International Game Technology Reports Third Quarter Fiscal Year 2012 Results

Third Quarter Highlights (compared to last year's third quarter)

-- Total revenues increased 9% to $533 million

-- North America replacement units increased 44%

-- Repurchased 23 million shares in the quarter

News provided by

International Game Technology

Jul 24, 2012, 04:15 ET

LAS VEGAS, July 24, 2012 /PRNewswire/ -- International Game Technology (NYSE: IGT) today reported operating results for the fiscal third quarter ended June 30, 2012.

"Our third quarter revenue growth and strong cash flows are reflective of our diverse business model.  Against the backdrop of an inconsistent global economic recovery, we are generally pleased with this quarter's results and remain on track to meet our fiscal year 2012 financial goals," said Patti Hart, CEO of IGT. "The recent announcement of our $1 billion share repurchase is further evidence of our confidence in the outlook for IGT."

Consolidated Results

($ in millions, except per share amounts)

Quarters Ended

Nine Months Ended

June 30,

June 30,

2012

2011

% Change

2012

2011

% Change

GAAP Results











Revenue

$ 532.8

$ 489.0

9%

$ 1,519.6

$ 1,417.2

7%

Operating income

$    95.5

$ 140.8

-32%

$    313.5

$    389.1

-19%

Income from continuing operations

$    46.9

$    91.8

-49%

$    159.6

$    232.3

-31%

Earnings per share from continuing operations

$    0.16

$    0.30

-47%

$       0.54

$       0.77

-30%

Net operating cash flows






$    327.0

$    448.7

-27%











Non-GAAP Results











Adjusted operating income

$ 129.3

$ 140.8

-8%

$    375.3

$    389.1

-4%

Adjusted income from continuing operations

$    68.5

$    76.7

-11%

$    199.2

$    205.9

-3%

Adjusted earnings per share from continuing operations

$    0.23

$    0.26

-12%

$       0.67

$       0.69

-3%

Free cash flow (before dividends)






$    156.2

$    293.6

-47%











Adjusted operating income, adjusted income from continuing operations, adjusted earnings per share from continuing operations 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 increased 9% to $533 million in the third quarter, primarily due to the interactive businesses and North America machine sales.
  • Non-GAAP adjusted measures primarily reflect the exclusion of charges related to the acquisition of Double Down.

Gaming Operations (including Interactive)

($ in millions, unless otherwise noted)

Quarters Ended

Nine Months Ended

June 30,

June 30,

2012

2011

% Change

2012

2011

% Change











Revenue

$ 301.2

$ 267.4

13%

$ 866.2

$ 790.1

10%

Gross profit

$ 178.2

$ 164.6

8%

$ 520.2

$ 490.9

6%

Gross margin

59%

62%

-5%

60%

62%

-3%

Installed base

56,900

53,300

7%

56,900

53,300

7%

Average revenue per unit per day (0.00)

$ 58.55

$ 55.57

5%

$ 57.26

$ 54.52

5%











  • Revenues increased 13% to $301 million in the third quarter, primarily due to increases in the interactive businesses.  Excluding the interactive businesses, revenues were flat.
  • Gross margin decreased to 59% from 62% in the third quarter, primarily due to the inclusion of the interactive businesses and lower MegaJackpots® yields.
  • Installed base increases were primarily driven by global lease operations growth.
  • Excluding the positive impact from the interactive businesses, average revenue per unit per day in the third quarter was $50.20, down 4% sequentially and 7% over the prior year quarter, mainly due to lower MegaJackpots® yields and a higher mix of lower-yielding units in the installed base.
  • Double Down bookings per daily user were $0.25 in the third quarter compared to $0.24 in the second quarter subsequent to acquisition.
  • Double Down monthly users were 5.2 million as of June 30, 2012, a decrease of 7% when compared to March 31, 2012.

