International Game Technology PLC Reports Third Quarter 2015 Results

LONDON, Nov. 12, 2015 /PRNewswire/ -- International Game Technology PLC ("IGT") (NYSE: IGT) today reported financial results for the third quarter and nine months ended September 30, 2015.

"We are pleased to report third quarter profitability in line with our expectations in this year of transformation," said Marco Sala, CEO of IGT. "In our global lottery operations, we delivered another resilient set of results and we are encouraged by our new game performance. As expected, product sales moderated from the second quarter's high level. We are focused on driving growth through innovation. Our recent showcases at the leading gaming and lottery trade shows demonstrated that commitment and the power of combining our compelling content and leading-edge technology to cement our industry leadership."

"Our third quarter results reflect the diversity of our business and disciplined operational management," said Alberto Fornaro, CFO of IGT. "Our synergy plans remain on track, free cash flow generation was strong, net debt was reduced, and our financial condition remains solid. We planned our first year as a combined company prudently; based on our year-to-date results and current top-line visibility, we are confident in reaching the top half of our 2015 adjusted EBITDA outlook."   

 Note: Pro forma is defined as the combined results of GTECH and legacy IGT for period prior to the second quarter of 2015. Adjusted operating income, adjusted EBITDA, 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.

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 third quarter of 2015 includes the results of operations of IGT for the entire period, while reported financial information for the third quarter of 2014 includes only GTECH operations. Reported financial information for the first nine months of 2015 includes IGT for the second and third quarters and only GTECH operations in the first quarter, while the reported nine month 2014 figures are for GTECH only. Pro forma figures represent the combined results of both companies in 2014 and in the first nine months of 2015. 

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 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 1.11 in the third quarter of 2015 compared to 1.33 in the third quarter of 2014. Constant currency changes for 2015 are calculated using the same foreign exchange rates as the corresponding 2014 period.

The Company has harmonized the methodology used to calculate pro forma, adjusted EBITDA in the first calendar quarter of 2015 by adding back certain legacy IGT items that had not been previously included. This has resulted in a $30 million increase to pro forma, adjusted EBITDA in the first quarter of 2015, which is also included in the Company's revised, full year 2015 outlook.   

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 Third Quarter Results

Reported consolidated revenue grew 30% to $1.22 billion from $938 million in the third quarter of 2014, reflecting GTECH's acquisition of legacy IGT. On a pro forma, constant currency basis, consolidated revenue declined 10%. Resilience in global lottery operations was more than offset by an expected decrease in gaming product sales, largely due to significant Oregon VLT and casino conversion sales in the third quarter of 2014, in addition to the variability in the timing of new casino openings. During the quarter, the Company sold 6,622 gaming machines worldwide and global lottery same-store revenue, excluding Italy, increased 6%.

On a reported basis, adjusted EBITDA of $414 million was 21% above the third quarter of 2014.  On a pro forma, constant currency basis, adjusted EBITDA was 17% below the prior-year period, primarily due to sales dynamics in the quarter, which were partially offset by lower operating expenses. 

Reported operating income was $130 million compared to $184 million in the third quarter of 2014. On a pro forma, constant currency basis, adjusted operating income was 19% below the year-earlier period, as higher lottery profits were more than offset by lower gaming profits.

Interest expense was $122 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 $7 million in the third quarter of 2015. On an adjusted basis, net income was $82 million. The Company reported net income per diluted share of $0.04 and earned $0.41 per diluted share on an adjusted basis.

Cash from operations was $471 million in the first nine months of the year, inclusive of higher interest costs and approximately $150 million in one-time, transaction-related costs. Capital expenditures were $289 million in the year-to-date period.

Cash and cash equivalents were $552 million as of September 30, 2015, compared to $573 million as of September 30, 2014.

At September 30, 2015, consolidated shareholders' equity totaled $3.52 billion and net debt was $8.20 billion.

Operating Segment Review

North America Gaming & Interactive   
Revenue for the North America Gaming & Interactive segment was $341 million compared to $37 million in the third quarter of 2014. On a pro forma basis, North America Gaming & Interactive revenue was 19% below the prior year as relative stability in recurring service revenues was more than offset by an expected contraction in product sales on difficult comparisons with large VLT sales and intellectual property revenue in the third quarter of 2014.

Service revenue was $267 million compared to $15 million in the prior-year period. On a pro forma basis, service revenue declined 2% as a result of a lower installed base that was mostly compensated for by improved wide area progressive yields, 6% growth at DoubleDown, and favorable mix. Product sales were $73 million compared to $22 million in the third quarter of 2014. On a pro forma basis, product sales were 50% below the prior year, as anticipated. The Company sold 3,326 machines compared to 6,541 units in the third quarter of 2014, which included 1,864 Oregon VLT units and shipments related to stronger new casino openings. Year-to-date, total replacement unit sales were up 4% while new and expansion units were down, reflecting the cadence of new casino openings and VLT programs. Product sales were also affected by an expected decrease in intellectual property licensing revenue. 

