• Game sales reflected continued sluggish replacement sales
  • The second quarter is seasonally the weakest quarter of the year.  Frigid weather in Dec also negatively impacted results - by $1MM
  • Last's year's SG&A included a $3MM insurance proceeds offset and this quarter included $3MM of G2E spend
  • Expect effective tax rate of 34-36% due to higher income in lower tax jurisdictions
  • Repurchased 114k shares in the 3Q2010 quarter
  • Estimate that they retained game ship share in the low 20's
  • North America - 2,253 were replacement sales
  • They are pleased with their low 20's % shipshare
  • Anticipate releasing their new alpha platform in the 3Q
  • Game sale margin reflect's cost initiatives
  • Majority of game sales in NA were video
  • The increase in conversion sales benefiting margins, and margins should remain above 50% in the next 2 quarters
  • International unit - got 22% of the units shipped to Resorts World Singapore
  • International opportunities for BYI over the next 12 months:
    • Italy shipments will begin in the summer on both a sale and participation basis
    • Mexico, Singapore and Australia reintroduction in 2011
  • Game operations- the horrible weather in Dec exasperated the normal seasonal weakness
  • Premium products continued to perform well - especially the Digital Series
  • Very excited about the Spinning Wheel game (end of 3Q) and Dual Cinevision game will lauch in the March Q and their backlog for these games continues to improve
  • Initial Mexican placements (Class III) have been very good with material increases in win per day
  • The current volume of systems business continues.  However, there are still a higher than normal postponement of technology decisions
  • Sands, SJM and Galaxy are all now BYI customers. SJM is switching to BYI system at Lisboa. Galaxy World will be the first casino to go live with iView DM
  • iView DM continues to perform well at Pechanga
  • Elite bonusing suite server is in place in several casinos and will launch applications like iSpin on it in the June & Sept Qs
  • While they continue to sense more optimism from their clients they expect that to build throughout the calendar year
  • 4Q is expected to be stronger than Q3
  • Expect that international will grow to 30% of their business in several years
  • Potential to increase their operating margin to 28-30% over the next few years



  • Have 17 games on the V32 cabinet
  • NY Lottery extension. BYI has just over 50% of the devices in the state of NY which was set to expire at the end of this year until this extension.  Will benefit them when Acqueduct opens (expects early 2011)
  • Cash from operations?  $50MM for the 6 months ended Dec 31 - lower y-o-y due to working capital
  • Capex? $6.5MM for the six months ended (corporate) plus $22MM on game operation capital expenditures
  • Uses of FCF? Will likely use more cash to repurchase stock and finance customer purchases. There are also a number of opportunities to acquire and invest in businesses.  Have no near term plans to issue a dividend.
  • Video shipments were over 60% of shipments in the Q.  Alpha 2 platform and more titles will help them continue to make traction in video
  • Canada RFP's?
    • One of their objectives is to insure interoperability 
    • Each province is independent, but they are coordinating to establish industry standards
    • Expect revenue from there to be recognized over several years
  • How do they view systems contract revenues funneling in?
    • Takes 3-6 months to make a decision for any facility and then it can take another 6 months for a facility to open
  • S6000 replacements with Classics Series as BYI will stop supporting that platform in March 2010
  • Pricing benefit of Alpha 2 and timing? Expect pricing to ramp over a 12 month period from the release date this summer.  Should help margins and ASPs (so does simply getting more video share since that has higher margins than reels)
  • This quarter's ASP's were depressed due to a large international shipment of a "stripped down" cabinet
  • Conversion kit sales were actually lower than last quarter
  • iView DM is set for trail at the Bellagio? There is no iView DM trial at Bellagio. There are 2 large customers that will start trialing it soon and several are going live shortly
  • Delay in systems / technology changes since implementation takes longer as do approvals.  Also capital budgets aren't as fixed as most people think - they are tweaked on a monthly basis.
  • Decline in WAP games? Haven't released a lot of product on WAP platform in a while.  They just recently launched some new products and have a few more in the pipeline
  • Financing to operators was beginning to decline at WMS?  Their DSO's are still below their competitors... Seeing about the same financing opportunities as they did 6 months ago. Expect DSO's to increase slightly and then level off
  • iView DMs at Pechanga are at 550, balance will go live in a few months. Feedback has been very positive.  So far all they have done at Pechanga is a technical proof and now they are getting ready to launch applications
  • Aria? Games at Aria are doing very well. Think that they will get DM on the floor in the next 90 days. 
  • Gaming ops detail? Fireball and 7777 Digital Towers growing well. Number of the premium titles increased by 59 units q-o-q. Win per unit was also up from the prior year
  • Did the system get installed in Kashada? Yes in Sept Q


While we don’t have a specific stock call on RCL into tomorrow’s earnings, we thought we’d “Youtube” RCL’s commentary last quarter and CCL’s commentary from their earnings call last month.




