International Game Technology (IGT) Q2 2021 Earnings Call Transcript

International Game Technology (IGT 0.15%)
Q2 2021 Earnings Call
Aug 03, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to International Game Technology Q3 '21 earnings call. [Operator instructions] I would now like to hand the conference over to your speaker today, James Hurley, senior vice president of investor relations. Please go ahead, sir.

James Hurley -- Senior Vice President of Investor Relations

Thank you, and thank you all for joining us on IGT's second-quarter 2021 conference call, which is hosted by Marco Sala, our chief executive officer; and Max Chiara, our chief financial officer. We are presenting the results today from multiple locations, so please bear with us if we do encounter any technical difficulties. During today's call, we will be making some forward-looking statements within the meaning of federal securities laws. Forward-looking statements are not guaranteed, and our actual results may differ materially from those expressed or implied in the forward-looking statements based on a number of factors and uncertainties, including those related to the effects of the COVID-19 pandemic.

The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. During this call, we may discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast, and our filings with the SEC, each of which is posted on our Investor Relations website, you'll find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. And now I'll turn the call over to Marco Sala.

Marco Sala -- Chief Executive Officer

Thank you, Jim, and hello to everyone. The impressive second-quarter results we are reporting today highlight the vitality of our portfolio. Outstanding lottery performance, the progressive recovery in land-based gaming, and a strong increase in digital and betting activities drove revenues up more than 70%. Profit growth was even stronger.

Adjusted EBITDA of EUR 442 million was over two and a half times the prior-year level and among the highest we have ever recorded in a quarterly period. In addition to the natural operating leverage in lottery, structural cost reductions from our OPtiMa program contributed to improve global gaming performance, which returned to positive operating income in the quarter. In the first six months of the year, we generated 380 million of free cash flow, a record level for a first-half period. Our focus on executing with excellence is grounded in good corporate citizenship.

We recently published the 14th Annual Sustainability Report improving the quality of the information we disclose about the sustainable activities and solution we have in place across the company. Highlighted in the report our -- are our efforts at a diversity and inclusion, which have been recognized for their scope and impact. We firmly believe our dedication to well-being and developing of our employees, and high standards of corporate citizenship creates value for our stakeholders throughout the world. The bet is tangible in our strong first-half results, enabling us to raise expectation for 2021.

At this time, we now expect to exceed 2019 levels for key financial metrics this year. This is an important achievement considering the impact of the pandemic has had on the global gaming industry. It validates the unique attributes of IGT's portfolio and the dedication of the IGT team around the world, who I want to thank for their resilience, responsibility, and good corporate citizenship. Our lottery business continues to perform at a very high level.

Broad-based player demand across games, geographies, and channels drove same-store sales 35% higher in the second quarter. Lottery's consistent multiyear growth profile is fueled along several dimensions. First, with continuous innovation and game content, add-ons to popular draw games franchises, such as the [Inaudible] lotto in Italy and Double Play, Cash 5, Cash4Life in the U.S., have been especially successful. The recently launched Numerissimi instant game in Italy is performing very well out of the gate.

Second, through improved retail penetration and sales execution, including the optimization of game portfolios and improved logistics. The distribution of games, especially around convenience options such as self-service, in purchasing, and cashless solutions have experienced high player acceptance. The Washington State Lottery, a leader in the development of self-service model, will soon deploy our next-generation cashless lottery technology as part of a recent multiyear contract extension. And third, by increasing player acceptance in iLottery, I will expand on this a little later.

As we look at the second half, we expect global same-store sales to be up mid-single digits to last year and up low double digits compared to the second half of 2019. This is at the upper end of historical trends and applied to higher levels of consumption. It is a compelling outlook for a business with an attractive margin structure and steady growth profile that has proven to be highly resilient to macrodynamics. For the global gaming segment, most markets are open today.

Our business is concentrated in the U.S., whereas lottery GGR has largely recovered to 2019 levels in many jurisdictions. Recurring revenue streams have rebounded quickly, more than doubling prior-year levels and up double digit sequentially on higher terminal service revenue and strong digital investing growth. Sequentially, there are more active installed base units generating stronger yields. Top-performing games, including -- include several Wheel of Fortune titles and new multilevel progressive Dragon Lights, Ying Cai Shen, and Gong Xi Fa Cai.

