• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

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

  • WORSE:  Even international was worse, the one area we thought was performing well.

FY 2012 GUIDANCE

  • WORSE:  EPS guidance remained unchanged at $0.98-$1.04, even though 4Q will have 22MM less shares outstanding.  Despite the IGT's denial's on the call we can all do the math which implies a 2 cent reduction in EPS

OPERATOR SENTIMENT ON CAPITAL SPENDING

  • SAME:  operators are optimistic in their intent to purchase but some anxiety still remains
  • PREVIOUSLY:  "I would say the mood is improving but still tempered. I think we're all wondering about the economy as we go into this election cycle, and then, post-election, kind of what things look like next year. And I think there's always a great intent to make investments and then just stopping short of actually making it at the same robust level....I would say people are enthusiastic but still a little anxious."

CANADA REPLACEMENTS

  • BETTER:  IGT received 900 units in FQ3, previously they had expected to maybe get some in Canadian units out by the 4Q
  • PREVIOUSLY:  "We feel very good about our position there, that market is going through a huge replacement cycle in fiscal 2013 and 2014; for us, it is kind of a once-every-10-year opportunity, so when it comes, you have to really be prepared. We feel like we are prepared. We still think we might get some [Canadian VLT] in the September quarter. It just kind of comes down to timing and revenue recognition issues. It's really going to be more of a 2013 event. There may be 1,000 contracts or so that sneak into September. But we... obviously got a very good share from the first announcement and we're hopeful that those kind of trends continue."

DOUBLE DOWN PERFORMANCE VS EXPECTATIONS

  • SAME:  management continues to say Double Downs is performing ahead of expectations. But monthly daily users fell 7% QoQ. We'll split the difference - perhaps results were better than IGT expected but not quite as good as the where investors would expect things to be performing given the price tag paid and margin dilution.
  • PREVIOUSLY:  
    • "On your projections, EBITDA should roughly triple from here, and that would equate to a purchase multiple of roughly 6.5 to 7 times EBITDA on 2014. Are we in the same ballpark?"
      • "So I would say your math makes sense in this kind of a worst-case, and we think there's actually a lift from that in the business, just based on the R&D that has been spent years ago, and putting some legs on that R&D as we repurpose a lot of our content into the social gaming space and monetize it, again, when it's been sitting on the shelf."
    • "We expect slight margin pickup there in the back half"

GAME OPS WAP PERFORMANCE/LINEUP

  • MUCH WORSE:  Patti admitted that heightened competition, lower MegaJackpots yields,  and most importantly poor product performance, had negatively impacted their gaming operations performance
  • PREVIOUSLY:  
    • "We're generally pleased with our WAP product performance. It continues to perform as expected.  Really, the quarter was really just a mix to the lower earning units and we expect continued improvement sequentially over the remainder of the year."
    • "So I feel like we have a nice lineup of product in the bag of the sales folks at this particular point in the game ops side."

INTERNATIONAL GAME SALES

  • WORSE:  lower units sales in Europe and South America drove a miss in this segment and IGT admits that they have no visibility here.  So much for market share gains
  • PREVIOUSLY:  "Our international business pace continues to accelerate, with improvement in both quantity and quality of order flow."

PRODUCT SALES INTERNATIONAL GROSS MARGINS

  • MUCH WORSE:  at 48.9%, it is 3% lower QoQ.
  • PREVIOUSLY:  "We had an isolated non-standard cost situation in our Asia-Pac region in the quarter, so we are anticipating that the gross margins across the board... will pick up between now and the year – and the end of the year back to more normalized levels."

NA REPLACEMENT MARKET

  • BETTER:  North American unit sales were one of the very few bright spots this quarter. The earlier than originally guided to shipments to Canada made all the difference between hitting consensus estimates and the reported beat in this segment.
  • PREVIOUSLY: 
    • "Our outlook is positive for North American replacements. It will, we think, continue to strengthen throughout the year, we will expect North American replacements to grow modestly over the remainder of the year...the replacement market is going to be flat to growing has kind of been IGT's stance now for about six months. 
    • "We've recognized 8,100 units. I think that's a comfortable kind of six month rate for us that we feel very comfortable with."

OHIO RECOGNITION

  • SAME:  Scioto Downs VLTs, Toledo and Cleveland casino were all recognized in the quarter
  • PREVIOUSLY:  "Our current forecast is that the Ohio properties will be recognized in June."