal to approximately 53% of its total consolidated revenues for the year ended December 31, 2023), awarded through competitive procurement processes. The Company’s U.S. lottery contracts typically permit a lottery authority to terminate the contract at any time for material, uncured breaches and for other specified reasons out of the Company's control, such as the failure by a state legislature to approve the required budget appropriations. In addition, many of these contracts in the U.S. permit the lottery authority to terminate the contract at will with limited notice and do not specify the compensation to which the Company would be entitled were such termination to occur. If one or more of the Company’s U.S. lottery contracts were terminated, or were not renewed or extended, there is no guarantee that the Company would be able to identify replacement sources of revenue in a timely fashion, or at all. Additionally, the loss of one or more of the Company’s U.S. lottery contracts to a competitor could place the Company at a competitive disadvantage.
In the event that the Company is unable or unwilling to perform under certain lottery contracts, such contracts permit the lottery authority a right to use the Company's system-related equipment and software necessary for the performance of the contract until the expiration or earlier termination of the contract.
The termination of or failure to renew or extend one or more of the Company’s lottery contracts, or the renewal or extension of one or more of the Company’s lottery contracts on materially altered terms, could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
Adverse changes in discretionary consumer spending and behavior, including as a result of the occurrence or perception of economic slowdown, rising interest rates and/or inflation, may adversely affect the demand for gaming and overall economic trends specific to the gaming industry and the Company's business.
Sociopolitical and economic factors that impact consumer confidence may result in decreased discretionary spending by consumers and have a negative effect on the Company's business. Unfavorable changes in social, political and economic conditions and economic uncertainties, as well as decreased discretionary spending by consumers, may adversely impact customers, suppliers and business partners in a variety of ways.
Consumer discretionary income and its potential effects on gaming activity may directly or indirectly impact the revenues generated by the Company's business. Economic factors resulting in a reduction, or the perception of a reduction, in such discretionary income could result in fewer lottery ticket sales and fewer patrons visiting casinos or engaging in online or digital gaming. A decline in discretionary income over an extended period could cause some of the Company’s customers to close casinos or other gaming operations, which would adversely affect the Company's business. A decline in casino visits may also have an adverse impact on the businesses of our casino customers and their ability to purchase or lease products and services from the Company.
The occurrence or perception of an economic slowdown or recession may also have a negative impact on consumer discretionary spending, particularly when combined with the occurrence or perception of rising interest rates and inflation (or increases in the prices of consumer products, including food and energy). If these conditions persist or worsen, it may result in declines in lottery ticket sales and fewer patrons visiting casinos and engaging in online or digital gaming, which could have a material adverse effect on the Company’s business and results of operations.
The Company is subject to substantial penalties for failure to perform.
The Company’s Italian licenses, lottery contracts in the U.S. and in other jurisdictions, and other service contracts often require performance bonds or letters of credit to secure its performance under such contracts and require the Company to pay substantial monetary liquidated damages in the event of non-performance by the Company.
At December 31, 2023, the Company had outstanding performance bonds and letters of credit in an aggregate amount of approximately $1.0 billion. These instruments present a potential expense for the Company and could divert financial resources from other uses. Claims on performance bonds, drawings on letters of credit, and payment of liquidated damages could individually or in the aggregate have a material adverse effect on the Company's results of operations, business, financial condition, liquidity, or prospects.
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The Company’s success depends in large part on its ability to develop and manage frequent introductions of innovative products and the ability to respond to technological changes, and slow growth or declines in the lottery and gaming markets could lead to lower revenues for the Company.
The Company’s future success will depend, in part, on the success of the lottery and gaming industries in attracting and retaining new players in the face of increased competition in the entertainment and gaming markets, as well as the Company's own success in developing innovative services, products, and distribution methods/systems to achieve this goal. The Company must continually introduce and successfully market new games and technologies to remain competitive and effectively stimulate customer demand. The process of developing new products is inherently complex and uncertain. It requires accurate anticipation of changing customer needs and end-user preferences as well as emerging technological trends. If the Company's competitors develop new game content or innovative products and the Company fails to keep pace, its business could be adversely affected. Additionally, if the Company’s competitors adopt and employ new technologies, such as artificial intelligence, more rapidly than the Company is able to do so, the Company could experience a competitive disadvantage or comparatively higher costs than its competitors.
In addition, if the Company fails to accurately anticipate customer needs and end-user preferences through the development of new products, services and technologies, the Company could lose business to its competitors, which would adversely affect its results of operations, business, financial condition, or prospects. While the Company intends to continue investing resources in research and development across Global Lottery, Global Gaming, and PlayDigital, which includes new hardware, software, content, services and systems, there is no assurance that its investments in research and development will guarantee successful products. Because the Company’s newer products are generally more technologically sophisticated than those it has produced in the past, the Company must continually refine its design, development, and delivery capabilities across all channels to ensure product innovation. Newer products also require adequate supply of electronic components and other raw materials, for which the Company relies on third party suppliers. See “The Company depends on its suppliers and faces supply chain risks that could adversely affect its financial results” within “Operational Risks” below.
If the Company cannot efficiently adapt its processes and infrastructure to meet the needs of its product innovations, or if the Company is unable to source adequate supplies to manufacture its newer products, its results of operations, business, financial condition, or prospects could be negatively impacted.
If the Company is unable to protect its intellectual property or prevent its unauthorized use by third parties, its ability to compete in the market may be harmed.
At December 31, 2023, the Company held more than 4,600 patents and more than 9,800 trademarks filed and registered worldwide. The Company protects its intellectual property to ensure that its competitors do not use such intellectual property. However, intellectual property laws in the U.S., Italy, and in other jurisdictions may afford differing and limited protection, may not permit the Company to gain or maintain a competitive advantage, and may not prevent its competitors from duplicating its products, designing around its patented products, or gaining access to its proprietary information and technology.
The Company may not be able to prevent the unauthorized disclosure or use of its technical knowledge or trade secrets. For example, there can be no assurance that consultants, vendors, partners, former employees, or current employees will not breach their obligations regarding non-disclosure and restrictions on use. In addition, anyone could seek to challenge, invalidate, circumvent, or render unenforceable any of the Company's patents. The Company cannot provide assurance that any pending or future patent applications it holds will result in an issued patent, or that, if patents are issued, they would necessarily provide meaningful protection against competitors and competitive technologies or adequately protect the Company’s then-current technologies. The Company may not be able to detect the unauthorized use of its intellectual property, prevent breaches of its cybersecurity efforts, or take appropriate steps to enforce its intellectual property rights effectively. In addition, certain contractual provisions, including restrictions on use, copying, transfer, and disclosure of software, may be unenforceable under the laws of certain jurisdictions.
The Company’s success may depend in part on its ability to obtain trademark protection for the names or symbols under which it markets its products and to obtain copyright protection and patent protection of its technologies and game innovations. The Company may not be able to build and maintain goodwill in its trademarks or obtain trademark or patent protection, and there can be no assurance that any trademark, copyright, or issued patent will provide competitive advantages for the Company or that the Company’s intellectual property will not be successfully challenged or circumvented by competitors.
The Company maintains various patents, trademarks, copyrights and trade secrets and intends to enforce its intellectual property rights. From time to time, the Company may assert claims against third parties that it believes are infringing its intellectual
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property rights. Litigation initiated or defended to protect and enforce the Company’s intellectual property rights could be costly, time consuming and distracting to management, could fail to obtain the results sought, and could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
If the Company is unable to license intellectual property from third parties, its ability to compete in the market may be harmed.
The Company licenses intellectual property rights from third parties. If such third parties do not properly maintain or enforce the intellectual property rights underlying such licenses, or if such licenses are terminated or expire without being renewed, the Company could lose the right to use the licensed intellectual property, which could adversely affect its competitive position or its ability to commercialize certain of its technologies, products, or services.
In addition, some of the Company’s most popular games and features, such as the Wheel of Fortune® family of premium games, are based on trademarks, copyrights, patents, and other intellectual property licensed from third parties. The Company’s future success may depend upon its ability to obtain, retain and/or expand licenses for popular intellectual property rights with reasonable terms in a competitive market. If the Company cannot renew and/or expand existing licenses, it may be required to discontinue or limit its use of the games or gaming machines that use the licensed technology or bear the licensed marks, which could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
Third party intellectual property infringement claims against the Company could limit its ability to compete effectively.
The Company cannot provide assurance that its products do not infringe the intellectual property rights of third parties. Infringement and other intellectual property claims and proceedings brought against the Company, whether successful or not, are costly, time consuming and distracting to management, and could harm the Company's reputation. In addition, intellectual property claims and proceedings could require the Company to do one or more of the following: (i) cease selling or using any of its products that allegedly incorporate the infringed intellectual property, (ii) pay substantial damages, (iii) obtain a license from the third-party owner, which license may not be available on reasonable terms, if at all, (iv) rebrand or rename its products, and (v) redesign its products to avoid infringing the intellectual property rights of third parties, which may not be possible and, if possible, could be costly, time consuming, or result in a less effective product. A successful claim against the Company could have a material adverse effect on its results of operations, business, financial condition, or prospects.
The Company’s business may be adversely affected by lower cost of entry into the gaming industry.
As a result of developments in digital and internet gaming, the cost of entry to the gaming market has decreased significantly. This has resulted in a highly competitive environment. Digital and internet gaming have emerged as substantial methods of competition from existing competitors and, increasingly, new competitors as a result of the lower cost of entry. The increased competition may result in increased pricing pressures on a number of the Company’s products and services, and may impact the Company’s results and financial position.
Divestitures may materially adversely affect the Company’s financial condition, results of operations or cash flows.
From time to time, the Company may pursue divestitures in support of its strategic goals. For example, on May 10, 2021, the Company completed the sale of its Italian B2C gaming machine, sports betting, and digital gaming businesses (“Italian B2C businesses”) to Gamenet Group S.p.A. and on September 14, 2022, a wholly-owned subsidiary of the Company completed the sale of the Company’s Italian commercial services business to PostePay S.p.A. – Patrimonio Destinato IMEL. On June 8, 2023, the Company also announced a review of potential strategic alternatives for the Global Gaming and PlayDigital segments, which included the potential sale of these segments. The Parent subsequently entered into definitive agreements with Everi Holdings Inc., a Delaware corporation (“Everi”), Ignite Rotate LLC, a Delaware limited liability company and a direct wholly owned subsidiary of the Company (“SpinCo”), and Ember Sub LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Everi (“Merger Sub”) on February 28, 2024, pursuant to which the Company will separate its Global Gaming and PlayDigital businesses by way of a taxable spin-off to the Parent’s shareholders and then immediately combine such businesses with Everi (the “Separation & Divestiture”). We refer to the entity resulting from the combination of the Parent’s Global Gaming and PlayDigital businesses with Everi as the “Combined Company” in this annual report on Form 20-F. The Parent will change its name and continue to trade on the NYSE under a new ticker symbol. Refer to “Notes to the Consolidated Financial Statements—26. Subsequent Events” for further information on the Separation & Divestiture as well as “Risks related to the Company’s Separation & Divestiture of the Global Gaming and PlayDigital Businesses” for risk factor discussions specific to the Separation & Divestiture.
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Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management's attention from other business concerns, the disruption of business, the potential loss of revenues, increased customer concentration, departures of key employees, the retention of uncertain contingent liabilities related to the divested business, and potential reputational harm resulting from proposed transactions or the failure to consummate a proposed transaction. The Company may not be successful in managing these or any other significant risks that it encounters in any divestiture the Company may undertake, and any such divestiture could materially and adversely affect the Company’s business, financial condition, results of operations and cash flows, and may also result in a diversion of management attention, operational difficulties and losses. Further, there can be no assurance whether any particular planned divestiture will be completed on the originally proposed terms and timeline, or at all, or that the strategic benefits and expected financial impact of any divestiture will be achieved.
The Company’s inability to successfully complete and integrate acquisitions could limit its future growth or otherwise be disruptive to its ongoing business.
From time to time, the Company expects it will pursue acquisitions in support of its strategic goals. There can be no assurance that acquisition opportunities will be available on acceptable terms or at all or that the Company will be able to obtain necessary financing or regulatory approvals to complete potential acquisitions. The Company’s ability to succeed in implementing its strategy will depend to some degree upon the ability of its management to identify, complete, arrange financing for, and successfully integrate commercially viable acquisitions. Acquisition transactions may disrupt the Company’s ongoing business and distract management from other responsibilities. Further, the Company may incur unexpected costs, or fail to realize expected benefits from such acquisitions. In connection with any such acquisitions, the Company could face significant challenges in managing and integrating its expanded or combined operations, including acquired assets, operations, and personnel.
The Company faces reputational risks related to the use of social media.
The Company frequently uses social media platforms as marketing tools. These platforms provide the Company, as well as individuals, with access to a broad audience of consumers and other interested persons. Negative commentary regarding the Company or the products it sells may be posted on social media platforms and similar devices at any time and may be adverse to the Company’s reputation or business. Further, as laws, regulations, and different platforms’ terms of service rapidly evolve to govern the use of social media, the failure by the Company, its employees or third parties acting at the Company's direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact the Company’s business, financial condition, and results of operations or subject it to fines or other penalties.
The Company’s results of operations, cash flows and financial condition could be affected by public health issues, geopolitical instability and other potentially disruptive events in the locations where the Company’s customers, suppliers or regulators operate.
The Company may be impacted by public health crises (including the outbreak of communicable diseases such as COVID-19) that could negatively impact the Company’s operations or the operations of the Company’s customers, suppliers, data service providers and regulators.
The Company’s operations could also be impacted by geopolitical instability, including the outbreak and escalation of war (such as the Russia-Ukraine and Israel-Hamas conflicts), terrorism or other acts of violence any of which could adversely affect the Company’s ability to operate and deliver its products and services.
While the Company insures against certain business interruption risks, the Company cannot assure that such insurance will compensate the Company for any losses incurred as a result of natural or other disasters. Any serious disruption to the Company’s operations, or those of the Company’s customers, suppliers, data service providers, or regulators, could have a material adverse effect on the Company’s results of operations, cash flows and financial condition.
Legal and Compliance Risks
The Company faces risks related to the extensive and complex governmental regulation applicable to its operations.
The Company’s activities are subject to extensive and complex governmental regulation, including restrictions on advertising, increases in or differing interpretations by authorities on taxation, limitations on the use of cash, and anti-money laundering compliance procedures. These regulatory requirements are constantly evolving and may vary from jurisdiction to jurisdiction.
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Any changes in the legal or regulatory framework or other changes, such as increased taxation, changes in the compensation paid to licensees, or increases in the number of licenses, authorizations, or licenses awarded to the Company's competitors, could materially affect its profitability.
In addition, in the U.S. and in many international jurisdictions where the Company currently operates or seeks to do business, lotteries, sports betting, and gaming are not permitted unless expressly authorized by law. The successful implementation of the Company’s growth strategy and its business could be materially adversely affected if jurisdictions that do not currently authorize lotteries, sports betting, or gaming do not approve such activities or if those jurisdictions that currently authorize lotteries, sports betting, or gaming do not continue to permit such activities.
Investigations by governmental and licensing entities can result in adverse findings or negative publicity.
From time to time, the Company is subject to extensive background investigations, and other investigations of various types are conducted by governmental and licensing authorities with respect to applicable gaming regulations. These regulations and investigations vary from time to time and from jurisdiction to jurisdiction where the Company operates. The Company’s operations may be impacted if the Company is unable to obtain a privileged gaming license or have a privileged gaming license revoked by a regulatory authority. Because the Company’s reputation for integrity is an important factor in its business dealings with lottery and other governmental agencies, a governmental allegation or a finding of improper conduct by or attributable to the Company in any manner, the prolonged investigation of these matters by governmental or regulatory authorities, and/or the adverse publicity resulting therefrom could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects, including its ability to retain existing contracts or to obtain new or renewed contracts, both in the subject jurisdiction and elsewhere.
Failure to comply with data privacy laws, including the GDPR could result in significant penalties.
Our business is subject to the E.U. GDPR and the U.K. GDPR (and together with the E.U. GDPR, the “GDPR”). The GDPR has direct effect where an entity is established in the European Economic Area (the “EEA”) or the U.K. and has extraterritorial effect where an entity established outside the EEA or the U.K. processes personal data in relation to the offering of goods or services to individuals in the EEA and/or the U.K. or the monitoring of their behavior. The GDPR imposes a number of obligations on controllers, including, among others:
•accountability and transparency requirements, which requires controllers to demonstrate and record compliance with the GDPR and to provide more detailed information to data subjects regarding processing;
•requirements to process personal data lawfully, including specific requirements for obtaining valid consent where consent is the lawful basis for processing;
•obligations to consider data privacy as any new products or services are developed and designed and to limit the amount of information collected, processed, and stored as well as its accessibility;
•constraints on automated individual decision-making, including profiling data subjects;
•providing data subjects with data protection rights such as (among others) a right to ask for a copy of personal data to be provided to a third party in a usable format on request and erasing or rectifying personal data in certain circumstances;
•obligations to implement appropriate technical and organizational security measures to safeguard personal data; and
•obligations to report certain personal data breaches to the relevant supervisory authority without undue delay (and no later than 72 hours where feasible) and affected individuals where the personal data breach is likely to result in a high risk to their rights and freedoms.