  • “The booking environment remains fairly consistent and relatively stable.”
  • “We are also seeing more pronounced seasonality than is the norm and we are giving the upside that we enjoyed in the third quarter back in the fourth.”
  • “The recent news have been full of reports that the economy is rebounding or is about to be rebounding but we have not seen any evidence of that in our bookings to date.”
  • “We have seen some early signs of a possibly expanding booking curve but it is still quite contracted by normal standards. We also have several new products in emerging markets and since these products tend to be shorter in duration and closer to the guest’s home, they also tend to have a closer in booking pattern.”
  • “Looking out to the summer of 2010, we are encouraged by the early peak season demand. On the other hand, we continue to see slow demand for Mexican Riviera cruises and demand out of Spain and the State of Florida is weaker due to their more difficult economies.”
  • “For the fourth quarter of this year and the first two quarters of 2010, our cumulative booked load factors are still running behind this same time last year but we are seeing a rapid recovery and with new bookings running more than 40% ahead of last year since mid-September, we expect to see higher book load factors in all quarters before year-end.”
  • “Peak season was better than we expected but it now appears that the traditionally weaker fourth quarter will be worse than we had previously thought. Our holiday sailings have required more discounting than we anticipated and our low season Caribbean cruises are being hurt by Florida’s weaker economy.”
  • “In aggregate, our forecast range is still quite wide but we do believe we have better yields -- we will have better yields in the first quarter of 2010 than we did in 2009, driven by the performance of our newest vessels and avoidance of the type of dramatic discounting we experienced last year.”
  • “Overall for 2009 we expect to source 40% of our company’s total business from outside the United States and then more than 40% in 2010. Although the winter season is upon us, we still have limited visibility to the performance of our products that depends more on sourcing of non-U.S. customers. It does appear that Rhapsody of the Seas in Australia/New Zealand will enjoy improved year-over year performance. For our products in Asia, Dubai, Brazil, and Panama, it is too early to tell.”
  • “For the first quarter and the full year, we are expecting both will have higher yields in the corresponding period in ’09”
  • “Bookings that we are experiencing today would be proportionately equal to slightly higher on a capacity adjusted basis to what we were seeing back in ’07 and ’08. I would lean toward higher because we have more of a load factor deficit than we did back in ’07 and ’08, given the contracted booking window.”
  • Oasis Commentary: “Bookings remain strong and she continues to command the lead pricing in the category.”
  • “It’s been fairly steady. It’s better than it was at the beginning of the year but I want to be very reluctant to say that we saw a dramatic shift in the way the consumer is spending money on board.”



