• run with the bulls

    get your first month

    of hedgeye free



As we expected, BYI lost ship share in North America but quarter was in-line with pre-announcement.



BYI reported FQ3 largely in line with our expectations.  Equipment revenues were weak, due to lower ASP's that were a result of larger than expected shipments to international markets (which also have some recurring revenue components - i.e. Mexico).  North American shipments were weak as we suspected, and as a result, BYI lost ship share in the NA.  Lost ship share should be temporary due to the introduction of a new cabinet and many new titles will ship over the next 2 quarters. Equipment weakness was somewhat offset by strong margins which the company attributed to manufacturing efficiencies and lower material costs.  We suspect a higher mix of conversion kit sales helped a bit as well.  Gaming operations was surprisingly strong, especially given the impact of Alabama.  As expected, systems sales were weak but margins were strong due to the skew away from hardware sales.


We may have more color post the call. For now, below are our notes from the conference call.



  • Recurring revenue was 47% for the quarter compared to 45%
  • Fewer game sales should be deferred going forward, given the change in software accounting rules
  • North American ship share was 15% for the quarter
    • Partly blamed IGT's discounting
  • Expect effective tax rate between 34-36% due to higher income levels in lower tax rate jurisdictions
  • Expect to record a $18-20MM gain on the sale of Rainbow
  • Well-positioned to accelerate share repurchases under the new $150MM plan
  • Leverage ratio is well under 1x
  • Continue to use working capital prudently to help operators finance purchases
  • Remain optimistic that a replacement uptick will occur in the near future
  • NA replacements: 2,236 were replacement sales
  • Alpha 2 release timing seems to have impacted their ship share
  • International sales were driven by strong sales to Asia and Latin America
    • We suspect Mexico was very strong - they also earn recurring revenue there
  • Italy: 57k games should be deployed over the next 12-18  months. Have executed contracts with 2 distributors for 3,600 games and systems
  • Excited about Class III shipments to Mexico and re-entry into Australia
  • Gaming operations negatively impacted their revenues in Jan & Feb
  • Early indications that Cash Spin will surpass other popular Bally games
    • Most successful launch in their entire history
  • Expecting excellent net new placements in gaming operations this year
  • Expanding their position in Mexico
  • Trial units in Australia are performing well
  • Systems was negatively impacted by delays in several projects (MBS)
  • During the quarter they signed a corporate wide agreement with ISLE (switched from IGT)
  • Have won every Table View contract they have competed for in PA
  • Expect wide implementation of iVIEW DM this year and will release multiple applications to run on iVIEW
  • There will be opportunities in Canada in the near future
  • Will give more thoughts on FY2011 on the next call


  • Don't plan on discounting, it's not a great strategy and short-sighted
  • Launch of Alpha 2 ProSeries cabinet - exact timing? 
    • Ship a few by end of June quarter.  Book of business for June Q is better than last quarter
    • Think that by next year most of their shipments will be Alpha 2
    • ASPs will be higher too and help margins
  • Gaming operations saw in increase in centrally determined games despite removal of Alabama
    • Saw growth in Washington
  • Also saw growth in premium products
  • What was the Alabama impact  (2-3 cents/ quarter)
    • less in the 3Q since all the games were not offline the entire Q
    • Country Crossing was removed - the ones that are operating are in the system
  • In Italy some of those units are for sale, some are for participation.. there are also system recurring revenues.  The daily rates are lower than normal but they are locked for a long period of time allowing them to recoup their investment handsomely. They also get small daily system hook up fees.
  • Added more daily fee than participation games to their premium games
  • Canada:  Expect 4-6 of the provinces make systems procurements over the next two years.  They are also going to make large VLT purchases anywhere from 6-14k games per province
  • WAP / LAP breakout: Have million dollar link and quarter million link coming out - so 2 over the next 12 months. 985 WAP/ 25 LAP
  • $6.5MM of maintenance capex in the quarter


Great quarter but call wasn't as entertaining as recent earnings conference calls.




  • Cotai timing/positioning: Wynn Encore Macau--has " extended space" as biggest asset;  we will build on Cotai "if we are encouraged to do so... and we will be encouraged..... won't happen until early 2014"
  • LV room rates trends in 2Q: not really seeing any improvement...very stable; growing capacity impacting rates
    • comps in LV was tough; beach club construction closed down the front of Encore; construction will finish in 4 weeks.
  • Wynn Macau strong 1Q: higher mix of direct vip; non-gaming revs up significantly; hold % was "a little below normal" (historical hold is 2.85%)
  • Thinks government deficits will continue to adversely impact US economy
  • Sustainability of high growth rates in Macau/China: Chinese people's "good life is going through Macau"--not just gambling, but also shopping and dining.
    • Asian markets are very aware of "top brands". Wynn needs to meet that demand
    • Government pulled back on visas to discourage people who can't afford to gamble.
    • "We increased Chinese ownership in our company by listing on HK Exchange"
    • Steve believes market share should be derived from fair share ratio
  • Cost of living in Macau is not improving.  Wynn increased Macau workers' wages by 10%.  Infrastructure contribution is 4% of revenues
  • Macau government limiting of licenses/construction activity in Cotai; construction will be done at a slower pace for resorts.
  • While checking out regional casinos, Steve impressed by River City Casino (PNK);
  • Next project will be in China unless there is a Massachusetts opportunity.
  • Reception on Macau Encore: "Nicest property in Macau. Good supply in the market helps everyone"
  • Wynn Encore: wants to attract customers who are willing to dish out $350 per night for hotel luxury living.
    • Encore fulfills "non-gaming" customer requests, learning from customers--Steve calls it "organic growth."
  • Zero impact from MBS's opening.
  • "It is appropriate for us to spend more time and focus on Macau"
  • Philly renewal license: yes, Steve would be interested if opportunity pops up.
  • LV Baccarat trends: YOY change should be up but not at levels seen during peak of US economy.

