Everi - Q4 2023 & Merger

Executive Summary

• Q4 2023 revenue was $192.0M, down 6.5% year over year and down 7.0% sequentially; diluted EPS was $0.02 including an $11.7M intangible impairment; Adjusted EPS was $0.30; Adjusted EBITDA was $82.2M; Free Cash Flow was $19.8M.
• FinTech outperformed with revenue up 3% YoY to $94.9M and Adjusted EBITDA up to $38.5M, supported by 6% growth in financial access and 25% growth in software and other; Games revenue fell to $97.1M with an operating loss of $7.4M on lower unit sales and DWPU, and the impairment charge tied to Intuicode customer relationships.
• 2024 outlook: revenue growth expected in both segments; Adjusted EBITDA up slightly vs 2023; Free Cash Flow “flat to slightly down”; operating expenses targeted at 28–29% of revenue; R&D at 8–8.5%; capex flat to slightly up from $145M.
• Catalyst: announced strategic merger with IGT’s Global Gaming and PlayDigital to create a combined ~$2.6B revenue platform with ~$1B 2024 pro forma Adjusted EBITDA and identified $75M cost synergies; EVRI will rebrand as International Game Technology Inc. (ticker to transition to IGT) after close (late 2024/early 2025).

What Went Well and What Went Wrong

What Went Well

• FinTech growth and mix improvement: revenues +3% YoY to $94.9M, with software and other +25% and financial access +6%; FinTech operating income +9% to $28.9M; Adjusted EBITDA +5% to $38.5M.
• Cashless and funding momentum: total value processed rose 10% to $11.85B and transactions +12%; cashless transactions grew 50% YoY, albeit <5% of total funding transactions.
• Product pipeline progressing: new for-sale Dynasty Sol launched in Q4 and Dynasty Vue ramping; early performance of premium Dynasty Dynamic and Player Classic Reserve was positive, with 360 units deployed by year end.
  • CEO tone: “2023 was a transitional year in our gaming business… Our FinTech business continues to perform well”.

What Went Wrong

• Games segment weakness: total Games revenue fell to $97.1M (from $113.2M), with gaming equipment and systems down to $24.5M (from $39.8M); operating loss was $7.4M (vs $25.2M operating income LY); DWPU decreased to $34.67 (from $37.76); units sold declined to 1,043 (from 1,944).
• Impairment and elevated expenses: recorded $11.7M non-cash impairment tied to Intuicode customer relationship assets due to contract term changes; higher operating expenses from Video King acquisition, wages/benefits, and facility consolidation; Free Cash Flow down to $19.8M (from $44.2M).
• Installed base and margin pressure: installed base declined to 17,512 (from 17,975) as older underperforming units were removed; Adjusted EBITDA decreased to $82.2M (from $93.4M) on lower revenue and higher R&D/operating costs.

Transcript

Speaker 0

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the joint IGT and Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

I would now like to turn the conference over to Jim Hurley, SVP, Investor Relations at IGT. Please go ahead.

Speaker 1

Thank you, Regina, and thank

Speaker 2

you all for joining us for the joint call between IGT and Every Holdings. Today's call is hosted by Vince Sadowsky, IGT's Chief Executive Officer and Randy Taylor, President and CEO of Every Holdings. After some prepared remarks, Vince, Randy and other team members will be available for your questions. During today's call and in relation to the announced transaction, we would be making some forward looking statements within the meaning of the federal securities laws. Forward looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward looking statements.

The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in the latest IGT and every SEC filings. During this call, we will discuss certain non GAAP financial measures. You'll find additional disclosures regarding these non GAAP measures in IGT and Evertz's respective filings with the SEC, which are posted on our respective Investor Relations websites. And now, I'll turn the call over to Vince Sadowski.

Speaker 3

Thank you, Jim. We're excited to have you all join us this morning. By now, you've seen the news that IGT intends to spin off its global gaming and play digital businesses and merge them with Everest's existing operations. The combination of 2 robust gaming platforms with complementary capabilities and geographic footprints creates a comprehensive global gaming and fintech enterprise that is stronger and more valuable together. Joining me here today from IGT are Matt Schiada, our Chief Financial Officer Fabio Celadon, Executive Vice President of Strategy and Corporate Development.

From every, we have Randy Taylor, President and CEO and Mark Labay, Chief Financial Officer. Well, last summer, IGT's Board of Directors began an evaluation of potential strategic alternatives for our global gaming and Play Digital businesses. The goal was to unlock the full value of IGT's portfolio of market leading assets. The transaction announced today is a key milestone in that process. The separation of lottery from Global Gaming and Play Digital and the merging of Global Gaming and Play Digital with EVRI create 2 best in class global pure play companies.