In addition, the GDPR prohibits the international transfer of personal data from the EEA/U.K. to countries outside of the EEA/U.K. unless made to a country deemed to have “adequate” data privacy laws by the European Commission or U.K. Government or if a data transfer mechanism has been put in place or a derogation under the GDPR can be relied upon. In July 2020, the Court of Justice of the European Union (“CJEU”) in its Schrems II ruling invalidated the E.U.-U.S. Privacy Shield framework, a self-certification mechanism that facilitated the lawful transfer of personal data from the EEA to the U.S., with immediate effect. The CJEU upheld the validity of standard contractual clauses (“E.U. SCCs”) as a legal mechanism to transfer personal data but companies relying on E.U. SCCs will need to carry out a transfer impact assessment (“TIA”), which among other things, assesses laws governing access to personal data in the recipient country and considers whether supplementary measures that provide privacy protections additional to those provided under E.U. SCCs will need to be implemented to ensure an “essentially equivalent” level of data protection to that afforded in the EEA.
Further, on October 7, 2022, the U.S. President introduced an Executive Order to facilitate a new Trans-Atlantic Data Privacy Framework (“DPF”) and on July 10, 2023, the European Commission adopted its Final Implementing Decision granting the
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U.S. adequacy (“Adequacy Decision”) for E.U.-U.S. transfers of personal data for entities self-certified to the DPF. Entities relying on E.U. SCCs for transfers to the U.S. are also able to rely on the analysis in the Adequacy Decision as support for their TIA regarding the equivalence of U.S. national security safeguards and redress.
The U.K. Government has also published its own form of E.U. SCCs called an International Data Transfer Agreement and an International Data Transfer Addendum to the new E.U. SCCs. The U.K.’s Information Commissioner’s Office has also published its own version of the TIA and guidance on international transfers, although entities may choose to adopt either the E.U. or U.K. style TIA. Further, on September 21, 2023, the U.K. Secretary of State for Science, Innovation and Technology established a U.K.-U.S. data bridge (i.e., a U.K. equivalent of the Adequacy Decision) and adopted U.K. regulations to implement the U.K.-U.S. data bridge (the “U.K. Adequacy Regulations”). Personal data may now be transferred from the U.K. under the U.K.-U.S. data bridge through the U.K. extension to the DPF to organizations self-certified under the U.K. extension to DPF.
Other jurisdictions in which the Company operates have implemented, or are considering implementing, data privacy laws similar to the GDPR. Several of the Parent’s subsidiaries deal with a significant amount of employee personal data. There is a risk that the Company's policies and procedures for compliance with data privacy laws, including the GDPR will not be implemented correctly or that individuals within the Company will not be fully compliant with the new procedures. Failure to comply with data privacy laws may have serious financial consequences to the Company. For example, failure to comply with the GDPR may lead to fines of up to the maximum of either €20 million (under the E.U. GDPR) or £17.5 million (under the U.K. GDPR) or 4% of worldwide annual revenue, whichever is greater, for serious violations of certain of the GDPR’s requirements, and the Company could face significant administrative sanctions and reputational damage that could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects. There is a risk that we could be impacted by a cybersecurity incident that results in loss or unauthorized disclosure of personal data, potentially resulting in the Company facing harms similar to those described above.
Compliance with these and any other applicable privacy and data security laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance with any new data protection rules. In addition, states are constantly adopting new laws or amending existing laws, requiring attention to frequently changing requirements. For example, California enacted the California Consumer Privacy Act (CCPA), which took effect on January 1, 2020, and was the first comprehensive state privacy law in the United States. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used by requiring covered companies to provide new disclosures to California consumers (as that term is broadly defined) and provide such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches. Further, the California Privacy Rights Act (the CPRA), which further amended the CCPA, went into effect on January 1, 2023. The CCPA, as amended by the CPRA, imposes additional data protection obligations on companies doing business in California, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. Similar laws have been adopted and proposed in other states, and if passed, such laws may have potentially conflicting requirements that would make compliance challenging. For example, the Nevada Privacy of Information Collected on the Internet from Consumers Act went into effect on October 1, 2021, the Virginia Consumer Data Protection Act went into effect on January 1, 2023, the Colorado Privacy Act went into effect on July 1, 2023, the Connecticut Data Privacy Act went into effect July 1, 2023, and the Utah Consumer Privacy Act went into effect December 31, 2023.
The Federal Trade Commission (FTC) and many state attorneys general are interpreting existing federal and state consumer protection laws to impose evolving standards for the collection, use, dissemination and security of personally identifiable information. For instance, the FTC published an advance notice of proposed rulemaking on commercial surveillance and data security in 2022 and may implement new trade regulation rules or other regulatory alternatives concerning the ways in which companies (1) collect, aggregate, protect, use, analyze, and retain consumer data, as well as (2) transfer, share, sell, or otherwise monetize that data in ways that are unfair or deceptive in the coming years. Privacy laws require us to publish statements that describe how we handle personal information and choices individuals may have about the way we handle their personal information. Violating individuals’ privacy rights, publishing false or misleading information about security practices, or failing to take appropriate steps to keep individuals’ personal information secure may constitute unfair or deceptive acts or practices in violation of Section 5 of the FTC Act. Federal regulators, state attorneys general and plaintiffs’ attorneys have been and will likely continue to be active in this space, and if we do not comply with existing or new laws and regulations related to personally identifiable information, we could be subject to criminal or civil sanctions.
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The Company is exposed to significant risks in relation to compliance with anti-corruption laws and regulations and economic sanction programs.
Doing business worldwide requires the Company to comply with the laws and regulations of various jurisdictions. In particular, the Company's operations are subject to anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act of 2010, and other anti-corruption laws that apply in countries where the Company operates. Other laws and regulations applicable to the Company control trade by imposing economic sanctions on countries and persons and creating customs requirements and currency exchange regulations. The Company's continued global expansion, including in countries which lack a developed legal system or have high levels of corruption, increases the risk of actual or alleged violations of such laws.
The Company cannot predict the nature, scope, or effect of future regulatory requirements to which its operations might be subject or the manner in which such laws might be administered or interpreted.
There can be no assurance that the policies and procedures the Company has implemented have been or will be followed at all times or will effectively detect and prevent violations of these laws by one or more of the Company's directors, officers, employees, consultants, agents, joint-venture partners or other third-party partners. As a result, the Company could be subject to investigations, criminal and civil penalties, sanctions and/or other remedial measures that in turn could have a material adverse effect on its business, results of operations and financial condition.
Negative perceptions and publicity surrounding the gaming industry could lead to increased gaming regulation.
The popularity and acceptance of gaming is influenced by prevailing social attitudes toward gaming, and changes in social attitudes toward gaming could result in reduced acceptance of gaming as a leisure activity. Further, from time to time, the gaming industry is exposed to negative publicity related to gaming behavior, gaming by minors, the presence of gaming machines in too many locations, risks related to digital gaming and alleged association with money laundering. Publicity regarding problem gaming and other concerns with the gaming industry, even if not directly connected to the Company, could adversely impact its business, results of operations, and financial condition. For example, if the perception develops that the gaming industry is failing to address such concerns adequately, the resulting political pressure may result in the industry becoming subject to increased regulation and restrictions on operations. Such an increase in regulation could adversely impact the Company's results of operations, business, financial condition, or prospects.
Changes to U.S. and foreign tax laws could adversely affect the Company.
The Company is subject to tax laws in the U.S. and several foreign tax jurisdictions and judgment is required in determining the Company’s global provision for income taxes. While the Company believes its tax positions are consistent with the tax laws in the jurisdictions in which it conducts business, it is possible that these positions may be overturned by tax authorities, which may have a significant impact on the Company’s global provision for income taxes.
Furthermore, changes in tax laws or regulations may be proposed or enacted that could significantly affect the Company’s overall tax expense. For example, the Inflation Reduction Act (“IRA”) was recently enacted into law and includes a provision to implement a 15% corporate alternative minimum tax on “adjusted financial statement income” for “applicable corporations” and a 1% excise tax on repurchases of stock. The Company continues to evaluate the provisions of the IRA, but does not currently expect the IRA to have a material impact on our financial position.
In October 2015, the Organisation for Economic Co-operation and Development (“OECD”) published its final recommendations on base erosion and profit shifting (“BEPS”). These BEPS recommendations propose measures to coordinate multilateral action on international tax rules. Several of the areas of tax law on which the BEPS project has focused have led or will lead to changes in the domestic law of individual OECD jurisdictions. The implementation of recommendations arising from the action points comprising BEPS has resulted in significant changes to local tax legislation and international double tax treaties over recent years. For example, BEPS has resulted in jurisdictions implementing laws which (among other things): (i) limit deductibility of interest payments; (ii) expand the scope of permanent establishment (thereby extending the scope of jurisdictions' taxing rights); (iii) counteract hybrid mismatch arrangements; and (iv) strengthen 'Controlled Foreign Company' rules. Legislation introduced in relation to hybrid mismatches came into effect on January 1, 2017, and legislation to restrict tax deductions for interest expenses of large groups was brought into effect from April 1, 2017.
On June 21, 2016, the E.U.’s ministers of Finance and Economic Affairs unanimously approved the Anti-Tax Avoidance Directive to harmonize potential BEPS changes in the E.U. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. We expect that countries may change their tax laws in
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response to this project, and several countries have already changed or proposed changes to their tax laws. On July 1, 2020, the Anti-Tax Avoidance Directive II (“ATAD II”) entered into force, with provisions on hybrid structures entering into force on January 1, 2021 to apply to income obtained in the tax year starting December 31, 2020. ATAD II is designed to prevent hybrid mismatches giving rise to a double deduction or to a deduction without taxation in different tax jurisdictions. In certain cases, taxpayers may be denied the right to recognize tax deductible costs on payments subject to a double deduction. On December 22, 2021, the E.U. published the draft Anti-Tax Avoidance Directive III (“ATAD III”) designed to impose new minimum substance rules to prevent the misuse of shell entities for improper tax purposes. ATAD III proposes to introduce reporting requirements for certain E.U. tax resident companies with mobile and/or passive income (such as interest, dividends and royalty income) that have inadequate economic substance (as prescribed under ATAD III). If an entity fails to meet these substance requirements, it will be denied benefits under double tax treaties and various E.U. directives. ATAD III was originally intended to be implemented by E.U. member states, by June 30, 2023, with a planned effective date of January 1, 2024, but has been delayed further. The details of these rules are therefore subject to change.
In addition, the OECD is continuing to work on a two-pillar initiative, “BEPS 2.0,” which is aimed at (i) shifting taxing rights to the jurisdiction of the consumer (“Pillar One”); and (ii) ensuring all companies pay a global minimum tax (“Pillar Two”). Pillar One will, broadly, re-allocate taxing rights over 25% of the residual profits of multinational enterprises (“MNEs”) with global turnover in excess of 20 billion euros (excluding extractives and regulated financial services) to the jurisdictions where the customers and users of those MNEs are located. Pillar Two will, broadly, consist of two interlocking domestic rules (together the Global Anti-Base Erosion Rules (the “GloBE Rules”)): (i) an Income Inclusion Rule (“IIR”), which imposes top-up tax on a parent entity in respect of the low-taxed income of a constituent entity; and (ii) an Undertaxed Payment Rule (“UTPR”), which denies deductions or requires an equivalent adjustment to the extent the low-taxed income of a constituent entity is not subject to tax under an IIR. There will also be a treaty-based Subject To Tax Rule that allows source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate.
For countries other than the U.S., the OECD recommended model GloBE Rules for Pillar Two in late 2021. The OECD also released further guidance on the model GloBE Rules throughout 2022 and 2023. This includes the release in early February 2023 of technical guidance which comments in particular on the interaction between the model GloBE Rules and current U.S. tax law, and the release in July 2023 of further administrative guidance which contains details of how to calculate tax for the purposes of Pillar Two. Many aspects of Pillar Two have become effective as of January 1, 2024, with other aspects expected to become effective in 2025.
Several aspects of the model GloBE Rules, including whether some or all of the Company’s business and the companies in which the Company invests may fall within the scope of the exclusions therefrom, currently remain unclear or uncertain notwithstanding existing commentary and draft legislation. The U.K. enacted legislation in July 2023 implementing the IIR via a “multinational top-up tax” (“MTT”) (alongside a U.K. domestic top-up tax) that will apply to multinational enterprises for accounting periods beginning on or after December 31, 2023. Finance Act 2024 enacts certain amendments to the IIR which was previously enacted in the MTT legislation. The amendments have restrospective effect for accounting periods beginning on or after December 31, 2023. On November 29, 2023 a Finance Bill proposed new provisions relating to the U.K.’s implementation of a UTPR rule for accounting periods beginning on or after December 31, 2024. The UTPR rule is expected to be introduced by a later Finance Bill, although the effective date will remain the same.
It is likely that other countries or jurisdictions will implement the recommended model GloBE Rules (including either or both the IIR or UTPR) as drafted or in a modified form, although some countries may not introduce such changes. The implications of such implementations for the Company’s business remain uncertain, both at a domestic level and in terms of how domestic implementations may interact with implementing legislation in other relevant jurisdictions.
The timing, scope, and implementation of any of the potential Pillar Two provisions into the domestic law of relevant countries remains subject to significant uncertainty, and the content of existing and future OECD guidance (and its consistency with current international tax principles or with implementing legislation of relevant countries) also remains uncertain. Depending on how the model GloBE Rules are implemented or clarified by additional commentary or guidance in the future, they may result in material additional tax being payable by the Company’s business and the businesses of the companies in which the Company invests. The ultimate implementation of the BEPS project may also increase the complexity and the burden and costs of compliance and advice relating to the Company’s ability to efficiently fund, hold and realize investments, and could necessitate or increase the probability of some restructuring of the Company’s group or business operations. The implementation of the BEPS project may also lead to additional complexity in evaluating the tax implications of ongoing investments and restructuring transactions within the Company’s business.
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If U.S. or other foreign tax authorities change applicable tax laws, the Company’s overall taxes could increase, and its results of operations, business, financial condition, or prospects may be adversely affected.
The Company may be subject to an unfavorable outcome with respect to pending regulatory, tax, or other legal proceedings, which could result in substantial monetary damages or other harm to the Company.
The Company is involved in a number of legal, regulatory, tax, and arbitration proceedings including claims by and against it as well as injunctions by third parties arising out of the ordinary course of its business or its other business activities and is subject to investigations and compliance inquiries related to its ongoing operations. It is difficult to estimate accurately the outcome of any proceeding. As such, the amounts of the Company’s provision for litigation risks could vary significantly from the amounts the Company may be asked to pay or ultimately pay in any such proceeding. In addition, unfavorable resolution of or significant delay in adjudicating such proceedings could require the Company to pay substantial monetary damages or penalties and/or incur costs that may exceed any provision for litigation risks or, under certain circumstances, cause the termination or revocation of the relevant license or authorization and thereby have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
The Company is subject to physical risks relating to climate change and transitional risks relating to governmental and societal responses to climate change.
The Company, as well as our customers, suppliers, and partners, is subject to physical and transitional risks relating to climate change. Physical risks to our operations, and those of our affiliates, include increasingly severe and frequent weather-related events such as hurricanes, floods, drought, wildfires, and stresses on the water supply. The occurrence of one or more of these events could disrupt our properties, supply chain, and operations, and the Company’s suppliers, partners, and customers could pass along any increased costs to us, experience an interruption in their dealings with us, or experience decreased demand for our products and services. These risks could increase the Company’s operating costs (including the cost of our electricity and energy use) and compliance costs, impacting our ability to produce and market our products and the ultimate demand for our products and services.
