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In preparation for IGT's FY Q3 2010 earnings release on July 27th, we've put together some forward looking commentary from the company's FY Q2 and subsequent conferences.

“IGT has moved into probably another state in its life as a company and a lot of focus being put on every aspect of what we do from game development to how we spend money on market development to how we manage our inventory, so a lot of work being done around working capital, how can we collect our receivables faster, pay our vendors over longer terms etc. And those efforts are all starting to produce some good returns for us now. And of course our end goal as always is to try and get back to 30% operating margins, which historically has been where the company has operated.”

FQ2 Forward Looking Commentary

  • “Approximately 83% of our installed base is comprised of variable fee games, which earn a percentage of the machines play levels rather than a fixed daily fee.”
  • “Product sales gross margins were 46% for the quarter, down 200 bps from the prior year quarter, primarily due to higher obsolescence that incurred in the current year quarter, including write-downs related to the closure of our Japanese operations.”
  • “While we continue to have limited visibility around replacement demand, we are encouraged by the recent uptick in demand as well as the quality and innovation of our product sales segment.”
  • “Our international markets benefited from the opening of Resorts World Sentosa in Singapore, improved sales in Europe, and favorable foreign currency exchange.”
  • “Going forward, we expect product sales gross margins to trend within a range of approximately 48 to 50%,depending on product sales mix.”
  • “We continue to move towards our goal of the previously announced 200 million of cost savings. And compared to the fourth quarter of 2008, we feel that we’re on track to achieve our cost reduction goals as we move throughout 2010 and exit the year.”
  • “We expect quarterly SG&A run rate to be 90 to 95 million.”
  • “We expect quarterly R&D run rate in the low 50 million area.”
  • “The decline in total depreciation and amortization was primarily due to lower depreciation in our domestic MegaJackpots business and in our Mexico lease operations. Please note that some of this will come back as we refresh our installed base of assets.”
  • “We expect non-cash interest of approximately 30 million, 19 million after-tax or $0.06 per diluted share for fiscal 2010.”
  • “We expect our quarterly tax rate to trend at approximately 37 to 39% before discrete items.”
  • “Patti mentioned our success with Sex and the City, Amazing Race and Top Dollar… As of March 31, our backlog for these three themes plus the recently released Wheel of Fortune Experience stood at 2,153 units.”
  • “In the first two quarters of 2010, for our for-sale business, we have released 80 game titles compared to 30 titles during the same period in 2009. These included an even mix of spinning reel and video slot games. Some exciting new titles include Pirate Bay, Kodiak King, and Majestic Seas. We anticipate another 50 to 70 titles to be released through the remainder of this fiscal year. And as of April 19 we have 3,200 games in the backlog.”
  • “With a seasonally slow first half of the year behind us, we are looking forward to an increasingly clearer view of the industry prospects for the reminder of the fiscal year.”
  • “Our guidance for 2010 has changed to a range of $0.77 to $0.85 per diluted share.”

Post Earnings Conference Commentary

  • “What we are trying to do, one of the areas of efficiency that we have really identified, is how can we extend the life of those boxes and the whole setup so that you can run multiple brands or games across it”
  • “Shrinking the number of cabinets, the form factors we support, and then further limiting the optionality on each of those platforms. What we realize is that we built a lot of unnecessary complexity into our business, when you think about offering an operator a choice of a 100 different laminates on the side of a cabinet. And then you take that and run it all the way through your systems internally, and look at how complicated a bill of materials or a sales order becomes. And so we have had a big effort there, and I think we are getting towards the implementation side of that. So hopefully you’re going to see the benefits of that start to show up in improved efficiencies.”
  • “We are getting more and more active in the online space. Because it’s clear that  where our businesses are all headed is the Internet, and mobile and televisions are going to play a very important role in what we do. We are getting more and more customers asking us to help them with their internet strategies, given that we own an internet gaming company on WagerWorks, and then we have mobile gaming company called Million-2-1. Heretofore, we have largely been confined to the UK, because it’s the only market that today has been real clear that it’s legal. However, you’re seeing Internet gaming now being adopted in France, Italy, Spain. And so where – you’re going to see us become more aggressive, particularly in continental Europe, as it relates to this.”
  • “A big focus is replacing all the lower performing games that are in. We have about 60,000 machines that we own around the world. Not all of those are top earners, and so we are really focused this year on churning out the lower performing product, replacing it with products that have demonstrated they really work, like Sex and the City and others. So that as we go in to fiscal ‘11, we’re well positioned with a real solid base to then start getting aggressive about growing that base again.”
  • “The focus currently is on paying down debt, getting our leverage ratio down, and maintaining investment grade.”
  • Replacements and install base of sale games: “For us, we think it has to uptick at some point before too long for no other reason than those roughly 500,000 previously sold IGT machines that are out there are pretty old technologies.”