Hello, and welcome to the International Game Technology Q2 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer. If you'd like to ask during this time, simply star one on your phone. If you would like to withdraw your question, again, press the star one. I will now turn the conference over to Jim Hurley, Senior Vice President of Investor Relations. Please go ahead.
Thank you for joining us on IGT's Q2 2023 conference call, which is hosted by Vince Sadusky, our Chief Executive Officer, and Max Chiara, our Chief Financial Officer. After some prepared remarks, Vince and Max will be available for your questions. During today's call, we'll be making some forward-looking statements within the meaning of the Federal Securities laws. Forward-looking statements are not guarantees. Our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. During this call, we will discuss certain non-GAAP financial measures.
You'll find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP 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. Now I'll turn the call over to Vince Sadusky.
Thanks, Jim. Before we begin, I'd like to take a moment to honor Fabio Cairoli, who led our global lottery business until his untimely death a few weeks ago. Fabio was part of the IGT family for over a decade. He was an outstanding executive, distinguished by his passion, drive, sincerity, and commitment to results and innovation. He led an incredible team of world-class talent, and IGT's global lottery leadership expanded under his stewardship. Fabio left an indelible mark on IGT and the industry, and he will be missed. Turning to the news of the day, our Q2 and first half results reflect solid momentum across all business segments. Reported revenue was up 2% in the first half of the year, but up an impressive 10% when we adjust for the sale of Italy commercial service.
This includes 5% growth for global lottery, a 15% increase for global gaming, and 27% PlayDigital growth. We delivered over $500 million in operating income in the first six months. The 24% operating margin achieved in both the second quarter and the first half met the high end of our outlook, fueled by nice margin expansion for each segment. We earned approximately $900 million in EBITDA in the first half, and the EBITDA margin expanded 140 basis points to 42%. Based on the strength of our first half results, we are raising our outlook for the year. We strengthened our global lottery leadership in the year-to-date period with the focused execution of key strategic initiatives. 5% same-store sales growth highlights the vital impact of game on innovation and portfolio optimization on lottery growth.
There's no better proof than the 9% Italy same-store sales expansion in the first half, a remarkable achievement considering the scale and scope of our Italy lottery business. Sustained success of the new EUR 25 Vinci in Grande game, in addition to the popularity of the EUR 0.50 game, is helping to grow the player base and drive a double-digit increase in ticket sales. Draw games were also up on 10eLotto performance and the contribution from new game mechanics, such as Gong and the addition of a second draw for MillionDAY. Outside of Italy, 4% same-store sales growth reflects low single-digit expansion for instance and draw games, and over 20% growth for multi-jurisdiction jackpot games. Last quarter, we mentioned the impact that several large jackpots were having on North American same-store sales in April.
Notably, North America monthly same-store sales trends improved progressively during the second quarter and have improved further in July. We've bolstered our industry-leading contract portfolio over the last few months. We went live in Connecticut as the lottery's new FM provider. In addition, an IGT consortium won an exclusive 20-year concession to operate instant and passive lottery games in the state of Minas Gerais in Brazil. Our re-entry into the Brazilian market represents an important foothold in what we hope to be a more significant long-term opportunity. We continue to make excellent progress in iLottery. Global iLottery sales are up over 70% in the first half, reflecting strong trends around the world, especially for eInstant. Compelling new games such as Reef of Riches, a multi-level progressive jackpot launched in North America during Q2, is building on the sustained success of key franchises like Cleopatra Clusters.
Italy iLottery sales are also benefiting from app upgrades and the synchronized launch of games across digital and land-based channels. We recently executed an eInstant cross-licensing agreement with FDJ, operator of France's national lottery. The focus is to leverage FDJ's full suite of eInstant games in Italy and IGT's full suite of eInstant in France. We also won an eight-year contract with the Connecticut Lottery in a competitive procurement process to launch its first-ever iLottery system to sell Keno and draw-based lottery games. We expect to be live in late fall this year. Turning now to global gaming, where momentum in our business continued across all KPIs. This drove strong revenue and profit growth in the first half, up about 15% and 30%, respectively....
We shipped over 16,500 units in the first half, a 15% increase from the prior year, including record levels for a first-half period in the U.S. and Canada, where we maintain the leading ship share. Global ASPs were up 13%. Our focus on multi-level progressive games, including popular new titles such as Raise the Sails and Cats Wild Serengeti on the PeakSlant49 cabinet, is an important driver of these strong results. Another is the growing demand for our DiamondRS cabinet, especially for Legend of the Phoenix and Double Chili Mania, which is among the top-ranking games in the new core mechanical reel segment. We bolstered our VLT market leadership with recent contract awards in Western Canada and Alberta.
