BYI 2Q 2013 REPORT CARD

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:  SLIGHTLY BETTER

  • BYI beat the quarter ever so slightly but the quality was there.  Systems, BYI's highest valued cash flow stream, drove the beat.

 

SYSTEMS

  • BETTER:  Systems segment had an outstanding quarter with $72.9MM in revenues and a 79.1% gross margin.  BYI believes this will be the fastest growing segment in FY 2014.  BYI reiterated 70-75% margins and expects software and services % of mix to revert back to mid-30s. 
    • PREVIOUSLY:  "We are heading towards fiscal 2013 being a record Systems revenue year for us, beating the previous record of $218 million established in fiscal 2010 by a fair amount. We have every reason to believe fiscal 2014 will be even better."
    • [Software/hardware split] "I believe it was somewhere around 36% hardware, so not too dramatically different from the prior quarter and from the year-ago quarter. Looking into Q4, hardware might be a lower, slightly lower percentage of the overall total revenue; software might be a little bit higher...And that is reflected in the normal expectation of gross margin that we say, in the 70%s is the range our gross margin will normally be, give or take a couple of percentage points here and there."

GAMING OPERATIONS MARGIN

  • SAME: 2Q gaming operations margins came in at 69.1% - within BYI's expected range.
  • PREVIOUSLY:  "The margin on Gaming Operations was 71%, within our expected range of 68% to 73%."

WAP

  • SAME:  38% growth in the installed base of WAP games.  BYI expects WAP install base to grow in FY 2014 but not at the pace of FY 2013.
  • PREVIOUSLY:  "All things considered, we expect to see the rate of WAP unit increases to pick up during the upcoming quarters...We expect the flow of WAP and premium game titles to continue in a steady well-planned and controlled fashion."

SHARE BUYBACK/ASR

  • SAME:  Will be completed in 1Q 2014. BYI received $2.4MM in common shares.  This share count will not increase significantly due to the recent increase in weighted-average share price.
  • PREVIOUSLY:  "Just the subject alone that since November 2007, including the ASR we're doing now, we bought back $1 billion. No change in our capital allocation strategy. We think that using an ASR to basically pull in about 7.5% of our total market cap is a pretty efficient means to do that. We do have some additional powder available even during the period of the ASR, should we choose to put that to work." 

NORTH AMERICAN REPLACEMENT VOLUME

  • WORSE:  BYI thinks they might have lost a couple of % points in ship share due to disciplined pricing.
  • PREVIOUSLY:  "When I think about average order size, it's gone up a touch. I would say that's more a result of some corporate buying."

INTERNATIONAL GAME SALES

  • BETTER:  BYI  sold 1,179 international unit in F4Q, flat YoY but easily its best quarter of the year.  Buying activity picked up.  The company expects international unit sales to pick up reasonably significantly in FY 2014 from the 3,500 level in FY 2013.
  • PREVIOUSLY:  
    • "Because regardless of whether their replacement numbers increase or not, one thing is certain, we are very under-represented in those floors. So we have a lot of market share growth opportunities there, even if the overall replacement trends don't pick up. So we have a long way to go before we are worried about the overall macro (international) trends."
    • "Some of the new game content we've been working on for the past year specifically targeted towards various international regions will be released soon and should help grow this portion of our business during fiscal 2014 and beyond."

I-GAMING

  • SAME:  BYI is live on 17 different sites in Europe
  • PREVIOUSLY:  "We also made very good progress on the remote gaming server front, going live with eight Bally titles on multiple European portals this past week. We expect over a dozen such portals to launch Bally's world-class game content by the end of this fiscal year."

NASCAR

  • WORSE:  NASCAR has not had the mass market appeal that Michael Jackson did.
  • PREVIOUSLY:  "And in terms of our expectations of NASCAR, yes, it is along the lines of Michael Jackson and GREASE, if not better."

ASP

  • SAME:  ASPs of new gaming devices decreased 6% to $16,224 per unit from $17,182 a year ago, primarily as a result of a higher mix of lower-ASP VLT and VGT units sold in the quarter.  Ex Illinois/Canada, ASPs was flat QoQ.  Net net, BYI expects ASPs in FY2014 to be up a little bit. 
  • PREVIOUSLY:  "If you remove the VGTs and the VLTs our pricing is along the same lines as it has been for the last couple of quarters. In fact, pretty close to the highest levels it's been. We remain very disciplined with pricing."

CANADA & SOUTH AFRICA

  • SAME:  BYI shipped 200 VLT units to Canada in FQ4.
  • PREVIOUSLY:  "Canada and South Africa, I mean, it's a 2014 story. It's a 2015 story. It could even beyond 2015 be a story. There's still more to come on Canada, more jurisdictions that I think ultimately will come to market."

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more