Outright sales more than doubled the prior year and were up over 40% sequentially on strong replacement sales. We expect a sustained improvement in unit demand in the second half of the year, both for casino and VLT customers as operators return to increased levels of investment. Sales will be supported by the PeakSlant 49 cabinet, which is now offered for sale with proven high-performing games such as Regal Riches and Scarab Link. Adoption of IGT's best-in-class cashless solution is expanding.

Later this year, the Agua Caliente tribe will implement our reserve wallet cashless solution at all three of its California casinos. Included in the offering will be the proprietary IGTPay, full-service funding solution for cashless wagering via credit and debit cards, bank accounts, and e-wallets. And there are more deals in the pipeline. The industry is also taking notice of our accomplishments.

Our ability to consistently bring excitement and innovative products and services to market was recognized at the 2021 Global Gaming Awards London, where a IGT won Casino Supplier of the Year. It also supports our expectation of a progressive improvement in global casino gaming in the balance of the year. We continue to build on our leadership position in iGaming, iLottery, and sports betting. We are investing along many dimensions to bring the most compelling digital games to market.

In addition to leveraging our deep and proven land-based portfolio, we are also developing new digitally native games. CASH ERUPTION is a recent example and has quickly become our top-performing game in Michigan and several European markets. It will launch in New Jersey soon. We are also creating partnerships that provide access to new and innovative game features as we did with Wheel of Fortune Megaways.

These arrangements enable our partners to develop their own new game content using IGT's platform, enhancing the value of IGT's iGaming ecosystem. Distributing third-party content provides another opportunity for incremental market share. We expect to be distributing over a dozen third-party titles in the second half of the year. Later this quarter, we will deploy our next-generation iLottery platform beginning in Georgia.

We expect this leading-edge solution will greatly enhance our competitiveness. Notably, it is the first cloud-based iLottery solution to go live for WLA customers, enabling faster delivery of game content while reducing costs. We are also expanding the portfolio of games that feature and reach audiovisuals and enhanced bonus play features. VIP Gold Grand and Triple Platinum are the recent new instant games that are generating all-time higher use.

Multi-prize instant games like Invasioni Spaziali have been very successful in Italy. The deployment of our PlaySports platform continue to expand at a fast fleet. It is currently powering approximately 50 U.S. sportsbooks for 18 customers across 15 states.

One of the more recent addition is Resort World Las Vegas retail sportsbook as well as its statewide mobile betting app. This development enhanced our Nevada presence we established with Boyd Gaming earlier this year. We delivered a strong first half, thanks to robust player demand and disciplined execution supported by innovative product launches and overall cost and capital control. At the same time, we significantly reduced our debt, improving our financial condition and leverage profile.

With tailwinds like attractive long-term lottery industry trends, the global gaming recovery, and fast-growing digital and betting businesses, we expect these positive trends to continue. As always, our growth initiatives remain grounded in our commitment to sustainability, building on the important progress we have already made. Now I'll turn the call over to Max.

Max Chiara -- Chief Financial Officer

Thank you, Marco, and hello to everyone. Like the last call, I would be primarily speaking to continuing operations in this presentation due to the sale of our Italy B2C gaming business, which closed in May. Before doing that, I want to highlight where we stand on our recovery path to pre-pandemic levels. Q2 was another outstanding quarter from both an operating and financial perspective as we see markets across our industry is recovering at a faster pace than originally expected.

This, combined with our cost savings initiatives being well ahead of plan, drove the outstanding results we are reporting today. And importantly, we have accelerated the pace of our cash generation, allowing us to return to pre-pandemic leverage six months ahead of our target. The details of our results continue to showcase the unique strength of the IGT portfolio. Year-to-date net income improved by over $1 billion from the prior-year period, and we generated and $1.94 in earnings per share.

This increase was a result of three main drivers: sustained improvement in operating profitability, the capital gain recorded on the sale of our discontinued operations, and an impairment charge in the second quarter of last year that was triggered by the beginning of the pandemic downturn. On the next slide, No. 11, you can see that our results were impressive across all key financial metrics. During the second quarter, IGT generated over 1 billion in revenue, 244 million in operating income, and 442 million in adjusted EBITDA.

Revenue grew over 70% from the prior year, while EBITDA was up 170%. Like last quarter, we can see the impressive operational leverage of our lottery business and the benefit of structural cost-savings actions. We achieved over two-thirds of our $200 million OPtiMA savings target versus 2019 by the end of the second quarter, having accomplished over 70% of our product simplification and margin improvement efforts. The operational excellence piece is driven by the pace of the gaming recovery, and we expect to benefit more from these savings in the second half of the year.

