IGT Reports Second Quarter Fiscal Year 2014 Results

23 April 2014Printer Friendly VersionPost a CommentTell a Friend about this Article

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LAS VEGAS, April 22, 2014 /PRNewswire/ -- International Game Technology (NYSE: IGT) today reported operating results for the second quarter ended March 31, 2014.

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"During the quarter, we took decisive action to reduce IGT's cost structure and position the company for long-term earnings growth," said Patti Hart, CEO of IGT. "Looking forward, we are confident that we will be able to leverage our leaner cost structure, substantial R&D investments and premium brands to drive shareholder value."




Consolidated Results

                                  Second Quarters                                  Six Months                               ---------------                                  ----------      Periods      Ended      March      31,                                 2014      2013       % Change                         2014      2013       % Change     -------                              ----      ----       --------                         ----      ----       --------      (In millions, except per      share amounts)      GAAP Measures      Revenue                            $512.8    $600.0                -15%                $1,054.0  $1,130.2                 -7%       Operating      income                              72.1     129.3                -44%                   175.7     247.7                -29%      Net      income                              25.7      78.2                -67%                   105.0     143.5                -27%      Earnings      per      share                              $0.10     $0.29                -66%                   $0.42     $0.54                -22%      Net operating cash flows                                                       $(65.2)   $182.5      -136%       Non-GAAP Measures      Adjusted      operating      income                            $107.5    $163.5                -34%                  $231.2    $301.0                -23%      Adjusted      net      income                              49.4      95.1                -48%                   112.4     171.5                -34%      Adjusted      earnings      per      share                              $0.20     $0.36                -44%                   $0.45     $0.64                -30%      Free cash flow (before      dividends)                                                                   $(111.4)   $126.1      -188%       Adjusted operating income, adjusted net income, adjusted earnings per share and free cash flow are non-GAAP financial      measures.  Reconciliations between GAAP and non-GAAP measures are provided at the end of this release. 
     --  Revenues decreased 15% to $513 million primarily due to declines in         machine sales and gaming operations.     --  Adjusted earnings decreased 44% to $0.20 per share.     --  Non-GAAP adjusted financial measures for the second quarter ended March         31, 2014 excluded acquisition-related charges for DoubleDown, an         impairment to certain receivables in Alabama, business realignment, and         legal accruals. 
Gaming Operations

                           Second Quarters                  Six Months                        ---------------                  ----------       Periods      Ended      March      31,         2014               2013  % Change                 2014    2013  % Change      -------     ----               ----  --------                 ----    ----  --------       (In      millions,      unless      otherwise      noted)      Revenue    $230.4             $254.3            -9%          $453.4  $496.9            -9%       Gross      profit     140.4              156.7           -10%           276.6   309.8           -11%       Gross      margin        61%                62%           -1%              61%     62%           -2%       Installed      base      ('000)      53.4               56.7            -6%            53.4    56.7            -6%       Yield      (average      revenue      per      unit      per      day      -      $0.00)    $47.00             $49.26            -5%          $46.11  $47.99            -4% 
     --  Revenues decreased 9% to $230 million in the second quarter primarily         due to lower MegaJackpots® revenue.     --  Gross margins are consistent with prior-year results.     --  Installed base decreased 6% driven by a decline in North America         MegaJackpots® and International lease operations units.     --  Average revenue per unit per day in the second quarter was $47.00, down         5% over the prior year quarter, primarily due to lower MegaJackpots®         performance, but up 4% sequentially due to seasonal gaming trends. 
Product Sales

                          Second Quarters                Six Months                         ---------------                ----------       Periods      Ended      March      31,          2014             2013  % Change            2014    2013  % Change      -------      ----             ----  --------            ----    ----  --------       (In      millions,      unless      otherwise      noted)      Revenue     $202.6           $279.0           -27%     $446.2  $513.7           -13%       Gross      profit      104.0            144.0           -28%      230.9   269.5           -14%       Gross      margin         51%              52%           -1%         52%     52%            0%       Machine      units      recognized      ('000)        7.9             14.3           -45%       20.7    25.0           -17%       Machine      average      sales      price      ('000)      $14.7            $14.1             4%      $13.7   $14.4            -5% 
     --  Revenues decreased 27% to $203 million in the second quarter, primarily         due to lower machine unit volume, with the most significant decrease in         North America replacement units, as the prior-year quarter benefited         from 3,500 Canadian replacement units.     --  Gross margins are consistent with prior-year results.     --  Average machine sales price increased 4% to $14,700 in the second         quarter due to higher mix of higher-priced units. 
Interactive

