International Game Technology (IGT) Q4 2021 Earnings Call Transcript

International Game Technology (IGT 0.15%)
Q4 2021 Earnings Call
Mar 01, 2022, 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 Q4 '21 earnings call. [Operator instructions] I would now like to hand the conference over to your first speaker today, James Hurley, senior vice president, investor relations. Sir, please go ahead.

James Hurley -- Senior Vice President of Investor Relations

Thank you, and thank you all for joining us on IGT's fourth quarter and full year '21 conference call. It's hosted by Marco Sala, executive chair; Vince Sadusky, chief executive officer; and Max Chiara, our chief financial officer. After some prepared remarks from the team, Vince and Max will be available for your questions. We are presenting from multiple locations, so please bear with us if we encounter some technical difficulties.

During today's call, we will 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 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, the 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 -- Executive Chairman

Thank you, Jim, and hello to everybody. Earlier this morning, we issued 2021 financial results that reflect our strongest revenue profit and cash flow performance in the last four years. We met and, in many instances, exceeded the financial targets we set for the year. We also made important progress on several strategic objectives and reinitiated returning capital to shareholders.

As we enter 2022, the company is in a very strong place, with a solid financial condition and the strong foundation to build on. We recently made some leadership changes that best position the company to realize its long-term growth initiatives and create significant shareholder value. I have moved into a new role as executive chair of IGT, and Vince Sadusky was named the company's new CEO. In June, I will be proposed as the next CEO of De Agostini, IGT's majority shareholder.

As you can imagine, I have been in parallel discussions regarding the leadership evolution at IGT and De Agostini for some time. This was happening while we were managing through the pandemic and making important progress of sharpening IGT's strategic focus and growth objectives. We outlined a new long-range plan at our investor day and the time is right for a strong leader to deliver on it. We are very fortunate to have Vince, a seasoned C-Suite executive and longtime IGT board member, to be IGT's CEO.

I have enjoyed working with him over the last seven years and has every confidence he is the right person at the right time to lead the company in an exciting era of growth. He has an impressive track record of creating shareholder value. Obviously, I'm not leaving IGT. I will remain engaged as executive chair, working with Vince on IGT's strategic direction, serving as a resource on customers and regulatory methods and focusing on corporate governance.

Vince will be responsible for establishing the company's priorities, managing day-to-day operations and delivering on strategic and financial goals. Before I turn the call over to Vince, I would like to say that I greatly appreciated getting to know you over the years. We also enjoyed -- we always enjoyed a constructive dialogue, and I have valued your support of the company. Thank you for that.

And now to Vince. 

Vince Sadusky -- Chief Executive Officer

Thank you, Marco, and hello to everyone. I am really excited to be here leading IGT in the next chapter of its evolution. I've been a keen observer and advocate of the company's progress for more than a decade in my role as a board member, including as chair of the audit committee. I've admired the way Marco and team have led the company, especially over the last few years, navigating a highly disruptive pandemic, while making important strategic decisions to position the company for the future.

There are many parallels between IGT and the media companies I've run in the past. Both operate in regulated markets with high barriers to entry, expertise in content and technology, a culture of innovation and distribution power are critical to success, and each generate strong cash flows and have faced both disruption and opportunity with the emergence of digital. Given these similarities, I see opportunity to create great value for all IGT stakeholders. I'm excited to build on the strong foundation I am inheriting.

The company laid out some long-term financial and strategic goals at the November investor day, and I intend to deliver on them. I signed off on them as a board member, and I'm doubling down as CEO. Our mission is to strengthen IGT's global leadership position in the regulated gaming industry by offering innovative content, services and solutions. That is the foundation of our strategy to grow top line and margins across all segments, while increasing operational efficiency and optimizing capital allocation.

And we're in a great position to do so. Our core activities are in markets with secular tailwinds and accelerating digital growth. We have set aggressive, but achievable financial goals that include impressive cash flow generation over the next several years, and we have a disciplined strategy to allocate that cash flow to maximize value for all stakeholders. We have a powerful, diverse portfolio that not only offers compelling growth prospects, but also provides significant resilience.

This was clearly on display during the pandemic where strong lottery and digital and betting growth helped mitigate the impact of wide-scale casino and gaming hall closures. The collection of assets also provides unique and sustainable competitive advantages, including a best-in-class management team with extensive global industry experience. From an industrial perspective, the content, technology and management of our operations are highly complementary and are leverageable across slots, lottery, sports betting, and iGaming. In the quest to sharpen our focus on core operations, we recently announced the sale of our Italy commercial services and payments business at a very attractive multiple, over 15 times 2021 EBITDA.

