International Game Technology PLC Reports Third Quarter 2018 Results

"Solid performance and important, long-term contracts drove very good third quarter and year-to-date results," said Marco Sala, CEO of IGT. "Global Lottery same-store revenues for instants and draw games rose mid-single digits. The installed base of gaming machines was up, and unit shipments of gaming machines increased 10%. And, we enjoyed particularly strong sales and profit growth in Italy, confirming the vitality of that important market. We are firmly on track to achieve our 2018 financial and operational goals."

"We've delivered Adjusted EBITDA growth of 4% and 7% for the third quarter and year-to-date periods at constant currency and scope," said Alberto Fornaro, CFO of IGT. "As a result, we are narrowing our Adjusted EBITDA outlook for 2018 to $1,740 - $1,780 million, the top half of the prior range."

Overview of Consolidated Third Quarter Results

Consolidated revenue was $1,156 million, down 4% at constant currency

• $22 million negative impact due to ASC 606


• Impacted by lumpiness of product sales and timing of multi-state jackpots


• Strong global Lottery performance, improved Gaming KPIs, and broad-based strength in Italy

Adjusted EBITDA rose 3% to $443 million; Adjusted operating income was unchanged from prior year at $257 million

• Disciplined expense management more than offset lower revenue


• Adjusted operating income includes higher depreciation associated with recent Lottery contract extensions and upgrading of Gaming installed base

Interest expense was $107 million compared to $114 million in prior-year quarter 

Provision for income taxes was $46 million compared to a benefit of $20 million in the prior-year period 

Net income attributable to IGT was $22 million in the quarter; Adjusted net income attributable to IGT was $64 million

Net income per diluted share of $0.11; Adjusted net income per diluted share of $0.31

Cash from operations was $249 million for the first nine months of the year and capital expenditures were $374 million

• $366 million (gross) upfront payments for the Scratch & Win license in Italy

Cash and cash equivalents were $448 million as of September 30, 2018, compared to $1,057 million as of December 31, 2017

Net debt was $7,570 million as of September 30, 2018, compared to $7,319 million as of December 31, 2017

Operating Segment Review

North America Gaming & Interactive

Revenue of $231 million compared to $262 million in the prior-year quarter

• Decline of $14 million, or 5%, after adjusting for $17 million jackpot expense reclass


• Gaming services revenue of $152 million compared to $171 million in the prior year




• Stable after adjusting for jackpot expense reclass


• Installed base up 433 units from prior year; yields and installed base stable sequentially




• Product sales revenue of $79 million compared to $91 million in the prior year




• 16% increase in terminal sale revenue includes growth in casino replacement and VLT units, higher average selling prices


• Large software sale in prior year

Operating income of $45 million compared to $65 million in the prior-year quarter

• Large, high-margin product sales mix in the prior year


• Increased depreciation related to upgrading installed base


• Timing of jackpots
  

North America Lottery

Revenue of $279 million compared to $307 million in prior-year period

• Lottery service revenue down 5% to $225 million




• 4.8% same-store revenue growth for instant tickets and draw-based games more than offset by significantly lower multistate jackpot activity


• Lower LMA revenue from Illinois




• Lottery product sales of $17 million compared to $22 million in prior year




• Growth in instant ticket printing


• Large VLT system and lottery terminal sales in prior year

Operating income of $60 million compared to $75 million in prior-year period

• Tough jackpot and product sales revenue comparisons


• Higher depreciation related to recent contract wins and extensions

International

Revenue down 5% in constant currency to $216 million

• Stable Lottery service revenue




• Same-store revenue growth of 3.7%


• Lower non-wager revenue compared to prior year




• Significant increase in Lottery product sales from large, multi-year software license


• Gaming service revenue of $33 million compared to $59 million in the prior year




• Prior year had benefit of certain discrete, non-recurring items


• Jackpot expense reclass of $3 million


• Service revenue from terminals up high single-digits at constant currency from growth in the installed base




• Gaming product sales revenue down 2% in constant currency to $65 million




• 14% increase in gaming machine unit shipments; higher average selling prices


• Lower systems revenue

Operating income up 46% at constant currency to $56 million

• High-margin software license sale


• Disciplined expense management

Italy

Revenue up 4% at constant currency to $430 million with growth across all Gaming businesses

• Lottery Service revenue up to $184 million from $180 million in the prior year




• Lotto wagers up 5.4% on continued strength in 10eLotto and contribution from MillionDAY


• Scratch & Win wagers down modestly on comparison with successful relaunch of Miliardario in the prior-year period




• Gaming Service revenue up 2% at constant currency




• Higher revenue despite state-mandated reductions in AWP units, incremental taxes, and certain regional restrictions


• Strong underlying productivity




• Sports betting wagers increased 9.9% to €225 million, payout 210 basis points better

Operating income increased to $145 million, up 17% at constant currency

• Strong profit flow-through, especially for Lotteries


• Disciplined cost management

Other Developments

The Company's board of directors declared a quarterly cash dividend of $0.20 per ordinary share

• Record date of November 14, 2018


• Payment date of November 28, 2018

Recent Capital Markets Activity

• Issuance of $750 million 6.25% Senior Secured Notes due 2027


• Net proceeds used to redeem $600 million 5.625% bonds due 2020, $144 million 7.50% notes due 2019, and $97 million of its 5.5% bonds due 2020, with the balance funded through utilization of the revolving credit facility


• Average debt maturity extended to over 4 years

Full Year Outlook

• Narrowing 2018 Adjusted EBITDA outlook to $1,740 - $1,780 million at a EUR/USD rate of 1.19, the top half of the prior range


• Continue to expect capital expenditures of $575-$625 million

Conference Call and Webcast

October 31, 2018, at 8:00 a.m. EDT

Live webcast available under "News, Events & Presentations" on IGT's Investor Relations website at www.IGT.com; replay available on the website following the live event

Dial-In Numbers

• US/Canada toll-free dial-in number is +1 844 842 7999


• Outside the US/Canada toll-free number is +1 612 979 9887


• Conference ID/confirmation code is 9277539


• A telephone replay of the call will be available for one week




• US/Canada replay number is +1 855 859 2056


• Outside the US/Canada replay number is +1 404 537 3406


• ID/Confirmation code is 9277539

Comparability of Results

All figures presented in this news release are prepared under U.S. GAAP, unless noted otherwise. Adjusted figures exclude the impact of items such as purchase accounting, impairment charges, restructuring expense, foreign exchange, and certain one-time, primarily transaction-related items. Reconciliations to the most directly comparable U.S. GAAP measures are included in the tables in this news release. Constant currency changes for 2018 are calculated using the same foreign exchange rates as the corresponding 2017 period. Management uses non-GAAP financial measures to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, and to evaluate the Company's financial performance. Management believes these non-GAAP financial measures reflect the Company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of business trends. These constant currency changes and non-GAAP financial measures should however be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with U.S. GAAP.