Brightstar Lottery PLC annual report, Q4 FY2023

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Brightstar Lottery PLC — 2023 Form 20-F Summary

Filing identity and period: The supplied filing is the annual report of International Game Technology PLC (IGT), not a filing under the name Brightstar Lottery PLC. It covers the fiscal year ended December 31, 2023, with comparisons to fiscal 2022 and 2021; it does not provide standalone fourth-quarter 2023 results. Financial statements are in U.S. GAAP and U.S. dollars.

Business context

IGT operated three segments: Global Lottery, Global Gaming, and PlayDigital, spanning lottery systems and services, gaming machines and systems, iGaming, and sports betting. It reported 11,016 employees at year-end. The report describes the company as operating across regulated markets worldwide, with significant lottery contract and license exposure, including Italy and U.S. jurisdictions.

Financial performance and liquidity

  • Revenue: $4.310 billion, up 2% from $4.225 billion. Service revenue was $3.347 billion, down $12 million; product sales were $963 million, up 11%. Excluding the sold Italian Commercial Services business, revenue increased 7%, according to management.
  • Segment revenue and operating income: Global Lottery revenue was $2.530 billion and operating income $913 million; Global Gaming revenue was $1.552 billion and operating income $313 million; PlayDigital revenue was $228 million and operating income $65 million. Segment revenue changes were affected by the Italian business sale; Global Gaming and PlayDigital grew.
  • Profit: Operating income rose to $1.001 billion from $922 million. Income from continuing operations was $307 million versus $414 million; net income attributable to IGT PLC was $156 million versus $275 million. Diluted EPS from continuing operations was $0.77 versus $1.35. The effective tax rate rose to 51.2% from 29.7%.
  • Margins: Global Lottery operating margin was 36%, up 100 basis points; Global Gaming was 20%, up 320 basis points; PlayDigital was 29%, up 490 basis points. Consolidated operating margin was approximately 23% based on reported operating income and revenue.
  • Cash flow and investment: Operating cash flow from continuing operations was $1.040 billion, up from $899 million. Capital expenditures were $399 million versus $317 million. Investing activities used $393 million, compared with $42 million provided in 2022, when the company received proceeds from the Italian business sale. Financing activities used $638 million, including $801 million of debt principal payments and $160 million of shareholder dividends.
  • Debt and liquidity: Year-end debt was $5.671 billion, net of issuance costs, compared with $5.750 billion in 2022. Cash and cash equivalents were $572 million. Reported available liquidity was $1.805 billion, including $1.234 billion of revolving-credit availability. Long-term debt principal payments totalled $5.699 billion, with no principal due in 2024 and $721 million due in 2025. The company reported covenant compliance.
  • Balance sheet: Total assets were $10.465 billion, total liabilities $8.513 billion, and shareholders’ equity $1.952 billion. Goodwill was $4.507 billion. Management reported no goodwill impairment in 2023.

Material changes versus 2022

  • Global Gaming revenue increased to $1.552 billion from $1.423 billion, supported by higher machine sales and a 9% increase in installed-base units. Global Gaming operating income increased $71 million.
  • PlayDigital revenue increased to $228 million from $209 million, including a $15 million contribution from the 2022 iSoftBet acquisition; operating income increased to $65 million from $50 million.
  • Global Lottery revenue decreased to $2.530 billion from $2.593 billion, mainly reflecting the 2022 sale of Italian Commercial Services, which contributed $197 million of prior-year revenue, and $32 million of unfavorable foreign exchange effects. Lottery operating income increased slightly to $913 million.
  • Foreign-exchange loss increased to $75 million from $36 million, including a $34 million loss related to the Argentine peso devaluation. Income tax expense increased to $322 million from $175 million, citing valuation allowances, U.S. tax provisions, and settlement of the 2015–2022 Italy tax audit.
  • IGT paid the $270 million settlement amount in the Benson matter in June 2023; the related $270 million expense had been recorded in 2022. The 2023 operating results also included $24 million of separation and divestiture costs.

Outlook, transaction, risks, and unusual items

  • Liquidity outlook: Management said operating cash generation, available funds, and committed borrowing capacity were expected to be sufficient for ordinary-course obligations for the next 12 months and the longer term. The filing does not provide specific 2024 revenue or earnings guidance.
  • Proposed separation and combination: On February 28, 2024, after year-end, IGT agreed to spin off Global Gaming and PlayDigital to shareholders and combine them with Everi. IGT expected to receive approximately $2.6 billion in cash, with approximately $2 billion allocated to debt repayment. The transaction was expected to close in late 2024 or early 2025, subject to shareholder, regulatory, and other conditions. The filing describes the transaction as taxable and identifies potential delay, termination, costs, tax exposure, and post-transaction concentration in lottery as risks. Termination fees of $80 million may apply in specified circumstances.
  • Customer and contract concentration: Italian Lotto and Scratch & Win each generated approximately 10% of 2023 consolidated revenue. One Global Lottery customer represented approximately 20% of revenue. The report also identifies the risk of contract loss, non-renewal, or altered terms; Camelot UK Lotteries, approximately 1% of 2023 revenue, was expected to be lost in 2024.
  • Contingencies and operating risks: The filing reports $14 million of provisions for legal proceedings. Texas Fun 5’s litigation remained pending, with a tentative settlement for a significant portion of plaintiffs subject to conditions. Outstanding performance bonds and letters of credit were approximately $1.0 billion in aggregate; claims could create material costs. Other identified risks include extensive gaming regulation, cybersecurity and technology disruptions, supply costs, competition, foreign exchange, interest rates, and tax-law changes.
  • Audit and controls: PwC issued unqualified opinions on the financial statements and internal control over financial reporting. Revenue recognition—identifying contractual terms and performance obligations—was identified as a critical audit matter. Management reported disclosure controls and internal control over financial reporting were effective at year-end.

Most important facts for investors to verify

  • Confirm the issuer and security being analyzed: this filing is for International Game Technology PLC (ticker IGT), and its planned post-transaction name and ticker were to change.
  • Review the audited statements and notes for debt maturities, covenant limits, cash availability, and the distinction between reported liquidity and cash.
  • Track the Everi transaction’s approvals, closing timetable, final cash proceeds, debt reduction, transaction costs, and tax consequences.
  • Assess ongoing dependence on Italian licenses and major lottery customers, including the expected Camelot contract loss and contract renewal calendar.
  • Evaluate the drivers of lower attributable earnings, particularly the higher tax provision and foreign-exchange losses, and distinguish recurring performance from the 2022 disposal gain and Benson provision.