IGT shareholders will retain 100% ownership of a global lottery pure play while participating in the upside from a faster growing gaming, digital and fintech business. We believe the creation of 2 more focused companies, each with top notch teams and simplified business models, better positions each company to service its customers and create significant value for stakeholders. It allows for more focused operating and capital allocation strategies, capital structures that are optimized for different business models and increased flexibility to pursue organic and inorganic growth strategies. It also provides the opportunity for investors to better appreciate the intrinsic value of each standalone business. I'll let Randy expand a bit on the transaction itself.

Speaker 4

Thank you, Vince. I'm excited to join Vince on this call this morning and provide more information about the planned merger of Evert and IGT's Global Gaming and Play Digital businesses. Transactions announced today include the separation of IGT's lottery business from the gaming, digital and sports betting businesses, which will be spun out into a new company and merged into Every Holdings. Once the transaction closes, Ery Holdings will rebrand and rename the company International Game Technology Inc. EVRI will continue to trade on the New York Stock Exchange, but transition to a new ticker IGT.

Under the terms of the expected merger, current IGT shareholders will receive 103,400,000 shares of EVRI and the remaining Lottery business will receive an approximate $2,600,000,000 cash distribution in the new and refinanced debt of the merged company. Post closing of this proposed merger, current IGT shareholders will hold approximately 54 percent of the total shares outstanding and current heavy shareholders will hold approximately 46%. This transaction has an implied enterprise value of approximately $1,000,000,000 for the merged company. We expect estimated P and L annualized run rate synergies of $75,000,000 and an additional $10,000,000 of CapEx savings that combined company can achieve by the end of the 3rd year post closing. As part of this expected merger, the combined company plans to raise $3,700,000,000 in debt to pay off existing every debt and to pay an estimated 2.6 $1,000,000,000 to the remaining IGT Global Lottery business.

Pro form a net leverage at closing for the merged company is expected to be moderate at a range of 3.2x to 3.4x pro form a expected 20 24 adjusted EBITDA. The IGT Global Lottery business will receive an estimated $2,200,000,000 in net distribution and will use these proceeds to repay debt and for general corporate purposes. Vince will now provide an overview of leadership and governance and key approvals and conditions necessary for completion of the transaction.

Speaker 3

In terms of leadership and governance, after closing, Mike Rumbolz will become Chairman of the combined business and Randy will remain on the Board of Directors. I will become the company's CEO, Praveen Ocalidane will be CFO, Mark Labay will assume the role of Chief Integration Officer. We will be supported by an incredibly talented team across both organizations. At IGT Plc, both Marco Sala and Max Quiada will continue in their existing roles as Executive Chair and Chief Financial Officer respectively. Renato Escali will serve as CEO of the Global Lottery business and I will continue to lead IGT Plc as CEO until the closing of the transaction.

In the meantime, IGT Plc's Board will conduct a search for its next CEO. All voting members of the IGT Plc and every Board have unanimously approved the transaction, which is subject to regulatory approvals and approvals by both IGT and Avery shareholders. D'Agostini has agreed to vote in favor which is expected to close in late 2024 or early 2025. Now let's focus on the exciting elements of this transformational merger. The combination creates a comprehensive B2B product portfolio that is a one stop shop for customers land based gaming, iGaming, sports betting and FinTech needs.

The business has an attractive recurring revenue model with recurring revenue streams from gaming operations, iGaming and Fintech solutions representing over 60% of pro form a revenue. The growth outlook for the combined entity is compelling. We expect revenue to grow at a mid single digit compound annual rate through 2026 with adjusted EBITDA increasing at an even stronger high single digit rate. That's through the mix of organic top line growth for the existing businesses enhanced by significant synergies. We expect to manage the business with a strong balance sheet and conservative leverage profile.

Improved cash flow should allow for investments in both organic and inorganic growth, significant debt repayment and share buybacks. We have an amazing group of employees at both companies today, so the company will have a best in class team with longstanding industry knowledge, relationships and a proven track record in B2B Gaming and FinTech.

Speaker 4

Combination of IGT's Global Gaming and PlayDigital with Fabry's games and FinTech businesses will increase the scope of our capabilities, creating a combined entity with a more diverse portfolio of products and services with strong recurring revenues. This slide provides a snapshot of the 2023. By combining the 2 companies together, revenues would have been $2,600,000,000 the pro form a install base would be approximately 70,000 units with approximately 35% of these units being higher performing premium units and game sales of over 41,000 game units. The combination of the two businesses is expected to provide a more diverse and balanced revenue base globally with gaming operations contributing approximately 41%, gaming sales approximately 35%, FinTech approximately 14% and digital approximately 10% of revenues.

