IGT reports first quarter fiscal year 2014 results

 
Consolidated Results                  
                  
First Quarters Ended December 31,    2013    2012    % Change      
(In millions, except per share amounts)                  
GAAP Measures                  
Revenue    $ 541.2    $ 530.3    2%      
Operating income    103.7    118.4    -12%      
Net income    79.2    65.3    21%      
Earnings per share    $   0.31    $   0.24    29%      
Net operating cash flows    $   76.1    $   94.5    -19%      
                  
Non-GAAP Measures                   
Adjusted operating income    $ 123.8    $ 137.6    -10%      
Adjusted net income    62.9    76.2    -17%      
Adjusted earnings per share    $   0.25    $   0.28    -11%      
Free cash flow (before dividends)    $   51.5    $   56.9    -9%      
          
Adjusted operating income, adjusted net income, adjusted earnings per share 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 2% to $541 million, primarily driven by North America growth in social gaming and machine sales.
·    GAAP earnings per share increased 29% to $0.31.
·    Adjusted earnings per share decreased 11% to $0.25.
 
 
Gaming Operations                  
                  
First Quarters Ended December 31,    2013    2012    % Change      
(In millions, unless otherwise noted)                  
Revenue    $ 223.0    $ 242.6    -8%      
Gross profit    136.2    153.1    -11%      
Gross margin    61%    63%    -3%      
Installed base ('000)    54.3    56.8    -4%      
Yield (average revenue per unit per day - $0.00)    $ 44.99    $ 46.80    -4%     
·    Revenues decreased 8% to $223 million in the first quarter primarily due to lower North America MegaJackpots revenue.
·    Gross margin decreased to 61% from 63% compared to the prior year quarter, primarily due to lower yield.
·    Installed base decreased driven by a decline in North America MegaJackpots and International lease operations units.
·    Average revenue per unit per day in the quarter was $44.99, down 4% over the prior year quarter primarily due to lower MegaJackpots yields and down 8% sequentially in-line with seasonal trends.
 
 
Product Sales                  
                  
First Quarters Ended December 31,    2013    2012    % Change      
(In millions, unless otherwise noted)                  
Revenue    $ 243.6    $ 234.8    4%      
Gross profit    126.9    125.6    1%      
Gross margin    52%    53%    -3%      
Machine units recognized ('000)    12.8    10.7    20%      
Machine average sales price ('000)    $   13.2    $   14.8    -11%     
·    Revenues increased 4% to $244 million in the first quarter, due to increased North America machine sales largely related to video poker sales.
·    Gross margin decreased to 52% from 53%, as the first quarter of 2013 benefited from a $5.0 million royalty settlement fee.
·    Average machine sales prices declined to $13,200 in the first quarter primarily due to a higher mix of video poker unit sales to Caesar's Entertainment, as well as some foreign currency pressures.
 
 
Interactive                  
                  
First Quarters Ended December 31,    2013    2012    % Change      
(In millions, unless otherwise noted)                  
Revenue    $ 74.6    $ 52.9    41%      
    Social gaming    64.8    41.3    57%      
    IGTi    9.8    11.6    -16%      
                  
Gross Margin    63%    58%    9%      
    Social gaming    62%    60%    3%      
    IGTi    64%    51%    25%      
                  
DoubleDown average user statistics*                  
    DAU (Daily active users) ('000)    1,716    1,462    17%      
    MAU (Monthly active users) ('000)    6,198    4,931    26%      
    Bookings per DAU ($0.00)    $ 0.42    $ 0.31    35%      
                  
*as a single application with multiple games, active users equal unique users     
·    Social gaming revenues increased 57% to $65 million in the first quarter compared to the prior year quarter and increased 6% sequentially, primarily driven by an increase in both average DAU and bookings per DAU.
·    Average DAU were 1.7 million, an increase of 17% over the prior year quarter.
·    Average MAU were 6.2 million, an increase of 26% compared to the prior year quarter.
·    Average bookings per DAU was $0.42, an increase of 35% over the same quarter last year.
·    DoubleDown was GAAP accretive in the first quarter of 2014.
 
 
Operating Expenses                  
                  
First Quarters Ended December 31,    2013    2012    % Change      
(In millions, unless otherwise noted)                  
Operating Expenses                  
Selling, general & administrative    $ 117.8    $ 100.2    18%      
Research & development    60.3    54.4    11%      
Depreciation & amortization    16.7    19.0    -12%      
Contingent acquisition-related costs    11.3    17.5    -35%      
Total operating expenses    $ 206.1    $ 191.1    8%      
                  
Adjusted Operating Expenses                  
    Total    $ 189.3    $ 169.2    12%      
                  
Adjusted operating expenses is a non-GAAP financial measure.  Reconciliations between GAAP and non-GAAP measures are provided at the end of this release.     
·    Adjusted first quarter operating expenses increased over the prior year quarter primarily due to higher advertising at DoubleDown and higher R&D expenses.
·    Adjusted operating expenses were 35% of revenues for the first quarter compared to 32% of revenues in the prior year quarter.
 
 
Balance Sheet and Capital Deployment                          
     December 31,          September 30,               
    2013        2013        % Change      
(In millions, unless otherwise noted)                          
Cash and equivalents (including restricted amounts)    $               648.0        $                 809.1        -20%      
Working capital    117.9        267.5        -56%      
Contractual debt obligations    2,150.0        2,150.0        0%     
·    During the first quarter, the company received 8.2 million shares related to the previously announced accelerated share repurchase (ASR).  The total number of shares repurchased by IGT under the ASR through the completion date of January 22, 2014 was 11.6 million, at a discounted average price of $17.22 per share, representing approximately 5% of the total shares outstanding when the program commenced.
·    During the quarter, the company announced its fifth consecutive quarterly cash dividend increase, up 57% compared to the same quarter last year.
·    During the first quarter, the company returned $226 million in the form of dividends and share repurchases to its shareholders.
Other
References to per share amounts in this release are based on weighted average diluted shares of common stock outstanding, unless otherwise specified.
Outlook
Given declining gross gaming revenue trends, we anticipate that the lower end of our previously announced guidance range is more likely, with potential further downside risk.  We are in the process of implementing a number of measures, including cost reductions, to mitigate this risk.
GAAP earnings per share from continuing operations for fiscal year 2014 will include acquisition-related expenses, primarily related to DoubleDown, severance costs, and certain discrete tax items or benefits, the amount of which is not determinable at this time.  The company may also recognize other items that are not currently determinable, but may be significant. For this reason, the company is unable to provide estimates for full-year GAAP earnings per share from continuing operations at this time.