“Strong lottery performance across the world, a larger global installed base, and increased sales of gaming machines drove another quarter of solid revenue and profit expansion,” said Marco Sala, CEO of IGT (pictured).
“IGT’s leadership positions in lottery and gaming machines were evident at the recent gaming and lottery trade shows. The engaging player experiences and technology solutions IGT creates are the cornerstones of our growth strategy, and we are encouraged by customer enthusiasm for our innovative new products.”
“We achieved broad-based growth across regions in the third quarter and our financial condition is strong,” said Alberto Fornaro, CFO of IGT.
“Higher profitability enabled us to maintain our leverage ratio despite the significant interest and tax payments of the quarter. Based on our performance to date, we remain comfortable with our adjusted EBITDA outlook for the full year.”
Overview of Consolidated Third Quarter Results
Consolidated revenue rose 5% to $1,266 million from $1,202 million in the third quarter of 2015. Revenue growth primarily reflects strong performance in the North America Lottery and Italy segments. Global lottery same-store revenue, excluding Italy, increased 6% during the third quarter while Italy lottery wagers increased 7%. Gaming service revenue was below the prior year, primarily on lower DoubleDown revenues. Product sales increased in the quarter on higher gaming machine unit demand in the North America and International segments as well as on higher International systems sales. The Company shipped 8,980 gaming machines worldwide during the third quarter.
Operating income increased 26% to $164 million from $130 million in the third quarter of 2015. Adjusted operating income grew 9% to $286 million, from $261 million, as higher lottery profits were partially offset by the timing of bad debt expense, investment in the installed base, increased global product marketing costs, and research & development spending.
Adjusted EBITDA of $430 million was 4% higher than in the third quarter of 2015, representing the fourth consecutive quarter of year-over-year growth.
Interest expense was $118 million compared to $122 million in the prior-year period.
Net loss attributable to IGT was $2 million in the third quarter of 2016, reflecting the impact of $21 million in primarily non-cash foreign exchange losses. On an adjusted basis, net income attributable to IGT rose 6% to $90 million. The Company reported net loss per diluted share of $(0.01) and earned $0.45 per diluted share on an adjusted basis.
In the first nine months of the year, cash from operations was $621 million and capital expenditures were $372 million
The Company made the first of three upfront installment payments for the new Lotto concession in Italy during the year-to-date period.
Cash and cash equivalents were $350 million as of September 30, 2016, compared to $627 million as of December 31, 2015. Consolidated shareholders’ equity totaled $3,421 million and net debt was $7,937 million as of September 30, 2016.
Operating Segment Review
North America Gaming & Interactive
North America Gaming & Interactive revenue was $317 million compared to $341 million in the third quarter of 2015.
Service revenue was $241 million compared to $267 million in the prior-year period, largely driven by fewer daily active users (“DAU”) at DoubleDown and a year-on-year decrease in the installed base. Sequentially, terminal service revenue and the installed base were relatively stable.
Product sales increased to $76 million from $73 million in the third quarter of 2015, primarily due to higher replacement unit volume. The segment shipped 5,238 units compared to 3,326 units in the prior-year period. A portion of the new and expansion unit revenue was deferred and is expected to be recognized in the fourth quarter of 2016.
Operating income for North America Gaming & Interactive was $66 million compared to $85 million in the third quarter of 2015. The decrease was largely attributed to lower revenue, as well as costs to revitalize the installed base and higher research & development spending.
North America Lottery
North America Lottery revenue was $307 million, up 22% from the third quarter of 2015. The strong growth reflects robust same-store revenue expansion as well as an incentive contribution from the New Jersey Lottery, largely driven by the record Powerball jackpot in the first quarter of 2016. Excluding the New Jersey contribution, revenue for the North America Lottery segment rose 10%.
Service revenue of $290 million was 19% higher than in the prior-year period, reflecting 6.3% same-store revenue growth and the New Jersey incentive contribution. The same-store revenue growth was primarily driven by continued strength in multi-state Jackpot games. Product sales were $18 million in the third quarter of 2016, compared to $10 million in the prior-year period, and included higher hardware sales in California as well as increased instant ticket printing revenue.
Operating income for North America Lottery rose 70% to $85 million, reflecting the strong same-store revenue growth and the New Jersey incentive.
International revenue was $215 million in the quarter, up from $210 million in the third quarter of 2015. At constant currency, revenue for the International segment rose 5% from the prior year.
International lottery service revenue of $71 million was 8% higher than in the prior-year period at constant currency
Same-store revenue growth of 5.7% was supported by strength in Latin America and Eastern Europe, partially offset by weakness in the United Kingdom.
International gaming service revenue was $43 million compared to $50 million in the third quarter of 2015, mainly due to the exit of certain interactive operations. At constant currency, terminal service revenue grew 3% over the prior year and the installed base rose 500 units to 10,268. Revenue from gaming product sales rose 12% at constant currency, supported by the 3,742 gaming machines shipped at higher average unit prices during the third quarter of 2016 compared to 3,296 units in the prior-year period. Product sales also benefited from a large systems sale in Asia.
International operating income was $39 million compared to $37 million in the third quarter of 2015. At constant currency, operating income rose 15% on strength in lottery, improved contribution from the installed base, and higher gaming product sales.
Italy revenue was $426 million, 7% higher than in the third quarter of 2015.
Total Lotto wagers in the quarter were €1,967 million, a 17% increase over the prior-year period, reflecting a significant contribution from late numbers. Excluding late numbers, Lotto wagers increased 2% over the same period last year. Scratch & Win wagers were relatively stable at €2,091 million.
Machine gaming service revenue increased 8% over the third quarter of 2015 on improved unit productivity. The strength in service revenues was partially offset by lower installed units. Sports betting wagers increased 7% and payout was steady compared to the prior year.
Operating income for the Italy segment was $147 million, 12% higher than the third quarter of 2015. The increase in operating income was mainly attributable to strong Lotto and sports betting contribution.
The Company’s Board of Directors has declared a quarterly cash dividend of $0.20 per ordinary share. The dividend is payable on December 19, 2016 to all shareholders of record as of the close of business on December 5, 2016.
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 no more than $550 million. This compares to previous capital expenditure guidance of $550-$580 million. Net debt is still expected to be $7,700-$7,900 million at the end of 2016.
Find further details on IGT report.