International Game Technology PLC Reports Fourth Quarter And Full Year 2015 Results

LONDON, March 17, 2016 /PRNewswire/ -- International Game Technology PLC ("IGT") (NYSE:IGT) today reported financial results for the fourth quarter and year ended December 31, 2015. Today, at 8:00 a.m. EDT / 12:00 p.m. GMT / 1:00 p.m. CET, management will host a conference call and webcast to present the fourth quarter and full year 2015 results; access details are provided below.

"We ended a year of transformation with a strong quarter for our lottery and gaming operations, enabling us to reach the high end of our EBITDA guidance," said Marco Sala, CEO of IGT. "We established IGT as the global gaming leader with a commitment to being a customer-first organization and to deliver the content, technology, and expertise that drives player demand. We are confident that we have established a solid foundation from which we can continue to lead the gaming industry and grow our business."

"Our financial and operational discipline is evidenced in our fourth quarter and full year results," said Alberto Fornaro, CFO of IGT. "We achieved our first-year synergy goals three months ahead of plan and have increased our total cost synergy target. Strong free cash flow resulted in a significant reduction in net debt and leverage. As we look to 2016, we are forecasting growth for our core operations, while incremental synergies are expected to mitigate certain anticipated headwinds. Our financial condition is solid, placing us in a strong position to pursue our growth objectives, continue to reduce debt, and remunerate our shareholders."

Summary of Consolidated Fourth Quarter and Full Year Financial Results

Comparability of Results

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

As a result of the combination of GTECH S.p.A. ("GTECH") and International Game Technology ("legacy IGT"), which was completed on April 7, 2015, a number of items affect the comparability of reported results.  Reported financial information for the fourth quarter of 2015 includes the results of operations of IGT for the entire period, while reported financial information for the fourth quarter of 2014 includes only GTECH operations. Reported financial information for the full year 2015 period includes IGT for the second, third, and fourth quarters and only GTECH operations in the first quarter, while the reported full year 2014 figures are for GTECH only. Pro forma figures represent the combined results of both companies. 

Adjusted figures exclude the impact of purchase price amortization, impairment charges, restructuring expense, 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.

Reported 2015 results were adversely affected by the strengthening of the U.S. dollar compared to the euro; the daily average U.S. dollar to euro foreign exchange rate was 1.10 in the fourth quarter of 2015 compared to 1.25 in the fourth quarter of 2014, and was 1.11 for the full year 2015 period compared to 1.33 in 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.

Overview of Consolidated Fourth Quarter Results

Reported consolidated revenue grew 44% to $1,365 million from $951 million in the fourth quarter of 2014, reflecting GTECH's acquisition of legacy IGT. On a pro forma, constant currency basis, consolidated revenue rose 5%. Revenue growth reflects strong gaming product sales, continued progress toward stabilizing the global casino installed base, and sustained lottery growth. During the quarter, the Company sold 11,562 gaming machines worldwide and global lottery same-store revenue, excluding Italy, increased 6%.

On a reported basis, adjusted EBITDA of $449 million was 40% above the fourth quarter of 2014.  On a pro forma, constant currency basis, adjusted EBITDA was 8% greater than the prior-year period as overall sales growth was accentuated by synergy savings and certain one-time items. 

Reported operating income was $132 million compared to $114 million in the fourth quarter of 2014. On a pro forma, constant currency basis, adjusted operating income was 17% above the year-earlier period, supported by revenue growth and synergy savings. Both adjusted EBITDA and operating income also benefited from a multi-year value-added tax ("VAT") credit in Italy as well as the absence of lottery management agreement ("LMA") penalties that negatively affected operating income in the fourth quarter of 2014. 

Interest expense was $119 million compared to $75 million in the prior-year period due to increased debt incurred to finance the legacy IGT acquisition.

Net income attributable to IGT was $74 million in the fourth quarter of 2015. On an adjusted basis, net income was $127 million. The Company reported net income per diluted share of $0.37 and earned $0.63 per diluted share on an adjusted basis.

Cash from operations was $786 million in the full year period, inclusive of approximately $160 million in one-time, transaction-related costs. Capital expenditures were $403 million on a reported basis and $429 million on a pro forma basis in 2015.

