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“Winning is not a sometime thing; it’s an all time thing. You don’t win once in a while, you don’t do things right once in a while, you do them right all the time.  Winning is habit.  Unfortunately, so is losing.”

-Vince Lombardi


Last week I took a few days of vacation and had the opportunity to catch up on some reading.  One of the key books I read last week was, “Top Dog: The Science of Winning and Losing”, by Ashley Merriman and Po Bronson.  As the title suggests, the book is a deep dive into the science behind winning, losing, and competitiveness and has applications that go well beyond athletics.


Last week I was also continuing to enjoy the fact that my alma mater Yale recently won the NCAA ice hockey championships.  To be fair, a NCAA championship, while a big deal to the players, fans and alumni, is a far cry from a gold medal, Stanley Cup, or World Championships.  Nonetheless, it is an example of a team achieving its ultimately goal in a very competitive situation.


Going into the 16 team NCAA hockey tournament, Yale was seeded 15th and a 60:1 underdog according to the Vegas odds makers.  On the path to the championship, Yale also achieved a few things that no team had every done before.  First, they beat three number one seeds (each regional of four teams has a number one seed).  Second, they are the only fourth seed in the Frozen Four to ultimately win.  Clearly, this is an example of a team that overcame significant obstacles to become a champion.


So, what is it that enables some teams to win against extreme odds?  Counter to intuition, team members getting along and being traditional team players is not the key.  In fact according to Merriman and Bronson:


“In the idealized notion of a team, everyone is equal and interchangeable, and this equality drives commitments to the team effort.  But the science argues that the ideal is, if anything, a distraction. The goal is not to live up to the ideal, but to perform.  In real life, teammates are rarely true equals, and they don’t always get along. Having a hierarchy, with its clear divisions of responsibility, is most often the solution to team performance.”


To use economic terms, great teams are usually much more capitalist than socialist.


Now as Keith would say, back to the global macro grind . . .


In terms of global economic statistics, Spain’s unemployment rate is certainly one that signifies that the nation continues to lose economic share.  At a 27.2% rate of unemployment, with an even larger unemployment rate for those new to the work force, Spain is not going to see economic recovery without some help from her teammates.


The key friend to Spain is likely to be ECB President Mario Draghi, especially if he decides to cut rates as he was hired to do.  Luckily for Spain, our quantitative models are also signaling that the ECB is likely to ease again.  Specifically, every major European equity market is now in a bullish formation in our models, expect Russia.  This makes sense as Europe easing would be U.S. dollar bullish, which is negative for the price of oil and Russia is the largest exporter of oil in total barrels per day terms in the world.


Key sovereign debt markets also appear to be signaling some chance of the ECB incrementally easing.  Since the world didn’t end with Cyrpus’ bail under as many market pundits were urging would happen, peripheral yields in Europe have tightened meaningfully.  Despite the aforementioned employment issues, Spain’s 10-year yield is now at 4.38% and Italy’s 10-year yield is now at 4.06%.  As it relates to Italy, this is the lowest yield on the 10-year in more than a year.


Much of the pin action this morning in global equity markets is coming from China.  For those that tuned into our conference call on emerging markets this week, this should be no surprise.  We came into the year bullish on Chinese equities and have reversed that stance based on new data.  The China section in the emerging markets presentation given by my colleague Darius Dale was titled, “Will China Blow?”. Increasingly, this is a very fair question to ask on China.


A key risk or concern over China is whether real estate market prices are in a bubble and whether there is too much debt behind the Chinese real estate market.  In effect, is China about to go through a real estate correction comparable to what the U.S endured starting in 2007?  Some would argue that the high pace of Chinese economic growth inherently supports a rapid increase in real estate values and this is likely true, to a point.


In general, debt and real estate are very much driving Chinese equity markets.  Overnight, the Shanghai Composite closed on its lows as the property subsector once again dramatically underperformed.  This was on the back of a Minister of Taxation official warning that if property prices in second tier cities continue to rise then more property taxes will be implemented.  On one hand, you do have to hand it to Chinese officials attempting to proactively manage bubbles.  On the other hand, the history of government intervention is that governments rarely get things right.