Operating income for North America Gaming & Interactive was $85 million compared to $2 million in the third quarter of 2014. On a pro forma basis, North America Gaming & Interactive operating income declined 42% as a result of lower product sales and overall revenue mix as well as further investment in research and development.

North America Lottery
Revenue for the North America Lottery segment was $253 million in the quarter, 6% higher than the prior year on a reported basis but 2% lower on a pro forma basis. The Company entered into a revised termination agreement with the Illinois Lottery during the third quarter. Excluding the Illinois termination settlement, pro forma revenue for the North America Lottery segment rose 2%.

Service revenue increased 9% on a reported basis and was in line with the prior year on a pro forma basis, reflecting the net impact of 8% same-store revenue growth and the Illinois termination payment. Strong instant ticket sales and local draw-based game performance were the primary drivers of same-store revenue growth during the quarter. New contracts in Canada and Colorado also contributed to service revenue growth. Product sales of $11 million in the quarter were below the third quarter of 2014, reflecting the natural variability of the business, which included strong instant ticket printing and vending machine sales in the prior year period.

Operating income for North America Lottery was $50 million compared to $20 million in the third quarter of 2014. On a pro forma basis, operating income for North America Lottery rose 66% on strong same-store revenue growth and operational leverage, and despite the $5 million net impact of the Illinois settlement, which also impacted adjusted EBITDA.

International
International revenue was $211 million compared to $138 million in the third quarter of 2014 on a reported basis. On a pro forma, constant currency basis, International revenue was 12% below the prior year, the net result of stable lottery performance and lower gaming product sales due to challenging comparisons with large conversion and systems sales in the prior-year period.

International lottery same-store revenue was up approximately 2% on continued, broad-based strength in instant tickets and sustained jackpot growth in Eastern Europe that was partially offset by weaker trends in Latin America. Lottery product sales were in line with the prior-year period on a pro forma, constant currency basis.

International gaming service revenue was modestly below the third quarter of 2014 on a pro forma, constant currency basis due to a contraction in the installed base, principally as a result of the conversion of leased units in Mexico over the last year. The Company sold a total of 3,296 gaming machines internationally during the third quarter. Revenue from gaming product sales was below the prior year, partly due to large conversion and systems sales in the comparable 2014 period.   

International operating income was $37 million, 28% greater than the third quarter of 2014. On a pro forma basis, International operating income was down, primarily reflecting lower gaming product sales.

Italy
Revenue in the Italy segment was $414 million compared to $525 million the third quarter of 2014, primarily due to the weakening of the euro against the U.S. dollar. Excluding currency translation, Italian revenue was down 8%, as relative stability in most core activities was offset by the anticipated impact of gaming machine taxes and a six percentage point increase in sports betting payout.

Total Lotto wagers in the quarter were €1.68 billion compared to €1.75 billion last year, as a result of significantly lower late number activity. 10eLotto performance was especially strong during the quarter, supported by the continued success of Numero ORO. Instant-ticket wagers were €2.11 billion versus €2.18 billion last year, an improvement in the year-to-date trend related to several new product introductions.

Machine gaming revenue declined in constant currency due to higher taxes associated with the 2015 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 and mix continue to offset lower AWP units.

Operating income for Italy was $131 million compared to $192 million in the third quarter of 2014, primarily due to unfavorable currency impacts and a gain on the sale of the Company's Italian sports and events ticketing business in the prior-year period. On a constant perimeter and currency basis, Italian operating income was affected by the higher sports betting payout and Stability Law.

Outlook

Including the $30 million reclassification of certain legacy IGT items in the first quarter of 2015, the Company is updating its outlook for pro forma, adjusted EBITDA in 2015 to $1.605-$1.705 billion from the prior range of $1.575-$1.675 billion.

Capital expenditures for the year are now estimated at $400-$450 million compared to a prior expectation of $450-$500 million. This does not include any upfront capital related to the Italian Lotto concession renewal, which will not be required this year.

Conference Call and Webcast

Today, at 8:00 a.m. EST / 1:00 p.m. GMT / 2:00 p.m. CET, management will host a conference call to present the third quarter 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 1905 for participants in the United Kingdom and +1-718-354-1152 for listeners outside the United Kingdom. The conference ID/confirmation code is 2592426. 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 2592426.

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 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) risks 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; risk that the Company will be unable to pay future dividends to shareholders or that the amount of such dividends may be less than anticipated; 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 and legal proceedings; 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, (401) 392-7452
James Hurley, Investor Relations, (401) 392-7190
Simone Cantagallo, (+39) 06 51899030; for Italian media inquiries

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SOURCE International Game Technology PLC