International Game Technology PLC 2020

Introduction to IGT PLC

International Game Technology PLC (IGT PLC) is a multi-national company that manufacturers slot machines. As a primary and world-leading gaming manufacturer, IGT PLC also provides gaming technology for casino operators, the lottery, sports betting, online gaming, and more.

IGT PLC filed their annual 20-F financial report with the SEC on March 3, 2020. Because of the legal requirements for SEC reports to be honest and easy-to-read, reviewing their report annually allows us a glimpse into the future of slot machine gambling in the U.S. and abroad.

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Most people who read these reports are financial investors, not slots players looking for advantage plays which is the intent of this post. If you plan to invest in IGT PLC, naturally you’ll want to perform your review of their annual and quarterly reports.

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Overall Risk Factors

Form 20-F annual financial reports filed with the SEC begin with describing risk factors for the industry segments where IGT PLC does business. Included in this section are forward-looking statements by company officers, both required to be honest assessments. These statements are not meant to be a profit forecast.

Because IGT is an international company with its headquarters not based in the U.S., this annual report is a Form 20-F rather than the more usual Form 10-K for U.S.-based companies.

These are the best thoughts of gaming experts regarding their overall corporate position within the gaming industry. As International Game Technology PLC is a world-leader alongside Scientific Gaming Corporation, we’ll learn the state of the gaming industry wherever IGT PLC does business.

Risk factors are known issues which are having a negative impact on IGT PLC. Factors include possible future risks and uncertainties in the portions of the world’s gaming industry where IGT PLC does business. Even consolidated into general topics, there are 37 risk areas, far too many to fully mention here.

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Forward-Looking Statements are how IGT PLC lays out its expectations, plans, and strategies for the future. These company plans are dependent upon risks and uncertainties in the world’s gaming industry. I’ll focus on ten areas in which a slot enthusiast might be interested.

My selected Top 10 risk areas include:

1. Less overall leisure time and discretionary spending by players creates other forms of entertainment as competition
2. Consolidation among gaming equipment and technology companies allowing them to better compete through increased scale and efficiency
3. Entry of new competitors into the internet gaming market due to low costs of entry
4. Reduced demand and level of play due to changes in social mores
5. Inability to develop and manage frequent introductions of innovative products and respond to technological changes in the gaming industry
6. Consolidation among casino operators with capital spending cutbacks
7. Being unable to protect intellectual property may harm its ability to compete
8. Lower revenues due to a slowdown in the lottery and gaming markets
9. Hazards within supply chain, cybersecurity, and failures of business technology
10. Brexit has created uncertainty which could impact the company

For you and I as slots enthusiasts, what does all this mean? It means that being a slot machine manufacturer is a risky business. And, while IGT PLC is working hard to keep us entertained, in some ways it’s possible they might fail.

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These risk factors may turn into reality at a gaming jurisdiction where you play slots. If so, you may be disappointed. But perhaps you won’t be as disappointed if you know these risks exist.

Further, some of these risk factors apply to the entire gaming industry. If they occur, they’ll most likely affect all slot machine manufacturers. In turn, such risks to these companies are also risks to our general entertainment with playing slots. I suggest we wish IGT PLC and its competitors well.

Filing of this annual financial report was during the first week of March 2020. Therefore, it briefly references COVID-19 prior to its identification as a global pandemic.

However, it clearly identifies the coronavirus as a significant risk with its associated temporary workforce reduction, self-isolation, quarantine-impacted employees, and more.

Overview

International Game Technology PLC has its headquarters in London with facilities in Providence, Las Vegas, and Rome. IGT’s ~12,000 employees at the end of 2019 remains roughly the same number since 2016.

IGT PLC began in 2014, although it was initially the shell company Georgia Worldwide Limited for its first seven months of existence. The parent company name change occurred after purchasing the original International Game Technology from GTECH. No public takeovers had occurred before 2019.

From their balance sheet, International Game Technology PLC has total assets of just over $13.6 billion and total equity of $2.48 billion attributable to IGT PLC. Total revenue in 2019 was $4.79 billion.

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Since the end of 2018, total assets, revenue, and total equity have roughly remained unchanged. This is an improvement over IGT PLC’s financial performance of the last two years.

International Game Technology PLC has five categories of products and services:

1. Lottery
2. Machine Gaming
3. Sports Betting
4. Digital
5. Commercial Services

Lottery

IGT PLC has more than 100 lottery systems customers worldwide, including with 37 of the 46 U.S. lotteries. The company supports over 450,000 point-of-sale lottery devices worldwide and provide secure processing systems capable of up to 500,000 transactions per minute.

Most of the company’s revenue comes from licenses and management contracts. These contracts include designing, installing, and operating the lottery system and retail terminal network for five to ten years. Contract extension options are one to five years.