Results from the Macro Survey of the Day

At 3:10pm today, we sent out a survey regarding to Mark Mobius' shirt. Below are a few of the responses:


"I think this is what Goldman Sachs would call 'a shirty deal'."


"Bearish if he is wearing a thong"




"Squeamish… Or if that's not okay, then bearish."


"Pukish, perhaps?"


"It made me want to wrap a big turban on his head and give him a crystal ball.

I think I am going find a company that makes golden genie lamps……"


"Mr. Clean never looked so good…"






“Tigerish – Snoopy’s calling the shots”


“I could get to c)tiger by connecting the same dots but I am going to offer the Krute.  Mobius looks like Yul Brynner in the King and I.  The National emblem of Thailand (Siam in the King and I)is the Krute.  There are also a lot of Tigers in Thailand also.  Nevertheless, "The Krute is believed to appear whenever the country's in turmoil, in its greatest form, Aroonsuck, Thai for the beginning or Alpha, to serve its role as defender of Thailand."  So...Mobius, a value investor looks for Alpha(Aroonsuck)when prices are lowest (turmoil).”


“[In the] what was he thinking category!”


"Extremely Bearish… Dude, seriously? Laid back"


"I’d say Tigerish, but I am haunted by the photo of Putin standing on top of the Siberian Tiger that he popped a cap into… Maybe that’s where Moby got his shirt."


"Bullish, aliens contributing to macro"


"Spain Rallied on huge volume when the shirt hit the tape"


"Bullish on retail, this will be the new apparel style! I like it"


“Gonna have to go with Tigerish. WOW that's a bit much...”


"Definitely tigerish"


Results from the Macro Survey of the Day - Pic of the Day


Thanks for participating, everyone.


Your Macro Team

Hedgeye Risk Management

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Macro Survey Of The Day

Did the sheen of Templeton’s Mark Mobius’ shirt make you: 

  1. Bullish
  2. Bearish
  3. Tigerish 

We will post all replies relating to this Macro Man’s influence in driving your global equity view today.


Anonymously, of course,


Your Macro Team 


Macro Survey Of The Day - Pic of the Day

Germany: 4 Bullish Charts

Position: Long Germany (EWG); Short Spain (EWP)


Below we refresh you with four bullish German charts, including unemployment that was released today at 7.8% in April, a sequential decline. In the face of European sovereign debt concerns, we continue to like Germany as a lower beta play on safety for an economy that should benefit from the government’s fiscal conservatism, an increase in exports alongside a weaker Euro, and an environment of low inflation. As one play on our Q2 2010 Theme Sovereign Debt Dichotomy, we’re long Germany (EWG) and short Spain (EWP). See the charts below. 


Matthew Hedrick



Germany: 4 Bullish Charts - c1


Germany: 4 Bullish Charts - c2


Germany: 4 Bullish Charts - c3


Germany: 4 Bullish Charts - c4


Until this week, the performance of the restaurant industry has been remarkably resilient.  Driven by the smaller cap names, the group has outperformed every month this year and did not come close to bottoming with the broad market in February.  Today the group is moving higher again with the broader market.  If the restaurant group was more high-profile like the Technology or Financial sectors, it would be considered a leadership group. 


Of course, it’s a leadership group because everyone needs to eat.  So with the Restaurant group rolling over this week, is it a leading or lagging indicator?  


The stocks have been outperforming in 1Q10 as…..


(1)    Top line trends continue to improve sequentially

(2)    Margins are expanding due to lower food costs

(3)    The Private Equity mania


The current pull back centers on….


(1)    Some high profile EPS misses

(2)    Food inflation is around the corner

(3)    Too far too fast….


With the rising tide having lifted all boats so far this year, I don’t expect this run up to continue for the balance of 2010.  I continue to believe there is some powerful momentum behind SBUX and would focus on EAT as we progress toward FY11.  MCD is taking share in the US but upside is limited as valuation is approaching a stressful level.  I see the BWLD business model as being broken and some restructuring is needed to fix the real estate issues.  PFCB has picked up some momentum in the Bistro’s traffic trends, but the risk parameters are on the rise with incremental pricing and lower discounting.




Howard Penney

Managing Director


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.