Business Context and Reporting Period
This Form 6-K filing covers International Game Technology PLC (IGT) for the three months ended March 31, 2023. IGT is a global leader in gaming, operating through three primary segments: Global Lottery, Global Gaming, and PlayDigital. The company provides lottery management services, gaming systems, instant ticket printing, electronic gaming machines, and digital gaming solutions.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total Revenue | $1,060 million | $1,051 million |
| Operating Income | $255 million | $252 million |
| Net Income (Total) | $67 million | $117 million |
| Net Income (Attributable to IGT PLC) | $23 million | $79 million |
| Diluted EPS (IGT PLC) | $0.11 | $0.39 |
| Operating Cash Flow | $311 million | $189 million |
| Total Debt (Principal) | $5,837 million | $5,795 million |
| Cash and Cash Equivalents | $669 million | $590 million |
| Total Liquidity | $2,108 million | $2,412 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 1% ($9 million) year-over-year. Excluding the impact of the Italian Commercial Services business sold in September 2022 and unfavorable foreign currency effects, organic revenue grew 10%.
- Profitability Decline: Net income attributable to IGT PLC dropped significantly from $79 million to $23 million. This was driven by a higher effective tax rate (56.5% vs. 35.5%) due to valuation allowances and foreign rate differentials, alongside a $26 million foreign exchange loss compared to a $3 million gain in the prior year.
- Segment Performance:
- Global Lottery: Service revenue decreased 5% due to the disposal of the Italian business, though operating and facilities management contracts grew 7% driven by multi-jurisdiction jackpot sales.
- Global Gaming: Revenue increased 17% with a 20% rise in service revenue and 30% in product sales, driven by higher yields and unit sales.
- PlayDigital: Revenue grew 17% to $55 million, aided by the iSoftBet acquisition.
- Debt Reduction: The company redeemed $202 million of Euro Notes and $200 million of U.S. Dollar Notes in March 2023, incurring $4 million in losses on extinguishment.
Guidance, Outlook, and Risks
- Outlook: Management expects sufficient liquidity to meet obligations for the next 12 months and beyond, citing strong operating cash flows and available credit facilities.
- Dividends: The Board declared a quarterly cash dividend of $0.20 per share, payable June 8, 2023.
- Legal Contingencies:
- DDI/Benson Matter: A provision of $220 million remains on the balance sheet related to the Double Down Interactive class action lawsuit.
- Texas Fun 5's: The company is in confidential settlement negotiations regarding lawsuits over instant ticket game instructions, anticipating a settlement amount not material to operations.
- Italian Tax Audit: The company received a tax assessment notice for €27 million for calendar year 2016 and plans to appeal.
- Risks: Macroeconomic factors including rising interest rates, inflation, and foreign exchange fluctuations (specifically the Euro) continue to impact results. The company notes no material impact from recent bank failures or the Russia-Ukraine conflict on its supply chain during the quarter.
Investor Verification Checklist
- Tax Rate Volatility: Verify the sustainability of the 56.5% effective tax rate and the specific valuation allowances impacting Q1 2023 earnings.
- Legal Accruals: Monitor the status of the $220 million DDI/Benson provision and the potential settlement terms for the Texas Fun 5's litigation.
- Foreign Exchange Exposure: Assess the impact of Euro fluctuations on future earnings, given the $26 million FX loss in Q1 2023.
- Debt Maturity Profile: Review the upcoming debt maturities, specifically the €339 million due in 2024 and $717 million due in 2025.
- Organic Growth: Confirm the 10% organic revenue growth trend excluding the divested Italian business and FX impacts.