IGT reports Q1 2018 results

International Game Technology today reported financial results for the first quarter ended March 31, 2018. Tomorrow, at 8:00 a.m. EDT, management will host a conference call and webcast to present the first quarter results; access details are provided below.

"Compelling content and technology solutions are driving our results," said Marco Sala, CEO of IGT. "Lottery same-store revenue growth was among the highest levels in the last several quarters, even in our largest markets. A sharp increase in systems sales, double-digit growth in global gaming machine replacement unit shipments, and sequential improvement in the North America-installed base confirm the good momentum of our global Gaming business. The positive underlying contribution from each of our operating segments provides a strong start to the year."

"We are solidly positioned to achieve our 2018 strategic and financial goals," said Alberto Fornaro, CFO of IGT. "With revenue growing 5% and Adjusted EBITDA up 18%, our first quarter results are some of the best we've reported."

Note: Adjusted EBITDA, adjusted operating income, 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.

(1) On January 1, 2018, IGT adopted ASU 2014-09 (Topic 606), Revenue from Contracts with Customers ("ASC 606"). This positively impacted Revenue in the first quarter by $3 million and EBITDA and Adjusted EBITDA by $15 million. Comparative schedules summarizing the impact on the first quarter Condensed Consolidated Statements of Operations and Condensed Consolidated Balance Sheets are included later in this release.

Consolidated revenue was $1,207 million, up 5% from the prior-year quarter

Up 4% at constant currency and scope (adjusted for the sale of Double Down Interactive LLC ("DoubleDown"))
Driven by strong global casino systems sales, broad-based momentum in lottery, and Italy sports betting results
Adjusted EBITDA rose 18% to $436 million, up 14% at constant currency and scope

Higher underlying revenue and profit across all business segments
Includes $15 million timing benefit from adoption of new accounting standard, ASC 606
Adjusted operating income was $251 million, a 6% increase from the prior-year period

Increase driven by revenue growth

Selling, general and administrative expenses up $15 million compared to the prior year, which had benefited from $18 million in one-off bad debt recovery
Interest expense was $110 million compared to $115 million in the prior-year period

Provision for income taxes rose to $61 million from a $10 million benefit in the prior-year period

Reflects increases in valuation allowances in the U.K. and higher tax accruals in the current quarter
Prior-year benefit driven by pretax loss in the quarter
Net loss attributable to IGT was $103 million in the quarter; Adjusted net income attributable to IGT was $31 million

Net loss per diluted share of ($0.51); Adjusted net income per diluted share of $0.15

Cash from operations was $77 million compared to $294 million in the prior-year quarter, the decline primarily attributed to

A change in accounting standards requiring restricted cash to be included with cash and cash equivalents within the statement of cash flows
The timing of Italy receivables and incentive compensation payments
Cash and cash equivalents were $570 million as of March 31, 2018, compared to $1,057 million as of December 31, 2017

Maturity of €500 million 6.625% Senior Secured Notes funded in the quarter
Net debt was $7,525 million as of March 31, 2018, compared to $7,319 million as of December 31, 2017

$119 million net negative impact from foreign currency adjustments
$50 million reclassified from cash to restricted cash due to legislative changes impacting the Italy commercial services business
Operating Segment Review

North America Gaming & Interactive

Revenue of $244 million compared to $305 million in the prior-year quarter, which included DoubleDown

Up 3% at constant scope, primarily on higher product sales
Gaming service revenue was $154 million compared to $234 million in the prior-year period
Decline fully attributable to the sale of DoubleDown and ASC 606 classification of jackpot expense as a contra revenue item (previously included in cost of services)
Installed base up approximately 375 units sequentially; down year-over-year due to large conversion sales in 2017
Product sales of $89 million, up 26% from the prior year
Strong systems sales, for both central systems and add-on solutions
Shipped 3,716 gaming machine units in the quarter compared to 3,944 units in the prior-year period
New and Expansion units down from 1,157 units to 1,024 units on fewer openings
Continued growth in replacement units to casino customers; overall decline due to fewer VLT sales in Canada and Oregon
Operating income of $57 million compared to $69 million in the prior-year quarter

Up 17% at constant scope
Increased revenues
Higher-margin business mix
North America Lottery