In the Chart of the Day below we’ve highlighted a key slide from the emerging market presentation from earlier this week.  This chart shows the performance of the SP500 and MSCI Emerging Market Index in strong dollar periods and weak dollar periods, respectively.  They key takeaway is that in strong U.S. dollar periods emerging markets underperform dramatically as, among other things, capital flows out of emerging markets.  On the back of this research, we added the emerging markets ETF, EEM, as a short idea on our best ideas list.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, VIX, and the SP500 are now $1, $97.31-103.34, $82.55-83.44, 97.45-101.36, 1.70-1.76%, 11.33-14.89, and 1, respectively.


Keep your head up, stick on the ice, and keep #winning,


Daryl G. Jones

Director of Research


#Winning - Chart of the Day


#Winning - Virtual Portfolio

Feel The Heat

This note was originally published at 8am on April 11, 2013 for Hedgeye subscribers.

“Energy itself can neither be created nor destroyed, though its many forms can change.”

-Eric Chaisson


That’s pretty much the first law of thermodynamics. The second law is that there is a price that gets paid when forms of energy change – it’s called entropy.


Entropy is also a measure of the disorder (or randomness) of a system… some of these basic thermodynamic ideas date back to 1824, when a young French army officer, Sadi Carnot, sought to understand the rudimentary elements of an ordinary steam engine… engines work because of a temperature difference…” (Cosmic Evolution, pg 17)


In market speak, you might insert words for entropy like “rip” or “meltdown” – but, to me at least, it’s all about the same thing – rates of change. And for those of us who aren’t on the Federal Reserve’s inside information leak-list, I guess that’s the best we can do. Think for ourselves and do our own work in a transparent and accountable way.


Back to the Global Macro Grind


“Literally, thermodynamics means movement of heat” (Chaisson). That’s why I call my rants on Twitter #TweetHeat. And oh were the #PTCs (Professional Top Callers) feeling it yesterday.


No matter what your market views have been for 2013, here we are – at all-time closing highs for the SP500 (+11.3% YTD at 1587). Consumption stocks continue to lead the charge (Healthcare (XLV) +18.82%, Consumer Discretionary (XLY) +13.13%) and Commodities continue to get hammered.


To review our non-consensus bull case for US Growth (and US Consumption Equities):

  1. #StrongDollar continues to make a series of higher-lows and higher-highs (vs its 40yr low in 2011)
  2. #CommodityDeflation continues to make a series of lower-highs and lower-lows (vs their 40yr high in 2011)
  3. US Consumption Growth occurs when the real purchasing power of the US currency rises

Pretty simple really. Wouldn’t it be nice if the President of the United States (either Bush or Obama) A) understood these basic concepts and/or B) had financial advisors who made these fundamentals crystal clear to them instead of focusing on leaking whispers about their spurious economic policy conclusions to the #OldWall?


Sadly, Margaret Thatcher passed away this week. She taught Ronald Reagan a lot about the real purchasing power of a currency and the real impact a political leader can have with her people (trust) by calling out all the conflicted and compromised bureaucrats. She was a patriot. God rest her soul.


We made some sales yesterday (I don’t like buying on green), but what would really get me to change my economic and market views?

  1. If Bernanke debauched the Dollar again

What would happen if Obama let that happen?

  1. Dollar Down = Commodities Up
  2. Commodities Up = Food and Gas Prices Up
  3. Food and Gas Prices Up = US Consumption Growth Down

Again, it’s not that complicated. Really.


What is complicated is comprehending A) Bernanke’s “transparency” model (leaking information selectively? #embarrassing) and B) how he has the “best inflation track record of any central banker since World War II” (that’s what he whined to Senator Bob Corker, under oath, earlier this year after Corker called him the biggest dove in modern history).


Bernanke has been wrong on this growth forecasts at least 70-80% of the time since he took over at the Fed in 2006. Remember, he got the job with his thesis of the “Great Moderation” (he was talking about volatility, after it hit generational lows). Not that he wants to talk about that anymore (his Fed has overseen the Greatest Volatility in US market history).


