BYI: WILL ANYTHING DO?

Slot guys can do little wrong in the eyes of investors.  It probably makes sense.  Who cares about this quarter?

BYI is up 7% since April 5th which is pretty good. Considering that the company punted pretty badly on April 6th, that is a pretty remarkable performance. This just goes to show you how much the institutions want to own this sector and for good reason. IGT reported a low quality quarter and, as we suspected, the stock rocketed higher. In sympathy, BYI appreciated over 5% on the day.

So what should we expect on Thursday night?  We actually feel better about their quarter post the IGT call. Generally there shouldn’t be a lot of surprises since they already pre-announced… but of course the magic is where the shortfall comes from. Market share probably dipped – Konami may have shipped 2,500 units this quarter – and probably will stay low for another couple of quarters. We are getting positive feedback from BYI’s new games but it will take a bit of time before they show up materially in the numbers.

We’re at $0.53 for the quarter, including Rainbow, since it’s technically not discontinued until next quarter, and in-line with consensus at $0.58 for the June quarter. However, we are above consensus for FY2011. Below are the details: 

  • Product sales of $72.5MM with a gross margin of 50%
    • 3K machines shipped to NA, comprising of 2,600 replacement units and 400 new units
    • 1,500 international shipments
    • $14.5K ASP’s
    • $7.4MM of “other product sales”
  • Systems sales of $52.5MM at a 74% margin
    • We know that the Marina Bay Sands revenues won’t be booked until the June quarter
    • We suspect margins should be higher than usual since revenues should be heavily weighted towards software vs. new system installs
  • Gaming operations revenue of $66MM with margins at 72%
    • Normally March is a seasonally better quarter than December, however, we know this quarter and the next several will be impacted by the removal of the Alabama units
    • We estimate a $3MM revenue impact from Alabama this quarter and a $4.8MM impact for the June quarter
  • Other stuff:
    • SG&A of $52.5MM
    • R&D of $20MM
    • Net interest expense of $2.5MM, which will step down next quarter and going forward since interest on the R/C steps down 50 bps and BYI will have $80MM more of cash on hand, barring a stock buyback
    • D&A of $5.9MM
    • Tax rate of 35%