Focused product strategies are also driving improvement in the installed base, which was up 9% from the prior year, complemented by higher yields. Q2 marks the fourth consecutive quarter of sequential install base growth, including in the US. We expect to maintain this momentum with a strong and growing suite of MLP games. Prosperity Link's success continues to expand. There are now over 2,500 units in the field, it's been an important driver of the more than 25% increase in our MLP install base over the last 2 years. Excitement is building for Mystery of the Lamp on our new PeakCurve49 cabinet. In fact, Mystery of the Lamp themes secured the top 2 spots for new premium lease games in a recent Eilers survey.
The rest of world install base is up 19% in the last year, fueled by progress in Latin America and EMEA. That's having a beneficial impact on rest-of-world yields, which are up nearly 25% in the same period. Our IGT Advantage central casino management system was selected to power the recently opened San Tan Mountain Casino in Arizona. It has also gone live at the Potawatomi Casino Hotel Carter, and will power the Rio Hotel and Casino in Las Vegas beginning in Q4 this year. In both instances, we replaced a competitor system, which is a true statement to our powerful, expanding suite of system solutions. During the quarter, we announced a new 10-year licensing agreement with Sony, extending our 25-year partnership for the Wheel of Fortune brand through 2034.
IGT's Wheel of Fortune slots is the most successful licensed slot theme of all time. This agreement grants us exclusive brand rights across gaming, lottery, iLottery, and iGaming. Moving to Play Digital, where growth accelerated in Q2. GGR momentum for Play Digital's games is supported by a proven core strategy of porting top-performing land-based games to the digital channel. In fact, our Fortune Coin, Cash Eruption, and Cleopatra games scored the top three spots on EGR North America's June 2023 U.S. slot ranking. Play Digital has a unique assortment of progressive jackpot and omnichannel WAP games. This includes Wheel of Fortune Triple Gold Gold Spin in New Jersey, the first-ever omnichannel WAP game in the United States that launched during the second quarter. IGT is the only company with a true omnichannel WAP offering, where multiple games across multiple channels share a common jackpot.
We launched our first omnichannel game in the Canadian market 7 years ago with our highly successful Powerbucks franchise, which was recently extended to Alberta, along with several other popular Mega Jackpot games. It's an exciting area of incremental opportunity for us, one that is unique to IGT. In the balance of the year, we plan to launch a host of new game features to advance our core iCasino strategy, in addition to introducing a slate of top-performing iSoftBet games to the U.S. market. We expanded our long-term relationship with Rhode Island Lottery with the recent approval of iGaming in the state. Beginning next year, we will be offering iCasino games in Rhode Island through a joint venture with Bally's. In addition, we extended our sports betting contract with the state for 3 years.
We continue to grow our sports betting customer base with our market-leading turnkey solution, were recently recognized as Sportsbook Supplier of the Year at the 2023 SBC Awards North America. IGT has made important strategic progress over the last few years. We reorganized the business by global product responsibility, simplifying our organizational structure and our financial disclosures. We monetized non-core assets at attractive valuations and significantly reduced structural costs. At the same time, we made important investments in growth, especially in the B2B, iCasino, and iLottery space. Our actions, coupled with the strong cash flow generation of the business, enabled us to reduce our debt and leverage, greatly improving our credit profile. We have also enhanced shareholder returns by establishing the company's first-ever share repurchase program. These changes have transformed IGT into a company with higher growth prospects and a better profit profile.
We conveyed that at our November 2021 Investor Day, when we issued 2025 goals that we believe can create significant value for shareholders. In June, we announced the board is evaluating potential strategic alternatives for the global gaming and PlayDigital segments. While there is no update to offer at this time, the goal is to unlock the full value of IGT's market-leading assets, which we don't believe is accurately reflected in the share price. We are fortunate to be undertaking this exercise from a position of strength. There is good momentum across lottery, gaming, and PlayDigital, and a clear path to achieving our 2025 targets for each segment. I'll turn the call over to Max now, who will provide more insight into Q2 performance and how we're tracking to those 2025 targets.
Thank you, and hello to everyone joining us today. Before I start, I also would like to join Vince in the honoring of Fabio, a close colleague and a friend. Moving to our financial review now. IGT reported very strong second quarter 2023 results this morning, meeting the high end of expectations for both revenue and profit. Revenue of $1.06 billion increased 3%, driven by strong key performance indicators and player demand trends. Revenue grew 11% when we adjust our results for the sale of the Italy commercial service business last September. Operating income rose 10% to $251 million, and adjusted EBITDA increased 8% to $443 million. Net of the commercial service sales, OI and adjusted EBITDA grew 17% and 12% respectively, driven by solid contributions from Global Lottery, Global Gaming, and IGT PlayDigital.
Operating income margin increased 150 basis points to 24%, achieving the high end of the outlook range on strong margin expansion across segments. As a reminder, reconciliations of operating income to adjusted EBITDA are provided in the press release and appendix of this slide presentation. We delivered diluted earnings per share of $0.23 and an adjusted EPS of $0.45. The year-over-year difference is primarily attributable to a higher quarterly effective tax rate, which is expected to normalize in the back half of the year. Let's review the results of each business segment, starting with Global Lottery. Revenue declined 4% in the second quarter to $624 million, but increased 8% adjusting for the sale of Italy Commercial Service. Global same-store sales increased 2%.