Maybe we should call his legacy The Great Transparency? Nah. Maybe Obama should put Bernanke on trial. Give the man his fair share already. Please have him explain (with someone who isn’t a market moron asking the questions):


A)     How leaking information selectively = #transparency

B)      How the all-time lows in the US Dollar (2011) = #trust

C)      How the all-time highs in Commodities (2011) = #accountability


To be balanced, the all-time highs for Food Prices (globally) didn’t happen until 2012 (Gold and the CRB index topped in 2011). So there’s still a fighting chance that Bernanke’s final rip to all-time bubble highs comes in either his reputation amongst people who get paid to believe him or in the US Bond market.


Q: (in this order) Housing, Commodities, Gold, Food, Treasuries, and now US Stocks (again). He Who Saw No Inflation at the all-time highs in all of those prices – what does he really see? Or like any un-elected and un-accountable central planner with a confirmation bias, does he see what he wants to see?


What he’s hiding from you is what you really don’t trust. And you shouldn’t. Fortunately, the other side of his storytelling doesn’t cease to exist. The popping of his Commodity Bubble is becoming self evident. That’s a real-time Tax Cut. That’s good. So will be the inevitable leak that you are no longer getting 0% on your hard earned savings account.


Our immediate-term Risk Ranges for Gold, Oil (Brent), Copper, US Dollar, USD/YEN, USD/EUR, UST10yr Yield, VIX and the SP500 are now $1544-1575, $102.39-107.38, $3.29-3.45, $82.24-83.34, 97.62-101.63, $1.27-1.31, 1.71-1.88%, 12.04-14.41, and 1565-1594, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Feel The Heat - Chart of the Day


Feel The Heat - Virtual Portfolio

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%


In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance



OVERALL:  BETTER: BYI blew away consensus on the back of record systems revenue which they promise will continue to deliver.  A lower tax rate also helped overcome some one time SG&A costs and FX losses. BYI's new re-upped buyback and ABS program also showed confidence in the company's outlook




  • SAME:  Strong initial performances from recent premium and WAP product launches, including Hot Shot Progressive, Cash Wizard Tiki Magic, and Pawn Stars.  NASCAR WAP debuted last week.  WAP yield was higher in March, relative to January/February.  BYI expects a pickup in WAP sales in the coming quarters.
  • PREVIOUSLY:  With respect to games operations… NASCAR is one of the most anticipated games that should be coming out in the next few months. The Hot Shot Dual Wheel… is an internal brand. We recently introduced a WAP game with a dual wheel, a big cabinet. That has just hit the floors, very small sample size, not statistically significant, but very, very good start… Pawn Stars on the premium segment, we know the reports have been very good from casinos. So overall we feel very good about our product momentum.


  • BETTER:  BYI bought $31 million of stock in F3Q and authorized a new $300 million stock buyback program.  BYI is entering into an accelerated share buyback agreement with JP Morgan today under which it will purchase up to $150 million worth of stock under the new share repurchase program.  BYI will receive 2.5 million shares by the end of April.
  • PREVIOUSLY:  We typically in our guidance assume somewhere in the $15 million to $20 million per quarter buyback. 


  • SAME:  788 VLTs were shipped in F3Q.
  • PREVIOUSLY:  During the quarter, we announced an agreement to provide 650 VLTs to WCLC Canada and expect to begin shipping the initial tranche during the March quarter. With respect to the Atlantic Lottery… somewhere around 1,200 to 1,300 of those shipped, so the remainder of those will likely come into this fiscal year


  • SAME:   International units sales continued to suffer this quarter, but BYI was steadfast that sales should improve as some new products get launched in the coming quarters
  • PREVIOUSLY:  International Games sales have been a disappointment once again… We have multiple product development initiatives currently underway focused on these international markets… We remain confident such efforts will pay off with improved International Games sales in the future.


  • BETTER:  Systems revenue ($71MM) was a quarterly record.  2/3rds of revenue came from existing customers.  Margins will remain 'in the 70s, +/- a couple of % points.'  Systems outlook for FY2014 is even better.
  • PREVIOUSLY:  On the Systems front, we expect fiscal 2013 to be our best year ever with increasingly visible backlog strength for the quarters ahead.


    TODAY’S S&P 500 SET-UP – April 25, 2013

    As we look at today's setup for the S&P 500, the range is 31 points or 0.94% downside to 1564 and 1.03% upside to 1595.                 










