In preparation for IGT’s FQ2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from its FQ1 earnings release/call and subsequent conferences.
COMMENTARY FROM CONFERENCES POST EARNINGS
- “Over the last few months is a return to stability in that wide area progressive business with some of these new brands helping us start to regain some floor share in that space.”
- “But currently, we’re very focused on how do we reduce the reliance on the need for North American replacements, continue to grow the business globally, very focused on cash flow generation, as last year we paid down about $410 million of debt, and arguably what could be considered a pretty trough here. And we’re very focused on driving higher ROICs particularly on our game operations business.”
- “Very focused on every dollar of R&D spend. I think we are probably going to be somewhere around $200 million a year in R&D spend. I don’t know if there is much opportunity to shrink that number. But we know there’s a lots of opportunity to make a better line of sight to every dollar that’s spent there so that we are focused on the greatest opportunities first, for driving value.”
- “The strategy in our systems business now that, particularly if you look at the server-based technology, a lot of the efforts to this point could be characterized as working on the infrastructure, developing the infrastructure. We’re now shifting the focus to applications that can drive higher value for our customers.”
- “And as it relates to driving higher ROICs, what you are going to notice is, we are doing a lot more standardization at the platform level so that when a game like Sex and the City, for example, runs its economic life and there’s a need to refresh that box on a floor, we no longer have to bring that box back into our facility and refurb it in some fashion or re-merchandize it. All of that can be done now in the field, very simply with a software download of the new game that you want to put on there. And that a little bezel that snaps off the top box and a new ones snaps on to kind of differentiate the two products from a point of sales standpoint. And we’ve done that throughout our game operations business, particularly in the segment that are the highest yielding, the mega-jackpots. So we eliminated the need to disrupt a casino operation when we are moving the equipment on and off the floor. And how this relates to higher ROIC is, if we are able to run new software across that platform, we will be able to extend its useful life on the floor and thus we’re going to be able to have a change in estimate around depreciable lives which will be very impactful at the gross margin.”
- [Macau]“We are probably the number two position behind Aristocrat, which that market historically was served out of Australia. And a lot of the casinos are operated by the management teams that are out of Australia. So there is a maybe a natural bias to that product. And also the familiarity on the part of the consumers that play there. But I think, we are gradually getting better at it.”
YOUTUBE FROM FQ12011 EARNINGS CALL
- “Fiscal year 2011 is expected to be lighter in new and expansion units versus last year or next year.”
- “For the current fiscal year 2011, we are updating our earnings guidance to $0.79 to $0.87 per share, excluding the $0.03 per share from our lower tax rate in the first quarter, and the $0.01 gain on an investment sale.”
- “We expect total R&D expenses for the full year to remain similar to fiscal 2010.”
- “We expect to see SG&A stay about flat on a dollar basis, when compared to fiscal ‘10, as we invest in the people and processes necessary to take advantage of the expected industry turnaround and new business opportunities.”
- “We also had a respectable quarter in our Gaming Operations business, and we continue to see stabilization yields with a return hopefully to more normal seasonal patterns.”
- [Game Ops margin] “It’s going to be a little bit volatile, as it always has been, but I think what you’ve seen over time is the mix within there becomes less heavily weighted to jackpot bearing-type links, because naturally whenever you don’t have a jackpot, you’ve got an actually higher margin activity. And I think that’s a continual trend we see over time, but it’s still going to be a little lumpy, and probably interest rates, to the extent we experience volatility there, will move it around a little bit.”
- “While the installed base isn’t expected to grow meaningfully this year, we have begun in earnest to replace some of our older participation games with new titles and platforms, a trend that should continue, and may accelerate.”
- “We expect the tax rate to be 36% in each of the next three quarters or approximately 34% for the full year.”
- “Additionally, there are more than 70 North American sbX and Tier 1 opportunities that we are working on.”
- “The sense is from our travel customers, they’ve been fairly resilient in the downturn, continue to invest at a lower than normal, but steady rate. Some of our commercial regional customers are feeling more optimistic, feel more optimistic, but aren’t necessarily spending any more money and have a hard time giving us visibility to whether they will.”
- [Fiscal Year guidance driver] “I think it’s all around product sales.”
- [What’s in guidance?] “I think the Italy piece is. The Illinois, I think, we probably misspoke if we led you to believe that it had. I don’t believe there’s any Illinois in the guidance.”
- “Our CapEx spend has been almost universally on the Games Operations business. So, I think it’s more reflective of just kind of that natural rate of CapEx that’s needed to churn those assets as necessary, and, of course, right now we’re trying to get our installed base upgraded to the newest technology so we can avail our own installed base of the latest and best games.”
- “I would say that if you could take fierce and up it a little bit, that would be the U.S. marketplace. Konami has been doing very well over the last couple of quarters with some of their games, but we actually expect that. I mean, we actually move forward with this notion that we’re going to be in a competitive environment forevermore.”