In preparation for IGT's FQ1 2012 earnings release Tuesday morning, we’ve put together the recent pertinent forward looking company commentary.
International Game Technology to Acquire Social Gaming Company Double Down Interactive (01/12/2012)
- IGT reached an agreement to acquire DoubleDown Casino for "$250MM in cash, $85MM in retention payments over the next 2 years and up to $165MM million in cash payable over the next 3 years subject to Double Down meeting certain financial performance targets. IGT expects to fund the transaction from cash on hand."
- "The transaction is estimated to be accretive to IGT's fiscal 2012 adjusted earnings and is projected to close within the second quarter of its current fiscal year.”
DOUBLE DOWN ACQUISITION: please see our conference call notes on 01/13/2012
IGT INVESTOR DAY: please see our conference call notes on 12/07/2011
Post Earnings Conferences: BMO Capital Markets Digital Entertainment Conference
- “So, with the acquisition of Entraction, we're now have set ourselves back from an ROI perspective appropriately and are on a three-year march with that acquisition. So, acquiring it in 2011, it will really probably be 2014, mid-fiscal '14 for us before we see that move into an ROI positive space when you think about on an isolated basis.”
- “One of the interesting reasons that we acquired Entraction that we continue to invest in our interactive business, is it is a huge defensive move for our core business, because this connected player concept where our casino operators want to embed online experiences so that their players can leave the casino and continue to gather points and continue to experience their brand and their world and come back.”
- “The interesting thing about the interactive business is that at the product margin level, it's a bit lower than my core business; but at the operating margin level it's actually much higher because it's not as capital intensive as the core business is. So we actually think that this is kind of a win-win opportunity because it's an opportunity to bolt on business to IGT, but do it without eroding operating margins. You'll probably see a bit of drag on product margins actually, because of the need for expanded quantities in content and the iterative process has to be much faster than our current iterative process is. So, the R&D spending is there. But when you get down to operating margins, you actually see it pick up because we don't have the D&A drag from capital that's associated with that business.”
- “Openings in '12 are going to look about like openings in '11 looked actually, so not a significant pick-up in new casino openings.”
- “The big move for us in revenue in the year will be in the interactive space, we'll grow in the interactive space in double-digits, and we have to take share outside the United States. Really continuing to rely on United States to fuel the growth of IGT is in the past, and we really have to be in markets that we haven't been in. And in the markets we've been in, the United States we really enjoy about 50% of the floor share; outside the United States, we're in the mid-teens, so we need to pick that up outside the United States.
- [International market share to “north of 20%”] “It probably takes us into '13, but we see it in '12.”
- “It's not likely that you go back to replacement cycles that are in single-digits, right? There was at one time a five- to seven-year replacement cycle, now, we're probably out to 16 years, that's not reasonable either. But, it probably settles in around 10-year replacement cycles; which is reasonable if you're building hardware that is good, solid, stable hardware."
YOUTUBE FROM FQ4 2011 CONFERENCE CALL
- “Given our return-oriented discipline, we expect our research and development investment to remain constant at about $200 million in 2012.”
- “The response we received from G2E exceeded our expectations. We received initial orders for over 2,000 G23 machines, from customers located all over the globe during our three days of the show.”
- “For fiscal year 2012, we would like to offer adjusted earnings guidance from continuing operations of $0.93 to $1.03 per share. This guidance assumes a 37% tax rate and a share repurchase program consistent with the last two quarters.”
- “When you think about the low end of the [2012] guidance, it really thinks about fiscal '12 looking similar to fiscal '11 from a replacement perspective, a bit of an uptick in the install base for gaming and operations and a bit of an uptick in yields on that base, but nothing for Canada, Illinois or Ohio DLTs, the DLT portion of Ohio. So we're not counting on any of that coming in, in the year. We think that's upside to the plan but it's in not in the low end. The high end assumes that the replacements uptick a bit and install base and yields but still no Canada, Illinois or Ohio.”
- [2012 share] “I think we think about share kind of in the high 30s for us on replacement basis, closer to 50 on new openings.”
- [Entraction] “We don't anticipate that near term it's going be all that significant of a contributor. But in the same respect, it should not be a drag on the business.”
- [2012 Capex guidance] “I think it's going be very similar to what you saw in this current fiscal year…. we should be able to control within a relatively tight range this year, about $190 million this year.”
- “We have those converts coming due in 2014. And so we probably will accumulate some amount of cash on the balance sheet just so our friends the bankers don't get too concerned that we're going to use the credit facility as the sole source of repayment.”
- “We continue to think about total OpEx [including bad debt and R&D and SG&A] as a percent of revenues being in that 31% to 33% range.”
- “The fixed portion of OpEx should be pretty flat, given the guidance range we've laid out. So the things that will float will be the variable components, compensation being the biggest.”
- “The Asian market isn't at the highest margins that you would like to see always but we do expect to pick up a bit of share, probably not picking up as much share in Europe yet. In the Asian markets where we're rolling out Asian-themed games and we've been very focused on that market. Europe is running a bit behind so I would say not expecting to pick up significant share in Europe in '12.”
- “Our [international] ASPs were up about 4% or so from the prior year quarter and about 2% or so from the sequential quarter. It has been floating in that same range for quite some time, right. It floats within $1,000, $1,500 one way or the other. So not swinging wildly. We've made an assumption on ASPs in international that they hold flat about to be about the fiscal year average that we had in 2011 focused more on market share, recapture and market share gains than pure pricing increases.”
- [Domestic replacements] “So if you think about the 16,000 number-ish, it's probably more realistic going forward.”
- “I think you're going to continue to see international outpace domestic. Just given the number of opportunities that we see internationally, given that our game ops business is a relatively new business, for all intents and purposes, outside of North America. And within the North American market becoming quite mature and obviously quite competitive, it's all about maintaining the best games, too.”
- [Aqueduct share] “It was about 36%, 37% in each phase.”
- “We have about 6,500 to 7,000 games that are there [Mexico] on reoccurring basis. Currently we don't see any receivable exposure but that might change."
- “We did ship both Kansas. One of them had some deferred revenue given that it has a Tier 1 sbX associated with it. So that component and the units associated with it would have been deferred into probably Q1 or whenever the property goes live.”