    • YIELD CURVE: 1.48 from 1.48
    • VIX VIX closed at 13.61 1 day percent change of 0.96%

    MACRO DATA POINTS (Bloomberg Estimates):

    • 8:30am: Init Jobless Claims, April 20, est. 350k (prior 352k)
    • 8:30am: Cont Claims, April 13, est. 3.060m (prior 3.068m)
    • 9:45am: Bloomberg Consumer Comfort, April 21 (prior -29.2)
    • 10am: Freddie Mac mortgage rates
    • 10:30am: EIA natural-gas storage change
    • 11am: Kansas City Fed Manf. Acti, April, est. -1 (prior -5)
    • 1pm: U.S. to sell $29b 7Y notes


      • Senate may hold final vote on legislation allowing states to collect taxes on out-of-state sellers, including online and catalog retailers
      • 8:30am: House Nuclear Cleanup Caucus briefing on Energy Dept’s 2013 cleanup program
      • 10am: Senate Health, Education and Labor Cmte votes on nomination of Thomas Perez for Labor sec
      • 10am: House Armed Svcs Cmte hears from Army Sec. John McHugh and Army Chief of Staff Raymond Odierno on the Army budget request
      • 2:30pm: Treasury Sec. Jack Lew will hold open session of FSOC to vote on annual report; Fed Chairman Ben Bernanke, CFPB Dir. Richard Cordray, CFTC Chairman Gary Gensler, FDIC Chairman Martin Gruenberg, SEC Chairman Mary Jo White, others to attend
      • 2:30pm: House Ways and Means panel hears from acting IRS Commissioner Steve Miller on 2013 tax filing season


    • Boeing 787 battery tests didn’t ensure against fire, NTSB says
    • Samsung says demand for new Galaxy S4 more than anticipated
    • Lockheed may win orders for up to 71 F-35s, Pentagon says
    • Twitter said to plan bolstering user security after AP hacking
    • Netflix will raise capital as needed to fund original programs
    • Fiat said to target N.Y. primary listing in Italy retreat
    • Verizon may bid $100b for Verizon Wireless: Reuters
    • U.K. avoids triple-dip recession as economy expands 0.3%
    • Spain jobless rate breaches 27% as recession crimps economy
    • Lansdowne exits Prudential short after “meaningful” losses
    • Criteo said to name JPMorgan for its U.S. IPO


