International Game Technology PLC reports first quarter 2017 results
- Continued growth in instant and draw-based lottery same-store revenue and in global gaming machine installed base
- Net loss of $55 million, adjusted Net income of $59 million; adjusted EBITDA of $371 million reflects comparison with unusually high base in prior year
- Net debt of $7,398 million, down from $7,569 million at 2016 year end
- 2017 outlook updated for pending DoubleDown transaction and new gaming machine taxation in Italy
- Cash dividend declared of $0.20 per ordinary share
LONDON, U.K. – International Game Technology PLC (“IGT”) (NYSE:IGT) today reported financial results for the first quarter ended March 31, 2017. Today, at 8:00 a.m. EDT / 1:00 p.m. BST / 2:00 p.m. CEST, management will host a conference call and webcast to present the first quarter results; access details are provided below.
“The first quarter of 2017 has been a dynamic period for us,” said Marco Sala, CEO of IGT. “Our revenue and profit are consistent with the pattern of the year that we described in March. Year to date, we’ve strengthened our leading positions in global lotteries and begun the rollout of a new generation of gaming machines. We are monetizing non-core assets that will allow us to significantly reduce debt, and we are adopting a new business model for our future participation in the social casino space.”
“As we noted in March, a unique combination of elements affected first quarter revenue and profit comparisons, including record jackpot activity in 2016,” said Alberto Fornaro, CFO of IGT. “Disciplined asset and operational management are a top priority for the Company, and this is evident in the strong first quarter cash flow. We are updating our outlook to incorporate the DoubleDown transaction and the impact of increased taxation on gaming machines in Italy.”
|Quarter Ended March 31,||Change|
|(In $ millions, unless otherwise noted)|
|Net (loss) income per diluted share||(0.27)||(0.46)||41%||NA|
|Adjusted Operating Income||238||310||-23%||-21%|
|Adjusted net income per diluted share||0.29||0.57||-49%||NA|
Note: Adjusted EBITDA, adjusted operating income, and adjusted net income per diluted share are non-GAAP financial measures. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are provided at the end of this news release.
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 2017 are calculated using the same foreign exchange rates as the corresponding 2016 period.
Management believes that referring to certain constant currency or adjusted measures is a useful way to evaluate the Company’s underlying performance.
Overview of Consolidated First Quarter Results
Consolidated revenue was $1,153 million compared to $1,282 million in the first quarter of 2016. The decline in revenue reflects comparisons with the high jackpot levels of the prior year, new Italy Lotto concession dynamics, and lower gaming product sales.
Global lottery same-store revenue, excluding Italy, declined 11% in the first quarter, following record jackpot activity in North America and the United Kingdom during the prior-year period. Excluding multi-state jackpot games, global lottery same-store revenue grew nearly 2%. Italy lottery wagers decreased 2% due to higher late numbers activity in the first quarter of 2016.
Gaming service revenue was impacted by lower DoubleDown revenue, and gaming product sales were down due to large system and software sales in the first quarter of 2016. The Company shipped 5,953 gaming machines worldwide during the first quarter, and the global installed base rose to 59,034.
Adjusted EBITDA of $371 million was 19% below the first quarter of 2016. Operating income was $119 million compared to $188 million in the first quarter of 2016, and Adjusted operating income was $238 million compared to $310 million. The declines in Adjusted 3 EBITDA and Adjusted operating income primarily reflect lower revenues, International segment performance, and unfavorable foreign exchange translation.
Interest expense was $115 million compared to $118 million in the prior-year period.
Net loss attributable to IGT was $55 million in the first quarter of 2017, reflecting the after- tax impacts of $70 million in purchase price accounting and $36 million impact in non-cash foreign exchange losses. On an adjusted basis, net income attributable to IGT was $59 million. The Company reported net loss per diluted share of $(0.27) and earned $0.29 per diluted share on an adjusted basis.
In the first three months of the year, cash from operations was $284 million and capital expenditures were $172 million.
Cash and cash equivalents were $463 million as of March 31, 2017, compared to $294 million as of December 31, 2016. Net debt was $7,398 million as of March 31, 2017.
Operating Segment Review
North America Gaming & Interactive
Revenue for North America Gaming & Interactive was $305 million compared to $339 million in the first quarter of 2016.
Service revenue was $234 million compared to $258 million in the prior-year period, primarily driven by a year-over-year decrease in the installed base and fewer daily active users at DoubleDown.