Speaker 3

Complimentary capabilities create an integrated omnichannel one stop shop addressing all aspects of the gaming ecosystem. There is significant opportunity to leverage our respective customer relationships to cross sell the portfolio and support that with a superior customer service proposition. Together, we have the ability to generate touch points across the entire player journey, whether that's on the casino floor or on the go in a digital format. The combined studio network ensures significant ongoing R and D capabilities to develop top content across categories. With over 25 dedicated studios around the world, the combined company is positioned to enhance game development capacity.

That will support continued investment in the momentum of our most popular land based digital franchises such as Wheel of Fortune, Cleopatra and Cash Machine, in addition to unique offerings like omni channel jackpot games. We will also be able to allocate a larger R and D budget to support key strategic initiatives, like the development of premium and multi level progressive games while maintaining our popular Class II and stepper offerings.

Speaker 4

I want to spend a few moments providing a brief overview of Evertz's FinTech Solutions business. Evertz provides a comprehensive suite of financial access, to regtech player loyalty and mobile solutions to casino operators that improve efficiencies for our customers operations and amplifies the experience for their patrons. In 2023, we processed nearly 147,000,000 financial access transactions driving close to 47,000,000,000 to casino floors. Our financial access products include standalone and self-service kiosks that allow patrons to access cash as well as cashless solutions where patrons can fund a digital wallet directly or purchase Tito Tickets. Our loyalty products enable patrons to directly enroll in the casino's Players Club or manage their existing Players Club account directly through self-service kiosks that we sell and service for our customers.

Additionally, casino operators can utilize our loyalty platform to create and manage promotions to increase engagement with

Speaker 5

their patrons.

Speaker 4

Our RegTech products include software solutions that enable casino operators to manage their regulatory compliance requirements required for anti money laundering programs as well as certain tax compliance requirements. One of the more exciting opportunities of the combination is the potential to integrate every FinTech business with IGT systems. By combining FinTech with IGT Systems business, which includes casino operating systems, cash management systems, gas solutions and other proprietary technology, we can seamlessly connect the patron with our casino customers, reducing friction and creating a better patron experience. We believe our combined products and services will provide superior customer support. One example of this is with our digital wallet where today the every wallet connects to a game either by connecting directly to a casino operating system or through a 3rd party connection.

Our complementary combined offerings should create a best in class wallet solution for casino operators and improve the patron experience, which will ultimately increase the adoption of cashless wallet solutions. We plan to improve the operability of features and functions and drive more innovation that broadens the ecosystem of product and service offerings for customers and their patrons. Additionally, there's an opportunity to leverage global reach to more rapidly expand every FinTech products and services into new international markets.

Speaker 3

One of the more compelling aspects of bringing these companies together is the significant synergies that enhance the revenue and profit growth potential of the business. Pro form a 2024 revenue is projected at $2,700,000,000 and we expect to deliver mid single digit compound annual growth rate through 2026. That's before any revenue synergies such as distributing every game content into IGT's existing VLT, international and digital networks and its FinTech solutions in international and distributed gaming markets. Similarly, there is opportunity to expand IGT's content into every class 2 network. And we believe our best in class digital and cashless solutions will provide the most compelling product offer for existing and new casino customers.

The profit outlook is equally compelling. Pro form a adjusted EBITDA is projected for each approximately $1,000,000,000 in 2024. We expect it to grow at a high single digit compound annual rate through 2026, including $75,000,000 of identified cost savings in 3 main areas. The biggest opportunity is with supply chain and input cost optimization that comes with greater purchase volumes. Other areas include streamlined operations and the consolidation of the existing real estate footprint.

P and L improvement in addition to CapEx efficiencies with the installed base are expected to drive higher conversion of adjusted EBITDA to cash flow from the pro form a mid-50s level to approximately 70% over the next 3 to 5 years. This should generate over $800,000,000 in pro form a adjusted cash flow in 2026. The modest leverage profile and high cash flow generation allows for a balanced capital allocation strategy that includes investment in both organic and inorganic growth, significant debt repayment and share buybacks. The conclusion of the strategic evaluation and transaction is clearly the news of the day, but I'd like to spend a few minutes on the post transaction profile of IGT's remaining global lottery business. Upon the successful completion of the transaction, IGT's remaining operations will be comprised of its current global lottery business and corporate support functions.

That establishes the company as a premier pure play lottery business with a diversified contract mix, broad global reach and leading positions in important markets. The lottery business will have an attractive financial profile, including an enhanced capital structure with low pro form a net debt leverage of approximately 2.5 times, shortly following the closing of the transaction. We will have more time to expand on our lottery business when IGT reports earnings on March 12.