  • “Ticket prices came in $0.01 better on slightly stronger-than-anticipated closing pricing.”
  • “Net onboard and other yields in our European brands were down less than in our North American brands, a trend similar to the experience in net ticket revenue yields. For the first time this year, we saw an increase in two of the onboard revenue categories: Shops and photo. The rest of the major categories were down, but for the most part, it was an improving trend from the prior two quarters.”
  • “ With continued strength and booking patterns during the last 13 weeks, occupancies on a capacity adjusted basis for the first nine months of 2010 are now at approximately the same levels as last year. Booking volumes during this past quarter for North American and European brands covering the first three quarters of 2010 are each up over 40% versus the easier comparisons to last year. But these bookings are also strong on an absolute basis. Actually, on absolute basis, these are the strongest bookings we have seen in our history.”
  • “We have seen more demand and have been able to move pricing higher in certain trades. Our U.S. premium brands are showing increasing pricing strength, which is a significant reversal from 2009. This also suggests that with the strengthening of the U.S. economy and the rise in the equity markets that the higher-end customer is feeling better about taking their vacations, and the superior value of cruise vacations is driving a lot of business our way.”
  • “Breaking the recent 13-week booking pattern down by markets for North American brands, other than for Mexican Riviera cruises, pricing for all other itineraries are up year-over-year, with particular strength in Europe cruises for spring and summer of 2010. Also, long and exotic cruise pricing is nicely up year over year, a nice reversal from last year.”
  • “Given the continuing strength in bookings, which has resulted in occupancies catching up with last year, we are now expecting North American brand revenue yields will be higher by 2% to 3% for the entire year 2010.” 
  • “With the recent strength of European brand bookings, we are expecting European yields for all of 2010 to be slightly lower on a local currency basis and higher on a current dollar basis.”
  • 2010 guidance: “I think if you look at our first quarter guidance, we were down in the 3% to 4% range. I think that the catch up -- by the time we catch up with all that in the second, we will gradually improve yields year-over-year. Second quarter will be better obviously than the first quarter. The third quarter will be better than the second quarter”
  • “In terms of bookings for 2010 in terms of  percent of the cabins that are currently filled is very consistent with our historical figures from '05, '06 and '07. Yes, they may be below the historically-strong numbers of '08, but they really are now back to the '05, '06, '07 levels.”
  • “Historically, in the fourth quarter, we do see a reduction in the overall booking curve, but this quarter, we didn't see as big of a reduction as we normally, so you can say we saw a little bit of an improvement in the booking curve as well.”
  • “Our projections for next year include relatively flat onboard for 2010, holding at these levels in the third and fourth quarter.”
  • “Everywhere is doing better with two glaring exceptions: The Mexican Riviera and Brazil. Other than that, I think, generally, Caribbean, Europe, Australia, Asia, they're all doing a little bit better.”
  • “I think, if there's been any leading indicator to wave, it's been how fourth quarter bookings have been, and they've been very encouraging. So we're pretty optimistic about wave.”

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A Glimpse into Demographic Headwinds for Teen Retail

A Glimpse into Demographic Headwinds for Teen Retail


Since 1998, the population growth of consumers between the ages of 13 and 23 has been slowing, and in 2010 will reach negative levels that will last through 2016.  Broadly speaking, it suggest that teen retailers will lose approximately 815,000 consumers over the next 7 years which equates to a loss of approximately $1.3 bn (using 2008 levels of apparel and footwear spending of $1,604 by consumers age 25 and under).  With all the complex Macro cross currents, having $190 mm (118,750 people x $1,604 spent on apparel and footwear) fewer dollars to capture is the last thing the teen retail space needs in 2010. 


One can argue that diversification is a positive here – like Abercrombie – which has concepts to capture different parts of each sub-segment that carry varying growth rates. But we’re not sold on that one. We’d argue that it leaves a diversified company with a ‘consistently mediocre’ portfolio as it relates to demographic exposure.


A Glimpse into Demographic Headwinds for Teen Retail - Retailer Demographic Chart 1


A Glimpse into Demographic Headwinds for Teen Retail - 2


A Glimpse into Demographic Headwinds for Teen Retail - Teen Retail Spending Table



He Who Panders To The Political Bubble

Today’s FOMC decision revealed nothing new. The Bubble in US Politics remains, and He Who Panders To The Political Bubble (Bernanke) will most likely retain his job as a result of falling in line with Washington’s revisionist consensus.


What will be most interesting from here is what Bernanke does post this immediate term job retention exercise. After he is confirmed by the Senate, he will have to face that stubborn little critter called the data.


There was a time when the US Federal Reserve claimed to be “data dependent.” Just because we have a Bubble in US Politics does not mean that the data ceases to exist. The most recent US inflation reports for the month of December were much higher than Bernanke’s forecasts (CPI and PPI came in at +2.7% and +4.4% year-over-year inflation, respectively).


We think the inflation data continues to rise sequentially until at least August. For He Who Panders To The Political Bubble, our advice in addressing this inflationary data in the coming months would be in line with the picture we have attached below. Hope and pray that everyone in Washington is as willfully blind to the data as you have become.


All the while, remember, hope is not an investment process.



He Who Panders To The Political Bubble - bern

Greek CDS: Is 300 Bps a Prescription for Pain?

We’ve had our EYE on the run-up of Greece CDS prices over the last weeks. As the chart below depicts, it’s interesting to note that once CDS prices of Bear Stearns and Lehman Brothers broke above the 300 bps level, the end came shortly thereafter. While we’re not explicitly calling for a Greek sovereign default nor a correlation between CDS prices and sovereign default, risk in Greece is heightening. Could the 300 line also govern a Greek breakout? History has a way of repeating itself. Stay tuned.


Matthew Hedrick



Greek CDS: Is 300 Bps a Prescription for Pain? - GR

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