International Game Technology Management Discusses Q3 2012 Results - Earnings Call Transcript

International Game Technology (IGT)

Q3 2012 Earnings Call

July 24, 2012 5:00 pm ET


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


Mark Strawn - Morgan Stanley, Research Division

Felicia R. Hendrix - Barclays Capital, Research Division

Robin M. Farley - UBS Investment Bank, Research Division

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

Carlo Santarelli - Deutsche Bank AG, Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Shaun C. Kelley - BofA Merrill Lynch, Research Division

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

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

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

Joel H. Simkins - Crédit Suisse AG, Research Division

Dennis I. Forst - KeyBanc Capital Markets Inc., Research Division

Edward S. Williams - BMO Capital Markets U.S.



Welcome to International Game Technology's Third Quarter Fiscal Year 2012 Results Conference Call. [Operator Instructions] This call is being recorded. If anyone have 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

Thank you. Good afternoon and welcome to IGT's Third Quarter Fiscal Year 2012 Earnings Conference Call. On the call with me 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 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 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,, and included as an exhibit to the Form 8-K, which we furnished today to the SEC.

With that in mind, I'll turn the call over to Patti.

Patti S. Hart

Thanks, Matt, and good afternoon, everyone. Our third quarter results are highlighted by strong revenue growth and our ability to leverage our leading game content across multiple platforms. While some areas of the business fell short of our internal expectations, other areas showed meaningful continued improvement.

Breadth and diversity of our revenue is a testament to our business model, a model that has extensive global reach and yield healthy cash flows. We continue to share a strong consolidated revenue growth. Total revenues in the quarter grew 9% over last year's third quarter, aided by our interactive business and North American product sales.

North American replacement units grew 44%, indicative of our strong portfolio of gains.

In gaming operations, excluding our interactive businesses, revenues were flat and gross profits were down slightly from last year. We continue to see positive growth in our global fixed fee installed base with an increase of 10% this year.

While these units weigh on a consolidated yield, they are great source of consistent earnings and cash flows. We do recognize that some of our participation games are not performing at the levels we had become accustomed to but we remain focused on the attractive long-term returns on capital that this business generates.

Our international business delivered mixed results. We experienced lower unit sales in the Europe and South America, but we increased shipments into Australia, Asia and Mexico. We remain confident that our international business will continue to be a strong contributor to both revenue and earnings moving forward.

As we expected, the addition of DoubleDown to our interactive group is impacting our overall operating margin in the near term, and it is also providing accelerated revenue growth. We are making important investments to expand our interactive distribution into mobile platforms in new geographies. Over time, we expect to see overhead leverage and higher operating profit margins.

We continue to pursue our vision of ubiquitous device-agnostic content distribution. Most recently, we launched our first IGT theme into the DoubleDown Casino with the release of the Da Vinci Diamonds. This game's exposure has grown from thousands of people a month having started as a machine on U.S. casino floors to millions of people everyday around the world. The repurposing of our game library has allowed for the rapid and cost-effective enhancement of the DoubleDown Casino.

We are generally pleased with the progress we have made in achieving our fiscal 2012 financial goals. We have not lost sight of the need for continuous improvement in our business. We are about where we expected to be at this point in our fiscal year and we remain dedicated to the efficient deployment of capital to drive positive returns for our shareholders, as evidenced this past quarter by an increase in our share repurchase authorization to $1 billion and the acceleration of $400 million of share buyback activity.

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