IGT REPORT CARD

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:  BETTER - IGT beat the Street and us pretty handily.  Interactive was a very nice positive surprise as was the number of shares repurchased.  Strong slot sales indicate higher market share and while discounting was implemented, it had a positive impact on the bottom line.  Guidance looks overally conservative.

 

GAMING OPERATIONS YIELDS

  • WORSE:  1Q gaming yields fell 6% YoY to $49.26 on lower megajackpot revenue as US GGR remain pressured.  It will be difficult to achieve flat yields by year-end. However, yields did beat Street expectations
  • PREVIOUSLY: The biggest driver of gaming ops yield for us is improvement in gross gaming revenue, which we haven't had a lot of good news in that area lately… We're going to float very closely to gross gaming revenues. We are over-indexed in Nevada and in Native American, because that's where our wide area progressive concentration is and that is the highest yielding product for us…  We're expecting a bit of a lift up in our yield, I think, on a going forward basis, expect to see kind of flat yields year-over-year when you think about it on an annual basis.

GAMING OPERATIONS CAPEX

  • MIXED:  Expect to see a decrease in game ops capex driven by a decrease in new installments
  • PREVIOUSLY: I think we're in steady state actually right now. When we look out over the next couple of years, we think that the game ops capital is kind of at a fixed number for us in our planning. 

DOUBLEDOWN

  • BETTER:  DAU climbed 25% in F2Q.  IGT thinks that they can continue to grow DAU with the launch of new language sites but that may impact average bookings.  The pace of growth may not match that seen in F2Q. 
  • PREVIOUSLY: Revenue per user…[is] now at $0.31 per day. We've launched four of our traditional titles that you would see in casinos and those games outperform anything else in the slot content world. So we feel very good about it, top to bottom. We feel good about the margins. We feel good about the track we're on to make it GAAP accretive in 2014 and we're still committed to that.

BUYBACK

  • BETTER:  Repurchased 4.4 million shares at an average price of $17.03/ share for a total cost of $75MM in F2Q.  We had $25MM in our model
  • PREVIOUSLY: We have $600 million left on our authorization for repurchasing shares. We have that kind of a window of two to four years, depending upon the valuation of the stock. We expect to resume normal open market repurchases during the remainder of 2013.

REPLACEMENT OUTLOOK

  • BETTER:  Believed they gained ship share in both new and replacement markets.  IGT also captured 40% share in the Canadian replacement cycle.
  • PREVIOUSLY: The domestic replacement market is kind of continuing to bump along… we would say cautiously optimistic with overall replacement, but increasingly optimistic with our opportunity to take more than our fair share of what comes in the market.

PRODUCT SALES MARGINS

  • WORSE:  Overall F2Q product sales margins fell 3% points YoY to 52%, mainly due to targeted promotional activity and unfavorable mix shift.  IGT expects a low 51-53% range for the remainder of FY2013.
  • PREVIOUSLY: On the margin side, the uptick in Product Sales margin was really attributable to non-box, in particular intellectual property contributions in the quarter. So we would expect margins to be more comparable to prior year excluding that one-time effect.

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