Product sales were $71 million compared to $81 million in the first quarter of 2016, which benefitted from a large system sale. The segment shipped 3,944 gaming machine units in the quarter compared to 3,951 units in the prior-year period.
Operating income for North America Gaming & Interactive was $66 million compared to $89 million in the first quarter of 2016. The decline is primarily due to lower revenues, increased depreciation on investments in the installed base, and higher jackpot expense.
North America Lottery
North America Lottery revenue was $281 million compared to $315 million in the first quarter of 2016, which benefitted from record multi-state jackpot activity.
Service revenue of $268 million reflects a 14.0% decline in same-store revenue growth on comparisons with record Powerball sales in the prior year. Excluding multi-state jackpot games, same-store revenue for draw-based games and instant tickets grew 1.5%.
Product sales rose to $13 million in the first quarter of 2017 from $11 million in the prior-year period, and included higher instant ticket printing revenue.
Operating income for North America Lottery was $69 million compared to $88 million in the first quarter of 2016 on lower jackpot revenue and associated profit.
International revenue was $164 million compared to $185 million in the first quarter of 2016. On a constant currency basis, International revenue declined 9%.
Lottery same-store revenue was up 2.0% on broad-based strength in Latin America and Europe, that was partially offset by continued weakness in the United Kingdom, including elevated jackpot activity in the prior-year period.
Gaming service revenue was $41 million compared to $47 million in the first quarter of 2016, down 9% on a constant currency basis, mainly due to the exit from certain interactive operations. The installed base grew sequentially on increased unit placements in Greece and South Africa.
Product sales revenue was lower due to large, high-margin gaming software sales in the first quarter of 2016. The segment shipped a total of 2,009 gaming machine units during the first quarter of 2017 compared to 1,744 units in the prior-year period. A portion of the new and expansion unit revenue was deferred and is expected to be recognized in the second quarter of 2017.
International operating income was below the prior-year period due to lower revenue; product sales mix and discounts; as well as unfavorable foreign exchange translation and bad debt expense.
Italy revenue was $402 million compared to $444 million in the first quarter of 2016. At constant currency, revenue declined 6% as growth in machine gaming was more than offset by the new Lotto concession dynamics, primarily amortization of the upfront payment, and lower sports betting revenue.
Total Lotto wagers in the quarter were €1,873 million compared to €1,928 million in the prior- year period, reflecting significantly lower late numbers activity. 10eLotto performance remained strong, with wagers increasing 4% over the prior-year period. Instant-ticket wagers were essentially unchanged at €2,341 million.
Machine gaming service revenue was up over the first quarter of 2016 on increased vertical integration and higher installed units. Sports betting revenue declined during the first quarter of 2017 on higher payout, consistent with industry trends during the period.
Italy operating income was $125 million compared to $148 million in the first quarter of 2016. The decline was mainly attributable to the new Lotto concession dynamics and sports betting performance, partially offset by machine gaming growth.
As announced on April 17, 2017, the Company has reached a definitive purchase agreement to sell its social casino subsidiary, DoubleDown Interactive, to an affiliate of DoubleU Games, a leading global social casino operator, for a cash purchase price of $825 million. The sale is expected to be completed in the second quarter of 2017. Upon the closing of the sale, the parties will enter into a game development and distribution agreement which will 5 enable DoubleU Games to offer IGT’s extensive casino game library on DoubleU Games’ combined social casino platforms, in exchange for ongoing royalties to IGT.
The board of directors of the Company appointed Heather J. McGregor as a fourth member of the audit committee, effective May 24, 2017. McGregor previously joined the board of directors as an independent director on March 8, 2017.
Additionally, the Company’s board of directors has declared a quarterly cash dividend of $0.20 per ordinary share. The dividend is payable on June 22, 2017 to all shareholders of record as of the close of business on June 8, 2017.
The Company updated its outlook to account for the closing of the DoubleDown transaction by the end of the second quarter and the impact of new taxation on gaming machines in Italy. The Company currently expects full year 2017 adjusted EBITDA of $1,600-$1,680 million, compared to its previous outlook of $1,680-$1,760 million. Net debt is now expected to be $6,950-$7,150 million at the end of 2017, compared to the previous $7,600-$7,800 million outlook, as net proceeds from the DoubleDown sale will be used to reduce debt.
Adjusted EBITDA is a non-GAAP measure. 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.
