IGT reduces losses in 2018

7 March 2019

International Game Technology (IGT) has reported a 2.2% year-on-year decline in revenue for 2018, though a reduction in operating costs and foreign exchange gains helped the supplier cut its full-year loss to $21m (£16.0m/€18.7m).

Revenue for the year fell to $4.8bn, comprising $4.1bn in service revenue, down 2% year-on-year, and product sales of $785m, also representing a 2% decline from the prior year.

“Our 2018 results are in line with the improved outlook we provided in October. The year was characterised by strong global Lottery performance, resilience in Italy, and progress in North America Gaming,” IGT chief executive Marco Sala said. “We’ve established solid foundations to build on – securing large, long-term Lottery contracts in key markets and executing a full refresh of our gaming machine cabinet and content portfolio. These efforts will translate into improved free cash flow beginning in 2019.”

This decline was largely due to a weaker performance from IGT’s international division, which saw revenue fall 7% to $820m. This was down in part to a 27% drop in gaming services revenue, which fell to $140m. Much of this decline was recorded in the fourth quarter of the year, ended December 31, 2018, when performance suffered in comparison to the prior year, which saw revenue boosted by the supplier reaching a contract milestone with a client. This offset a 1% year-on-year increase in international lottery revenue to $329m.

The North American Lottery division, meanwhile, saw revenue grow marginally to $1.2bn, with a 5% decline in gaming revenue masked by a stable contribution from the lottery vertical.

The North America Gaming and Interactive unit, however, saw revenue fall 13% to $1.0bn, with gaming services revenue down 20%, with much of the decline attributed to the divestment of the DoubleDown Interactive social gaming business to South Korea’s DoubleU Games. In the prior year, DoubleDown had contributed $111m to full-year revenue.

IGT’s Italian business saw revenue grow 3% to $1.8bn, with gaming revenue flat, and lottery revenue up 6%.

At the end of 2018, IGT saw its total installed base decline to 14,905 machines, as a result of a 17% drop in machines installed in casinos, offset in part by a 57% increase in government-sponsored video lottery terminals. This, IGT noted, was largely due to the roll-out of terminals in Greece for OPAP.

Operating costs for the year fell 14% to $4.2bn, with cost of services falling to $2.5bn, and cost of product sales down at $491m. IGT also saw impairment losses plummet, down from $715m in 2017 to $120m. As a result the business posted an operating profit of $647m, up from a prior year loss of $51m.

Non-operating expenses declined 63% to $343m, which could be attributed to a foreign exchange gain for the year of $129m, compared to a foreign exchange loss of $444m in 2017.

As a result, IGT made a pre-tax profit of $304m, a major turnaround from the $926m loss before income tax in the previous year. Post tax profit stood at $115m, though this was wiped out by a $136m payment relating to net income from non-controlling interests. This resulted in a net loss of $21m for the year, compared to a $1.1bn loss in FY2017.

For the fourth quarter of the year, revenue was down 6% at $1.3bn, with IGT attributing the decline to sports betting dynamics in the prior year, including an unusually low payout percentage in Italy and large international product sales. Marginal growth in North American Lottery revenue failed to offset declines in the North American Gaming and Interactive and International segments, and a flat performance in Italy.

Costs for Q4 were up 6% at $1.2bn, which coupled with non-operating expenses of $81m resulted in a net loss of $70m for the quarter. Once $30m of income attributable to non-controlling interests was stripped out, the quarterly loss rose to $102m.