Breaking that down geographically, Italy same-store sales rose a nice 8%, with continued momentum in both instant ticket and draw games, while North America and rest of world were relatively flat year-over-year, impacted by lower jackpot activity to the comparable period. Product sales rose 30%, primarily from a multi-year lottery central system license in Switzerland. Operating income of EUR 229 million and a 30% OI margin, which improved 120 basis points from the prior year, were driven by profit flow through of Italy same-store sales growth, the high-margin software license, and increased LMA incentives trued up at the conclusion of the lottery fiscal year in June. As I mentioned last quarter, we expect lottery sales and margins in the first half of the year will be stronger than in the back half, given the normal cadence of the business.
In addition to the very strong jackpot activity we had both in Q3 and Q4 of last year, which we aren't planning to recur with the same intensity at this time. Although we anticipate the recent positive development of the multistage jackpot in July will be providing a relevant support to the Q3 dynamics. Switching to gaming, continued demand for IGT innovative products and services generated strong global gaming second quarter results. Revenue rose 13% to $373 million, propelled by robust product sales for both unit shipments and systems. Global unit shipments increased 15% year-over-year to almost 8,300 units. U.S. and Canada shipments of 6,300 units set a record for a second quarter period on 20% growth in casino replacement units.
Global ASP rose 13% to a record $16,500, with about 60% of the increase due to mix and the remaining 40% related to pricing. System sales were nearly 3 times the prior year level, primarily on the back of new installations executed during the second quarter. The global install base grew 9% year-over-year and 2% sequentially, with higher unit placements, especially for MLP games across geographies. Sequentially, the U.S. and Canada install base rose nearly 380 units on higher casino placements, while the rest of world increased about 875 units, primarily driven by growth in the Latin America and EMEA regions. Global yields were relatively stable, maintaining productivity at historically high levels.
Operating income for the segment was up 25% to $71 million, with OI margins improving 190 basis points to 19%, demonstrating the strong operating leverage of this business and tracking nicely to the 20+% OI margin expected in the back half of 2023. As many of you know, we undertook meaningful operational initiatives to remove structural costs from the business and made IGT more efficient and profitable with our OPtiMa program. Specifically for global gaming, we were able to structurally lift its run rate operating profit margin from the low teens in 2019 to the high teens in the first half of 2023, with the goal to get above 20% in the second part of this year.
As a result of the underlying structural progress being made in our product development processes and operations, under US GAAP, some of these operational initiatives are requiring the capitalization and amortization of costs that were historically being expensed as incurred. For example, enhancements to our approach to software development now requires the capitalization of certain development costs. Additionally, to ensure continued exclusive access to certain intellectual property, we have engaged with key vendors to enter into multi-year agreements at compelling prices. These changes mainly impact the global gaming segment, but there are also some impact to IGT PlayDigital. These process changes are more in line with industry practice, making us more comparable to peers. The financial impact includes about $30 million-$35 million benefit to operating income in both fiscal year 2023 and fiscal year 2024.
The benefit is mostly neutralized by fiscal year 2025, as we expect to achieve a balanced run rate of capitalization net of D&A within the next two years, resulting in no significant impact to the 25 OI margin target that we set out at our November 2021 Investor Day. Adjusted EBITDA is also expected to benefit by about $18 million+ and about $100 million+ in fiscal year 2023 and 2024, respectively. Conversely to why the EBITDA improvement is structural in nature, as D&A cost is not captured in the EBITDA formula. Moving to digital, strong North America GGR trends and the contribution from the iSoftBet acquisition, helped drive IGT PlayDigital revenue up 38% in the second quarter to $59 million.
Organic iCasino growth was driven by the strength of our game portfolio and a strategic focus to expand on IGT unique omnichannel and wide area progressive game offerings. Sports betting revenue rose on continued expansion of our customer base and organic growth in our established footprint. Operating income increased on strong gross margin expansion and despite higher investment in R&D and talent to support future growth. The Q2 and year-to-date operating margin of 31% and 29% respectively, demonstrate we are making good progress toward the 2025 target of 30+%. We generated very strong cash flow in the first half of the year, with cash from operations totaling $345 million. This includes the $205 million after-tax impact of the final settlement of the DDI/Benson matter.
Adjusted for this payment, cash from operations was $550 million, and we generated over $350 million in adjusted free cash flow year to date, a very strong result for a half-year period. I'd like to point out the definition of free cash flow has been amended to include the third license payments, which represent capital invested in game development and are a component of financing activities on the cash flow statement. In addition, the adjusted free cash flow metric adjusts for the after-tax cash payments associated with material litigation such as Benson. Net debt leverage of 3.1 times is up slightly on a sequential basis, but is in line with the prior quarter level of 3 times if you adjust for the 10 basis point impact of the DDI Benson payment.