      • Potash Corp of Saskatchewan (POT CN) 6am, $0.60
      • Colfax (CFX) 6am, $0.24
      • Ball (BLL) 6am, $0.65
      • Helmerich & Payne (HP) 6am, $1.29
      • Stanley Black & Decker (SWK) 6am, $0.96
      • Precision Drilling (PD CN) 6am, C$0.29
      • Patterson-UTI Energy (PTEN) 6am, $0.36
      • Diamond Offshore Drilling (DO) 6am, $1.16
      • United Therapeutics (UTHR) 6am, $1.46
      • Time Warner Cable (TWC) 6am, $1.37
      • Alamos Gold (AGI CN) 6am, $0.20
      • NorthWestern (NWE) 6am, $0.94
      • Proto Labs (PRLB) 6am, $0.31
      • LPL Financial Holdings (LPLA) 6am, $0.55
      • Dunkin’ Brands (DNKN) 6am, $0.29
      • Cash America International (CSH) 6am, $1.36
      • Chart Industries (GTLS) 6am, $0.66
      • Southwest Airlines (LUV) 6:30am, $0.02
      • Alexion Pharmaceuticals (ALXN) 6:30am, $0.60
      • Bunge (BG) 6:30am, $0.91
      • RR Donnelley (RRD) 6:30am, $0.33
      • PulteGroup (PHM) 6:30am, $0.15
      • Carter’s (CRI) 6:30am, $0.69
      • World Acceptance (WRLD) 6:30am, $3.06
      • WABCO Holdings (WBC) 6:30am, $1.07
      • Colgate-Palmolive (CL) 7am, $1.32
      • Altria Group (MO) 7am, $0.53
      • Raytheon (RTN) 7am, $1.28
      • AmerisourceBergen (ABC) 7am, $0.88
      • DST Systems (DST) 7am, $1.08
      • CONSOL Energy (CNX) 7am, $0.21
      • Zimmer Holdings (ZMH) 7am, $1.40
      • Dana Holding (DAN) 7am, $0.42
      • First American Financial (FAF) 7am, $0.42
      • Bemis (BMS) 7am, $0.54
      • Boston Scientific (BSX) 7am, $0.09
      • Dow Chemical (DOW) 7am, $0.61
      • Entergy (ETR) 7am, $0.83
      • EQT (EQT) 7am, $0.53
      • Harley-Davidson (HOG) 7am, $0.99
      • Hershey (HSY) 7am, $1.04
      • Sigma-Aldrich (SIAL) 7am, $1.00
      • Biogen Idec (BIIB) 7am, $1.63
      • Old Dominion Freight Line (ODFL) 7am, $0.42
      • Colonial Properties Trust (CLP) 7am, $0.34
      • AMETEK (AME) 7am, $0.51
      • L-3 Communications (LLL) 7am, $1.93
      • Linn Energy (LINE) 7am, $0.24
      • Lear (LEA) 7am, $1.10
      • Nielsen Holdings (NLSN) 7am, $0.36
      • EQT Midstream Partners (EQM) 7am, $0.48
      • LinnCo LLC (LNCO) 7am, $0.32
      • Lancaster Colony (LANC) 7:05am, $0.80
      • Mack-Cali Realty (CLI) 7:10am, $0.64
      • Noble Energy (NBL) 7:24am, $1.25
      • Bristol-Myers Squibb (BMY) 7:30am, $0.42
      • Dominion Resources (D) 7:30am, $0.89
      • Domtar (UFS) 7:30am, $1.46
      • 3M (MMM) 7:30am, $1.65
      • Cameron International (CAM) 7:30am, $0.75
      • CMS Energy (CMS) 7:30am, $0.51
      • Coca-Cola Enterprises (CCE) 7:30am, $0.38
      • Occidental Petroleum (OXY) 7:30am, $1.54
      • Parker Hannifin (PH) 7:30am, $1.67
      • SCANA (SCG) 7:30am, $1.04
      • Celgene (CELG) 7:30am, $1.35
      • Level 3 Communications (LVLT) 7:30am, $(0.17)
      • Graphic Packaging Holding (GPK) 7:30am, $0.08
      • JetBlue Airways (JBLU) 7:30am, $0.10
      • LKQ (LKQ) 7:30am, $0.29
      • Hercules Offshore (HERO) 7:30am, $(0.04)
      • United Continental (UAL) 7:30am, $(1.09)
      • Mead Johnson Nutrition (MJN) 7:30am, $0.86
      • Revlon (REV) 7:30am, $0.26
      • EMCOR Group (EME) 7:30am, $0.44
      • Brunswick (BC) 7:35am, $0.63
      • United Parcel Service (UPS) 7:45am, $1.01
      • AltaGas (ALA CN) 7:45am, C$0.53
      • United Bankshares (UBSI) 7:50am, $0.43
      • Landstar System (LSTR) 7:50am, $0.57
      • Avnet (AVT) 8am, $0.87
      • Trimas (TRS) 8am, $0.41
      • Meredith (MDP) 8am, $0.68
      • ConocoPhillips (COP) 8am, $1.42
      • Imperial Oil (IMO CN) 8am, C$0.95
      • BorgWarner (BWA) 8am, $1.24
      • Rayonier (RYN) 8am, $0.60
      • KKR (KKR) 8am, $0.80
      • Cabela’s (CAB) 8am, $0.59
      • SunCoke Energy (SXC) 8am, $0.05
      • Marriott Vacations Worldwide (VAC) 8am, $0.44
      • Alaska Air Group (ALK) 8am, $0.56