Net proceeds will primarily be used to reduce debt and potentially for strategic M&A if we see compelling opportunity. I'd like to highlight some of the progress we're making in our goals. Beginning with global lottery segment, where same-store sales were up over 20% compared to both 2020 and 2019 levels. IGT's unique insights on game innovation, portfolio optimization and sales and distribution strategies are helping to drive record level wagers for our customers.

The broad appeal and high entertainment value of lottery games is clear. In the last two years, we have established a much higher baseline to grow from, and it is important to highlight the tremendous operating leverage in the business as operating income increased at more than double the top-line growth rate in 2021. iLottery and instant ticket services are two areas of incremental opportunity for us. We are making good progress on both evidenced by strong KPIs for the year.

In the markets served by IGT's iLottery platform, our lottery same-store sales increased over 60% in 2021, including nearly doubling in the U.S., where iLottery penetration reached 12% in the fourth quarter. Our innovative new eInstant games are consistently delivering higher average revenue per user for our iLottery customers. Instant ticket Services had a record year, fueled by a more than 35% increase in standard units produced. The multiyear outlook for our lottery business is compelling.

We expect innovation, higher average player consumption, increased iLottery adoption and market share gains in instant ticket services to fuel sales growth. We have a favorable contract renewal cycle ahead of us, and our investments here have attractive returns. Focused product strategies and the global market recovery are driving a strong rebound in sales and profits for the global gaming segment, which continues to see sequential improvement in sales and profits. The expansion of our multilevel progressive game portfolio on the new Peak cabinets is strengthening our leased game portfolio and generating some of the strongest sales funnels ever.

Our award-winning Resort Wallet cashless gaming technology recently received regulatory approval in Nevada. With this achievement, IGT's entire cashless gaming solution, which includes the option for one-step external funding via IGT pay on personal mobile devices is approved for deployment throughout the state. It is an important milestone for this emerging technology as Nevada is widely viewed as a future forward gaming jurisdiction. Continued execution on well-defined product strategies is expected to drive market share gains in key categories for us over the next several years.

This should translate into double-digit revenue growth that has further enhanced at the profit level, thanks to the large structural cost savings implemented in the last 18 months. The digital and betting segment continues to grow at a fast clip, propelled by our strong leadership positions and new iGaming and sports betting regulations in the U.S. We are investing in R&D and talent to build a solid foundation to support the high revenue and profit growth trajectory we expect over the next several years. New leadership for both the iGaming and sports betting verticals are already making an impact.

This year, we expect to significantly increase the number of new iGaming titles, and we will also begin distributing our first third-party games. Our PlaySports solution powers over 60 venues in more than 20 states and was recently recognized as the Platform Provider of the Year at the SBC Awards North America. The turnkey sports betting solution is gaining traction, including new partnerships with Meruelo Gaming and Cliff Castle Casino. We also have a robust pipeline of new turnkey customers teed up for 2022.

We are making progress on creating a strategic optionality for the digital and betting segment. The separate legal entity and organizational realignment is underway along multiple work streams. It's an exercise that will likely last until year end. Like many others, we are facing some incremental near-term challenges in four main areas: the impact of the Omicron variant in certain markets, labor shortages, increased supply chain pressure and cost inflation.

Omicron has impacted Italy lottery sales, especially venue-based draw games, like Lotto, since late December. It has also led to incremental casino restrictions, mostly outside the U.S. We have found that negative COVID-related impacts on lottery sales proved to be short-lived. In addition, casino GGR trends and our sales funnel remains strong in North America, which represents about 70% of our global gaming segment.

Low unemployment and higher attrition are impacting our ability to fill open positions as quickly as we'd like. We are investing in our people and have made talent acquisition and retention a top priority. IGT's culture of innovation and commitment to diversity and inclusion have proved to be important advantages in attracting and retaining talent. We are also experiencing increased pressure on product deliveries due to longer lead times and availability of certain components.

We are mitigating this by prioritizing key product and customer deliveries. A sustained focus on cost discipline and avoidance is also helping to mitigate inflationary pressure on things like components, freight and wages. It is hard to know if we will experience any impact from the conflict between Russia and Ukraine. We have minimal direct exposure to those countries, but the repercussions throughout Europe and the rest of the world are difficult to assess at this time.

Net-net, based on what we know today, we expect to offset the impact of the incremental headwinds and maintain the 2022 outlook provided in November. Six weeks in, I get more and more excited about what we can achieve in the next few years. The team is extremely motivated to deliver on the plan to take IGT to the next level, and I have tremendous confidence that we will do just that. And now over to Max for some insight into our financial results.