Speaker 4

As noted earlier, the transaction needs to clear regulatory approvals and shareholder votes. We currently expect it to close in the late 2024 or early 2025. Before we open the call to your questions, there are clearly many compelling benefits to bringing these businesses together. We strongly believe it has the potential to create the most long term value for both IGT and Evertz shareholders through the organic growth outlook, synergies and the potential rerating of the business due to the increased scale and diversification the combination offers. Now, we'll open the call for your questions.

Speaker 0

Our first question will come from the line of Barry Jonas with Truist Securities. Please go ahead.

Speaker 1

Hey, guys. Good morning and congrats on this transformative announcement. I wanted to start and see if maybe you could give some background on how the deal came together and why you both think this was the best move for each company? Thanks.

Speaker 3

Yes. I'll start off from the IGT perspective. As you know, we've had 2 years now really record results for the company and yet we continue to trade at an inferior multiple by any measure, cash return, yield, shorthand multiple, etcetera, to both our lottery peers and our gaming peers. And so it made it even clearer that we really needed to do something strategically. We've been talking about this for quite some time as a board.

We're really methodical about it. We made the announcement all the way back in the beginning of the summer. And we feel like we really left no stone unturned in terms of the conversation we've had with counterparties and thinking about all the various alternatives along with our advisors that is how to best generate real value for our shareholders going forward. It was pretty clear the separation of the businesses for all the reasons I mentioned here and we've chatted about in the past was really key to unlocking value and having these 2 company these 2 separate businesses within the same company be disaggregated and go along their own pathway from the opportunity to generate incremental focus in each individual business as well as capital policies. This journey led us to the conviction that our gaming business has significant growth opportunity going forward.

And it would take a significant offer in a sales scenario to convince us, the board and management that we should realize a game and be done with this business. The combination the separation is really enhanced by combining with another entity. And when we had our conversations with Randy and Mike and the every team, it became really clear to us that this is absolutely the best alternative. We don't feel like there's a lot of any leakage in terms of negative synergies or divestitures that are necessary. We are in amazingly complementary product lines, given their strength in FinTech.

We're not in FinTech. We're in systems. We're both pursuing cashless, but with different industry leading competencies. They're strengthening in class 2. Are as really as of late in the last couple of years in the MLP premium space and historical strength in the WAP space.

Our international footprint, every is good game titles being desirous of expanding into international market, but it's an expensive endeavor to undertake without having significant scale. I can go on and on and on, but it really we really ultimately decided this was the best alternative. So separation made a lot of sense and separating with a great partner like every with these complementary strengths really, really was the best alternative and not even close to anything else that we had pursued or worked on.

Speaker 4

Look, I don't think there's a lot to add there, Barry. I think Vince covered all the things that I would have covered. I just think that the management teams have worked very well together and trying to understand how complementary we are with each other. I think Vince hit on the areas we talked about. FinTech, we think can really enhance the systems business.

We think it will actually allow us to get outside of the U. S. Faster. Clearly, for us to get global, that was going to be a big endeavor and that's a big cost. So we look at this as just a great opportunity for our shareholders to see how this combined company can really improve the overall shareholder value.

So it's been a great process.

Speaker 1

Great. And then just as a follow-up,

Speaker 5

Vince, you

Speaker 1

talked about taking minimum negative synergies. I think historically in this space negative synergies have been somewhat a factor in M and A. So maybe just honing in a little bit more on that. And I guess specifically you've been working on separating lottery and gaming for a while. Is there any negative aspects there and other ways to manage that from a relationship or contractual perspective?

Thank you.

Speaker 3

Yes. No, I would agree with you. We look back in the industry and you've had equipment supplier, acquire equipment supplier and kind of 1 or 2 entities in particular historically were aggressive in that area. And I think if you look back on it, you find that there was pretty aggressive cost cutting and ultimately a lot of the historical titles. Once they became older, there was a reduction in the overall R and D and a streamlining of the hardware.

So you pass forward and you look back and ultimately the combination didn't yield that classic kind of marketing thing 1 plus money equals 3. In this particular case, when you look at where the significant revenue streams lie for each one of these companies, they're very different. In fact, where we overlap in areas like mechanical stepper and in class 3 games, It's very, very small. It's a very small percentage of the overall business. And even in those particular categories, we expand our IP library significantly.

And I think over time, the opportunity to streamline hardware for sure is something that will drive a lot of the benefit. But clearly increasing that IP library and also having this very significant network of international studios, I think positions the company really well for continuing its growth journey and being very competitive in this space. And ultimately, that's what it's all about. I think it's all about the opportunity to continue to develop world class leading games. And the way you increase your chances is to have this very strong studio network as well as really terrific great IP library.