      • Carpenter Technology (CRS) 8am, $0.74
      • Kennametal (KMT) 8am, $0.71
      • Brink’s (BCO) 8am, $0.31
      • Life Time Fitness (LTM) 8am, $0.65
      • Exxon Mobil (XOM) 8:04am, $2.05
      • Belo (BLC) 8:30am, $0.15
      • Deluxe (DLX) 8:30am, $0.87
      • GATX (GMT) 8:30am, $0.70
      • Valassis Communications (VCI) 8:30am, $0.73
      • New York Times (NYT) 8:30am, $0.04
      • Royal Caribbean Cruises  (RCL) 8:30am, $0.19
      • Sun Communities (SUI) 8:30am, $0.91
      • PVR Partners  (PVR) 8:30am, $0.06
      • Reliance Steel & Aluminum (RS) 8:50am, $1.14
      • Old Republic International (ORI) 9am, $(0.04)
      • Safeway (SWY) 9am, $0.35
      • Realty Income (O) 9:15am, $0.58
      • InterDigital (IDCC) Bef-mkt, $(0.19)
      • Tessera Technologies (TSRA) Bef-mkt, $(0.63)
      • Shoppers Drug Mart (SC CN) Bef-mkt, C$0.59
      • Baidu (BIDU) 4pm, $6.52
      • Cirrus Logic (CRUS) 4pm, $0.58
      • Maxim Integrated Products (MXIM) 4pm, $0.41
      • ResMed (RMD) 4pm, $0.56
      • Columbia Sportswear (COLM) 4pm, $0.14
      • TFS Financial (TFSL) 4pm, $0.02
      • CBRE Group (CBG) 4pm, $0.17
      • VCA Antech (WOOF) 4pm, $0.37
      • Clearwire (CLWR) 4pm, $(0.27)
      • Freescale Semiconductor  (FSL) 4pm, $(0.10)
      • Chubb (CB) 4pm, $1.74
      • Cincinnati Financial (CINF) 4pm, $0.67
      • Deckers Outdoor (DECK) 4pm, $(0.10)
      • Simpson Manufacturing (SSD) 4pm, $0.18
      • Principal Financial (PFG) 4pm, $0.74
      • Informatica (INFA) 4pm, $0.31
      • Amazon.com (AMZN) 4pm, $0.10
      • NETGEAR (NTGR) 4pm, $0.52
      • Molina Healthcare (MOH) 4pm, $0.25
      • Expedia (EXPE) 4pm, $0.23
      • Hittite Microwave (HITT) 4pm, $0.56
      • Microsemi (MSCC) 4pm, $0.40
      • BioMarin Pharmaceutical (BMRN) 4pm, $(0.31)
      • Cerner (CERN) 4:01pm, $0.63
      • Coinstar (CSTR) 4:01pm, $0.86
      • National Instruments (NATI) 4:01pm, $0.19
      • Pebblebrook Hotel Trust (PEB) 4:01pm, $0.17
      • Federated Investors (FII) 4:02pm, $0.42
      • Wynn Resorts (WYNN) 4:02pm, $1.55
      • Starbucks (SBUX) 4:03pm, $0.48
      • VeriSign (VRSN) 4:05pm, $0.54
      • PerkinElmer (PKI) 4:05pm, $0.48
      • Leggett & Platt (LEG) 4:05pm, $0.38
      • Superior Energy Services (SPN) 4:05pm, $0.40
      • PMC-Sierra (PMCS) 4:05pm, $0.08
      • Ingram Micro (IM) 4:05pm, $0.43
      • Theravance (THRX) 4:05pm, $(0.38)
      • Dolby Laboratories (DLB) 4:05pm, $0.71
      • Axis Capital Holdings  (AXS) 4:05pm, $1.19
      • NetSuite (N) 4:05pm, $0.03
      • QLIK Technologies (QLIK) 4:05pm, $(0.12)
      • Republic Services (RSG) 4:05pm, $0.41
      • KBR (KBR) 4:10pm, $0.47
      • KLA-Tencor (KLAC) 4:15pm, $0.86
      • Altera (ALTR) 4:15pm, $0.33
      • MICROS Systems (MCRS) 4:15pm, $0.61
      • SVB Financial Group (SIVB) 4:15pm, $0.88
      • Synaptics (SYNA) 4:15pm, $0.57
      • Validus Holdings (VR) 4:15pm, $1.42
      • International Game Technology (IGT) 4:15pm, $0.30
      • Eastman Chemical (EMN) 4:30pm, $1.57
      • HealthSouth (HLS) 4:30pm, $0.40
      • Skyworks Solutions (SWKS) 4:30pm, $0.47
      • West (WSTC) 4:45pm, no est.
      • Reinsurance Group of America (RGA) 5pm, $1.61
      • Hancock Holding (HBHC) 5pm, $0.60
      • Agnico-Eagle Mines (AEM CN) 5pm, $0.31
      • Taubman Centers (TCO) 5pm, $0.85
      • Aptargroup (ATR) 5pm, $0.66
      • West Fraser Timber (WFT CN) 5pm, C$2.15
      • Universal Health Services (UHS) 5:01pm, $1.17
      • Minerals Technologies (MTX) 5:01pm, $0.51
      • Range Resources (RRC) 5:15pm, $0.30
      • First Industrial Realty Trust (FR) 7:50pm, $0.26
      • Olin (OLN) Aft-mkt, $0.46
      • Key Energy Services (KEG) Aft-mkt, $0.04
      • Washington REIT (WRE) Aft-mkt, $0.46
      • Iberiabank (IBKC) Aft-mkt, $0.68 


