Bally Technologies, Inc. (NYSE: BYI)

Bally Technologies' President and Chief Executive Officer Ramesh Srinivasan (Photo: Business Wire)

  • SYSTEMS REVENUE SETS QUARTERLY RECORD OF $76 MILLION, UP 48 PERCENT FROM PRIOR YEAR
  • WIDE-AREA PROGRESSIVE INSTALLED BASE GROWS 12 PERCENT AND SETS RECORD QUARTERLY REVENUE
  • INCREASES FISCAL 2014 DILUTED EPS GUIDANCE TO $3.80 TO $4.10

Bally Technologies, Inc. (NYSE: BYI), a leader in slots, video machines, casino-management systems, interactive applications, and networked and server-based systems for the global gaming industry, today announced record quarterly diluted earnings per share (“Diluted EPS”) of $0.97 and first-quarter record revenue of $249 million for the three months ended September 30, 2013.

“We continue to focus on and execute very well on all aspects of our core business, while undertaking significant and successful integration planning efforts in preparation for the planned acquisition of SHFL entertainment, which is expected to close before calendar 2013 year-end,” said Ramesh Srinivasan, the Company’s President and Chief Executive Officer. “Our Systems business continues to build momentum globally, as our track record of success and investments in R&D and customer services and support paves the way for even greater industry leadership. We showcased seven new wide-area progressive (“WAP”) titles at last month’s Global Gaming Expo (“G2E”), up from three new titles shown last year, reflecting our escalating R&D commitment to our gaming operations footprint. Customer response to our new WAP, premium, and for-sale content, as well as to our new Pro Wave™ cabinet, which was one of the stars of the show, was very encouraging.”

“Operating margins increased to 25 percent when excluding costs related to the planned acquisition of SHFL entertainment, which marks our highest quarterly level in more than three years,” said Neil Davidson, the Company’s Chief Financial Officer. “Revenues that are recurring in nature were a quarterly record and represented 57 percent of total revenues driven by a first-quarter record in WAP revenue and quarterly records in systems maintenance and services revenues. During August, we amended our existing credit facility and successfully syndicated our new $1.1 billion Term Loan B with an all-in yield of 4.375 percent. The planned acquisition of SHFL entertainment will be funded with proceeds from the Term Loan B and excess capacity on our existing Revolving Credit Facility, which had $505 million undrawn as of September 30, 2013.”

First Quarter Fiscal Year 2014 Highlights

      Three Months Ended September 30, 2013   % Rev     2012   % Rev (dollars in millions, except per share amounts) Revenues: Gaming Equipment $ 71.3 29 % $ 82.7 35 % Gaming Operations 101.9 41 % 101.2 43 % Systems 76.1 30 % 51.3 22 % Total revenues $ 249.3 100 % $ 235.2 100 %   Gross Margin: Gaming Equipment (1) $ 36.0 50 % $ 39.2 47 % Gaming Operations 71.3 70 % 70.1 69 % Systems (1) 56.9 75 % 39.5 77 % Total gross margin $ 164.2 66 % $ 148.8 63 %   Selling, general and administrative $ 72.4 29 % $ 64.5 27 % Research and development costs 29.5 12 % 25.1 11 % Depreciation and amortization 5.3 2 % 5.6 2 % Operating income $ 57.0 23 % $ 53.6 23 % Adjusted EBITDA $ 86.7 $ 78.8 Diluted EPS $ 0.97 $ 0.77  

(1)

Gross Margin from Gaming Equipment and Systems excludes amortization related to certain intangibles, including core technology and license rights, which are included in depreciation and amortization.

            Three Months EndedSeptember 30, 2013   2012 Operating Statistics New gaming devices 3,995 4,608 New unit Average Selling Price (“ASP”) $ 16,307 $ 16,853           As of September 30, 2013   2012 End-of-period installed base: Linked progressive systems 2,522 2,251 Rental and daily-fee games 14,533 14,971 Lottery systems (2) 11,907 12,040 Centrally determined systems 33,711 39,192  

(2)

Excludes 727 and 537 electronic table games operating as of September 30, 2013 and 2012, respectively.

