• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

In preparation for BYI's FQ3 2012 earnings release tomorrow afternoon, we’ve put together the recent pertinent forward looking company commentary.

PRODUCT SALES

  • "Game sales and gaming operations are both performing very well, even better than our expectations, with the ALPHA 2 games getting an excellent reception in the market and a strong pipeline of new games."
  • "Revel in Atlantic City allocating over 20% of the floors to Bally's products."
  • "Our North America replacement unit sales were up 22% over the same quarter last year, which marks the second consecutive quarterly increase in replacement sales for Bally. In fact, we estimate that North America industry replacements were up 5% to 10% during the second half of calendar 2011, while our replacements were up 23%."
  • "During the quarter, sales of the Pro Curve exceeded our expectations, which contributed to the higher than expected ASP, but impacted our gross margin percentage. We do not expect similar growth in ASP's over the next few quarters due to anticipated product mix."
  • "The Pro Curve drove some good ASPs. Just looking at the mix coming forward with Revel and some of the new openings, I think you'll have more of a mix towards our Uprights and Slants, which is more reminiscent of the prior two quarters."
  • "We continue to expect margin percentages to improve slightly over the balance of this year although this expectation is dependent on product mix.  Based on forecasted reductions in material costs on each of the Pro Series Cabinets, we expect to approach 48% to 49% over the next several quarters."
  • "In terms of moving forward and ultimately getting to that 48%, 49% margin, there's a couple of things, part of that is volume-based, part of it is raw material-based. As you can imagine, our procurement department has a pretty good forecast say over the next six months for what they're going to be able to decrease the raw materials by and part of it is where we are in the product cycle."
  • "Our progress in Australia has been slower than anticipated mainly due to product approval delays. Our games operating system was approved by regulators in New South Wales during the quarter. The initial games we have placed in Australia so far continue to perform well. We continue to expand game sale systems and recurring revenue opportunities in various countries in Asia including Cambodia, South Korea and the Philippines. Among new domestic opportunities, Illinois deserves particular mention where we are making great progress in terms of positioning ourselves very well for the upcoming expansion."
  • "We shipped a portion of the units for partial 5 and 6; they're staging some of those units. So some now, a few more in Q3."

GAMING OPERATIONS

  • "The margin on gaming operations was within our expected range at 72%."
  • [Italy] "We seem close to receiving approval for our systems products for one of our concessioners. Approval for systems products is a requirement for placing games in Italy.  However, future approvals for other concessioners could face more delays due to new regulatory requirements that have come up recently. Please note that there is minimal revenue expectations from Italy in our guidance for the remainder of fiscal 2012. However, we continue to carry the costs associated with entering this market. We expect Italy to be an important market for us in the long-term."
  • "We… think Italy will be slower than we thought 6-9 months ago and probably somewhat less profitable to us just given these time delays. So we'll kind of keep you posted as that – as that happens but I think we are looking at Italy today less optimistically as a profit generator than we did a year ago."
  • "We expect Grease deployments to get started towards the end of fiscal Q3 and Michael Jackson in Q4. We remain optimistic about these games based on the overwhelmingly positive feedback received so far from customers and players."
    • "If we reach a level of 700 or 800 games in six to nine months we consider that a good rollout. We don't know what these games are going to do, but we don't see any reason why we can't get to those levels.  In terms of cannibalization because Bally doesn't have a very big WAP footprint, just over 1,000 games – much smaller than some of our competitors, we think that the likelihood of these games cannibalizing our existing footprint is lower than our typical gaming ops games and also given the unique branding characteristics, which has not been in our recent history. So, again we would expect the cannibalization rate to be lower on both Grease and Michael Jackson."
    • "I'd say today, it's probably about 55% to 57% fixed.  The rest variable but with Grease and Michael Jackson I'd expect that dynamic to change over the next 12 months."

SYSTEMS

  • "The outlook for our systems business for the coming years remains very positive with a good backlog in pipeline and growing acceptance for iVIEW DM."
  • "A string of exciting installations coming up all across the world is going to make this calendar year a very exciting one for Bally systems. Virtually all of them involve products like iVIEW DM and the Elite Bonusing Suite setting up these products for a crucial breakthrough phase. We expect these installations to create a significant pull for the products going forward. Please consider the following."
    • "One, we have more than 1,600 DMs installed recently at Mohegan Sun." 
    • "Two, another customer is all set to run a world record slots tournament across 1,000 games powered by iVIEW DM."
    • "Three, one of the most successful operators in the south east is just going live with DM and the Elite Bonusing Suite across the floor."
    • "Four, a new East Coast site is getting ready to open with all our cutting edge products creating instant player excitement."
    • "Five, we expect a Southern Nevada site to go live with iVIEW DM and EBS during the coming months."
    • "And six, the next six months we'll see big installs featuring all our key products all across the globe, in New Zealand, in South Africa, in Canada, among other places."
  • "Canadian systems opportunity and Sun International are some larger opportunities.  We expect to begin recognizing go-live revenues from those contracts starting sometime this summer and running for two years to three years. So those are not in this year's forecast."

CORPORATE & OTHER COMMENTARY

  • "Overall, our outlook for the rest of this year in fiscal year 2013 and 2014 is very promising."
  • "During the quarter we repurchased approximately 330,000 shares for $10 million and have approximately $111 million remaining under our Board authorized share repurchase plan."