Transitional risks arise from regulatory changes and societal shifts by governmental authorities, non-governmental organizations, customers, investors, employees, and other stakeholders, who are increasingly sensitive to ESG matters, including climate change. The effects could include, for example, a global transition away from fossil fuels that may result in increased energy prices; shifting customer preferences; stakeholder pressure to decarbonize assets; or new legal or regulatory requirements that result in new or expanded carbon pricing, taxes, restrictions on greenhouse gas emissions, and increased greenhouse gas disclosure and transparency. Regulatory changes or shifts in consumer preferences could restrict our ability to manufacture certain products or require us to find alternatives for the manufacture of certain products. In addition, governments and the public increasingly expect companies like us to report on our business practices with respect to sustainability and environmental impact, among other ESG-related topics. For example, the E.U. recently adopted the Corporate Sustainability Reporting Directive (CSRD) that will impose disclosure of the risks and opportunities arising from social and environmental issues, and on the impact of companies’ activities on people and the environment. Similarly, the State of California recently passed the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act that will impose broad climate-related disclosure obligations on companies doing business in California. The SEC has included in its regulatory agenda potential rulemaking on climate change disclosures that, if adopted, could significantly increase compliance burdens and associated regulatory costs and complexity. This focus on ESG matters may lead to new expectations or requirements that could result in increased costs associated with research, development, manufacture, or distribution of our products, and with our and our customers’ operations more generally. Our ability to compete could also be affected by changing customer preferences and requirements, such as growing demand for companies to establish validated sustainability targets or offer more sustainable products. Failure to meet evolving regulatory requirements and stakeholder expectations could also result in litigation or regulatory actions, affecting demand for our products, which may have a material adverse impact on our financial results and longer-term loss of trust, undermining the credibility of the Company.
Operational Risks
The Company depends on its suppliers and faces supply chain risks that could adversely affect its financial results.
The Company purchases most of the parts, components, and subassemblies necessary for its lottery terminals and electronic gaming machines from outside sources. The Company outsources the manufacturing and assembly of certain gaming and lottery terminals to third-party vendors. The Company’s operating results could be adversely affected if one or more of its
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manufacturing and assembly outsourcing vendors fails to meet defined quality standards and production schedules. Disruptions and delays could adversely affect our suppliers’ ability to meet production schedules.
Since 2020, the Company has experienced, and the Company may continue to experience, disruptions throughout its supply chain. In particular, the Company has been adversely impacted by a shortage in the supply of electronic components necessary for the manufacture of gaming machines. These shortages have required the Company to adjust some of its delivery and production schedules, and could cause the Company to be unable to meet demand for its products or to introduce new products on schedule, leading to a reduction in potential sales. The Company cannot provide assurance as to how long it will be impacted by the shortage in electronic components, or whether it will in the future face shortages of other parts, components or subassemblies necessary for the manufacture of any of its finished products. Furthermore, global supply chain constraints have also generally led to an increase in costs, including supply costs (such as the cost of paper and electronic components), freight costs, energy costs and labor costs, among others. The Company may not be able to pass these increased costs on to customers, which may lead to decreased profit margins. As a result, the Company's results of operations, business, financial condition, or prospects could be adversely affected by these supply chain disruptions, or any future supply chain disruptions.
In the Company’s lottery business, the Company transmits data using cellular technology and satellite transponders, generally pursuant to long-term contracts. The technical failure of any of these cellular or satellite services would require the Company to obtain other communication services, including other cellular or satellite access. In some cases, the Company employs backup systems to limit the Company’s exposure in the event of such a failure. Therefore, the Company cannot assure access to such other cellular services or satellites or, if available, the ability to obtain the use of such other cellular services or satellites on favorable terms or in a timely manner. While cellular and satellite failures are infrequent, the operation of each is outside of the Company’s control.
In the Company’s digital gaming business, the Company often relies on third-party data center providers to, among other things, host the Company’s remote game servers and sports betting platforms. The digital gaming business could be adversely impacted by breaches of or disruptions to these third-party data centers, including potential service level penalties with respect to the Company’s customers, reputational harm, the disclosure of proprietary information or the theft of the Company’s assets.
The Company’s management believes that if a supply contract with one of its vendors were to be terminated or breached, it may take time to replace such vendor under some circumstances and any replacement parts, components, or subassemblies may be more expensive, which could reduce the Company’s operating margins. Depending on a number of factors, including the Company’s available inventory of replacement parts, components or subassemblies, the time it takes to replace a vendor may result in a delay for a customer. Further, supply chain constraints and shortages could cause the Company’s existing vendors to be unable to meet supply commitments, which may cause delays in the Company’s ability to meet its contractually committed delivery schedules. Generally, if the Company fails to meet its delivery schedules under its contracts, it may be subject to substantial penalties or liquidated damages, or contract termination, which in turn could adversely affect the Company's results of operations, business, financial condition, or prospects.
Failure to attract, retain and motivate personnel may adversely affect the Company's ability to compete.
The Company's ability to attract and retain key management, product development, finance, marketing, and research and development personnel, and its ability to attract and maintain a diverse workforce, is directly linked to the Company's continued success. In all of the industries in which the Company operates, the market for qualified executives and highly-skilled technical workers is intensely competitive, and increasing competition for talent and changing expectations of current and prospective employees pose new challenges relating to the attraction and retention of key personnel. The loss of key employees or an inability to hire a sufficient number of technical staff could limit the Company's ability to develop successful products and could cause delays in getting new products to the market. The Company has established an Office of Diversity, Equity, and Inclusion to promote a fair and inclusive culture that enables all employees to feel valued, respected, engaged, and empowered to contribute to the business.
The Company’s business prospects and future success rely heavily upon the integrity of its employees, directors, and agents.
The Company strives to set exacting standards of personal integrity for its employees, directors and agents and its reputation in this regard is an important factor in its business dealings with lottery, gaming, and other governmental agencies. For this reason, an allegation or a finding of improper conduct on the Company’s part, or on the part of one or more of its current or former employees, directors or agents, or the failure to detect fraudulent activity by employees in a timely manner, could have a material adverse effect upon the Company’s results of operations, business, financial condition, or prospects, including its ability to retain or renew existing contracts or obtain new contracts.
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For example, in October 2020, the Italian Tax Police announced that it was investigating alleged misconduct by a small number of the Company’s former employees. The alleged misconduct involved unauthorized access to the Company’s lottery system in Italy in order to identify and redeem winning scratch-off lottery tickets. The investigation progressed with the Italian prosecutor commencing criminal proceedings against several of the Company’s former employees. The Company fully cooperated with the Italian Tax Police and other regulators in order to facilitate their reviews and has taken proactive steps to ensure the integrity of the Company’s games and to protect the interests of the Company’s customers. The Company has also taken measures to review its operational systems and processes designed to prevent fraudulent activities and remains focused on ensuring its business is conducted at the highest levels of integrity. Nevertheless, the investigation and other governmental reviews and inspections (including any resulting adverse impact on the perceived integrity and security of the Company’s products and systems) could have a material adverse effect upon the Company’s results of operations, business, financial condition, or prospects, including its ability to retain or renew existing contracts or obtain new contracts.
The success of the Company’s business is dependent on customers’ confidence in the integrity of the Company’s products and systems.
The real and perceived integrity and security of the Company’s products and systems are critical to its ability to attract customers and players. In the event of an actual or alleged defect in a Company product, the Company’s existing and prospective customers may lose confidence in the integrity and security of the Company’s products and systems. Such a failure could have a material adverse effect upon the Company’s results of operations, business, financial condition or prospects, including its ability to attract new customers and retain its existing customers.
The Company and its operations are subject to cyberattacks and cybersecurity risks which may have an adverse effect on its business and results of operations and result in increasing costs to minimize these risks.
The Company's business involves the storage and transmission of confidential business and personal information, including trade secrets, customer information, and other sensitive information, and theft, security breaches, or unauthorized access of a Company system may expose the Company to a risk of loss of, or improper use and disclosure of, such information, which may result in significant litigation expenses, liability exposure, reputational harm, and loss of consumer confidence in the integrity and security of the Company’s products and systems. The Company has developed an information security management system (the “ISMS”) to safeguard the confidentiality, integrity, and availability of all physical and electronic information assets and ensure that regulatory, operational, and contractual requirements are fulfilled. Cyberattacks on businesses, including those targeting the gaming industry, are becoming more frequent and increasingly more difficult to anticipate and prevent due to their rapidly evolving nature, and the Company believes that risks and exposures related to cybersecurity will remain high for the foreseeable future. While the Company monitors risks from cybersecurity threats, we are not aware of any cybersecurity incidents occurring during the reporting period that have materially affected the Company, including its business strategy, results of operations, or financial condition; however, there can be no guarantee that the Company will not experience such a cybersecurity incident in the future.
Within the ISMS, the Company maintains policies, procedures, and controls designed to prevent, detect, and mitigate the potential negative effects of malware attacks, phishing attacks, password attacks, “Man-in-the-Middle” attacks, Denial-of-Service attacks, and other cybersecurity risks. The Company periodically reviews these elements of the ISMS for continued effectiveness, incorporating updates to reflect new business realities and changes to the Company’s risk profile. However, despite these efforts, the Company may not be able to prevent or detect every cyberattack or incident or reduce the negative effects they may cause.
Any failure, compromise, or breach of the Company’s security measures that results in the release of confidential business and/or personal information could seriously harm the Company’s reputation and have a materially adverse effect on the results of operations, business, financial condition, or prospects of the Company and the Company’s customers. Additionally, cyberattacks could also compromise trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could have a material adverse effect upon the Company’s results of operations, business, financial condition, or prospects. The Company’s security measures may be breached due to employee error, malfeasance, system errors, or vulnerabilities, including the vulnerabilities of the Company’s subcontractors, vendors, suppliers, or otherwise. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, become more sophisticated, and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventative measures.
Though the Company maintains first and third-party cybersecurity insurance coverage in an attempt to mitigate cybersecurity risks, such policies may not be sufficient to mitigate all the potential negative effects of a cyberattack or incident that occurs.
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Technology failures may disrupt the Company’s business and have an adverse effect on its results of operations.
The Company’s success depends on its ability to avoid, detect, replicate, and correct software and hardware defects and fraudulent manipulation of its products. The Company incorporates security features into the design of its products which are designed to prevent its customers and players from being defrauded. The Company also monitors its software and hardware in an effort to avoid, detect and correct any technical errors. However, there can be no guarantee that the Company’s security features or technical efforts will continue to be effective in the future.
In addition, any disruption in the Company’s network or telecommunications services, or those of third parties that the Company uses in its operations, could affect the Company’s ability to operate its systems, which could result in reduced revenues and customer downtime. The Company’s network and databases of business and customer information, including intellectual property and other proprietary business information and those of third parties the Company uses, are susceptible to outages due to fire, floods, power loss, break-ins, cyberattacks, network penetration, data privacy or security breaches, denial of service attacks, and similar events, including inadvertent dissemination of information due to increased use of social media. Disruptions with such systems could result in a wide range of negative outcomes, including devaluation of the Company’s intellectual property, increased expenditures on data security, and costly litigation and potential payment of liquidated damages, each of which could have a material adverse effect on the Company’s results of operations, business, financial condition, or prospects.
Financial Risks
Covenants in the Company’s debt agreements may limit its ability to pay dividends, repurchase shares and operate its business, and the Company’s breach of such covenants could materially and adversely affect its results of operations, business, financial condition, or prospects.
Certain of the Company’s debt agreements require that it comply with covenants that may limit the Company’s ability to:
•return capital to shareholders either through the payment of dividends and/or share repurchases;
•raise additional capital, including the issuance of debt;
•react to industry changes or economic conditions;
•acquire assets of other companies or acquire, merge or consolidate with other companies;
•dispose of assets;
•manage interest rate risk on its variable rate debt; and
•grant security interests in its assets.
The Company’s ability to comply with these covenants may be affected by events beyond its control, such as prevailing economic, financial, regulatory and industry conditions, and these covenants may limit its ability to react to market conditions or take advantage of potential business opportunities. Further, a breach of such covenants could, if not cured or waived, result in acceleration of its indebtedness, result in the enforcement of security interests or force the Company into bankruptcy or liquidation. Such a breach or any failure to otherwise timely repay outstanding indebtedness could have a material adverse effect on the Company’s results of operations, business, financial condition or prospects.
The Company may incur additional impairment charges.
The Company reviews its long-lived and amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. The Company tests goodwill and other indefinite-lived intangible assets for impairment at least annually. Factors that may indicate a change in circumstances, such that the carrying value of the Company’s goodwill, amortizable intangible assets, or other non-amortizing assets may not be recoverable, include a decline in the Company’s stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in industry segments in which the Company participates. The Company may be required to record a significant charge in its Consolidated Financial Statements during the period in which any impairment of goodwill or intangible assets is determined, which would negatively affect the Company’s results of operations. While during the year ended December 31, 2023, the Company did not identify any events or circumstances that would indicate that it is more likely than not that the fair value of any reporting unit was less than its carrying amount, the Company cannot provide assurance that future changes will not require additional material impairment charges in any of its business segments in the future.
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The establishment and utilization of alternative reference rates may increase the amount of interest the Company pays with respect to floating rate indebtedness denominated in U.S. dollars.
As of December 31, 2023, $476 million of the Company’s outstanding indebtedness had an interest rate which was calculated with reference to the Secured Overnight Financing Rate (“SOFR”). SOFR is the principal replacement reference rate for the U.S. dollar London Inter-Bank Offered Rate (“USD LIBOR”) in the Company’s outstanding indebtedness agreements, with the one-week and two-month U.S.-dollar LIBOR having ceased at the end of 2021 and the remaining tenors of the U.S.-dollar LIBOR having ceased publication after June 30, 2023. Because SOFR is based on overnight funding transactions secured by U.S. Treasury securities, it differs fundamentally from USD LIBOR. SOFR has a limited history, having been first published in April 2018. There is no assurance that SOFR will perform in the same or similar way as USD LIBOR would have performed, that SOFR will be a suitable replacement for USD LIBOR, or that the replacement of USD LIBOR with SOFR will not increase the amount of interest that the Company pays with respect to floating rate indebtedness denominated in U.S. dollars.
Fluctuations in foreign currency exchange rates affect our reported operating results in U.S. dollar terms.
Revenue generated and expenses incurred by our subsidiaries are often denominated in the currencies of the local countries. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates when the financial results of our international subsidiaries are translated from local currencies into U.S. dollars. In addition, our financial results are subject to changes in exchange rates that impact the settlement of transactions in non-functional currencies. Our primary foreign currency exchange rate exposure arises from translating Euros into U.S. dollars.
Global events, including geopolitical developments, fluctuating commodity prices, trade tariff developments, and inflation, have caused and/or contributed to, and may in the future cause or contribute to, economic uncertainty and uncertainty about the interest rate environment. These factors could amplify the volatility of currency fluctuations, as has been the case in jurisdictions including Argentina in recent years. Therefore, fluctuations in the value of foreign currencies may impact our operating results when translated into U.S. dollars. Such fluctuations may also impact our ability to accurately predict our future results. Although we maintain a hedging program to mitigate some of this volatility and related risks, there can be no assurance that the hedging program will be effective in offsetting the adverse financial impacts that may result from unfavorable movements in foreign currency exchange rates.
Risks related to the Loyalty Voting Structure
The concentrated voting power held by De Agostini S.p.A., and the Parent’s loyalty voting structure, may limit other shareholders' ability to influence corporate decisions.
At March 7, 2024, De Agostini S.p.A. had an economic interest in the Parent of approximately 42.61% (excluding treasury shares) and, due to its election to exercise the Special Voting Shares associated with its ordinary shares pursuant to the loyalty plan, a voting interest in the Parent of approximately 59.75% of the total voting rights (excluding treasury shares). See “Item 7. Major Shareholders and Related Party Transactions” for additional information. This shareholder may make decisions with which other shareholders may disagree, including, among other things, delaying, discouraging, or preventing a change of control of the Company or a potential merger, consolidation, tender offer, takeover, or other business combination and may also prevent or discourage shareholders’ initiatives aimed at changes in the Parent’s management.
The tax consequences of the loyalty voting structure are uncertain.
No statutory, judicial, or administrative authority has provided public guidance in respect of the Special Voting Shares of the Parent and as a result, the tax consequences of owning such shares are uncertain. The fair market value of the Parent's Special Voting Shares, which may be relevant to the tax consequences of owning, acquiring, or disposing of such shares, is a factual determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, (i) the Special Voting Shares are not transferable (other than in very limited circumstances as provided for in the loyalty voting structure), (ii) in a winding up or otherwise, the holders of the Special Voting Shares will only be entitled to receive out of the Parent's assets available for distribution to its shareholders, in aggregate, $1, and (iii) loss of the entitlement to instruct the nominee on how to vote in respect of Special Voting Shares will occur without consideration, the Parent believes and intends to take the position that the value of each special voting share is minimal. However, the relevant tax authorities could assert that the value of the Special Voting Shares as determined by the Parent is incorrect. Shareholders are urged to consult their own tax advisors with respect to treatment of Special Voting Shares. See “Item 10. E Taxation” for additional information.
