This summary is based on the third quarter fiscal 2008 earnings call conducted by International Game Technology (IGT) on July 19, 2007.
Management
Chairman and CEO: T.J. Matthews
Chief Accounting Officer and Treasurer: Danny Siciliano
Key investor issues
- Quarterly earnings rose to $136.4 million, or 41 cents a share, up from $114.1 million, or 33 cents last year.
- Revenue for the quarter jumped 15% to $706.5 million from $612.4 million.
- Gross profit climbed to $397 million.
- Operating income increased to $216 million.
Year-to-date cash flows from operations rose 48% to $565 million from a year ago.
Game operations business hit record results.
- Revenue rose 9%, or 27 million to $342 million from the prior year.
- Company’s installed base increased 26% expanding in casino and lease operations markets.
- Game ops gross profit advanced 15% totaling $211 million.
- Quarterly gross margins were 62% versus 58% last year.
Game ops gross margins are projected to trend within the range of 58% to 61% with fluctuations based on mix, game-play, and the time of the jackpots and to illustrate end seasonality.
The casino operations installed base ended the quarter at 39,600 units, an increase of 5,100 units fro a year ago with growth primarily driven by incremental placements in Oklahoma, Florida, and California. The lease operations installed base totaled 18,600 units at the end of the quarter representing growth of 6,900 units over the prior year and 1,900 units sequentially. Primary growth drivers were Mexico and New York. Mexico installed base ended the quarter at 7,300 units and the company is targeting an installed base of 8,000 units by fiscal year end and up to 3,000 more units to be added over the course of the fiscal 2008.
Consolidated yields in the third quarter were up $66 per game per day vs. $76 last year.
The yields are expected to trend within a range of $65 to $68 heading on seasonality in the mix of the company’s installed base. Record product sales revenue of $365 million for the third quarter was fueled by strong shipments into Japan and Macau, as well as more favorable mix of AVP machine sales. Machine shipments totaled 36,900 units versus 23,500 units with international shipments driving most of the improvement.
Non-machine revenues jumped 25% to $92 million of total product sales, up from $89 million in the prior year on stronger gaming systems revenues.
Average quarterly revenue per unit was $9,900 compared to $12,600 last year with the decline due to the higher mix of Japan PachiSuro sales. Product sales gross margins were 51% in the compared to 50% last year.
Domestic product sales revenue totaled $213 million on volume of 12,800 units compared to $187 million and 12,200 units in the prior year.
Domestic machine volumes climbed mostly due to higher new shipments to properties in Michigan, Mississippi and Pennsylvania. Domestic non-machine revenues rose 32% to $68 million versus $63.3 million in the prior year. The higher gaming systems revenue was partially offset by lower parts and conversion sales. Domestic average revenue per unit was 16,600 compared to 15,300 in the prior year. Improvement was driven by more favorable mix of AVP sales which comprise 37% of domestic shipments versus 17% last year. Domestic gross margin improved 2 percentage points to 55% mostly due to more favorable pricing mix and stronger gaming system sales.
International product sales revenue totaled $152 million on volume of 24,100 units compared to $110 million and 11,300 units in the prior year.
International Game Technology shipped 14,900 Reg 5 units in Japan during the quarter compared to virtually zero last year. And Macau shipments were up 800 units mostly due to the upcoming opening at the Venetian Cotai. International non-machine revenues totaled $24 million or 15% of international product sales versus $25.2 million in the prior year with the decline due to lower parts and conversion sales. International average revenue per unit was $6300 versus $9800 last year as a result of the mix of Japan units during the quarter. International product sales gross margins were 46% versus 45% last year due to a more favorable product mix in international casino markets.
Total operating expenses were $180 million for the quarter and $501 million year-to-date compared to $161 million and $465 million in the prior year respectively.
SG&A expense inclusive of bad debt was up $30 million from last year primarily as a result of higher staffing cost to support business growth initiatives, and higher legal and compliance fees at a number of markets around the world ahead of revenues, partially offset by lower bad debt.
Current year-to-date, SG&A expense included a credit of $12 million for business interruption insurance and a credit for $5.8 million for a gain on the sale of a corporate asset during the second quarter. R&D expense totaled $51 million for the quarter, up $7 million from the prior year due to higher R&D cost related to new platform, cabinets, systems, and game development.
Depreciation and amortization within operating expenses totaled $22 million for the quarter.
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