Bally Technologies, Inc. (BYI)

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Bally Technologies Inc. (BYI)

Q1 FY09 Earnings Call

November 6, 2008, 4:30 PM ET

Executives

Richard Haddrill - President and CEO

Robert Caller - EVP and CFO

Gavin Isaacs - EVP and COO

Mark Lerner - Sr. VP for Law and Government, Secretary, and General Counsel

Analysts

Steven Kent - Goldman Sachs

David Katz - Oppenheimer

Celeste Brown - Morgan Stanley

Todd Eilers - Roth Capital Partners

Joseph Greff - JPMorgan

Stephen Altebrando - Sidoti & Company

Presentation

Operator

Good day, ladies and gentlemen and welcome to the First Quarter 2009 Bally Technologies Incorporated Conference Call. My name is Amity and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We'll facilitate a question and answer session post at the end of this conference. [Operator Instructions].

I would now like to turn presentation over to your host for today's call, Mr. Richard Haddrill, Chief Executive Officer. Please proceed sir.

Richard Haddrill - President and Chief Executive Officer

Well thank you, Amity, and welcome, everyone, to Bally Technologies first quarter fiscal 2009 earnings call. We are very pleased to report record first quarter revenues and earnings. These results are especially impressive, given the extremely difficult economic environment. We have continued to gain market share in both games and Systems, as a result of our leading products and great team of people.

Today you'll hear from some of them. Robert Caller, our Chief Financial Officer will discuss our overall financial results, Gavin Isaacs, our Chief Operating Officer and Ramesh Srinivasan, our Executive Vice President of Systems will discuss their respective businesses. And Mark Lerner, our Chief Legal Officer will discuss the resolution of some legal matters. Then finally, I'll have some overall business comments before we open it up for questions.

Robert, over to you.

Robert Caller - Executive Vice President and Chief Financial Officer

Okay. Thanks Dick. First, let me review our Safe Harbor language. Today's call and simultaneous webcast contain forward-looking statements about Bally and our future business. These forward-looking statements are based on currently available information. Actual results could differ materially from those anticipated in the forward-looking statements and reported results should not be considered an indication of future performance. More information on factors, risks and uncertainties that may affect our business and financial results or may cause us not to achieve our forecast, are included in our annual report on Form 10-K for the year ended June 30, 2008 and other public filings we have made with the Securities and Exchange Commission. The forward-looking statements made on this call and webcast, the archived version of the webcast and any transcripts of this call speak only as of this date, November 6, 2008. Today's call and webcast will include certain non-GAAP financial measures within the meaning of Regulation G. A reconciliation of all such non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in today's press release.

Now on to the financial results. Today we reported record financial results for the three month period ended September 30th, 2008, the first quarter of our fiscal 2009 year. We continue to be the fastest growing major Gaming supply company. Total revenues were $237 million, a 26% increase as compared to the comparable prior year period. Net income was 30.3 million, or $0.52 per share on a fully diluted basis, as compared to net income of 21.3 million or $0.37 per share in the comparable prior year period, an increase of 41%. Operating income was 53.5 million and equaled 23% of revenue as compared to 22% in the prior year quarter.

As Gavin and Ramesh will discuss more detail later in the call, we again recorded record net results in all three of our technology businesses for the first quarter, and Rainbow, while down slightly, is expected to be on our profit plan for fiscal 2009.

We recorded a 33% increase in revenues from our System business to 52 million, as compared to 39 million last year. The increase in our Systems revenue and the backlog in our Systems business continue to be strong. Revenues in the quarter were driven principally by existing customers investing further in our Systems products. In addition, maintenance revenues were 12.2 million for the quarter, an increase of 26% from the same period last year.

Margins in the System business this quarter were at the low end of our target range of 70% to 75%, due to increased mix of hardware versus software sales. Hardware carries a higher cost of goods sold than software.

We also reported record quarter revenues in both our Gaming equipment and Gaming operation lines of business. Gaming equipment revenues increased 27% to $107 million over the prior year period. This increase in Gaming equipment revenues was driven by 28% increased in new games sold to 6,598 units up from 5,151 units in the comparable prior year period.

Of the total units recognized this quarter 5,199 were to customers in the United States and Canada. International unit shipments totaled 1,399 or 21% of the total new units sold during the quarter, an increase of 32% from last year. Our average selling price or ASP for the quarter increased 6% to a record $14,062.

Margins on our Gaming equipment were 44% for the quarter. The game sale margin was negatively impacted by higher inventory obsolescence and other charges, and the sale of 465 million lower margin OEM units during the period. Improving the margin on game sales, remains a key short-term focus of the company and we continue to believe these margins will improve over the next several quarters.

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