Product Sales

($ in millions, unless otherwise noted)

Quarters Ended

Nine Months Ended

June 30,

June 30,

2012

2011

% Change

2012

2011

% Change











Revenue

$ 231.6

$ 221.6

5%

$ 653.4

$ 627.1

4%

Gross profit

$ 124.4

$ 124.0

-

$ 348.0

$ 349.7

-

Gross margin

54%

56%

-4%

53%

56%

-5%

Units recognized ('000)

11.6

8.9

30%

29.1

26.2

11%

Average machine sales price ('000)

$    13.7

$    15.4

-11%

$    15.0

$    14.7

2%

  • Revenues increased 5% to $232 million in the third quarter, primarily due to higher North American machine sales, partially offset by lower international machine sales.  
  • Units recognized increased 30% in the third quarter, due to an increase in new openings in North America and a 44% increase in North America replacement units.
  • Average machine sales price decreased 11% in the third quarter, mainly due to an unfavorable pricing mix related to increased lottery and used game sales.
  • North America gross margin increased to 56% from 55% due to higher production volumes.

Operating Expenses and Other Income/Expense

($ in millions)



Quarters Ended

Nine Months Ended

June 30,

June 30,

2012

2011

% Change

2012

2011

% Change

Operating Expenses











Selling, general & administrative

$ 104.9

$    82.5

27%

$ 303.8

$ 253.8

20%

Research & development

55.1

48.5

14%

157.3

146.1

8%

Depreciation & amortization

21.1

16.8

26%

55.8

51.6

8%

Contingent acquisition related costs

26.0

-

-

37.8

-

-

Total operating expenses

$ 207.1

$ 147.8

40%

$ 554.7

$ 451.5

23%











  • Operating expenses increased primarily due to additional expenses related to the interactive businesses.
  • Excluding the revenue and operating expenses associated with the interactive businesses, total operating expenses increased 140 bps as a percentage of revenue compared to the prior year quarter, largely due to unfavorable bad debt provisions.
  • Other expense, net, in the third quarter totaled $21 million compared to $19 million in the prior year quarter, primarily attributable to reduced interest income. 

Cash Flows, Balance Sheet and Capital Deployment

($ in millions)

Quarters Ended

June 30,

Sept. 30,


2012

2011

% Change




Cash and equivalents (including restricted amounts)

$    327.5

$    552.0

-41%

Working capital

$    605.2

$    875.2

-31%

Contractual debt obligations

$1,930.0

$1,650.0

-17%




  • Cash and working capital decreased 41% and 31%, respectively, mainly as a result of cash deployed in connection with the acquisition of Double Down and share repurchases.
  • On June 14, 2012 the company announced a new $1.0 billion share repurchase authorization and entered into a $400 million accelerated stock buyback (ASB) agreement to repurchase its common stock.
  • Contractual debt obligations increased $280 million in the third quarter due to increased borrowings under the company's revolving credit facility used to fund a portion of the ASB.
  • Under the ASB, the company received 21 million shares in June and an additional 2 million shares in July.  The company may receive additional shares until the completion of the repurchase period, which is expected to end during this calendar year.
  • Also during the third quarter, the company repurchased 2 million shares of its common stock in the open market under its previous authorization at an average price of $14.48 per share for a total cost of $25 million.

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

Outlook

Based on current expectations and the operating results for the third quarter of fiscal 2012, the company is reiterating its fiscal year 2012 guidance for adjusted earnings from continuing operations of $0.98 to $1.04 per share. This guidance assumes our fully diluted weighted average shares outstanding will be 291 million for fiscal 2012. GAAP earnings per share from continuing operations for fiscal year 2012 will include acquisition-related expenses, the amount of which are not determinable at this time, and may also include charges for impairment, acquisition-related expenses, resolution of certain tax items, and/or other items that are not currently determinable, but may be significant. For this reason, the Company is unable to provide full-year GAAP earnings per share from continuing operations estimates at this time.

Earnings Conference Call

As previously announced on Jul. 10, 2012, IGT will host a conference call to discuss its Third Quarter Fiscal Year 2012 earnings results on Tuesday, Jul. 24, 2012, at 2:00 p.m. PDT. The access numbers are as follows:

Domestic callers dial +1 888-829-8676, passcode IGT
International callers dial +1 773-756-4709, 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/InvestorRelations.  The call will be archived until Wednesday, Aug 8, 2012 at http://www.IGT.com/InvestorRelations, for those interested parties that are unable to participate during the live webcast.

