Bally Technologies, Inc. (NYSE: BYI)
Bally Technologies' Chief Financial
Officer Neil Davidson (Photo: Business Wire)
- SYSTEMS REVENUE SETS A QUARTERLY
RECORD FOR THE FOURTH CONSECUTIVE QUARTER OF $85 MILLION, UP 51
PERCENT FROM PRIOR YEAR
- INITIATES COMBINED FISCAL 2014
ADJUSTED EPS GUIDANCE OF $4.30 TO $4.50
- SHFL INTEGRATION-RELATED COST
SYNERGIES EXPECTED TO BE AT LEAST $40 MILLION
Bally Technologies, Inc. (NYSE: BYI) (“Bally” or the
“Company”), a leader in gaming machines, table-game products,
casino-management systems, interactive applications, and networked
and server-based systems for the global gaming industry, today
announced record quarterly revenue of $285 million and Adjusted EPS
of $1.06 for the three months ended December 31, 2013, inclusive of
a $0.02 loss per share from unfavorable foreign currency movements.
Diluted earnings per share (“GAAP Diluted EPS”) was $0.54 for the
three months ended December 31, 2013. Second quarter fiscal 2014
results include 37 days of operations from SHFL entertainment, Inc.
(“SHFL”).
“Our second quarter fiscal 2014 was transformative in many
respects,” said Ramesh Srinivasan, the Company’s President and
Chief Executive Officer. “We successfully closed the acquisition of
SHFL ahead of schedule and the ongoing integration process is
moving forward smoothly. We have integrated our sales, services and
product development teams while simultaneously continuing to
execute well on our core businesses as evidenced in our second
quarter results. Customer response across the globe to the
integration, including the combined product roadmaps, has been
positive. While more work remains to be done, we are off to a
terrific start and are tracking ahead of our synergy targets. We
believe that Bally is now well-positioned to continue
industry-leading innovation and growth.”
“Revenues that are recurring in nature set a quarterly record
and accounted for approximately 51 percent of total revenue during
the quarter,” said Neil Davidson, the Company’s Chief Financial
Officer. “As we make progress on the integration process and
continue to identify incremental synergy opportunities, we now
expect cost synergies to be at least $40 million on an annualized
run-rate basis by the end of calendar 2014. Now that the
acquisition has closed, we are thoughtfully allocating free cash
flow towards the repayment of our debt with a goal of achieving a
leverage ratio of approximately 3.0 times within the next two
years. In fact, we have already paid down $58 million of debt since
the acquisition closed.”
Second Quarter Fiscal Year 2014
Highlights
Three Months Ended December 31,
Six Months Ended December 31,
2013 (3)
%Rev
2012
%Rev
2013 (3)
%Rev
2012
%Rev
(dollars in millions, except per share amounts)
Revenues:
Electronic Gaming Machines (“EGM”) $
88.1 31 % $ 82.6 35 % $ 159.4 30 % $ 165.3 35 % Gaming
Operations
97.3
34 % 99.0 41 % 199.2 37 %
200.2
42 % Systems
85.5
30 % 56.7 24 % 161.6 30 %
108.0
23 % Table Products
14.3
5 % — — 14.3 3
%
— — Total revenues $ 285.2 100 % $ 238.3 100 % $ 534.5 100 % $
473.5 100 %
Gross Margin: (1) EGM $ 42.1 48 % $ 43.9
53 % $ 78.1 49 % $ 83.1 50 % Gaming Operations
67.8
70 % 69.7 70 % 139.1 70 %
139.8
70 % Systems
61.3
72 % 43.2 76 % 118.2 73 %
82.7
76 % Table Products
8.7
61 % — — 8.7 61
%
—
— Total gross margin $ 179.9 63 % $ 156.8 66 % $ 344.1 64 % $ 305.6
65 % Selling, general and administrative $ 91.0 32 % $ 67.9
28 % $ 163.4 31 % $ 132.4 28 % Research and development costs
32.7
11 % 26.6 11 % 62.2 12 %
51.7
11 % Depreciation and amortization
11.7
4 % 5.7 3 % 17.0 3 %
11.3
3 % Operating income $ 44.5 16 % $ 56.6 24 %
$
101.5
19 % $ 110.2 23 % GAAP Diluted EPS $ 0.54 $ 0.80
$
1.51
$ 1.57
Non-GAAP Measures: (2) Adjusted Operating
Income $ 75.9 27 % $ 56.6 24 %
$
138.1
26 % $ 110.2 23 % Adjusted EBITDA $ 102.2 36 % $ 81.1
34 %
$
188.9
35
%
$ 159.9 34
%
Adjusted EPS $ 1.06 $ 0.80
$
2.02
$ 1.57 (1) Gross Margin excludes amortization related to
intangible assets which are included in depreciation and
amortization. (2) Adjusted Operating Income, Adjusted EBITDA
(earnings before interest, taxes, depreciation and amortization,
including share-based compensation and acquisition-related costs)
and Adjusted EPS are Non-GAAP financial measures. A reconciliation
between GAAP and Non-GAAP measures can be found at the end of this
press release. (3) Results for the three and six months ended
December 31, 2013 include 37 days of operations from SHFL.