Revenue up 5% to $295 million

Lottery Service revenue rose 4% to $241 million
Same-store revenue up 11.0% on higher jackpot activity and instants innovation
Benefit from incentives accrued for New Jersey and Indiana lottery management agreements
Impacted by exit of low-margin contracts, lower effective rates on recent contract extensions, and weather-related service disruption
Lottery Product Sales increased 27% on a reported basis to $16 million on higher sales of retailer terminals
Operating income rose 11% to $76 million

Same-store revenue growth and New Jersey and Indiana incentives
Partially offset by increased depreciation and amortization and investment in research and development
International

Revenue grew 12% on a reported basis, and 6% at constant currency, to $184 million

Lottery Service revenue increased 9% on a reported basis, and 3% at constant currency, to $72 million
Same-store revenue growth of 4.1% on broad-based geographic strength
Higher EuroMillions jackpot activity
Gaming Product Sales revenue up 37% on a reported basis, and 32% at constant currency, to $51 million
Strong systems sales
Higher gaming machine unit shipments, including double-digit growth in replacement units
Gaming Service revenue dropped 3% on a reported basis, and 8% at constant currency, to $40 million
Decline entirely attributable to ASC 606 classification of jackpot expense as contra revenue item (previously included in cost of services)
Up 5% on a reported basis, and down 1% at constant currency, before ASC 606
Significant installed base growth driven by Greek VLT and video bingo machines
Partially offset by exit of certain low margin businesses and lower yields due to geographic mix
Operating income up significantly to $22 million from $7 million

Higher revenue, improved product mix, and lower SG&A
Unusually low results in prior-year period
Italy

Revenue up 20% on a reported basis, and up 4% at constant currency, to $483 million

Lottery Service revenue was $214 million, increase of 24% on a reported basis, and 8% at constant currency
Lotto wagers up 8.6% to €2,034 million on 17% growth in 10eLotto wagers
Scratch & Win wagers up 2.9% to €2.4 billion on Miliardario momentum
Gaming Service revenue of $190 million was up 8%; down 6% at constant currency
Decline reflects higher gaming machine taxes and regulator-mandated reduction in AWP units
Partially offset by improved underlying game performance
Sports betting revenue up on payout of 81.2% versus 89.5% in the prior year
Operating income increased to $147 million compared to $124 million in the prior-year period; up 1% at constant currency

Revenue growth
Partially offset by higher operating expenses
Advertising and marketing costs for new Lottery games
Increased depreciation and amortization
Other Developments

The Company's board of directors declared a quarterly cash dividend of $0.20 per ordinary share

Record date of June 5, 2018
Payment date of June 19, 2018
In a separate news release today, the Company is announcing a derivatives transaction by De Agostini S.p.A. ("De Agostini") relating to IGT ordinary shares

De Agostini, IGT's majority shareholder with 103 million ordinary shares, entered into a variable forward transaction relating to 18 million IGT ordinary shares
IGT is not a party to the variable forward transaction and is not issuing or selling any IGT ordinary shares in connection with the transaction
IGT will be filing a registration statement on Form F-3 (including a base prospectus) and a preliminary prospectus supplement with the U.S. Securities Exchange Commission ("SEC") in connection with the transaction
De Agostini has advised IGT that they are not considering any additional transactions involving their IGT ordinary shares, and they intend to remain IGT's controlling shareholder
De Agostini will be filing an amendment to its Schedule 13D in connection with the transaction
Please refer to IGT's and De Agostini's respective SEC filings for additional details
This news release shall not constitute an offer to sell or the solicitation of an offer to buy the securities described herein, nor shall there be any offer or sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction
The Company has consolidated leadership of the North America Gaming & Interactive and North America Lottery segments under Renato Ascoli as CEO of North America

Aligns North America with the regional model that already exists for the International and Italy segments
Global product and service responsibilities for Lottery, Gaming, and Interactive will continue to be assigned primarily to the North America region; local Gaming product marketing, field services, and operations will remain within each region
Better positions the Company to leverage strategic new opportunities, such as sports betting
The Company will continue to report financial results and key performance indicators for the North America Gaming & Interactive and North America Lottery segments
IGT will host an Investor Day on August 2, 2018 in New York City

Adjusted EBITDA of $1,700-$1,780 million
Unchanged from prior outlook
Inclusive of $10-$15 million negative impact from treatment of intellectual property contracts under ASC 606
Capital expenditures of $575-$625 million
Average EUR/USD exchange rate assumption of 1.22
Conference Call and Webcast