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BYI F2Q 2010 CONF CALL

BYI F2Q 2010 CONF CALL

  • 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

 

Q&A

  • 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