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Bally Technologies, Inc. (BYI)

F2Q09 Earnings Call

February 3, 2009 4:30 pm ET


Richard Haddrill – Chief Executive Officer

Gavin Isaacs – Chief Operating Officer

Ramesh Srinivasan – Executive Vice President of Systems

Robert Caller – Chief Financial Officer, Treasurer


David Katz - Oppenheimer & Co.

Joseph Greff - J.P. Morgan

Todd Eilers - Roth Capital Partners

William Lerner - Deutsche Bank Securities

Celeste Brown - Morgan Stanley

Steven Kent - Goldman Sachs

Steven Wieczynski - Stifel Nicolaus & Company, Inc.



Good day ladies and gentlemen and welcome to the second quarter 2009 Bally Technologies, Incorporated conference call. My name is [Stacy] and I’ll be your coordinator for today’s call. (Operator Instructions) At this time I would like to turn the call over to Richard Haddrill, Chief Executive Officer. Please proceed sir.

Richard Haddrill

Well thank you Stacy and welcome everyone to Bally Technologies second quarter fiscal 2009 earnings call. We are again pleased to report an all-time record for quarterly earnings per share in undoubtedly the most difficult economic environment we have faced in quite some time. Our revenues were also a second quarter record. With me today on the call are Gavin Isaacs, our Chief Operating Officer; Ramesh Srinivasan, Executive Vice President of Systems; and Robert Caller, our Chief Financial Officer and Treasurer.

First Robert will review the safe harbor language and cover our overall financial results. Then Gavin and Ramesh will discuss the highlights of each of the games and systems business units. Finally I will have some overall comments and update our guidance. Then we’ll open it up for questions.

Robert, over to you.

Robert Caller

Thanks Dick. First I will review our safe harbor language. Today’s call in simultaneous webcast contains 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,

February 3, 2009.

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. Now to the financial results.

Today we reported our financial results for the second quarter of fiscal 2009. Total revenues for the three months ended December 31, 2008 were a second quarter record of $233.3 million, a 1% increase from the comparable prior year period. Revenues from game sales were $101.3 million, a decrease of 6.5% from the prior year and revenues from gaming operations were a second quarter record at $66.4 million, a 22.6% increase in the same period last year.

Systems revenues were $55.9 million and were 1% less than the comparable period last year. This represents the fifth consecutive quarter that systems revenues have exceeded $50 million. So let me highlight the earnings power of our company. First we recorded record quarterly net income and fully diluted earnings per share of $33.6 million or $0.59 per share as compared to net income of $24.4 million or $0.42 per share on a fully diluted basis in the comparable prior year period, increases of 37% and 40% respectively.

Second, adjusted EBITDA for the quarter was $78.3 million, a 23% increase as compared with the same period last year. Thirdly, we also achieved record cash flow from operating activities of

$72.9 million for the six months ended December 31, 2008, a 133% increase over the comparable period of the prior year. Fourth, operating income increased to $59.4 million in the current quarter as compared to $46.8 million in the prior year quarter, a 27% increase. And finally, our operating margin increased to another all-time record of 25.5% in the current quarter as compared to 20.3% in the prior year quarter.

Gaming equipment revenues declined during the quarter as a result of a decrease in the number of games sold. During the quarter we recognized revenue on 6,099 games as compared to 7,144 games in the comparable prior year period, a 14.6% decrease. However, new unit sales to international customers increased 16% to 1,210 units or 20% of our total new unit shipments as compared with the same period last year.

Our average selling price per new unit or ASP for the quarter also set a new record at $14,531. The increase in ASP benefited from better management of discounts and overall mix, including the sale of some premium units. We currently expect ASPs in the second half of fiscal 2009 to be slightly lower than this second quarter record based on anticipated mix.

We are especially pleased with the improvement in our margins on new game sales for the quarter. Margins on game sales were 49%, up over 500 basis points from the September quarter. The margin benefited slightly from the premium sales noted above as well as from our lean manufacturing initiatives; our more efficient inventory procurement and management processes; and better management of discounts. In addition, there were no significant inventory charges during the quarter.

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