Max Chiara -- Chief Financial Officer

Thank you, Vince, and hello to everyone joining us today. The figures we reported today demonstrate the highly resilient nature of our business as we not only deliver meaningful revenue and profit growth year over year but also exceeded pre-pandemic levels on all key financial metrics. A high-level summary of our fourth quarter financial results with comparisons to both the prior year and 2019 is shown here on Slide 14. In the quarter, we generated over $1 billion in revenue, up 19% year over year on solid global same-store sales growth in lottery, higher replacement unit shipments and ASP in gaming and 25% growth in digital and betting, propelled by continued market expansion and customer demand for our products and technology.

Strong profit flow-through and operating leverage drove adjusted EBITDA to $387 million and the associated margin to 37%, up 31% and 400 basis points, respectively. It is important to mention that this substantial increase in profit already incorporates higher cost related to the reestablishment of incentive comp programs and favorable supply chain impact and work associated with establishing digital and betting as a separate legal entity. The solid financial performance and our rigorous approach to invested capital led to record level cash flow generation with cash from operations of nearly $400 million and free cash flow totaling $326 million, inclusive of favorable working capital performance, part of which is timing with Q1. I would now like to shift the focus to full year results to provide perspective relative to the multiyear outlook we provided during our investor day in November.

In 2021, we delivered over $4 billion in revenue with significant growth across segments versus the prior year. Strong operating leverage, bolstered by structural cost savings, drove significant increases in profit with over $900 million in operating income and nearly $1.7 billion in adjusted EBITDA, exceeding both prior year and 2019 results. As we continue to recover from the extreme measures taken during the pandemic, our cost structure is benefiting from the execution of our OPtiMa program, where we overachieved our $200 million cost savings target. As a reminder, about 3/4 were achieved in our P&L, while 1/4 of that was achieved with structural efficiency in our capital expenditure.

The overachievement piece to our cost savings target primarily comes from temporary actions that are an important mitigant to the increased supply chain costs, primarily in logistics that have impacted our '21 performance and will continue into 2022. More on that later when we speak about our outlook for '22. Cash flow generation exceeded our expectations with cash from ops of over $1 billion and free cash flow more than doubling to over $770 million, both record levels. Now let's review the results of our three business segments.

Global lottery achieved record financial results during the year. Revenue increased 30% to $2.8 billion as strong customers' demand drove global same-store sales up over 20% year on year and versus 2019. As a reminder, extremely high play levels in the first half of '21 were bolstered by certain discrete items, including gaming hall closures in Italy, elevated multi-stage productivity and LMA performance in the U.S. These items contributed about $165 million in revenue and around $140 million of profit.

The high flow-through of same-store sales growth and a positive geographic mix also led to record profit levels with operating income rising nearly 70% to $1.1 billion. Adjusted EBITDA increasing over 40% to $1.5 billion and operating income and adjusted EBITDA margins of 39% and 55%, respectively. Global gaming returned to profitability during the year with significant increases in revenue and profit compared to the prior year. Revenue rose 33% to $1.1 billion, driven by solid increases in active units, yields, number of machine units sold and ASPs.

The installed base in North America reflects changes in the WLA markets of Delaware, New York and Rhode Island. Unit reductions in this market of about 840 units year over year and 650 units sequentially were partly offset by increases in the balance of the portfolio. In the rest of the world, the installed base rose over 380 units year on year and 180 units sequentially, primarily driven by increases in Latin America and plus two units in South Africa. Global unit shipments increased 62% year on year as operators began increasing capital budgets in the midst of the market recovery.

Shipments totaled 57% of pre-pandemic levels during 2021, indicating there is still some runway to a full recovery in this area, which we don't expect to happen completely until 2023, although we expect North America unit shipments will get close to 2019 levels in 2022. IGT sold over 23,800 units globally during 2021 compared to about 14,700 units in the prior year and at higher average selling prices. 2021 ASP of over $14,000 exceeded both prior year and 2019 levels on an improved mix of products and new cabinets. Strong operating leverage, which was accentuated by savings realized from the OPtiMa program, drove a substantial recovery in operating income and adjusted EBITDA with contributions of over $40 million and $170 million, respectively.

Operating income margins in the fourth quarter reached 11%, nearly matching the 12% pre-pandemic level achieved in the fourth quarter of 2019 and are expected to continue to improve in 2022. The digital and betting segment continues to grow at a fast pace, generating revenue of $165 million in 2021 with double-digit growth achieved in both iGaming and sports betting. This growth is propelled by new market adoption, new customers and organic growth. We completed the successful launch of iGaming in both Michigan and Connecticut, and so our sports betting footprint expand to over 60 sports books.

