IGT reports third quarter performance results for fiscal year 2014

“July saw the culmination of our process to evaluate strategic alternatives for IGT and our shareholders," said Patti Hart, IGT CEO.  "We successfully balanced this effort during the third quarter with our focus on continuous improvement in our business evidenced by expanded gross margins and expected EPS performance. Our effective cost management has improved efficiencies in a challenging industry environment and has positioned us for future market opportunities."
 
Gaming Operations
·    Revenue decreased 12% to $218 million in the third quarter, most significantly due to installed base declines and lower yields.
·    Gross margin increased to 62% from 61% primarily due to mix shift to higher-margin lease operations and lower depreciation.
·    Installed base decreased 11% driven by declines in International largely due to lease operation unit conversions and North America MegaJackpots primarily in the standalone category.
·    Average revenue per unit per day was $46.02, down 4% over the prior year quarter, largely due to lower MegaJackpots performance, and down 2% sequentially in line with seasonal trends.

Product Sales
·    Revenue decreased 36% to $167 million in the third quarter, primarily due to lower machine unit volume, with the most significant decrease in North America replacement units. The current quarter did not include Canadian replacement units while the prior year quarter included 3,300 Canadian replacement units. Also, the current quarter included 400 new Illinois units as compared to the prior year quarter that included 1,300 new Illinois units.
·    Gross margin increased to 58% from 54% due to a favorable mix of higher-margin intellectual property revenue.
·    Machine average sales price decreased 11% to $11,900. North America machine average sales price increased 4% to $12,900 primarily due to favorable product mix. International machine average sales price decreased 34% largely due to a high volume of lease unit conversions.
Interactive
·    Social gaming revenue increased 31% to $205 million in the first nine months and increased 17% to $72 million in the third quarter, driven by increases in average DAU and average bookings per DAU.
·    Average DAU were 1.8 million, an increase of 8% over the prior year quarter.
·    Average MAU were 6.0 million, a decrease of 10% primarily due to increased focus on improving player conversion rates.
·    Average bookings per DAU were $0.43, an increase of 7% over the same quarter last year.

Operating Expenses
·    The decrease in third quarter total operating expenses was primarily due to lower contingent acquisition-related costs and cost savings resulting from the March 2014 business realignment.
·    Selling, general and administrative expenses included an increase in bad debt provisions, as the prior year quarter benefited from significant bad debt recoveries.
·    Adjusted operating expenses were 36% of revenue compared to 32% in the prior year quarter due to lower total revenue.
Balance Sheet, Cash Flow and Capital Deployment
·    Operating cash flow was $127 million in the third quarter on net income of $72 million.
·    Contractual debt obligations decreased $225 million as the company's 3.25% Convertible Notes matured on May 1, 2014. The notes were paid using a combination of borrowings on the revolving credit facility and cash on hand.
·    Outstanding borrowings under the company's revolving credit facility were $625 million as of June 30, 2014.
·    The company returned $27 million to its shareholders through dividends.

Other
References to per share amounts in this release are based on weighted average diluted shares of common stock outstanding, unless otherwise specified.
Outlook
The company is updating its fiscal year 2014 guidance for adjusted earnings from continuing operations to $1.00 to $1.06 per share.

GAAP earnings per share from continuing operations for fiscal year 2014 will include acquisition-related expenses, primarily related to DoubleDown, severance costs, business realignment expenses, asset impairment charges, legal accrual charges, merger-related professional fees 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.