Shareholder returns continue with $80 million in cash dividends paid to shareholders on a year-to-date basis. Total liquidity remains solid at $1.8 billion, with unrestricted cash of $500 million and $1.4 billion in additional borrowing capacity from undrawn credit facilities. Given the strong financial performance in the first half of the year, we are raising the full year 2023 outlook, increasing revenue expectations to $4.2 billion-$4.3 billion, reflecting the upper half of the previous range, and operating income margin to approximately 23%, the high end of the previous range.
Consistent with the expectations communicated during the fourth quarter 2022 earnings call, the full-year operating income margin includes about a 100 basis point negative impact from higher depreciation associated with returning to more normal investment in the gaming install base and restructuring charges, which are mostly expected in the back half of the year, and which we identified already at the beginning of the year as part of our guidance. About $25 million in project costs, comprised of carve-out financial statements and other advisory costs associated with the exploration of strategic alternatives for the global gaming and PlayDigital business. Those latter project costs should largely be offset by the capitalization benefits I mentioned earlier. We're also introducing our outlook for the third quarter, where we expect to achieve revenue of around $1 billion and operating income margin of 22%-23%.
As we are cruising towards the halftime of our long-term plan, we would like to provide now a status update on our long-term targets. We are progressing nicely towards the 2025 financial targets outlined at our November 2021 Investor Day. As Vince mentioned, we are laser-focused on achieving this target and driving the shareholder value that should naturally occur with this accomplishment. Several targets have already been achieved over 2 years in advance. We believe we are on track to successfully meet or beat all of the stated financial goals. The one metric where we are relentlessly working towards is the global gaming operating income margin. We reported 19% global gaming OI margin in the first half of 2023, with a 2025 target of 28%-30%.
The approximately 10 points of improvement are roughly split 50/50 between self-help items and market-driven items. The self-help items relate to the easing of the COVID-19-induced supply chain challenges, and to additional continued improvements in operating efficiencies we have targeted to reach within the next 2 years. This should add approximately 5 percentage points in our margin, again, with a 50/50 split from each of the 2 actions. The market-driven items relate to favorable mix and pricing in North America, providing another 2 percentage points of margin uplift at full execution, and to a full recovery in international markets, contributing about 3 percentage points in the margin.
In addition, all other items representing higher operating expense absorption, meaning the amount of SG&A and R&D costs that get absorbed by operating leverage, offset by other items, could be a swing factor of ±1 percentage point, bridging the rest of the gap to the targeted margin range. As you can see, a large chunk of these improvements are self-help related, and this gives us good comfort that we are on a feasible and realistic path to get to our margin target by 2025. In summary, very strong first half 2023 performance has allowed us to confidently raise our full year 2023 revenue and operating margin outlook. We have a solid foundation to build from as we continue to invest in our growth objectives, further reduce debt, and return capital to shareholders. I will now-
Operator, we're ready for questions.
Thank you. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. One moment, please, for your first question. Your first question comes from the line of Barry Jonas of Truist Securities. Please go ahead.
Hey, guys. to start, I just wanted to send my condolences for, for Fabio. I maybe, wanted to start with gaming. Just curious, if there's been any change in visibility since Q1. You know, many gaming operators seem to be dealing with tougher comps in, in the US at least, and curious if that influences purchasing behavior at all.
Well, thanks, Barry. Thanks for the comments. When it comes to gaming, you know, I think it's the, the demand for slot machine games continues to be strong. In addition to the, the market remaining robust, I think our teams have done, you know, a really outstanding job over the last several years of maximizing the return on our R&D spend and creating games that are very popular and, and, and very well-received. You know, we're very excited, of course, at the performance of Prosperity Link. To have that number of games in the market so quickly, with further demand throughout the rest of the year is truly terrific. It's really a blockbuster game. What we're equally as excited about is the Mystery of the Lamp game themes that we mentioned.
These games have been in development, by, you know, our top-ranked teams and, you know, also helped to bring us Prosperity Link. You know, having those ranked so high in test bank has created demand for those games prior to the launch. I think that that's really exciting. The marriage of software and hardware is critically important in our industry, and to have the PeakCurve 49 ranked as the number 1 new premium video reel cabinet as well, is, is pretty exciting. We think, there are, you know, real good reasons, to remain optimistic about the potential to sell and lease games into the market. In general, in the second quarter, I think the, you know, the slot GGR held up well.
You know, I think we, we all knew at some point the high growth levels would, would plateau, would moderate, but we're coming off of records. I think the fact that the play levels and yields are holding up is, is pretty, pretty impressive. One, you know, anecdote as well, I know there's a lot of data points around the various regions and, and it's hard to kind of absorb it all, but, you know, of course, Las Vegas Strip GGR is a, is a great barometer of the health of the industry. I, I know June's results just came out last week, and even though GGR was down a little bit, I think it was down, like, 1% or less than 1%, but, you know, slot GGR was, was up around 4% as well.