Turning to our lottery segment on Slide 12. Revenue impressively increased over 50% to 725 million. Global same-store sales rose 35% from the prior year and were up 24% from Q2 2019 which highlights the strong player demand. Italy lotteries has had an incredible performance in the quarter, with sales more than doubling from the prior year.

Some of this is due to an easy comparison since lottery point of sale were heavily impacted by the pandemic restrictions last year. And there was an outsized benefit in the second quarter this year because gaming halls in Italy were closed until June. In North America and the rest of the world, lottery momentum continued from Q1, with same-store sales growing 21% in Q2 over the prior year, with broad-based strength across game categories and the benefit from higher discretionary income in the U.S. Strong same-store sales as well as the higher mix of Italy business we generate more revenue per wager led to margins well above the normal range.

Operating income more than doubled from the prior-year period to $300 million with adjusted EBITDA growing 87% to 414 million. Last quarter, we recognized 80 million in revenue from LMA incentives and outsized jackpot activity that flow through almost entirely to profit. While we did not have those benefits this quarter, our strong same-store sales growth translated into an EBITDA incremental margins of over 70%. Turning to our global gaming segment on Slide 13.

Revenue more than doubled from the prior year, driven by an improvement in recurring service revenue and higher unit shipments. We saw 19% sequential revenue growth versus Q1. Sequentially, the global installed base was relatively stable with terminal service revenue growing on higher productivity from more active machines. Currently, over 90% of our U.S.

casino installed base is active and yields continue to be higher than they were pre-pandemic. Given the positive trends in overall gaming service revenue, which includes strong digital and betting growth, we expect to be back to Q4 '19 levels by the fourth quarter of this year. We sold roughly 6,300 units globally in the quarter, doubling our prior-year shipments and growing 44% sequentially. Unit shipments were driven primarily by strong replacement demand from casino and VLT customers.

We also saw higher shipments on replacement units internationally, particularly in Australia and New Zealand. The gaming business returned to operating profitability in the quarter as top-line trends continue to improve, and our OPtiMA cost savings actions benefited results. Adjusted EBITDA of 49 million is a sequential improvement, a trend we expect to continue for the rest of the year. On Slide 14, you can see that continued healthy cash conversion and capex discipline drove 176 million in free cash flow.

We have generated 380 million in free cash flow in the first half of 2021, which is the highest reported amount for a first half in company history. Along with roughly 750 million in net proceeds from the sale of our Italy gaming business, we can see the direct impact to net debt. Leverage is 4.3 times -- 4.3 times is back to pre-pandemic levels six months ahead of our target. The next slide shows our debt maturities, which have improved significantly over the last year.

The proceeds from the Italy gaming business were used toward the full redemption of the 4.75% 2023 Euro 850 million bond. And we recently amended and extended our term loan with our strong financial position, allowing us additional liquidity and extended maturity and lower interest costs. We now have a weighted average debt maturity of roughly five years. Since the beginning of the year, our combined capital market actions have reduced annual interest costs by 65 million compared to 2020 levels, of which almost half will start accruing through the second half of this year and a bit more than half in 2022.

Over 80% of our debt is fixed and the variable piece is prepayable with minimal cost, allowing us to effectively manage our exposure to interest rate volatility. In summary, we have delivered an impressive financial performance in the second quarter and year-to-date period. Strong player demand in lottery, progressive recovery in gaming, and our structural cost savings initiatives have all contributed to these results. We continue to generate robust free cash flow and reduce debt and our balance sheet shows improved liquidity and a more favorable debt structure.

On Slide 17, we have our outlook for the back half of this year. We currently expect revenue of approximately 2 billion and operating income of about 300 million in the second half, which implies strong year-over-year growth for both metrics. Global lottery is expected to return to more normal growth rates applied to higher levels of consumption. Q3 to-date same-store sales are up double digits versus 2019, which is at the high end of the historical trend.

Global gaming should maintain its trend of progressive recovery. There are some important differences between the first half and the second half. Revenue and operating income will be lower versus H1 on the normalization of lottery growth trends. Cash from operations is expected to be lower than H1 as the elevated lottery revenue quickly converted to cash in the period.

