BYI DELIVERS QUALITY

BYI delivers a high quality Q in the face of many hurdles. Outlook is even better.  

 

 

As we wrote about in our 10/06/11 note “BYI: WE'VE GOT THAT GOOD FEELING”, we thought BYI would finally beat the Street.  While EPS was in-line with our estimate, it exceeded consensus and the quality was even better than we expected.  BYI printed a high quality beat despite the lack of a replacement cycle pick up and new openings/expansions.  There were a few cents of negative FX impact but BYI was still able to beat the street – and meet our expectations.   With the toughest quarter of the year out of the way, the path to better results is becoming more visible indeed.

 

BYI’s $195MM of revenue exceeded our estimate by 2% and EPS was spot in-line.  The biggest upside to our revenue came from gaming equipment sales.  Gross margin of $124MM was also 2% ahead of our estimate with the most upside coming from systems and some downside coming from gaming operations margins.  Read on for more detail.

 

 

Detail:

Gaming equipment sales of $64MM was 5% higher than we estimated due to more units sold in NA and a higher ASP

  • New units sold came in 149 ahead of our estimate – with all the upside in NA.  Almost all of the 2,345 units sold were replacement units.  It does appear that BYI gained share although we won’t know the extent until the other suppliers report their results.
  • Margins were light but that was well telegraphed by the company

Systems sales came in 1% above our estimate and margins were almost 4% better which isn’t entirely surprising.  Given the lack of new openings, most of what is being sold is software driven which provides much higher margins.  As revenues pick up in Systems for the balance of the year, we would expect margins in the low 70s.

  • We estimate that every unit hooked up to a BYI system is earnings of almost 48 cents of recurring revenue per day.  Once the DM’s in their backlog start getting installed, there should be decent upside to that number.

Gaming operations revenue was 1% better than we estimated but margins were 3% lower.  Lower margins are at least partly attributable to a higher mix of WAPs which carry lower margins.  Most of the new WAPs are licensed titles and also have jackpot funding expenses.  Not that they should apologize since the absolute dollar contribution from these units is still very high.

 

Other stuff:

  • SG&A, R&D,  D&A, and net interest expense were all in-line with our estimate
  • SG&A should tick up next Q with the inclusion of G2E which usually adds a few million dollars of expense

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