I think, you know, the slot market remains, remains really strong. I think the cash flow of our customers, of our casino operators, remains at record high levels, and I think as a result, they continue to invest in their facilities, and that's resulted, I think, in, in a sales funnel as we look out to the third quarter as, as, as pretty, pretty good, pretty, pretty strong. We do feel good about the opportunity. As a result of mix and also, you know, some sales price increases to help pay for all this R&D and all this, all this new great gear that we're releasing, you know, that's continues to... We continue to experience increases as well. I think that's, you know, points really, really well.
If there's any weakness for us, it's been, you know, we've seen it in the international markets, and that has more to do for sure with our own macroeconomic issues, not rebounding as quickly as North America. We've seen EMEA continues to perform below pre-pandemic levels. I think in Latin America, you know, there continue to be macro issues, high inflation, et cetera. You know, we view those as delayed recovery, and at some point, you know, those markets certainly will turn the corner, and I think that creates the potential for growth, you know, in future quarters internationally. For now, we feel, you know, very good about what we're seeing in demand in primarily in North America.
Great, you know what? Look, I, I, I know you're probably limited in terms of what you can say about the strategic alternatives process, but I guess I'll just throw out there if there's anything you can comment about the process, about the interest level, and maybe just, you know, how you sort of weigh the synergies between the three business units versus the, you know, the, the, the case for the market not appreciating the true value of each.
Yeah. In terms of, you know, just doing the math around not appreciating the true value, I think there's a limited subset of, of public companies in the supplier space, fewer in the lottery space, quite a few in the digital space. I think we've tried to, over the last several years, draw a perimeter around the three businesses and clearly delineate and disclose the performance of those. I think it's, you know, we're, we're clearly convinced that when you measure us up against the average, or you take another measure, just simply take cash flow yield up against other industries of, I think, a similar risk factor and credit profile, you know, we're convinced that we're, we're, we're behind.
You know, we covered all that off back in June when we announced, we're, you know, ourselves and the board have decided to move ahead with with evaluating strategic alternatives. You know, not much we can say, of course, until we have something to say, but, you know, we are fully engaged in the process. We've got a team that's that's been, been very busy. Again, we're, we're you know, we feel very strongly about the performance of our three businesses, as evidenced again by another, another strong quarter. I think the only comment I would say around the assets, that we've mentioned in the past is that we think, you know, gaming and PlayDigital, there's a lot of synergies, and those businesses belong together, and are...
In terms of synergies between lottery and gaming, you know, not that many. Easy, you know, I think an easy, fairly easy separation.
Thank you. Your next question comes from the line of David Katz of Jefferies. Please go ahead.
Hi, good morning. If I may, anything that, to... With respect to the timing on this process and how we might think about this if we're, you know, back here 90 days from now, where, where we might be? Then second, with respect to the gaming business, there are specific aspects or, you know, lines where you're having, you know, some, some strength of momentum, you know, some others, a bit less so. Can you just update us on, you know, any sort of forthcoming with G2E coming up, you know, what we might look for in terms of how those lines may continue, or shift, or change, or mix? Thank you.
Yeah, sure thing, David. No, no real comment on the timing of when we'll have something to publicly disclose on our strategic alternative review process. With regard to, to gaming, you know, I'd say, you know, the second quarter performance, we're, we're pleased with it. The KPIs were really strong. I'll remind everyone, for the first half of the year, we had record North American shipments. We've shipped more units than the company's ever shipped before. In North America, we also had record ASPs, both in North America, and we had record global ASPs as well. Again, I think, as I mentioned, the second quarter of this year was another consecutive quarter of sequential installed base growth.
I think it was up around 9% or so. We had quite a few systems wins as well, which I think demonstrates the superiority of our product. We think we've got continued opportunity to grow our installed base, both in North America and the rest of the world. I think yields for our machines, based on their performance, are close to records. I also think that the sales that we've experienced in North America is a true reflection of the popularity of the games.
When you think about the game categories, you know, I would say it's the strongest the company's been in a, in a long time, maybe, maybe ever, as we take a look at things like, you know, the PeakBarTop with our award-winning poker games. There's a, you know, very strong demand for those. That game doesn't get refreshed very often. It was a multi-year project to make a game that was really a, a very popular game better. There's, there's good demand for that. I think, you know, with our DiamondRS cabinet, we're in a similar situation. A classic stepper game that was very popular.
Years and years of research went into how do you not negatively impact the player's joy associated with that game, but yet come up with refreshed game themes and a, a refreshed cabinet? We find that that's, that's very good demand, and in fact, yields are higher on the new cabinets than the old cabinets, enough so that, you know, if you're a casino operator, you'd, you'd like to, you'd like to experience some of that, some of that yield increase. Then, of course, in the multi-level progressive space is where we've, you know, I think we've had some success where historically the company hasn't had a lot of success. We are excited about the, some of the, some of the new titles coming out.
