BYI F3Q12 PREVIEW

Ohio slippage shouldn’t stop the BYI train.

Even with the deferral of recognition of the Ohio units, BYI should still at least meet the consensus estimate for the quarter.  Our EPS and revenue projections of 67 cents and $232MM are in-line with consensus.  BYI will print their number after the close next Thursday. 

For those that have been getting our research for a while, you already know that we like BYI over the long and intermediate term.  Since we turned positive on BYI on October 6th (see our note, “BYI: WE’VE GOT THAT GOOD FEELING”), the stock has been on a nice ride up from $27.  Of course, with the stock up over 70%, they need to keep delivering for the stock to work from here.  While we’re not projecting a huge beat, a solid quarter and a favorable outlook shouldn’t disappoint investors who are in for the long term.

FQ3 Detail:

We’re projecting $81MM of gaming equipment revenue at a 44.5% gross margin.

• 4,500 units
  • 1,000 international unit sales
  • 3,500 NA unit sales
    • 775 new unit sales, the majority of which were shipped to Revel.  Other shipments in the quarter should include:
      • Valley Forge, PA
      • Several Tribal expansion in Florida
      • Ohio casinos were shipped in the quarter but we do not believe that BYI will recognize revenues from these units until next quarter
  • 2,725 replacement units - The March quarter is usually a stronger replacement quarter than December.  We believe that replacement shipments in the March 2011 quarter for the market were just under 15k and estimate low single digit growth in replacements for the March 2012 quarter.  In the December Q, we estimate that BYI garnered 17% replacement share vs. 15% in the March 2011 quarter.  We expect their share to increase sequentially this Q.
• ASP of $16.3k down QoQ but up YoY.  On the last earnings call the company cautioned that the high ASPs in the December quarter were driven by a high mix of Pro Curve games but that ASP’s going forward should be “more reminiscent of the prior two quarters.”
• Margins on new game sales should increase sequentially as the December quarter was also negatively impacted by a high mix of Pro Curve units sold
• $8MM of parts and other revenue

We’re projecting $58MM of systems revenue at a 70% margin

• The opening of PH1 of Sands Cotai Central should provide a boost to revenues
• Estimating 12% QoQ increase

We expect gaming operations revenue of $92.6MM at a 70% margin

• March has always been a better quarter seasonally for BYI vs. the December quarter for gaming operations revenue
• With the shipment of Greece units, we should see a tick up in WAP revenues
• Another good quarter from NY lottery VLTs, benefiting from a full quarter of Resorts World NY at full capacity and continued growth in average win per day in NY, which were up 14% YoY this quarter

Other stuff:

• SG&A: $61.5MM
• R&D: $24MM
• D&A: $6MM
• Net interest expense: $2.5MM
• Tax rate: 36.5%