Conference Call and Webcast
Today, at 8:00 a.m. EDT / 1:00 p.m. BST / 2:00 p.m. CEST, management will host a conference call to present the first quarter 2017 results. Listeners may access a live webcast of the conference call along with accompanying slides under “News, Events & Presentations” on IGT's Investor Relations website at www.IGT.com. A replay of the webcast will be available on the website following the live event. To listen by telephone, the dial in number is +44 (0) 20 3427 1914 for participants in the United Kingdom and +1 877 280 2342 for listeners outside the United Kingdom. The conference ID/confirmation code is 9529556. A telephone replay of the call will be available for one week at +44 (0) 20 3427 0598 or +1 347 366 9565 using the conference ID/confirmation code 9529556.
You can find the complete first quarter 2017 results report here.
About IGT (www.igt.com)
IGT (NYSE:IGT) is the global leader in gaming. We enable players to experience their favorite games across all channels and regulated segments, from Gaming Machines and Lotteries to Interactive and Social Gaming. Leveraging a wealth of premium content, substantial investment in innovation, in-depth customer intelligence, operational expertise and leading-edge technology, our gaming solutions anticipate the demands of consumers wherever they decide to play. We have a well-established local presence and relationships with governments and regulators in more than 100 countries around the world, and create value by adhering to the highest standards of service, integrity, and responsibility. IGT has approximately 13,000 employees. For more information, please visit www.igt.com.
Cautionary Statement Regarding Forward-Looking Statements
This news release may contain forward-looking statements (including within the meaning of the Private Securities Litigation Reform Act of 1995) concerning IGT and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, dividends, results of operations or financial condition, or otherwise, based on current beliefs of the management of IGT as well as assumptions made by, and information currently available to, such management. Forward-looking statements may be accompanied by words such as “aim,” “anticipate,” “believe,” “plan,” “could,” “would,” “should,” “shall,” “continue,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “will,” “possible,” “potential,” “predict,” “project” or the negative or other variations of them. These forward-looking statements are subject to various risks and uncertainties, many of which are outside IGT’s control. Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results may differ materially from those predicted in the forward-looking statements and from past results, performance or achievements. Therefore, you should not place undue reliance on the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include (but are not limited to) the possibility that the businesses of International Game Technology and GTECH S.p.A. will not be integrated successfully, or that the combined companies will not realize estimated cost savings, synergies, growth or other anticipated benefits or that such benefits may take longer to realize than expected, or that the Company will incur unanticipated costs in connection with the integration; the possibility that the Company will be unable to pay future dividends to shareholders or that the amount of such dividends may be less than anticipated; the possibility that IGT may not obtain its anticipated financial results in one or more future periods; reductions in customer spending; a slowdown in customer payments and changes in customer demand for products and services as a result of changing economic conditions or otherwise; unanticipated changes relating to competitive factors in the industries in which the Company operates; the Company’s ability to hire and retain key personnel; the impact of the consummation of the business combination on relationships with third parties, including customers, employees and competitors; the Company’s ability to attract new customers and retain existing customers in the manner anticipated; reliance on and integration of information technology systems; changes in legislation or governmental regulations affecting the Company; international, national or local economic, social or political conditions that could adversely affect the Company or its customers; conditions in the credit markets; risks associated with assumptions the Company makes in connection with its critical accounting estimates; the resolution of pending and potential future legal, regulatory or tax proceedings and investigations; and the Company’s international operations, which are subject to the risks of currency fluctuations and foreign exchange controls. The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect IGT’s business, including those described in IGT’s annual report on Form 20-F for the financial year ended December 31, 2015 and other documents filed from time to time with the Securities and Exchange Commission (the “SEC”), which are available on the SEC website at www.sec.gov and on the investor relations section of IGT’s website at www.IGT.com. Except as required under applicable law, IGT does not assume any obligation to update the forward-looking statements. Nothing in this news release is intended, or is to be construed, as a profit forecast or to be interpreted to mean that earnings per IGT share for the current or any future financial years will necessarily match or exceed the historical published earnings per IGT share, as applicable. All forward-looking statements contained in this news release are qualified in their entirety by this cautionary statement. All subsequent written or oral forward-looking statements attributable to IGT, or persons acting on its behalf, are expressly qualified in their entirety by this cautionary statement.
Robert K. Vincent,
toll free in U.S./Canada: (844) IGT-7452;
outside U.S./Canada: (401) 392-7452
Telephone: (401) 392-7190