In addition to the games I, I mentioned, Raise the Sails, for example, and Cats Wild Serengeti, have, have performed very well in test bank and, and we've got good demand in, in the marketplace. I, I think those are, are when you think about all of our product categories, we're, we're performing really well. Again, I think, best we've done in a long time, you know, maybe ever in, or, or at least in recent memory in, in all these categories. I'd say the, the area of weakness is around international, and again, I don't think, we don't believe that has much to do with the popularity of the games as, as it does with the, with the macro.
I think you've seen that, at least last quarter with, with, with some of our competitors, our public competitors reporting as well. Again, we view that as an opportunity. We think that's, that's got opportunity going forward, as at some point those economies will improve. Nonetheless, we have still increased our install base internationally, and we take a lot of that, is our ability to overcome the macro with the popularity of our games right now.
Perfect. Thank you very much.
Thank you. Again, a reminder, if you have a question, press star one on your telephone keypad, and if you wish to remove yourself from queue, again, press the star one. Your next question comes from the line of Chad Beynon of M- excuse me, Macquarie. Please go ahead.
Thank you. Thanks for the question. Condolences for Fabio as well. Max Vince, good morning. Wanted to ask about your guidance. Obviously, you're raising the guidance for the year. I think last quarter you talked about some macro conservatism in the back half. On the Q2 beat, are you still assuming some macro slowdown? Vince, you've, you've touched on some international markets that just haven't come back, but I'm just wondering if, if your change towards the back half has, has really changed, or your view towards the back half has really changed, or if, or if, this is just kind of a carry-through with the Q2 results. Thanks.
Hi, Chad. Can you hear me? It's Max here.
Yes, perfect. Thanks, Max.
Okay, very good. As you know, from when we first came out with the guidance for 2023, we maintained a level of conservatism as we were kind of looking around at what expectations were from a macroeconomic standpoint. At this point, I mean, with half of the year passed and a pretty decent environment around us, at least for the upcoming quarter, we grow more confident that, at least for 2023, particularly the North American market, could continue to close nicely and really avoid that significant slowdown that was at times anticipated.
Again, we, we're growing more confident for 23, and, if there is any, further slowdown coming early next year, I think we got time to adjust for that in the second half of the year.
Okay, perfect. Appreciate that. And then just a broader question on lottery. It's been about a year since one of your lottery competitors, you know, was sold. And you've announced a number of things on the iLottery side, on the FDJ, cross-licensing, Brazil, et cetera. Has there been any change from a competitive standpoint in terms of pricing or anything else, or is it kind of, you know, steady as she goes in terms of, you know, running the business, getting new deals and new partners? Thank you.
Yeah, I, I, I don't believe so. I think, you know, one of the amazing competitive advantages of IGT is its truly global footprint, and the competitiveness of its products and services, and its long-standing reputation in the, in the industry. And I think, you know, the company is, is very flexible in its approach to winning business. So, you know, for example, in Connecticut, that was a competitive situation, and we won that business from a competitor. I think a lot of that has to do with our reputation and our historical performance. In Minas Gerais, for example, that is a consortium of a local company as well as Scientific Games and IGT, deciding to come together in a venture that we thought could best service that, that particular customer.
I think the company has, you know, flexibility, and we do not see an increase in competition. I think it's, when you think about the business, it's a relatively small industry. When you add up worldwide revenues associated with lottery B2B providers. I think that, in the past, and you know, we've talked about this, there have been some efforts by certain companies looking to expand their footprint, wanting to get international, compete in North America, and they have been overly aggressive in bidding for business. In many cases where they've won business, they've actually, you know, not had a profitable operation.
I think those experiments have been tried, many, many times over many, many years, I think, you know, we have confidence that that's, that's not sustainable and doesn't, and doesn't make, doesn't make sense. I think, in terms of overall competition, we, you know, we don't see or perceive an increase.
Thank you. Your next question comes from the line of Jeff Stancial of Stifel. Please go ahead.
Great. Thanks. Good morning, everyone. First off, I just want to echo some of my peers and, and offer my condolences to everyone on this call and, and at IGT for your loss. For my first question, starting off on the global gaming business, specifically Game Ops, fourth consecutive quarter of sequential growth in the install base in North America, can you just expand on the growth drivers here a bit more? Specifically, what I mean by that is, is how much of this net growth relates to some of those strategic or those bulk removals starting to taper off versus how much of it reflects more of, we'll call it, the growth side of the equation? Then it, it would seem that growth here has been a function of both market-wide growth as well as share gains more recently.
Just curious to get your perspective on the sustainability or the outlook for, I guess, each of those trends individually. Thanks.
Yeah, I would say it's, you know, it's, it's all of the above, right? It's the. I think the key is the net math, you know, works, works out, which means, you know, we must be gaining share, foot share of, of floor, which is, you know, of course, of course, great. I think, you know, one of the areas where the company has historically not done as well as it would have liked to is in the MLP space, and, you know, that has been the highest growing part of the casino's slot machine footprint over the years. You know, the great news is that we experienced a 25% increase in our MLP install base over the last several years.