Operating income grew to $33 million, and the operating margin reached 20%, a solid profit contribution from an emerging business and a nice profit flow-through even with increased investments in talent and resources to fund future growth. Adjusted EBITDA increased to $48 million, more than double the prior-year level. As I mentioned earlier, exceptional operational performance and disciplined capital management led to a record level of cash generation which, in addition to approximately $900 million in net proceeds from the strategic sale of our Italy gaming business, allowed us to reduce net debt by $1.4 billion. Leverage is down to 3.5 times, the lowest leverage in company history, and reaching the 2022 year-end leverage target 12 months early.

With the improved risk profile, we now have a more balanced capital allocation framework that once again includes shareholder returns. In Q4, we reinstated a quarterly dividend and implemented a $300 million share repurchase program, the first in company history. We delivered over $80 million to shareholders during the quarter, including about $40 million in the purchase of 1.5 million shares at an average price of just about $27 per share. Based on recent SEC filings, you can see we continued repurchasing shares in Q1 with another 570,000 shares repurchased through February 9.

Proactive management of our capital structure continued during the year, as evidenced by the redemption of nearly $1 billion of euro notes. The refinancing of another $1 billion in U.S. dollar notes at a lower interest rate and the successful amendment and extension of our term loan facility. The reduced debt, increased liquidity and extended maturities have greatly improved our credit profile and lower interest expense by about $60 million during the year.

We also recently accomplished the goal of raising our credit ratings, restoring our pre-pandemic levels. Last month, S&P and Moody's upgraded our corporate credit rating to BB+ and BA2, respectively, citing the strong performance, improved leverage, EBITDA margin improvement and the use of asset sale proceeds to reduce debt. These latest actions position us very well in the fixed income market going forward and strengthen our conviction in pursuing our long-term leverage objective. Our debt portfolio is favorably structured in the current market environment with a heavily weighted mix of fixed to floating rates and no large near-term maturities.

In conclusion, let me summarize by saying 2021 was a very successful year, with compelling progress made on many growth initiatives and the successful achievement of our financial goals, with all key financial metrics exceeding 2019 levels. We reduced debt and leverage to record levels and increased capital returns to shareholders. More broadly, over the past couple of years, we have built a solid foundation for profitable growth in the future as we drove an accelerated recovery from the pandemic, readied our company to capture potential portfolio opportunities and realign our portfolio to high growth opportunities. Based on the strong performance of 2021 and despite the recent headwinds, we are reaffirming the 2022 full year guidance we provided at the recent investor day.

We currently expect to deliver revenue of approximately $4.1 billion to $4.3 billion, operating income margins of 20% to 22%, cash from operations of between $850 million and $1 billion and capital expenditures ranging from $400 million to $450 million. Leverage is expected to remain around 3.5 times x in '22 with some variability quarter to quarter. The leverage outlook excludes any positive impact from the recent -- from the receipt of proceeds from the recently announced sale of our commercial service and payment operations in Italy. On a pro forma basis, we see a further improvement in our leverage ratio to the tune of 1/4 of a turn.

That transaction is expected to close in the third quarter of 2022. As Vince mentioned earlier, we are managing through some headwinds caused by near-term market dynamics. We're confident we can mitigate the impact of these items with incremental product sales, financial rigor on cost and lower depreciation and amortization related to the capex efficiency as well as timings of spending. It is fair to mention that our outlook does not factor at this point any material consequence from the recent conflict in Ukraine given our limited direct exposure to the affected region, although we continue to monitor events very closely and we'll adjust our posture accordingly as events unfold.

In order to provide some indications with respect to the first quarter of 2022, we expect to achieve revenue of $1 billion to $1.1 billion and operating income margins of 20% to 22% in the quarter. This outlook implies a sequential improvement in profit from Q4 '21. That concludes our prepared remarks. Operator, would you please open the line for questions? 

Questions & Answers:

Operator

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

Carlo Santarelli -- Deutsche Bank -- Analyst

Hey, good morning, everyone, and thanks for taking my question. And, Vince, welcome. If you don't mind, Marco, you talked a little bit about how you were seeing the 2022, and I believe Vince mentioned it as well. But when you think about kind of the product sales replacement environment out there, obviously, you said -- I believe the comment was you could get levels to approaching 2019 for sale levels.

When you look at operator capex budgets, some of the larger ones that have reported thus far, they seem to have expanded somewhat materially. And I'm just wondering is the demand and the order flow kind of what you see right now roughly in line with 2019? And are there any kind of hindrances related to some of the supply chain issues or anything else? Or is it just kind of a market facility that the product is there? It's just kind of a little bit of waiting to see how everything flows through.

