Bally reports record quarter revenue

“We achieved outstanding financial and operational results in the quarter which helped drive a record 26 percent adjusted operating margin for the first nine months of fiscal 2014 versus 23 percent in the prior year,” said Ramesh Srinivasan, the Company’s President and Chief Executive Officer.  “The ongoing SHFL integration has been pivotal in many respects to our results. Our Systems business continues to be a major factor as we gain a greater share of the industry’s increasing technology-related spend. On the EGM front, initial demand for our Pro Wave cabinet has been very robust, helping us to grow domestic replacement unit sales by 25 percent over last quarter.  Combined with SHFL’s international strength, this was our highest quarterly EGM unit sale level in six years, despite the absence of Canada VLT units.  We remain confident that our industry-leading innovation as evidenced by the Pro Wave platform and strength across a broad portfolio of products will help us grow our business into fiscal 2015 and beyond.”
 
“We continued to set a number of financial records this quarter while generating significant free cash flow,” said Neil Davidson, the Company’s Chief Financial Officer.  “We remain committed to deleveraging our balance sheet, as evidenced by the US$68 million of debt we repaid during the quarter, for a total of $101 million since the acquisition of SHFL, which lowered our leverage ratio to 3.9 times.  In addition, we repurchased approximately 150,000 shares of our common stock for US$10 million during the quarter.  We will continue to prudently utilize excess free cash flow to pay down debt with the goal of achieving a leverage ratio of 3.0 times by the end of calendar year 2015.”
 
Highlights of Certain Results for the Three Months Ended March 31, 2014
 
Overall
 
·                  Total revenue increased 31 percent to a quarterly record of US$338 million as compared with US$259 million last year.
·                  Adjusted EBITDA increased 38 percent to a quarterly record ofUS$117 million as compared with us$85 million last year.
·                  Selling, general and administrative expenses (“SG&A”) decreased to 26 percent of total revenues from 28 percent last year and includes $6 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 increased 9 percent to US$66 million as compared with US$61 million last year.  Adjusted Operating Income increased by 49 percent to a record US$91 million.  Adjusted operating margin increased to a record 27 percent from 23 percent last year.
·      GAAP Diluted EPS was US$0.70 as compared with US$0.93 last year.  Adjusted EPS increased 18 percent to a quarterly record US$1.10 from US$0.93 last year.  GAAP Diluted and Adjusted EPS for the current period included a US$0.05 per share loss from unfavorable foreign currency movements.
      
Electronic Gaming Machines
 
 Revenues increased 19 percent to US$102 million as compared with $86 million last year, driven by higher replacement sales and the sale of 930 Equinox units and 211 ETS seats, partially offset by the absence of 788 Canadian VLT units sold in the prior year’s period.
·ASP of new electronic gaming devices increased 7 percent to $17,203 per unit from US$16,051 last year, primarily as a result ofa geographic mix and sales of the Pro Wave cabinet, which carry higher ASPs.
·                  New-unit sales to international customers were 34 percent of total new unit shipments compared to 17 percent in the prior year period.
·                  Gross margin decreased to 49 percent from 51 percent last year, primarily driven by US$1 million of inventory-related charges that are included in acquisition-related costs.  After adjusting for these costs, gross margin was 50 percent.
 
Gaming Operations
 
·                  Revenues decreased slightly to us$101 million as compared with US$102 million last year, driven by lower yields on certain variable-fee games, partially offset by record wide-area progressive (“WAP”) revenue and the inclusion of 2,198 leased ETS seats.
·                  Gross margin decreased to 65 percent from 71 percent last year, primarily due to higher jackpot expenses and USus$1 million of asset-related charges that are included in acquisition-related costs. After adjusting for asset-related charges, gross margin was 66 percent
 
Systems
 
·                  Revenues increased 27 percent to an all-time record $91 million as compared with US$71 million last year, driven primarily by hardware revenue.
·                  Maintenance revenues increased 7 percent to US$24 million as compared with US$23 million last year.              
·                  Gross margin decreased to 71 percent from 73 percent last year, primarily as a result of the change in mix of products. Specifically, hardware sales were 44 percent of systems revenues, and software and service sales were 29 percent, as compared to 36 percent for hardware sales and 32 percent for software and services sales in the same period last year.
 