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The loyalty voting structure may affect the liquidity of the Parent's ordinary shares and reduce their ordinary share price.
The loyalty voting structure may limit the liquidity and adversely affect the trading prices of the Parent's ordinary shares. The loyalty voting structure is intended to reward shareholders for maintaining long-term share ownership by granting persons holding ordinary shares continuously for at least three years the option to elect to receive Special Voting Shares. The Special Voting Shares cannot be traded and, immediately prior to the deregistration of ordinary shares from the register of loyalty shares, any corresponding Special Voting Shares shall cease to confer any voting rights in connection with such Special Voting Shares. This loyalty voting structure is designed to encourage a stable shareholder base, but it may deter trading by those shareholders who are interested in gaining or retaining the Special Voting Shares. Therefore, the loyalty voting structure may reduce liquidity in the Parent's ordinary shares and adversely affect their trading price.
Risks related to the Company’s Separation & Divestiture of the Global Gaming and PlayDigital Businesses
The Company may not complete the Separation & Divestiture of the Global Gaming and PlayDigital businesses with Everi within the time frame anticipated or at all.
On February 28, 2024, the Parent entered into definitive agreements for the Separation & Divestiture of the Global Gaming and PlayDigital businesses, as described in “Notes to the Consolidated Financial Statements—26. Subsequent Events”. The Separation & Divestiture, which is expected to be taxable for the Parent’s shareholders for U.S. federal income tax purposes and UK tax purposes, will be subject to the satisfaction of a number of customary conditions, including, among others: (i) final approval by the Parent’s shareholders and Everi’s stockholders; (ii) receipt of regulatory approvals, including from gaming regulators in the jurisdictions where the Combined Company will operate and from U.S. antitrust authorities; and (iii) the filing with the SEC and effectiveness of registration statements for Everi and SpinCo. The failure to satisfy all of the required conditions could delay the completion of the Separation & Divestiture for a significant period of time or prevent it from occurring at all.
Transactions, such as the Separation & Divestiture contemplated between the Company and Everi, are complex in nature, and unanticipated developments or changes, including, among other things, changes in law, the macroeconomic environment, market conditions, regulatory or geopolitical conditions, or natural disasters may affect our ability to complete the Separation & Divestiture as currently expected and within the anticipated time frame or at all. Additionally, the Agreement and Plan of Merger by and among the Company, SpinCo, Everi, and Merger Sub (the “Merger Agreement”) contains specified termination rights for Everi and the Parent, including, among other things, that either party may terminate the Merger Agreement if either Everi’s or the Parent’s board adopts, approves, endorses, declares advisable, or recommends to its stockholders an acquisition proposal other than the contemplated Separation & Divestiture, and under other circumstances as set forth in the Merger Agreement. The Merger Agreement further provides that in connection with a termination of the Merger Agreement under specified circumstances, each of Everi and the Parent may be obligated to pay a termination fee of $80 million and/or reimburse the other party for certain fees and expenses.
Any changes to the proposed Separation & Divestiture or delay in completing the Separation & Divestiture could cause the Company not to realize some or all of the expected benefits or realize them on a different timeline than expected. In addition, the terms and conditions of the required regulatory authorizations and consents that are granted, if any, may impose requirements, limitations or costs, or place restrictions on the conduct of the Combined Company or may materially delay the completion of the Separation & Divestiture. If the completion of the proposed Separation & Divestiture is delayed or does not occur, this could result in a material adverse effect on our financial condition, results of operations, ability to pursue alternative transactions, and reputation.
The pendency of the Separation & Divestiture with Everi could adversely affect our business and operations.
Whether or not the proposed Separation & Divestiture is completed, the Company’s businesses and operations may face material challenges in connection with the Separation & Divestiture, including, without limitation:
•the diversion of management’s attention from ongoing business concerns as a result of the devotion of management’s attention to the Separation & Divestiture;
•maintaining employee morale and retaining key management and other employees;
•retaining existing business and operational relationships, including with customers, suppliers, employees and other counterparties, and attracting new business and operational relationships;
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•execution and related risks in connection with financing transactions undertaken by the Company in connection with the Separation & Divestiture;
•dis-synergy costs, costs of restructuring transactions (including taxes), and other significant costs and expenses; and
•potential negative reactions from the financial markets if the Company fails to complete the Separation & Divestiture as currently expected, within the anticipated time frame or at all.
Any of these factors could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows, and/or the price of our ordinary shares.
Costs associated with the Separation & Divestiture with Everi may be higher than anticipated.
We expect to incur significant costs in connection with the Separation & Divestiture, including the cost of financing, separation costs, transaction costs, legal and regulatory fees, and other costs that our management team believes are necessary to execute the Separation & Divestiture. The incurrence of these costs could have a material adverse effect on our financial condition and results of operations in the periods in which they are incurred. Additionally, the Company, the Parent’s shareholders, and/or the Combined Company may incur higher than anticipated tax liabilities in connection with the Separation & Divestiture.
There can be no assurance that the total projected market capitalization of the Parent's ordinary shares after the proposed Separation & Divestiture with Everi will be equal to or greater than the total projected market capitalization before the proposed Separation & Divestiture or that the price per share of the Parent's ordinary shares following the Separation & Divestiture will either exceed or remain higher than the current anticipated per share price.
There can be no assurance that the market price per share of the Parent's ordinary shares after the Separation & Divestiture will rise or remain constant. If the Company completes the Separation & Divestiture and the market price of the Parent's ordinary shares declines, the percentage decline as an absolute number and as a percentage of the Parent's overall market capitalization may be greater than would occur in the absence of the Separation & Divestiture. In many cases, both the total market capitalization of an issuer and the market price of a share of such issuer's common stock following separation, divestiture or combination transactions are lower than they were before the consummation of such transactions, and the liquidity of the Parent's ordinary shares could potentially be affected by any decreases in share price and investor sentiment following the consummation of the proposed Separation & Divestiture. Additionally, the Company cannot predict whether the market value of the Parent’s ordinary shares and ordinary shares of the Combined Company after the Separation & Divestiture will be, in the aggregate, less than, equal to, or greater than the market value of the Parent’s ordinary shares prior to the Separation & Divestiture.
If the Separation & Divestiture with Everi is completed, the Company’s operational and financial profile will change, and it will be a smaller, less diversified business than exists today.
The Separation & Divestiture will result in the Company being a smaller, less diversified company with a more limited business and concentrated in the lottery sector. Of note, the Company’s Global Lottery business following the expected Separation & Divestiture will be significantly more reliant on its FMCs and LMAs in the United States and Italy. As a result, the Company may be more vulnerable to changing market conditions, which could have a material adverse effect on its business, financial condition, and results of operations. In addition, the diversification of revenues, costs, and cash flows will diminish, such that the Company’s results of operations, cash flows, working capital, effective tax rate, and financing requirements may be subject to increased volatility and its ability to fund capital expenditures and investments, pay dividends, and service debt may be diminished.
The Separation & Divestiture with Everi may not achieve the intended benefits and may expose the Company to potential risks and liabilities.
The Parent believes, among other things, that the Separation & Divestiture could provide more value to its shareholders than other potential strategic options for the Global Gaming and PlayDigital businesses. The Parent may not benefit as expected from the increased focus on its core business and the simpler business model made possible by the Separation & Divestiture. In addition, the value of the Separation & Divestiture may be reduced by potential liabilities related to post-closing indemnities, which could adversely affect the Parent’s results of operations.
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If the Separation & Divestiture with Everi is completed, there may be changes in our shareholder base, which may cause the price of the Parent’s ordinary shares to fluctuate.
Investors holding the Parent’s ordinary shares may hold such ordinary shares because of a decision to invest in a company that operates in multiple gaming markets with a diversified portfolio. If the Separation & Divestiture is completed, shares of the Parent’s ordinary shares will represent an investment in a business concentrated in the lottery sector. These changes may not match some shareholders’ investment strategies, which could cause them to sell their shares of the Parent’s ordinary shares, and excessive selling pressure could cause the market price to decrease prior to and following the consummation of the Separation & Divestiture.
Item 4. Information on the Company
A. History and Development of the Company
International Game Technology PLC was organized in 2014 as a public limited company under the laws of England and Wales. The Parent’s principal office is located at 10 Finsbury Square, Third Floor, London EC2A 1AF, United Kingdom, telephone number +44 (0) 203 866 1240. The Parent’s agent for service in the United States is CT Corporation System, 701 S. Carson Street - Suite 200, Carson City, Nevada 89701 (telephone number: +1 518 433 4740). The Company conducts business through various subsidiaries and variable interest entities (see “Item 4. C. – Organizational Structure”), and the Parent is publicly-traded on the NYSE under the symbol “IGT”.
Capital Expenditures and Divestitures
For a description, including the amount invested, of the Company’s principal capital expenditures (including interests in other companies) for the years ended December 31, 2023, 2022, and 2021, see “Item 5. B. Liquidity and Capital Resources—Capital Expenditures.”
For a description of the Company’s principal divestitures for the years ended December 31, 2023, 2022, and 2021, see “Item 5.A. Operating Results.”
On February 29, 2024, the Company announced the Separation & Divestiture of the Global Gaming and PlayDigital businesses, with an anticipated closing in late 2024 or early 2025. Refer to “Separation & Divestiture of the Global Gaming and PlayDigital Businesses” below and the “Notes to the Consolidated Financial Statements—26. Subsequent Events” for more information. The Company has not made, nor does it have in progress, any other capital expenditures or divestitures in calendar year 2024 that were not in the ordinary course of business.
Separation & Divestiture of the Global Gaming and PlayDigital Businesses
On February 28, 2024, the Parent entered into definitive agreements with Everi, SpinCo, and Merger Sub with respect to the Separation & Divestiture pursuant to which, and subject to, the terms and conditions of those definitive agreements discussed under “Item 10. Additional Information — C. Material Contracts”, (i) the Parent will transfer (or cause to be transferred) to SpinCo substantially all of the assets, and SpinCo will assume substantially all of the liabilities, of the Parent’s Global Gaming and PlayDigital businesses (the “SpinCo Business”) (the “Separation”), (ii) in connection with the Separation, the Parent will contribute all of the equity interests of International Game Technology, a Nevada corporation and a direct wholly owned subsidiary of the Parent (“Gaming HoldCo”), to SpinCo (the “SpinCo Contribution”) in exchange for (a) SpinCo issuing to the Parent additional units of SpinCo (“SpinCo Units”), resulting in the Parent owning all of the issued and outstanding SpinCo Units, and (b) Gaming HoldCo issuing to the Parent a promissory note (the “Intercompany Note”). (iii) immediately following the completion of the Separation, the Parent will distribute all of the issued and outstanding SpinCo Units pro rata to the Parent’s shareholders (the “Distribution”), and (iv) immediately after the Distribution, (a) prior to the Merger Effective Time (as defined herein), Everi will purchase two SpinCo Units from De Agostini in exchange for a price per purchased SpinCo Unit equal to the greater of the 30-day average share price of Everi’s common stock, $0.001 par value per share (“Everi common stock”), prior to the closing date or the share price of Everi common stock as of the end of the business day immediately prior to the closing date and (b) at the Merger Effective Time, Merger Sub will merge with and into SpinCo (the “Merger”), with SpinCo surviving the Merger as a direct wholly owned subsidiary of Everi, and all outstanding SpinCo Units will be converted into the right to receive shares of Everi common stock, as calculated and subject to adjustment as set forth in the Merger Agreement and in accordance with the Delaware Limited Liability Company Act. Immediately following the Merger Effective Time, (I) Everi will cause SpinCo to merge with and into Gaming HoldCo (the “Second Step Merger”), with Gaming HoldCo surviving the Second Step Merger as a direct wholly owned subsidiary of Everi, and (II) Everi will contribute the Cash Payment (as defined herein) to Gaming HoldCo and, immediately thereafter, Gaming HoldCo will pay the Cash Payment to the Parent in
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full satisfaction of all obligations owing by Gaming HoldCo to the Parent pursuant to the Intercompany Note. When the Second Step Merger is completed (the “Closing”), Gaming HoldCo (which at that time will hold the SpinCo Business) will be a direct wholly owned subsidiary of Everi.
More Information
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The Company’s SEC filings can be found there and on the Company’s website: www.igt.com.
B. Business Overview
The Company is a global leader in gaming that delivers entertaining and responsible gaming experiences for players across all channels and regulated segments, from Lotteries and Gaming Machines to Digital Gaming and Sports Betting. Leveraging a wealth of compelling content, substantial investment in innovation, player insights, operational expertise, and leading-edge technology, the Company’s solutions deliver gaming experiences that responsibly engage players and drive growth. The Company has a well-established local presence and relationships with governments and regulators around the world, and creates value by adhering to the highest standards of service, integrity, and responsibility.
Our business is organized into three business segments: Global Lottery, Global Gaming, and PlayDigital. Through our three business segments, we operate and provide an integrated portfolio of innovative gaming technology products and services, including online and instant lottery systems, iLottery, instant ticket printing, lottery management services, gaming systems, electronic gaming machines, iGaming, and sports betting.
The Global Lottery segment has full responsibility for the worldwide traditional lottery and iLottery business, including sales, operations, product development, technology, and support. The Global Gaming segment has full responsibility for the worldwide land-based gaming business, including sales, product management, studios, global manufacturing, operations, and technology. The PlayDigital segment has full responsibility for the worldwide iGaming and sports betting business, including sales, operations, studios, technology, and support. Our three business segments are supported by central corporate support functions, including finance, people and transformation, legal, marketing and communications, corporate public affairs, and strategy and corporate development.
The Company is headquartered in London, United Kingdom, with the following principal locations: (i) administrative functional office in Providence, Rhode Island; (ii) the Global Lottery headquarters in Rome, Italy; (iii) the Global Gaming headquarters in Las Vegas, Nevada; (iv) the PlayDigital headquarters in San Francisco, California; and (v) the principal location of manufacturing, logistics, and supply chain leadership in Reno, Nevada. The Company had 11,016 employees at December 31, 2023.
Products and Services
1. Global Lottery
Through its Global Lottery segment, the Company supplies a unique set of lottery solutions to 92 customers worldwide, including to 37 of the 48 U.S. lotteries (including the District of Columbia, Puerto Rico, and U.S. Virgin Islands). Lottery customers frequently designate their revenues for particular purposes, such as education, economic development, conservation, transportation, programs for senior citizens and veterans, health care, sports facilities, capital construction projects, cultural activities, tax relief, and others. Many governments have become increasingly dependent on their lotteries as revenues from lottery ticket sales are often a significant source of funding for these programs.
Lottery products and services are provided through operating contracts, FMCs, LMAs, and product sales contracts. In the majority of jurisdictions, lottery authorities award contracts through a competitive bidding process. Typical service contracts are five (5) to ten (10) years in duration, often with multiple multi-year extension options. After the expiration of the initial or extended contract term, a lottery authority generally may either seek to negotiate further extensions or commence a new competitive bidding process. Certain customers may require the Company to pay an upfront fee for the right to exclusively manage their lottery.
The Company designs, sells, leases, and operates a complete suite of point-of-sale machines that are electronically linked with a centralized transaction processing system that reconciles lottery funds between the retailer and the lottery authority. The Company provides and operates highly secure, online lottery transaction processing systems that are capable of processing approximately 1 million transactions per minute. The Company provides more than 428,000 point-of-sale devices to lottery
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customers and lotteries that it supports worldwide. The Company also produces high-quality instant ticket games and provides printing services such as instant ticket marketing plans and graphic design, programming, packaging, shipping, and delivery services.
The Company has developed and continues to develop new lottery games, licenses new game brands from third parties, and installs a range of new lottery distribution devices, all of which are designed to drive responsible same-store sales growth for its customers. In connection with its delivery of lottery services, the Company actively advises its customers on growth strategies. Depending on the type of contract and the jurisdiction, the Company also provides marketing services, including retail optimization and lottery brand awareness campaigns. The Company works closely with its lottery customers and retailers to help retailers sell lottery games more effectively. These programs include product merchandising and display recommendations, a selection of appropriate lottery product mix for each location, and account reviews to plan lottery sales growth strategies. The Company leverages years of experience accumulated from being the exclusive licensee for the Italian Scratch & Win instant lottery game and the Italian Lotto, one of the world’s largest lotteries. This lottery B2C expertise in Italy, which includes management of all the activities along the lottery value chain, allows the Company to better serve B2B customers.
The Company also provides a complete suite of iLottery solutions and services. This, coupled with its professional expertise, allows lotteries to fully engage their players on any digital channel in regulated markets. Existing lottery game portfolios are extended to the digital channel to provide a spectrum of engaging content such as e-Instant tickets.
