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Software timing remains the quarterly issue but if your time horizon is beyond 3 months, do you really care?

We are very bullish on the long-term fundamentals in the slot sector space.  Now that earnings calendar 2011 earnings estimates now appear achievable and beatable, we are not as concerned with the timing of the acceleration of replacement demand, and importantly for BYI, the quarterly timing of software shipments.  BYI may be the best positioned of the three big US slot suppliers because:

  • Unlike IGT, BYI should be a long-term participation game market share gainer
  • Quarterly ship share should increase sequentially at the expense of WMS
  • BYI maintains the highest valuation upside

We must admit that we have low confidence in Wednesday’s quarter announcement.  Not that we are predicting a miss – we’re actually above the Street.  However, software sales is always the wild card.  We don’t believe there will be any surprises in the core metrics other than software, but that shouldn’t be more than a timing issue.

We’re 2 cents ahead of the Street for the quarter and about 10 cents higher for the year.   We project BYI to post $190MM of revenue and EPS of $0.48 when they report F2Q11 results next Wednesday after close.  We don’t expect there to be a whole lot of news on the replacement front.  The consensus from our conversation with operators is that replacements should be flat to up moderately this year.

Details:

  • Product sales of $61MM with gross margins just shy of 50%
    • NA units of 2,600 and 1,000 international shipments
      • 2,250 replacement units and 350 new units (including some units to Cosmo)
    • ASPs of $15k
    • Other product sales flat YoY
  • Systems revenue of $50MM at a gross margin of 72.5%
  • Gaming operations revenue of $78MM at a gross margin of 72.6%
  • Other stuff:
    • SG&A: $54MM
    • R&D: $22MM
    • D&A: $5MM
    • Net interest expense: $2.2MM
    • Tax rate: 33% (R&D tax credit)