   

Highlights of Certain Results for the Three Months Ended September 30, 2013

Overall

  • Total revenue increased 6 percent to a first-quarter record $249 million as compared with $235 million last year.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, share-based compensation and acquisition-related costs), a non-GAAP financial measure, increased 10 percent to a first-quarter record $87 million as compared with $79 million last year.
  • Selling, general and administrative expenses (“SG&A”) increased to 29 percent of total revenues as compared with 27 percent last year, primarily driven by $5 million of costs associated with the planned acquisition of SHFL entertainment. After adjusting for acquisition-related costs, SG&A was 27 percent of total revenues in the current period.
  • Research and development expenses (“R&D”) increased to 12 percent of total revenues as compared with 11 percent last year.
  • Operating income increased 6 percent to a first-quarter record $57 million compared with $54 million last year. After adjusting for acquisition-related costs, operating margin increased to 25 percent from 23 percent last year.
  • Diluted EPS increased 26 percent to a quarterly record $0.97 from $0.77 last year.

Gaming Equipment

  • Revenues decreased 14 percent to $71 million as compared with $83 million last year, driven primarily by the expected absence of sales of Canadian video lottery terminal units in the current period compared to 670 units last year. Current period sales included the shipment of 456 units into the Illinois video gaming terminal (“VGT”) market.
  • ASP of new gaming devices decreased 3 percent to $16,307 per unit from $16,853 last year, primarily as a result of lower ASP’s in certain international jurisdictions.
  • New-unit sales to international customers were 20 percent of total new-unit shipments.
  • Gross margin increased to 50 percent from 47 percent last year, due to continued cost reductions on the Pro Series™ line of cabinets and sales mix.

Gaming Operations

  • Revenues increased to a first-quarter record $102 million as compared with $101 million last year, driven primarily by a 12 percent growth in the installed base of WAP games, as well as a first-quarter record for lottery systems revenue.
  • Gross margin increased to 70 percent from 69 percent last year, primarily due to lower jackpot expense.

Systems

  • Revenues increased 48 percent to a quarterly record $76 million as compared with $51 million last year.
  • Maintenance revenues increased 21 percent to a quarterly record $25 million as compared with $21 million last year.
  • Gross margin decreased to 75 percent from 77 percent last year, primarily as a result of the change in product mix. Specifically, hardware sales were 30 percent of systems revenues, and software and service sales were 37 percent, as compared to 26 percent for hardware and 34 percent for software and services in the same period last year.

Fiscal 2014 Business Update

The Company has made significant progress toward completing the planned acquisition of SHFL entertainment since announcing the transaction on July 16, 2013. During the first quarter of fiscal 2014, the applicable waiting period under the Hart-Scott-Rodino Antitrust Act of 1976 expired. The Company also successfully syndicated the Term Loan B financing and continued to make very good progress in securing required gaming regulatory approvals. Key executives from both companies are leading detailed integration planning efforts to ensure a seamless transition plan for customers and employees. The Company also announced earlier this week that Kevin Verner resigned from the Board of Directors to serve as a consultant and oversee the planning and post-integration efforts for the acquisition. As a result of all the efforts undertaken by key personnel in both companies, the acquisition is expected to close prior to the end of this calendar year. The completion of the SHFL entertainment acquisition remains subject to SHFL shareholder approval, the approval of certain gaming regulatory authorities, and other customary closing conditions.

In connection with the pending acquisition of SHFL entertainment, the Company incurred professional and other fees totaling approximately $5.2 million during the first quarter of fiscal 2014, with additional acquisition-related fees and expenses anticipated to be incurred throughout the balance of fiscal 2014.

The Company increased its fiscal 2014 guidance for Diluted EPS to a range of $3.80 to $4.10 and now expects that quarterly Diluted EPS will be fairly equally weighted during fiscal 2014. This guidance does not reflect the impact of the planned acquisition of SHFL entertainment or any acquisition-related costs or savings or the effect of the favorable tax settlement realized during the first quarter of fiscal 2014.

