International Game Technology officials said they thought globally when attacking the coronavirus crisis. Expecting a big slide in revenue (which came), IGT targeted $500 million in cost savings and spending avoidance.
The moves hurt. Base salaries were reduced by 10% to 50% for some employees; other employees were furloughed with health benefits. Officials called the moves temporary. Hiring was frozen and pay raises were canceled.
Although the quarterly loss topped $200 million and fell short of Wall Street forecasts, revenue topped them. Investors sent the stock higher in both regular and after-hours trading.
In a Monday morning statement, London-based IGT, which produces and operates gaming and lottery machines in more than 100 countries, said its net loss was $248 million or $1.21 per share, for the three months ended March 31, reversing net income of $40.3 million, or 20 cents per diluted share, a year earlier. Analysts surveyed by Seeking Alpha had, on average, expected a loss of 21 cents per share in the latest quarter.
Adjusted earnings before interest, taxes, depreciation, and amortization, a cash flow measure that excludes one-time costs, fell 26% to $308.5 million from $416.7 million.
Revenue fell 18% to $940.2 million from $1.14 billion. Analysts polled by Seeking Alpha had expected $954.1 million in revenue.
IGT shares rose 53 cents, or 7.65% to close at $7.46 on the New York Stock Exchange.
In a conference call with analysts, IGT CEO Marco Sala said his company is focused on liquidity, generating cash flow and preserving cash.
“With $2.2 billion in liquidity at the end of Q1, we are confident we have sufficient flexibility to weather the pandemic,” Sala said. “We achieved a major milestone regarding our bank facilities last week securing a period of relief and additional flexibility on our financial covenants. All our actions are focused on providing the flexibility to manage through and be well prepared for operating in this new normal.”
He said about 65% of the company’s global gaming revenue comes from recurring service revenue tied to casino machines and 35 percent comes from sales of the machines and systems. A shutdown of casinos since March had hurt both, Sala said.
Jefferies gaming analyst David Katz said IGT’s liquidity “appears to be well-positioned to weather the current crisis period.”
Sala expected a new normal post-shutdown. Social distancing rules will likely reduce casino customer counts and cut spending for those customers. He said he expected local and tribal casinos to recover more quickly than hubs like Atlantic City and Las Vegas.
Although lottery distribution channels remained mostly open during the shutdown, stay-at-home measures slowed point-of-sale traffic, Sala said. Same-store revenue trends varied widely by region, he said.
In April, the Italian government suspended all games under the lotto license that account for half of the lottery wagers the company handles in the nation. The games were restored in phases in early May and that business is returning, he said.
SunTrust Robinson gaming analyst Barry Jonas said in a research note following earnings that IGT will see a slow recovery on the gaming side, but better results from its lottery business.
“Within gaming, management expects casino closures to drive service revenues essentially to zero while cost containment efforts at operators likely meaningfully depress slot and system sales,” Jonas said. “Longer-term, social distancing protocol and potential economic implications should impact the trajectory of the recovery, while management expects local and tribal markets to see a quicker recovery, consistent with our market forecasts.”
Sala said IGT’s outlooks remain depressed for the second quarter. The period will be challenging for revenue, profit and cash flow, he said, although a gradual recovery is expected in the year’s second half. The company withdrew 2020 guidance.
However, Sala said the company’s product diversity will help IGT endure and prosper.
“Over the years, we have invested in our digital and systems capabilities, investments that proved particularly well-suited to the current environment. IGT’s digital solution stands across lottery, gaming, and sports betting,” he said. “We offer one of the most comprehensive digital content portfolios in the world with more than 180 teams that serve operators and players in nearly 30 countries.”
Follow Matthew Crowley on Twitter @copyjockey