In addition, cash tax payments are concentrated in the second half of the year. And while working capital was a source of cash during the height of the pandemic, it is now expected to return to more normal levels. We estimate capital expenditures will total about 175 million in the second half sequentially increasing the support growth but remaining below 2019 levels for the full year. Depreciation and amortization should be in line with first-half levels.

I should note that these current expectations do not factor in any potential impact from additional COVID-19 restrictions. That concludes our prepared remarks. Operator, can you please open the call for questions? Thank you. Operator, we're ready for the questions.

Folks, please bear with us. We seem to have lost our operator. We'll be right back for Q&A.

Questions & Answers:

Operator

Excuse me, presenters?

Max Chiara -- Chief Financial Officer

Yes.

Operator

All right. [Operator instructions] Your first question comes from the line of Carlo Santarelli of Deutsche Bank. Your line is open.

Carlo Santarelli -- Deutsche Bank -- Analyst

Hi, everybody. Good morning. If you guys wouldn't mind, just kind of as you think about the lottery business and the expectation for the back half of the year and obviously, the growth rates, which are lower than what you've experienced in the first half but [Inaudible] provided some color on the 3Q. So my question really is, is there anything that you're seeing in the current trends that is materially different than what we've -- you've been experiencing here over the last several, or is it just more of a comp stack issue that kind of has that growth decelerating from what you experienced in the 2Q?

Marco Sala -- Chief Executive Officer

Good morning, Carlo. It's Marco. This is a good question. I think the good news is that, as we said during our remarks, our expectation is to grow in the second half of the year, to grow single-digit gains last year that, by the way, was growing overall in 8 to 9% versus '19 and to be up low double digits compared to the second half of '19.

So what we are experiencing is some stickiness of players toward the higher level of consumption they have experienced during the pandemic. We have seen that this business benefited from the lack of other entertainment options in Italy more specifically benefited from the closure of the gaming goals and the sport betting shops. But what we are seeing that even after the reopening, we have quite a good performance, especially of scratch tickets in Italy. That is somehow reaffirming what the consumer research is -- were telling us that players overall appreciated very much the portfolio of lottery games.

They enjoyed it. And they are stating that they will have an average consumption higher than what they had pre-pandemic. From that level, I guess that we will get back going forward to more secular trends, but from a higher level of personal consumption.

Carlo Santarelli -- Deutsche Bank -- Analyst

Great. That's super helpful. Thank you. [Inaudible] If I could just ask one more as it pertains to your capital return velocity at this point with leverage, where it is, and what are your latest thoughts?

Max Chiara -- Chief Financial Officer

Hi, Carlo. This is Max speaking. So as we are approaching our four times leverage goal post, obviously, we have accelerated our strategic thinking around the next phase of our posture vis-a-vis the capital allocation priorities. And again, in front of our Investor Day coming up in November, I would not pre-empt our thinking right now.

The only thing I want to tell you is that we are -- right now, we're gravitating toward moving to a range of leverage ratios that we would look into to maintain over the full cycle. And as you know, for us, cycle means years of low upfront fees payments versus years of higher upfront fee payments, which, as you know, they may be coming to fruition in a couple of years out. So that's where we currently sit in terms of our high-level thinking. And I would defer to the Investor Day to a more precise answer.

But again, we're very happy that we are able to get closer to that four times faster than we originally anticipated.

Carlo Santarelli -- Deutsche Bank -- Analyst

That's helpful, Max. Thank you.

Marco Sala -- Chief Executive Officer

To complete it, the next years, we do not have major upfront fees ahead of us. So the good news is that we are generating a strong cash flow, but the major capital required for the biggest contracts of our portfolio will start in 2025.

Carlo Santarelli -- Deutsche Bank -- Analyst

Great. Thank you, Marco. Thanks for the clarity on that. I appreciate it.

Operator

Your next question comes from the line of Chad Beynon of Macquarie. Your line is open.

Chad Beynon -- Macquarie Research -- Analyst

Hi. Thanks for taking my question, and congrats on the results. Max, you noted that you guys plan to be back to gaming levels in the fourth quarter of 2021 as you saw in the fourth quarter of 2019. Could you just expand a little bit in terms of if you were thinking revenues or EBITDA? And then related to that, how are you thinking about some of the more cyclical items like product sales and how operators plan to purchase slot machines, how that's trending? Thank you.

