‘Cash cow’ machines help IGT

Jan 23, 2007 4:09 AM

Visionaries at International Game Technology (IGT) realized a decade ago that although participation machines — those that permit the manufacturer to share in the machine’s daily win — were controversial, they would play a major role in the company’s future.

That concept was borne out in the financial report for the company’s first quarter that ended on Dec. 31, 2006.

Not unexpectedly, the company reported that there was softness on the product side of the business with shipments reaching 26,800 units or about 2,300 fewer than in the corresponding period. This caused product sales to come in at $317.4 million compared to last year’s $324.5 million.

But picking up the slack were the installed base of machines that rose from last year’s 43,300 to 53.100 machines. And, since those machines produce an average of $70 each per day, the company was able to bank recurring revenues of $324.9 million or a gross profit of $186.7 million. These numbers represented gains of 11% and 13% respectively.

Net income for the quarter was $121 million or $0.35 per share, up from the previous year’s $120.6 million or $0.34 per share. Revenues rose 4% to $642.3 million but fell short of analysts’ expectations of $665.7 million.

Cash flow from operations was given as $223.5 million, an increase of 41%. Part of the cash was used by the company to repurchase 4.9 million shares at a cost of $225.4 million.

During the reported period, the company began shipping gaming machines to new jurisdictions, including Florida, Pennsylvania and Arkansas. A larger volume of shipments should develop as more gaming facilities come on line, the company noted.

Chairman and CEO TJ Matthews called the quarterly results "solid." He added that the machine replacement cycle that casinos experienced while changing over from coin-activated machines to cashless ticket technology was ending.

"Replacement is”¦certainly a difficult portion of our business right now, in that there’s isn’t a strong catalyst for accelerating replacement activity with the marketplace, and you still are competing in a market in which most of the floors are reasonable new," he remarked.

However, he said the company remained optimistic that an evolution was on the horizon and that it continued to invest heavily in research and development, including server-based systems designed to allow casino operators to manage, monitor and change games via computer.