IGT fires on all four cylinders: Unit sales, ASPs, gaming ops placements, and rev/unit/day were all better than expected.



“Every aspect of our business is providing a meaningful contribution to our strong financial performance. It’s gratifying to see the effort of our employees and the proficiency of our strategic investments generating eturns for our shareholders.”


- Patti Hart, CEO of IGT.




  • 1,000 unit growth in their mega jackpot footprint helped gaming operations growth continue for the 4th consecutive quarter
  • They got 18% floor share at SCC 
  • International business pace continues to accelerate with both quality and quantity of order flow
  • First Cloud trials are up and running across Europe
  • Double Down is accelerating gaming operations growth 
  • Expect that their financial results will continue to strengthen throughout the rest of the year
  • Gaming operations growth was driven by a combination of core business and interactive
    • For FY 2012, expect high-single digit growth in their install base and revenue growth in the low single digit 
    • Expect that GM will increase in the second half of the year and be up on a YoY basis, excluding Interactive\
  • Product sales
    • Expected continued growth in units (both domestically and internationally) and increases in ASPs
    • For the remainder of the fiscal year, they expect continued growth in units and average selling prices both domestically and internationally.  They expect gross margins to be at or slightly below last year's strong margin performance mainly due to product mix.
  • Anticipate returning at least as much cash to shareholders in the 2H12
  • Continue to sense increasing optimism from their customers
  • Raising their guidance, which includes the results from DoubleDown acquisition



  • Recognized the lion's share of their Revel units but not Ohio
  • A lot of the lease operations business (NY lottery and MD Live) just have lower yields and that's where a lot of the growth is coming from.  It's still good business for them.
  • International margins: expect that gross margins will strengthen as the year progresses (across the board and specifically in International (Asia Pac))
  • Focus for DoubleDown is to strengthen their product and expand their reach onto mobile platforms
  • They expect NA replacements to grow modestly (3-5%) for the rest of the year. There was nothing extraordinary in the quarter though.
  • Double Down accounting and integration:
    • They have drawn out the retention payments because they are currently not cash payments and they are temporary (for just the next few years)
    • Double Down contributed about 1 penny and expect that to be the case for the next few quarters as well
    • The point of breaking those out was to have analysts be aware of them and either treat them as an expense and therefore reduce the acquisition price or exclude them and include them in the acquisition price.
  • 15 cents of acquisition charges are predominately related to certain intangibles
  • So the high end of their guidance is just due to Double Down but the continuation of other positive trends that they are seeing
  • International ASP strength is partly due to moving up-market.  Focusing on locally tuned product - so they have been able to reflect the localization of content in the ASPs.  There was very little FX benefit this quarter.
  • SG&A? Expect $100-105MM/Q or 31-33% of revenue (which includes DD)
  • $35MM of Interactive revenue?
    • No comment
    • Next quarter will be the first full quarter of integration
  • The amortization of intangibles that they were adding back were only going to be amortized temporarily
  • There is nothing that reflects the Canadian VLT market in their current quarter.  It's really just strength in the US market.
  • Don't necessarily model 5,000 replacement units each quarter. 8,100 units is a good 6 month run rate for them.  Their stance on the replacement market is that it will be flat to growing with IGT getting a mid-30's share.
  • Gross margin for Double Down is a little skewed because of the way Facebook revenues come through.  The revenue growth is a little better than the margin growth.  So they expect stable DD gross margin and a pick up in other interactive margins.
  • They have not pursued their Cloud strategy in the US as of yet.  The US is really not going to happen until 2013/2014 given regulatory issues. Really focused on Europe for now.
  • Sex in the City is doing well internationally.  Dark Knight & Ghostbusters is also doing well for them internationally. Feel like they have a nice product sales line up in gaming operations.
  • They are not looking at any new acquisitions right now, but wouldn't comment if they were.  They are really focused in expanding their content distribution.
  • Asia is a great market for share pick up.  Latin America is more about new openings and some share expansion.  In the EMEA region, they are knocking on doors that they haven't knocked on for a while. 
  • Coming from mid-teens international shipshare but have their sights set on mid 20's
  • Update on Canadian VLT shipments?
    • Think that they may get some in September (maybe 1000 or so) but it's more of a 2013 event for them
  • The SCC units were recognized in the quarter.  Expect that Ohio units will be recognized in June.
  • To calculate the adjusted average yields, they have deducted the Interactive revenues from the numerator, divided by the same number of units.