Clearly, that the new games have had an impact. I think we've got around 2,500 Prosperity Link units, our most popular MLP, in the market right now, and again, we see continued demand based upon the superior performance. I think renewing our Wheel of Fortune franchise was very important. Again, that is the greatest slot, arguably the greatest and most recognized slot machine title, in the industry. We've developed many, many games off of that theme, and that continues to, along with MegaBucks, drive our top-performing WAP games in the market as well.
You know, we've seen both a sequential and a year-over-year increase in North America and worldwide, and I think that's, that's really driven by, by game performance, creating, you know, creating a good amount of, of demand. Internationally, most of that has come from, from Latin America, where the games continue to do really well. In this business, of course, it's all about performance in order to be able to improve your install base, and we've, we've been able to, do, do very well on performance. I mean, for example, our, our, you know, Mystery of the Lamp game is doing almost three times house average. You know, we're very excited for that, for that launch. That's an incredible, you know, incredible, incredible statistic.
We think we've got the opportunity for, to continue to increase our, our install base in North America with these new games, and we think we'll continue to get increases in the rest of the world install base, primarily, again, continued expansion in Latin America, despite some of the challenges that we've seen internationally in the, in the macro.
Great. That's really helpful. Thanks, Vince. Then for my follow-up, you know, Max, Vince, whoever wants to take this, can you just help frame for us the potential upside here from some of the recent jackpot activity or sort of how it's pacing thus far, recognizing that, you know, it's still escalating? Then, you know, just to be clear, Max, is this fully factored into the Q3 and the full year 2023 guidance or partially factored, or just how should we think about that? Thanks.
Yeah, look, Chad Beynon, it's factored through, through what we know today, right? Having said that, I think there is one important factor that we all need to take into consideration, as interest rates have continued to increase over the last 12 months by more than 250 basis points, the same level of advertised jackpot does not generate an identical level of lottery sales. We believe there is upside. We probably would contain the upside between $5 million-$10 million at this point. And because of, of that, higher weight of the annuity factors, that obviously has to be taken into account when, when determining the level of the jackpot. Thank you. Again, if you would like to ask a question, press Star, then 1 on your telephone keypad.
Your next question comes from the line of Domenico Ghilardi of Equita. Please go ahead.
Good morning. Few questions. I would start with the Italian lottery performance. That's been once again, quite impressive, and particularly on instant tickets. If you can give us a sense of the sustainability, the current performance, or do you expect any kind of moderation in the growth? I've seen that also many other verticals in gaming and betting have been quite strong. I'm surprised to see the performance of the Italian market in general, and I wonder if it is really sustainable. Second question, if you can give us some call in terms of timing and opportunity related to Brazil, still related to the lottery in Minas. Just clarifications on the capitalization topic.
If I understood properly, we would see, so the EBITDA structural improvement and then a temporary improvement in, in EBIT and then higher CapEx going forward because of this capitalization. just to, just to check.
Okay. Domenico, I'll take the first couple of questions on, on lottery, focused on Italy in particular in Brazil, and we'll have Max touch base on the capitalization and EBITDA impact. Yeah, so there was a... I, I think last year, we saw a decline in Italy, as anticipated, given, you know, the spectacular results during the COVID-19 period and of course, the closure of the gaming halls, and it really being the only gaming opportunity, the only betting opportunity. You know, throughout the course of the year, we did a lot of work to identify how we could potentially, not simply rely on the return of the Italian player back to their, to their old habits, but also try to stimulate some, some demand.
I think the team did a really wonderful job of new product launches, both on, you know, kind of the higher dollar euro ticket, as well as kind of the lower denomination, adding some more draws to the draw game, and the results have really, really shown themselves in very strong performance in the first half of the year. I think one of the things that's really, really exciting is, you know, from pre-pandemic times, we think, we estimate there's been about 1 million new players added in Italy, which is really exciting that the games are appealing to an expanded player base. That people have found the lottery games during COVID, enjoyed them, and continued to play them.
You know, we never have great visibility on lottery, but so far, in July, Italy's same-store sales are up roughly mid-single digits. We see the increase over the prior year continuing into the third quarter. With regard to Brazil, you know, the Brazilian market is, you know, one of the untapped, potentially significant markets in the world. It's clearly underdeveloped, there's been a lot of false starts historically in Brazil.
we do believe, given Brazil's economic situation, the need for tax revenue, and the fact that a lot of people are, you know, betting, inside of Brazil, and they've done so for, for decades anyway, we think potentially now is the, you know, is the right, the right opportunity, the right, the right regulatory framework and that there, that there is potentially opportunity, there. You know, this opportunity in Minas, one of the larger states in, in Brazil, we think is a great way for, you know, IGT and its partners to establish a venture, begin doing business there.
