IGT FOLLOW UP

Here is some follow up to our earlier IGT note

 

  • Earnings
    • We think the low end of the range is likely, so $0.31-0.32 vs. guidance of $0.31-0.37
    • Management continues to defend the quality of the quarter with no acknowledgement that it was one of their worst in a long time.  They are adamant they will hit their annual guidance.
  • Stock buyback  
    • We still don’t have a good explanation on the terrible timing other than that it took a while for the Board to approve and perhaps the quarter’s results were not obvious at that point
      • The buyback was a Board decision and they only meet 4-6x a year so the timing was a bit disconnected with the quarter.  They still view the stock as an attractive value in the long term. 
      • We still think they needed the accretion.
  • North American product sales
    • Since IGT only has 2 buckets in product sales, used units fall into the box sale bucket and that’s where they have always been.  However, typically there are only 100-200 used unit sales per quarter vs the 1,000 used units recognized this quarter. 
    • The used units were old participation products that IGT had in its inventory so the ASP was low, but since they were already either entirely or mostly depreciated, the margin was high
    • The 500 deferrals in NA were primarily related to IGT’s Baton Rouge shipment.  Only 1/3 of their 400+ units were recognized in the quarter.
  • International product sales
    • The 500 deferral units were related to Peru and Argentina
      • In Peru, IGT has a new distributor that they have starting shipping to last quarter but haven’t been able to recognize the units yet
      • In Argentina, the new import restrictions put in place by the government in February 2012 have caused considerable delays for IGT’s products to clear customs.  There is currently a WTO suit against Argentina’s import-substitution policy and other restrictive measures put in place.
    • IGT still expects double-digit international shipment growth for the year
      • In 2011, they recognized 14,700 units.  YTD, they have recognized 10,300 units.  This implies F4Q recognition of at least 5,870 units.  Needless to say we are very skeptical.
      • Growth to come from APAC and Latin America
      • Expectation of recognizing the 900 units that have been deferred over these last 2 quarters should help
  • IGT expects to ship 3,000 units to Canada next quarter
    • If they do, 2012 shipments will represent 44% of their current awards from Quebec (7,200) and Atlantic Lottery (1,612)
    • There are still 3 other provinces to award replacements
  • North American non-box sales did not include recognition of the Revel system
    • IGT hopes to recognize revenues from Revel in FQ4

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