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Covid-19 impairment charges see IGT post Q1 loss


International Game Technology (IGT)’s revenue declined 17.9% to $940.2m in the first quarter of 2020, while a $296m impairment charge related to the effects of the novel coronavirus (Covid-19) saw the supplier post a loss for the period.

Of IGT’s $940m in revenue for the three months to 31 March, $783m came from services, down 21.0%. A further $157m of revenue came from product sales, up 2.0% year-on-year.

Of its main verticals, lottery was the largest driver of revenue, bringing in $444m, down 17% year-on-year. Of this figure, $412m came from lottery services, down 20%, while $32m came from lottery product sales, up 76%.

IGT made $393m in revenue through its gaming division, down 24%. Gaming services made up $269m of this, a 29% year-on-year decline, while $124m came from gaming product sales.

Of the gaming services revenue, $181m came from gaming terminal services, 34% less than in 2019. The remaining $88m came from other sources. Of the $124m gaming product sales revenue, $53m came from the sale of gaming terminals, down 47%. 

A further $103m in revenue came from other services outside of gaming or lotteries. This was up 5% year-on-year.

Turning to the geographic split, IGT took in $196m in revenue from its North America Gaming and Interactive division, down 18%. Of this total, $117m came from gaming services, down 24% and $74m came from gaming product sales, down 12%. A further $4m came from other services.

The supplier’s North America Lottery division took in $251m in revenue. Of this total, $214m came from lotteries, down 16%, while $34m came from gaming, down 17%, and $2m from other sources. Of the $214m in lottery revenue, $201m came from lottery services and $13m lottery product sales.

IGT took in revenue of $329m from Italy, down 25%. Gaming made up $95m of this total, down 38%, while lotteries made up $148m, down 27%. All of IGT’s Italian revenue came from services.

In Italy, the business saw $1.71bn staked on lotteries, down 20.0%, of which $1.19bn was staked on 10eLotto. A further $1.91bn was spent on “Scratch and Win” products and the supplier processed $218m worth of sports bets, including virtual sports.

The business’s international division saw revenue decline 5% to $164m. In this region, lotteries made up $82m in revenue, up 11%, while gaming revenue fell 11% to $72m. Other international revenue fell 40% to $10m.

While international lottery services declined 10% to $62m, international lottery product sales grew 344% to $20m. Gaming service revenue fell 25% to $23m but gaming product revenue fell only 3% to $49m.

Across all verticals, the supplier’s 55,373 machines generated $22.69 in revenue per day. It shipped 3,680 units during the quarter, of which 119 were new or expansions and the rest replacements.

IGT’s operating expenses grew 17.7% to $1.14bn, which the supplier attributed to a $296m goodwill impairment charge. The international business, it explained, accounted for $193m of this charge, with $103m wiped off the value of its North American operation, due to the short-term impact of novel coronavirus (Covid-19).

Costs of services were the highest operating expense at $521.8m, but represented a 12.3% decline from Q1 2019. Despite the higher revenue from product sales, costs of product sales also declined, by 9.0% to $91.1m.

Selling, general and administrative expenses fell 18.9% to $163.6m while expenditure on research and development was down at $60.7m.

IGT paid a further $4.2m in other operating expenses, up 27.9%.

This resulted in an operating loss of $197.3m, compared to a profit of $178.2m in the prior year.

The supplier paid a further $100.7m in interest expenses, down 2.3% year-on-year. In addition, recorded a $70.4m foreign exchange gain, up 20.1%.

IGT paid a further $3.4m in other expenses, up 577.2% for a pre-tax loss of $231.0m, after a pre-tax profit of $133.2m a year prior.

After paying income taxes of $3.1m, IGT’s net loss came to $234.1m, compared to a profit of $80.5m in 2019. After accounting for $14.2m in income attributable to non-controlling interests, the full loss attributable to IGT amounted to $248.3m, down from a profit of $40.3m in Q1 2019.

The supplier noted that the goodwill impairment cost was the most significant reason for the loss in 2020, and that its earnings before tax, interest, depreciation and amortisation came to $308.5m, down 25.7%.

Marco Sala, chief executive of IGT, said the quarter was dominated by the effects of Covid-19.

“After a solid start in the first two months of the year, we quickly shifted our focus to the global Covid-19 health crisis in March,” Sala explained. “The safety and well-being of our people, customers, and communities have been our highest priority since day one. We implemented robust business continuity plans and maintain service levels at our normal, high standards. 

“I am grateful for the passion and perseverance the entire IGT team has demonstrated during these unprecedented times and I am confident IGT is well positioned to emerge from the crisis a stronger, even more competitive organization.”

IGT chief financial officer Max Chiara added that, although the business took immediate cost-cutting measures when the effects of the virus became clear, at will continue to look at ways to cut long-term costs. 

“We’ve taken swift actions across all non-essential costs and are now switching our focus to structural cost savings initiatives,” Chiara said. “At the same time, we have adopted strict measures to preserve liquidity in the current environment.

The supplier implemented a temporary furlough program for its staff in the US in April, impacting 2,300 employees. In addition, it suspended  2020 salary increases and short-term bonuses, as well as making spending cuts in areas such as marketing and travel. 

The supplier said these cost-reduction efforts should save the business around $500m for the year. However, it has withdrawn its earnings forecast for the year, as a result of the uncertainty caused by the pandemic, though added that with $2.2bn of liquidity, it was confident of weathering Covid-19’s impact.