There's a lot of learnings that have got into the investment in R and D over the years to develop successful games and also determine what's not successful, as well as this international footprint capability. That international growth opportunity is something that IGT has, I think, a very bright future going forward. We've competed very, very well in North America in the last several years. And I think the international space is one where we deserve a much greater share. And I think the combination makes us stronger to be able to really exploit those titles that have been created in North America for February into adjacent markets.

So I think that's pretty neat. And then also, not enough time to

Speaker 4

get into it today, but

Speaker 3

the combination of systems and FinTech that Randy touched upon as well as the future of cashless. There's really no complete cashless solution out there. Everyone is kind of delivering a half load. We feel very strongly about our IP. Every is very strong with their IP.

I think that combination coupled with the FinTech infrastructure that they've built, which is unprecedented in North America, is really exciting about to offer clearly the best in class product. And then also when you look at the portfolio of offering, I think as businesses and industries evolve, the larger players want to deal with other large players. It's just more efficient and there's pricing efficiencies, there's combination, there's creative combinations that can be offered in terms of commercialization. And I think having this portfolio that covers really A to Z in a casino and I think that one slide that kind of shows all the different customer touch points. This makes us more valuable, especially to the larger casino customers around the world.

Speaker 1

Great. Thank you so much and congratulations. Thank you.

Speaker 4

Thanks, Barry.

Speaker 0

Your next question comes from the line of Jeffrey Stanchoe with Stifel. Please go ahead.

Speaker 6

Hey, good morning, everyone. Thanks for taking our question and congrats on the announcement. Starting off, Vince, Randy, in the prepared remarks, you walked through a mid single digit organic growth for 3 year CAGR before any sort of top line synergies between the two companies. Can you just unpack this a bit more? I guess, where do you see the most growth coming from?

And have you baked in any assumptions in that figure on market share gains across any of your kind of core product verticals?

Speaker 3

Yes. Good question. I mean, really the mid single digit growth on the top line is the combination of our individual business plans. So really no assumptions made around the synergy opportunity on the top line. As we get into it, we've done some preliminary work and we really do think there is opportunity, as we mentioned, not only to exploit some of EVRI's titles internationally, but also EVRI is very strong in the Class II environment.

And IGT has not been that strong in Class II despite having a pretty terrific historical IP lottery and game title. So we think there is some real opportunities there as well as the good work that our teams will do together in making our systems business really the best in the world. So I think those that growth profile is based upon what we believe we will achieve and that's a combination of growth in the market as well as I think pretty modest, but continuing to grow share. Yes. I would just say, look, I

Speaker 4

think we both looked at it in a realistic manner and didn't really bake in a lot of revenue synergies. But I think we think there are a lot of opportunities out there. So I think the way we built the model and how we're looking at the growth right now is really moderate and I think there's upside.

Speaker 3

Yes. To me, this is one of these combinations that it's very straightforward, it's simple math. And I think that should give us all confidence that there is great opportunity for cash flow growth because we've really built it based upon the very specific identification of cost synergies and without the promise or need to drive revenue synergies. But we do feel very strongly that we have the opportunity for revenue synergies as well.

Speaker 6

Okay, great. Thanks, Randy. And then for my follow-up, I think you talked about this a little bit in the prepared remarks, Vince, but based on the we'll say lack of overlap here, no required divestitures are expected. But maybe looking at that a little bit differently, I mean, you are going to be posting arguably the most diverse portfolio out there following the merger. With that in mind, do you think there's any assets in this portfolio that you might look to or be willing to monetize for the right price that maybe appear a bit more non core under the pro form a strategy?

Speaker 3

Yes, we don't. We are as you know, IGT has been engaged in divestitures over the years out of its PLC, primarily on the lottery side. But right now, it's got a gaming portfolio that it feels is really complementary from our icasino offering to our sports betting offering, right on down for each one of our product lines. And I would say, yes, Billy, the same thing

Speaker 4

for every FinTech. I just I don't think that we look at any of this, any of our products or services is something that at this point in time we would be looking to do anything with. We know there's regulatory approvals that we have to go through, but we feel pretty confident where we sit right now.

Speaker 3

Yes. This is a competitive industry, so we feel like there's plenty of that position over the next couple of years.

Speaker 6

Very clear. Thank you both and congrats again.

Speaker 3

Thank you. Thanks.

Speaker 0

Your next question comes from the line of Chad Beynon with Macquarie. Please go ahead.

Speaker 7

Hi, good morning all. Thanks for taking my question. Congrats on the announcement. First, just wanted to ask about the leverage. I know that's in the release just in terms of what the pro form a leverage will be.