Many contracts include providing additional services for instant lottery ticket games such as marketing, automated validation, inventory, and accounting. In return, IGT PLC gets either a fixed fee or a percentage of sales of all instant ticket games.

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IGT PLC also gains revenue from lottery management agreements based on lottery game performance metrics as well as a percentage of ticket sales. Deals include lottery systems and day-to-day activities along the lottery supply chain.

Product sales and services contracts include constructing, selling, delivering, and installing lottery systems and equipment, along with related services and software.

In these contracts, the lottery authority is responsible for lottery operations. IGT PLC also provides equipment and services contracts to expand existing lottery systems. Case-by-case negotiations determine the revenue from sales and services.

Machine Gaming

International Game Technology PLC’s machine gaming business includes slot machine design, development, manufacturing, and distribution. Revenue for machines includes fixed fee, participation, and product sales contracts.

Machine gaming includes slots cabinets and electronic systems such as the operating software with a game theme. IGT PLC’s primary competitors for machine gaming include:

• Aristocrat
• Konami
• Novomatic Group of Companies
• Scientific Games Corporation

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International Game Technology PLC offers machine gaming products and services, which include:

• Gaming machines and game content
• Video lottery terminals (VLTs) and amusement with prize machines (AWPs)
• Gaming management systems

IGT PLC designs gaming products for player appeal and entertainment.

Game themes are either premium games or core games. Premium games are two types of progressive slot machines: wide-area (across multiple casinos or gaming jurisdictions) and multi-level (across a casino’s gaming floor). IGT PLC holds more than 450 global gaming licenses.

Core games are non-progressive machines. These machines have video or mechanical reels as well as video poker machines. Core machines are occasionally leased, but often sold.

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Other types of games include:

• Centrally-determined games
• Class II games
• Random number generated and live dealer electronic table games

Centrally-determined games are games connected to a central server that determines the game outcome. Class II games are electronic video bingo games found in tribal casinos as well as South Africa. Electronic table games include baccarat and roulette.

IGT PLC’s machine gaming revenue primarily comes from progressive game content and cabinets. Services fees include percent wagered, net win, or fixed daily fee.

Casino management systems offered from IGT PLC are comprehensive, offering infrastructure systems and applications for all areas of the casino including:

• Casino management
• Customer relationship management
• Patron management
• Server-based gaming

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These casino operating systems included customized applications for:

• Player messaging
• Tournament management
• Integrated marketing and business intelligence modules

The modules include analytical, predictive, and management tools for maximizing casino operational effectiveness. The server-based applications include electronic game delivery and configuration of slot machines.

Sports Betting

International Game Technology PLC’s sports betting category services Italy but also in eleven U.S. states where sports betting is legal. They offer Software as a Service (SAAS) and turnkey managed service solutions.
IGT PLC’s sports betting customers include

• FanDuel (Flutter plc)
• PointsBet
• FoxBet (Stars Group)
• Delaware North
• The Rhode Island Lottery

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The company’s primary sports betting services competitors in Italy include:

• BET365
• Betfair/PaddyPower
• Eurobet
• Sisal
• SNAITECH
• William Hill

Digital

The digital category of products and services from International Game Technology PLC is iGaming, which enables gameplay via the internet for real money (interactive gaming) or for fun (social gaming).

IGT PLC designs, manufactures, and distributes products, systems, and services for interactive gaming. They have 20 digital gaming licenses worldwide, with a minimal presence in the U.S.

Social gaming solutions are in partnership with DoubleU Games. Being social gaming, players spend in-game money virtually but cannot win it. By many interpretations of gaming, social gaming is not gambling and, therefore, not illegal.

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IGT PLC is a mostly business-to-business provider of their digital products and services. Italy is the exception, where the company acts as both an internet gaming operator as well as a mobile casino operator.

The competitors to digital products and services are from other operators, including 888 Holdings, bwin.party, Playtech PLC, and Microgaming. Competitors in the digital space from other gaming industry suppliers include Scientific Games Corporation.

Commercial Services

Because of their in-depth knowledge of lottery technologies, International Game Technology PLC offers innovative commercial services for these customers. These products and services leverage their distribution and secure transaction networks.

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With this infrastructure in place, the company offers high-volume processing of commercial transactions including:

• Prepaid cellular telephone recharges
• Bill payments
• E-vouchers and retail-based programs
• Electronic tax payments
• Stamp duty services
• Prepaid card recharges
• Money transfers

These business services are primarily outside of the U.S. and Canada. In Italy, tobacco shops, bars, petrol stations, newspaper stands, and motorway restaurants commonly use these commercial retail services.

Summary of IGT PLC

International Game Technology PLC is a world leader in the gaming industry, including slot machine manufacturing of physical cabinets and game themes.

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By reviewing IGT PLC’s latest annual financial report, we learned of potential company risks such as our current global pandemic from their forward-looking statements.

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