Max Chiara -- Chief Financial Officer

Yes. So first of all, a clarification. That comment was made in regard to the service recurring revenue business portion which we expect to continue to improve quarter after quarter. And right now, we see potentially Q4 of '21 seeing a trend in the service part of the business, similar to what we were left with at the end of '19 pre-pandemic.

On the product sales side, there's going to be more -- much longer curve to get back to the '19 levels. We probably will need to see a full year of development. We have started to see some of the operators willing to come back at the table, but we're still in the very early innings for that dynamic to really take hold and allow us to bring back product sales to the level of 2019, which we don't anticipate until probably late '22, early '23.

Marco Sala -- Chief Executive Officer

The sentiment that Chad -- if I can elaborate on it, the sentiment of operators is becoming more and more positive and we will see a progression in terms of product sales over the next quarters. As correctly, Max said, it will take next year to recover the pre-pandemic level. But if you talk about the sentiment, definitely, the sentiment has changed. The GGR operators are experiencing, are making them more relaxed in discussing about capital expenditure for the next month.

One thing is to discuss about it. One thing is to cut deals. But it's already a very good news, and I'm rather excited about the possible accelerated velocity in terms of product, again, not reaching the prior-year level. But if we elaborate on the second quarter, it was in North America, 11% below '19.

So this is, I think, a good point.

Chad Beynon -- Macquarie Research -- Analyst

Perfect. And then regarding iLottery, you noted your new cloud-based technology that you'll be rolling out in Georgia. Can you talk about just the overall iLottery advocation process with state legislators in the U.S. if they're better understanding the benefits and the technology that comes with this, and if you still believe that the markets could double in the near term? Just any update from a legislative standpoint.

Marco Sala -- Chief Executive Officer

No. I think definitely that the market can grow and can double in the foreseeable future. we see that there are legislation authorizing a lottery just approved in Arizona and Connecticut. But what I think is that the jurisdictions, when they were seeing the importance of iLottery in the other jurisdictions that have already regulated, they will get more motivation out of it.

I'll give you an example, for example, for among the jurisdictions that have already iLottery, we were talking about the importance of payout in iLottery to drive the growth of the business and -- for example, our customers in Kentucky and Georgia now have decided to increase the payout of the new products because they realize they can grow faster. I give this as an example of the motivation of the jurisdictions regarding this segment, by the way, is getting the consumer attention. And we are working a lot on our portfolio in order, as I said in previous calls, investing in talent, in technology and content and the next-generation iLottery platform you have referenced to is a good example as well as with all the investments that we are doing in content in order to strengthen our offering and to be prepared for when other jurisdictions will regulate this space. That, in my opinion, definitely will happen over the next years.

Chad Beynon -- Macquarie Research -- Analyst

Thanks, Marco. It's good to hear. Appreciate it.

Operator

Your next question comes from the line of Barry Jonas of Truist Securities. Your line is open.

Barry Jonas -- Truist Securities -- Analyst

Great. Thank you. Hi, guys. We're seeing increased COVID cases and restrictions from the Delta variant.

Aside from the comments you gave around Italy. I'm wondering if you've seen or maybe would you expect any other positive or negative impacts to your businesses?

Marco Sala -- Chief Executive Officer

Thank you, Barry, and good morning. Regarding the Delta variant, unfortunately, we are all experiencing an increased number of cases. When it comes to the consequences to our business, let's focus on gaming because we have seen that lottery has been rather resilient. I would say more, than resilient as a matter of fact.

We got traction out of the overall situation, digital benefited out of it. Gaming. Regarding gaming, we expect that -- we do not expect at this juncture, closing measures in Europe, and you were referring to Italy. The only debate we have here in Italy is regarding the fact of showing what we call Green Pass, that is a document that says that you got the two level of vaccinations or an alternative, you have to demonstrate that you have been successfully tested.

The 48-year -- days -- sorry, yes, days. 48 -- sorry, 48 hours before entering a gaming hall. Regarding what we see in the United States, the only measure that are, for the time being, we are seeing is in Nevada, and in several other jurisdictions the request for players to wear the face mask. So all in all, I do not see that at this stage, we should see something truly warning regarding the gaming business.

But we are in a stage where we have whole together look at the evolution. But I do not see in government's attitudes, the approach to get back to lockdown.

Barry Jonas -- Truist Securities -- Analyst

Great. I appreciate that, Marco. And just as for my follow-up question, Scientific Games just announced they're selling their lottery and sports betting business. We've got a few questions concerning that as it relates to IGT.

