Takeaway: IGT thesis coming into view: improving fundamentals and more shareholder friendly capital deployment

Big Q and better guidance. And how about that Interactive business?


"Our strong fourth quarter financial results serve to highlight a very solid fiscal year 2012 for IGT.  In the quarter, we leveraged our industry-leading content to increase revenues, ship share, margins and prices in our core North American business"


- Patti Hart, CEO of IGT




  • Core product sales business is healthier than it has been in a long time.  Their gaming operations business is stable, and I-gaming efforts are accelerating.
  • Increased % of leased and stand alone fee games, which carry higher margins.  Profit per unit in MegaJackpot was flat despite lower yield. 
  • In 2013, they expect gaming operations revenue and install base to be flat but expect higher profit per unit
  • In 2013, they expect pricing to follow historical trends.  Revenue and unit sales should experience double digit increases but gross margin may be under pressure.
  • Remain very excited about Double Downs (DD) and still expect it to be GAAP accretive in 2014. 
  • Expect some additional costs and lower revenues and gross margins in IGTi as they execute on restructuring changes, but should lower the costs of the business in the longer term
  • Expect operating expenses as a % of revenue to remain flat in 2013
  • ABB: $13.12 would be the purchase price if the transaction closed today.  Expect the ABB to close in F1Q
  • They are pleased at the rate at which their revenues are being converted to FCF
  • They will continue to prioritize organic growth and return cash to shareholders
  • Expected weighted average share count for 2013 to be 267MM shares
  • Their guidance reflects their customers' improved sentiment regarding IGT's product
  • Usually earn 40-45% of their FY earnings in 1H of the year and F1Q usually represents less than half of that.
  • Expect to stabilize Mega Jackpot revenues and improve their product sales gross margin especially in international. 
  • In DD, they expect to grow through more international penetration and in IGTi, they expect growth through more mobile applications



  • Where do they see the outsized growth in 2013 by segment?
    • Gaming operations to be flat but will have better margins
    • Product sales:  FY13 will be a fantastic year on the back on VLT demand: Ohio, IL, Canada
    • Interactive expect great growth there
  • SG&A related to the interactive business?  The vast majority of the growth in SG&A is due to Interactive.  Base SG&A has grown only single digit. Expect low single digit growth next year.
  • NA replacement sales:  Expect their NA replacement share to come in at 48%. They didn't pull forward any shipments. Shipped what they forecasted they would ship. They hit the guidance range given last quarter.
  • How much of the $1.20-$1.30 includes the add-back of intangibles?  This quarter, they increased their expected payout on DD.  The EPS forecast is adjusted for those retention payments. $40MM for amortization of intangibles is adjusted out of their guidance (amortization of intangibles). 
  • Canada mix in the quarter:  expect 40% market share in Canada. Gross margin on Canada is a bit better than IL but not markedly so.
  • The products that they have moved from the IGT library onto Double Down had a big positive impact on their ability to monetize their player activity
  • Expect margins on Interactive to go down a little bit on IGTi only, not on Double Down.  Expect Social Gaming side will continue to expand margins 
  • Felt very good coming out of G2E.  Had great customer feedback. Still cautiously optimistic on customer spending. They also continue to gain share.
  • What drove the non-machine sales?  Pick up on the intellectual property side, some of that was systems related.  Is this performance expected to be recurring?  Would look at it on an annual basis.  Some was related to the settlement with BYI.
  • Gaming operations capex in 2013?  Flat to down slightly. They are trying to carefully manage the turnover of their base (this helps their margin)
  • Flat yield expectation?  Continued pressure on yields but they are continuing to try to manage that.  Think that their new games will drive better performance. There may be more declines though, and if so, more likely in the first quarter and 1H of the year.



  • 2013 Outlook: EPS: $1.20-$1.30
  • Gaming operations: 
    • Flat YoY revenues with "higher lease operations revenue offset by lower MegaJackpots revenue"
    • "Gross margin increased to 61%...partially due to favorable interest rate changes"
    • "Installed base increases were primarily driven by lease operations growth globally"
    • "Average revenue per unit per day.. up 1% sequentially and down 8%" YoY
    • Install base: 57,100; Average revenue per unit per day: $50.83
  • NA Product sales: 
    • Units recognized: 10,400 (8,500 replacement, 1,900 new)
    • ASP: $14,700
      • Increase due to lower discounts
  • International Product sales:
    • Units recognized: 4,100
    • ASP: $15,800
  • "North America gross margin increased to 58%...  primarily due to favorable costs resulting from higher production volume."
  • Interactive: 
    • $53.9MM of revenue at a 62% gross margin
    • Down Down stats: 
      • DAU (000's): 1,415
      • MAU (000's): 5,072
      • Booking per DAU: $0.28
  • "During the fiscal year, the company received 28 million shares related to the previously announced accelerated stock buyback (ASB).  The total number of shares ultimately repurchased under the ASB is based on the daily volume-weighted average share price of IGT's common stock during the repurchase period and will be determined in the first quarter of fiscal year 2013. Upon completion of the ASB, the company expects the volume-weighted average price of all the shares delivered to the company to be close to the closing price on the day the company announced the program, assuming the share price stays within recent ranges."
  • In FY12 IGT repurchased 5MM shares of its stock at an average price of $15.18 for $75MM
  • Charges and one-time items in F4Q
    • Impairment of Walker Digital Gaming patents: $15MM
    • Additional impairment on the company's Alabama notes receivable: $13MM
    • Reorganization charge at IGTi operations(closure of Entraction services and facilities): $15MM
    • Tax benefit related to Entraction closures: $45MM

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