  • Increased Adjusted EPS FY12 guidance to $0.98 to $1.04 per share
  • Gaming operations: 
    • Install base of 56,1k units and average daily revenue per unit of $59.09 (+5% YoY) --inclusive of interactive business
    • Gross margin decreased... primarily due to higher depreciation expense and the inclusion of the interactive businesses
    • Install base increase driven by NA and International lease ops
    • Excluding the positive impact from the interactive businesses, average revenue per unit per day in the second quarter was $52.34, up 3% sequentially but down 4% over the prior year quarter, mainly due to normal seasonality and a higher mix of lower-yielding units
    • DoubleDown Casino increased its monthly users by 24% to 5.6 million at the end of the March Q vs. December
  • Product sales:
    • Units: 10,200 
      • NA: 6,800 (5,000 replacement), up 19% YoY
      • International: 3,400 (flat YoY)
    • ASP: $15,8k
      • NA: $14.9k (+9% YoY)
      • International: $17.6k (+10% YoY)
      • ASP increase mainly due to a favorable mix of higher priced boxes, including G23 MLD and Universal Slant MLD boxes
    • Gross margin decreased...  primarily due to higher international non-standard manufacturing costs
    • North America product sales gross margin increased...due to favorable mix and lower non-standard
      manufacturing costs
  • Repurchased 3MM shares of stock at an average price of $15.43 for a total cost of $46MM

Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad?

Conclusion: Consumer confidence declined sequentially with a meaningful drop off related to the auto and major appliance sector.


Last week, we used a quote from Charles Dickens’ A Tale of Two Cities that started, “It was the best of times, It was the worst of times”.  Today’s consumer confidence seems to further exemplify the confused nature of the U.S. economy.  At 69.2, consumer confidence for April decreased 0.43% MoM, more significantly it was down -1.43% from March’s unrevised number of 70.2. The indicator has increased 4.8% YoY, yet it is still far from signaling a healthy economy, which would require a reading of at least 90. Consumers’ confidence have not reflected a strong economy since December 2007, at a level of 90.6. The average confidence reading for 2010, 2011, and 2012 YTD is 54.49, 58.13, and 67.95 respectively. April’s statistic is the second consecutive decline since a level of 71.6 in February (which was the highest data point since February 2011).


Although there were some segments within the index that experienced positive movements, largely the outlook does not appear favorable.  The measure of those who believe business conditions are “good” increased from 14.3% to 15.3%, yet those who view the business conditions as “bad” also increased from 33.2% to 33.5%.  Those expecting the business conditions to worsen rose from 13.7% to 14.2% and the measure of consumers anticipating the business conditions to improve dropped from 19.3% to 18.8%.  Consumers viewing jobs as “hard to get” declined from 40.7% to 37.5%, however those stating jobs are “plentiful” contracted from 9.0% to 8.4%.  The outlook that there will be fewer jobs in the months ahead fell from 18.5% to 18.0% as did the opinion that there would be more jobs, which decreased from 17.4% to 16.9%.  The fraction of people anticipating a raise from their current employers decreased from 15.5% to 14.0%.


The proportion of consumers expecting business conditions to improve over the next six months declined from 19.3% to 18.8% and consumers who believe business conditions will worsen increased from 13.7% to 14.2%. Consumer confidence in major appliances decreased 14.05% MoM and 15.01% YoY, and consumer outlook in the automobile industry was also decisively negative.  Some of the readings contradict each other, swinging from slightly positive to slightly negative, yet it is evident that the slow paced “recovery” is definitely not increasing its pace based on the latest consumer confidence measure.


Daryl G. Jones

Director of Research




Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? - consumer


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? - ConCof.hist


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? - ConCof.YoY


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? - ConCof.bus


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? -


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? -



BYD beat our expectations and we were way above the Street.  Forward guidance was once again overly conservative and we're surprised investors haven't caught on.  


"Our first quarter results were led by strong performances at our operations outside of Nevada, with double-digit EBITDA growth at a majority of these properties... Looking ahead on a Companywide basis, we expect that the positive performance we posted in the first quarter will continue."