So I guess, first, how meaningful is bundling across your business lines? And two, is selling off any part of the company is something you would consider exploring if the price was right?

Marco Sala -- Chief Executive Officer

And this is a very good question. Overall, I think we have a consistent portfolio to start with. Our business is focused on delivering content and solution to the whole regulated real gaming market. And this is, in my opinion, what binds them together.

And we are focused on serving governments and licensed private operators as a B2B provider, and this role can expand to comprise a full outsource lottery operation where appropriate. This is just to say that we see a consistency of our portfolio. And by the way, these -- each business in our portfolio is profitable and has a good growth perspective. It will generate a strong cash flow, enabling a significant deleverage in the next years.

Having said that, our new organizational structure gives us more flexibility to evaluate value-creating portfolio initiatives if a compelling opportunity materialize. And by the way, just to give a little bit more flavor on it, talking about the portfolio, flexibility, I should add, as we did in the previous call that we are considering the possibility of creating a digital segment going forward if the performance will be maintained at this level. So I think I tried to provide you what -- where we feel we are and -- but also providing the sense of our flexibility going forward.

Barry Jonas -- Truist Securities -- Analyst

Great. Thank you, Marco. Thanks, guys.

Operator

All right. So next question comes from the line of David Katz of Jefferies. Your line is open.

David Katz -- Jefferies -- Analyst

Hi. Good morning, everyone. Thanks for taking my questions. I wanted to just go back to the discussion about lottery demand and lottery sales levels in the back half of the year.

And how much of that is predicated on the reopening of land-based halls. And I suppose I'm wondering whether that reopening getting pushed out on a little bit of COVID resurgence would prospectively drive upside to what you're guiding today if that were to occur? How much of it is land-based, open or closed driven?

Marco Sala -- Chief Executive Officer

No. It's -- we are talking about our land-based, providing these figures. I can tell you that now the situation of the reopening in our main geographies does not -- is not included in our outlook because we were considering all the gaming alternatives and in general than the entertainment alternative options up and rang. So the performance I offered you for the second half of the year is based on our reopening.

I do not expect that the measures I was commenting regarding the resurgence of the delta variance of COVID will influence very much the lottery at this juncture.

David Katz -- Jefferies -- Analyst

OK. Perfect. And as my follow-up with respect to the premium or the U.S. installed base in particular.

We've been sort of looking for that base to be flat and maybe even start to go up over time. Just how are you thinking about kind of the addition of units there and the yield that they generate? And is it reasonable for us to expect at some point that, that U.S. installed base would flatten or even turn up at some point in the near term?

Marco Sala -- Chief Executive Officer

I think, first of all, as we were saying in our prepared remarks, things are progressing quite positively because now the active units are above 90% and the yields are truly very, very strong, and they are getting stronger, notwithstanding the increased number of active units. Regarding your question, our goal is, for sure, to stabilize the installed base. And going forward, over the next quarters mainly next year, take advantage from the launch of especially the MLPs products where we are devoting the most part of our investments. I think that the pipeline of products we have is reassuring.

We see that over last year, we got an almost stable installed base, we think that going forward, not in the short term necessarily, but our goal is definitely to stabilize and increase the installed base, and we are investing in the right part of the portfolio, in my opinion, to achieve that goal.

David Katz -- Jefferies -- Analyst

OK. Thank you very much.

Marco Sala -- Chief Executive Officer

Thank you, David.

Operator

Your next question comes from Domenico Ghilotti of Equita. Your line is now open.

Domenico Ghilotti -- Equita -- Analyst

Good morning. My question is related to the cost-saving initiative. I'd like to understand how much of the cash P&L contribution you had in the first semester. And my question is related to the fact that basically for the second half, you are projecting a very similar top line, so the $2 billion is not far away from the first half, but a much lower $200 million lower EBITDA or EBIT despite the higher contribution from synergies.

And the follow-up on this is if you see additional opportunities going forward, so for 2022. And last, based on your -- the projection your indication on the second half, we should expect also a tough comparison to a sequential -- not sequential, year-on-year decline in the first semester of 2022?

Max Chiara -- Chief Financial Officer

Hi, Domenico. This is Max speaking. I'll take this one. So as we have displayed our OPtiMa program in action is made up by three parts.

