International Game Technology PLC Reports Second Quarter 2015 Results

LONDON, Aug. 11, 2015 /PRNewswire/ -- International Game Technology PLC ("IGT") (NYSE: IGT) today reported financial results for the second quarter and six months ended June 30, 2015. This is IGT's inaugural earnings announcement since the combination of GTECH S.p.A. ("GTECH") and International Game Technology ("legacy IGT") was completed on April 7, 2015.

In a separate news release issued today, the Company's Board of Directors initiated a quarterly cash dividend of $0.20 per ordinary share. The first cash dividend is payable on September 10, 2015 to shareholders of record as of the close of business on August 26, 2015.

"We are pleased to report for the first time as a single Company," said Marco Sala, CEO of IGT. "As anticipated, our second quarter results reflect the stable growth characteristics of our global lottery operations and a meaningful sequential improvement in our gaming operations.  We have accomplished a lot in the past four months, notably organizing ourselves under a single leadership team and consolidating our manufacturing footprint. There is much more ahead of us.  In this year of transformation, we will continue to focus on integration to provide a solid foundation for future growth and value creation."

"The second quarter is a major milestone for our Company, as we present our first set of financials in dollars, under U.S. GAAP," said Alberto Fornaro, CFO of IGT. "Our adjusted operating income improved from the prior year's level on a pro forma, constant currency basis and our financial condition remains strong. We will continue to operate with our customary, disciplined cost management and are confident in achieving our synergy targets according to plans."

Comparability of Results

All figures presented in this news release are prepared under U.S. GAAP, unless noted otherwise.

As a result of the merger, a number of items affect the comparability of reported results.  Reported financial information for the second quarter of 2015 includes the results of operations of GTECH for the entire period and those of legacy IGT from the date of the acquisition. Reported financial information for the second quarter of 2014 includes only GTECH operations.  Pro forma figures represent the combined results of both companies in 2014. 

Adjusted figures exclude the impact of purchase price amortization, restructuring expense, and certain one-time, primarily transaction-related items.  Reconciliations to the most directly comparable GAAP measures are included in the tables in this news release.

Reported 2015 results were adversely impacted by the strengthening of the U.S. dollar compared to the euro; the daily average U.S. dollar to euro foreign exchange rate was 1.11 in the second quarter of 2015 compared to 1.37 in the second quarter of 2014. Constant currency changes for 2015 are calculated using the same foreign exchange rates as the corresponding 2014 period.

Management believes that referring to certain pro forma, constant currency, or adjusted measures is a more useful way to evaluate the Company's underlying performance.

As previously announced, the Company is organized into four customer-facing segments:

• North America Gaming & Interactive includes sales to commercial customers in the U.S. and Canada, and has global responsibility for the product development, manufacturing, marketing and delivery of all Company gaming offerings, including DoubleDown Casino™ online social gaming, as well as interactive and sports betting.
• North America Lottery focuses on World Lottery Association (WLA) customers in the U.S. and Canada, and has global responsibility for the product development, marketing, and delivery of all Company lottery offerings.
• International is responsible for all business conducted outside of North America and Italy across the Company's entire product portfolio, with specialized and separate sales and operations groups supported by North America Lottery and North America Gaming & Interactive as appropriate.
• Italy is responsible for all business conducted in Italy across the Company's entire product portfolio.  Product development, marketing, manufacturing and servicing are supported by North America Lottery and North America Gaming & Interactive as appropriate.

Overview of Consolidated Second Quarter Results

Reported consolidated revenue grew 36% to $1.29 billion from $945 million in the second quarter of 2014, reflecting GTECH's acquisition of legacy IGT. On a pro forma, constant currency basis, consolidated revenue increased 1%, reflecting double-digit increases in the North American Lottery and International segments, partially offset by single-digit declines in the Italy and North America Gaming & Interactive segments. During the quarter, the Company sold 10,147 gaming machines worldwide and global lottery same-store revenue excluding Italy increased 7%.

On a reported basis, adjusted EBITDA of $427 million was 32% above the second quarter of 2014.  On a pro forma, constant currency basis, EBITDA was in line with the prior year period. Higher global lottery profits were offset by lower gaming profits.

Reported operating income was $116 million, compared to $171 million in the second quarter of 2014. On a pro forma, constant currency basis, adjusted operating income increased 3% despite higher investment in research and development for both gaming and lottery.

Interest expense was $122 million compared to $56 million last year due to increased debt incurred to finance the legacy IGT acquisition.

Net loss attributable to IGT was $117 million in the second quarter of 2015. On an adjusted basis, net income was $70 million. The Company reported a net loss per diluted share of $0.59, but earned $0.35 per diluted share on an adjusted basis.

Cash from operations was $217 million in the first half of the year despite approximately $150 million in one-time, transaction-related costs, and capital expenditures were $167 million.

Cash and cash equivalents increased to $557 million as of June 30, 2015, compared to $503 million as of June 30, 2014.

At June 30, 2015, consolidated shareholders' equity totaled $3.56 billion and net debt was $8.38 billion.