The Company operates in the highly regulated global lottery market, with a customer base of public and private entities that are secured on a contractual basis. The Company faces competition from vendors in the lottery technology and instant ticket printing segments, who possess a wide range of industry experience and financial capabilities. The Company also faces competition from smaller, less-established iLottery content providers. With high barriers to entry, particularly in the retail lottery and instant ticket segments, the Company’s competitor base remains largely static year-to-year.
The primary types of lottery agreements are outlined below:
Operating and Facilities Management Contracts
The majority of the Company’s revenue in the Lottery business comes from operating contracts and FMCs.
Since 1998, and for a term expiring in 2025, the Company has been the exclusive licensee for the Italian Lotto game (management of operations commenced in 1994). Beginning in November of 2016, the Company’s exclusive license for the Italian Lotto includes purely financial partners as part of a joint venture. Lottoitalia s.r.l. (“Lottoitalia”), a joint venture company among IGT Lottery S.p.A., Italian Gaming Holding a.s., Arianna 2001 (an entity associated with the Federation of Italian Tobacconists), and Novomatic Italia, is the exclusive manager of the Italian Lotto game. Lottoitalia is 61.5% owned by IGT Lottery S.p.A. The Company, through Lottoitalia, manages the activities along the lottery value chain, such as creating games, determining payouts, collecting wagers through its network, paying out prizes, managing all accounting and other back-office functions, running advertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers with assistance, supplying materials (including play slips, tickets and receipts), and marketing and point-of-sale materials for the game. Since 2004, and for a term expiring in 2028, the Company also has been the exclusive licensee for the instant ticket lottery (“Gratta e Vinci” or “Scratch & Win”) through Lotterie Nazionali S.r.l., a joint venture 64.0% owned by the Parent’s subsidiary IGT Lottery S.p.A., with the remainder directly and indirectly owned by Scientific Games Corporation and Arianna 2001. As of December 31, 2023, the revenue weighted-average remaining term of the Company’s existing lottery contracts in Italy was 3.4 years.
The Company’s FMCs typically require the Company to design, install, and operate the lottery system and retail terminal network for an initial term, which is typically five (5) to ten (10) years. The Company’s FMCs are granted on an exclusive basis and usually contain extension options under the same or similar terms and conditions, generally ranging from one (1) to five (5) years. Under a typical FMC, the Company maintains ownership of the technology and equipment, and is responsible for capital investments throughout the duration of the contract, although the investments are generally concentrated during the early years. The Company provides a wide range of services to lottery customers related to the technology, equipment, and facilities such as hosting, maintenance, marketing, and other support services. The Company generally provides its lottery customers retailer terminal and communication network equipment through operating leases. In return, the Company typically receives fees based upon a percentage of the sales of all lottery tickets, including draw-based and/or instant ticket games, though under certain of its agreements, the Company may receive fixed fees for certain goods or services. In limited instances, the Company provides instant tickets and online lottery systems and services under the same FMC. As of March 7, 2024, the Company had FMCs with or for the benefit of 25 U.S. jurisdictions. As of December 31, 2023, the Company’s largest FMCs by annual service revenue were Texas, California, New York, Georgia, and Florida, and the revenue weighted-average remaining term of the Company’s
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existing U.S. FMCs was 6.0 years (8.3 years including available extensions). Also, as of March 7, 2024, the Company operated under operating contracts or FMCs in 15 international jurisdictions, excluding U.S. and Italy.
Operating contracts and FMCs often require the Company to pay substantial monetary liquidated damages in the event of non-performance by the Company. The Company’s revenues from operating contracts and FMCs are generally service fees paid to the Company directly by the lottery authority based on a percentage of such lottery’s wagers or ticket sales. The Company categorizes revenue from operating contracts and FMCs as service revenue from “Operating and facilities management contracts” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Another form of operating contract is an LMA. Under an LMA, the Company manages, within parameters determined by the lottery customer, the core lottery functions, including the lottery systems and the majority of the day-to-day activities along the lottery value chain. This includes collecting wagers, managing accounting and other back-office functions, running advertising and promotions, operating data transmission networks and processing centers, training staff, providing retailers with assistance, and supplying materials for the games. LMAs also include a separate FMC, pursuant to which the Company leases certain hardware and equipment, and provides access to software and support services. The Company provides lottery management services in New Jersey as part of a joint venture and in Indiana through a wholly-owned subsidiary of the Parent. The Company’s revenues from LMAs include incentives based on achievement of contractual metrics, and, with respect to the supply agreements, are based generally on a percentage of wagers. The Company is also subject to penalties for failure to achieve contractual metrics under its LMAs. The Company categorizes revenue from LMAs as service revenue from “Operating and facilities management contracts” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Instant Ticket Services
As an end-to-end provider of instant tickets and related services, the Company produces high-quality instant ticket games and provides ancillary services such as instant ticket marketing plans and graphic design, programming, packaging, shipping, and delivery services. Instant tickets are sold at numerous types of retail outlets but most successfully in grocery and convenience stores.
Instant ticket contracts are priced based on a percentage of ticket sales revenues or on a price per unit basis and generally range from two (2) to five (5) years with extension opportunities. Government-sponsored lotteries grant printing contracts on both an exclusive and non-exclusive basis where there is typically one primary vendor and one or more secondary vendors. A primary contract permits the vendor to supply the majority of the lottery’s ticket printing needs and includes the complete production process from concept development through production and shipment. It also typically includes marketing and research support. A primary printing contract can include any or all of the following services: warehousing, distribution, telemarketing, and sales/field support. A secondary printing contract includes providing backup printing services and alternate product sources. It may or may not include a guarantee of a minimum or maximum number of games. As of March 7, 2024, the Company provided instant ticket printing products and services to 30 customers in North America and 25 customers in international jurisdictions. The Company categorizes revenue from instant ticket printing contracts that are not part of an operator or LMA contract as product sales from “Lottery products” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.” The instant ticket production business is also highly competitive and subject to strong, price-based competition.
Product Sales and Services Contracts
Under product sales and services contracts, the Company assembles, sells, delivers, and installs turnkey lottery systems or lottery equipment, provides related services, and licenses related software. The lottery authority maintains, in most instances, responsibility for lottery operations. The Company sells additional machines and central computers to expand existing systems and/or replace existing equipment and provides ancillary maintenance and support services related to the systems, equipment sold, and software licensed. The Company categorizes revenue from product sales and services contracts on a case-by-case basis as either service revenue or product sales from “Systems, software, and other” or “Lottery products” respectively, as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Commercial Services
The Company develops innovative technology and offers commercial and payment services over a standalone network. Leveraging its distribution network and secure transaction processing experience, the Company offers high-volume processing
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of commercial and payment transactions including: prepaid cellular telephone recharges, bill payments, e-vouchers, electronic tax payments, stamp duty services and prepaid card recharges. These services are primarily offered outside of North America. As described in “Notes to the Consolidated Financial Statements—3. Business Acquisitions and Divestitures” included in “Item 18. Financial Statements”, the Italian commercial services business was sold on September 14, 2022. The Company categorizes revenue from commercial services as service revenue from “Systems, software, and other” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
2. Global Gaming
The Company designs, develops, assembles or orders the assembly of, and provides cabinets, games, systems, and software for customers in regulated gaming markets throughout the world under fixed fee, participation and product sales contracts. As of March 7, 2024, the Company holds more than 440 global gaming licenses and primarily does business with commercial casino operators, tribal casino operators, and governmental organizations (primarily consisting of lottery operators).
The Company operates in the highly competitive global gaming industry. Primary and secondary competitors possess a wide range of financial resources, technical capabilities, and geographic focus.
Gaming Machines and Game Content
The Company offers a diverse range of gaming machine cabinets from which land-based casino customers can choose to maximize functionality, flexibility, and player comfort. In addition to cabinets, the Company develops a wide range of casino games taking into account local jurisdictional requirements, market dynamics, and player preferences. The Company combines elements of mathematics, play mechanics, sound, art, and technological advancements with a library of entertainment licenses and a proprietary intellectual property portfolio to provide gaming products designed to provide a high degree of player appeal and entertainment. The Company offers a wide array of casino-style slot machines in a variety of multi-line, multi-coin, and multi-currency configurations.
The Company’s slot games typically fall into two (2) categories: (i) premium games; and (ii) core games.
Premium games, include:
•Wide Area Progressives (“WAP”) - games that are linked across several casinos and/or jurisdictions and share a large common jackpot, including the Wheel of Fortune® franchise; and
•Multi-Level Progressives - games, such as Prosperity Link™ and Mystery of the Lamp™, where the machines offering the game within the casino are connected and offer players the opportunity to win different levels of jackpots.
Core games, which include video reel, mechanical reel, and video poker, are typically sold and in some situations leased to customers. Some of the Company’s most popular core games in 2023 included Wolf Run EclipseTM, Egyptian LinkTM, Samurai 888TM, Double Chili Mania, PinballTM Double Gold, Keno Star, Powerhouse PlusTM, and Big City 4sTM Poker.
The Company produces other types of games including:
•“Centrally Determined” games, which are games connected to a central server that determines the game outcome;
•Class II games, which are centrally determined electronic video bingo machines that can be typically found in North American tribal casinos and certain other jurisdictions like South Africa; and
•Random-number-generated and electronic table games, including baccarat and roulette.
Gaming service revenue is primarily generated through providing premium game content and cabinets on short duration leases to customers. The pricing of these arrangements is largely variable where the casino customer pays fees to the Company based on a percentage of amounts wagered, a percentage of net win, or a daily fixed fee for use of the game content, cabinets, and related support services.
Gaming product sales revenue is generated from the sales of land-based gaming machines (equipment and game content), systems, component parts (including game conversion sales), other equipment and services. The Company also licenses intellectual property rights to third parties through royalty-bearing patent licensing agreements. The Company categorizes revenue from gaming machines as product sales from “Gaming terminals” and revenue from game content and intellectual property revenue as product sales from “Other” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
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Video Lottery Terminals
The Company provides video lottery terminals (each, a “VLT” and together, “VLTs”), VLT central systems, and VLT games worldwide. VLTs are gaming machines which are regulated by lotteries, and are usually connected to a central system.
The Company provides VLT systems and machines to lotteries, either as a product sale or with long-term, fee-based contracts where the service revenue earned is generally based on a percentage of wagers, net of applicable gaming taxes. The Company categorizes revenue from VLTs as either service revenue from “Gaming terminal services” or product sales from “Gaming terminals”, depending on the nature of the transaction, as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Gaming Management Systems
The Company offers a comprehensive range of system modules and applications for all areas of casino management. Gaming systems products include infrastructure and applications for casino management, customer relationship management, patron management, and server-based gaming. The Company’s main casino management system offering is the Advantage® System, which offers solutions and modules for a wide-range of activities from accounting and payment processing to patron management and regulatory compliance.
The Company’s systems feature customized player messaging, tournament management, and integrated marketing and business intelligence modules that provide analytical, predictive, and management tools for maximizing casino operational effectiveness. The server-based solutions enable electronic game delivery and configuration for slot machines, as well as providing casino operators with opportunities to increase profits by enhancing the players’ experience, connecting with players interactively, and creating operational efficiencies. Service Window enables operators to market to customers more effectively by leveraging an additional piece of hardware onto existing machines for delivering in-screen messaging. The Company’s systems portfolio also encompasses mobile solutions such as the Resort Wallet™, which is a cardless, cashless loyalty solution for casino players. Resort Wallet™ includes IGTPay™, a fully cashless land-based offering for casino operators which provides a direct link to external funding. Mobile solutions that drive efficiencies and enable floor monitoring for operators while decreasing response time to player needs include Mobile Host, Mobile Responder, and Mobile Notifier. The Company categorizes revenue from gaming management systems as product sales from “Other” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
3. PlayDigital
iGaming
Digital gaming enables game play for real money wagers via applications on mobile devices and internet websites. The Company, through its PlayDigital brand, designs, assembles, and distributes a full suite of configurable products, systems, content, and services, and holds more than 50 licenses, 30 of which are specific to digital gaming only, that authorize the provision of digital gaming products and services worldwide, including digital products such as slot games, blackjack, roulette, poker, bingo, and other casino card games with features such as single and multiplayer options with branded titles and select third-party content.
The Company’s iGaming systems and digital platforms offer customers a remote game server solution, which is a fast gateway to extensive casino content, and digital gaming services that enhance player experiences and create marketing opportunities around either the Company’s games or third-party games via our aggregation capabilities. PlayDigital has a vast content offering, either through our dedicated studios or our content library to meet the needs of the market served. The content is either digital only or omnichannel in combination with our land-based gaming operations.
The Company maintains a diverse iGaming B2B customer base from both the public and private sectors, and faces competition from broad-based traditional B2B providers, as well as from in-house game development by some operators and an increasing number of content providers entering the market. The Company also faces competition in the digital space from other gaming suppliers.
The Company categorizes revenue from digital gaming products as product sales from “Other” and revenue from digital gaming services as service revenue from “PlayDigital services” as described in “Notes to the Consolidated Financial Statements— 4. Revenue Recognition” included in “Item 18. Financial Statements.”
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PlaySports
In states where sports betting is legal, the Company provides sports betting technology and management services, branded as PlaySports, to licensed sports betting operators in over 30 states and territories in the U.S. and a province in Canada, holding 54 licenses that authorize the provision of sports betting products and services, 29 of which are specific to sports betting only.
To comply with local regulations and market conditions, the offering may be different in each market. The Company currently packages its PlaySports services in two (2) ways:
•“Sports betting platform” solutions offer modular services hosted and maintained in each U.S. state or tribal jurisdiction where sports betting is legal. These solutions provide certified and managed sports betting software made available for customers to operate retail and account-based interactive sports as well as retail components such as self-service betting kiosks and employee operated betting terminals, and integrate with parimutuel race wagering in a particular jurisdiction; and
•“Turnkey” managed service solutions combine the Company’s end-to-end sports betting management technology with a portfolio of value-added services, principally trading and trading support services, but that also may include offer management, payments, fraud management, advisory functions, and interactive components such as mobile web and desktop applications, all of which support the operations of land-based, digital, and omnichannel sports betting operators.
The sports betting supplier business is highly competitive; however, IGT has been able to continue to win new contracts in both existing and new jurisdictions due to the reliability of our product offerings and our customer relationships.
The Company categorizes revenue from sports betting as service revenue from “PlayDigital services” as described in “Notes to the Consolidated Financial Statements—4. Revenue Recognition” included in “Item 18. Financial Statements.”
Business Segment Revenue
Revenues for the Company by business segment are as follows:
| For the year ended December 31, | ||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Service revenue | 2,359 | 2,436 | 2,690 | |||||||||||||||||
| Product sales | 171 | 157 | 123 | |||||||||||||||||
| Global Lottery | 2,530 | 2,593 | 2,812 | |||||||||||||||||
| Service revenue | 762 | 714 | 630 | |||||||||||||||||
| Product sales | 791 | 709 | 482 | |||||||||||||||||
| Global Gaming | 1,552 | 1,423 | 1,112 | |||||||||||||||||
| Service revenue | 227 | 209 | 163 | |||||||||||||||||
| Product sales | 1 | 1 | 1 | |||||||||||||||||
| PlayDigital | 228 | 209 | 165 | |||||||||||||||||
| Total revenue | 4,310 | 4,225 | 4,089 | |||||||||||||||||
For a further description of the principal services and products the Company provides by business segment, including a breakdown of the Company’s revenues by geographic market, see “Item 5. Operating and Financial Review and Prospects” and “Notes to the Consolidated Financial Statements—24. Segment Information” included in “Item 18. Financial Statements”.
Seasonality
In general, the Company’s business is not materially affected by seasonal variation. In the lottery business, consumption may increase in December and around the holidays but decrease over the summer months due to the tendency of consumers to be on vacation during that time. Seasonal gaming trends generally show higher play levels in the spring and summer months and lower levels in the fall and winter months. Gaming product sales may be uneven throughout the year and can be affected by several factors, including the timing of large transactions and new casino openings.
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Source of Materials
The Company uses a variety of raw materials across its business. Metals, woods, plastics, glass, electronic components, and LCD screens are frequently used during the manufacturing of gaming hardware and devices, and the lottery ticket printing facility consumes significant quantities of paper, toner, and ink throughout production. When ultimately delivering these goods to customers, the packaging process employs large amounts of paper, including cardboard.
During 2021 and 2022, the Company experienced shortages in the availability of electronic components necessary for the manufacture of gaming machines. See “Item 3.D. Risk Factors - Operational Risks - The Company depends on its suppliers and faces supply chain risks that could adversely affect its financial results.” While supply chain reliability normalized throughout 2023, price increases recognized for most of the Company’s principal raw materials impacted financial performance. The Company generally has global material suppliers and uses multi-sourcing practices to promote component and raw material availability, quality assurance, and cost consciousness.