Vince Sadusky -- Chief Executive Officer

Hey, Carlo, thank you very much. It's Vince. I'll take the question. Look, I just spent a couple of weeks in Las Vegas meeting with our largest casino customers.

As I've been learning the business, I have spent quite a bit of time with our internal team, really dug into our supply chain issues and our sales funnel. And I guess just a couple of observations that I've had. One is 2021 was clearly a record year for casinos anecdotally in some conversations with some of our largest customers. They had mentioned they've had some of their greatest days and weeks, specifically in their slot business than they've had, in some cases, ever.

So that's incredibly encouraging for us, of course. And there is absolutely pent-up demand given the disruption that took place with casino closures and then kind of slow reopenings throughout the entire COVID disruptive period. I think that the recovery was somewhat impacted by Omicron more internationally as all U.S. jurisdictions remained open, but certainly in Europe and Latin America.

I'd say that our customer sentiment is really excellent, and it's very clear that they need and want to invest in the slot floor. Many are talking about how their average yield per game has gone up significantly and they've -- I've really not seen something like this since my association with the IGT side of the business for more than a decade. So that's very exciting. Yes, as we mentioned, our challenges are really in delivering.

We are experiencing increased supply chain, component parts, shipping challenges. I think our casino customers understand that that's going to affect -- or has affected and will continue to affect lead times and it is adding a cost element as well. However, this company, I think, as you've seen in my exposure to the company over the years of being a board member, has done an excellent job and constantly looking to work and refine costs and find opportunities to help to offset what we all hope and believe is short-term and temporary situation on the supply chain and component part manufacturing front, but the reality is none of us really know. So we think we can manage through that.

But it's a very good situation having demand stronger than I think we've seen in a long, long time.

Carlo Santarelli -- Deutsche Bank -- Analyst

That's helpful, Vince. Thank you very much And then it's been about 3.5 months since you guys hosted your analyst day and provided the outlook for not just 2022, but for the longer term. And speaking specifically to 2022, obviously, the ranges that you guys put forth, whether it was operating margins or revenue ranges, you've reaffirmed them this morning. And I'm just wondering if you think about some of the things that you talked about, whether it was the labor, whether it was the supply chain issues, inflation are creating some headwinds.

If you had to -- and I know this probably won't be an easy question, but if you had to try and think about the impact of all that stuff, and how much it's maybe changed within your thinking over the last 3.5 months, is that a significant number in terms of maybe the worsening of some of those factors over that period from the analyst day to today?

Max Chiara -- Chief Financial Officer

Carlo, hi. This is Max speaking. So we identified in our material, some of the headwinds that we have been experiencing recently. And when we compare the situation today versus the situations we had at the beginning of November, I would say that probably the biggest one, which really has made an impact is Omicron.

The expectation, though, is that this impact is only temporary in nature. So we started to see some weakening in December, primarily in the European markets, and obviously, also continuing into the first part of the quarter. But as you are seeing out there, the situation is improving. So we expect that impact to kind of hopefully mitigate.

We have mitigation actions in place, as we mentioned as well in our remarks, increased product sales, which are happening right now across the board in different jurisdictions, both from the -- primarily from the lottery business, but also, as Vince just said, strong pipeline of product sales coming also to fruition in gaming. The supply chain deserves a slightly different comment. It is true that we are affected by higher supply chain costs versus our original estimate. As you may remember, we said about $10 million in '21 and maybe double in '22.

I think we are running higher than that. But with our ability to hold costs back on top of the structural OPtiMa savings, I think we have a buffer we can play with to kind of fend off those costs, especially in the first part of '22, where we expect those costs to be biting the most. And then lately, there is a slight deterioration in FX versus the assumption used at the planned period of 1.18. Now FX is about 1.13, 1.14.

That has also some implications, but not material. So net-net, with our offset capacity, we felt confident to hold the guidance, to hold the line on the guidance for '22 vis-a-vis what we provided at the investor day.

Carlo Santarelli -- Deutsche Bank -- Analyst

OK. Thank you, both, very much. 

Operator

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

Chad Beynon -- Macquarie Group -- Analyst

Hi, good morning. Thanks for taking my question. I wanted to start with the commercial service sale announcement. Can you talk about why now was the right time? Was it just really kind of coming together of your future vision and there was an offer on the table? And then also related to that, I know that the margins of this business were lower than the rest of what you report in lottery.

Can you talk about anything else that affects the model? Were there any other shared services in the Italian lottery segment as well? Thanks. 