                                                                                    Second Quarters                       Six Months                                                                                   ---------------                       ----------      Periods Ended      March 31,                                                                               2014   2013  % Change                   2014    2013  % Change     -------------                                                                            ----   ----  --------                   ----    ----  --------      (In millions, unless otherwise      noted)      Revenue                                                                                 $79.8  $66.7            20%            $154.4  $119.6            29%          Social gaming                                                                        68.8   54.3            27%             133.6    95.6            40%          IGTi                                                                                 11.0   12.4           -11%              20.8    24.0           -13%       Gross Margin                                                                               61%    61%            0%                62%     60%            3%          Social gaming                                                                          62%    61%            2%                62%     61%            2%          IGTi                                                                                   54%    59%           -8%                59%     55%            7%       DoubleDown average user      statistics*          DAU (Daily          active users)          ('000)                                                                             1,775  1,690             5%             1,745   1,575            11%          MAU (Monthly          active users)          ('000)                                                                             6,218  6,276            -1%             6,208   5,596            11%          Bookings per          DAU ($0.00)                                                                        $0.43  $0.37            16%             $0.42   $0.34            24%        *as a single application with multiple games, active users equal unique users 
     --  Social gaming revenues increased 27% to $69 million in the second         quarter compared to the prior year quarter and increased 6%         sequentially, driven by an increase in both average DAU and bookings per         DAU.     --  Average DAU were 1.8 million, an increase of 5% over the prior year         quarter.     --  Average bookings per DAU were $0.43, an increase of 16% over the same         quarter last year. 
Operating Expenses

                                   Second Quarters                                  Six Months                                  ---------------                                  ----------      Periods      Ended March      31,                                    2014      2013       % Change                       2014    2013       % Change     ------------                            ----      ----       --------                       ----    ----       --------      (In millions, unless      otherwise noted)      Operating Expenses     ------------------      Selling,      general &      administrative                       $124.1    $110.7                 12%                $242.1  $210.9                 15%      Research &      development                            58.5      58.1                  1%                 118.8   112.5                  6%      Depreciation      &      amortization                           16.6      19.7                -16%                  33.2    38.7                -14%      Contingent      acquisition-      related      costs                                   3.7      21.9                -83%                  15.0    39.3                -62%      Impairment      and      restructuring                          17.8       1.6                  *                   17.8     1.6                  *                                             ----       ---                                      ----     ---      Total      operating      expenses                             $220.7    $212.0                  4%                $426.9  $403.0                  6%                                           ======    ======                                    ======  ======       Adjusted Operating Expenses     ---------------------------          Total                             $188.0    $180.1                  4%                $377.4  $349.3                  8%                                           ======    ======                                    ======  ======       Adjusted operating expenses is a non-GAAP financial measure.  Reconciliations between GAAP and non-GAAP measures      are provided at the end of this release. 
     --  The increase in second quarter total operating expenses was primarily         attributable to a legal accrual of $8 million, as lower         acquisition-related costs were nearly offset by an increase in         impairment and restructuring resulting from our business realignment         announced in March 2014.     --  Selling, general and administrative expenses also increased $5 million         related to player marketing expenses in correlation with social gaming         revenue growth and $3.2 million for bad debt provisions in the         international business.     --  Adjusted operating expenses were 37% of revenues for the second quarter         compared to 30% of revenues in the prior year quarter. 
Balance Sheet and Capital Deployment

                      March 31,          September 30,                                   2014                   2013 % Change                                  ----                   ---- --------      (In millions,      unless      otherwise      noted)      Cash and      equivalents      (including      restricted      amounts)                  $432.3                 $809.1          -47%      Working capital             (27.2)                 267.5         -110%      Contractual      debt      obligations              2,150.0                2,150.0            0% 
     --  During the quarter, the company invested $185 million to extend         land-based licensing rights for Wheel of Fortune and Jeopardy through         2024, as well as expand rights to include social gaming and online         real-money wagering in the U.S.     --  The company returned $27 million to its shareholders through dividends         during the quarter. 
Other

References to per share amounts in this release are based on weighted average diluted shares of common stock outstanding, unless otherwise specified.

Outlook

The company is reiterating its fiscal year 2014 revised guidance for adjusted earnings from continuing operations of $1.00 to $1.10 per share.