Product Development
The Company devotes substantial resources to research and development and incurred $234 million, $255 million, and $238 million of related expenses, excluding amortization of capitalized software, in 2023, 2022, and 2021, respectively. In addition to expensed R&D, a portion of the investment in R&D has been capitalized and recorded as intangible assets, which is amortized to cost of services, cost of product sales, or selling, general and administrative expenses. The Company’s research and development efforts cover multiple creative and engineering disciplines for its Lottery, Gaming and PlayDigital businesses, including creative game content, hardware, and software; and land-based, online social, and digital real-money applications. These products are created primarily by employee designers, engineers, and artists, as well as third-party content creators. Third-party technologies are used to improve the yield from development investment and concentrate increased resources on product differentiation engineering.
Product assembly operations primarily involve the configuration and assembly of electronic components, cables, harnesses, video monitors, and prefabricated parts purchased from outside sources.
Intellectual Property
The Company maintains a significant intellectual property portfolio comprised of patents, trademarks, copyrights, and other licensed rights, and the Company’s business depends in part on its ability to protect and enforce its intellectual property rights. For example, some of the Company’s most popular games and features, including the Wheel of Fortune® franchise of premium games, are based on trademarks, patents and/or other intellectual property licensed from third parties. The Company routinely obtains, retains, and expands licenses for popular intellectual property such as the ten-year license agreement executed with Califon Productions, Inc. (“Sony”) in June 2023 for exclusive rights to the Wheel of Fortune® franchise for use across segments. At December 31, 2023, the Company held more than 4,600 patents and more than 9,800 trademarks filed and registered worldwide. The Company’s intellectual property portfolio is widely diversified with patents related to a variety of products, including game designs, bonus and secondary embedded game features, device components, systems features, and web-based or mobile functionality. The Company also relies on trade secret protection, believing that its technical “know-how” and the creative skills of its personnel are of substantial importance to its success.
Most of the Company’s products are marketed under trademarks and copyrights that provide product recognition and promote widespread acceptance. The Company seeks protection for its copyrights and trademarks in the U.S. and various foreign countries, where applicable, and uses intellectual property assets offensively and defensively to protect its innovation. The Company also has a program where it licenses its patents to others under terms designed to promote standardization in the gaming industry.
Software Development
The Company has developed software for use in the management of a range of lottery, gaming, and betting functions and products, including leveraging integration with third-party software components. Software developed by the Company is used in a variety of applications including: (i) in centralized systems for the management of lotteries, gaming (including digital gaming) and betting, and other commercial services; (ii) to enhance functions connected to services provided through websites and mobile applications (including lotteries, sports betting, instant win, and casino style games); and (iii) in a variety of back-office functions. Software developed by the Company is also used in machines for: (i) the management of lotteries, gaming, betting and online payments; (ii) the provision of gaming and non-gaming content; and (iii) integration with other devices such as mobile phones and tablets.
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Regulatory Framework
The lottery and gaming industries are subject to extensive and evolving governmental regulation in the U.S. and other jurisdictions. Gaming laws are based upon declarations of public policy designed to ensure that gaming is conducted honestly, competitively, and free of criminal and corruptive elements. While the regulatory requirements vary from jurisdiction to jurisdiction, the majority typically require some form of licensing or regulatory suitability of operators, suppliers, manufacturers, and distributors as well as their major shareholders, officers, directors, and key employees. Regulators review many aspects of an applicant, including their financial stability, integrity, and business experience. Additionally, the Company’s lottery and gaming products and technologies require certification or approval in most jurisdictions where the Company conducts business.
A comprehensive network of internal and external resources and controls is required to achieve compliance with the broad governmental oversight of the Company’s business. The Company maintains a robust enterprise compliance program designed to ensure compliance with applicable requirements imposed in connection with its lottery and gaming activities, as well as legal requirements generally applicable to publicly traded companies in the U.S. The Company employs approximately 165 individuals to support global compliance, which is directed on a day-to-day basis by the Company’s Senior Vice President, Chief Compliance and Risk Management Officer. The Company’s Legal department, in addition to outside experts, provide legal advice and support on compliance matters, as may be deemed necessary. The Global Compliance Governance Committee, comprised of employee and non-employee directors and a non-employee gaming law expert, oversees the enterprise compliance program under the supervision of the Board. Through these efforts, the Company seeks to assure both regulators and investors that its operations maintain the highest levels of integrity.
Lottery
Lotteries in the U.S. are regulated by state or other applicable law. There are currently 48 U.S. jurisdictions (including the District of Columbia, Puerto Rico, and the U.S. Virgin Islands) that authorize the operation of lotteries. Additionally, a few state lotteries offer internet instant game sales to in-state lottery customers and several states allow subscription sales of draw games over the internet. The ongoing operations of lotteries and lottery operators are typically subject to extensive and broad regulation, which vary state-by-state. The awarding of lottery contracts and ongoing operations of lotteries in international jurisdictions are also extensively regulated, although international regulations typically vary from those prevailing in the U.S.
Lottery regulatory authorities generally exercise significant discretion, including with respect to: (i) the determination of the types of games played; (ii) the price of each wager; (iii) the manner in which the lottery is marketed; (iv) the selection of suppliers of equipment, technology, and services; and (v) the retailers of lottery products. To ensure the integrity of contract awards and lottery operations, most jurisdictions require detailed background disclosure on a continuous basis from vendors and their officers, directors, subsidiaries, affiliates, and principal stockholders. Background investigations of the vendors’ employees who will be directly responsible for the operation of lottery systems are also generally conducted. Certain jurisdictions also require extensive personal and financial disclosure and background checks from persons and entities beneficially owning a specified percentage of a vendor’s securities.
Gaming
The assembly, sale, and distribution of gaming devices, equipment, and related technology and services are subject to federal, state, tribal, and local regulations in the U.S. and foreign jurisdictions. The initial regulatory requirement in most jurisdictions is to obtain the privileged licenses that allow the Company to participate in gaming activities. The Company’s operating entities and key personnel have obtained or applied for all known government licenses, permits, registrations, findings of suitability, and approvals necessary to assemble, distribute, and/or operate gaming products in all jurisdictions where the Company does business. Although many gaming regulations across jurisdictions are similar or overlapping, the Company must satisfy all conditions individually for each jurisdiction. Obtaining the required licenses at a corporate and individual level is a thorough process, in which the authorities review detailed information about the companies and individuals applying for suitability, as well as the processes used in the assembly, sale, and distribution of gaming devices. Once the license has been granted, regulatory oversight is designed to ensure that the licensee continues to operate with honesty and integrity.
Frequently, gaming regulators not only govern the activities within their jurisdiction or origin, but also monitor activities in other jurisdictions to ensure that the Company complies with local standards on a worldwide basis. A violation in any jurisdiction could result in disciplinary action in another.
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The Company holds over 500 gaming, digital, and sports betting licenses across approximately 350 jurisdictions. Key regulatory authorities that have licensed the Company include, among others, the United Kingdom Gambling Commission, the Nevada State Gaming Control Board and the New Jersey Division of Gaming Enforcement.
PlayDigital
In 2023, there was continued growth in sports wagering across the U.S., with more states legalizing and adopting regulations to govern sports wagers, and others expected to launch in 2024 and beyond. The channels for offering sports wagering differ from state to state, with most states seeking to offer sports wagering both in person and through some electronic means, such as via a mobile phone app.
In the U.S., the Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) prohibits, among other things, the acceptance by a business of a wager by means of the internet where such wager is prohibited by any applicable law where initiated, received, or otherwise made. Under UIGEA, severe criminal and civil sanctions may be imposed on the owners and operators of such systems and on financial institutions that process wagering transactions. The law contains a safe harbor for wagers placed within a single state (disregarding intermediate routing of the transmission) where the method of placing the bet and receiving the bet is authorized by that state’s law, provided the underlying regulations establish appropriate age and location verification.
Also in the U.S., the Wire Act prohibits several types of wager-related communications over a “wire communications facility.” Please see the “Legal Proceedings” discussion included within “Key Factors Affecting Operations and Financial Condition” within “Item 5.A. - Operating Results” for information regarding the U.S. Department of Justice’s (the “DOJ”) interpretations of the Wire Act and the related legal challenges.
Connecticut has joined Michigan, Delaware, New Jersey, Pennsylvania, and West Virginia as states that have authorized internet casino gaming, and Nevada has authorized online poker.
The Company participates in digital gaming and sports wagering in the U.S. as a content and technology provider within fully regulated gaming and lottery frameworks.
Digital gaming in the E.U. is characterized by diverse regulatory frameworks with some E.U. countries having monopolistic regimes run by a sole operator and others having established licensing systems for more than one operator. The Company carefully evaluates each E.U. jurisdiction to ensure adherence to applicable laws and regulations. As local regulations and related guidance from authorities change, the Company re-evaluates its position in any given country. In 2018, the E.U. Court of Justice announced that it was dropping all enforcement proceedings related to gambling which allows the individual E.U. country rulings to stand, regardless of whether or not they violate E.U. laws. As a result, the Company has made adjustments to its strategy, to respect the individual E.U. country rulings.
Italian Gaming Regulations
The Company is subject to regulatory oversight by the ADM in Italy. At December 31, 2023, the Company held licenses for: (i) the activation and operation of the network for Italy’s Gioco del Lotto game; and (ii) the operation of the Italian Scratch & Win instant ticket game.
Gaming in Italy is an activity reserved to the State. Any game that is carried out without proper authorization is illegal and subject to criminal penalties. Italian law grants the Ministry of Economy and Finance, through ADM, the power to introduce games and to manage gaming and betting activities directly or by granting licenses to qualified operators selected by means of public tenders as further explained below. The process of creating and granting gaming and betting licenses in Italy is heavily regulated.
Gaming and betting licenses are granted pursuant to a public tender procurement process. The license provides for all of the licensee’s requirements, in accordance with the provisions of Italian law and regulation, activities, and duties, including collection of the game’s revenues, the payment of winnings, the payment of the point of sale, payment of gaming taxes and all the other amounts due to the State, the drawings and the management of all of the technological assets to operate gaming, requirements of the technological infrastructure, and the relevant service levels. Licenses are for a determined time period, generally nine (9) years, and are not renewable unless indicated in the licensing agreement; in such event, the renewal is not guaranteed to be on the same terms. In certain cases, the license may be extended at the option of the ADM on the same terms. Under other circumstances, which are typically defined in the licensing agreement, the license may be revoked or terminated. Most cases of early termination are related to the breach of the terms of the licensing agreement or the non-fulfillment of
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conditions of that agreement as well as the loss of the requirements prescribed by Italian law and regulation for the assignment and the maintenance of gaming licenses. In some cases, the early termination of the license allows the State to draw upon the entire amount of the performance bond presented by the licensee. Upon governmental request, the licensee has an obligation to transfer, free of charge, the assets subject of the license to the State at the end of the term of the license or in the event of its revocation or early termination. Each single license contains specific provisions enacting such general obligation.
Sustainability
As a global leader in one of the most regulated industries, IGT has operations across a broad spectrum of regions and cultures. The Company is committed to growing its business responsibly by implementing a structured and dedicated governance framework, which includes high standards of ESG practices.
The Nominating and Corporate Governance Committee (the “NCGC”) is responsible for overseeing the Company’s strategy on sustainability, monitoring implementation of the Company’s sustainability program, and reviewing the Company’s public disclosures regarding ESG matters (including the annual Sustainability Report and the Modern Slavery Statement). The most significant ESG-related updates are typically reported by the NCGC to the Board. Marco Sala serves as Executive Chair of the Board with specific responsibilities in addressing corporate governance, sustainability initiatives (including climate-related and environmental matters), and providing strategic guidance.
IGT seeks to serve the global gaming market with the utmost integrity and in accordance with disciplined ethical principles, with sustainability and good corporate citizenship at the core of this ethos. The Sustainability Steering Committee (“SSC”), chaired by the Senior Vice President, Marketing, Communications and Sustainability (a direct report to the Company’s CEO) and comprised of IGT senior management and members of the Global Sustainability team, supports programs and initiatives that contribute to IGT’s sustainability strategy. The SSC cultivates a long-term vision and related objectives on sustainability, fosters a consistent sustainability approach across all regions and businesses, and increases communication on sustainability by sharing best practices at global and local levels. Responsible and sustainable practices encompass a broad spectrum of sustainability initiatives, including the Company’s energy use, environmental and human rights issues, and establishing policies and strategic initiatives, such as its Sustainability Policy, Responsible Gaming Policy, Human Rights Policy, Environmental Policy, Diversity, Equity and Inclusion Global Policy, Board Diversity Policy, Sustainable Procurement Policy and Community Giving & Engagement Policy.
To achieve these objectives, the SSC developed the IGT Sustainability Plan to align the Company’s sustainability pillars with business priorities, under the theme of “Inspiring Global Transformation.” This plan, approved by the SSC in July 2022, aims at further integrating sustainability along the entire value chain and improving ESG impact in daily operations, including the identification of a comprehensive set of targets and actions to lead IGT in achieving its priorities and ambitions.
In 2023, IGT launched Sustainable PlayTM, the program that represents IGT’s commitment to leading the gaming industry in global sustainability by aligning its sustainability plan and strategy and celebrating the Company’s dedication to its people and the planet. IGT also published its Global Sustainability Policy, which outlines goals and objectives in relation to ESG practices and defines the framework for sustainability at IGT. The Global Sustainability Policy provides a governing platform for the Company’s sustainability work in all key areas of business activity, including providing services, working with suppliers, employee interactions, and industry-affecting activities.
The IGT Global Sustainability team leads project planning for the IGT Sustainability Plan, including the coordination of sustainability working groups, data collection, and reporting systems to fulfill criteria of ESG questionnaires. The Global Sustainability team also leads the development of a global community engagement strategy, the establishment of partnerships with non-profit associations, and the implementation of global responsible gaming initiatives consistent with industry standards. At the operating level, several working groups with employees from different departments are responsible for analyzing sustainability initiatives and defining an action plan.
The Company’s ongoing pledge to sustainable growth within the gaming industry includes the guiding principles set forth by the 2030 United Nations (“UN”) Agenda for Sustainable Development and its 17 Sustainable Development Goals (“SDGs”). Based on its business activities and its sustainability priorities, the Company has identified nine (9) SDGs as key areas of focus: (i) no poverty (SDG 1); (ii) good health and well-being (SDG 3); (iii) quality education (SDG 4); (iv) gender equality (SDG 5); (v) affordable and clean energy (SDG 7); (vi) decent work and economic growth (SDG 8); (vii) industry innovation and infrastructure (SDG 9); (viii) reduced inequalities (SDG 10); and (ix) climate action (SDG 13).
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In early 2019, IGT joined the United Nations Global Compact (“UNGC”), which is widely recognized as the largest corporate responsibility initiative in the world for the development, implementation, and disclosure of responsible corporate policies and practices.
The Company’s global sustainability strategy is centered on four (4) pillars:
Valuing and Protecting Our People - The organizational climate of a business reflects how employees at all levels perceive the workplace environment. Many factors can contribute to an employee’s perception, and the Company strives to develop initiatives and programs that support a positive organizational climate, including through IGT's Modern Slavery Act statements, employee-led Employee Impact Groups, and a variety of other initiatives to support this pillar in daily work life. IGT’s people strategy, which among others includes commitments to sustainability, diversity, equity, inclusion, and ethical operations, has been recognized by the 2023 Top Employer Certification for IGT operations in Canada, Italy, and the United States. IGT demonstrated not only that initiatives are in place, but that employees are engaging with them to create a working environment where professional growth, inclusion and communication are paramount. Furthermore, in recognition of the commitment to human rights protection, in 2023 IGT was included in the Human Rights Campaign Foundation’s Corporate Equality Index, which measures LGBTQ+ inclusion in the workplace.
Advancing Responsibility - The Company maintains certifications in responsible gaming through both the World Lottery Association and the Global Gambling Guidance Group (G4). The Company incorporates responsible gaming capabilities and features into its suite of products, and IGT partners with customers to help achieve their responsible gaming goals. IGT’s commitment to responsible gaming starts with its own people and is woven into the fabric of product development, services, programs, and policies. IGT has adopted a positive play approach that encourages all users to apply healthy play behaviors to their game play. IGT believes that it is incumbent upon all stakeholders in the gaming industry to take a proactive approach to problem and underage gambling.