Three Months EndedDecember
31,
Six Months EndedDecember 31, 2013
2012 2013 2012 Operating
Statistics Units
Sold Average Selling
Price (“ASP”) Units
Sold
ASP Units
Sold ASP
Units
Sold ASP New EGM (1) 5,152 $
15,936 4,565 $ 16,553 9,147 $ 16,098 9,173 $ 16,704 Utility 138 $
16,958 NA NA 138 $ 16,958 NA NA Proprietary Table Games (“PTG”) —
NA NA NA — NA NA NA (1) Includes 90 Electronic Table System
(“ETS”) seats sold during the three and six months ended December
31, 2013.
As of December 31, 2013
2012 End-of-period installed base: Linked progressive
systems 2,538 2,230 Rental and daily-fee games 16,844 14,692
Lottery systems (1) 12,707 12,222 Centrally determined systems
30,763 37,120 Utility 8,833 NA PTG 3,011 NA Table game progressive
units, table side bets and add-ons 5,199 NA (1) Excludes 646
and 620 third-party ETS seats operating as of December 31, 2013 and
2012, respectively.
Highlights of Certain Results for the Three Months Ended
December 31, 2013
Overall
- Total revenue increased 20 percent to a
quarterly record $285 million as compared with $238 million last
year.
- Adjusted EBITDA increased 26 percent to
a quarterly record $102 million as compared with $81 million last
year.
- Selling, general and administrative
expenses (“SG&A”) increased to 32 percent of total revenues
from 28 percent last year, primarily driven by $22 million of
one-time costs associated with the acquisition of SHFL. After
adjusting for these one-time costs, SG&A was 24 percent of
total revenues in the current period down from 28 percent last
year.
- Research and development expenses
(“R&D”) remained constant at 11 percent of total revenue.
- Operating income decreased 21 percent
to $45 million as compared with $57 million last year. Adjusted
Operating Income increased by 34 percent to a record $76 million.
Adjusted operating margin increased to a record 27 percent from 24
percent last year.
- GAAP Diluted EPS was $0.54 as compared
with $0.80 last year. Adjusted EPS increased 35 percent to a
quarterly record $1.06 from $0.80 last year.
Electronic Gaming Machines
- Revenues increased 7 percent to $88
million as compared with $83 million last year, driven by the
shipment of 1,025 units into the Illinois Video Gaming Terminal
(“VGT”) market, 587 Equinox units and 90 ETS seats partially offset
by the absence of 568 Canadian VLT units sold in the prior year
period.
- ASP of new electronic gaming devices
decreased 4 percent to $15,936 per unit from $16,553 last year,
primarily as a result of mix and lower ASPs in certain
international jurisdictions.
- New unit sales to international
customers were 29 percent of total new unit shipments.
- Gross margin decreased to 48 percent
from 53 percent last year, primarily driven by $3 million of
inventory related charges that are included in acquisition-related
costs. After adjusting for these costs, gross margin was 51
percent. Gross margin in the second quarter of fiscal 2013
benefitted from the exercise of a lease buyout.
Gaming Operations
- Revenues decreased 2 percent to $97
million as compared with $99 million last year, driven by lower
yields on certain variable fee games, offset by a 9 percent
increase in the installed base of WAP games, stronger yields in
lottery systems and the inclusion of 2,985 leased SHFL ETS seats
and EGMs.
- Gross margin remained constant at 70
percent.
Systems
- Revenues increased 51 percent to an
all-time record $85 million as compared with $57 million last
year.
- Maintenance revenues increased 6
percent to $25 million as compared with $23 million last year.