GAAP earnings per share from continuing operations for fiscal year 2014 will include acquisition-related expenses, primarily related to DoubleDown, severance costs, business realignment expenses, asset impairment charges, legal accrual charges, and certain discrete tax items or benefits, the amount of which is not determinable at this time. The company may also recognize other items that are not currently determinable, but may be significant. For this reason, the company is unable to provide estimates for full-year GAAP earnings per share from continuing operations at this time.

Earnings Conference Call

As previously announced on April 8, 2014, IGT will host a conference call to discuss its second quarter fiscal year 2014 earnings results on Tuesday, April 22, 2014, at 2:00 p.m. PDT. The access numbers are as follows:

Domestic callers dial +1 877-891-6979, passcode IGT
International callers dial +1 773-756-4700, passcode IGT

The conference call will also be broadcast live over the Internet. A link to the webcast is available at the IGT website: http://www.IGT.com/investors. The call will be archived through Tuesday, May 6, 2014 at http://www.IGT.com/investors, for those interested parties that are unable to participate during the live webcast.

A taped replay of the conference call will be available after the conference call. This replay will run through Tuesday, May 6, 2014. The access numbers are as follows:

Domestic callers dial +1 866-566-0708
International callers dial +1 203-369-3622

Q2 FY 2014 Excel file

Q2 FY 2014 PDF of this press release

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These statements include our expected future financial and operational performance (including our guidance for fiscal year 2014) and our strategic and operational plans. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the results predicted, and reported results should not be considered an indication of future performance. Among the factors that could cause actual results and outcomes to differ materially from those contained in such forward-looking statements are the following: general economic conditions and changes in economic conditions affecting the gaming industry; new or changing laws or regulations or new interpretations of existing laws or regulations affecting our business; difficulties or delays in obtaining or maintaining necessary licenses or approvals; slow growth in the number of new gaming jurisdictions or new casinos or the rate of replacement of existing gaming machines; changes in operator or player preferences for our products; our ability to compete in the gaming industry with new or existing competitors; our ability to develop and introduce new products and their acceptance by our customers; risks related to our international operations; our ability to protect our intellectual property; adverse results of litigation, including intellectual property infringement claims; our ability to leverage reduction initiatives; risks related to business combinations, investments in intellectual property and the integration of acquisitions; and future developments or changes affecting online gaming or social casino-style gaming, which is a new and evolving industry. A further list and description of these and other risks, uncertainties and other matters can be found in our annual report and other reports filed with the Securities and Exchange Commission, including under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for fiscal 2013 filed with the SEC on November 26, 2013 and our Quarterly Report on Form 10-Q for our quarter ended December 31, 2013 filed with the SEC on February 5, 2014 and available on the SEC website at www.sec.gov and on the investor relations section of our website at www.IGT.com/investors. Additional information will also be set forth in our Quarterly Report on Form 10-Q for our second quarter ended March 31, 2014, which we expect to file with the SEC in the second quarter of calendar 2014. All information provided in this release is as of April 22, 2014, and IGT does not intend, and undertakes no duty, to update this information to reflect subsequent events or circumstances.

IGT Resources:

     --  Like us on Facebook     --  Play DoubleDown Casino Games     --  Like DoubleDown Casino on Facebook     --  Follow us on Twitter     --  View IGT's YouTube Channel     --  Check out our other Games and Gaming Systems 
About IGT

International Game Technology (NYSE: IGT) is a global leader in casino gaming entertainment and continues to transform the industry by translating casino player experiences to social, mobile and interactive environments for markets around the world. IGT's acquisition of DoubleDown Interactive provides engaging social casino style entertainment to more than 6 million players monthly. More information about IGT is available at IGT.com or connect with IGT at @IGTNews or facebook.com/IGT. Anyone can play at the DoubleDown Casino by visiting http://apps.facebook.com/doubledowncasino or doubledowncasino.com

IGT Contacts:

Kate Pearlman
Vice President, Investor Relations and Treasury


+1 866-296-4232
InvestorRelations@IGT.com




CONSOLIDATED STATEMENTS OF INCOME (Unaudited and Condensed)