IGT trains employees, at all levels and responsibilities, to support and promote responsible gaming in their daily activities, with additional in-depth courses for employees in specific roles, such as game designers and contact center associates. IGT’s products, games, systems, and portals include advanced responsible gaming tools that help safeguard players’ interests and address regulators’ concerns. IGT maintains close relationships with customers, gaming regulators, and researchers to further its support of player protection. In 2023, IGT received responsible gaming re-certifications for Gaming, PlayDigital, and PlaySports from G4.
Supporting Our Communities - The Company supports our communities through corporate initiatives and employee-driven programs. The flagship After School Advantage Program (the ASA Program), for example, was launched in 1999 with the goal of bringing technology and skill development in STEAM (Science, Technology, Engineering, Arts, and Mathematics) education to youth. Over the life of the ASA Program, the Company has placed over 360 digital learning centers. This aligns with IGT Sustainability Plan goals: (i) Engage with community partners to facilitate opportunities for support, learning, and growth; and (ii) Develop education programs and digital learning centers to encourage skill development and create a sustainable workforce for the future. In addition, the Company supports communities financially through various charitable endeavors, with the giving program aligned with the Company’s SDGs. Employee programs support the unique passions of employees and promote volunteerism. IGT maintains a formal Global Community Giving & Engagement Policy designed to educate and inform all relevant stakeholders about how the Company strives to create opportunities within our communities.
Fostering Sustainable Operations - The Company aspires to serve the global gaming market in accordance with the highest level of ethical and integrity principles, and has committed to continually incorporating sustainability into decision-making to increase its ESG performance. In 2021, IGT pledged by signing the Science Based Targets initiative (SBTi) commitment letter to set science-based targets to reduce GHG emissions according to scientific evidence. In 2022, IGT completed its first Scope 3 emissions inventory and submitted near-term and long-term science-based targets for validation by the SBTi. Specifically, IGT committed to reduce Scope 1 and Scope 2 emissions (combined) by 50% and Scope 3 emissions by 30% by 2030 compared to 2019, and to reduce both Scope 1, Scope 2, and Scope 3 emissions by 90% by 2050 compared to 2019. Moreover, the Company pledged to reach Net-Zero by 2050, thus offsetting the residual 10% of emissions. These emissions reduction targets were validated by the SBTi in August 2023 and IGT is actively pursuing its Decarbonization Pathway through the implementation of several workstreams throughout the value chain and operations. IGT also implemented the Environmental, Social and Governance Supplier Qualification Questionnaire in 2023, an annual exercise designed to measure the ESG performance of Suppliers and track their progress towards compliance of the Supplier Code of Conduct. Topics covered include Business Ethics, Social & Inclusive Supply Chain, Environmental Management, Human Rights, Health and Safety and Conflict Minerals aligned to the aforementioned Supplier Code of Conduct.
IGT’s sustainability efforts are also routinely evaluated by ESG rating agencies. IGT received a Management level (B) score from the CDP – formerly known as the Carbon Disclosure Project – recognizing the Company for taking coordinated actions on climate issues. The Company most recently received a gold medal sustainability rating from EcoVadis, positioning IGT among
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the top 5% of global companies for sustainable practices. EcoVadis assesses companies using 21 sustainability criteria within the categories of environment, labor and human rights, ethics, and sustainable procurement. In September 2023, IGT achieved a score of 54 from the S&P Corporate Sustainability Assessment, one of the foremost global sustainability benchmarks. Based on this assessment, IGT was included in the 2024 S&P Sustainability Yearbook, which distinguishes companies within their industries that have demonstrated strengths in corporate sustainability. As of 2023, IGT received an MSCI ESG rating of AAA. In November 2022, IGT achieved a sector-leading sustainability score from Moody’s ESG Solutions, positioning the Company in the number one spot within the North American hotel, leisure goods, and services sector.
C. Organizational Structure
A listing of the Parent’s directly and indirectly owned subsidiaries at March 7, 2024 is set forth in Exhibit 8.1 to this annual report on Form 20-F. At March 7, 2024, De Agostini had an economic interest in the Parent of approximately 42.61% (excluding treasury shares) and, due to its election to exercise the Special Voting Shares associated with its ordinary shares pursuant to the Loyalty Plan, a voting interest in the Parent of approximately 59.75% of the total voting rights (excluding treasury shares). See “Item 7. Major Shareholders and Related Party Transactions.
The following is a diagram of the Parent and certain of its subsidiaries and associated companies at March 7, 2024:
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D. Property, Plants and Equipment
The Parent’s principal office is located at 10 Finsbury Square, Third Floor, London EC2A 1AF United Kingdom, telephone number +44 (0) 203 866 1240. At March 7, 2024, the Company leased approximately: (i) 110 properties in the U.S. under approximately 140 leases; and (ii) 100 properties outside of the U.S. under approximately 120 leases. Certain properties leased by the Company are subject to multiple leases (e.g., buildings where each floor leased by the Company is under a separate lease). As of March 7, 2024, the Company owned a number of facilities and properties, including:
•An approximately 113,000 square foot production and research and development office building in Moncton, New Brunswick, Canada; and
•An approximately 13,050 square foot enterprise data center in West Greenwich, Rhode Island.
The following table shows the Company’s material properties at March 7, 2024:
U.S. Properties
| Location | Square Feet | Use and Productive Capacity | Extent of Utilization | Holding Status | ||||||||||
9295 Prototype Drive, Reno, NV(1) | 1,251,179 | Office; Warehouse; Game Studios; Hardware/Software Engineering; Global Production Center; Electronic Gaming Machine | 80 | % | Leased | |||||||||
6355 S. Buffalo Drive, Las Vegas, NV(2) | 222,268 | U.S. Principal Operating Facility; Game Studio; Systems Software; Showroom | 100 | % | Leased | |||||||||
| 4000 South Frontage Road, Suite 101 Lakeland, FL | 174,720 | Printing Plant: Printing facility; Storage and Distribution; Office | 100 | % | Leased | |||||||||
| 55 Technology Way, West Greenwich, RI | 170,000 | Office; Research and Testing; Storage and Distribution | 100 | % | Leased | |||||||||
| 10 Memorial Boulevard, Providence, RI | 124,769 | Administrative functional office; Lottery regional HQ | 80 | % | Leased | |||||||||
| 8520 Tuscany Way, Bldg. 6, Suite 100, Austin, TX | 81,933 | Texas Warehouse and National Response Center: Contact Center; Storage and Distribution; Office | 95 | % | Leased | |||||||||
| 8200 Cameron Road, Suite E120, Austin, TX | 41,705 | Data Center of the Americas: Data Center; Network Operations; Office | 80 | % | Leased | |||||||||
| 5300 Riata Park Court, Bldg. E, Suite 100, Austin, TX | 26,759 | Austin Tech Campus: Research and Test; Office | 80 | % | Leased | |||||||||
| 47 Technology Way, West Greenwich, RI | 13,050 | Enterprise Data Center: Data Center; Network Operations | 100 | % | Owned | |||||||||
| 5 Funston Avenue, San Francisco, CA | 4,072 | PlayDigital HQ: Office | 100 | % | Leased | |||||||||
(1) 321,473 sq. ft. of this property is sub-leased to sub-tenants.
(2) 120,586 sq. ft. of this property has been sub-leased to a sub-tenant.
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Non-U.S. Properties
| Location | Square Feet | Use and Productive Capacity | Extent of Utilization | Holding Status | ||||||||||
| Viale del Campo Boario 56/D 00154 Roma, Italy | 174,526 | Principal Operating Facility in Italy; Office; Italy Data Center: Data Center; Network Operations | 100 | % | Leased | |||||||||
| Via delle Monachelle S.N.C. Pomezia, Rome, Italy | 129,167 | Instant Ticket Warehouse; Instant Ticket Distribution | 100 | % | Leased | |||||||||
| 328 Urquhart Ave, Moncton, New Brunswick, Canada | 113,000 | Canada HQ; Office; Research and Testing; Gaming Production | 100 | % | Owned | |||||||||
| Seering 13-14, Unterpremstatten, Austria | 78,082 | Austria Gaming HQ; Office; Research and Test | 90 | % | Leased | |||||||||
| Al. Jerozolimskie, 92 Brama Building, Warsaw, Poland | 48,283 | Global Tech Hub; Office; Research and Test | 95 | % | Leased | |||||||||
| USCE Tower Bulevar Mihajla, Pupina No. 6 Belgrade, Serbia | 42,764 | Software Development Office; Lottery; Gaming Products | 95 | % | Leased | |||||||||
2310 Szigetszentmiklós Leshegy u. 30 Budapest, Hungary | 34,661 | Warehousing; Gaming Production and Parts Distribution for EMEA Region; Office | 100 | % | Leased | |||||||||
| 11 Talavera Rd. Building B, Sydney, Australia | 27,432 | Office; Sales & Marketing; Financial Support | 100 | % | Leased | |||||||||
10 Finsbury Square, 3rd Floor London EC2A 1AD, United Kingdom(1) | 17,340 | Registered Global Headquarters of the Parent; Global Management HQ, PlayDigital | 100 | % | Leased | |||||||||
(1) 4,600 sq. ft. of this property has been sub-leased to a sub-tenant.
IGT has adopted a hybrid working arrangement for employees who are capable of performing their function remotely, with the Company’s employees afforded the ability to work both in the office and remotely.
IGT maintains its facilities in good condition, and these locations are fit for the purposes for which the Company uses them. There are no known environmental issues that may affect the Company’s utilization of its real property assets.
IGT does not have any plans to construct, expand, or improve its facilities in any material manner other than general maintenance of facilities. As such, the Company does not anticipate an increase in productive capacity.
None of the Company’s properties are subject to mortgages or other material security interests.
Item 4A. Unresolved Staff Comments
None.
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Item 5. Operating and Financial Review and Prospects
Management’s Discussion and Analysis
The following discussion and analysis of IGT’s financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements, including the notes thereto, included in this annual report, as well as “Presentation of Financial and Certain Other Information,” “Item 3.D. Risk Factors,” and “Item 4. B. Business Overview.”
The following discussion includes information for the fiscal years ended December 31, 2023 and 2022. For a discussion and analysis of IGT’s consolidated operating results and non-operating results and segment revenues and operating results for the year ended December 31, 2022, compared to the year ended December 31, 2021, please refer to the disclosure under “Item 5. Operating and Financial Review and Prospects - A. Operating Results” in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2022, filed with the SEC on February 28, 2023.
A. Operating Results
Business Overview
IGT is a global leader in gaming that delivers entertaining and responsible gaming experiences for players across all channels and regulated segments, from Lotteries and Gaming Machines to Digital Gaming and Sports Betting. Leveraging a wealth of compelling content, substantial investment in innovation, player insights, operational expertise, and leading-edge technology, the Company’s solutions deliver gaming experiences that responsibly engage players and drive growth. IGT has a well-established local presence and relationships with governments and regulators around the world, and creates value by adhering to the highest standards of service, integrity, and responsibility.
IGT manages and reports the Company’s operating results through three (3) business segments: Global Lottery, Global Gaming, and PlayDigital, along with a corporate support function (“Corporate and Other”). IGT's operations for the periods presented herein are discussed accordingly.
Business Acquisitions
On July 1, 2022, the Company completed the acquisition of iSoftBet by purchasing 100% of the equity interests in certain entities of the iSoftBet group for cash consideration of €162 million (inclusive of €20 million deposited into an escrow account) and contingent consideration of €4 million. The acquisition of iSoftBet provides market-tested proprietary digital content, advanced game aggregation capabilities, scalable promotional tools, analytics, and creative talent to the PlayDigital segment. The financial results of iSoftBet have been included within our PlayDigital segment in our Consolidated Financial Statements since the date of purchase.
Divestitures
On September 14, 2022, the Company completed the sale of 100% of the share capital of Lis Holding S.p.A., a wholly owned subsidiary of IGT Lottery S.p.A. that conducted the Company’s Italian commercial services business, to PostePay S.p.A. – Patrimonio Destinato IMEL for a purchase price of €700 million. The net consideration received of €479 million resulted in a pre-tax gain on sale of $278 million, ($276 million net of tax). The business was a component of continuing operations within our Global Lottery segment through the closing date.
Discontinued Operations
On May 10, 2021, IGT completed the sale of its Italian B2C businesses to Gamenet Group S.p.A. for a cash sale price of €950 million. The sale of the businesses met the criteria to be reported as a discontinued operation and, as a result, the discussion that follows in this Item 5. has been prepared on a continuing operations basis and excludes results from discontinued operations, discussed in detail in “Notes to the Consolidated Financial Statements—3. Business Acquisitions and Divestitures” included in “Item 18. Financial Statements.”
OPtiMa
In connection with the 2020 introduction of our global product organizations, IGT identified opportunities to optimize the Company’s portion of the value chain across businesses and regions and launched the “OPtiMa” program. In 2021, the Company successfully achieved the $200 million in structural cost savings and capital expenditure reductions relative to 2019
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anticipated under the program. Following the successful achievement of OPtiMa, IGT launched OPtiMa 2.0, which was expected to yield an incremental $150 million in structural profit improvement by the end of 2023 relative to 2019. OPtiMa 2.0 focused on three key areas: (i) operational excellence and margin improvement initiatives; (ii) interest expense reductions; and (iii) structural improvements to the effective tax rate. As of December 31, 2022, the Company achieved the targeted reduction in interest expense and improvements to the effective tax rate, net of non-recurring items. The achievement of the operational excellence initiatives was partially offset by supply chain headwinds and inflationary cost increases, however, the Company still achieved the targeted margin improvement in 2023 as operations continued to normalize and we finalized a more structured approach to software development and multi-year licensing agreements.
Key Factors Affecting Operations and Financial Condition
The Company’s worldwide operations can be affected by industrial, economic, and political factors on both a regional and global level. The ongoing conflict between Russia and Ukraine, the Israeli-Hamas conflict, Argentina’s economic and financial crisis, the tightening of monetary policy by central banks and other macroeconomic factors have caused disruptions and uncertainty in the global economy, including rising interest rates, increased inflationary pressures, foreign exchange rate fluctuations, potential cybersecurity risks, and exacerbated supply chain challenges. However, these events did not have a material impact on our supply chain or our results of operations. The extent to which our business, or the business of our suppliers or manufacturers, will be impacted in the future is unknown. We will continue to monitor the effects of these events on our business and our results of operations. The following are the principal factors which have affected the Company’s results of operations and financial condition and/or which may affect results of operations and financial condition for future periods.
On June 8, 2023, the Company announced the Board would begin evaluating potential strategic alternatives for the Global Gaming and PlayDigital businesses with the goal of unlocking the full value of IGT's portfolio. The Board considered a broad range of potential alternatives, with an agreement reached with Everi on February 28, 2024 for the Separation & Divestiture of the Global Gaming and PlayDigital segments. Refer to the “Notes to the Consolidated Financial Statements—26. Subsequent Events” for further information. To support the Board in their assessment of potential transactions, including the Separation & Divestiture, the Company retained advisors, legal counsel, and consultants who will continue to support the Company through the closing date of the Separation & Divestiture.
Product Sales: Product sales fluctuate from year to year due to the mix, volume, and timing of the transactions. Product sales amounted to $963 million, $866 million, and $606 million, or approximately 22%, 21%, and 15% of total revenues for the years ended December 31, 2023, 2022, and 2021, respectively.
Jackpots: The Company believes that the performance of lottery products is influenced by the size of advertised jackpots in jurisdictions that offer such jackpots. Typically as jackpots increase, sales of lottery tickets also increase, further increasing the advertised jackpot level. However, in a rising interest rate environment, advertised jackpot levels will increase more rapidly than they previously did given the annuity basis of the displayed jackpots. Therefore, in a higher interest rate environment, jackpot game ticket sales may be increasing at a relatively slower rate than the corresponding jackpot levels. In a lower interest rate environment, advertised jackpot levels are slower to increase which can negatively impact the sales of lottery tickets.
Effects of Foreign Exchange Rates: The Company is affected by fluctuations in foreign exchange rates (i) through translation of foreign currency financial statements into U.S. dollars for consolidation, which is referred to as the translation impact, and (ii) through transactions by subsidiaries in currencies other than their own functional currencies, which is referred to as the transaction impact. Translation impacts arise in the preparation of the Consolidated Financial Statements; in particular, the Consolidated Financial Statements are prepared in U.S. dollars while the financial statements of each of the Company’s subsidiaries are generally prepared in the functional currency of that subsidiary. In preparing Consolidated Financial Statements, assets and liabilities measured in the functional currency of the subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date, while income and expenses are translated using the average exchange rates for the period covered. Accordingly, fluctuations in the exchange rate of the functional currencies of the Company’s subsidiaries against the U.S. dollar impacts the Company’s results of operations. The Company is particularly exposed to movements in the euro/U.S. dollar exchange rate. Although the fluctuations in exchange rates have had a significant impact on the Company’s revenues, net income, and net debt, the impact on operating income and cash flows is less significant as revenues are typically matched to costs denominated in the same currency.
