In-line with our estimate but above the Street. Story coming together; visibility improving.
“Our investments of recent years are beginning to pay off with good revenue growth across all three divisions and strong
customer interest in a variety of our new games and systems products”
- Richard M. Haddrill, the Company’s Chief Executive Officer
HIGHLIGHTS FROM THE RELEASE
- “We signed several large contracts recently which have improved our long-term visibility, allowing us to better gauge the back half of fiscal 2012. “The large contract wins of late have resulted in the highest value of systems deals closed in our history, but there are still several months of planning to be done on a few of these implementations before we begin to generate meaningful revenues. With the increased visibility, we are comfortable establishing an upper end to our Diluted EPS expectations for the remainder of fiscal 2012. Accordingly, we now expect fiscal 2012 Diluted EPS of $2.20 to $2.45.”
- “During the quarter, we allocated free cash flow to a number of sources including our gaming operations footprint through incremental wide-area progressive placements and build-out of units for Resorts World New York, debt reduction, repurchases of our common stock, and the acquisition of MacroView Labs"
- “This quarter represents the 16th quarter in a row that we have repurchased stock. Since June 30, 2011, we purchased approximately 1.2 million shares of common stock for $36 million at $29.07 per share, of which $31 million was in our first quarter.”
- $64MM available under the terms of the credit facility for buyback basket for FY12' and $116MM under the share purchase plan authorization
- Once leverage falls below 2x there the restriction on buybacks falls away. BYI's current Adjusted Leverage Ratio is 2.04x as of 9/30/11
- Game sales: 3,399 devices at an ASP of $16.6k
- ASP's increased "primarily as a result of product mix and an increase in ASP from international sales"
- International units were 31% of total new unit shipments vs. 29% last year
- Gross margins declined to 44% "primarily due to higher costs for the initial production runs of the Pro Curve and Pro V32 cabinets, which were released in the back half of fiscal 2011, as well as higher costs due to the mix of royalty-based new-unit game sales and conversion-kit sales."
- Gaming operations revenue growth was "driven by placement of new premium games throughout the quarter and the performance of the Company's linked progressive systems installed base and lottery systems installed base"
- “We placed 120 incremental wide-area progressive units during the quarter"
- System revenue growth was "due to increases in software and services and maintenance revenues"
- Record maintenance revenue of $18MM
- Gross margin increased to 76% due to "change in mix of products sold and an increase in maintenance revenues. Specifically, hardware sales were 28% of systems revenues, and software and service sales were 33%, as compared to 38% for hardware and 23% for software and services in the same period last year."
- "SG&A increased $6 million primarily due to increases in payroll, regulatory and legal, and other infrastructure expenses to support key new markets and an increase in bad debt"
CONF CALL NOTES
- Very excited about their systems backlog which provides them with several years of visibility. Early revenues from this backlog will be largely software driven.
- They had a $2MM FX loss in the quarter compared to a gain last year
- Nearly all of the units sold in NA were replacement units. Believe that they had 19-20% ship share.
- Continue to expect game sales margins to increase slightly throughout the year
- Betty Boop and Money Ball drove increases in WAP units
- Since G2E, they received orders from several customers where BYI's games are very under-represented. Interest in competitive replacements in systems has picked up.
- Pro-Series cabinets made up 75% of their WW shipments this quarter
- Average win per day of BYI's WAP units reached record levels
- Second Phase of Acqueduct is expected to open in a few months
- Continued delay in the Italian approval process is their only disappointment this quarter
- Completed 9 major go-lives this quarter (mostly international) and 17 major upgrades
- Seeing a significant increase in customer demand for customer services
- Majority of their iVIEW sales were DM
- Signed major contracts with Sun International and BCLC which will help drive revenues in F13' and beyond
Q&A
- Systems business margins vary greatly based on hardware mix. Continue to feel like low 70-75% is a good range for systems. iVIEW DM sales has margins of 50-65%.
- Centrally determined systems hook ups have been decreasing - why?
- 9,000 system connections through iVIEW in Mexico. Had a customer convert those units - which are at a very low daily fee. Don't expect any more events like that.
- Acqueduct - added 1,200 units in the F2Q; December Ph2 should double their load and add another 1,200 units for them. Their share is 6.25% of win. Think that it should be even better than Yonkers and should be more profitable than their other NY business.
- Grease - April; Michael Jackson - June release timing.
- Seeing a greater optimism coming their way from customers.
- Step up in promotional activity and discounting around the show?
- The promotional environment has been tough for a few years now. They have tried not to be too promotional.
- Will continue to look at M&A over the near term but really focused on execution of core business
- Working on reducing the cost of the Pro-Series cabinets. Think that they can improve margins by 100-200bps over the next 2 quarters. Over 5 quarters, they think they can get to high 40's margins.
- R&D: They may have some incremental R&D investment from new product lines. R&D is down to 12% of revenues. Even though R&D spend growth should continue, they do expect revenues to grow faster.
- Need to sell more conversion kits to get to +50% margins
- Systems competitive state hasn't really changed but BYI is a lot more competitive within the space than before.
- Pricing plays less of a role in systems selection than game sales
- Pro-Curve - have 3 titles out and 17 in the pipeline
- Expect the % of licensed titles to trend down going forward on game sales
- Have a very small contribution from Italian modeled for F12' but still very positive on that market for '13
- Assume that they will have some upward tick in ship share. Remain fairly cautious on replacement market size.
- There were only 10,000 new openings and expansions in calendar '11 but that should double in calendar '12
- Do expect gaming operations to continue to grow YoY in F2012
- Change in guidance is due to more overall visibility, more clarity on systems, more visibility on Alpha 2 client feedback and success of WAP rollout
- They assume they can purchase another $30-40MM of stock for the rest of the year but it's not really embedded in their guidance
- New openings share has been trending upward over the last year or so. Have 2 separate WAP links so they aren't really cannabalizing their existing WAP link
- G2E expenses to be in the December quarter. Had a little less bad debt in SG&A this quarter vs. last but there was nothing unusual.
- Expect an improvement in game sales margins over the 44%
- If not for the uptick in taxes and FX issue (3-4 cent adverse impact), their EPS would have been 5 cents better
- Demand for iVIEW DM has definitely picked up. For some customers the implementation takes a while; for others, it takes a few weeks. iVIEW DM is much better positioned than IGT's Sb Window.
- Their games in Australia are doing very well but they are still going through some regulatory issues
- Ohio is moving along; IL is moving along slowly - probably 13' revenue opp; MA is moving along slowly but will take several years to generate revenue; FL is too hard to call. Gaming ops continues to be a growth area and they are still relatively under-represented in NA currently - regardless of new market roll out.
