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In-line bottom line but top line very soft. Despite the talk of shifting focus away from NA replacement market, international product sales missed big in the quarter.

"Our first quarter results are reflective of our focus on improving our profitability and processes.  While consistent top-line growth remains challenging, our internal cost cutting and operational improvement strategies are solidly taking hold.  Based on early customer feedback, we are confident that our recently released games are gaining momentum.  We look forward to better demonstrating our top-line focused initiatives in the second half of this year and beyond."

-Patti Hart, CEO

So much for planning "to further reduce ...reliance on the North American replacement cycle by taking advantage of ... diverse global revenue sources."  At least based on our model, international product sales were the source of the largest miss.  Domestic product sales were in-line with our expectations, with slightly lower pricing offset by better non-box sales.  However, margins were much better than we expected.  Weaker gaming operations revenue was more than offset by better margins as well.  EPS benefited from the reinstatement of the R&D tax credit and gain on sale of the China LotSynergy to the tune of $0.04.

The good news is clearly gross margins and a lower cost structure.  WHEN the top line turns, there will be significant leverage.  For now, investors can hold on to basically unchanged EPS guidance for fiscal 2011.


  • "Consolidated revenues decreased primarily due to fewer international openings and expansions in the quarter versus last year"
  • Gaming Ops:
    • Revenues decreased primarily due to a reduced installed base
    • Average revenue per unit in F1Q was $50.38, a decrease of $0.48 from F4Q 2010 and $1.13 increase YoY.
    • Gross margins were 63% were positively impacted by the removal of the AL bingo games.
  • Product sales:
    • Recognized 5,000 NA units (3,100 replacements and 1,900 new)
    • Recognized 4,300 International units
  • "The company expects the tax rate to be 36% in each of the next three quarters"


  • Have seen a high level of adoption of server based gaming in high limit areas
  • Center Stage platform is performing well above floor average so far.  Sex in the City has an install base of over 1,800.
  • Continue to see stabilization in gaming operations yields and return to normal seasonal patterns. While the install base is not expected to grow meaningfully this year, they have begun to replace older, lower yielding games which should improve results.
  • Product sale margins were better due to geographic mix and higher % of non-box sales
  • Expect to see SG&A stay around 2010 levels
  • Higher inventory and jackpot payments impacted cash flow from operations.  Inventory was higher due to roll-out of new gaming ops titles.
  • Considering increasing the use of financing to help customers refresh their floors and use more capital to refresh their gaming operations install base
  • Their preference is to use their cash to enhance their market position
  • Reel Edge is in the final stage of approvals and should hit floors soon
  • On the systems side, they installed 8 SbX systems and 7 Advantage systems
  • Updated guidance to $0.79-$0.87 cents for FY2011
  • Expect to see further improvements in their efficiencies


  • "Never any awards for being too aggressive"
  • New guidance includes $0.21 for the F1 quarter 
  • Order sizes were smaller during the last 2 quarters
  • NA ASPs were lower due to them pushing the regular AVPs and not so much on the MLDs front
  • Q: Are they sandbagging on guidance? A: There is still a lot of uncertainty around replacements
  • Reel Edge was the game with the most buzz coming out of G2E
  • WAP has had yields up nicely YoY
  • IL is not in their guidance but there is a little Italy in the guidance
  • Ended Dec with only $20-30MM on their credit facility
  • Non of their other debt is pre-payable so it's expensive to do so right now - but they are looking it at. Their first choice of use of cash is growing their business though.
  • Benefited by about $4MM in interest rate movements this quarter - which was in their gaming operations margins
  • International actually had a really nice quarter according to Patti. Nothing new competition-wise internationally, however, they have deployed more resources which is benefiting them.
  • US competitive environment is fierce