- Gross margin decreased to 72 percent
from 76 percent last year, primarily as a result of the change in
mix of products. Specifically, hardware sales were 38 percent of
systems revenues, and software and service sales were 33 percent,
as compared to 27 percent for hardware sales and 32 percent for
software and services sales in the same period last year.
Table Products
- Revenues were $14 million, with Utility
revenue of $9 million and PTG revenue of $6 million.
- Gross margin was 61 percent. Gross
margin was impacted by $1 million of inventory related charges that
are included in acquisition-related costs. After adjusting for
these costs gross margin was 71 percent.
Highlights of Certain Results for the Six Months Ended
December 31, 2013
Overall
- Total revenue increased 13 percent to a
record $535 million as compared with $473 million last year.
- Adjusted EBITDA increased 18 percent to
a record $189 million as compared with $160 million last year.
- SG&A increased to 31 percent of
total revenues from 28 percent last year, primarily driven by $27
million of one-time costs associated with the acquisition of SHFL.
After adjusting for these one-time costs, SG&A was 26 percent
of total revenues in the current period down from 28 percent last
year.
- R&D increased to 12 percent of
total revenues from 11 percent last year.
- Operating income decreased 8 percent to
$102 million as compared with $110 million last year. Adjusted
Operating Income increased 25 percent to a record $138 million.
Adjusted operating margin increased to 26 percent from 23 percent
last year.
- GAAP Diluted EPS was $1.51 as compared
with $1.57 last year. Adjusted EPS increased 31 percent to a record
$2.02 from $1.57 last year.
Electronic Gaming Machines
- Revenues decreased 4 percent to $159
million as compared with $165 million last year, driven by the
shipment of 1,481 units into the Illinois VGT market, 587 Equinox
units and 90 ETS seats offset by the absence of 1,238 Canadian VLT
units sold in the prior year period.
- ASP of new gaming devices decreased 4
percent to $16,098 per unit from $16,704 last year, primarily as a
result of mix and lower ASPs in certain international
jurisdictions.
- New unit sales to international
customers were 25 percent of total new unit shipments.
- Gross margin decreased to 49 percent
from 50 percent last year, primarily driven by $3 million of
inventory charges that are included in acquisition-related costs.
After adjusting for these costs, gross margin was 51 percent.
Gaming Operations
- Revenues decreased slightly to $199
million as compared with $200 million last year, driven by lower
yields on certain variable fee games, offset by a 9 percent
increase in the installed base of WAP games, stronger yields in
lottery systems and the inclusion of 2,985 leased SHFL ETS seats
and EGMs.
- Gross margin remained constant at 70
percent.
Systems
- Revenues increased 50 percent to a
record $162 million as compared with $108 million last year.
- Maintenance revenues increased 13
percent to a record $50 million as compared with $44 million last
year.
- Gross margin decreased to 73 percent
from 76 percent last year, primarily as a result of the change in
mix of products. Specifically, hardware sales were 35 percent of
systems revenues, and software and service sales were 34 percent,
as compared to 26 percent for hardware sales and 33 percent for
software and services sales in the same period last year.
Table Products
- Revenues were $14 million, with Utility
revenue of $9 million and PTG revenue of $6 million.
- Gross margin was 61 percent. Gross
margin was impacted by $1 million of inventory charges that are
included in acquisition-related costs. After adjusting for these
costs gross margin was 71 percent.
Fiscal 2014 Business Update
As a result of completing the SHFL acquisition on November 25,
2013, the Company initiated full-year fiscal 2014 guidance for
Adjusted EPS with a range of $4.30 to $4.50. Adjusted EPS will be
calculated in accordance with the table included in this press
release. The range also excludes current and expected losses from
unfavorable foreign currency movements. For clarity, this guidance
includes $2.05 per share of results for the six months ended
December 31, 2013 which is comprised of Adjusted EPS of $2.02 plus
an add-back of $0.03 per share loss from unfavorable foreign
currency movements incurred during the first six months of fiscal
2014. This results in a range of Adjusted EPS expected for the
remaining six months of fiscal 2014 of $2.25 to $2.45.
The Company expects amortization resulting from purchased
intangibles to approximate $0.22 per share per quarter in the
remainder of fiscal 2014 and expects interest expense to
approximate $0.35 per share per quarter, of which $0.28 per share
is incremental as a result of the SHFL acquisition.
