Bally Technologies, Inc. (BYI)

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Bally Technologies (BYI)

Q3 2013 Earnings Call

April 24, 2013 4:30 pm ET

Executives

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

Ramesh Srinivasan - Chief Executive Officer, President and Director

Analysts

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Joseph Greff - JP Morgan Chase & Co, Research Division

Steven M. Wieczynski - Stifel, Nicolaus & Co., Inc., Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Todd Eilers - Eilers Research, LLC

Amir J. Markowitz - Morgan Stanley, Research Division

Barry Jonas - Wells Fargo Securities, LLC, Research Division

Joel H. Simkins - Crédit Suisse AG, Research Division

Chad Beynon - Macquarie Research

Edward S. Williams - BMO Capital Markets U.S.

Presentation

Operator

Good afternoon, and welcome to the Third Quarter Fiscal 2013 Bally Technologies Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Neil Davidson, Chief Financial Officer. Please go ahead.

Neil P. Davidson

Great. Thank you, Laura, and welcome, everyone, to the Bally Technologies Third Quarter Fiscal Year 2013 Earnings Call. Now for today's call, I will cover our overall financial results, then Ramesh will further discuss operational highlights and recent successes before we open it up for questions.

Now, 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. 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 the webcast and any transcripts of this call only speak to this date, April 24, 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 financial results for the third quarter ending March 31, 2013, marking our seventh consecutive quarter of year-over-year earnings per share growth. Additionally, we raised our guidance for fiscal 2013 to $3.35 to $3.45 per diluted share. Today's results also marked an all-time record quarter for revenue of $259.1 million, up 13% from last year, driven by record Systems and gaming operations revenues.

Earnings per share was an all-time quarterly record, increasing 39% from last year to $0.93 per fully diluted share, which included a loss of approximately $0.03 per share related to unfavorable foreign currency movements during the quarter

On to game sales. Revenues from game sales were $85.8 million for the quarter, up 8% from $79.3 million in the prior year. We sold 4,923 new units during the quarter, including 4,098 units in North America, of which 2,842 were replacement units.

Average selling price, or ASP, for the quarter was $16,051. As anticipated, our ASP was impacted by shipments of 788 lower ASP Canadian VLT and 656 lower ASP Illinois VGT units in the quarter. After factoring out these lower ASP units, our domestic ASP was up over last quarter and up in the year-to-date period, demonstrating our pricing discipline as we continue to refrain from artificial pricing and selling policies, which we believe serve a short-term objective and hurt long-term ship-share.

International ASPs were lower in the quarter, resulting from the mix of sales to lower ASP jurisdictions, which made up 42% of total international units compared to 17% in Q2 fiscal 2013.

Gaming equipment margins increased to 51% versus 46% last year, slightly ahead of our expectations, driven by benefits from ongoing supply-chain initiatives in our Pro Series line of cabinets and mix. In fact, despite the impact of lower ASP units, the average dollar margin for new unit sale was up 4% year-to-date compared with the prior 9 months.

Revenues from gaming operations set another all-time quarterly record of $102 million, up 10% from $92.5 million in the comparable period last year, principally as a result of the continued success with our Cash Connection link, which ended the quarter with 1,413 units, up 53 units from last quarter and in line with our expectations.

Our ending WAP installed base increased by 73% versus last year, once again driving record WAP revenues, which were 69% higher than in the third quarter of fiscal 2012. The margin on gaming operations was 71%, within our expected range at 68% to 73%.

Systems revenues also set an all-time quarterly record of $71.3 million, up 26% from $56.8 million in the comparable period last year, driven by go-lives in the Philippines, South Africa, New Zealand and in the U.S., to name a few.

As we noted on our last call, for the foreseeable future, we expect hardware and software revenues from Canada and South Africa in practically every quarter. However, I would point out there were no significant hardware, software revenues related to Canadian implementations in the quarter and only a portion of revenues from 1 South African implementation. In fact, since the beginning of fiscal 2012, no one customer has made up more than 12% of total quarterly Systems revenue.

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