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Notes from the IGT presentation yesterday at G2E

 

General Commentary

  • Best game content ever in IGT's history
  • Reduced leverage from 3x to 2.4x
  • Centerstage games are doing well
  • Core products - Reel Edge product (combo or skill and chance) will appeal to younger customers - had an order during the demos
  • Hot releases included: Dark Knight, Ghost Busters, etc
  • 2nd competitor in the biz only has 55% of the breadth that IGT has in products
  • Grew global biz 21% this year, which was one of the best growth years. 11% CAGR over the last 10 years. They are deciding to focus on where the growth is - not in NA replacements
  • Despite flat R&D, they increased their product output

Chris Satchell, CTO

  • Increasing leverage of their R&D dollars.  Moved from 11 cabinets to 7 cabinets 
  • Down to 1 production technology
  • Increase leverage of 3rd party technology
  • Improve quality of products and platforms
  • They have increased the pace of bringing games to market by leveraging 3rd party resources.
  • Systems story
    • Finally leveraging their investment by focusing on applications
    • Side games through sbx, tax application, connecting the online and landbased casino worlds
    • Increasing their addressable markets by not having to go to full ethernet.

Patti Hart, CEO

  • Goal is to reduce reliance on NA replacement cycle by improving game ops yield and improve and broaden systems offerings
  • International is growing faster, so it just makes more sense
  • Focused on driving higher ROIC by listening to customers and sharing in efficiencies and leveraging new content distributions
  • Online gaming and mobile gaming opportunities- recently formed a new stand alone division

Q&A

  • How are they going to grow international biz if they keep exiting businesses?
    • Those businesses weren't contributing to the bottom line. Allowed mgmt to focus on better businesses. Australia did very well; Asia and Latin America and South Africa all did well this year.
  • In the systems business, they are focused on leveraging their sbx capabilities. For Europe, they are looking to build a lighter version of sbx for that market. Have 20-25% of the international market.
  • R&D - 63-65% is spent on applications and games; 30% of the rest is on systems, rest is on online, etc. Allocation hasn't changed but efficiency has improved.
  • Expect growth in all international regions. They are decentralizing their salesforce to be closer to their customers. Improving localization piece to make it faster and less costly. Business is moving more into an RFP process too - so they are trying to systematize that too.
  • Thoughts on US shipshare? Aren't taking their eye off the ball in the US. They are just trying to move away from being so US focused. They're just saying that they have the biggest opp to grow internationally.
  • Room to improve: ROIC, game ops, international growth, systems wins, operating margin/cash generation improvement
  • Interactive division
    • Focused on making money in the UK.  Businesses are so separate that US customers don't even know that they have online games.
    • When the UK legalized online gaming, the market grew from $0.4bn (2004) to $3.3bn in 2010
    • Italy - from $1bn in 2008 to $2bn in 2010
    • Partially legal/in process of legalizing: Canada, Italy, France, Australia
    • Potentially legal within 3 yrs: Spain, Denmark, S Africa, Belguim, Czech, Greece, Netherlands
    • Early stage discussions: US, Mexico, Argentina, Brazil, China, Germany
    • Expect 5x growth over the next 3 years in their addressable market
    • UK online demographics: 58% 18-35, 23% 36- 45; 12% 45-55; only 7% over 55 vs. 61% being +55 in the land based slot biz
    • Wagerworks : 10 yrs online and 8 years mobile. Over 10bn wagered since 2005, over 1.5bn transactions in calendar 2009. Have run over 3000 tournaments and contests for their customers. Registered 2mm players. Have over 100 online /mobile patents. Most importantly, they have the best online games.
    • As of 12/09, they provide most of the top 10 games in the UK online casinos. Have 120 online games. Do business with: Unibet, Gala Group, Betfair, 888, Party Gaming, Rank, Paddypower, Virgin Casino, Sky Vegas, Victor Chandler, William Hill, etc
    • Compelling growth drivers
      • Lots of upside in bringing their land content to mobil apps; most of their casino land customers are thinking about developing an online presence; legalization of new markets- incremental profit of new markets should be high bc localization isn't expensive; entry of their casino operators 
    • Thinks that land entrants would be very successful bc they already have brands and large databases
    • Have 200 dedicated online staff
    • How do the economics work? Revenue share is the norm and this is in the game ops business - in other revenue - so you can cap it at least - it's really small.
    • They have online video poker products
    • In Canada - they are leaning towards legalizing everything
    • Incremental set up expenses as this business grows over the next few yrs?  They have 200 people today - mostly in San Fran and UK; looking for personnel to grow to 300 over the next year. US not expected to legalize in the next year.
    • They derive most of their revenues from content, not platforms.
    • UK online casino market is $800mm and as a supplier, they are one of the largest
  • Game demos:
    • Skill games (for sale w/ 10 fee). Rollout in mid-Jan. Expect GLI approval. Mid-Jan field trials start in Nevada.  Have preorder already.
    • Game ops: ghost busters, dark knight(3q)
    • Puppy stampede - and a host of new mld games.
    • Hangover game on the Sex&City-like cabinet. Will come out in Q3 with the sequel release.