In preparation for IGT's F4Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • We are pleased with our success at DoubleDown and we expect that the transaction will be accretive on a GAAP basis in the first quarter of fiscal 2014.
  • I think those (new) markets will develop perhaps a little bit slower than we thought, though my comment last period was in anticipation of multiple quarters. As we enter new markets, we do expect that there may be some downward pressure on ARPU as DAU picks up, and we did see a pickup in DAU. I think the positive surprise for us this quarter is that it didn't damage ARPU, and actually we're seeing incredibly strong conversion rates continue in our domestic markets.  Over time, I still expect that there may be some pressure on that ARPU number as we further penetrate the international markets, but we didn't see that materialize in this quarter which was a great surprise.


  • We are confident that we maintained our industry-leading ship share in the replacement market this quarter.


  • I think we are starting to see some signs of improvement.
  • I think in the game ops side, we've seen a lift in our installed base in the international marketplace.
  • Despite ongoing challenges in certain regions, there is still significant potential in our international business as we leverage our investments in localized content and infrastructure improvements.
  • I would put in the great opportunity in South America for us, if we can tackle the structural issues of really getting product to market there efficiently, effectively for our customers.
  • In Asia, great opportunities there for us.
  • In Europe, it's just very spotty. It kind of comes and goes in Europe by country and by product type. The VLT part of that business in Europe seems to be growing a bit faster and with more health than the traditional casino business. 
  • I would say Europe growing the slowest, the other two growing about the same.


  • Gaming operations capital expenditures are expected to decrease year-over-year as we remain focused on disciplined capital deployment. 
  • We are striving to improve yields through a variety of initiatives. As we mentioned earlier this year, we are increasing our MegaJackpots team, leveraging our franchise titles, launching direct-to-player marketing efforts, and introducing Game Changers, a value-oriented product in the MegaJackpots category. We are beginning to gain traction from these initiatives as demonstrated by the enduring popularity of Wheel of Fortune brand in new titles like Wheel of Fortune Triple Wild Spin.
  • We're holding up on margins which again is what we were focused on is when you see these gross gaming revenue trends coming, and you don't see an end in sight, the focus has to move from the revenue line to profit


  • At IGTi, revenues were up 26% year-over-year, excluding the prior year impact of our former European online poker network. We continued momentum in this business, both in our existing markets where we attracted 15 new partners since a year ago and are excited about new markets like New Jersey, where our prospects to partner with some of our land-based customers, we're working on now.


  • We have about $520 million remaining on our board-authorized repurchase. We continue to target using that authorization over the next two to four years, which is consistent with what we've said in the past.


  • We haven't really seen a significant change in the tenor of those conversations.
  • The volume has not picked up as far as the volume of the voice from the customer on concern about their budget. So I would say the volume is there. The people we're hearing from are different than they were a year ago or different than they probably even were a quarter ago.


  • We think our last shipments into – less meaningful shipments relative to the, if you will, the replacement cycle will conclude next quarter. Again that's pending timing of orders and customer demand which is not something we control. But we would expect that to significantly taper off after Q4 FY 2013 and currently expect that Q4 will be less robust than this quarter was.



  • We haven't really seen a significant change in the tenor of those conversations.




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




  • WORSE - PNK missed our Street low adjusted EBITDA estimate as trends deteriorated in September. 



  • BETTER:  Mgmt said they are even more confident that they will realize more than the targeted $40MM in synergies than they were last quarter
    • We still believe that we are going to be able to not only meet the goal of $40 million in synergies, but we believe that, from what we've had exposure to up to this point, we're going to be able to exceed that.
    • There is a large portion of that that is entirely driven by combination of public company costs, i.e., one board, one set of financials, as well as integrating the teams in effectively, mostly down in Las Vegas. We have done an enormous amount of work on this, and while there is some effect on the margin by virtue of Lumiere, the reality is that the scale of the company and our ability to realize savings through better procurements, a better marketing program that will look to do best practices, really remains largely unchanged.


