International Game Technology PLC Reports Second Quarter 2016 Results

LONDON, July 28, 2016 /PRNewswire/ -- International Game Technology PLC ("IGT") (NYSE:IGT) today reported financial results for the second quarter and six months ended June 30, 2016. 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 second quarter results; access details are provided below.

"Robust growth in our global lottery operations, notably in Italy and North America, and the resilience of our global gaming business are the key takeaways from our second quarter results," said Marco Sala, CEO of IGT. "Service revenues, which account for the bulk of our business and are mostly supported by long-term contracts, rose a solid 6% at constant currency in the period. We are making good progress implementing our strategy of developing innovative content and technology that we can leverage across gaming platforms and around the world. We look forward to showcasing the full scope of our new gaming and lottery offerings at high-profile trade shows later this fall."

"This is our third consecutive quarter of year-over-year adjusted EBITDA growth," said Alberto Fornaro, CFO of IGT. "A solid increase in service revenue, additional synergy savings and disciplined operational management all supported significant operating cash flow generation during the quarter. As a result, we maintained a stable net debt and leverage profile in the period when we paid the largest installment of the upfront Italian Lotto concession payment."

Summary of Consolidated Second Quarter 2016 Financial Results

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 2016 are calculated using the same foreign exchange rates as the corresponding 2015 period.

Overview of Consolidated Second Quarter Results

Consolidated revenue grew 1% to $1,285 million from $1,274 million in the second quarter of 2015. Revenue growth primarily reflects strong lottery performance, particularly in Italy and North America. Global lottery same-store revenue, excluding Italy, increased 6% during the second quarter while Italy lottery wagers increased 8%. Gaming service revenue grew 5% during the second quarter, primarily on increased software contribution that was partially offset by a lower global installed base. Product sales declined on a challenging comparison with the prior year given significant lottery product sales in South Africa and large Canada video lottery terminal ("VLT") sales in 2015. The Company shipped 8,152 gaming machines worldwide during the second quarter.

Operating income grew 48% to $171 million from $116 million in the second quarter of 2015 driven by revenue growth, synergy savings and lower transaction-related expenses. Adjusted operating income grew 2% to $290 million from $283 million in the second quarter of 2015 as revenue growth and synergies were partially offset by higher operating expenses. 

Adjusted EBITDA of $443 million was 4% higher than the second quarter of 2015 driven by the growth in service revenue.

Interest expense was $118 million compared to $122 million in the prior-year period.

Net income attributable to IGT was $73 million in the second quarter of 2016. On an adjusted basis, net income attributable to IGT rose 14% to $87 million. The Company reported net income per diluted share of $0.36 and earned $0.43 per diluted share on an adjusted basis.

Cash from operations was $524 million in the first half of the year and capital expenditures were $220 million. In addition, the Company made the first of three upfront installment payments for the new Lotto concession in Italy during the second quarter.

Cash and cash equivalents were $390 million as of June 30, 2016, compared to $627 million as of December 31, 2015. Consolidated shareholders' equity totaled $3,409 million and net debt was $7,830 million as of June 30, 2016.

Operating Segment Review

North America Gaming & Interactive   

North America Gaming & Interactive revenue was $350 million compared to $353 million in the second quarter of 2015.

Service revenue was $246 million, a 4% increase over $237 million in the prior-year period as higher software revenue offset a decline in the installed base. DoubleDown revenue was down modestly from the prior year.

Product sales were $104 million compared to $116 million in the second quarter of 2015, primarily due to lower machine unit volume that was partially offset by higher systems sales. The segment shipped 5,163 units compared to 6,218 units in the second quarter of 2015, which included large Canada VLT sales.

Operating income for North America Gaming & Interactive was $87 million compared to $96 million in the second quarter of 2015. The decline was largely attributed to lower revenue from terminal sales and incremental investments to support the Company's Gaming turnaround efforts.

North America Lottery

North America Lottery revenue was $286 million in the second quarter of 2016, 6% higher than the $270 million reported in the second quarter of 2015.

Service revenue of $267 million was 6% higher than the prior-year period, reflecting 7.3% same-store revenue growth. The same-store revenue growth was broad-based and supported by continued strength in Jackpot games and Instant tickets. Product sales were $19 million in the second quarter of 2016, compared to $17 million in the prior-year period.

Operating income for North America Lottery rose 31% to $62 million reflecting the strong operating leverage profile of the business and favorable product mix. 

International

International revenue was $207 million compared to $247 million in the second quarter of 2015. At constant currency, International revenue declined 12% from the prior year, which included large lottery product sales in South Africa.

International lottery service revenue of $70 million was 10% higher than the prior-year period at constant currency. Same-store revenue growth of 2.2% was supported by strength in Latin America and Eastern Europe, partially offset by weakness in the United Kingdom. Lottery service revenue also benefitted from a higher effective rate in the period. Lottery product sales were below the prior-year period, which included large terminal and systems sales in South Africa.

