IGT F3Q11 PREVIEW

We’re above the Street but so is the whisper.

We’re projecting IGT to come in 2 cents ahead of the $0.22 consensus EPS estimate for the quarter when they report next Tuesday.  We also think they could raise FY11 guidance by 5 cents or more with better international product sale revenues, revenue growth from growth in the global interactive division, growth in systems, and interest expense savings, offsetting weakness in the NA product sale market.

IGT management will likely spend a good portion of the call discussing their international business and Global Interactive Division.  Since April 27th, IGT has announced 8 deals – all of which are international, and 6 of which are related to IGT’s Global Interactive Division.  We expect that these deals will become meaningful starting in FY12 and that IGT may start putting more meat on the bone to outline the opportunity if not on this call then on its YE call next quarter. 

FQ3 Detail:

$219MM of product revenues at a 53% gross margin

“On the margins and Product Sales, I think you’re probably safe if you assume a run rate domestically of say 52%."

• NA sales of $128MM
  • $64MM of box sales ($14k ASP, 4,550 new & replacement units)
    • “For the remainder of fiscal year 2011, we see very limited opportunities for new and expansion shipments in the for sale business."
    • “Given the current selling environment and volume levels, we expect average selling prices to rebound modestly from this quarter’s levels, mainly due to mix, but margins to be under pressure for the remainder of the year.”
• $64MM of non-box sales
• International sales of $92.5MM which includes the last quarter of Barcrest results (~$6MM of revenue and $2MM of gross margin)
  • $62MM of box sales (ASP’s of $12k, 5,200 units)
    • “We expect our International unit sales to keep pace with our North American sales for the remainder of the fiscal year, which is another testament to the strength of our global reach.”
• $30MM of non-box sales

$273MM of gaming operations revenue at a 62% margin

• EOP install base of 57,150 games
  • "For the remainder of the year, we expect our Gaming Operations’ installed base to continue its moderate growth.”
• Average win per day of $52.50
  • “Our [Gaming Operations] yields should continue their modest sequential improvement, assuming normal seasonal trends continue.”

Other stuff:

• $88MM of SG&A, net of $1.8MM provision for bad debt
  • “We expect a modest, upward trend in SG&A for the remainder of this year as we invest in people and processes necessary to take advantage of new business opportunities.”
  • $17.5MM of D&A
  • $52MM of R&D
    • “As far as R&D spend, I think we’re working hard to try and keep that relatively flat.”
  • $17MM of net interest expense
  • 36% tax rate