- Keith Smith, President and Chief Executive Officer of Boyd Gaming




  • Business continues to move in the right direction, and we expect this momentum to continue for the remainder of the year. 
  • Confident the IP will continue to perform at a high level in the coming quarters, and think that ultimately acquisition price for them will be well below 7x
  • The majority of our properties in the region posted double-digit EBITDA gains
  • In AC, Borgata benefited from better YoY hold comparisons.  Cash ADR was up over 5% and cash rooms sold were up over 4% in April.  F&B was also up YoY.  They also saw better visitation - so for now there has been no impact from Revel.  Expect that it will take a few quarters to see the real impact of Revel.
  • Focused on deleveraging the balance sheet by growing EBITDA and FCF to pay down debt.  The IP transaction has been deleveraging so far.
  • Gained share in the Midwest and South
  • Las Vegas Locals: Both table game drop and coin-in were comparable to last year’s levels.  Temporarily increased marketing expenses to test a few programs targeted at their lower tier customers, which turned out not to generate any flow through.  Results were impacted by low table game hold at the Orleans and Gold Coast that was below last year’s levels and impacted EBITDA by > $1MM.  On a positive note, trip frequency continued to grow and is at the highest level in three years.  Looking ahead, they expect steady EBITDA growth.
  • Downtown: Have about 1/3 market share.  F&B set a record at Freemont, but the flowthrough is small on F&B. Negatively impacted by $750K of additional jet fuel expense.  Lower YoY table hold also impacted EBITDA by about $1MM.  Rated play increased YoY driven by continuing strength in the Hawaiian segment.  Saw double digit increase in rated guest counts during the Q, which are now at their highest levels since the recession began. Excited about the long term impact of the 'Renaissance' in the Downtown area
  • Midwest and South: Saw increases in visitation and spend per visit.  Their two LA properties saw record coin-in levels in March.
  • In AC, poker grew by $1MM YoY and Borgata accounted for ~50% of the poker market
  • BYD: Debt $2.55BN; $1.6BN drawn on R/C with $175MM available. Cash was $122MM.
  • Next maturity is April 2014 ($216MM) which they expect to refinance prior to the debt going current
  • Secured leverage: 4.0x vs. 4.5x max and total leverage was 6.5x vs. 7.75x max
  • Borgata: Debt: $814MM ($22MM O/S under the $75MM R/C) and Cash: $34MM
  • D&A expense included $4.8MM associated with IP
  • Interest expense was ~$3MM higher than last year due to valuation adjustments related to purchase accounting at Borgata
  • Capex: $15MM at BYD and $17MM at Borgata
  • 2Q Guidance:
    • Wholly owned EBITDA: $90-95MM
    • Borgata EBITDA: $33-35MM
    • Adj EPS: $0.06-$0.10



  • Very modest LV Locals growth
  • February 22% market growth # reported for Boulder Strip benefited from higher YoY and higher promotional spending (so bought revenues).  When you strip those 2 factors out what you really had was very modest to flat YoY revenues for that region. 
  • Las Vegas macro signs improving—more demand for big-ticket items, and increase in sales tax receipts.
  • IP: BConnected will be live next week. Sees better margins in future quarters.
  • Don't think that Margaritaville will have an impact on them in MS
  • It's tough to determine how long the environment in the locals LV market will continue to be this promotional. 
  • Expect that the summer will be very robust.  You probably won't see the promotional pick up in spending until the fall. Really hard to say.
  • The higher end of their rated play is where they continue to see the most strength.  That segment continues to grow at a very healthy pace.  The lower end segment- is much more impacted by the economy and individual situations in Las Vegas.  Outside of LV, they are starting to see growth in lower end rated play and even better unrated play. They have gotten better at putting loyalty cards in the hands of their players.  There are less and less unrated players.  You can only stay at their properties and remain unrated for the first time. 
  • Weather - in 1Q, they definitely had better weather conditions this year which likely helped their Midwest & South results.  But last year, they had another benefit so it was a wash.
  • Continue to monitor the Echelon situation- still think it's 3-5 years away before they do anything with that land
  • Regarding their CA tribal investment - they hope to have something to announce before year-end but it's just a work in progress now
  • Their guidance does include some impact for the Revel opening but they don't expect it to be material in the quarter. It also includes some heightened marketing expenses to make sure their customers keep visiting.
  • Orleans has the lowest % of locals business - roughly 50/50.  Gold Coast and Sam's town skew more heavily local. Especially Gold Coast - 70/75%.  Sun Coast is 95% locals. 
  • Interest expense: Borgata's interest expense at about $20MM per Q is a good run rate. At BYD $160-165MM is a good run rate.
  • Guidance for corporate expense and D&A given last quarter hasn't changed
  • Borgata: Guidance of -12% at the midpoint for the year. 1Q did have a hold benefit.  They are trying to put out an achievable number.
  • Regarding M&A, they are looking at more deals like the IP that are complementary to their existing asset base.  Wouldn't want to buy an asset that they couldn't improve the performance at. 



