GTECH Expecting Hoosier Lottery Revenue to Miss Mark

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GTECH Indiana, which runs many functions of the Hoosier Lottery, expects to come up short on its revenue goal for the year. In its quarterly earnings report, Italy-based parent GTECH says the Hoosier Lottery's "anticipated shortfall" for the 2014 and 2015 fiscal years is contributing to a decrease in the company's American revenue.

November 10, 2014

News Release

Rome, Italy and Rhode Island. -- GTECH S.p.A.'s Board of Directors, chaired by Mr. Lorenzo Pellicioli, today reviewed the third-quarter and nine-month consolidated results, and approved the financial statements for the nine-month period which ended September 30, 2014.

"In a solid quarter, we were able to make up for the significant product sales of 2013 and for lower jackpot activity this year, and deliver stable revenues and higher profitability, thanks to the diversity of our revenue base," said Marco Sala, CEO of GTECH S.p.A. "Our planned acquisition of IGT is progressing on schedule."

"We are well on track to deliver our 2014 synergy target of ?40 million," said Alberto Fornaro, CFO of GTECH S.p.A. "With continued significant generation of operating cash flow, we anticipate that, excluding costs related to the IGT acquisition, we should comfortably meet our year-end Net Financial Position guidance of ?2.47 to ?2.53 billion."

Consolidated Revenues were ?728 million, compared to ?730 million in the third quarter of 2013. Service revenues grew 3% to ?680 million, driven by a higher contribution from Italy, partially offset by a revenue reduction related to Lottery Management Services. Product sales of ?48 million in the quarter were impacted by the expected decline in Canadian product sales, partially offset by sales to U.S. based custEBITDA was ?252 million compared to ?219 million in the third quarter of last year which included a ?30 million provision for the machine gaming litigation settlement in Italy.

Operating Income was ?133 million compared to ?102 million. Transaction costs of ?10 million associated with the pending IGT acquisition, which were incurred in the quarter, were more than offset by the gain from the sale of the Company's sports and events ticketing business in Italy.

Interest Expense was in line with the same period last year at ?41 million, when excluding the ?17 million incurred in the quarter on the Bridge Facility which was entered into in anticipation of the IGT acquisition.

Net Income attributable to the owners was ?40 million, compared to ?32 million in the 2013 third quarter.

Diluted Earnings-Per-Share (EPS) was ?0.23, compared to ?0.18 in the third quarter of last year. Capital Expenditures in the quarter were ?67 million.

At September 30, 2014, Consolidated Shareholders' Equity totaled ?2.76 billion. GTECH had a Net Financial Position (NFP) of ?2.58 billion, compared to ?2.51 billion as of December 31, 2013. After adjusting for certain IGT acquisition related items, NFP totaled ?2.49 billion.

Third-Quarter Results by Segment Americas

Revenues in the Americas segment were ?234 million in the quarter, compared to ?251 million last year. Strong instant ticket performance across multiple jurisdictions in the United States was more than offset by lower multistate jackpot activity, and a decrease in service revenue from Lottery Management Services due to a ?14 million revenue reduction to reflect an anticipated shortfall in Indiana for the Hoosier Lottery's 2014 and 2015 fiscal years. Product sales in the quarter were ?36 million, or ?12 million lower than the same period last year, with VLT sales to GTECH's customer in Oregon that offset a good portion of the expected decline in Gaming product sales to Canada.

Americas Operating Income of ?7 million compared to ?28 million in the third quarter of last year was principally related to lower service revenues from Lottery Management Services and lower product sales.

After the close of the quarter, GTECH was awarded new long-term facilities management contracts with lotteries in Missouri, Washington state, and Mexico. Additionally, the new U.S. draw-based game, Monopoly Millionaires’ Club, launched in October in 23 states.

International Revenues in the International segment were ?70 million versus ?81 million last year. The decrease was principally due to lower product sales.

Same store revenues were up 4% compared to the same period in 2013, driven by instant ticket sales growth in the United Kingdom, due to an enhanced payout and the continued rollout of GTECH's compact terminals to new retailers. Totalizator Sportowy in Poland experienced strong growth in Club Keno due to an improved payout.

Operating Income in the International segment was ?11 million versus ?15 million last year, principally due to lower product sales, partially offset by a change in contract terms with a European lottery customer that lowered revenue yet increased profit, and cost efficiencies.

SAZKA in the Czech Republic joined the multistate Eurojackpot game in October. The National Lotteries Board in South Africa named ITHUBA as the preferred applicant to begin negotiations for the next lottery operating license, with GTECH as a technology provider to ITHUBA.

Italy

Revenues in Italy were up 7% to ?424 million compared to ?398 million in the third quarter of last year, driven by significant growth in Lotto wagers and Sports Betting wagers.

Source: GTECH