BYI FQ1: NOT A LOT OF MEAT BUT A MEET OR BEAT SHOULD PROVIDE SOME COMFORT

We don’t expect BYI to report a truly impressive quarter until FQ3 but the near-term bar has been lowered too much.

 

 

As we wrote about on October 5thBYI: WE’VE GOT THAT GOOD FEELING,” we think BYI will produce an estimate-beating quarter.  Management resets expectations at significantly lower levels on their last call.  They weren’t expecting it but the stock resets much lower as well.  Since we wrote our note about 2 weeks ago, expectations have crept up by a penny to 43 cents for BYI’s F1Q12 and the stock has moved much higher (up 21%), so the quarter may not be the catalyst it was. 

 

More importantly, we are inching closer to a big pick-up in new openings beginning in the March quarter.  More are on the way.  Visibility on Italy and Canada should get clearer in the next few months and we expect all of the suppliers to discuss potential opportunities in MA, FL, Greece, Taiwan, Japan, Vietnam, South Korea, and other markets.  The new market thesis may come back into investor focus.

 

BYI should see strong flow through not only in their new unit sales but also in their systems business – an important differentiating factor for the stock in our opinion.  Their systems business is a critical lynchpin in our positive BYI thesis as visibility and growth should improve dramatically in calendar 2012.  Despite higher margins and a recurring component to systems revenue, that segment has been viewed as a bit of a black hole by investors due to the unpredictability.  We expect that to change next year.

 

 

Details:


We estimate that BYI will report $191MM of revenue and $0.45 cents of EPS after close on 10/26.

  • $62MM of gaming equipment sales at a 43% gross margin or $27MM
    • 3,250 new units
      • 2,150 units in NA with about 2k coming from replacement units.  There are very few new openings and expansions in the September quarter
      • 1,100 international units
  • ASP of $16,150
  • $9MM of parts, used and conversion sales
  • Systems revenue of $45MM at a 72% gross margin
  • Gaming operations revenue of $84.5MM, up $2MM sequentially with a 74% gross margin.  The September quarter has historically been better than the June quarter for gaming operations at BYI regarding revenues and margins
  • Other stuff:
    • SG&A: $58MM
    • R&D: $23.5MM
    • D&A: $5.5MM
    • Net interest expense: $3.4MM
    • Tax rate: 36.5%

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