IGT F1Q12 PREVIEW

We expect an in-line but low quality quarter with a substantial quarterly share loss.

We estimate that IGT will report an in-line quarter and maintain the high end of their guidance when they kick-off the gaming earnings season on January 24th.   While an in-line quarter is neither here nor there, investors may be a little spooked by IGT’s large sequential share drop and a flat to slightly down year-over-year replacement number for the market, as we wrote about in “REPLACEMENT REVERSAL" (12/2/11).  We believe that IGT’s NA ship share will be between 27-30% in the December quarter, down from 40% in the September quarter and that market replacement orders were down about 5% YoY.  However, management should be pretty bullish about the remainder of 2012.

Details:

We estimate that IGT will report FQ1 EPS of $0.22 and $488MM of revenue.

Product sales of $208MM at a 54% gross margin:

  • NA product revenues of $118MM at a 57% gross margin
    • North American box sales of $59MM
      • 4.1k North America new shipments
        • 3,450 replacement units and 675 new and expansion units          
        • New units include shipments to Twin Arrows Casino in AZ and Miami Jai Lai
    • ASPs down 3% YoY but up 1% QoQ
  • Flat YoY NA non-box sales
  • International product revenues of $90MM at a 50% gross margin
    • $67MM of box sales
      • 4k new shipments at an ASP of $16.6k
  • $24MM of non-box sales
    • Entraction sales will be in non-box sales

Gaming operations revenue of $280MM at a 58% margin

  • Average install base of 54.6k units at an average win per unit of $55.70
  • Increase in install base due to Aqueduct units and to a lesser extent CAGE placements
  • Game ops D&A of $42MM

Other stuff:

  • SG&A: $88MM
  • D&A: $18MM
  • R&D: $49MM
  • Net Interest expense: $17MM
  • Tax rate: 37%

Outlook:


We expect IGT to be quite bullish about the March quarter given shipment to 3 large casinos (Cleveland & Toledo and Revel) and their seasonal improvement in market share.  IGT will surely address the implications of the DoJ’s reversal of opinion on the application of the Wire Act on online gaming.  The Entraction platform will help IGT garner some market share when poker comes online – although we’re a little more pessimistic on the timing than the Street.  The DoJ opinion also opens up the possibility of WAP jackpots across state lines – which means bigger jackpots and should lead to a lift in win per unit for IGT’s gaming operation business.  We’re currently at $1.04 for FY12 and $0.28 for FQ2.