                                         Second                                       Quarters           Six Months                                      ---------           ----------      Periods Ended March 31,          2014     2013        2014     2013     -----------------------          ----     ----        ----     ----      (In millions, except per      share amounts)      Revenues      Gaming operations              $230.4   $254.3      $453.4   $496.9      Product sales                   202.6    279.0       446.2    513.7      Interactive                      79.8     66.7       154.4    119.6                                      ----     ----       -----    -----      Total revenues                  512.8    600.0     1,054.0  1,130.2      Costs and operating expenses      Cost of gaming operations        90.0     97.6       176.8    187.1      Cost of product sales            98.6    135.0       215.3    244.2      Cost of interactive              31.4     26.1        59.3     48.2      Selling, general and      administrative                 124.1    110.7       242.1    210.9      Research and development         58.5     58.1       118.8    112.5      Depreciation and      amortization                    16.6     19.7        33.2     38.7      Contingent acquisition-      related costs                    3.7     21.9        15.0     39.3      Impairment and restructuring     17.8      1.6        17.8      1.6                                      ----      ---        ----      ---      Total costs and operating      expenses                       440.7    470.7       878.3    882.5      Operating income                 72.1    129.3       175.7    247.7                                      ----    -----       -----    -----      Other income (expense)      Interest income                  10.7     11.1        20.9     22.4      Interest expense                (36.9)   (30.3)      (73.3)   (62.0)      Other                            (3.4)    (2.5)       (5.3)    (2.7)                                      ----     ----        ----     ----      Total other income (expense)    (29.6)   (21.7)      (57.7)   (42.3)      Income before tax                42.5    107.6       118.0    205.4      Income tax provision             16.8     29.4        13.0     61.9                                      ----     ----        ----     ----      Net income                      $25.7    $78.2      $105.0   $143.5                                     =====    =====      ======   ======      Basic earnings per share        $0.10    $0.30       $0.42    $0.54      Diluted earnings per share      $0.10    $0.29       $0.42    $0.54      Weighted average shares      outstanding      Basic                           247.7    263.6       250.2    264.7      Diluted                         248.6    265.6       251.9    266.7 



CONSOLIDATED BALANCE SHEET (Unaudited and Condensed)

                                        March 31,    September 30,                                                2014                2013                                               ----                ----      (In millions)      Assets      Current assets        Cash and equivalents                  $355.8              $713.3        Investment securities                   15.0                28.8        Restricted cash and investments         61.5                67.0        Jackpot annuity investments             55.0                56.5        Receivables, net                       551.5               577.9        Inventories                             76.0                90.1        Other assets and deferred costs        284.4               242.4                                              -----               -----        Total current assets                 1,399.2             1,776.0      Property, plant and equipment,      net                                     443.9               483.9      Jackpot annuity investments              253.3               268.6      Contracts and notes receivable,      net                                     143.6               165.6      Goodwill and other intangibles,      net                                   1,577.8             1,601.7      Other assets and deferred costs          483.7               317.0                                              -----               -----      Total Assets                          $4,301.5            $4,612.8                                           ========            ========      Liabilities and Shareholders'      Equity      Current liabilities        Short-term debt                       $846.4              $826.6        Accounts payable                        92.9               110.0        Jackpot liabilities, current        portion                               121.9               131.7        Dividends payable                       27.2                25.9        Other accrued liabilities              338.0               414.3                                              -----               -----        Total current liabilities            1,426.4             1,508.5      Long-term debt                         1,357.1             1,366.3      Jackpot liabilities                      278.5               293.3      Other liabilities                        124.9               190.6                                              -----               -----      Total Liabilities                      3,186.9             3,358.7      Total Equity                           1,114.6             1,254.1                                            -------             -------      Total Liabilities and      Shareholders' Equity                 $4,301.5            $4,612.8                                           ========            ======== 



CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited and Condensed)