A taped replay of the conference call will be available beginning at approximately 4:00 p.m. PDT on Tuesday, Jul. 24, 2012. This replay will run through Wednesday, Aug 8, 2012.  The access numbers are as follows:

Domestic callers dial +1 800-841-4360
International callers dial +1 402-280-9930

Q3 FY 2012 Excel file

Q3 FY 2012 PDF of this press release

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

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 2012) and our strategic and operational plans.  Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance.  The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, general economic conditions and changes in economic conditions affecting the gaming industry; 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; changes in laws or regulations affecting our business; 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; risks related to business combinations, investments in intellectual property and the integration of acquisitions and the additional risks and uncertainties included 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 2011 filed with the SEC on November 30, 2011 and our Quarterly Report on Form 10-Q for our fiscal quarter ended March 31, 2012 filed with the SEC on May 9, 2012, and available on the SEC website at www.sec.gov and on the investor relations section of our website at www.IGT.com.  Additional information will also be set forth in our Quarterly Report on Form 10-Q for our fiscal quarter ended June 30, 2012, which we expect to file with the SEC in the third quarter of calendar 2012.  All information provided in this release is as of July 24, 2012, and IGT undertakes no duty to update this information.

About IGT

International Game Technology (NYSE: IGT) is a global leader in the design, development and manufacture of gaming machines and systems products, as well as online and mobile gaming solutions for regulated markets. More information about IGT is available at www.IGT.com or follow IGT on Twitter at @IGTNews or Facebook at www.facebook.com/IGT.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited and Condensed)





Periods Ended June 30,

Quarters

Nine Months

2012

2011

2012

2011

(In millions, except per share amounts)




Revenues




Gaming operations

$ 301.2

$ 267.4

$ 866.2

$ 790.1

Product sales

231.6

221.6

653.4

627.1

Total revenues

532.8

489.0

1,519.6

1,417.2

Costs and operating expenses




Cost of gaming operations

123.0

102.8

346.0

299.2

Cost of product sales

107.2

97.6

305.4

277.4

Selling, general and administrative

104.9

82.5

303.8

253.8

Research and development

55.1

48.5

157.3

146.1

Depreciation and amortization

21.1

16.8

55.8

51.6

Contingent acquisition related costs

26.0

-

37.8

-

Total costs and operating expenses

437.3

348.2

1,206.1

1,028.1

Operating income

95.5

140.8

313.5

389.1

Other income (expense)




Interest income

11.0

13.3

33.9

40.0

Interest expense

(30.8)

(30.5)

(90.9)

(101.5)

Other

(1.6)

(1.9)

(6.4)

1.4

Total other income (expense)

(21.4)

(19.1)

(63.4)

(60.1)

Income from continuing operations before tax

74.1

121.7

250.1

329.0

Income tax provision

27.2

29.9

90.5

96.7

Income from continuing operations

46.9

91.8

159.6

232.3

Loss from discontinued operations, net of tax

(0.3)

(4.9)

(1.8)

(2.1)

Net income

$ 46.6

$ 86.9

$ 157.8

$ 230.2

Basic earnings (loss) per share




Continuing operations

$ 0.16

$ 0.31

$ 0.54

$ 0.78

Discontinued operations

-

(0.02)

(0.01)

(0.01)

Net income

$ 0.16

$ 0.29

$ 0.53

$ 0.77

Diluted earnings (loss) per share




Continuing operations

$ 0.16

$ 0.30

$ 0.54

$ 0.77

Discontinued operations

-

(0.01)

(0.01)

-

Net income

$ 0.16

$ 0.29

$ 0.53

$ 0.77

Weighted average shares outstanding




Basic

292.7

299.2

295.6

298.4

Diluted

294.3

300.7

297.2

299.9




CONSOLIDATED BALANCE SHEET (Unaudited and Condensed)






 June 30, 

 September 30, 

2012

2011

(In millions)



Assets



Current assets



Cash and equivalents

$          241.3

$          460.0

Restricted cash and investments

86.2

92.0

Jackpot annuity investments 

60.9

63.2

Receivables, net

483.4

487.2

Inventories

104.0

73.0

Other assets and deferred costs

209.2

234.5

  Total current assets

1,185.0

1,409.9

Property, plant and equipment, net

563.7

552.1

Jackpot annuity investments 

305.4

324.6

Contracts and notes receivable, net

140.0

126.4

Goodwill and other intangibles, net

1,699.6

1,401.8

Other assets and deferred costs

373.2

339.6

Total Assets

$       4,266.9

$       4,154.4

Liabilities and Shareholders' Equity



Current liabilities



Accounts payable

$          100.2

$          103.0

Jackpot liabilities, current portion

146.6

143.0

Dividends payable

17.1

17.8

Other accrued liabilities  

315.9

270.9

  Total current liabilities

579.8

534.7

Long-term debt

1,969.8

1,646.3

Jackpot liabilities

338.3

365.4

Other liabilities

267.2

163.2

Total Liabilities

3,155.1

2,709.6

Total Equity

1,111.8

1,444.8

Total Liabilities and Shareholders' Equity

$       4,266.9

$       4,154.4





CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited and Condensed)




