International Game Technology reported a surprisingly strong second quarter Tuesday morning on the heels of solid growth across both its gaming and lottery segments.
The gaming manufacturer and supplier reported net revenues of $1.22 billion, roughly 3 percent ahead of the Wall Street consensus estimate, and adjusted EBITDA of $424 million – 9 percent above consensus.
“Lottery growth is benefiting from innovation and effective sales and product marketing initiatives. In Gaming, the global installed base was up and unit sales of gaming machines were higher, as were average selling prices, all supported by strong demand for new cabinets,” said Marco Sala, chief executive officer of IGT.
The strong EBITDA figures put the company on track to hit its previously guided 2017 target of $1.6 – $1.68 billion, said Chad Beynon, an analyst with Macquarie Capital.
“Through the first half, IGT has generated $805 million of EBITDA, which equates to 49 percent of the midpoint of 2017 projected EBITDA guidance,” he wrote in a note. “[M]anagement had been calling for 54 percent of EBITDA to come in the second half, so clearly after we’ve seen second quarter results, management is ahead of schedule.”
IGT reported a net loss for the quarter of $290 million, though this figure includes $220 million of net foreign exchange loss.
The company also declared a $0.20 dividend to be paid out on August 24.
“The better than expected results were driven by improvement in some of the most critical areas, particularly the North American and International gaming businesses as well as profitability levels,” said David Katz of the Telsey Group.
After closing Monday’s trading at $19.03, IGT shares jumped as high as $21.82 on Tuesday morning, signaling that investors had taken an improved outlook toward the company.
“In the short term, the improvements in the North American slot business are stabilizing and in some cases improving progressively, which is presently built into our expectations and those of the Street,” Katz continued.
For its lottery segment, IGT noted that global same-store revenues grew 2.6 percent – 4.9 percent excluding multi-state lottery games – for the quarter, with its North America business producing revenues of $293 million – up from $286 million in the prior year quarter. This segment benefited from a one-time $22 million incentive payout from the New Jersey Lottery.
North America gaming and interactive revenues were down from $350 million to $310 million in the quarter largely due to the sale of DoubleDown, its social casino.
“Global revenues were in line with prior year when adjusted for the impact of DoubleDown. Revenue from sales of gaming machines rose 25 percent on higher replacement and the new and expansion unit,” said Sala on a conference call with investors. “We shipped nearly 8,900 gaming machines worldwide during the second quarter, a 9 percent increase from the prior year.”
Gaming machine shipments in North America notched up from 5,163 units to 5,293 units and grew year-over-year internationally from 2,989 to 3,591.
The company noted its progress in paying down net debt, which has decreased from $7.57 billion to $7 billion since the beginning of the year.
“We’ve made a lot of good progress on many levels so far this year,” said Alberto Fornaro, CFO of IGT. “We are lowering our debt and we are enhancing cash generation through disciplined asset and financial management. We are maintaining our outlook for adjusted EBITDA and net debt for the year, and have modestly reduced capital expenditures to account for certain timing shifts.”
As the company inches toward profitability, analysts are optimistic that the enterprise has turned a crucial corner.
“In our view, IGT remains a stable, contract based ticket taking business with expected growth in the second half largely coming from Gaming,” said Beynon. “Following this result, we expect for the investment community to find more comfort in the annual guidance and the company’s ability to demonstrate a second half gaming turnaround.”