The Company has provided this range of earnings guidance for fiscal 2014 to give investors general information on the overall direction of its business at this time. The guidance provided is subject to numerous uncertainties, including, among others, overall economic and capital-market conditions, the market for gaming devices and systems, changes in gaming legislation, the timing of new jurisdictions and casino openings, the timing and completion of new systems installations, competitive product introductions, complex revenue-recognition rules related to the Company’s business, and assumptions about the Company’s new product introductions and regulatory approvals. The Company does not intend and undertakes no obligation to update its forward-looking statements, including forecasts, potential opportunities for growth in new and existing markets, and future prospects for proposed new products. Accordingly, the Company does not intend to update guidance during the quarter. Additional information about the factors that could potentially affect the Company’s financial results included in today’s press release can be found in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Non-GAAP Financial Measures

The following table reconciles the Company’s net income attributable to Bally Technologies, Inc., as determined in accordance with generally accepted accounting principles (“GAAP”), to Adjusted EBITDA:

    Three Months Ended September 30, 2013   2012   Net income attributable to Bally Technologies, Inc. $ 37,784 $ 32,532 Interest expense, net 1,946 3,473 Income tax expense 16,172 18,429 Depreciation and amortization 22,051 21,319 Share-based compensation 3,462 3,021 Acquisition-related costs 5,238 — Adjusted EBITDA $ 86,653 $ 78,774    

Adjusted EBITDA is a supplemental non-GAAP financial measure used by the Company’s management and by some industry analysts to evaluate the Company’s ability to service debt, and is used by some investors and financial analysts in the gaming industry in measuring and comparing Bally’s leverage, liquidity, and operating performance to other gaming companies. Adjusted EBITDA should not be considered an alternative to operating income or net cash from operations as determined in accordance with GAAP. Not all companies calculate Adjusted EBITDA the same way, and the Company’s presentation may be different from those presented by other companies.

The following table reconciles the Company’s Diluted EPS, as determined in accordance with GAAP, to non-GAAP EPS:

    Three Months Ended September 30, 2013 2012   Diluted EPS $ 0.97 $ 0.77 Acquisition-related costs 0.08 — One-time tax benefit (0.09 ) — Non-GAAP EPS $ 0.96 $ 0.77    

Non-GAAP EPS is a supplemental non-GAAP financial measure that the Company’s management believes more accurately reflects the Company’s operating results for the periods presented. Non-GAAP EPS should not be considered an alternative to Diluted EPS as determined in accordance with GAAP.

The one-time tax benefit relates to the reduction of unrecognized tax benefits and a corresponding reduction of income tax expense of approximately $3.6 million in the three months ended September 30, 2013 related to settlement of the IRS examination of the Company’s United States federal income tax returns for 2006 through 2009.

Earnings Conference Call and Webcast

As previously announced, the Company is hosting a conference call and webcast today at 4:30 p.m. EDT (1:30 p.m. PDT). The conference-call dial-in number is 866-524-3160 or 412-317-6760 (International). The webcast can be accessed by visiting BallyTech.com and selecting “Investor Relations.” Interested parties should initiate the call and webcast process at least five minutes prior to the beginning of the presentation. For those who miss this event, an archived version will be available at BallyTech.com until November 30, 2013.

About Bally Technologies, Inc.

Founded in 1932, Bally Technologies (NYSE: BYI) provides the global gaming industry with innovative games, systems, mobile, and iGaming solutions that drive revenue and provide operating efficiencies for gaming operators. For more information, please contact Laura Olson-Reyes, Senior Director, Marketing & Corporate Communications, at 702-584-7742, or visit http://www.ballytech.com. Connect with Bally on Facebook, Twitter, YouTube, LinkedIn, and Pinterest.

This news release may contain “forward-looking” statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and is subject to the safe harbors created thereby. Forward looking-statements are subject to change and involve risks and uncertainties that could significantly affect future results, including those risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. Although the Company believes any expectations expressed in any forward-looking statements are reasonable, future results may differ materially from those expressed in any forward-looking statements. The Company undertakes no obligation to update the information in this press release except as required by law and represents that the information speaks only as of today’s date.