Cash and cash equivalents were $627 million as of December 31, 2015, compared to $317 million as of December 31, 2014.

At December 31, 2015, consolidated shareholders' equity totaled $3,366 million and net debt was $7,707 million.

Operating Segment Review

North America Gaming & Interactive   
Revenue for the North America Gaming & Interactive segment was $378 million compared to $45 million in the fourth quarter of 2014. On a pro forma basis, revenue was 3% below the prior year, primarily due to negative foreign currency effects; at constant currency, revenues were 1% below the prior year.

Service revenue was $263 million compared to $13 million in the prior-year period. On a pro forma basis, service revenue declined 4%, primarily as a result of a lower installed base. On a sequential basis, the installed base at North American casinos rose by 181 units, the first sequential increase since June 2013. DoubleDown revenues rose 5% on strong growth in bookings per daily average user and despite having six fewer days in the quarter. Product sales were $115 million compared to $32 million in the fourth quarter of 2014. On a pro forma, constant currency basis, product sales were 6% above the prior year. The Company sold 6,597 machines compared to 5,482 units in the fourth quarter of 2014. Product sales also benefited from higher system sales during the fourth quarter of 2015. 

Operating income for North America Gaming & Interactive was $106 million compared to $8 million in the fourth quarter of 2014. On a pro forma basis, North America Gaming & Interactive operating income rose 3% as increased DoubleDown profits and synergy savings more than offset unfavorable revenue mix impacts.

North America Lottery
Revenue for the North America Lottery segment was $269 million in the fourth quarter of 2015, 20% higher than the prior year on a reported basis and 10% greater on a pro forma basis.

Service revenue increased 18% on a reported basis and was 8% higher than the prior year on a pro forma basis, reflecting the net impact of 6% same-store revenue growth, favorable LMA comparisons, and the contribution from new contracts in Canada and Colorado. Strong instant ticket sales and solid draw-based game performance were the primary drivers of same-store revenue growth during the quarter. Powerball sales were also strong in the period, although that growth was more than offset by a decline in Mega Millions sales. Product sales of $14 million in the quarter were nearly double those in the fourth quarter of 2014, reflecting the natural variability of the business.

Operating income for North America Lottery was $43 million compared to $17 million in the fourth quarter of 2014. On a pro forma basis, operating income for North America Lottery rose 47% on favorable LMA comparisons and strong same-store revenue growth.

International
International revenue was $265 million compared to $192 million in the fourth quarter of 2014 on a reported basis. On a pro forma, constant currency basis, International revenue increased 5% from the prior year, primarily on strong gaming product sales.

International lottery same-store revenue was up approximately 4% on continued strength in instant tickets and local draw-based games. Lottery product sales were below the prior-year period on a pro forma, constant currency basis due to unfavorable comparisons with a large sale in Belgium in the fourth quarter of 2014.

International gaming service revenue was below the fourth quarter of 2014 on a pro forma, constant currency basis, primarily due to a contraction in the installed base, principally as a result of the conversion of leased units to product sales in Mexico over the last year. Revenue from gaming product sales was significantly above the prior year on both a reported and pro forma basis as the Company sold a total of 4,965 gaming machines internationally during the fourth quarter, with particular strength in Latin America.

International operating income was $55 million compared to $61 million in the fourth quarter of 2014. On a pro forma, constant currency basis, International operating income was down 9%, primarily reflecting the mix of products and services sold during the periods.  

Italy
Revenue in the Italy segment was $455 million compared to $489 million in the fourth quarter of 2014 due to the strengthening of the U.S. dollar against the euro. Excluding currency translation, Italian revenue rose 6% on underlying operating expansion, primarily from machine gaming.

Total Lotto wagers in the quarter were €1,855 million, 6% greater than the €1,746 million achieved in the prior-year period. Strong Lotto performance was a result of low-teens growth in 10eLotto that was partially offset by lower late number activity. Instant-ticket wagers were €2,391 million versus €2,436 million last year, as several new product introductions have helped to improve on the year-to-date trend.

Machine gaming service revenue rose 15% in constant currency, as improved machine productivity and mix continue to offset lower AWP units.