Nine Months Ended

June 30,

2012

2011

(In millions)



Operating



Net income

$      157.8

$      230.2

Depreciation and amortization

179.3

167.3

Contingent acquisition related costs

11.1

-

Other non-cash items

49.7

68.1

Changes in operating assets and liabilities, excluding acquisitions:



Receivables

1.0

15.1

Inventories

(25.3)

(2.3)

Accounts payable and accrued liabilities

14.5

(46.0)

Jackpot liabilities

(38.5)

(81.0)

Income taxes

(6.5)

70.3

Other assets and deferred costs

(16.1)

27.0

Net operating cash flows

327.0

448.7

Investing



Capital expenditures

(170.8)

(155.1)

Jackpot annuity investments, net

36.7

42.8

Changes in restricted cash

6.7

22.9

Loans receivable, net

21.5

23.9

Business/VIE acquisition/deconsolidation

(233.9)

(105.9)

Other

29.6

31.2

Net investing cash flows

(310.2)

(140.2)

Financing



Debt related proceeds (payments), net

280.0

(104.4)

Employee stock plans

15.1

33.4

Share repurchases

(475.1)

(25.0)

Noncontrolling interest acquired

(2.5)

-

Dividends paid

(53.5)

(53.8)

Net financing cash flows

(236.0)

(149.8)

Foreign exchange rates effect on cash 

0.5

(0.8)

Net change in cash and equivalents

(218.7)

157.9

Beginning cash and equivalents

460.0

158.4

Ending cash and equivalents

$      241.3

$      316.3

SUPPLEMENTAL DATA (Unaudited)










Revenue Metrics

Periods Ended June 30,

Quarters

Nine Months

2012

2011

2012

2011

In millions, unless otherwise noted










Gaming Operations




Revenues

$   301.2

$   267.4

$   866.2

$   790.1

North America

255.9

228.1

730.2

679.0

International

45.3

39.3

136.0

111.1

Gross margin

59%

62%

60%

62%

North America

60%

61%

60%

61%

International

53%

65%

62%

69%

Installed base ('000)

56.9

53.3

56.9

53.3

North America

43.4

40.7

43.4

40.7

International

13.5

12.6

13.5

12.6

Average revenue per unit per day (0.00)

$58.55

$55.57

$57.26

$54.52

Double Down Average User Statistics*




Daily users

1.4

1.4

Monthly users

5.2

5.1

Bookings per daily user (0.00)

$      0.25

$      0.25

*as a single application with multiple games, active users equal unique users










Product Sales




Revenues

$   231.6

$   221.6

$   653.4

$   627.1

North America

160.1

135.9

424.0

404.7

International

71.5

85.7

229.4

222.4

Machines

$   159.2

$   136.7

$   436.0

$   386.4

North America

107.8

70.4

268.3

223.8

International

51.4

66.3

167.7

162.6

Non-machine

$      72.4

$      84.9

$   217.4

$   240.7

North America

52.3

65.5

155.7

180.9

International

20.1

19.4

61.7

59.8

Gross margin

54%

56%

53%

56%

North America

56%

55%

56%

56%

International

49%

57%

49%

56%

Units recognized ('000)

11.6

8.9

29.1

26.2

North America

8.2

4.9

18.8

15.7

International

3.4

4.0

10.3

10.5

Units shipped ('000) [includes units where revenues deferred]

12.6

8.3

29.6

24.8

North America

8.7

4.5

18.9

14.4

New

3.1

0.6

5.4

3.5

Replacement

5.6

3.9

13.5

10.9

International

3.9

3.8

10.7

10.4

New

1.1

1.4

4.4

4.5

Replacement

2.8

2.4

6.3

5.9

Average revenue per unit ('000)