  • WORSE:  Operating environment continues to be challenging.  September was a disaster and was the prime contributor to the big earnings miss.  However, revenues in October have been sequentially better.
    • In terms of guest behavior, in the second quarter, we saw trips decline at a greater rate than spend per trip. Meaning that people came less often, but their spend per trip was pretty much in line with historical levels.
      • Midwest it is a little bit more pronounced than down South, but nonetheless it's softness that we're seeing pretty much across the portfolio.
      • The impact has been more pronounced at the lower tiers


  • SAME:  The property continues to grow the market with the hotel producing the 2nd highest REVPAR at the company.  Mgmt believes the market remains underpenetrated. 
  • PREVIOUSLY:  We continue to see strong guest acquisition and growing loyalty among our guests. Repeat visitation is very strong, with over 55% of our guests returning for multiple trips. The hotel continues to be a good story, with occupancy now in the mid-90s consistently. And our regional high end business continues to grow every month, although at a lower pace than we had originally anticipated.


  • SAME:  PNK has completed the renovation of their standard hotel rooms and have received very favorable guest feedback. 
  • PREVIOUSLY:  The second phase of the renovation will begin this fall after the busy summer season.


  • WORSE:  While mgmt seems optimistic on Belterra's ability to withstand the Cincinnati competition, we would note that their 3Q gaming revs fell 15% and the promotional environment remains fierce.
  • PREVIOUSLY:  The impact of Horseshoe Cincinnati has been less than anticipated so far.


  • SAME:  The additional guestrooms have helped the property.  Mgmt sees more upside ahead. 
  • PREVIOUSLY:  Finally, in New Orleans, we continue to see an improvement in the operating performance of this property


  • SAME:  The project budget remains $209 million, excluding license fees, original acquisition costs, and capitalized interest, and is scheduled to open in May 2014.
  • PREVIOUSLY:  The facility is well underway and we're excited about bringing the property into our portfolio in the second quarter of 2014.


  • MIXED:  While mgmt said on an apples-to-apples basis, corporate expense fell $4MM YoY, it is not entirely clear.  The accounting change made comparisons difficult.
    • We've been running right around $5 million or so, call it mid-$5 millions on the current set of portfolio, and that's the set we have that clearly we're working through that as it relates to the combined company.
    • So while I don't expect if we were to, without the acquisition, that that number will change in any material way in that $5 million to $5.5 million per quarter, certainly we'll recalibrate that and give you some parameters once we complete the acquisition.

FNP: 3-Bagger. Add on Weakness

Takeaway: We think FNP is a 3-bagger, but it won't get there tomorrow. Our thoughts ahead of the print.

Even after the big move we still think that FNP is a BIG idea, with 3x upside over a 3-4-year time period. That said, we’re neither here nor there on tomorrow’s print. Here’s our thinking into tomorrow…

  • FNP remains one of our favorite TAIL ideas, as we think that 1-2 years out the stock starts with a 4 (versus $27.66 today).
  • But we don’t feel strongly about it one way or another headed into tomorrow’s print.
  • This company gives guidance based on what it thinks it can hit, not on what it can beat. Our point is that if we want to get sucked-in to the game of ‘beat by a penny/miss by a penny’, this can literally go either way.
  • There’s not likely to be an announcement on the sale of Lucky or Adelington with the release, though we’ll likely get added color on terms surrounding the previously announced sale of Juicy. All in, don’t expect any thesis-shifting strategic announcements.
  • Our bigger picture call is simple. Kate Spade (which accounts for all of FNP’s EBIT) is going from $700mm in revenue at a 12% EBIT margin (with leverage), to $3-4bn in revenue at a debt-free 20% margin. We think people have the revenue trajectory partially correct, but they’re still way too low on the margin. In the end, consolidated EBIT will go from break-even (currently hurt by divisions that are on the block) to $800mm. The stock is expensive on earnings today, but is trading at 3.4x its $900mm EBITDA number.
  • The punchline on this name is that an 8x EBITDA multiple on our $900mm EBITDA number gets us to a stock of about $75 vs the current $27.66. It won’t happen overnight, as we all know stock moves aren’t linear, but will grind higher quarter after quarter, year after year.  
  • This has been and will continue to be the perennial ‘I missed it’ stock for investors, who subsequently watch it go up another 25% in their face.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.47%
  • SHORT SIGNALS 78.68%


