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Declining participation installed base troubling but strong ASPs were the offset. We'll have more to say on IGT

CONF CALL

  • Cost savings in $30MM in current fiscal year and $50MM on an annualized basis
  • Wheel of Fortune will be in DoubleDown at calendar year-end
  • Powerbucks:  expect NV and Canada to come online by end of FY
  • Avatar product:  performance surpassing Wheel of Fortune in 40% of locations where Wheel of Fortune and Avatar both exist; Avatar performing above mgmt expectations 
  • Crystal Core cabinet:  2nd Avatar game coming on new hardware platform - expectations similar to 1st Avatar game
  • Class II market:  next quarter, will release new titles in this market
  • South Africa:  2,000 terminals will come online in the next 18 months (IGT will secure 50% share)
  • International systems business:  in FQ2, deployed cloud product to UK.   Three casinos on our cloud product will expand to ten in the next coming quarters as well.
  • Replacing Aristocrat systems in South Africa (3 casinos)
  • Gaming ops yields increased sequentially in-line with seasonal trends.
  • Install base declined sequentially due largely to declines in MegaJackpots
  • Expect gaming ops gross margins for FY to be consistent with FY2013
  • Capex decreased to $15MM
    • Expect increase in 3Q/4Q  capex due to upcoming launch of new Crystal Core Cabinet but total CapEx lower than FY2013
  • International revenues declined 25% due to implementation restrictions in Argentina and soft demand in a few other markets
  • ASPs improved due to mix shift of higher priced units
  • Several of recent titles performing well in  the market, including Prowling Panther, high Volatility game designed for the gambler and Jade Fortune, a new Asian-themed game.
  • Launching Winners Choice in F3Q
  • Expect Doubledown revenues to be up 20% for FY
  • Tax rate elevated at 39.5% due to adverse impact of peso devaluation in Argentina.  Expect effective tax rate to be ~35% for reminder of year

Q & A

  • Working hard to protect yields; continues to expect  mid-single-digit decline in yields. Optimisitic on yields for F3Q, F4Q 
  • Non-gaming sales high:  higher than expected. Had IP settlement that timed in FQ2 rather than Q3.  Half of the increase is IP. Remainder of the growth is parts and conversions.
    • Normalized run rate probably average of last four quarters
  • Lots of noise in margins and product sales.  It's about flattish.  Upward pressure seen in ASPs.  Expect flat product sales margins to continue.
  • Non-box margins were pretty consistent with box margins
  • Cost savings come exclusively from SG&A
  • SG&A:  Still targeting 19-20% of revenue (excluding items); however, it can fluctuate given revenue trends
  • Class II similar to poker business.  Ready for an upgrade in that market. See good Class II growth in Mexico/South Africa.
  • Fierceness of the competition hasn't changed much
    • Competition coming from both price and product, esp MegaJackpot.  Another factor is the competition for operating expense $$ from their customers that is affecting both gaming ops and product sales.
  • #1 priority is to eliminate declines in installed base
    • Renovations at SLS and Cromwell have resulted in lower install base
  • Believe flat to down (more likely down) replacement cycle this year than last
  • Feel comfortable with R&D levels
  • DoubleDown is GAAP accretive now
  • On DD MAU, IGT focused on converting players into payers i.e. bottom line.  Not concerned about MAU decline
  • Continue to outperform expectations on ARP (average revenue per DAU); ARP is industry-leading
  • Need 30-60 days to quantify effect of Powerbucks
  • IL units in FQ2;  1,000 (pretty normal run rate).  Do not have ship share #
    • We think it was 44% ship share
  • South Africa is an expanding market.  Expect the market to be like product sales. May have a daily fee attached but more product sales than participation business
  • Making progress on the mobile product
  • Wheel of Fortune mobile will be out by end of calendar year too