So there is a margin improvement action, which relates to our ability to contain costs, reorganize back offices, relook at our footprint initiatives. And this has been in full swing and motion in the first half, and we have been able to kind of achieve almost 70% of those initiatives, and they are up and running now going forward. The second portion is the product simplification. So we have looked into the combination of product geographies across the board.

We have been able to reduce spending in certain of those. And that initiative is also up and running to the tune of 70% of its potential and it's kind of meant to stay there. The last one, which is running a little bit behind, but it's consistent with our initial expectations, is the operational excellence because that requires the volume of new production to come up. It's moving forward -- slowly moving forward quarter after quarter.

But again, until we get the full fruition of the gaming, the land-based gaming demand, which, as we said before, it's going to come probably toward the end of next year is not going to get to full benefit. So all in all, we are ahead of our plan in terms of the savings. We have been able to count the hard savings on maintaining strict discipline on cost spending so far. The more dramatic supply chain reorganization benefits will come to fruition over time.

And so there is a little tail that will come to fruition potentially next year. In terms of first half to second half, probably in the second half, there will be some of the supply chain constraints, generating some cost attrition, not to a significant magnitude. As we said in the last call, we are expecting something around $10 million max $15 million this year. And we think we have enough power in our OPtiMa program to be able to offset those incremental costs for the balance of the year.

Does that respond to your question?

Domenico Ghilotti -- Equita -- Analyst

Yes. OK. Thank you.

Operator

[Operator instructions] We'll take our last question from John Becker of CBRE. Your line is now open.

John Becker -- CBRE -- Analyst

Hi, everyone. Thank you for taking my questions. I think most of them have been answered, but maybe just one on the U.S. sports betting landscape.

And I think you've mentioned in your presentation that you've got about 50 play sportsbooks up and running and I think a pipeline that might be over 40 potential customers. Marco, I was wondering if you could sort of elaborate a little bit on that pipeline and your expectations and maybe high level, your current thinking and outlook for your business in the U.S. sports betting arena would be helpful.

Marco Sala -- Chief Executive Officer

For sure. Good morning. We are very positive regarding our opportunity in sports betting. We see traction in terms of the number of jurisdictions that are expected to regulate in the next years this segment.

And we expect that we can play on in this business. As I always say, we are a B2B provider in this part of the business. We see an opportunity for us mainly as a supplier of turnkey solutions for local operators, where we can leverage our commercial relationship and our end-to-end solution, the platform and the risk management service. Just to give a little bit of color, this end-to-end solution provides operators who don't have existing sports betting expertise, but they want to have their own branded sports books in low investment opportunity to build a sports betting business.

And we can enable them doing it. And those are the kind of customers that represent our target. We have already nine active or announced sports books across six jurisdiction, Colorado, Washington State, Louisiana. And in this respect, we have 40 commercial leads that we are currently exploring.

And in Nevada, as I said during my prepared remarks, it has been important for us powering the recently opened Resorts World Las Vegas, that is -- that follows what we have done with Boyd earlier during the year. So this is the way we see this opportunity for us. I don't know if it is clear or maybe if you want to ask something else, another answer.

John Becker -- CBRE -- Analyst

Yes. That's perfect, Marco. Thanks so much, and congratulations on another strong quarter.

Marco Sala -- Chief Executive Officer

Thank you.

Operator

There are no further questions at this time. I will now turn the call over to Mr. Marco Sala, IGT CEO.

Marco Sala -- Chief Executive Officer

Thank you for joining us today. We appreciate your interest in IGT. Q2 was another outstanding quarter from both an operating and financial perspective. In the first half of the year, we have accelerated the pace of cash generation, enabling us to return to pre-pandemic leverage six months ahead of schedule.

With tailwinds like attractive long-term lottery industry trends, the global gaming recovery, and fast-growing digital and betting businesses, we expect this positive trend to continue. We look forward to seeing you at the broker conferences this fall at our Investor Day in November. Have a great day.

Operator

[Operator signoff]

Duration: 51 minutes

Call participants:

James Hurley -- Senior Vice President of Investor Relations

Marco Sala -- Chief Executive Officer

Max Chiara -- Chief Financial Officer

Carlo Santarelli -- Deutsche Bank -- Analyst

Chad Beynon -- Macquarie Research -- Analyst

Barry Jonas -- Truist Securities -- Analyst

David Katz -- Jefferies -- Analyst

Domenico Ghilotti -- Equita -- Analyst

John Becker -- CBRE -- Analyst

More IGT analysis

All earnings call transcripts