Please see our 4/16 earnings preview for commentary on IGT’s upcoming quarter. Below we highlight the important forward looking commentary from IGT’s FQ1 earnings release and conference call.
GUIDANCE
- “While we continue to have limited visibility around replacement demand, we believe future demand will exceed trough levels experienced in the early part of 2009.”
- Not exactly encouraging as Pat’s referring to the measly 1,800 replacement units that IGT shipped in the March 09 quarter and the 2,300 replacement units shipped in the June 2009 quarter.
- “Going forward, we expect product sales gross margins to remain in the low 50% range, also [benefitting] by our cost savings initiatives and impact of product sales mix.”
- “We continue to move towards our goal of the previously announced $200 million of cost cuts when compared to the fourth quarter of 2008. We feel that we are on track to achieve our cost reduction goals as we move throughout fiscal 2010."
- “We expect the quarterly SG&A run rate in the range of $95 million to $100 million.”
- “We expect a quarterly R&D run rate in the low $50 million area”
- “As it relates to R&D, Q1 is naturally lower just due to the fact that the team is largely preoccupied with G2E. And we do have some initiatives underway that we know will require us to uptick that a little bit going forward...R&D probably over time is going to run somewhere around the couple of hundred million. I don't think we can get it much lower than that, given that the sheer number of things we do”
- “The decline in total depreciation and amortization was primarily due to lower depreciation in our domestic MegaJackpots and Mexico lease operations. Please note that some of this will come back as we refresh our installed base of assets over time.”
- “Going forward, we expect our quarterly tax rate to trend at approximately 37% to 39% before discrete items.”
- “CapEx is expected to trend in the range of $50 million to $75 million, although we do continue to come in nearer the lower end of the range as we more proactively manage our CapEx as part of our efficiency and cost reduction efforts.”
- “Our guidance for 2010 remains a range of $0.77 to $0.87 per diluted share. As always, our guidance excludes the one-time items like the first quarter tax benefit of $0.01, which resulted primarily from our recent stock option exchange program. Our guidance also assumes no dilution impact from our convertible notes.”
- “We see an improvement in Europe. Last year was a horrible year in Europe. Latin America will be a big contributor as it was in Q1 for the year. And then I think we see stability in places like South Africa and Australia where they've been consistent providers. And I think the same for the U.K., the consistent contribution. But again, we're not forecasting huge year-on-year improvement internationally, just given that many of the international markets are suffering the same economic and credit woes that the U.S. has felt.”
- I guess ex- Japan there would be a decrease – since Japan contributed over 3,700 units to FY 2009 shipments
TRENDS
- “Lower year-over-year blended yield saw the combined result of the decline in play levels and the continued shift in the installed base mix to include more lower yield machines in leased.”
- “In product sales, the first quarter has historically been our lowest due to the holidays and the tendencies for customers to carefully consider their options after G2E and ahead of the release of their annual budget.”
- “We know that new or expansion units will be off year-on-year pretty heavily just because there isn't as many new properties opening or expanding during the fiscal year. And so everything else constant would say you have to make that up in replacement. And so you can already assume that we do assume in our guidance a decent uplift in replacements, but visibility to that is pretty limited I'd have to say at this point.”
- “SG&A, we did have a couple of items during the quarter that's favorably impacted that won't be recurring… a couple of our accruals in the compensation area.. to the tune of about $3 million that obviously was kind of a one-time thing as we adjusted to our new comp plan.”
- “We're just listening to what our customers are telling us about how they intend to spend capital and how much of it. And neither of those two comments would suggest that you should have a real hockey stick kind of uptick in replacement activity. And then just to stay flat with prior year, we've got to have a pretty significant uptick in replacement units just to offset the loss that would definitely be there from newer expansion.”
OUR FAVORITE COMMENTS
- Question: “I guess what I'm struggling with is this, revenues are seasonally at a low -- revenues are probably out of trough for the cycle; replacement sales seem to be going up; your expense have been reduced dramatically; you've committed to continue to reduce expenses on a go-forward basis; and if you print a $0.25 quarter in the first quarter, how can you not get to over almost $1 easily in the next year? I mean, I understand you guys want to be conservative and beat the number, but gosh, there must be something that we're missing because it sounds like things are going much better and this quarter was a good example of you controlling the things you can control and keeping things tight in front of what looks to be like a pretty good year on the revenue side as we move forward.” – Steve Kent, Goldman Sachs Analyst
- IGT Response: “I think we look at this more as a $0.22/$0.23 quarter with an adjustment for some of the one-time events…We feel very good that the replacement cycle will make its way back from the trough loads. It is timing that is less obvious to us… We have a bit of risk adjustment for the worst case scenario in Alabama. If you look at Game Ops, the Game Ops business, we're still experiencing a fair amount of mixed shift.”
- “Our internal estimates should base on tracking of one order to the next, would suggest we're somewhere around 40% on the replacement side, which is consistent with where we were for Q4”
- Actually it was closer to 30% in the December quarter and 35% in the September quarter
- Market share for new/ expansions in NA: “Some north of 50% and kind of varies widely”
- Well that’s not really possible because between IGT, BYI and WMS there were over 4,600 units shipped this quarter… we think the number is closer to 1/3
