Bally Technologies Management Discusses Q4 2012 Results - Earnings Call Transcript

Bally Technologies (BYI)

Q4 2012 Earnings Call

August 09, 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 Corporate 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

Mark Strawn - Morgan Stanley, Research Division

Todd Eilers - Roth Capital Partners, LLC, Research Division

Carlo Santarelli - Deutsche Bank AG, Research Division

Darnel J. Bentz - KeyBanc Capital Markets Inc., Research Division

Jon T. Oh - Credit Agricole Securities (USA) Inc., Research Division



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Bally Technologies Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. And with that, I would now like to turn the conference over to your host for today, Mr. Richard Haddrill, CEO. Please go ahead, sir.

Richard M. Haddrill

Well, thank you, and welcome, everyone, to Bally Technologies' fourth quarter and full fiscal year 2012 earnings call. Today's results mark an all-time quarterly and annual record for revenues and annual diluted earnings per share from continuing operations, and mark our sixth consecutive quarter of year-over-year revenue growth.

We set revenue records in each of the last 6 quarters for gaming operations, driven by the significant investments we have made in our game development studios and our game platform over the past few years.

In March we released GREASE, and in late May, we launched Michael Jackson King of Pop, both on our new Cash Connection wide-area progressive link, which drove record WAP revenues in the quarter.

Key platform and hardware innovations are also paying off in our gaming equipment sales, as we achieved approximately 19% ship share for North America. Also, our iVIEW DM strategy continues to develop positively, as iVIEW DM went live in 8 more locations during the quarter. We now have a solid base of thousands of DMs running across all major manufacturers, and our pipeline continues to grow.

Our fiscal year 2013 holds excellent opportunities for Bally, as we are initiating earnings guidance of $2.95 to $3.30 for fully diluted share. This guidance range contemplates revenue improvement in all 3 areas of our business: game sales, gaming operations and systems.

We also expect gross margin improvement in gaming equipment and continued growth in our WAP footprint. As a result of these expectations, we anticipate an improvement in our operating margin in fiscal 2013.

For today's call, Neil Davidson will cover our overall financial results; Ramesh Srinivasan will discuss operating highlights; and then, 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 forecasts 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 forecasts, are included in our annual report on Form 10-K for the year ended June 30, 2011, 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 transcript of this call only speak to this date, August 9, 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 quarter and for fiscal year ended June 30, 2012, and also initiated guidance for fiscal 2013.

Overall, total revenue for fiscal 2012 was a record $880 million, up 16% from last year. Operating income for fiscal 2012 was $179 million, up 18% from fiscal 2011, with non-GAAP earnings per share increasing 35% year-over-year to $2.45.

During the quarter, we recorded a $10 million charge to what we currently believe will reasonably address potential outcomes related to several legal matters, which had a $0.17 impact on our diluted earnings per share of $2.28.

On to game sales. Revenues from game sales were $96.8 million for the quarter, up 33% from $72.7 million in the prior year. We sold 5,322 new units during the quarter, including 4,143 units sold in North America. Of these, 1,323 units were opening in expansion units and 2,820 were replacement sales. This marks the fifth quarter in a row our North America replacement unit sales were up year-over-year, reflecting the investments in ALPHA 2 and in our game studios.

Average selling price for the quarter was $17,182, up 3% versus last year, driven by shipments of our new Pro Series cabinets, which now make up the vast majority of our sale units.

Game sales margins remain constant at 46% versus the March quarter, slightly better than our expectations, primarily due to mix and continued benefits from ongoing cost reduction initiatives in our Pro Series line of cabinets.

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