Business context and reporting period
Filing identity: The supplied filing is International Game Technology PLC’s (IGT) Form 20-F, not a filing under the name Brightstar Lottery PLC. It is an audited annual report for the fiscal year ended December 31, 2018—not a standalone 2018 fourth-quarter report. The text does not provide clear standalone Q4 financial results. Financial statements are in U.S. dollars and prepared under U.S. GAAP.
IGT operates lottery management and technology, gaming machines and systems, sports betting, digital gaming, and commercial services through four segments: North America Gaming and Interactive, North America Lottery, International, and Italy.
Key financial metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $4.831 billion | $4.939 billion |
| Operating income (loss) | $647.0 million | $(51.1) million |
| Operating margin | 13.4% | (1.0)% |
| Net income (loss), consolidated | $114.6 million | $(947.5) million |
| Net income (loss) attributable to IGT PLC | $(21.4) million | $(1.069) billion |
| Basic and diluted loss per share attributable to IGT PLC | $(0.10) | $(5.26) |
| Cash provided by operating activities | $29.6 million | $663.4 million |
| Capital expenditures | $533.1 million | $698.0 million |
| Cash and cash equivalents at year-end | $250.7 million | $1.057 billion |
| Total debt at year-end | $8.012 billion | $8.377 billion |
| Total available liquidity | $1.853 billion | $3.032 billion |
Service revenue was $4.046 billion (83.8% of revenue) and product sales were $784.9 million (16.2%). The 2018 effective tax rate was 62.3%, with a $189.4 million tax provision. IGT declared dividends of $0.80 per share for the year and paid $163.2 million in dividends to shareholders.
Material changes versus the prior comparable period
- Revenue fell 2.2% year over year. North America Gaming and Interactive revenue declined 13.4% to $1.003 billion, largely reflecting the 2017 sale of DoubleDown and lower gaming service revenue. North America Lottery revenue rose 0.6% to $1.192 billion; International declined 7.8% to $820.0 million; and Italy increased 6.5% to $1.815 billion.
- Operating income improved from a loss to $647.0 million. The comparison is substantially affected by the 2017 $714.0 million goodwill impairment, compared with a $118.0 million non-cash goodwill impairment in 2018. The 2018 impairment was in International, where results were below forecast and the discount rate increased.
- IGT PLC still reported a net loss attributable to shareholders in 2018 despite consolidated net income; non-controlling interests received $136.0 million of income in aggregate.
- Operating cash flow dropped to $29.6 million, principally because of the $878.1 million payment of the Italian Scratch & Win license extension fee, along with working-capital and tax-payment timing. Cash and total available liquidity declined substantially from year-end 2017.
- Debt declined by approximately $364 million. During 2018 IGT issued new secured notes and used proceeds and revolver borrowings to refinance or redeem other debt; debt-extinguishment losses totaled $54.4 million. Interest expense decreased to $431.6 million.
- Foreign-exchange results swung to a $129.1 million gain from a $444.0 million loss in 2017, principally reflecting euro/U.S. dollar movements on euro-denominated debt; these amounts were principally non-cash.
- IGT adopted ASC 606 using a modified retrospective approach. It recorded a $61.2 million pre-tax opening retained-deficit adjustment and reclassified jackpot expense from cost of services to a reduction of service revenue. Prior-year results were not recast, so revenue comparisons are not fully comparable. ASC 606 reduced reported 2018 revenue by $65.0 million versus the prior accounting basis, while increasing IGT-attributable net income by $13.5 million.
Outlook, commentary, risks and unusual items
- Liquidity outlook: Management said cash generated from operations, available funds, and committed borrowing capacity were expected to cover ordinary-course obligations and working capital for at least the next 12 months. IGT was in compliance with debt covenants at December 31, 2018.
- Business outlook: No quantified company-wide revenue, earnings, or cash-flow guidance is provided in the supplied filing text. Management said its fundamental outlook for the International reporting unit had not changed and expected growth from a lower base.
- Concentration and contracts: Italy-related ADM licenses generated approximately 34.9% of consolidated revenue. The Italian Lotto and instant-ticket licenses, as well as long-term lottery contracts, are material to results and may be subject to challenge, termination, or non-renewal. The filing reports $1.217 billion of outstanding performance bonds and letters of credit in aggregate.
- Regulatory uncertainty: A January 2019 U.S. Department of Justice opinion interpreted the Wire Act as potentially applying beyond sports betting to interstate gambling. Its scope and enforcement remained unclear; litigation was pending and management was evaluating potential effects.
- Other material risks: High leverage and debt covenants; Italian gaming tax increases and advertising restrictions; customer and license concentration; currency exposure; competition and jackpot fatigue; cybersecurity and technology failures; supply-chain dependence; and legal, regulatory, and tax proceedings.
- Contingencies: Litigation provisions were $12.0 million at year-end, but the filing notes that outcomes and potential exposure may differ from accruals. The Texas Fun 5’s ticket litigation includes claims exceeding $500 million in one action; IGT disputes the claims. A Mexican tax assessment was partly accrued following an adverse court ruling; other issues remained under review.
- Other notable items: The goodwill impairment was non-cash and management said it did not affect cash flows, debt-service ability, covenant compliance, or underlying liquidity. Adoption of lease accounting on January 1, 2019 was expected to materially increase balance-sheet assets and liabilities, with no significant effect expected on income, cash flows, or liquidity.
- Audit and controls: PwC issued an unqualified opinion on the consolidated financial statements and concluded internal control over financial reporting was effective as of December 31, 2018.
Most important facts for investors to verify
- Confirm the issuer and period: the filing identifies International Game Technology PLC and covers full-year 2018, not Brightstar Lottery PLC or Q4-only results.
- Review the audited statements and segment disclosures, particularly the distinction between consolidated net income and the loss attributable to IGT PLC.
- Assess the sustainability of cash generation after the large Italian license payment, ongoing capital expenditure, dividends, and debt service.
- Check debt maturities, revolver availability, covenant headroom, and refinancing needs, especially the 2020 maturities shown in the filing.
- Evaluate the continuing dependence on Italian licenses and the potential financial and operational effects of tax, advertising, and Wire Act developments.
- Review the ASC 606 transition and its effect on year-over-year comparability, plus the assumptions underlying the International goodwill impairment test.