$      20.0

$      24.9

$      22.5

$      23.9

North America

19.5

27.7

22.6

25.8

International

21.0

21.4

22.3

21.2

Average machine sales price ('000)

$      13.7

$      15.4

$      15.0

$      14.7

North America

13.1

14.4

14.3

14.3

International

15.1

16.6

16.3

15.5

Reconciliations of GAAP to Non-GAAP Adjusted Measures(in millions, except EPS)







Third Quarters Ended June 30, 

2012

2011

Cost of
Gaming
Operations

 Continuing Operations 

 Continuing Operations 

 Operating
Expenses 

 Operating
Income 

Net
Earnings (b)

 Diluted
EPS 

Net
Earnings (b)

 Diluted
EPS 

GAAP measures

$       123.0

$     207.1

$       95.5

$        46.9

$       0.16

$        91.8

$       0.30

% of revenue

39%

18%




Acquisition related charges:(a)







Contingent retention & earn-out

-

26.0

26.0

16.6

0.06

-

-

Amortization of intangibles

1.7

4.7

6.4

4.1

0.01

-

-

Professional fees

-

0.1

0.1

0.1

-

-

-

Severance

-

1.3

1.3

0.8

-

-

-

Certain discrete tax items (benefits)

-

-

-

-

-

(15.1)

(0.04)

Total non-GAAP adjustments

1.7

32.1

33.8

21.6

0.07

(15.1)

(0.04)







Adjusted measures

$       121.3

$     175.0

$     129.3

$        68.5

$       0.23

$        76.7

$       0.26

% of revenue

33%

24%













Nine Months Ended June 30, 

2012

2011

Cost of
Gaming
Operations

 Continuing Operations 

 Continuing Operations 

 Operating
Expenses 

 Operating
Income 

Net
Earnings (b)

 Diluted
EPS 

Net
Earnings (b)

 Diluted
EPS 

GAAP measures

$       346.0

$     554.7

$     313.5

$      159.6

$       0.54

$      232.3

$       0.77

% of revenue

37%

21%




Acquisition related charges:(a)







Contingent retention & earn-out

-

37.8

37.8

24.2

0.08

-

-

Amortization of intangibles

4.0

8.6

12.6

8.1

0.03

-

-

Professional fees

-

5.8

5.8

3.7

0.01

-

-

Distributor settlement

-

3.1

3.1

2.0

0.01

-

-

Severance

-

2.5

2.5

1.6

-

-

-

Investment gain

-

-

-

-

-

(4.3)

(0.01)

Certain discrete tax items (benefits)

-

-

-

-

-

(22.1)

(0.07)

Total non-GAAP adjustments

4.0

57.8

61.8

39.6

0.13

(26.4)

(0.08)







Adjusted measures

$       342.0

$     496.9

$     375.3

$      199.2

$       0.67

$      205.9

$       0.69

% of revenue

33%

25%




(a)Primarily related to DoubleDown 






(b)Adjustments tax effected at 36%










































We believe that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating our operating performance. Non-GAAP information is used to evaluate business performance and management's effectiveness. These measures should be considered in addition to, not as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Non-GAAP measures may not be calculated in the same manner by all companies and therefore may not be comparable.
















Periods Ended June 30,

Quarters

Nine Months

2012

2011

2012

2011

Adjusted EBITDA














GAAP Income from continuing operations

$ 46.9

$ 91.8

$ 159.6

$ 232.3

Other (income) expense, net

21.4

19.1

63.4

60.1

Income tax provision

27.2

29.9

90.5

96.7

Depreciation and amortization

64.1

55.3

179.3

161.4

Other charges:






Share-based compensation 

8.8

9.2

25.4

31.5

Contingent acquisition related costs

26.0

-

37.8

-

Adjusted EBITDA 

$ 194.4

$ 205.3

$ 556.0

$ 582.0



























Nine Months Ended



June 30,



2012

2011

Free Cash Flow














GAAP net operating cash flows



$ 327.0

$ 448.7

Investment in property, plant and equipment



(35.3)

(10.8)

Investment in gaming operations equipment



(133.2)

(143.2)

Investment in intellectual property



(2.3)

(1.1)

Free Cash Flow (before dividends)



156.2

293.6

Dividends paid



(53.5)

(53.8)

Free Cash Flow (after dividends)



$ 102.7

$ 239.8






SOURCE International Game Technology