— BALLY TECHNOLOGIES, INC. —

 

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012

    Three Months Ended September 30, 2013   2012 (in 000s, except per share amounts) Revenues: Gaming equipment and systems $ 147,387 $ 134,011 Gaming operations 101,902 101,140 249,289 235,151 Costs and expenses: Cost of gaming equipment and systems (1) 54,506 55,354 Cost of gaming operations 30,619 30,993 Selling, general and administrative 72,427 64,516 Research and development costs 29,504 25,095 Depreciation and amortization 5,265 5,604 192,321 181,562 Operating income 56,968 53,589 Other income (expense): Interest income 2,481 1,144 Interest expense (4,427 ) (4,617 ) Other, net (900 ) (743 ) Income from operations before income taxes 54,122 49,373 Income tax expense (16,172 ) (18,429 ) Net income 37,950 30,944 Less net income (loss) attributable to noncontrolling interests 166 (1,588 ) Net income attributable to Bally Technologies, Inc. $ 37,784 $ 32,532   Basic and Diluted earnings per share attributable to Bally Technologies, Inc.: Basic earnings per share $ 0.98 $ 0.80 Diluted earnings per share $ 0.97 $ 0.77   Weighted average shares outstanding: Basic 38,381 40,868 Diluted 39,091 42,115  

(1)

Cost of gaming equipment and systems excludes amortization related to certain intangibles, including core technology and license rights, which are included in depreciation and amortization.

   

BALLY TECHNOLOGIES, INC. AND SUBSIDIARIESUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETSAS OF SEPTEMBER 30, 2013 AND JUNE 30, 2013

    September 30,2013 June 30, 2013 (in 000s, except share amounts) ASSETS Current assets: Cash and cash equivalents $ 66,216 $ 63,220 Restricted cash 13,422 12,939 Accounts and notes receivable, net of allowances for doubtful accounts of $14,272 and $14,813 258,743 248,497 Inventories 66,097 68,407 Prepaid and refundable income tax 13,249 21,845 Deferred income tax assets 38,659 38,305 Deferred cost of revenue 21,505 22,417 Prepaid assets 18,526 14,527 Other current assets 2,691 2,920 Total current assets 499,108 493,077 Restricted long-term investments 14,952 14,786 Long-term accounts and notes receivables, net of allowances for doubtful accounts of $2,369 and $1,764 61,862 65,456 Property, plant and equipment, net of accumulated depreciation of $63,556 and $60,556 36,709 35,097 Leased gaming equipment, net of accumulated depreciation of $217,561 and $209,680 109,028 113,751 Goodwill 172,386 172,162 Intangible assets, net 23,829 25,076 Deferred income tax assets 17,481 17,944 Income tax receivable 1,837 1,837 Deferred cost of revenue 13,182 12,105 Other assets, net 31,635 27,974 Total assets $ 982,009 $ 979,265   LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 33,954 $ 25,863 Accrued and other liabilities 86,547 91,127 Jackpot liabilities 11,012 11,731 Deferred revenue 54,757 62,254 Income tax payable 12,957 11,345 Current maturities of long-term debt 26,447 24,615 Total current liabilities 225,674 226,935 Long-term debt, net of current maturities 527,500 580,000 Deferred revenue 30,647 23,696 Other income tax liability 9,489 12,658 Other liabilities 21,717 16,804 Total liabilities 815,027 860,093 Commitments and contingencies Stockholders’ equity:

Common stock, $.10 par value; 100,000,000 shares authorized; 65,472,000 and 65,318,000 shares issued and 38,956,000 and 38,855,000 outstanding

6,539 6,523

Treasury stock at cost, 26,516,000 and 26,463,000 shares

(1,081,949 ) (1,058,381 ) Additional paid-in capital 569,212 535,759 Accumulated other comprehensive loss (10,733 ) (10,692 ) Retained earnings 684,123 646,339 Total Bally Technologies, Inc. stockholders’ equity 167,192 119,548 Noncontrolling interests (210 ) (376 ) Total stockholders’ equity 166,982 119,172 Total liabilities and stockholders’ equity $ 982,009 $ 979,265

Bally Technologies, Inc.Laura Olson-Reyes, 702-584-7742Senior Director, Marketing & Corporate CommunicationsLolson-reyes@ballytech.comMichael Carlotti, 702-584-7995Vice President of Treasury and Investor Relationsmcarlotti@ballytech.comMike Trask, 702-584-7451Mobile: 702-330-6679Corporate Communications ManagerMTrask@ballytech.com