International gaming service revenue was $46 million compared to $50 million in the second quarter of 2015. At constant currency, International gaming service revenue was flat, with EMEA performance offsetting a lower Latin America installed base. Revenue from gaming product sales declined from the prior-year period. The segment shipped a total of 2,989 gaming machines during the second quarter of 2016 compared to 3,929 units in the prior-year period, which benefitted from higher sales of new and expansion units.

International operating income was $28 million compared to $47 million in the second quarter of 2015. Operating income declined on lower product sales and adverse foreign exchange impact. 

Italy

Italy revenue was $443 million, 6% higher than the second quarter of 2015.   

Total Lotto wagers in the quarter were €2,056 million, a 19% increase over the prior-year period, when wagers had already posted 11% growth. Strong Lotto performance was achieved with double-digit expansion for 10eLotto and a significant contribution from late numbers. Excluding late numbers, Lotto wagers increased 7% over the same period last year. Instant-ticket wagers were flat at €2,200 million.

Machine gaming service revenue increased 6% on higher wagers per machine and lower return to player. The strength in revenues was partially offset by lower installed units and higher Stability Law taxes. 

Operating income for the Italy segment was $161 million, 14% higher than the second quarter of 2015. The increase in operating income was mainly attributable to strong lottery and gaming performance, a shift in timing of certain marketing expenses, and a multi-year value-added tax ("VAT") credit. These benefits were partially offset by higher Stability Law taxes.

Other Developments

The Company entered into an amendment agreement with respect to its $1.8 billion and €1.05 billion multicurrency revolving credit facilities pursuant to which the maturity date was extended from November 2019 to July 2021, and the maximum leverage ratio was increased by 0.25x through the third quarter of 2019. The amendment reflects advantageous market conditions that provide the Company with substantial financial flexibility for the next several years.

Outlook

The Company continues to expect adjusted EBITDA of $1,740-$1,790 million for the full year 2016 period. Capital expenditures excluding upfront Lotto concession payments are now expected to be $550-$580 million, which includes Lotto-related infrastructure upgrades. This compares to previous guidance of $575-$625 million in capital expenditures, which did not include an estimated $35 million in Lotto-related infrastructure investments. The 2016 portion of the Lotto-related, upfront concession payments is €600 million. Net debt is still expected to be $7,700-$7,900 million at the end of 2016.

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 second quarter 2016 results. Listeners may access a live webcast of the conference call along with accompanying slides under "News, Events and 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 7136 2051 for participants in the United Kingdom and +1 877 280 2296 for listeners outside the United Kingdom. The conference ID/confirmation code is 5641427. A telephone replay of the call will be available for one week at +44 (0) 20 3427 0598 or +1 866 932 5017 using the conference ID/confirmation code 5641427.

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 over 12,000 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 International Game Technology PLC 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 International Game Technology PLC 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 International Game Technology PLC'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 (Nevada) 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; unanticipated costs of integration of International Game Technology (Nevada) and GTECH S.p.A.; the possibility that International Game Technology PLC will be unable to pay future dividends to shareholders or that the amount of such dividends may be less than anticipated; the possibility that International Game Technology PLC 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 International Game Technology PLC operates; International Game Technology PLC'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; International Game Technology PLC'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 International Game Technology PLC, including as a consequence of the announced withdrawal of the UK from the EU; international, national or local economic, social or political conditions that could adversely affect International Game Technology PLC or its customers; conditions in the credit markets; changes in the top management team; risks associated with assumptions International Game Technology PLC makes in connection with its critical accounting estimates; the resolution of pending and potential future legal, regulatory or tax proceedings and investigations; and International Game Technology PLC'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 International Game Technology PLC's business, including those described in International Game Technology PLC'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 International Game Technology PLC's website at www.IGT.com. Except as required under applicable law, International Game Technology PLC does not assume any obligation to update the forward-looking statements. Nothing in this presentation is intended, or is to be construed, as a profit forecast or to be interpreted to mean that earnings per International Game Technology PLC share for the current or any future financial years will necessarily match or exceed the historical published earnings per International Game Technology PLC share, as applicable. All forward-looking statements contained in this presentation are qualified in their entirety by this cautionary statement. All subsequent written or oral forward-looking statements attributable to International Game Technology PLC, or persons acting on its behalf, are expressly qualified in their entirety by this cautionary statement.

Contact:

Robert K. Vincent, Corporate Communications, toll free in U.S./Canada +1 (844) IGT-7452; outside U.S./Canada +1 (401) 392-7452
James Hurley, Investor Relations, +1 (401) 392-7190
Simone Cantagallo, +39 06 51899030; for Italian media inquiries

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SOURCE International Game Technology PLC