Vince Sadusky -- Chief Executive Officer

So I'll start and let Max make a few comments as well. Getting my arms around this particular part of the business, this business had been around for quite some time. It was always viewed as noncore. It really doesn't -- isn't critical to our growth plans going forward.

And so over the last several years, the company's done a great job of separately identifying this business within its internal operations. And I think as the company has demonstrated from several transactions over the last few years, it remains opportunistic when there is the opportunity to monetize at a very attractive multiple operations that are nonstrategic. So I think the company felt as if this was a great opportunity to take advantage of the multiple very accretive transaction for the company, the ability to pay down debt and refocus or continue to focus on its core operations of lottery, gaming, and digital.

Max Chiara -- Chief Financial Officer

And just to complement on what Vince said, yes, you're right, Chad, the margin was below our average. So effectively, the impact going forward is probably accretive to the margin of our lottery business. But you have seen also in the press release we issued yesterday what the numbers are that are generated by this business. They have been in that ballpark for some time.

So I think you can extrapolate from that impact to the plan that is definitely not going to be material in any circumstance. And so I think we are confident that we are still within those ranges also long term that we provided back then. The important thing, as Vince mentioned, is that we will be able to put these net proceeds that work right away as soon as we close the transaction and further our leverage journey to our ultimate target.

Chad Beynon -- Macquarie Group -- Analyst

Great. Thank you. And then is there any update on lottery contracts in the U.K. or New York? I believe those were kind of the big ones that we had on our list of potentially in the first half of 2022.

Thanks.

Vince Sadusky -- Chief Executive Officer

Yeah. With regard to the U.K., as I'm sure you know, Camelot is the incumbent operator. And we are part of that group by providing our technology and products and services. The current contract was extended, but competition for the fourth license is underway, and we're not able to publicly comment on the process at this point.

But an award of the new license is expected to take place soon. On New York, our lottery supply contract was extended through August of 2022, and we expect an RFP for the next contract to be issued pretty soon. But given the time left on the contract and the process, we'll likely get another extension.

Chad Beynon -- Macquarie Group -- Analyst

Great. Thank you very much, guys. Appreciate it. 

Operator

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

Barry Jonas -- Truist Securities -- Analyst

Thank you very much. Marco, I'm assuming this is your last regular call. So I just wanted to say it's been a true pleasure and congratulations on your new roles. Vince welcome.

And just to be clear, should we expect any changes as you settle into the CEO role?

Vince Sadusky -- Chief Executive Officer

Yes. Thank you. No, you really should not. I've been associated with companies in the past where I've come in and the companies have been struggling.

And really, it was a complete redefinement of strategy and purpose, execution and personnel. This is the exact opposite scenario, being very familiar with the company being involved in its annual strategy and goal setting, budgeting and strategic planning and having a great familiarity with the team and the changes that have been made structurally and breaking the business into clearly defined segments and the definition around value creation that I think the company did an excellent job of laying out an investor day, those are all things that as I mentioned in my comments, and I mean it, I'm very, very much -- very comfortable with that. And I really am here because I feel as if there is terrific value creation capabilities from this company based upon the plan it laid out by pretty much any metric, any comparable you can take a look at. So I'm excited to be here and help to execute on the plan that I think is very well laid out, a very strong combination of shareholder returns, growth opportunities, cash flow.

And these are things that I think, over time, with good description of what the objectives are coupled with, of course, performance, I think will definitely become evident. And I'm excited about that and feel very fortunate to be in this operating role at this juncture in the company's evolution.

Barry Jonas -- Truist Securities -- Analyst

That's great. And then just as a follow-up question. I know the process is moving along. But as recent market conditions affected your digital and betting, listing and your spin-off review process, I guess, what are the decision tree points from here?

Vince Sadusky -- Chief Executive Officer

Yeah. I think the exercise of separating the iGaming and sports betting business makes perfect sense. The time line is one that just simply takes some time. Not just kind of the physical separation, the financial and legal separation, but the time it takes to gain regulatory approval.

And this company, it's very critical that this company continues to be incredibly focused on the regulatory environment. It's gaming licenses, give it the right and opportunity to be competitive in this space. And that's something the company has always taken with the utmost sincerity and focus. And so we -- as you'd expect, given that DNA, the company is being incredibly thoughtful around ensuring that it does the separation perfectly and that it is in complete compliance, that, I think, over time, will also be a key differentiator for IGT versus companies that don't have that same focus and attention.

Having said that, there was a very, very strong valuations for iGaming and digital and betting companies, as we all know, that those multiples contracted significantly going into the fourth quarter and are perpetuating today in a down market. So I think the nice thing about the time it's taking to actually physically enable the separation will give us plenty of time to think through that strategic alternative as to whether or not it's a separate listing or continues to be a stand-alone operating subsidiary, 100% owned by IGT. So I like the fact that we don't need to make any quick decisions. Our approach to it would not enable that anyway.