It's obviously an interesting time with potential rate cuts. How are you thinking about kind of the medium term leverage of this new company, the potential free cash flow, if it could pay a dividend, just kind of how the capital allocation mantra will come out of this deal? Thanks.

Speaker 3

Yes. So I think I'll start it and then, Fabio or Max can kind of add on to this. One of the things that we both agreed on early on was it will be really important to ensure that our leverage profile out of the gate was reasonable. So take kind of a worst case scenario based off of our combined cash flow without any maybe any liberties with synergies. And let's back into what the right capital structure is.

And that really will be important and have the flexibility to continue to invest in the business and to be able to do shareholder friendly things to keep investors excited with our capital policy as well as the operations of the capital from the operations of the business. We have measured what we believe the leverage profile could be at closing And that's simply just based upon the view of our individual businesses operating throughout 2024 until the closing. And then going forward and we've got our financing package in place of course. And going forward, the opportunity to reduce interest as well as reducing our principal, we think has real potential to really further enhance our returns.

Speaker 5

So let me start from a RemainCo perspective, from a PLC this is Max Chiara speaking. From a PLC RemainCo perspective, so we are in the early innings of the separation work. But again, when you think about our net debt at the end of September, €5,300,000,000 you consider the cash that could be made available through the separation and the combination back to the IGT Plc, which is a net €2,200,000,000 figure, you can we expect the resulting net leverage position shortly after closing for RemainCo to be around 2.5 times. You may remember this was our low end of the range in our long term targets. So that would allow us to really hit the box on one of the most important target that we announced back in 2021 when we had our Investor Day.

And again, I

Speaker 3

would like to

Speaker 5

conclude this answer with a consideration about the importance of having a frac for IGT RemainCo. Having a low leverage is maintaining a strong financial position and low leverage profile would provide maximum opportunity to pursue any and all compelling growth opportunities that might materialize in the future. Most importantly, we have some large contracts that are coming up for renewal as well as we recently renewed and extended existing contracts. So we have been talking about our CapEx cycle for some time and that is going to come out. And so having a low leverage at the start of the cycle is a very good thing.

Speaker 7

Thank you for that Max. That was actually going to be my next question. My follow-up, maybe

Speaker 8

just kind

Speaker 7

of thinking about non gaming opportunities, recently, every has expanded with their VenuTize acquisition into, let's call it, non gaming payments businesses. And I think the TAM and the growth opportunity, investors found that to be strong. Are there other maybe non gaming kind of non traditional synergistic opportunities that could come out of this? Or should we expect for the combined company to really focus on the traditional pieces of gaming, land based and digital? Thanks.

Speaker 3

Yes. I think, to be honest, we that's a smaller part of the universe of opportunities that we've looked at just given the time constraints of getting to this combination. And we will get into, of course, our planning activities post closing. So I don't want to make too strong of a statement about our strategic objectives going forward on a combined basis. I'll just say that in the B2B gaming space, we feel as if there can be a handful of industry leaders that are creating great games, that are enjoying really the resurgence in slob play around the world, post COVID, And then also enjoying the expansion of Icasinos that will certainly take place continue to take place throughout the world.

And over the next several years in North America in particular. And there's really only a few players that can honestly offer omni channel jackpot play and we are one of those. So now with more titles and more geographies, it's our goal to lead in this space. And this is something that's becoming, I think, more and more important to operators to have seamless transition between digital and land based gaming. And then the if you can be an expert in the ancillary services that also are very helpful to casino customers, We think that is a significant enhancement.

And in North America, Evertz has certainly done that. And the thing that's really great about every in addition to their long standing leadership position in Fintech is their entrepreneurial perspective. And I think their willingness to reach out into adjacencies, make some small bets and see what the opportunity is there. And I think that's pretty neat and personally I'm interested in exploring that more. But I think the industrial logic of the large cash flow generation capability from this combination is pretty clear in the B2B space.

Speaker 4

And I would say, look, when we looked at Venue Ties, it still is really entertainment based. And so I think it fits well. I think giving the size of the company going forward, look, I think there'll be opportunities to be looked at. But I agree with Vince. I think there's just a lot of opportunity in the current gaming space that we're at.

And I think big size and products like that will just be things that we'll add kind of on the outskirts.

Speaker 3

Thank you, both. Appreciate it. Thanks. Thank you.

Speaker 0

Your next question comes from the line of George Sutton with Craig Hallum Capital. Please go ahead.

Speaker 9

Thank you. I'm very intrigued by the combination of the every digital wallet with what IGT brings to this. I wondered if you could get a little more specific on that patron experience and what you're getting by bringing these together competitively?

Speaker 3

Yes. I think you understand the products and services that both companies offer. So ideally, you have a system that enables the machines to be able to interact with the digital wallet and also a lot of touch points to actually get people to enroll in a digital wallet. And all those things really are present in IGT and Evertie's current capabilities. So when I say, we truly would be the only one software complete solution.

