International Game Technology (IGT)
Q3 2011 Earnings Call
July 26, 2011 5:00 pm ET
Eric Tom - Chief Operating Officer
Matthew Moyer - Vice President of Investor Relations
Patrick Cavanaugh - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer
Patti Hart - Chief Executive officer, Lead Independent Director, Director and Member of Stock Award Committee
Jon Oh - Credit Agricole Securities (USA) Inc.
Joel Simkins - Crédit Suisse AG
Darnel Bentz - KeyBanc Capital Markets Inc.
David Katz - Jefferies & Company, Inc.
Amir Markowitz - Morgan Stanley
Michael Tang - Barclays Capital
Robin Farley - UBS Investment Bank
Steven Kent - Goldman Sachs Group Inc.
Previous Statements by IGT
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Good afternoon, and thank you all parties for standing by. [Operator Instructions] Today's conference also is being recorded. If anyone does object, you may disconnect. Now I will turn the conference over to Mr. Matt Moyer. Thank you. You may begin, sir.
Thank you, Suzie. Good afternoon, and welcome to IGT's Third Quarter Fiscal Year 2011 Earnings Conference Call. On the call with me today are Patti Hart, CEO; Pat Cavanaugh, CFO; and Eric Tom, Chief Operating Officer.
Before we begin, I'd like to remind listeners our discussion will contain forward-looking statements concerning matters such as our expected financial and operational performance, our expectations for the economy in general and the gaming industry in particular, recent acquisitions and divestitures and our strategic operational and product plans.
Actual results may differ materially from the results predicted, and reported results should not be considered as indicative of future performance. Potential risks and uncertainties that could cause our business and financial results to differ materially from our forward-looking statements are included in our filings with the SEC, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q.
All information discussed on this call is as of today, July 26, 2011, and IGT does not intend and undertakes no obligation to update this information to reflect future events or circumstances.
In addition, on today's call, we may discuss certain non-GAAP financial measures. Reconciliation of these non-GAAP measures to the GAAP measures we consider most comparable can be found in today's earnings release, which is posted on the Investor Relations section of our website, www.igt.com, and included at Exhibit 99.1 to the Form 8-K, we furnished today with the SEC.
With all that in mind, I'll turn the call over to Patti.
Thanks, Matt, and good afternoon, everyone. As you can see from our third quarter results, we are delivering on the commitment we have made to all of our stakeholders, with solid revenue growth, stable product margins, tightly managed expenses and an operating margin of 29%, our best in over 3 years. We believe the improvements we are driving across the organization have the potential to generate steady, attractive returns.
We have adjusted our business portfolio to better align our assets with our future vision. The acquisition of Entraction is expected to enhance our interactive market position by adding poker, bingo and sports betting to our industry-leading online casino products. This is a clear example of our plan to prioritize higher growth opportunity in a responsible manner. We believe that our interactive business will be an important contributor to revenue and earnings growth in the coming years.
Our agreement to sell the Barcrest Group is expected to close in our fiscal fourth quarter. This transaction will allow us to reinvest the proceeds to drive enhanced products for our customers. Strong cash generation continued to be one of the strengths of our business model, evident again this quarter.
Consistent with our cash management strategy, our Board has authorized a $500 million share repurchase. We acted quickly in the quarter by applying $25 million to the buyback of IGT stock. We will continue to remain focused on efficiently deploying capital to drive positive returns for our shareholders.
With that, I'd like to ask Pat to provide you with the details on our third quarter financial performance. Pat?
Thanks, Patti, and good afternoon, everyone. Our adjusted third quarter earnings from continuing operations grew 22% to $78 million or $0.26 per share versus $64 million or $0.21 per share in last year's third quarter. A table reconciling the adjusted earnings to GAAP earnings is available in this afternoon's press release. All periods presented have been adjusted to classify the Barcrest Group and discontinued operations.
At a high level, the growth in earnings was driven by higher product sales revenues coupled with exceptional margin performance. Our total revenues for the third quarter increased 3% to $489 million, a result of stronger product sales in Latin America, North America and Europe combined with higher average selling prices.
Gross margin for the company was 59%, up 300 basis points year-on-year, mainly due to higher performance in our North American gaming operations and growth in international selling prices.
Gaming operations revenues were $267 million in the third quarter, down 1% sequentially and from the prior year. We generated an average of $55.55 in revenue per unit per day, which is up 3% compared to last year's third quarter. Strong performance for our domestic, Wide Area Progressive games positively contributed to the increase in yield.
Consistent with last quarter, our coin-in per machine per day was up 13% in our Wide Area Progressive units. Average revenue per day decreased sequentially due to a higher mix of lower yields and international units.
Gaming operations gross margin was 62%, up 400 basis points versus last year on improved performance and lower jackpot expense. If you remember, in last year's third quarter, we had an unfavorable move in interest rates that temporarily suppressed the margin.