Margins drive a small beat. Not enough confidence in FQ4 - you can fit the Fed balance sheet in the guidance range
CONF CALL NOTES
- NA Machine sales outperformed; continue to capture Canadian VLT market share.
- DoubleDown recently surpassed Zynga Poker as the top grossing social casino app on Facebook
- Had the highest grossing social casino app on the iPad
- 39% increase in NA replacement unit shipments; confident maintained leading ship share in past quarter
- 4% increase in international sales due to lower mix of used machines sales. Despite ongoing challenges in certain regions, there is still significant potential.
- Gaming Ops:
- GGR trends were lower
- Installed base flat with some mix shift away from megaJackpots into leased operations
- Positive interest rates have a favorable impact on margins and jackpot expenses
- Initiatives: Increasing megaJackpot team, introducing game changers
- DoubleDown monetizing at awesome rates; mobile revenues up 41% sequentially. DoubleDown will be GAAP accretive in F1Q 2014.
- Repurchases 345,000 shares ($6MM); suspended stock buyback in the quarter due to 'technical reasons' - IGT was probably involved in bidding for WMS and SHFL
Q & A
- Product Sales: 2Q Canadian VLT units: 3,300; Illinois VGT units: 1,300
- 2014 opportunities: Oregon and some other new states
- DoubleDown: As they enter international markets, bookings rate may be pressured but it didn't materialize in F3Q
- Wide range of F4Q guidance: some lumpiness in timing of international orders for F4Q
- Stock buyback restrictions in Q? Refuse to elaborate. $520MM in stock available; continue to target using that authorization over next 2-4 years.
- Leverage: a little underleveraged at the moment
- Will not comment on whether they continue to be restricted in the stock buyback program
- Will look at opportunities to expand installed base but will not chase yield
- GGR trends: calendar 2H 2013 - haven't seen much change in operators' comments in terms of budget volume.
- Last major shipment to Canada will conclude next quarter. Expect FQ4 will be less robust than FQ3.
- Would not say that 1,300 a quarter in Illinois is a good run rate because last quarter, IGT saw a significant contraction in demand.
- GGR is having most significant pressure on yield #s. Nothing significant has changed in this part of the business.
- Canadian/Illinois VLT units mainly drove down ASPs; there was some mix shift out of MLD product which is a higher priced product.
- Online New Jersey: waiting for the operators to start up; purely in a B-to-B model with a revenue share model
- Upgraded DoubleDown poker product and done well with tournaments.
- International market monetizes at a lower rate than domestic market but will try to convert players at the same level in domestic market. The launch of new languages will be a tailwind.
- Mobile growth has been fantastic. IGT has spent equal time commitment on desktop and mobile platforms.
- MegaJackpot G2E lineup will be exciting and diverse e.g. bonus features, new maps, new display format.
- International: optimistic on seeing the 6% growth in ASP and growth in installed base
- South America could be a great opportunity if they can solve the structural issues of getting a product there
- Asia: early games have been a success
- Europe: growing the slowest among the international opportunities; 'very spotty' and depends on the country and product type. VLTs seem to be growing a bit faster than the traditional casino business. Remain bullish on the international markets.