I think that, you know, this potentially creates an opportunity for us to, you know, plant our flag in the sand, and we hope that this is the start of creating a very effective joint venture, administering a lottery that does all the things that we've historically done, that works, that is regulatorily compliant, that meets the demand and the needs of the market, and ultimately leads to us having a good competitive opportunity as more states become available and decide to also follow in what Minas Gerais has done. Max, I'll let you take the EBITDA question.
Yes. Thank you, Vince. Domenico, you got the mechanics right. We expect a slight improvement in the OI margin in gaming between 2023 and 2024, of between 1 to 2 points, which is on top of what we anticipated already in terms of performance improvement at the beginning of the year, as we have evolved the capitalization avenue during the course of 2023. By 2025, that impact should probably go back net to 0 so that the target margins is kind of fully embedded with a performance improvement. Obviously, the EBITDA margin improvement is structural and is offset by an equivalent amount of CapEx, so EBITDA less CapEx equals 0 in terms of capitalization impact.
Thank you. Your last question comes from the line of Joe Stauff of SIG. Please go ahead.
Good morning, Vince Sadusky, Massimiliano Chiara. 2 questions, please. I did want to ask Massimiliano Chiara if there's any way you can give us the tax basis for the gaming segment in particular. Then I had a just a follow-up question on lottery competitive environment.
Yeah. On the tax basis, we don't want to jump the gun here, so we would like to see how the process unfolds, which direction it's gonna take, and at the appropriate time, we will provide the adequate disclosures. Because obviously, it depends on what kind of transactions we are going to execute on, on the strategic alternative. I would stop at this for now, and we'll, we'll provide more insight when we, when we feel ready.
Okay, understood. Vince, I, I wanted to follow up just on, I believe, Chad's earlier question, just on the competitive environment, you know, with, with respect to lottery. I guess it's certainly easier for us to, you know, keep much closer tabs in terms of the United States. It does seem to say the international market is heating up, and just in terms of competition, whether it be, you know, kind of the Allwyn dislodging the UK incumbent or Flutter now owning one of the Italian licenses or even FDJ. I was wondering if you could maybe just give us a, kind of a reassessment of, of your views of the, the competitive market, you know, for, for lottery.
Sure. Yeah, I mean, as you know, the, the composition, the commercial opportunity for B2B providers such as IGT varies pretty significantly from jurisdiction to jurisdiction, whereas the U.S. market is largely a facilities management market, one that, as you mentioned, we're all, you know, very familiar with. Internationally, it's largely a product sale environment, and oftentimes a consortium whereby the system provider is the most significant opportunity for IGT. For example, when we think about the UK, that is, you know, Camelot has the relationship or had the relationship with the, with the UK Gambling Commission.
You know, we are-- You can think of us really as a subcontractor that, you know, we were selected by Camelot decades ago, based upon their assessment of our, our capabilities, and we participated in the, in the consortium. This latest round where Camelot did not win, you know, I think our evaluation was they had the best opportunity to remain the incumbent. We, you know, agreed to continue to be the system provider with that bidding consortium, and obviously, that did not play out in that, in that way.
You know, with regard to FDJ, I'd say, you know, that entity for sure has historically, you know, been a kind of a one country entity, hasn't, you know, doesn't manufacture product to sell product into other markets or, you know, a lot of the functionality that IGT provides on a B2B basis. They, you know, have a stated goal of trying to participate in more lotteries around the world and the opportunity to, you know, be the provider. There's, there's not that many of them, again, given the uniqueness of the international markets. You know, Camelot, we believe, is a unique situation in that they ultimately, once they did not win the renewal, the tender for the UK, they struck a deal to sell their operations to Allwyn.
Then they made their decision that they were no longer going to operate the lottery in Ireland and decided to sell, put that up for bid as well. So you know, in my mind, that's a very different scenario from having capabilities to be able to launch into a market like Brazil, for example. That was, you know, simply buying an existing contract, you know, writing a check to buy something versus winning, winning the business. And, you know, it's, it's, it's a, it's a different way to, I think, approach the business. You know, everyone will make their own conclusions around the price that was paid for that business and the capabilities of, you know, potential, you know, improvements to the business.
That was clearly their, their decision, and we view that very different. I'd say, you know, with regard to our overall competition and the competitiveness, the competitive set, we don't believe much has, has changed in the, in the international market, as well as the North American market.
Thank you. There are no further questions at this time. I would now like to turn the call over to Vince Sadusky for closing comments.
Okay, great. Well, thank you all for joining us today. We think our year-over-year results, along with the improved outlook for the full-year period, reflect really solid momentum across all of our business segments. We are executing our key strategic initiatives that have us solidly on track to deliver on our 2025 objectives, and we remain focused on unlocking the intrinsic value of IGT's market-leading business. As always, we appreciate your interest in the company. Have a great day, and I hope you all enjoy the rest of the summer.
This concludes today's conference call. You may now disconnect.