  • "On a same-store basis, net revenue in our wholly-owned business grew for the fourth consecutive quarter."
  • "We were particularly pleased that the IP was accretive to EPS during the first full quarter since we acquired it, generating significant EBITDA growth even before most synergies have been fully realized. These results were only a preview of the IP's full potential, and show the tremendous value of this acquisition."
  • "In Atlantic City, Borgata contributed significantly to our positive results as the property reinforced its position as the leading resort in the market, posting substantial growth against heightened regional competition. While it is early, we would note that we have not seen any meaningful impact on Borgata's business from the opening of a new competitor. Looking ahead on a Companywide basis, we expect that the positive performance we posted in the first quarter will continue."
  • Las Vegas Locals: "Business volumes remained steady year-over-year; however, EBITDA was impacted by slightly elevated expenses associated with targeted marketing programs, as well as lower year-over-year table game hold at several properties."
  • Downtown: "Revenues rose for the fifth consecutive quarter, driven by strength in our Hawaiian customer base. However, EBITDA was impacted by higher fuel expense associated with our charter service."
  • Midwest & South: "Growth in EBITDA was broadbased, led by strong performances at Delta Downs, Treasure Chest and the IP. The region also benefited from revenue growth at most of our properties and continued efficiencies in operations"
  • IP: "The gains in EBITDA on lower revenues reflect more effective marketing programs, the initial benefits of efficiency initiatives, and more productive overall management of the property. We expect continued improvements at the IP in the quarters ahead, as we fully realize the benefits of anticipated synergies and the impact of our cross-property marketing program, B Connected, which will be rolled out early next month."
  • Borgata: "The gains were driven by increases in table game hold percentage year-over-year, as well as increased non-gaming revenue. Improvements in non-gaming revenue were led by our hotel business – which posted increases in both occupied room nights and cash ADRs – as well as growth in our food and beverage business. Borgata also benefited from greater overall operating efficiencies, including lower customer reinvestment"

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Global Growth Update – What Growth?


  • Two key data points affirm our belief that global growth is, in fact, slowing.
  • With U.S. gasoline prices only a mere ~6% off of their all-time Bernanke Bubble highs (JUL ’08), it remains to be seen whether or not the Bernank can even attempt to convince even those who desire to be convinced that he can do something in the near term to arrest global economic gravity.
  • While we’re not sure what Policy to Inflate (if any) he’ll hint at tomorrow during his press conference, we are certain that any further debasement of the world’s reserve currency will lead to us getting incrementally bearish on the cyclical outlook for global growth, while at the same time getting us bullish on inflation hedges – a repeat of our post-JAN 25th strategy. 

Somewhere beneath the sell-side storytelling about “rapid emerging market demand” the U.S.’s alleged “decoupling” lies the actual data; and as we’ve been forecasting since Bernanke’s last Policy to Inflate speech on JAN 25th, that data continues to point to a general trend of slowing economic growth globally.


Over the last few days, we’ve received two data points that  support our fact-based claim:

  1. Singapore Non-Oil Domestic Export growth slowed in MAR to -4.3% YoY vs. +30.4% YoY prior (Lunar New Year calendar shift effects in FEB); and
  2. Hong Kong’s Export growth slowed in MAR to -6.8% YoY vs. +14.0% YoY prior (also experienced seasonal distortions in FEB due to the Lunar New Year calendar shift).