      Six Months Ended March 31,       2014         2013     --------------------------       ----         ----      (In millions)      Operating      Net income                     $105.0       $143.5      Adjustments:      Depreciation and      amortization                    99.4        117.8      Acquisition-related      contingent earn-out costs        6.6         16.2      Other non-cash items             64.8         54.7      Changes in operating assets      and liabilities, excluding      acquisitions:      Receivables                      15.5        (21.1)      Inventories                      13.4          9.4      Accounts payable and      accrued liabilities            (50.2)       (78.0)      Jackpot liabilities             (32.9)       (40.7)      Income taxes, net of      employee stock plans           (50.4)       (21.9)      Other assets                   (236.4)         2.6                                    ------          ---      Net operating cash flows        (65.2)       182.5                                     -----        -----      Investing      Capital expenditures            (46.2)       (56.4)      Investment securities, net       13.9            -      Jackpot annuity      investments, net                25.0         27.1      Changes in restricted cash        5.6          5.8      Loans receivable payments      received                        14.9         15.1      Proceeds from assets sold         7.8          8.3                                       ---          ---      Net investing cash flows         21.0         (0.1)                                      ----         ----      Financing      Debt-related proceeds      (payments), net                 (0.6)       (20.0)      Employee stock plan      proceeds                        12.0          8.3      Share repurchases,      including net shares          (211.3)       (75.1)      Dividends paid                  (53.4)       (34.7)      Acquisition-related      contingent consideration       (56.1)       (27.9)                                     -----        -----      Net financing cash flows       (309.4)      (149.4)                                    ------       ------      Foreign exchange rates      effect on cash and      equivalents                     (3.9)        (2.8)                                      ----         ----      Net change in cash and      equivalents                   (357.5)        30.2      Beginning cash and      equivalents                    713.3        206.3                                     -----        -----      Ending cash and equivalents    $355.8       $236.5                                    ======       ====== 



SUPPLEMENTAL DATA (Unaudited)

      Revenue Metrics                                       Second Quarters       Six Months                                      ---------------       ----------      Periods Ended March 31,           2014      2013    2014      2013     -----------------------           ----      ----    ----      ----      In millions, unless otherwise      noted             Gaming Operations            -----------------      Revenues                        $230.4    $254.3  $453.4    $496.9      North America                    200.1     220.3   391.7     428.8      International                     30.3      34.0    61.7      68.1      Gross margin                        61%       62%     61%       62%      North America                       58%       60%     59%       61%      International                       78%       69%     75%       69%      Installed base (units '000)       53.4      56.7    53.4      56.7      North America                     40.4      42.6    40.4      42.6      International                     13.0      14.1    13.0      14.1      Yield (average revenue per unit      per day -$0.00)                $47.00    $49.26  $46.11    $47.99               Product Sales              -------------      Revenues                        $202.6    $279.0  $446.2    $513.7      North America                    143.8     200.6   313.8     359.5      International                     58.8      78.4   132.4     154.2      Machines                        $116.0    $202.4  $282.9    $359.8      North America                     79.1     148.7   197.2     250.5      International                     36.9      53.7    85.7     109.3      Non-machine                      $86.6     $76.6  $163.3    $153.9      North America                     64.7      51.9   116.6     109.0      International                     21.9      24.7    46.7      44.9      Gross margin                        51%       52%     52%       52%      North America                       56%       53%     54%       54%      International                       40%       49%     46%       48%      Machine units recognized ('000)    7.9      14.3    20.7      25.0      North America                      5.7      11.1    15.3      18.3      International                      2.2       3.2     5.4       6.7      Machine units shipped ('000)      [includes units where revenues      deferred]                         7.6      14.3    20.6      23.7      North America                      5.5      11.1    15.3      18.0      New                                2.1       2.7     5.8       4.4      Replacement                        3.4       8.4     9.5      13.6      International                      2.1       3.2     5.3       5.7      New                                0.6       1.0     1.2       1.9      Replacement                        1.5       2.2     4.1       3.8      Machine ASP ('000)               $14.7     $14.1   $13.7     $14.4      North America                     13.9      13.4    12.9      13.7      International                     16.6      16.6    15.9      16.3                Interactive               -----------      Revenues                         $79.8     $66.7  $154.4    $119.6      North America                     70.3      54.8   136.1      96.7      International                      9.5      11.9    18.3      22.9      Social Gaming                     68.8      54.3   133.6      95.6      North America                     68.8      54.3   133.6      95.6      International                        -         -       -         -      IGTi                              11.0      12.4    20.8      24.0      North America                      1.5       0.5     2.5       1.1      International                      9.5      11.9    18.3      22.9      Gross margin                        61%       61%     62%       60%      North America                       62%       61%     62%       61%      International                       51%       58%     58%       54%      DoubleDown average user      statistics*      DAU (Daily active users) ('000)  1,775     1,690   1,745     1,575      MAU (Monthly active users)      ('000)                          6,218     6,276   6,208     5,596      Bookings per DAU ($0.00)         $0.43     $0.37   $0.42     $0.34      *as a single application with      multiple games, active users      equal unique users 
Reconciliations of GAAP to Non-GAAP Adjusted Financial Measures
(in millions, except EPS)





                                        Cost of                   Operating         Operating          Net           Diluted   

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