Operating Segment Review

North America Gaming & Interactive 
North America Gaming & Interactive revenue was $353 million compared to $28 million in the second quarter of 2014. On a pro forma basis, North America Gaming & Interactive revenue declined 8% as higher machine sales and social gaming revenue were offset by lower participation revenue and non-machine sales.  Due to the acquisition, there were four fewer days in the second quarter of 2015 for legacy IGT operations compared to the prior-year period.  Excluding the impact of the four fewer days, total pro forma revenue declined 5%.

Total service revenue was $237 million compared to $9 million in the prior-year period. On a pro forma basis, service revenue declined 10% as a result of a lower installed base, partially mitigated by improved game performance. Excluding the impact of the four fewer days in the quarter for legacy IGT operations, pro forma service revenue declined 6%.  Product sales were $116 million compared to $19 million in the second quarter of 2014. On a pro forma, constant currency basis, product sales were in line with the prior year, reflecting the sale of 6,218 units, supported by strong demand for new cabinets during the quarter. The increase in machine sales was partially offset by an expected decrease in intellectual property revenue. 

North America Lottery
Revenue for the North America Lottery segment was $270 million in the quarter, 24% higher than the prior year on a reported basis and 14% greater on a pro forma basis. The growth in revenue primarily reflects the impact of penalties recognized in the prior-year period. Excluding prior-year penalties, pro forma revenue for the North America Lottery segment declined 3%.

Service revenue increased 35% on a reported basis and 22% on a pro forma basis, reflecting 6% same-store revenue growth supported by strong instant ticket sales and local draw-based game performance. New contracts also contributed to service revenue growth.  Product sales of $17 million in the quarter were below the second quarter of 2014, reflecting large, one-time sales in the prior-year period.

International
International revenue was $247 million, 67% higher than the prior year on a reported basis. On a pro forma, constant currency basis, international revenue rose 17%, reflecting strong product sales for lottery terminals and gaming machines.

International lottery same-store revenue was up approximately 8% on continued, broad-based strength in instant tickets and robust jackpot growth in Eastern Europe.  Lottery product sales increased significantly on large South African terminal and system sales.

International gaming service revenue nearly tripled on a reported basis but declined 1% on a pro forma, constant currency basis, reflecting a contraction in the installed base, mostly due to conversion of leased units in Mexico over the last year. Gaming product sales increased significantly, supported by 3,929 unit sales across Latin America, Europe and South Africa. 

Italy
Revenue in Italy was $432 million, 22% below the second quarter of 2014, principally due to the weakening of the euro against the U.S. dollar. Excluding the impact of currency translation, Italian revenue was down 4% from the prior-year period, as strong growth in Lotto was offset by the anticipated impact of higher taxes on gaming machines.

Total Lotto wagers in the quarter were up 11% to €1.73 billion compared to €1.56 billion last year, driven by strong performance in 10eLotto and Numero ORO. Instant-ticket wagers declined 4% to €2.22 billion versus €2.32 billion last year, primarily due to the timing of new product introductions.

Machine gaming revenue declined 8% in constant currency, reflecting the higher taxes associated with the Stability Law. Excluding the Stability Law impact, machine gaming revenue was in line with the prior-year period in constant currency, as improved machine productivity offset a decline in the number of units.

Outlook

The Company expects to realize $230 million in cost synergies by April 2018, and is expected to achieve two-thirds of targeted savings on an annualized basis by April 2016.

The Company expects pro forma adjusted EBITDA of $1.575 -$1.675 billion in Fiscal Year 2015. Capital expenditures for the year are estimated at $450-$500 million, which does not include €350 million (approximately $385 million at current exchange rates) of upfront capital if the Company is successful in renewing the Italian Lotto concession.

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 second quarter 2015 results. Listeners may access a live webcast of the conference call along with accompanying slides under "News and Presentations" on IGT's Investor Relations website at www.merger.igt.com/investors. 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 1903 for participants in the United Kingdom and +1-212-444-0895 for listeners outside the United Kingdom. The conference ID/confirmation code is 2521829. 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 2521829.

About IGT 
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 more than 13,000 employees. For more information, please visit www.merger.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 such statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include (but are not limited to) risks that the businesses of legacy IGT and GTECH 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; risks that the Company may not obtain its anticipated financial results in one or more future periods; risks relating to unanticipated costs of integration of the two companies; reductions in customer spending; a slowdown in customer payments and changes in customer demand for products and services; unanticipated changes relating to competitive factors in the industries in which the company operates; ability to hire and retain key personnel; the potential impact of the consummation of the business combination on relationships with third parties, including customers, employees and competitors; 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 the company's business, including those described in IGT's annual report on Form 20-F for the fiscal year ended December 31, 2014 and other documents filed from time to time with the Securities and Exchange Commission (the "SEC"). Except as required under applicable law, the company does not assume any obligation to update these 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.

Contact:
Robert K. Vincent, Corporate Communications, +1-401-392-7452
James Hurley, Investor Relations, +1-401-392-7190
Simone Cantagallo, +39 06 51899 030; for Italian media inquiries