Operating income for Italy was $132 million, 17% greater than the fourth quarter of 2014 on a reported basis and 42% higher on a pro forma, constant currency basis. Approximately half of the growth in operating income reflects underlying performance improvement and cost discipline despite unfavorable Stability Law impacts. Operating income also benefited from the multi-year VAT credit mentioned earlier and the favorable comparison with expenses related to the sale of the ticketing business in the prior year period.

Overview of Consolidated Full Year 2015 Results

Reported consolidated revenue was $4,689 million compared to $3,812 million in 2014. On a pro forma, constant currency basis, consolidated revenue declined 4%, primarily reflecting lower gaming product sales and service revenues that were partially offset by growth in lottery and social gaming operations. During the year, the Company sold 35,159 gaming machines worldwide and global lottery same-store revenue, excluding Italy, increased 6%.

On a reported basis, adjusted EBITDA of $1,611 million was 16% greater than the 2014 level. Pro forma adjusted EBITDA was $1,704 million, which was at the high end of management's guidance and included approximately $95 million in synergy savings. 

Reported operating income was $540 million compared to $715 million in 2014. On a pro forma, constant currency basis, adjusted operating income was 9% below 2014, primarily reflecting weaker commercial gaming trends and higher taxes in Italy that were partially offset by synergy savings.

Interest expense was $458 million compared to $262 million in the prior-year period due to increased debt incurred to finance the legacy IGT acquisition.

Net loss attributable to IGT was $76 million in 2015. On an adjusted basis, net income was $362 million. The Company reported a net loss per diluted share of $0.39 but earned $1.87 per diluted share on an adjusted basis in 2015.

Other Developments

The Company's Board of Directors has declared a quarterly cash dividend of $0.20 per ordinary share. The dividend is payable on April 14, 2016 to all shareholders of record as of the close of business on March 31, 2016.

The Company also announced that, effective March 16, 2016, Tracey Weber has stepped down as a member of its Board of Directors. The Company's Board is now comprised of 12 members. As a result of Ms. Weber's departure, Jeremy Hanley has been appointed to the Company's Nominating and Corporate Governance Committee. "On behalf of the IGT PLC Board, I would like to thank Tracey for her valuable contributions to the Company," said Phil Satre, Chairman of the IGT PLC Board.

In a news release issued on March 16, 2016, the Company announced that it has entered into a consortium of strategic and financial partners to bid for the Italian Lotto concession. If the consortium is awarded the Lotto concession, a joint venture company will be established. IGT, through its Lottomatica subsidiary, will serve as the operating partner with a 61.5% equity ownership of the joint venture.

Outlook

The Company's outlook assumes it is successful in securing the Italian Lotto concession. The Company currently expects to achieve adjusted EBITDA of $1,740-$1,790 million for the full year period, supported by growth in core operations and using an average euro/dollar exchange rate of 1.10 versus 1.11 last year. A modest headwind is expected from other currencies, notably the British pound, Australian dollar, and certain Latin American currencies.

The Company has increased its cost synergy target to $270 million from its prior expectation of $230 million and continues to expect revenue synergies of $50 million. Compared to 2015, at least $70 million in incremental synergies is included in the EBITDA guidance for 2016. The synergies are expected to mitigate the anticipated impacts of currency translation, higher gaming machine taxes in Italy, and a lower contribution from Lotto as a result of new concession terms.

Capital expenditures excluding the Lotto concession are expected to be $575-$625 million, including lottery maintenance and gaming capital expenditures of approximately $500 million and approximately $100 million for lottery growth capital. A successful renewal of the Italian Lotto concession would require additional capital expenditures in 2016 of at least $660 million at current rates. Net debt is expected to be $7,700-$7,900 million at the end of 2016.

Conference Call and Webcast

Today, at 8:00 a.m. EDT / 12:00 p.m. GMT / 1:00 p.m. CET, management will host a conference call to present the fourth quarter and full year 2015 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 3427 1904 for participants in the United Kingdom and +1-646-254-3362 for listeners outside the United Kingdom. The conference ID/confirmation code is 6623346. 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 6623346.

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 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 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; 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; 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; 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, 2014 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.

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

Key Performance Indicators (KPIs)

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SOURCE International Game Technology PLC