Given the impact of foreign exchange rates on our consolidated results, certain key performance indicators (such as same-store sales) and financial fluctuations are reported on a constant-currency basis in order to facilitate period-to-period comparisons of our results without regard to the impact of fluctuating foreign currency exchange rates.
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Legal Proceedings
From time to time, the Parent and/or one or more of its subsidiaries are party to legal, regulatory, or administrative proceedings regarding, among other matters, claims by and against us, and injunctions by third parties arising out of the ordinary course of business or its other business activities. Licenses are also subject to legal challenges by competitors seeking to annul awards made to the Company. The Parent and/or one or more of its subsidiaries are also, from time to time, subjects of, or parties to, ethics and compliance inquiries and investigations related to the Company’s ongoing operations.
There are no new material legal, regulatory, or administrative proceedings. Please refer to “Process for Disclosure and Recording of Liabilities Related to Legal Proceedings” and “Legal Proceedings” within “Notes to the Consolidated Financial Statements - Note 2. Summary of Significant Accounting Policies” and “19. Commitments and Contingencies” included in “Item 18. Financial Statements”, respectively, for additional information.
Results of Operations
Comparison of the years ended December 31, 2023 and 2022
Total Revenue
| For the year ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | $ | % of Total Revenue | $ | % of Total Revenue | $ | % | ||||||||||||||||||||||||||||||||
| Total service revenue | 3,347 | 78 | 3,359 | 79 | (12) | — | ||||||||||||||||||||||||||||||||
| Total product sales | 963 | 22 | 866 | 21 | 96 | 11 | ||||||||||||||||||||||||||||||||
| Total revenue | 4,310 | 100 | 4,225 | 100 | 85 | 2 | ||||||||||||||||||||||||||||||||
Total revenue for the year ended December 31, 2023 increased $85 million, or 2%, to $4.3 billion from $4.2 billion for the prior corresponding period due primarily to player demand and product and game performance.
Product sales growth is primarily attributable to our Global Gaming segment experiencing increases in both machine units sold and a higher global average selling price from the prior corresponding period. Service revenue increases in our Global Gaming and PlayDigital segments were driven by game performance, install base growth, and player demand. Global Lottery increases, principally due to multi-jurisdiction jackpot game same-store sales in the U.S. and instant ticket and draw-games same-store sales in Italy, were fully offset by the disposition in September 2022 of our Italian Commercial Services business which contributed $197 million in the prior corresponding period as well as unfavorable foreign currency impacts primarily related to the euro of $32 million. Excluding the contribution from the Italian Commercial Services business, total revenue increased 7%, with service revenue increasing 5% in our Global Lottery segment.
See “Segment Operating Results” section below for further discussion related to the principal drivers of changes to Total revenue.
Operating expenses
| For the year ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | $ | % of Service Revenue | $ | % of Service Revenue | $ | % | ||||||||||||||||||||||||||||||||
| Cost of services | 1,630 | 49 | 1,671 | 50 | (40) | (2) | ||||||||||||||||||||||||||||||||
Cost of services for the year ended December 31, 2023 decreased $40 million, or 2%, to $1.6 billion from $1.7 billion for the prior corresponding period primarily attributable to our Global Lottery segment experiencing a $127 million decrease in point of sale (“POS”) fees due to the disposal of the Italian Commercial Services business, partially offset by a $22 million increase in POS consumables used in providing instant and draw-based game sales, a $13 million increase in the amortization of capitalized software costs, a $10 million increase in insurance and taxes, and a $12 million increase in bank service fees and postage and freight in the aggregate. Additionally, within our Global Gaming segment, depreciation and amortization expense increased $37 million due primarily to amortization expense related to a multi-year license agreement of intellectual property entered into in December 2022, partially offset by a $29 million reduction in usage-based royalties. Global Gaming also had a $6 million increase in postage and freight. Our PlayDigital segment had a $6 million decrease in depreciation and amortization
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expense and together with Global Lottery saw an increase in licensing and royalties expense of $7 million in the aggregate. Increased payroll and benefits in Global Gaming and PlayDigital of $16 million correlated to the service revenue growth in those segments.
As a percentage of service revenue, cost of services decreased by approximately 100 basis points in total. The overall increase in gross service margin was $29 million primarily due to the disposal in September 2022 of the relatively lower margin Italy Commercial Services business, with gross margin as a percentage of service revenue increasing 100 basis points and 550 basis points in our Global Lottery and PlayDigital segments, respectively, and our Global Gaming segment decreasing 140 basis points.
| For the year ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | $ | % of Product Revenue | $ | % of Product Revenue | $ | % | ||||||||||||||||||||||||||||||||
| Cost of product sales | 573 | 59 | 554 | 64 | 19 | 3 | ||||||||||||||||||||||||||||||||
Cost of product sales increased $19 million, or 3%, from the prior corresponding period, primarily as a result of a $96 million increase in total product sales. Cost of product sales as a percentage of product sales decreased by approximately 450 basis points principally due to product mix and improved supply chain costs in our Global Gaming segment.
| For the year ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | $ | % of Total Revenue | $ | % of Total Revenue | $ | % | ||||||||||||||||||||||||||||||||
| Selling, general and administrative | 834 | 19 | 814 | 19 | 20 | 3 | ||||||||||||||||||||||||||||||||
Selling, general and administrative increased $20 million, or 3%, to $834 million as compared to $814 million for the prior corresponding period. This increase was primarily attributable to an increase in payroll and benefit costs across all segments of $25 million in the aggregate primarily due to increased headcount, partially offset by a $7 million decrease in incentive compensation cost in the aggregate for all segments.
| For the year ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | $ | % of Total Revenue | $ | % of Total Revenue | $ | % | ||||||||||||||||||||||||||||||||
| Research and development | 234 | 5 | 255 | 6 | (21) | (8) | ||||||||||||||||||||||||||||||||
Research and development decreased $21 million, or 8%, from the prior corresponding period primarily due to process improvements resulting in increased capitalization of software development activities, partially offset by increases in payroll and benefit costs.
Non-operating expenses
| For the year ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | $ | % of Total Revenue | $ | % of Total Revenue | $ | % | ||||||||||||||||||||||||||||||||
| Interest expense, net | 285 | 7 | 289 | 7 | (4) | (1) | ||||||||||||||||||||||||||||||||
| Foreign exchange loss, net | 75 | 2 | 36 | 1 | 38 | 105 | ||||||||||||||||||||||||||||||||
| Other non-operating expense, net | 12 | — | 7 | — | 5 | 62 | ||||||||||||||||||||||||||||||||
| Total non-operating expenses | 372 | 9 | 333 | 8 | 39 | 12 | ||||||||||||||||||||||||||||||||
Interest expense, net decreased $4 million, or 1%, from the prior corresponding period. This decrease was primarily due to the Company maintaining a lower average balance in its Senior Secured Notes, partially as a result of the notes redemptions in 2023 described in “Notes to the Consolidated Financial Statements”— 15 Debt compared to the prior corresponding period.
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Foreign exchange loss, net was $75 million compared to $36 million for the prior corresponding period. Foreign exchange loss, net is principally related to fluctuations in the euro to U.S. dollar exchange rate on internal and external debt and to a $34 million loss related to the devaluation of the Argentine peso for the year ended December 31, 2023.
Other non-operating expense, net was $12 million of expense, compared to $7 million of expense for the prior corresponding period. During the year ended December 31, 2023, the expense was primarily due to $5 million in losses on extinguishment of debt and $5 million in losses on the purchase and sale of a blue-chip swap, a legal mechanism used to transfer funds out of Argentina. During the prior corresponding period, the Company completed the sale of its Italian commercial services business, resulting in a $278 million gain, which was offset by the recognition of $270 million of expense for the settlement of the Benson Matter and $13 million in losses on extinguishment of debt.
Provision for income taxes
| For the year ended | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | Change | ||||||||||||||||||||||||||||||||||||
| ($ in millions) | $ | % of Total Revenue | $ | % of Total Revenue | $ | % | ||||||||||||||||||||||||||||||||
| Provision for income taxes | 322 | 7 | 175 | 4 | 147 | 84 | ||||||||||||||||||||||||||||||||
The increase in provision for income taxes was primarily driven by a higher valuation allowance related to our business interest expense limitation carryforward, the impact of the international provisions of the U.S. Tax Cut and Jobs Act of 2017, and the settlement of the 2015-2022 Italy tax audit. In addition, there was no book tax benefit arising from the settlement provision of Adrienne Benson and Mary Simonson, individually and on behalf of all others similarly situated v. Double Down Interactive LLC, et al. (the “DDI / Benson Matter provision”) for the year ended December 31, 2023, compared to a $66 million book tax benefit for the prior corresponding period.
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Segment Operating Results
Global Lottery
Revenues and Key Performance Indicators
Service revenue
| For the year ended December 31, | Change | |||||||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | $ | % | ||||||||||||||||||||||
| Operating and facilities management contracts | 2,306 | 2,181 | 125 | 6 | ||||||||||||||||||||||
| Systems, software, and other | 53 | 255 | (202) | (79) | ||||||||||||||||||||||
Total service revenue | 2,359 | 2,436 | (77) | (3) | ||||||||||||||||||||||
| For the year ended December 31, | ||||||||||||||||||||||||||
| (% on a constant-currency basis) | 2023 | 2022 | ||||||||||||||||||||||||
| Global same-store sales growth (%) | ||||||||||||||||||||||||||
| Instant ticket & draw games | 1.9 | % | (3.9) | % | ||||||||||||||||||||||
| Multi-jurisdiction jackpots | 5.8 | % | 15.3 | % | ||||||||||||||||||||||
| Total | 2.3 | % | (2.2) | % | ||||||||||||||||||||||
| North America & Rest of world same-store sales growth (%) | ||||||||||||||||||||||||||
| Instant ticket & draw games | 0.6 | % | (2.4) | % | ||||||||||||||||||||||
| Multi-jurisdiction jackpots | 5.8 | % | 15.3 | % | ||||||||||||||||||||||
| Total | 1.2 | % | (0.4) | % | ||||||||||||||||||||||
| Italy same-store sales growth (%) | ||||||||||||||||||||||||||
| Instant ticket & draw games | 6.6 | % | (8.5) | % | ||||||||||||||||||||||
Operating and facilities management contracts revenue increased $125 million, or 6%, from the prior corresponding period. This increase was primarily the result of a $127 million increase in instant, draw-based, and multi-jurisdiction jackpot ticket sales that experienced same-store sales growth of 6.6% in Italy, and a 2.3% increase in global same-store sales in the aggregate. Global same-store sales for multi-jurisdiction jackpot ticket sales experienced a 5.8% increase, primarily attributable to elevated jackpot levels in the U.S. Additionally, other lottery revenue increased $5 million principally due to iLottery fees, which was fully offset by a $7 million decrease in LMA incentive revenue.
Systems, software, and other revenue decreased $202 million, or 79%, to $53 million from $255 million for the prior corresponding period primarily due to the sale of our Italian commercial services business that concluded September 14, 2022.
Product sales
| For the year ended December 31, | Change | |||||||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | $ | % | ||||||||||||||||||||||
| Lottery products | 171 | 157 | 14 | 9 | ||||||||||||||||||||||
Total product sales | 171 | 157 | 14 | 9 | ||||||||||||||||||||||
Lottery products revenue for the year ended December 31, 2023 increased $14 million, or 9%, from the prior corresponding period, principally due to higher terminal deliveries in North America of $25 million primarily as a result of contracts in Michigan and Canada, as well as a $27 million increase in International sales in the aggregate attributable to the extension of a multi-year central system software license in Switzerland, an iLottery license in Poland, and the U.K. Lottery supplier contract. These increases were partially offset by a $14 million decrease in terminal and system deliveries primarily related to the prior year contract renewal with the Poland Lottery as well as a $19 million decrease in software sales principally related to International system software upgrades, sales, and deliveries in the prior corresponding period. Instant ticket printing operations revenue decreased $9 million due primarily to increased volume in Florida in the prior corresponding period.
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Operating Margins
| For the year ended December 31, | Change | |||||||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | $ / bps | % | ||||||||||||||||||||||
| Gross margin | ||||||||||||||||||||||||||
| Service | 1,173 | 1,186 | (13) | (1) | ||||||||||||||||||||||
| % of service revenue | 50 | % | 49 | % | 100 | bps | ||||||||||||||||||||
| Product | 60 | 38 | 22 | 58 | ||||||||||||||||||||||
| % of product sales | 35 | % | 24 | % | 1100 | bps | ||||||||||||||||||||
Gross margin as a percentage of service revenue increased to 50% from 49% for the prior corresponding period primarily as a result of increased Operating and facilities management contracts revenues as discussed above and decreased Systems, software, and other revenue from the former Italy commercial services business where margins were typically lower as a result of the POS fees.
Gross margin on product sales for the year ended December 31, 2023 increased 1,100 basis points from the prior corresponding period principally due to the increase in higher margin terminal and software license sales.
| For the year ended December 31, | Change | |||||||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | $ / bps | % | ||||||||||||||||||||||
| Operating income | 913 | 909 | 4 | — | ||||||||||||||||||||||
| Operating margin | 36 | % | 35 | % | 100 | bps | ||||||||||||||||||||
Segment operating margin increased 100 basis points primarily as a result of increased Operating and facilities management contracts revenue coupled with the increase in higher margin product sales compared with the prior corresponding period as discussed above.
Global Gaming
Revenues and Key Performance Indicators
Service revenue
| For the year ended December 31, | Change | |||||||||||||||||||||||||
| ($ in millions, except yields) | 2023 | 2022 | $ | % | ||||||||||||||||||||||
| Gaming terminal services | 520 | 483 | 37 | 8 | ||||||||||||||||||||||
| Systems, software, and other | 242 | 232 | 10 | 4 | ||||||||||||||||||||||
| Total service revenue | 762 | 714 | 47 | 7 | ||||||||||||||||||||||
| For the year ended December 31, | Change | |||||||||||||||||||||||||
| 2023 | 2022 | Units / $ | % | |||||||||||||||||||||||
| Installed base units | ||||||||||||||||||||||||||
| Total installed base units | 53,906 | 49,586 | 4,320 | 9 | ||||||||||||||||||||||
Total yields(1) | $29.68 | $29.89 | $(0.21) | (1) | ||||||||||||||||||||||
(1) Total yields represent revenue per day for the average installed base units. Installed base units included active and inactive units deployed to a customer location.
44
Gaming terminal services revenue increased $37 million, or 8%, from the prior corresponding period. This increase was primarily driven by a 9% increase in installed base units and yields holding constant at approximately $30 per unit per day primarily attributable to game performance partially offset by Regional mix.
Systems, software, and other revenue increased $10 million, or 4%, from the prior corresponding period principally related to an increase in systems maintenance and recurring software revenue from our poker install base.
Product sales
| For the year ended December 31, | Change | |||||||||||||||||||||||||
($ in millions) | 2023 | 2022 | $ | % | ||||||||||||||||||||||
| Gaming terminals | 571 | 501 | 70 | 14 | ||||||||||||||||||||||
| Gaming other | 220 | 208 | 12 | 6 | ||||||||||||||||||||||
Total product sales | 791 | 709 | 82 | 12 | ||||||||||||||||||||||
| For the year ended December 31, | Change | |||||||||||||||||||||||||
| 2023 | 2022 | Units / $ | % | |||||||||||||||||||||||
| Global machine units sold | ||||||||||||||||||||||||||
| Total machine units sold | 35,090 | 32,820 | 2,270 | 7 | ||||||||||||||||||||||
Gaming terminals increased $70 million, or 14%, from the prior corresponding period. This increase was primarily associated with an increase in machine units sold of 2,270, the majority of which were replacement machine units in the U.S. and Canada and a 5% higher global average selling price than those sold in the prior corresponding period.
Gaming other increased $12 million, or 6%, from the prior corresponding period, principally related to a $40 million increase in poker software licenses and system sales, partially offset by a $29 million decrease in intellectual property licenses associated with patents tied to remote game server solutions and game features.
Operating Margins
| For the year ended December 31, | Change | |||||||||||||||||||||||||
| ($ in millions) | 2023 | 2022 | $ / bps | % | ||||||||||||||||||||||
| Gross margin | ||||||||||||||||||||||||||
| Service | 427 | 411 | 16 | 4 | ||||||||||||||||||||||
| % of service revenue | 56 | % | 58 | % | (200) | bps | ||||||||||||||||||||
| Product | 336 | |||||||||||||||||||||||||