The Company also increased its estimate for SHFL
integration-related cost synergies to be realized on an annualized
run-rate basis by the end of calendar 2014 from at least $30
million to at least $40 million per year.
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 filed with the U.S. Securities and Exchange Commission.
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 Six Months
Ended December 31, December 31, 2013
2012 2013 2012
(in millions)
Net income attributable to Bally Technologies, Inc. $
21.2 $ 33.1 $ 59.0 $
65.6 Interest expense, net 9.3 3.2 11.3 6.6 Income tax
expense 12.1 19.4 28.3 37.8 Depreciation and amortization
(“D&A”) 30.0 22.3 52.1 43.7 Share-based compensation 3.7 3.1
7.1 6.2 Acquisition-related costs 25.9 — 31.1 —
Adjusted
EBITDA $ 102.2 $ 81.1 $
188.9 $ 159.9
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 tables reconcile the Company’s GAAP to Non-GAAP
Financial Measures:
Three Months Ended December 31,
2013
Gross SG&A Operating Net
Revenues Margin (1) Expenses D&A
Income Income (2) EPS GAAP
Measures $ 285.2 $ 179.9 $
91.0 $ 11.7 $ 44.5 $
21.2 $ 0.54 GAAP % 63 %
32 % 16 % Amortization of purchased
intangibles — — — (5.5 ) 5.5 3.6 0.09 Acquisition-related costs —
4.2 (21.7 ) — 25.9 16.7 0.43 Total adjustments
— 4.2 (21.7 ) (5.5 ) 31.4 20.3 0.52
Adjusted
Non-GAAP Measures $ 285.2 $ 184.1
$ 69.3 $ 6.2 $ 75.9
$ 41.5 $ 1.06 Adjusted %
65 % 24 % 27 %
(1) Gross Margin excludes amortization related
to intangible assets which are included in depreciation and
amortization. (2) Adjustments tax effected at 35.5%.
Six Months Ended December 31,
2013
Gross SG&A Operating Net
Revenues Margin (1) Expenses D&A
Income Income (2) EPS GAAP
Measures $ 534.5 $ 344.1 $
163.4 $ 17.0 $ 101.5 $
59.0 $ 1.51 GAAP % 64 %
31 % 19 % Amortization of purchased
intangibles — — — (5.5 ) 5.5 3.6 0.09 Acquisition-related costs —
4.2 (26.9 ) — 31.1 20.0 0.51 IRS audit one-time benefit — —
— — — (3.6 ) (0.09 ) Total adjustments — 4.2
(26.9 ) (5.5 ) 36.6 20.0 0.51
Adjusted Non-GAAP Measures $ 534.5 $
348.3 $ 136.5 $ 11.5 $
138.1 $ 79.0 $ 2.02 Adjusted
% 65 % 26 % 26
% (1) Gross Margin excludes
amortization related to intangible assets which are included in
depreciation and amortization. (2) Adjustments tax effected at
35.5%, except there is no tax effect on the IRS audit one-time
benefit.
Adjusted EPS and other such adjusted measures are supplemental
non-GAAP financial measures that the Company’s management believes
more accurately reflects the Company’s operating results for the
periods presented. Adjusted measures should not be considered an
alternative to GAAP measures as determined in accordance with
GAAP.
Earnings Conference Call and Webcast
As previously announced, the Company is hosting a conference
call and webcast today at 4:30 p.m. EST (1:30 p.m. PST). The
conference-call dial-in number is 866-524-3160 or 412-317-6760
(International); passcode “Bally”. 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 March 6, 2014.
About Bally Technologies,
Inc.