    • Gold Advances to 10-Day High as Central Banks Join Other Buyers
    • Gold Rout for Central Banks Buying Most Since 1964: Commodities
    • WTI Trades Near Two-Week High; Discount to Brent Shrinks to $10
    • U.S. Mint Sales of Gold Coins at Three-Year High on Prices
    • Shanghai Copper Trade Jumps as Bear Market Brings Volatility
    • Soybeans Rebound on Speculation China Is Buying U.S. Supplies
    • Texas University Fund Sold $375 Million in Gold-Bar Holdings
    • Palm Oil Climbs a Third Day as Rising Exports May Trim Reserves
    • No End to Power Rout as Carbon Market Vote Fails: Energy Markets
    • Olam to Cut Spending, Sell Assets After Muddy Waters Attack
    • Gold Seen Plunging to $1,300 on Bear Flag: Technical Analysis
    • Oil’s Big Five Squeezed by Crude Drop as Spending Soars: Energy
    • Asia Copper Premiums Set to Gain on China Buying, Warehouse Fees
    • Russia, Kazakhstan Boost Gold Reserves for Sixth Straight Month






















    The Hedgeye Macro Team












    Record systems sales and low tax rate drive a record breaking quarter

    “This record quarter continues to mark a historic period of sustained operating improvement and success which is shaping up to meaningfully continue for the foreseeable future”


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




    • Unfavorable FX loss of $0.03
    • 4,098 units were sold in NA, of 2,842 were replacement units
    • Domestic ASP's would have been up if you strip out the impact of the lower priced VLT and VGT units sold in the quarter
    • 42% of international units went to lower priced jurisdications, compared with 17% last year
    • Cash connection linked units were 1,413 units as of the Q end - up 53 units QoQ
    • 68-73% is their expected range for Game Ops margins
    • Systems:  Driven by go lives in Phillipines, SA, NZ, and US.  Expect hardware and software revenues in every Q from Canada and SA in every quarter for the foreseeable future.  However, this quarter did not have any Canadian install revenue in there and only one SA casino went live. 
    • Expect their income tax rate will be 36.5% for 4Q
    • Raised an additional $400MM of incremental capital (bank debt), at a more favorable pricing grid, no limitation of restricted payments and buybacks provided leverage is below 2.75x.
    • Purchased an additional $6MM of stock since the quarter closed under a 10b-5 program
    • Will received 2.5MM shares at the end of April under their Accelerated Buyback Program
    • FCF increased to a record $67.5 million, allowing them to paydown nearly $65MM of debt this quarter and reducing their leverage to 1.5x
    • The release schedule of new WAP product coming out will help to continue to grow their footprint. They are pleased with the initial release of their NASCAR game. Once the soft launch is complete, the rollout should progress rapidly.  Pace of WAP growth should pick up over the next few quarters.
    • Will also preview some new excited WAP products at G2E this year
    • The improvement of their gaming operations content is due to increased studios development capacity
    • Continue to invest more in player research
    • Have every reason to be bullish about their games
    • Some of the game content that they have been working on to target international regions will be released in the coming quarters and should help them grow their international sales
    • Systems revenues should continue to set records and FY14 should be even better
    • Added 10,000 systems slot connections to their family this quarter
    • Their systems applications work on high speed and regular networks. They are one of the few systems providers to offer products for existing floors that aren't wired for high speed internet.
    • Interactive is one of their most underappreciated businesses. Have over 90 casinos using their interactive solutions. BYI's i-gaming platform continues to be a leading choice for their customers.
    • Extensive core systems base is a huge strategic advantage
    • Their operating leverage should continue to improve
    • They are continuing to look for tuck in acquisitions
    • International revenues were 18% of total revenues this quarter and they have a big opportunity to grow 
    • Will give FY14 guidance on their 4Q call in August



