Bally Technologies, Inc. (BYI)

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Bally Technologies (BYI)

Q2 2013 Earnings Call

January 31, 2013 4:30 pm ET

Executives

Richard M. Haddrill - President of Alliance Gaming Corp.

Neil P. Davidson - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Ramesh Srinivasan - Chief Executive Officer, President and Director

Analysts

David Bain - Sterne Agee & Leach Inc., Research Division

Jonathan Mohraz - JP Morgan Chase & Co, Research Division

Amir J. Markowitz - Morgan Stanley, Research Division

Kelly Knybel - Deutsche Bank AG, Research Division

Barry Jonas - Wells Fargo Securities, LLC, Research Division

Chad Beynon - Macquarie Research

Todd Eilers - Eilers Research, LLC

Presentation

Operator

Welcome to the Q2 2013 Bally Technologies Inc. Earnings Conference Call. My name is Adrienne, I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the call over to Richard Haddrill. Richard, you may begin.

Richard M. Haddrill

Thank you, and welcome everyone to Bally Technologies Second Quarter Fiscal Year 2013 Earnings Call. Today's results mark a record second quarter for overall revenue and earnings per share and our sixth consecutive quarter of year-over-year earnings per share growth. Additionally, we have raised our guidance for the remainder of fiscal year 2013 to $3.20 to $3.40 per diluted share. So my final quarter as CEO was a very good one, but more importantly, our future is very bright.

I'm also pleased to inform you that the CEO transition is going exactly as planned, and Ramesh is doing an excellent job with his new role. The transition has not caused any interruptions and is already on. We need to spend additional time on strategic initiatives to further enhance our position for the long term. So my thanks to all of the Bally team members and especially to Ramesh for making this transition as seamless as possible.

Now for today's call, Neil Davidson will cover our overall financial results, then Ramesh will further discuss the operational highlights in recent successes. And I will close with a few final thoughts before we open it up for questions. Neil, over to you.

Neil P. Davidson

Great. Thank you, Dick. Today's call is 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. We do not intend and undertake no obligation to update our forward-looking statements, including forecast of future performance, the potential for growth of existing markets or the opening of new markets for our products, as well as future prospects and proposed new products.

More information on 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, 2012, 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 this webcast and any transcripts of this call only speak to this date, January 31, 2013.

Today's call and webcast may include 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.

Today, we reported record financial results for the second quarter ending December 31, 2012, and increased our guidance for fiscal 2013. Overall, total revenues was a second quarter record $238.3 million, up 13% from last year, with diluted earnings per share increasing 48% year-over-year to a second quarter record of $0.80 per fully diluted share and similar to our first quarter results, was slightly ahead of our internal expectations.

Revenue from game sales were $82.6 million for the quarter, up 18% from $70.2 million in the prior year. We sold 4,565 new units during the quarter, including 3,778 units in North America. Replacement units sold of 2,956 units marks the seventh quarter in a row. Our North America replacement units were up year-over-year, continuing to reflect increases in our ship-share, resulting from our improving core video content, combined with what we believe represents a continued uptick in replacement units sold.

Average selling price for the quarter was $16,553. As expected, our ASPs declined slightly from last quarter. We shipped 568 lower ASP Canadian VLT units and 399 Illinois VGT units in the quarter. However, after factoring out of these units, our ASP was comparable to the last quarter.

Game sales margins increased to 53% versus 47% last quarter and 43% last year, ahead of our expectations, driven by benefits from ongoing supply chain initiatives in our Pro Series line of cabinets. Margins benefited by approximately 200 basis points this quarter from a customer contract election that reduced costs but did not impact revenue. We now expect our gaming equipment margin will approximate 50% for the rest of fiscal 2013.

On to gaming operations. Revenues from gaming operations set a second quarter record at $99 million, up 15% from $86.2 million in the comparable period last year, principally as a result of continued success with our Cash Connection link, which ended the quarter with 1,360 units, up 144 units from last quarter. Our ending WAP installed base increased by 87% versus last year, driving record WAP revenues, which were 84% higher than in the second quarter of fiscal 2012. The margin on gaming operations was 70%, within our expected range at 68% to 73%.

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