This summary is based on the first quarter fiscal 2008 earnings call conducted by International Game Technology (IGT: chart) on January 17, 2008.
Chairman, Chief Executive Officer: T.J. Matthews
Vice President of Investor Relations: Pat Cavanaugh
Key Investors Issues
- The earnings per share in the quarter was 36 cents.
- Quarterly revenue grew marginally over the prior year to $646 million.
- The firm repurchased 3.5 million shares for an aggregate cost of $149.2 million.
First Quarter Fiscal 2008 Financial Highlights
- Consolidated revenues for the quarter were $646 million, up from $642 million last year.
- Gross profit reached $367 million, up $15 million since prior year.
- Consolidated gross margins came in at 57%, up from 55% last year.
- Net income in the first quarter totaled $114 million or 36 cents per diluted share, compared to $121 million or 36 cents per diluted share in the prior year quarter.
- Adjusted EBITDA was $274 million, up 6% over $260 million in last year’s quarter.
The quarter demonstrated the diversity of revenue sources and improved margins for IGT. Despite the lowest demand for replacement machines in North America since the 1990’s, IGT still posted revenues due to its expanding international operations and continued growth in non-machine revenue sources. As demand recovers due to new and expanded markets opening up as well as new products and technology being released, IGT should continue to achieve more efficiency in generating earnings and cash flow.
Total operating expenses were $171 million to the quarter compared to $167 million in the prior year quarter.
Higher expenses were the result of increased staff in the support business initiatives and additional investments in research and development.
SG&A totaled $100 million and was up 2% over Q1 of 2007, due to higher staffing costs, partially offset by lower bad debt expense.
R&D expense totaled $51 million for the quarter, up 4% over the prior year quarter. Gaming technology innovation is a key component of the firm’s business strategy and the company will continue to make significant investments in R&D.
Depreciation and amortization within operating expenses totaled $19 million for the quarter.
Depreciation and amortization, inclusive of the depreciation on game ops was $69 million for the quarter, up from $65 million in the prior quarter. The increase was driven by 5,700 additional game ops units in the field compared to last year’s first quarter.
Other income and expense net was an expense of $8 million for the quarter compared to other income net of $5 million on the prior year.
Higher other expense was driven primarily as a result of higher interest expense related to additional binds on our line of credits.
During the quarter, the firm implemented FIN 48 and revalued its uncertain tax positions under the more stringent criteria required by the standard.
The company is still considering the short term and long term classification of certain amounts reflected in the current balance sheet. Under the previous standard, uncertain tax positions were required to be recorded as liabilities based upon probability of outcome. FIN 48 requires a more theoretical approach that results in incremental liabilities over a multi-year period related to any open tax returns.
The firm’s book rate will be more volatile than it has historically due to FIN 48. In the first quarter, the tax rate was 39.6% and this rate includes the impact of the aforementioned adoption of FIN 48 and also includes other onetime items.
Cash equivalents and short term investments inclusive of restricted amounts totaled $416 million at December 31, 2007, compared to $401 million at September 30, 2007.
Debt totaled $1.6 billion at December 31, compared to $1.5 billion at the end of September 2007. The increase in debt is directly related to the company’s share repurchase efforts.