We don't have to install hardware into machines, retrofit them at cost and with 3rd party hardware. We don't need to ask someone else's permission to be able to provide that opportunity. I think both companies have invested a significant amount in R and D and I think we have a lot of credibility in the gaming space, the system space at IGT's front and certainly in the fintech side on average front. So I think bringing these things together will offer not only a compelling offering because again the 2 solutions we're working on are limited by our capabilities, but also in interacting with our very valuable casino customers. I think we both bring a lot of credibility to the table and I think they will definitely want to listen and understand our proposition.

And I think that puts us in an advantageous position versus the competitive set. Yes. I mean,

Speaker 4

I totally agree. And I just think it allows us to accelerate what we're doing today in the cashless area. So it's very exciting from an average standpoint.

Speaker 9

So relative to your expectations for a late 2024, early 2025 close and just the regulatory requirements required. Can you just walk through what some of those key regulatory requirements? Obviously, we're familiar with HSR and FTC, but beyond that from a gaming perspective?

Speaker 4

Yes. Look, I think from a regulatory standpoint, look, there's the global footprint of IDT. So they've clearly got more licenses, But we have a significant amount of licenses in North America. There's overlap in that license area. Look, I think it's one of those things that we're going to work our way through.

But we're both well licensed companies and that should not be something that's overly burdensome. If we know there's anti out there. We'll work through that process. But we feel that the timing that we've laid out late 2024 and early 2025 is very manageable.

Speaker 3

Yes. I would just say on the antitrust front, there's clearly even with this combination, there's competitors who are larger out there. And with regard to naming regulators, one of the things that is very positive is both companies are seasoned, longstanding, very highly compliant, reputable known entities and their public companies. So we think that gives the regulators in any jurisdiction a lot of comfort around this combination. This is not combining with a, let's say, a large digital entity based outside of the U.

S. That's involved in gray markets, black markets, where there's a lot of promises of divestitures that in order to get regulators, especially in North America to get comfortable with the deal. These are 2 known entities that have been incredibly compliant and 2 of the best actors in the industry.

Speaker 0

Our next question will come from the line of David Katz with Jefferies. Please go ahead.

Speaker 9

Hi, good morning, everyone, and congratulations all around. Obvious, this was a lengthy and complex process and a lot of work. I do want to try and step down a layer if we can into the studios, the leadership teams within the various components of gaming, sort of following the people has usually been critically important. Vince, you talked about this just a little bit. But anything you can share about which studios or which people will be running gaming, etcetera, etcetera?

And then I have one quick follow-up.

Speaker 3

Yes, sure. And thanks for recognizing the length and the complexity. Yes, I will say the carve out nature of IGTs needing to go through that digital operation was one of the drivers of what's taking a lot of time and an incredible amount of effort, but obviously all worth it to get us to this point to be able to do this fine strategic transaction. With regard to the studios, that is the whether you're in kind of my old business media, you're in the gaming business, that creative element is of course the key towards your future success. Yes, I would say from the IGT side, we've been at this for a long time attempting to improve our capabilities in each one of these gaming categories, in particular in premium.

And we've had some really good recent success over the last couple of years. And with that, we're continuing to refine our process. Even during kind of the pre COVID era, when IGT was in a difficult position with high leverage. One of the things it did not do when it enacted several cost reduction plans is reduce its amount of investment in R and D recognizing that that was absolutely key towards future growth and game development is a process. It takes a lot of time to develop great games.

And as you start to develop better games, right, you've got you start to recognize the attributes of what's working, etcetera. And success doesn't always repeat in the same studios. So having really good, smart, creative people located in a lot of different geographies has been a key for us to be competitive in all these spaces from premium to the VLTs and certainly in digital. With regard to every being a smaller company, we're really, we think it's really remarkable, the great success that they've had with fewer resources, yet being very competitive in various game categories. As I mentioned, most of these are complementary to where IGT is most competitive.

So in a compounded overall basis, obviously, talking about the people and the product and the development process, all of that is critically important to get right. And we just get very excited about the ability to have a larger R and D budget and have more people involved in the creative process and the learnings that we've individually had to take our best practices and have our teams really have the opportunity to maximize the R and D spend to increase our chances for success.

Speaker 9

Got it. This all looks like it makes a ton of sense. One quick follow-up please if I may. Any light you can shed on what the tax impact to IGT shareholders might be or could be or some tools for us to figure it out or maybe this is just a simple question on capital gains

Speaker 3

It will help.