And I do believe the focus here should be and is by the company on the industrial strength and whether or not this makes good business sense. But I think the key differentiator with our business is the fact that we are 100% compliant. We operate in legal markets. We are -- we have great expertise here.

We are sticking to our strategy and our knowledge of being a trusted B2B provider. So I think we've carved out a very specific niche in something that is very, very core to our competencies in land-based gaming. And I do think that we've grown the business or when I say we, the company, and I now get to take credit for the company growing the business in a profitable and responsible way. So I'm excited about this business.

I think this is something that is tremendously undervalued. And for purpose of this conference call, I'll stop there. But at some point, happy to share more thoughts around the value of this operation.

Barry Jonas -- Truist Securities -- Analyst

Perfect. Thank you so much. 

Operator

[Operator instructions] Our next question comes from the line of Ben Chaiken from Credit Suisse. Your line is now open.

Ben Chaiken -- Credit Suisse -- Analyst

Hey, how's it going? As you mentioned on the call, you reached 3.5 times leverage a year early. And then including the sale announced yesterday, you're going to further delever another quarter of a turn or more and get closer to your 2025 leverage target range. Does that change how you think about your repurchase cadence or the pace of other investments?

Max Chiara -- Chief Financial Officer

So thank you for the question, Ben. The point here is the following: First of all, when we launched the buyback program, we were very clear that this was a multi-annual initiative We have -- since then, we have started executing, we have accumulated about 2 million shares so far. So we are along the way with the program, but we should not dismiss the fact that our credit agreement configurations has a structural limit on our payments to the stated payments, which are dividends and buyback a part of it, to $300 million per year. So with the dividend underway and a run rate, let me say, of buyback, I think we are kind of hitting that threshold.

So the next move really is to strengthen our credit weighting further, particularly on the Moody's and to be able to kind of lift up that limit from $300 million to $400 million as already prescribed by our credit agreement. And so that's why I think accelerating on the deleveraging and retiring some debt down the road would probably help us getting there faster. 

Ben Chaiken -- Credit Suisse -- Analyst

Got you. That's super helpful. And then can you -- are you able to -- are there any kind of KPIs we should think of? Can you just remind us of what this might be to increase that restricted payment basket that you're mentioning above $300 million, like what do we need -- is it a leverage target? What is it?

Max Chiara -- Chief Financial Officer

No, the only KPI that is relevant to increase that limit from $300 million to $400 million is to have two ratings in the crossover space, one notch below investment grade. So we are there with S&P already at BB+. We are one notch below with Moody's, at BA2. We need to be BA1.

So that's why the deleveraging, and the reduction in gross debt is the mainstream approach to be able to increase that limit.

Ben Chaiken -- Credit Suisse -- Analyst

OK, great. Thank you very much.

Operator

Our next question comes from the line of Jeff Stantial from Stifel. Your line is now open.

Jeff Stantial -- Stifel Financial Corp. -- Analyst

Great. Thanks. Good morning, everyone. Marco, Vince, let me echo everyone's present here and also say congratulations to both of you on the new roles.

First off, I wanted to follow up on some of the questions here on the sale of the commercial services business. As you look across your portfolio, are there any other remaining noncore assets that you would consider fully monetizing? Or does the current [Inaudible] given the remaining cross-product synergies?

Vince Sadusky -- Chief Executive Officer

No, I would say the portfolio at this juncture is reflective of our key operating segments. And I think that the opportunities to monetize noncore assets have been taken the companies I think done a terrific job of that, has been really focused on things that where businesses they've built up over the years were acquired. And then ultimately, I think we're very smart and very patient around the ultimate monetization of these waiting for a really terrific opportunity. But I think at this point going forward, we -- the operations, the material operations are important to the business and are important to achieving our operating goals.

Jeff Stantial -- Stifel Financial Corp. -- Analyst

Right. Perfect. That's helpful, Vince. Thank you.

And then for my follow-up, you talked to some potential opportunities for tuck-in M&A. I'm guessing it's more on the digital and betting front. I just want to follow up on that. Are you seeing any interesting studios or technologies up for sale? And what are general seller expectations like these days in light of rising interest rates and the general macro uncertainty?

Vince Sadusky -- Chief Executive Officer

Yeah. Again, I think in order to grow the digital and betting business and have it become a more material contributor to our future cash flow, there is an opportunity for us to continue to invest in people and technology. And I think that we've proven we have a right to win in this business as the company has done a very good job of porting its land-based games over to a digital environment. And when you look at the data, as each one of these jurisdictions opens immediately, there is great brand recognition from having these titles and these beloved games in the marketplace in casinos for decades.