    • For game sales they have a bunch of products scheduled to hit the market from May-July in new markets that they don't normally participate in
    • While they have steady flow of game ops content coming out, they are not locked into anything and can adjust releases to demand
    • Bad debt is about 9.1MM compared to 8.2MM for the comparable 9M sales period last year. Still less than 1% of sales.
    • NASCAR is the most anticipated WAP game out there right now. Initial returns that they have seen over this past week are very positive. Expectations for placements are along the lines of MJ & Grease if not better.
    • Average order size for game sales have gone up a touch
    • Pricing would have been similar to what they have reported the last few Q's if you exclude the VLTs and VGTs. They remain disciplined. 
    • Replacements sales account for only 10-12% of their profits
    • Will have the 1.6-1.7MM reduction in shares before the end of April - accounts for 3 cents of earnings
    • Got hit by about 3 cents of FX this quarter. In SG&A they were hit with 2.5-3 cents of one time items. 
    • $3.35-3.45 guidance... that's the tightest guidance range that they have given going into Q4.  Variability has to do with how NASCAR flows and their yields in general.  Variation around replacement sales and IL.
    • About 2/3rds of revenues in systems came from recurring customers. Systems has been building towards this pace. 
    • Yields on game operations did trend up in March, however they haven't seen as much movement in their yields because they have the latest and greatest products. Their products are yielding around $100/day.
    • Think that using an ASR to pull in 7% of their market cap is pretty efficient. 
    • If you back out Canadian VLTs, how are replacements trending?  One operator did a large video poker purchase which may have taken some capital out of the market. 
    • They are very happy with their competitive position today.  No comment on WMS.
    • Follow ups to MJ & Grease are in the works. Feedback on Pawn Stars is between good and very good.
    • MGAM's products are only linked to their games.  BYI's tournament product is a systems product that can work across the floor.
    • Canada shipments will continue throughout 2014 and maybe 2015.  
    • International customers are waiting for new content from BYI. 
    • In Q4, hardware should be a little lower next quarter and software a little higher in Systems



    • "The Company increased its fiscal 2013 guidance for Diluted EPS to a range of $3.35 to $3.45. This guidance assumes an effective tax rate of approximately 36% for the full fiscal year."
    • “Our recent premium and WAP product launches...have returned strong initial performances in many different locations... We are also preparing to release an impressive array of new for-sale game titles developed by our game studios and third-party development partners. The spate of major global systems installations and significant upgrades, the latter at the rate of more than one per week, continue to bring a new operational and marketing dimension to many casino floors, while providing a solid strategic base for crucial future integration with our mobile andiGaming platform initiatives.”
    • "During the third quarter, we purchased 641,000 shares of common stock for $31 million at $48.79 per share. The new $300 million share repurchase program and accelerated share buyback announced today continue to demonstrate the confidence and visibility we have into our long-term growth trajectory. Including the announced $150 million accelerated share buyback, Bally will have purchased more than $1 billion of its common stock since November 2007.”
    • Gaming equipment: New gaming devices: 4,923 at an ASP of $16,051
      • Revenues increased... driven by higher domestic replacement sales, including the shipment of 788 Canadian VLTs, as well as by the shipment of 656 units into the Illinois VGT market
      • ASP of new gaming devices decreased ...primarily as a result of a higher mix of lower-ASP VLT and VGT units sold in the quarter and lower-ASP units sold in certain international markets.
      • International shipments were 17% of total new unit sales
      • Gross margin increased... due to continued cost reductions on the Pro Series™ line of cabinets and sales mix.
    • Gaming operations: 
      • Revenues increased ...to a quarterly record ....driven primarily by a 73% growth in the installed base of WAP games.
      • Gross margin decreased...primarily due to higher jackpot expense.
    • Systems: 
      • Maintenance revenue was $23MM
      • Gross margin increased... primarily as a result of the change in mix of products. Specifically, hardware sales were 36% of systems revenues, and software and service sales were 32%, as compared to 36% for hardware and 30% for software and services in the same period last year.

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