Systems drives a small beat
“Fiscal 2013 was a truly momentous year in Bally’s history,” “We made enormous progress in many different ways, including continued growth in wide-area progressive (“WAP”) units, record Gaming Operations revenue, significant success in new markets like Canada, Illinois, and South Africa, establishing new revenue records in Systems while setting up Systems for further growth in the years ahead, and the launch of Bally content in regulated online jurisdictions. These achievements position us well for continued growth in fiscal 2014 and beyond.”
- Ramesh Srinivasan, BYI's President and Chief Executive Officer.
- Reiterates FY 2014 guidance for Diluted EPS of $3.70 to $4.05.
- As a result of normal seasonal trends, the timing of new openings and major systems installs, the Company expects that its Diluted EPS in the second half of fiscal 2014 will exceed the first half, with the second quarter being stronger than the first quarter.
- Guidance anticipates continued YoY growth in each of game sales, gaming operations, and systems revenues. This guidance does not reflect the impact of the planned acquisition of SHFL entertainment or any acquisition-related costs or savings.
CONF CALL
- Several legal matters from F4Q 2012 have been settled
- With respect to HPG in Italy, both parties have agreed to waive any and all disputes and terminate all agreements and HPG has agreed to begin repayment on the loan a €15 million made in 2009 with graduating monthly payments through July 2017
- 3,733 units in North America (2,624 replacement units)
- Ex Canadian/IL units, ASP in F4Q would have been flat QoQ
- Average dollar margin for each gaming unit sold was up 3% YoY
- Cash connection 1,678 units (+265 units QoQ) - NY results were very strong
- WAP revenues up 46% YoY; WAP yields lower QoQ due to normal seasonal trends
- Systems: Maintenance revenues now on annual run rate of $100MM
- Higher mix of software and service revenues. Continue to expect 70-75% systems margins
- ASR: will be completed in 1Q 2014; received $2.4MM in common shares. Will not receive significantly more shares due to recent increase in weighted-average share price.
- F4Q FCF: $58MM
- DSO: 106 days, down from 113 days year ago
- WAP units 2,463
- NASCAR: good game but has not resonated as well as expected
- Hot Shots: outperforming expectations
- New WAP titles at G2E: Pink Lady (Grease followup)
- G2E: new rental/daily fee games
- Illinois VGT: continue to exceed expectations., Since Sept 2012, 1,943 units sold; momentum will carry in FY2014 and beyond.
- International game sales: meaningful uptick in South America, customer feedback has been positive
- Top 5 customers accounted 42% of revenues in F4Q vs 41% in F3Q
- Systems backlog: will establish a new annual record in FY 2014
- Systems: 17 major implementations e.g. Macau, US, South Africa
- 68% domestic system revenues; 32% international system revenues
- 23% of systems revenues came from new customers, 77% came from existing customers
- Added 9,000 gaming connections to systems products in F4Q
- Over 450,000 gaming devices connected to BYI devices; 185k equipped with iView, 42k equipped with current generation iView units; 19k equipped with iViewDM
- I-gaming: BYI live on 17 different sites in Europe
- 1H 2014 will contribute 46% of FY 2014 EPS
Q & A
- FY 2014 35 cent guidance range: visibility has been better so tight range given
- Replacement market has been less of a concern for BYI. Only 13% of gross profit. Feel like customer are buying but they may lose a couple of % of ship share from time to time because of pricing discipline. Remain optimistic about replacement cycle.
- Continue to believe they will generate at least $30MM in synergies with SHFL acquisition
- Systems growth will be the highest. Game sales will be 2nd highest.
- 39.4MM diluted share count, which had added back one month of the 2.3MM ASR or 800k shares
- NASCAR doesn't have the common global mass appeal as Michael Jackson for example. Already started work on NASCAR 2.
- If you take out the 2,200 Canadian VLTs in FY 2013, ASPs in 2014 will be higher.
- Has at least 30% of ship share in Illinois; expect to garner a similar amount in FY 2014. So that will pressure ASPs a little bit but not substantially
- Net net, ASPs might be up a little bit
- There could be some of moving from class II to class III next year
- Market is happy that the SHFL combo is happening
- F4Q Domestic replacement share? Somewhere in the teens
- 'Normalized' flat ASPs had some impact on replacement share
- Good growth from Pawn Stars
- Lottery units down? They did some floor re-concentration.
- International: buying activity did pick up. Got some sales from Argentina where importation of goods has been difficult
- For FY2014, Argentina is one important driver of a quarter being 1,200 units or a 950-1,000 units quarter.
- Expect units to pick up reasonably significantly in FY 2014; had 3,500 international units in FY2013
- iView DM continues to be a terrific opportunity
- Systems: expect Software and services % of mix to be in the mid-30s
- FY 2014 R&D % of revenue: 11-12%
- Gaming equipment margins in FY2014: may grow fractionally. Would require higher mix of conversion kit sales to grow margins
- MJ 2: new music, new game mechanics, customers excited
