Operator: [Operator Instructions] Your next question comes from the line of Era Macias [ph] of Jefferies. Your line is open.
Vincent Sadusky: I think it’s David Katz. So I think we may have just logged in that way.
David Katz: Good morning, everyone. Thanks for taking my question. I wanted to ask first about just lottery volatility and jackpot volatility. I recall a number of years ago, that’s become more of a thing. Can you help us just understand the degree to which lotteries year-to-date have had some one-time, volatility? And then I have a quick follow up.
Massimiliano Chiara: Yeah. So — hi, David. This is Max speaking. So — and I guess in trying to interpolate your questions, is volatility mostly have to do with jackpots in North America, I guess?
David Katz: Yes.
Massimiliano Chiara: Yeah. So we have seen this steady interest in jackpot games for the better part of last year. That is likely attributable to the advertised jackpot that exceeded the $1 billion mark six times in the last 18 months. Obviously, advertised jackpots levels are held by the rising interest rate environment, as the advertised jackpot levels are based on a third-year annuity stream. That doesn’t mean by default that the same level of underlying sales today to advertise a $1 billion jackpot is the same as it did a few years ago when interest rates were lower. So, for example, at comparable jackpot levels above $500 million, both Powerball and Mega Millions underlying sales have decreased over time. In 2022, both games to generate over $600 million in sales for a $1 billion plus jackpot.
Sales are now less than $300 million for similar jackpots. Another way to understand this is with the lump sum payout, today the lump sum payout is less than half of the advertised jackpot and is down from over 60% in 2016 before the significant rise in interest rates. And so the last comment I’d like to make is, obviously IGT is remunerated as a percentage of lottery ticket sales, not the advertised jackpot size. So despite the high volatility in the advertised jackpot, our remuneration is based on the lottery sales, the underlying lottery sales that obviously goes up and down, but with a lower volatility than the advertised jackpot.
David Katz: Very helpful. And if you could just give us a quick comment also on your outlook for slot sales. We obviously are having periodic debates and active debates about slot sales being a bit elevated in North America this year, and what the outlook for next year, could be like, please.
Vincent Sadusky: Yeah. I think, Eilers had estimated this year slot sales overall North America to be up a couple of percentage points. I think they’re currently estimating next year up a little bit less than that. For us, we’ve certainly outpaced that as a result of good games and growing share. And I think that’s really, really key for us. And I think one of the other keys is the increase in the install base. So having a greater number of machines out on a lease basis with yields holding up, close to record levels, I think is really a positive. The economy, obviously, everyone has their own estimates as to what’s going to happen to the consumer going forward. But all we know is that slot GGR levels remain good, customer sentiment remains good.
And our challenges have really — what we’ve seen is really outside of the US. We continue to do a great job in Latin America. Our install base has increased significantly there. Demand is really good. But you’ve got some country concerns with the market like Argentina. EMEA is another marketplace where there’s challenges. Western Europe, we’ve done really well. That market is back to pre-COVID levels, but Eastern Europe continues to have significant issues. Geopolitical is probably the driver of that. But overall, that’s kind of, I think what the industry is saying and then what — I think what we’re seeing.
David Katz: Thank you.
Operator: And your last question comes from the line of Joe Stauff of SIG. Your line is open.
Joe Stauff: Thank you. Good morning, Vince. Good morning, Max. I had two questions. If I could, one, the gaming competitive landscape naturally is so fragmented. It’s maybe tough for me, not others to kind of put the puzzle together. And I was wondering, coming from G2E, it seems as though in terms of your competition against specifically within gaming, some of the small players are much softer. And I’m wondering if that’s what you see in terms of the competitive landscape and whatever you can share with us versus obviously, you doing strong just based on results and obviously maybe your two bigger competitors. So that’s number one. And then number two, Max, you had mentioned on the supply chain that it had normalized, and I was wondering if you could just kind of remind us of first quarter, second quarter, just sort of the cadence of where the supply chain was in terms of being normal and/or tighter relative to our — sort of expecting the benefit in those margins as we sort of adjust our models going forward.
Vincent Sadusky: Yeah. I’ll answer the first question. Let Max take the supply chain question. So, yeah, I think it’s a great observation. I felt the same way. I get to G2E a day early to meet with the teams and the setup and walk the floor quietly. And it’s just remarkable, the number of small players there are out there still. A lot of those companies are private. You don’t know what their financials look like. Oftentimes they’ve got a niche, that’s made it a business, but not a significant business. And to be honest, being in this business for decades now, it’s very hard to envision consistency of game performance over a long period of time when you don’t have a large infrastructure and a very significant R&D investment on an ongoing basis as the larger companies such as ourselves have, that’s not to say that, that they haven’t had, and that they won’t have individual game successes from time to time.
But when you think about the opportunity to exploit a great game concept internationally, that’s a unique area for just a handful of us. A lot of the smaller players design games for specific markets, let’s say it’s Latin America or Eastern Europe or North America, and don’t even have operations in other parts of the world, and they aspire to that, but they’ve been aspiring to that for a long period of time. So I do think it’s hard to really generate any significant scale consistently without having this big — this large R&D investment. And I think something that probably similarly goes for the iCasino, the PlayDigital business as well, there’s lots of competitors on that front because the barriers to entry are, of course, lower. However, I think we’re seeing over time that the same phenomena is playing out that — if you’re a significant operator in that space, you’ve got scale, you’ve got huge tech teams, game development teams, and your chances for success are greater.
Plus there’s the customer interaction element of it as well, right? So as casinos consolidate under holding companies, it takes time to evaluate and listen to kind of one-off game developers, be it on the iCasino side or on the — certainly on the land-based side. And then there’s the approval process and all of that. So I just think that there’s — scale is really helpful and really matters, especially in an industry that requires a lot of R&D to be successful.
Joe Stauff: Thanks Vince.
