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Bally Technologies (BYI)

Q1 2013 Earnings Call

October 25, 2012 4:30 pm ET


Richard M. Haddrill - Chief Executive Officer and Executive Director

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

Ramesh Srinivasan - President and Chief Operating Officer


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

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

William J. Lerner - Union Gaming Group, LLC

Todd Eilers - Roth Capital Partners, LLC, Research Division



Good day, ladies and gentlemen. Welcome to the Q1 2013 Bally Technologies Inc. Earnings Conference Call. My name is Beverly, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Richard Haddrill, CEO. You may proceed.

Richard M. Haddrill

Thank you, and welcome, everyone, to the Bally Technologies first quarter fiscal year 2013 earnings call. Today's results mark an all-time first quarter record for revenue, operating income and earnings per share, and mark our fifth consecutive quarter of year-over-year earnings per share growth. We are excited about our future.

For the seventh quarter in a row, we set a revenue record in gaming operations, driven by the significant investments we had made in our game development studios and game platform in recent years. The release of Michael Jackson King of Pop and Grease and the more recent launch of Betty Boop Fortune Teller, all on our Cash Connection wide-area progressive link, drove another record to WAP revenues and units placed. WAP revenues increased 37% and 92% over the fourth quarter and prior-year quarter, respectively. Further, we showed several new WAP products at G2E this year, the next of which is based on our proven Hot Shot brand, which we expect to debut this fiscal year. The investments are also paying off in gaming equipment sales and new market opportunities, with a 28% year-over-year increase in game equipment revenue and 3,078 North American replacement units sold in the quarter.

On the systems front, South Point Casino in Las Vegas successfully launched NASCAR Virtual Racing across the casino floor on both iVIEW and iVIEW DM. We are gaining momentum with iVIEW DM and we are confident that our Systems business will show further strength in the coming quarters.

Our fiscal year 2013 continues to hold excellent opportunities for Bally and our first quarter is indicative. Consequently, we are increasing earnings guidance for fiscal year 2013 to $3.05 to $3.35 per fully diluted share. This guidance range continues to contemplate annual revenue improvement in all 3 areas of our business: Game sales, gaming operations and systems, and continued gross margin improvement in gaming equipment.

For today's call, Neil Davidson will cover our overall financial results. Ramesh Srinivasan will discuss operating highlights and I will have some overall comments before we open it up for questions. Neil, over to you

Neil P. Davidson

Great. 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. 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, October 25, 2012.

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 first quarter ending September 30, 2012, and increased our guidance for fiscal 2013. Overall, total revenue was a first quarter record, $235 million, up 21% from last year. Operating income for the period was also a first quarter record $54 million, up 43% from last year, with diluted EPS increasing 71% year-over-year to $0.77 per fully diluted share, another first quarter record and slightly ahead of our expectations.

Onto game sales. Revenues from game sales were $82.7 million for the quarter, up 28% from $64.4 million in the prior year. We sold 4,608 new units during the quarter, including 3,865 units sold in North America. Replacement units sold of 3,078 units marks the sixth quarter in a row our North America replacement unit sales were up year-over-year, reflecting what we believe is a refocus by operators in investing in their casino floors and an increase in ship-share resulting from our improved content.

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