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BYI 1Q2010 CONF CALL

  • "Pleased to report a very strong start to 2010"
  • 9th quarter in the row of meeting or exceeding analyst estimates
  • Believe that shipshare in NA was in the low 20's%
  • Cost of services are now included in cost of sales for systems business. Maintenance revenues increased 10% to $13.5MM
  • SG&A decreased 18% y-o-y as a result of lower payroll, incentive comp, and lower legal and auditing fees.  Expect SG&A to increase sequentially but to be lower y-o-y due to the successful resolution of legal and auditing issues
  • Since Sept 20th they repurchased 200k shares around $36
  • No Trial date set for the anti-trust case
  • Shipped 2,418 units to NA customers. All but 87 were replacement sales, given the anemic number of new openings.
    • Didn't recognize any City Center shipments
  • Some competitors are discounting
  • Majority of NA shipments were video, and video continues to perform well
  • Think that they can maintain margin in the high 40's for game sales and that 50% is achievable
  • Gaming operations:
    • Increased premium games placed and got higher win per days
    • Just launched Digital Towers which are performing more than 2x house average
    • Commencing in the December quarter, new spinning reel games coming out
    • Backlog is the strongest they've seen in a while
  • Have a new cabinet to replace a 40-50k footprint of aging mechanical spinning reel games
  • Excited about G2E game launches. 188 unique game titles worldwide.  They think that they will blow you away with their showing
    • 90% of what they show will be available by the Spring
    • New Alpha platform - Alpha2, very strong feedback should allow them to compete effectively at G2E
    • Reel Image (transmissive technology) launching
  • Have seen more customer interest in their products over the last few months
  • Domestically focused on all coming gaming markets
  • Re-entering Australia over the next few weeks
  • Systems margin was lower than normal range because of the higher percentage of iVIEW and other hardware and higher services for systems installations.  Expect systems margins to get back to normal
  • Systems revenue should be $220-230MM with maintenance to be $58-62MM (already guided to this last Q)
  • Referred to the systems install at Galaxy this September
  • In Mexico they have 70 systems sites up and running.  The migration to Class III will present a great opportunity for them
  • Pipeline of opportunities allows them to remain bullish on the outlook for their business
  • Running a successful trial of iVIEW DM at Pechanga on 400 units and will grow to 1,200 units
  • The backwards compatibility advantage of their systems is an advantage
    • Basically you can run their "server applications" on legacy machines... so if casinos are strapped they don't need to buy new games to get new apps
  • Based on the solid start to the year, BYI raised the low end of their guidance by 5 cents (better margins and visibility)
  • When the economy / environment improves they should be able to grow EPS meaningfully
  • They have the highest margins in the industry
  • Their R&D effort is very productive, released 2x as many games this year
  • Continue to capitalize on their international growth opportunity

Q&A

  • Pricing/discounting?
    • They were referring to a small competitor
  • Booking Aria?
    • I don't know why Bill thinks that companies booked CC in the quarter.  We met with CC slot management in mid-Sept and there were only 800 games on the floor
  • iVIEW DM at Pechanga, how important is this?
    • We wrote a note on this deployment because the release implicitly implies that they will put iVIEW DM on IGT & WMS machines... this is very material.  IGT will tell you that if you open their boxes the warranty lapses. We'll see what really happens though
    • 450 games now, 600 games in the next week then 1,200 in early 2010
  • Will all the iVIEW DMs go on just BYI, IGT, Konami machines?
    • Unclear.... they've already tested it. Expect to get the green light from IGT/ WMS "soon"
  • Tax rate for the year?
    • 36%
  • Mix of hardware and software in systems?
    • Still think that systems margins will be in the low 70's for the year
    • Also reclassified how they account from services/installation expense from SG&A to cost of systems sales.  They had $1.2MM of this cost imbedded in 1Q09 
  • What drove the strong international unit sales
    • 15% of the sales were to Mexico (Class II) -first for sale units into Mexico
    • Asia had a good quarter
    • South Africa kicked off
  • Mexico
    • Don't expect participation to get whacked there
    • They used to sell the games at very low margin and then also make a small participation fee... let's say $10-15/day
  • When will they recognize all that systems implementations that occurred in September?
    • Most was booked in the September quarter, some will be spread over 12 months, others fall into next quarter in line with "go-lives"