Founded in 1932, Bally Technologies (NYSE: BYI) provides the
global gaming industry with innovative games, table game products,
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 press 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
OPERATIONS
Three Months Ended Six Months Ended December
31, December 31, 2013 2012 2013
2012 (in 000s, except per share amounts) Revenues:
Gaming equipment and systems $ 177,398 $ 139,323 $ 324,785 $
273,334 Product lease, operation and royalty 107,795 99,016 209,697
200,156 285,193 238,339 534,482 473,490 Costs and expenses: Cost of
gaming equipment and systems (1) 72,916 52,205 127,422 107,559 Cost
of product lease, operation and royalty(1) 32,365 29,335 62,984
60,328 Selling, general and administrative 90,986 67,852 163,413
132,368 Research and development costs 32,709 26,599 62,213 51,694
Depreciation and amortization 11,672 5,687 16,937 11,291 240,648
181,678 432,969 363,240 Operating income 44,545 56,661 101,513
110,250 Other income (expense): Interest income 2,489 1,403 4,970
2,547 Interest expense (11,795 ) (4,538 ) (16,222 ) (9,155 ) Other,
net (1,209 ) (1,059 ) (2,109 ) (1,802 ) Income from operations
before income taxes 34,030 52,467 88,152 101,840 Income tax expense
(12,105 ) (19,389 ) (28,277 ) (37,818 ) Net income 21,925 33,078
59,875 64,022 Less net income (loss) attributable tononcontrolling
interests 714 (48 ) 880 (1,636 ) Net income attributable to Bally
Technologies, Inc $ 21,211 $ 33,126 $ 58,995 $ 65,658 Basic
and Diluted earnings per share attributable to Bally Technologies,
Inc.: Basic earnings per share $ 0.55 $ 0.82 $ 1.53 $ 1.62 Diluted
earnings per share $ 0.54 $ 0.80 $ 1.51 $ 1.57 Weighted
average shares outstanding: Basic 38,502 40,399 38,441 40,633
Diluted 39,189 41,494 39,140 41,805 (1) Cost of gaming
equipment and systems and product lease, operation and royalty
exclude amortization related to intangible assets, which are
included in depreciation and amortization.
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETSAS OF DECEMBER 31, 2013 AND JUNE 30,
2013
December 31,2013 June 30, 2013
(in 000s, except share amounts) ASSETS Current
assets: Cash and cash equivalents $ 108,588 $ 63,220 Restricted
cash 13,895 12,939 Accounts and notes receivable, net of allowances
for doubtful accounts of $15,277 and $14,813 280,900 248,497
Inventories 98,737 68,407 Prepaid and refundable income tax 45,800
21,845 Deferred income tax assets 49,286 38,305 Deferred cost of
revenue 17,966 22,417 Prepaid assets 20,936 14,527 Other current
assets 5,403 2,920 Total current assets 641,511 493,077 Restricted
long-term investments 17,021 14,786 Long-term accounts and notes
receivables, net of allowances for doubtful accounts of $1,629 and
$1,764 69,641 65,456 Property, plant and equipment, net of
accumulated depreciation of $66,744 and $60,556 66,453 35,097
Leased gaming equipment, net of accumulated depreciation of
$230,138 and $209,680 138,144 113,751 Goodwill 990,083 172,162
Intangible assets, net 529,226 25,076 Deferred income tax assets
4,374 17,944
Income tax receivable
1,811 1,837 Deferred cost of revenue 11,404 12,105 Other assets,
net 58,138 27,974 Total assets $ 2,527,806 $ 979,265
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:
Accounts payable $ 28,457 $ 25,863 Accrued and other liabilities
103,253 91,127 Jackpot liabilities 12,365 11,731 Deferred revenue
48,706 62,254 Income tax payable 5,572 11,345 Current maturities of
long-term debt 39,305 24,615 Total current liabilities 237,658
226,935 Long-term debt, net of current maturities 1,900,935 580,000
Deferred revenue 29,081 23,696 Other income tax liability 12,679
12,658 Deferred income tax 134,143 171 Other liabilities 22,662
16,633 Total liabilities 2,337,158 860,093 Commitments and
contingencies Stockholders’ equity: Common stock, $.10 par value;
100,000,000 shares authorized; 65,642,000 and65,318,000 shares
issued and 39,097,000 and 38,855,000 outstanding 6,555 6,523
Treasury stock at cost, 26,545,000 and 26,463,000 shares (1,084,060
) (1,058,381 ) Additional paid-in capital 578,161 535,759
Accumulated other comprehensive loss (15,846 ) (10,692 ) Retained
earnings 705,334 646,339 Total Bally Technologies, Inc.
stockholders’ equity 190,144 119,548 Noncontrolling interests 504
(376 ) Total stockholders’ equity 190,648 119,172 Total liabilities
and stockholders’ equity $ 2,527,806 $ 979,265
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Bally Technologies, Inc.Laura Olson-Reyes, 702-532-7742Senior
Director, Marketing & Corporate
CommunicationsLolson-reyes@ballytech.comMichael Carlotti,
702-532-7995Vice President of Treasury and Investor
Relationsmcarlotti@ballytech.comMike Trask, 702-532-7451Mobile:
702-330-6679Corporate Communications
ManagerMTrask@ballytech.com