Table Products
 
·                  Revenues from Table Products were US$44 million, with Utility products revenue of US$29 million and PTG revenue of us$15 million.
·Gross margin was 71 percent.  Gross margin was impacted by US$2 million of inventory-related charges that are included in acquisition-related costs.  After adjusting for these costs gross margin was 76 percent.
 
Highlights of Certain Results for the Nine Months Ended March 31, 2014
 
Overall
 
·                  Total revenue increased 19 percent to a record US$873 million as compared with US$733 million last year.
·                  Adjusted EBITDA increased 25 percent to a record US$306 million as compared with US$245 million last year.
·                  SG&A increased to 29 percent of total revenues from 28 percent last year, primarily driven by $33 million of one-time costs associated with the acquisition of SHFL.  After adjusting for these one-time costs, SG&A was 25 percent of total revenues in the current period down from 28 percent last year.
·                  R&D remained constant at 11 percent of total revenues.
·                  Operating income decreased 2 percent to US$168 million as compared with US$171 million last year.  Adjusted Operating Income increased 34 percent to a record US$229 million.  Adjusted operating margin increased to a record 26 percent from 23 percent last year.
·      GAAP Diluted EPS was US$2.21 as compared with US$2.50 last year.  Adjusted EPS increased 25 percent to a record $3.12 from $2.50 last year.  GAAP Diluted and Adjusted EPS for the current period included a us$0.09 per share loss from unfavorable foreign currency movements.
 
Electronic Gaming Machines
 
·Revenues increased 4 percent to US$262 million as compared with $251 million last year, driven by the shipment of 2,220 units into the Illinois VGT market, 1,517 Equinox units, and 301 ETS seats, partially offset by the absence of 2,026 Canadian VLT units sold in the prior year period.
·ASP of new gaming devices increased to US$16,502 per unit from $16,476 last year, primarily as a result of a geographic mix and sales of the Pro Wave cabinet which carry higher ASPs.
·                  New-unit sales to international customers were 28 percent of total new unit shipments compared with 17 percent last year.
·                  Gross margin decreased to 49 percent from 50 percent last year, primarily driven by US$4 million of inventory-related charges that are included in acquisition-related costs.  After adjusting for these costs, gross margin was 51 percent.
 
Gaming Operations
 
·                  Revenues decreased slightly to US$301 million as compared with US$302 million last year, driven by lower yields on certain variable-fee games, partially offset by record WAP revenue and the inclusion of 2,198 leased ETS seats.
·                  Gross margin decreased to 68 percent from 70 percent last year, primarily due to higher-than-expected jackpot expenses and US$1 million of asset-related charges that are included in acquisition-related costs.  After adjusting for asset-related charges, gross margin was 69 percent.
 
Systems
 
·                  Revenues increased 41 percent to a record US$252 million as compared with $179 million last year, driven primarily by hardware revenue.
·                  Maintenance revenues increased 10 percent to a record US$74 million as compared with $67 million last year.
·                  Gross margin decreased to 72 percent from 75 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 30 percent for hardware sales and 33 percent for software and services sales in the same period last year.
 
Table Products
 
·Revenues from Table Products were US$58 million, with Utility products revenue of US$38 million and PTG revenue of us$20 million.
·Gross margin was 68 percent. Gross margin was impacted by US$3 million of inventory-related charges that are included in acquisition-related costs.  After adjusting for these costs, gross margin was 74 percent.
 
 
Fiscal 2014 Business Update
 
The Company updated full-year fiscal 2014 guidance for Adjusted EPS to US$4.35 to US$4.50.  Adjusted EPS is calculated in accordance with the table included in this press release.  The range excludes current and expected losses from unfavorable foreign currency movements.  For clarity, this guidance includes US$3.21 per share of results for the nine months ended March 31, 2014 which is comprised of Adjusted EPS of us$3.12 plus an add-back of US$0.09 per share loss from unfavorable foreign currency movements incurred during the first nine months of fiscal 2014. This results in a range of Adjusted EPS expected for the remaining three months of fiscal 2014 of us$1.14 to US$1.29.
 
The Company has provided this range of adjusted 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:
 
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.