Global Growth Update – What Growth? - 1


Given the relatively small size of each economy (0.3% and 0.4% of world GDP, respectively), it’s easy for a Global Growth Storyteller to dismiss these data points as trivial. We would strongly caution against doing so; Singapore and Hong Kong are ostensibly the world’s two most open economies as it relates to international trade flows. Consider the following metrics:

  • Exports account for roughly 33% of Asia’s GDP in aggregate;
  • The U.S. and E.U. combine for roughly a third of Asia’s export destinations;
  • 40-50% of intra-regional trade within Asia is basic and intermediate goods meant for re-export outside of the region, increasing the U.S. and E.U. share of Asian exports to somewhere closer to 2/3rds;
  • At 211% and 223% of GDP, respectively, Singapore and Hong Kong are far and away the most export-oriented countries in Asia – far more levered to global demand than other noteworthy exporters (China: 29.6%; South Korea: 52.4%; Japan: 15.2%; Thailand: 71.3%; and Taiwan: 58.9%);
  • The ratio of Singapore and Hong Kong’s share of world exports to their individual shares of world GDP are 7.1x and 7.5x, respectively – besting the next closest economy in Asia (Malaysia) on this metric by at least 3.7 turns; and
  • Singapore and Hong Kong are home to the world’s second and third-busiest container ports, handling 28,431,100 and 23,669,242 TEUs, respectively, per the latest yearly data from the American Association of Port Authorities.

Global Growth Update – What Growth? - 2


As such, it’s easy to see why growth in Hong Kong and Singaporean exports has been such an accurate barometer of global end demand over the past 15yrs or so. As the chart below shows, growth in their combined exports has a coincident-to-slightly-leading (i.e. 0-2 quarters) relationship to the growth rates of World, U.S., and Eurozone GDP. In 1Q12, growth our amalgamated Singapore/Hong Kong Exports metric slowed to +0.6% YoY from +4.3% YoY in 4Q11. Based on the trailing relationships – which have been known to oscillate – this is a negative leading indicator for World, U.S., and Eurozone GDP from anywhere between 1Q12 and 3Q12.


Global Growth Update – What Growth? - 3


When global growth slows, bad things happen – such as multiple compression and incremental deterioration of sovereign fiscal ratios. And with U.S. gasoline prices only a mere ~6% off of their all-time Bernanke Bubble highs (JUL ’08), it remains to be seen whether or not the Bernank can even attempt to convince even those who desire to be convinced that he can do something in the near term to arrest global economic gravity.


While we’re not sure what Policy to Inflate (if any) he’ll hint at tomorrow during his press conference, we are certain that any further debasement of the world’s reserve currency will lead to us getting incrementally bearish on the cyclical outlook for global growth, while at the same time getting us bullish on inflation hedges – a repeat of our post-JAN 25th strategy.


Darius Dale

Senior Analyst


In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance.


OVERALL:  BYD beat our expectations and we were way above the Street.  Forward guidance was once again overly conservative and we're surprised investors haven't caught on. 


Here is the report card evaluating actual results against management's assertions. 

    • BETTER – 1Q came in above guidance of $0.05-0.09.  Wholly-owned Adjusted EBITDA was $95MM, well above the midpoint guidance of $88-93MM.  Borgata generated EBITDA of $39m versus guidance of $32-34MM.
    • SLIGHTLY WORSE:  Characterized the market at "steady" with "very modest growth" but was impacted by slightly elevated marketing expenses and low hold percentage.  Low table game hold at Orleans and Gold Coast negatively impacted EBITDA by $1MM.  With normal hold, the Locals properties would've beaten our estimate.
    • SAME:  Rated play increased YoY as Hawaiian visitor play remain robust.  Fremont set a 3-yr record in F&B rev in March.  But jet fuel increased $750k.  BYD reiterated its positive outlook on the new developments on Fremont St and sees no decline in visitation. 
    • MUCH BETTER:  In addition to beating guidance and consensus handily, management stated they have not seen any impact from the Revel opening and they expect the positive performance posted in 1Q12 to continue.  Occupancy is running above expectations and cash ADRs are doing well.
    • MUCH BETTER: Improved operating margins by 350bps without all the $5MM synergies being realized.  IP exceeded expectations and sees considerable upside in the property. 
    • SAME:  Reiterated that there would be minimal, if any, impact 

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