Speaker 5

Yes, Dave. This is Max. Max here again. So we have added a page to the appendix of the presentation illustrated today that basically highlight from a tax point of view that there is limited tax leakage at the PLC level due to the benefit of participating to the tax exemption regime as a U. K.

Corporation, as a U. K. PLC company. So we are estimating about $100,000,000 of tax leakage, which obviously are deducted from the $2,600,000,000 payment. The reason why one of the reasons why we, at the end of the day, decided to go with a taxable transaction is because that provides the most flexibility for both Remainco and for Maerskom to pursue other strategic alternatives as standalone entities and including of different capital allocation strategies with greater flexibility.

And lastly, this transaction is taxable to IGT shareholders as well. So there is an impact that is approximately 30% of the fair market value of the distribution.

Speaker 9

Thank you very much.

Speaker 0

Our next question will come from the line of Joe Stauff with Susquehanna. Please go ahead.

Speaker 10

Thank you. Good morning. Congrats. Very interesting transaction. I wanted to ask maybe I know that's a little bit earlier, but maybe say the path to completion and kind of the bigger steps and or the mileposts that you'll need to accomplish to be able to close.

So maybe most importantly, say the regulatory process that you have, obviously, there is going to be some angst about just the regulatory environment overall here in the U. S. And if you could maybe put some of the more relevant dates on the calendar as we kind of think about timing to close and so forth?

Speaker 3

Yes, I'm not sure there's much to add on my earlier comment other than the first thing we'll need to do is to do our filings, which we are the teams have already been working on that pre close. So that will start the clock. And then as you know, we'll prepare proxy statements, go to our shareholders, if there's any SEC comments, etcetera, the normal process. I can't really offer up anything more than what I've said earlier regarding our complementary nature, our good standing with regulators and the fact that post closing there will be larger competitors out there. So that's our perspective.

Speaker 10

Okay. Fair enough. I do realize it's a little difficult to comment on, but I appreciate it. And outside of the U. S, are there any doesn't seem to us that there are really any other jurisdictions where investors would look at as, say, a higher hurdle with respect to regulatory clearance.

Is that a fair assessment?

Speaker 3

Yes, ABS. Again, when you think about it, EBRY primarily operates in North America. So the impact internationally is de minimis. ITT continues to be the lion's share or all of the commercial activity in those markets.

Speaker 10

Understood. Thanks very much and congrats.

Speaker 3

Thank you.

Speaker 0

Our final question will come from the line of David Hargreaves with Barclays. Please go ahead.

Speaker 8

Hi. I'm wondering if there are any specific terms of the 5% notes that require those to be redeemed in connection with this transaction or whether they might potentially remain outstanding afterwards? And then would I assume to the extent they need to come out, it would be 102.5 call. Could you please confirm that?

Speaker 5

On the note side, I think I'll

Speaker 3

turn it over to Mark.

Speaker 5

But I

Speaker 4

don't think we have any issues there. But go ahead, Mark.

Speaker 3

Yes. Look, I think if we contemplate this transaction, we're talking about the debt profile of the transaction, refinancing what we have outstanding and a lot of it obviously depends on the timing

Speaker 5

of the close.

Speaker 3

There is no we would if it closes early in late 2024, there is a little bit of a premium on the call, bringing it a little early, but otherwise it should be pretty straightforward transaction for us.

Speaker 8

But you anticipate, Paul, not a change of control offer?

Speaker 4

There will be a change of control in that too. So yes,

Speaker 3

I mean, we do believe that that could be

Speaker 5

a possible outcome. We're looking into it all.

Speaker 8

Okay. And then with respect to the IGT debt pay down, are there any specific bond instruments that you would target there that we should be thinking about?

Speaker 5

Yes. So first, this is Max again. So first of all, we have secured the consent from our banking group to proceed with this transaction. We have committed to reduce by 50% our existing term loan exposure. We have about €800,000,000 or €400,000,000 are allocated are going to be allocated to the term loan.

The rest will be allocated to that instrument as we see fit, as we get closer to the execution of the transaction, keeping in mind the typical boundaries, maturity extension, economic terms and viability of the transaction. So all in all, we think this is a great deleveraging opportunity for IGT Remenco. And also by the way, we have also part of the consent, we have also agreed to reduce our revolver commitment by about 20%, as obviously we are looking forward to a relatively smaller company going forward. So I think we have resized the revolver appropriately to the new RemainCo perimeter. But all in all, we're confident we can move forward with that transaction pretty efficiently as we get closer to the execution date.

Speaker 8

That's helpful. Congrats. This company is going to be relevant for the next next month. So great job.

Speaker 3

Thank you. Thank you. Thanks.

Speaker 0

And that does conclude today's conference call. We thank you all for joining and you may now disconnect your lines.