Brightstar Lottery PLC — filing summary
Issuer and period note: The supplied filing is International Game Technology PLC’s Form 20-F, not a filing under the name Brightstar Lottery PLC. It is an audited annual report for the fiscal year ended December 31, 2019, not a standalone 2019 Q4 report. Figures below are in U.S. dollars unless stated otherwise.
Business context and reporting period
IGT describes itself as a global lottery and gaming technology and services company, operating in North America Gaming and Interactive, North America Lottery, International, and Italy. The report presents full-year 2019 results and compares them primarily with 2018. Financial statements are prepared under U.S. GAAP.
Key financial metrics
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $4.786 billion | $4.831 billion |
| Operating income | $637.1 million | $647.0 million |
| Operating margin | 13.3% | 13.4% |
| Income before income taxes | $284.8 million | $304.0 million |
| Consolidated net income | $111.7 million | $114.6 million |
| Net loss attributable to IGT PLC | $19.0 million | $21.4 million |
| Cash from operating activities | $1.093 billion | $29.6 million |
| Cash and cash equivalents at year-end | $662.9 million | $250.7 million |
| Debt at year-end | $8.066 billion | $8.012 billion |
| Total available liquidity | $2.415 billion | $1.853 billion |
Consolidated net income exceeded the amount attributable to IGT PLC because $130.7 million was attributable to non-controlling interests. The filing does not provide a clear consolidated EBITDA figure in the supplied text. The reported 2019 effective income tax rate was 60.8%.
Material changes versus the prior comparable period
- Revenue declined 0.9%. Service revenue fell 4.6% to $3.861 billion, while product sales increased 17.9% to $925.1 million.
- Operating income decreased 1.5%; the operating margin edged down from 13.4% to 13.3%. Product-sales growth partly offset lower service revenue.
- North America Gaming and Interactive revenue rose to $1.071 billion, with segment operating margin improving to 24.7% from 21.8%, aided by product mix and a gain related to an Oklahoma distributor agreement.
- North America Lottery revenue fell to $1.165 billion; segment operating margin declined to 22.0% from 24.9%. Drivers included lower multi-state jackpot revenue and the end of an Illinois supply contract.
- International revenue increased to $840.2 million, primarily on higher gaming machine sales, but service revenue declined and segment operating margin fell to 15.1% from 17.3%.
- Italy revenue declined to $1.709 billion, including lower machine-gaming revenue, while segment operating margin increased to 30.5% from 29.8%. Foreign-exchange translation affected reported revenue.
- Operating cash flow rose sharply from $29.6 million to $1.093 billion, principally because 2019 had no upfront Italian license-fee payments, compared with $878.1 million of such outflows in 2018. Capital expenditures fell to $442.1 million from $533.1 million.
Debt, liquidity, and other items
Year-end debt was $8.066 billion and cash was $662.9 million. Revolving facilities provided $1.752 billion of available borrowing capacity; together with cash, reported total liquidity was $2.415 billion. The company said it expected available funds and committed borrowing capacity to cover ordinary-course obligations and working capital needs for at least the next 12 months. It reported compliance with debt covenants at year-end.
In 2019, IGT issued €750 million of 3.5% secured Euro notes due 2026 and €500 million of 2.375% secured Euro notes due 2028, using proceeds in part to refinance nearer-term debt and repay revolving borrowings. The company paid $163.5 million in dividends to shareholders and declared $0.80 per share, as in 2018; future dividends remain subject to Board approval.
Management commentary, risks, and unusual items
- A $99.0 million non-cash goodwill impairment was recorded in the International segment, attributed to lower forecast cash flows and a higher discount rate. The filing says it did not affect cash flow, debt-service capacity, covenant compliance, or underlying liquidity. International goodwill remaining was approximately $1.308 billion.
- A $27.7 million gain was recorded on the sale of used equipment as part of a long-term strategic agreement with an Oklahoma distributor. IGT also recorded $33.9 million of gains on investment sales, primarily related to the sale of Yeonama.
- Italy is a significant exposure: licenses awarded by the Italian gaming regulator generated approximately 32% of 2019 consolidated revenue. The filing also identifies concentration among large non-Italy customers and dependence on long-term lottery contracts and renewals.
- Outstanding performance, bid, litigation, and jackpot bonds totaled $770.9 million; letters of credit totaled $402.3 million. The filing warns that claims or drawings could adversely affect results and liquidity.
- Legal and regulatory uncertainties include challenges to an extension of the Italian instant-ticket license, litigation over Texas Fun 5’s lottery tickets, and the U.S. Department of Justice’s appeal concerning interpretation of the Wire Act. The company reported $15.5 million of litigation provisions; some possible losses could not be reasonably estimated.
- Other material risks include Italian gaming-tax and advertising changes, foreign-exchange exposure (particularly the euro), cybersecurity and supply-chain disruption, debt and refinancing requirements, and regulatory, tax, and licensing risks.
- The report discusses coronavirus as a developing risk, noting potential effects on employees, customers, suppliers, demand, and operations, particularly in Italy; the impact was uncertain as of the filing date.
- De Agostini held approximately 50.6% of ordinary shares and 67.2% of voting rights through the loyalty voting structure. This may limit other shareholders’ influence and affect share liquidity.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The auditor identified goodwill impairment assessments and revenue recognition judgments as critical audit matters. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2019.
Most important facts for investors to verify
- Confirm the issuer identity: the source is IGT PLC’s FY2019 Form 20-F, not a Brightstar Lottery PLC filing.
- Review the full-year cash-flow detail and distinguish recurring operating cash generation from the unusually large 2018 Italian license-fee payment comparison.
- Assess debt maturity and refinancing exposure, covenant terms, and the availability of the stated revolving liquidity.
- Track Italian license challenges, regulatory and tax changes, and the revenue dependence on Italian licenses and major customers.
- Monitor the Wire Act litigation, Texas Fun 5 claims, and other legal contingencies, including potential losses beyond recorded provisions.
- Evaluate the assumptions supporting International goodwill valuation and the effect of continuing foreign-exchange and coronavirus risks.
- Consider the controlling shareholder’s voting power and the Board’s future dividend decisions.