Muddy quarter but a big underlying miss. October was better in regional gaming land, however.



"Overall, operating trends were generally soft during the 2013 third quarter. The revenue environment was challenging across all of the Company's key markets due primarily to macroeconomic weakness, and in some isolated instances, an increase in the number of competing gaming facilities. In response to this, we began making adjustments to operating and marketing expense levels of our properties in the third quarter, and will address any persistent revenue softness with continued expense reductions over time. Beyond these normal course operating and marketing expense refinements, the Company expects synergies and cost efficiencies from the acquisition and integration of the operations of Ameristar to provide additional support and to offset the impact of revenue softness on the cash flow produced by our properties."


-Carlos Ruisanchez, President and Chief Financial Officer of Pinnacle Entertainment




  • Operating environment challenging
  • Since close of transaction, paid $71MM of term loans
  • $20MM synergies:  public company costs, labor (moving to select leadership teams for combined company) and scale efficiencies
    • Marketing/healthcare efficiencies to come
    • Still believe they will exceed synergy target of $40MM
  • Trends:  October was better than September (it could be as good as July)
  • Will roll out of combined Discovery loyalty program in Q2 2014 
  • L'Auberge Lake Charles table drop, table rev and retail rev hit records; hotel did well 
  • St. Louis:  River City significantly outperformed the market; new hotel opened in August 28.  37% increase in guest satisfication.
  • Indiana/Southern markets:  increased competition.  Adjusting marketing spend to reflect current business conditions.
  • L'Auberge Baton Rouge:  growing the market, 53.4% market share (highest since opening); hotel demand remains high (property producing the 2nd highest REVPAR at combined company)

Q & A

  • Corporate expenses:  apples-to-apples basis down $4MM YoY
  • 16th straight quarterly REVPAR improvement in PNK
  • Business fairly in great shape
  • Saw softness in August and September; spend (including marketing) will adjust to current business conditions
  • Focused on profitability, not market share 
  • 4Q:  synergies - consolidating marketing program 
  • Remaining $20MM of synergies:  will be achieved without any revenue; more positive on the synergies than a quarter ago
  • Baton Rouge margins:  20%
  • Bossier City been impacted by Margaritaville and Oklahoma; Margaritaville has not grown the market
  • Feel very good about New Orleans; continuing to build a hotel there
  • Baton Rouge:  guest satisfication high; market remains underpenetrated
  • Very bullish on Lake Charles market
  • Revenue synergy opportunities:  1) putting PNK's hotel yield automated system in ASCA portfolio 2) combining myChoice program next Spring 3) legacy PNK has established marketing infrastructure and will leverage it.
  • Ohio internet cafes have stopped operating
  • River Downs: will open with 1,600 VLTs 
  • Belterra: has held up very well.  Has mitigated competition from Cincinnati.
  • Leverage goal: 3.5x-4.0x
  • Cash flow of combined firm should continue to grow
  • Colorado floods in September impact on ASCA Black Hawk:  not meaningful
  • Expect Landry to get Lake Charles license by end of year 
  • Would like $100-110MM in cage cash
  • Depreciation run rate: +/- $50MM off of the $200MM number in a previous quarter
  • Capitalized interest guidance:  couple of $MMs - Lake Charles, Belterra Park (minimal cap interest), and stopped capitalizing interest in River Downs

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