Next is the growth opportunity beyond the initial titles, which is -- has a lot to do with the velocity of introducing new games into the marketplace. And that's an area that we are very focused on. And that's an area you could envision we could accelerate and improve and increase our market share through some M&A help. And that would clearly be focused on the combination of the technology and the content side.

Having said that, I think the value -- the valuation of digital entities in any industry is relative to a certain point in time, market sentiment. And I think the company has done a great job to this point of not writing big checks for unprofitable businesses, justified based upon an operating need. I think the company did the right thing, focused on its internal capabilities for a long period of time, proved out the model that it actually could be profitable early days and has gotten to a very good place. Going forward, I'd say the marketplace has gotten much better and much more reasonable in terms of value of these companies.

And that has made it more attractive to consider some M&A assistance to help us in the areas where we really want to grow around technology and content. So that's the way I view it at the moment.

Jeff Stantial -- Stifel Financial Corp. -- Analyst

Perfect. Thank you. That's very helpful. That's all I have me.

Thanks very much, Vince. 

Operator

We will take our last question from David Katz. Your line is open.

David Katz -- Jefferies -- Analyst

Good morning, everyone Thanks for taking my question. Marco, very much appreciate and enjoyed all the time and attention. So good luck. I wanted to just talk about the premium installed base.

And it's an area that we've sort of focused on, and I know Vince sounds as though you're just diving into that. What are your impression so far? And what needs to happen for that to start to assume an upward trend line, both in units and the win per day, obviously, was very good in the quarter. But given its outsized impact on earnings accretion, I'd love your impressions on it so far.

Vince Sadusky -- Chief Executive Officer

Sure, sure. So my view early on into the process is the participation games are really driven by the -- largely by the marketplace, both, as you mentioned, yield, I think, has a lot to do with it and players' preference for a particular type of game within the lease space. So the good news is yield is very strong. Some of the strongest yields casino operators have seen certainly in the last several years.

And the expectation is that will -- that's sustainable and can continue. So that helps the market considerably as these games are incredibly attractive to casino operators. Of course, the other piece of it is having games that are in the kind of subcategory of lease games that are attractive and that and that perform. I mean at the end of the day, that's our job, that's our team's job, is to produce great games based upon our historical knowledge, our knowledge of game mechanics, our creative content.

We've got studios all around the world. And ultimately, there's been a trend of casino operators moving more and more of their floor toward wide-area progressive. And I think there -- or I'm sorry, two MLPs from lab machines. And I think that that's an area where the company has not performed as well as it could have.

And I'd say early signs are -- not early signs, but signs over the last year or so are very encouraging, where we've gotten a lot of games under the casino floors. They performed well. And what I've seen in the pipeline is pretty exciting. These games take some time to actually develop and bring to market, go through a regulatory process.

So the process began long before I got here in the focus and investment in R&D in this particular area. And it's an area that I spend quite a bit of time really challenging the team from a studio's perspective and digging into the data on some of our trials and some of the test banks we've done, and I'm very encouraged. I believe that we have products that are very competitive on the floor as well as new products coming out that show great size of continuing that momentum. So that is absolutely an area that the company is very, very focused on and directing a lot of its creative and technical talent.

David Katz -- Jefferies -- Analyst

OK. Thank you very much.

Operator

There are no further questions at this time. I will now turn the call over to Vince Sadusky, IGT CEO. Please go ahead, sir.

Vince Sadusky -- Chief Executive Officer

Well, I'd just like to say a couple of closing remarks. I think the 2021 results clearly highlight the vitality of the company's portfolio. I think we're in great operational and financial shape as we look to execute on our long-term goals. And personally, I enter my role with a high level of comfort with confidence in the company and confidence in the leadership team, and, of course, with the strategy to grow, innovate and optimize.

Thank you all for your time this morning. I look forward to meeting you at conferences and road shows we have planned this year.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

James Hurley -- Senior Vice President of Investor Relations

Marco Sala -- Executive Chairman

Vince Sadusky -- Chief Executive Officer

Max Chiara -- Chief Financial Officer

Carlo Santarelli -- Deutsche Bank -- Analyst

Chad Beynon -- Macquarie Group -- Analyst

Barry Jonas -- Truist Securities -- Analyst

Ben Chaiken -- Credit Suisse -- Analyst

Jeff Stantial -- Stifel Financial Corp. -- Analyst

David Katz -- Jefferies -- Analyst

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