Takeaway: Continue to like BYI's ramp, positioning, and valuation.

A solid quarter that beat us and consensus due to strong gross margins. We'll have more anlysis in an upcoming post.


“Our second quarter fiscal 2013 demonstrated continued momentum in all major business areas. I am happy with Bally’s trajectory and the steadily increasing visibility we have into our near- and long-term future growth"


-  Ramesh Srinivasan, the Company’s President and Chief Executive Officer




  • Game sales:  3,778 units in NA including replacements of 2,956 units
  • Continue to see an uptick in the NA replacement market
  • 399 IL VGT units.  Factoring out IL & CA units, ASPs would have been comparable to last Q
  • Margins benefited by 200bps from a customer's election to reduce costs but did not impact revenue. Now expect that product sales margins will be 50% for the balance of the year.
  • Cash connection: 1,360 units (up 144 units from last Q)
  • Systems:  As they continue to grow the average units connected to their systems and maintenance per unit their recurring revenues should grow.  Also benefited from conversion of Class II systems to Class III.
  • Reinstatement of the US R&D tax credit will lower their FY tax rate 
  • Higher game sale margins were offset by some one time legal and G2E expenses
  • Seasonality in certain variable fee games and reclassification of some game ops revenue to systems caused a slight QoQ decrease in gaming operations
  • Launching: Hot Shot Progressive and NASCAR on their Cash Connection link over the next few months. Pawn Stars also just launched. Tiki Torch is also launching later this year. So far they only released one game of MJ and Grease but more games will follow
  • Expect that the first set of output from their 3rd party game studios to be available for sale later this year. 
  • International game sales continue to dissappoint.  Sold 787 units. Have some local games that just launched and expect international sales to improve in the quarters ahead
  • Gaining good momentum with iVIEW DM and their Bonusing Suit of products.  Hosting their systems user conference later this year at Mohegan Sun.
  • Cloud-based Mobile platform offering a non-wagering portfolio of content and services continues its strong momentum and has now grown to more 6 million users
  • Making good progress with their online game distribution program.  Expect a dozen companies to feature their content.



  • Deal announced today acknowledges the undervalued nature of their sector. The potential for business disruption resulting from the deal could present an opportunity for BYI to gain further market share.
  • Still have a ways to go on gaming equipment sales - more conversion kits and more international sales
  • Canada and S. Africa implementations are going very well. No delays there. It's fair to say that over the next few years you should see some hardware and software revenue from these 2 markets in every quarter. 
  • Think that they had 20%ish market share in NA this quarter
  • Any change in operators' appetite for new purchases and replacements due to the weak regional numbers? No, they have continued optimism on their prospects
  • Slow down in the Game Ops growth was due to the timing of game releases and they were also impacted seasonality 
  • YTD game ops capex was right around $45MM
  • ASP's on a go forward basis: Stable.  Not seeing any pressure on their core business. 
  • Expect a continued pick up in steam on the VGT side.  With respect to Canadian VLTs they are into 1200 of a 1600 unit contract. 
  • Customer contract election benefit to game sale margins:  Benefited costs by 200bps and had no revenue impact. Had $2.9MM of unusual SG&A charges.
  • Guidance improvement:  ship share improvement, better game sale margins, and better Canadian sales. Only offset is that international game sales have been weaker
  • Assume $15-20MM/per Q of buybacks is included in their guidance.
  • Italy update: no change in status. Still working feverishly to improve game performance there.
  • Have not seen any major changes in the discounting aspect of the game sales. Good games continue to garner good prices.
  • Had some good collections this quarter on receivables which benefited their cash balance.  They will continue to paydown debt and buyback $15-20MM of stock. 
  • More conversions from Class II to SDS, should that continue? Assume that systems will continue to grow because of more links to the systems but nothing unusual in terms of systems conversions. 
  • Western lottery shipments starting in the March Q? Correct - think that the vast majority of those will ship into this fiscal year
  • PNK & ASCA: Think that with the consolidation, they will have a greater opportunity to sell systems to ASCA since they are already in PNK.  Don't know when and if that will happen though.



  • BYI beat the Street, reporting $0.80 and record revenues of $238MM
  • Raised guidance by $0.05-$0.15 to $3.20 to $3.40
    • Assumes a tax rate of 36-37%
  • "This quarter represents the 21st quarter in a row that we have repurchased stock. During the second quarter, we purchased 530,000 shares of common stock for $24 million at $45.43 per share. As of today, the Company has approximately $126 million available under its Board-authorized share repurchase plan"
  • Leverage remains beneath 2.0x
  • Gaming equipment: Revenue of $83MM with 53% gross margins
    • New devices: 4,565
      • Growth was "driven by higher domestic replacement sales, the shipment of 568 Canadian VLTs, and the shipments of units into the Illinois VGT market"
      • International was 17% of total
    • ASP: 16,553
      • ASP's were lower YoY "primarily as a result of a higher mix of lower-ASP VLT and VGT units sold in the quarter"
    • Gross margins jumped "due to continued cost reductions on the Pro Series line of cabinets and sales mix, a reduction in cost due to a customer contract election, and an increase in conversion kit revenue".
  • Gaming operations: $99MM of revenue at a 70% margin
    • YoY growth driven by growth in the WAP install base
    • Gross margin was down YoY due to higher Jackpot expense
  • Systems: $57MM of revenue at a 76% margin
    • $23MM of maintenance revenue vs. $18MM last year
    • Increase in margins was "primarily as a result of the change in mix of products. Specifically, hardware sales were 27% of systems revenues, and software and service sales were 32%, as compared to 33% for hardware and 33% for software and services in the same period last year."

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