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
