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Takeaway: The momentum continues for BYI's with a beat and raise despite the challenging competitive and macro environment

BYI beats the quarter on the back of better gaming equipment sales and margins and strides in their gaming operations business. FY13 guidance was also raised

“Our first quarter fiscal 2013 results continue to reflect the success of our expanded game studios, our new technology platform, and our successful execution on a number of other initiatives, including the entrance into new markets. We expect continued growth from each of our businesses as both our visibility and our customer partnerships are at remarkable levels, and we continue to identify new growth opportunities."

- Richard M. Haddrill, the Company’s Chief Executive Officer


  • WAP revenues increased 92% YoY and 37% QoQ
  • Launched NASCAR successful across the casino floor across iVIEW and iVIEW DM
  • Expect continued improvement in gaming equipment margins 
  • Game sales:  3,865 units to NA, 3,078 replacement units.  Replacement uptick reflect a pick up in the replacement market and BYI's higher ship share.
    • After factoring out the lower priced VLT and VGT units in the Q, ASPs would have been up 1% QoQ
  • Expect game equipment margins will approach 48-49% by the end of FY13
  • Linked progressive systems count excludes Ontario linked games - those are in daily fee and rental
  • Effective income tax rate was 37.3%.  Expect effective income tax rate will be between 37-38.5%.
  • Feedback post G2E has been very encouraging
  • BYI mobile continues its strong momentum - they now have 6MM users.  Seeing significant growth in new customer acquisitions (+50% YoY) and in the delivery of new applications.
  • Expect their 12 major operators including the recently announced GameAccount Network to feature the bally virtual game library on their portals during the FY2H12 generating incremental revenues
  • MJ and Grease remained their best performing WAP titles
  • Pipeline of new WAP titles remains very strong:  Beach Boys, NASCAR, Tiki Magic, Pawn Shop, etc
  • Shipped 175 VGT units to IL this quarter.  Expect their rollout of 4,000 units to take 2 years.  Expect most units to be for sale rather than lease.
  • International game sales were below their expectations
  • Added 6,000 slot machine connections to their systems business this quarter.  Implementations in Canada and Africa are progressing well. They are very bullish on systems for many quarters to come.  Using NASCAR with their ELITE BONUSING SUITE is a big catalyst for their systems software business.
  • Recurring revenues accounted for 53% of the last 4 quarters' revenues
  • They do not view their recent success as a good run but as sustainable. 


  • International guidance:
    • There are several markets required additional regulatory improvements
    • Issues with Argentina's trade balance
    • Feel like they have some great product roll-outs over the next 6-9 months
    • Part of it is that they focused on NA development recently, perhaps to the detriment of international sales
    • Expect strong systems growth over the next year or so
  • Pricing pressure on participation and sales
    • Their pricing is strong and remains consistent
    • They are not capping their WAP products
    • Feel like with their iDECK and product, they are providing good value to their customers
  • Update on Italy:  Continues to be a challenge.  Have 300 games out there producing mixed results. Still feel optimistic in hitting their 1,000 unit target by year end. But it takes time to tweak the games.
  • What drove upward guidance: 1) very positive feedback on G2E, 2) Growth in game studios, 3) Faster improvement in product margins 4) better visibility in systems 5) more confident on VLTs
  • For now they are shying away from paying a dividend. Would rather keep dry powder for buybacks and accretive acquisitions.
  • The units moved into systems were more like low single digit yields.  Therefore, what's left in gaming operations is more comparable to Class 3.  The 8,000 units - $1.5MM/Q - mostly are from system maintenance on SDS and the balance is from selling additional products to SDS.
  • Would be comfortable leveraging up to 3x given their stable revenue base
  • Growth opportunity:
    • Video lottery is a relatively new market
    • 2014 openings actually look pretty good:  Ohio tracks (8K); IL VLTs, CA tribal (2.5k)
    • WAP is an emerging area for them
  • NASCAR is the first time a brand has been used in the systems arena
  • Watching their bad debt expense which is up a bit this quarter.  Feel like they are being sensible in providing customer financing but not aggressive and pulling business forward like some competitors.
  • Gaming reform in Mexico:  Market is slowly starting to improve after things froze up post violence
  • The multi-connect base for their VLTs is not complicated.  They may be light on the front end depending on the pace of licensing. The multi-connect will start going live over the next weeks. The two are not really related (game sales and multi-connect that is).
  • There was some unusual jackpot expense this quarter - still believe in the 68-73% range for gaming operations. 
  • September is a seasonally slow Q for systems installations
  • Remaining Atlantic Lottery unit shipments:  expect them to be more front end loaded than previously
  • Think that in the Nov-Feb timeframe both of those projects will go live (S. Africa & BCLC) and continue for several years after that
  • Pawn Stars is not WAP. Super HOT SHOT is the first WAP follow up game


  • Raised FY12 guidance to $3.05 to $3.35
  • BYI reported $0.77 cents, coming 10% ahead of consensus estimates
  • Board approved new $150MM buyback program. BYI repurchased $67MM worth of stock since 2Q
  • BYI's "leverage ratio remains comfortably below 2.0 times, which leaves the Company’s share repurchases unrestricted under the terms of its credit agreement. This quarter represented the 20th consecutive quarter the Company has repurchased its common stock."
  • Gaming equipment highlights:
    • BYI's shipped 670 Video Lottery Terminals ("VLT") to the Atlantic Lottery Corporation and initial Video Gaming Terminals ("VGT") units to IL. 
    • ASP: $16,863
    • International shipments were 16% of total
    • "Gross margin increased YoY... primarily due to mix and cost reductions on certain models of the Pro Series line of cabinets"
  • Gaming operations highlights:
    • WAP CASH CONNECTION install base increased to 1,216, up 94% YoY
    • "Gross margin decreased YoY primarily due to higher jackpot expense."
  • Systems highlights:
    • $21MM of maintenance revenue
    • "Gross margin increased... primarily as a result of the change in mix of products. Specifically, hardware sales were 26% of systems revenues, and software and service sales were 34%, as compared to 28% for hardware and 33% for software and services in" 3Q11.
  • Bally and IGT "announced today they have entered into a Settlement and License Agreement that will end their pending patent litigation in the case styled IGT v. Bally Gaming Int’l, Inc., Civil Action No. 1:06-cv-00282-SLR (D. Del.). As part of the settlement agreement, BYI will obtain a patent license to IGT’s bonusing portfolio under confidential terms and will dismiss its counterclaims with prejudice."