International Game Technology's CEO Discusses Q2 2012 Results - Earnings Call Transcript

International Game Technology (IGT)

Q2 2012 Earnings Call

April 24, 2012 5:00 pm ET

Executives

Matthew G. Moyer - Vice President of Investor Relations

Patti S. Hart - Chief Executive Officer, Director and Member of Stock Award Committee

John Vandemore - Chief Financial Officer and Treasurer

Analysts

Mark Strawn - Morgan Stanley, Research Division

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Robin M. Farley - UBS Investment Bank, Research Division

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Felicia R. Hendrix - Barclays Capital, Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Harry C. Curtis - Nomura Securities Co. Ltd., Research Division

Cameron Philip Sean McKnight - Wells Fargo Securities, LLC, Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Joel H. Simkins - Crédit Suisse AG, Research Division

Clifford Kurz - Credit Agricole Securities (USA) Inc., Research Division

Darnel J. Bentz - KeyBanc Capital Markets Inc., Research Division

Todd Eilers - Roth Capital Partners, LLC, Research Division

William J. Lerner - Union Gaming Group, LLC

Presentation

Operator

Welcome to International Game Technology's Second Quarter Fiscal Year 2012 Results Conference Call. [Operator Instructions] This call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Matt Moyer, Vice President of Investor Relations. Sir, you may begin.

Matthew G. Moyer

Thanks, Kim. Good afternoon, and welcome to IGT's Second Quarter Fiscal Year 2012 Earnings Conference Call. On the call today are Patti Hart, CEO; and John Vandemore, CFO. 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, including our guidance for fiscal 2012; our expectations for the economy in general and the gaming industry in particular; the expected impact of the DoubleDown acquisition; and our strategic, operational and product plans. Actual results may differ materially from the results predicted and the 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 report on Form 10-Q. All information discussed on this call is as of today, April 24, 2012. 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. Reconciliations 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, igt.com and included as Exhibit 99.1 to the Form 8-K, which we furnished today to the SEC a.s.a.p. With that in mind, I'll turn the call over to Patti.

Patti S. Hart

Thanks, Matt, and good afternoon, everyone. Our second quarter was marked by a significant accomplishment and meaningful progress made toward our fiscal year 2012 goals and objectives. We are very pleased to report our March quarter with revenues in excess of $500 million, the highest revenue performance in the second quarter for IGT in 4 years.

Our gaming operations installed base grew for the fourth straight quarter, in part due to the addition of 1,000 units in our domestic MegaJackpot footprint over the past 4 quarters. North American product sales were bolstered by strong pricing and by a 32% year-over-year increase in replacement unit sales, another indication that our product performance is allowing us to enjoy market-leading replacement share percentages. Our partnership with Rebel has been successful and has delivered the very first Advantage system to the Atlantic City market, one of several important wins in our systems group this quarter.

We grew international revenues 15% due to strength in both product sales and gaming operations. Our 18% floor share of the most recent Las Vegas Sands Casino opening in Macau is more than triple the single-digit floor shares we had been experiencing in this market during prior openings.

Our International business pace continues to accelerate, with improvement in both quantity and quality of order flow. Additionally, recent international wins in gaming operations include placing the Dark Knight into Monte Carlo, Megabucks into Macau and the Sex and the City product into Australia. Our first cloud trials are up and running across Europe and our partnership with Lottomatica in Italy underscores the value of our leading game content and our intense focus on driving higher returns on our investments in research and development.

The addition of DoubleDown to our interactive group is providing accelerated revenue growth. Our planned product launches, coupled with our efforts to expand distribution into mobile platforms will allow this business to contribute strong top line growth, at the same time, being additive to cash earnings in the coming quarters and years.

Our global portfolio of products and our diverse distribution channels for our content are unrivaled in the industry and are driving increased earnings and consistent cash flows. We expect our financial results will continue to strengthen throughout the remainder of this fiscal year. We delivered a very respectable quarter and continue to generate positive returns for all of our stakeholders. With that, I'll ask John to share the financial details. John?

John Vandemore

Thank you. As Patti said, we are pleased with our second quarter performance. Total revenues grew 13% to $541 million and adjusted operating income increased 10% to $144 million. That drove adjusted income from continuing operations higher by 23% to $0.27 per share. Strong performance in product sales and growth from our interactive businesses drove improved results in the quarter but we were especially pleased with the broad-based strength across our global enterprise.

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