Business Context and Reporting Period
Company: International Game Technology PLC (IGT PLC)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended March 31, 2020
Business Overview: IGT is a global leader in gaming, providing technology and services for gaming machines, lotteries, sports betting, and digital gaming across more than 100 countries. Operations are segmented into North America Gaming and Interactive, North America Lottery, International, and Italy.
Key Financial Metrics
| Metric ($ thousands) | Q1 2020 | Q1 2019 |
|---|---|---|
| Total Revenue | 940,195 | 1,144,916 |
| Operating (Loss) Income | (197,279) | 178,152 |
| Net (Loss) Income | (234,099) | 80,495 |
| Net (Loss) Income Attributable to IGT PLC | (248,288) | 40,254 |
| Diluted EPS | (1.21) | 0.20 |
| Operating Cash Flow | 157,268 | 146,614 |
| Total Debt (Carrying Value) | 8,627,085 | 8,065,517 |
| Cash and Cash Equivalents | 1,457,524 | 662,934 |
| Total Liquidity | 2,200,688 | 2,415,059 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by 17.9% ($204.7 million) year-over-year. Service revenue dropped 21.0% due to widespread casino closures and reduced lottery activity caused by the COVID-19 pandemic. Product sales increased slightly by 2.0%.
- Goodwill Impairment: The company recorded a non-cash goodwill impairment charge of $296.0 million. This was triggered by the COVID-19 pandemic, impacting the International ($193.0 million) and North America Gaming and Interactive ($103.0 million) reporting units.
- Operating Loss: The company swung from an operating income of $178.2 million in Q1 2019 to an operating loss of $197.3 million in Q1 2020, primarily driven by the impairment charge and revenue declines.
- Foreign Exchange: Net foreign exchange gains increased to $70.4 million (from $58.6 million), largely due to non-cash gains on euro-denominated debt.
- Cost Reductions: Selling, general, and administrative expenses decreased by 18.9%, driven by the cancellation of 2020 short-term incentive plans and reduced stock-based compensation.
Guidance, Outlook, and Risks
- COVID-19 Impact: Management states the pandemic has significantly disrupted operations, particularly in Italy, North America Gaming, and International segments. Facility closures have reduced demand for commercial gaming products and lottery ticket sales.
- Liquidity and Debt Amendments: On May 7-8, 2020, IGT amended its Revolving Credit Facilities and Euro Term Loan Facility. Key changes include:
- Waiver of EBITDA-to-interest and debt-to-EBITDA covenants through June 30, 2021.
- New minimum liquidity covenant requiring at least $500 million through August 31, 2021.
- Prohibition of restricted payments (dividends and share repurchases) from April 1, 2020, through June 30, 2021.
- Increased interest rate margins.
- Outlook: Management believes current liquidity ($2.2 billion) and borrowing capacity are sufficient to fund obligations for at least the next 12 months. However, the duration and severity of the pandemic remain highly uncertain.
- Risks: Significant risks include potential additional impairment charges, customer payment defaults, supply chain disruptions, and the inability to comply with financial covenants if the pandemic persists longer than anticipated.
Investor Verification Checklist
- Debt Covenant Compliance: Verify the company's ability to maintain the new $500 million minimum liquidity covenant under the amended credit facilities.
- Impairment Triggers: Monitor future quarters for additional goodwill or intangible asset impairments as the economic impact of COVID-19 evolves.
- Dividend Suspension: Note that dividends are prohibited until July 1, 2021, subject to debt ratio thresholds.
- Customer Solvency: Assess the creditworthiness of major casino and lottery customers, as closures may lead to payment delays or defaults.
- Recovery Timeline: Evaluate the pace of reopening for gaming venues in Italy and North America, which are critical to revenue recovery.