Executives
Richard Haddrill – President, Chief Executive Officer and Director
Neil Davidson - Vice President, Corporate Accounting
Robert Caller - Executive Vice President, Chief Financial Officer and Corporate Treasurer
Gavin Isaacs – Executive Vice President and Chief Operating Officer
Analysts
David Katz - Oppenheimer
Todd Eilers - Roth Capital Partners
Steve Kent - Goldman Sachs
Amir Markowitz – JP Morgan
Berchmans Rivera – Credit Suisse
Bill Lerner - Deutsche Bank
Larry Gandler - Credit Suisse
Ethan Silverman - Wexford Capital
Bally Technologies, Inc. (BYI) F2Q08 Earnings Call February 13, 2008 4:30 PM ET
Operator
Welcome to the second quarter 2008 Bally Technologies, Inc. earnings conference call. (Operator Instructions) I would now like to turn the call over to Richard Haddrill, Chief Executive Officer.
Richard Haddrill
Welcome everyone to Bally Technologies second quarter fiscal 2008 earnings call. With me today are Gavin Isaacs, our Chief Operating Officer; Robert Caller, our Chief Financial Officer and Treasurer; and Neil Davidson, our Vice President of Corporate Accounting.
For our call today, I will first ask Neil to review the Safe Harbor language, Robert will then cover our financial results, I’ll have some overall business comments and then we will open it up for questions.
Neil Davidson
I’d like to remind everyone that today’s call and simultaneous webcast may include certain statements and responses to questions that constitute forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and such statements are protected by the Safe Harbors created thereby.
Forward-looking statements reflect intent, belief or current expectations with respect to among other things, future events, and financial trends affecting us, forecasts of future financial performance and estimates of amounts not yet determinable.
These forward-looking statements are based on currently available information. Although we believe the expectations reflected in any forward-looking statements are reasonable, forward-looking statements involve certain risks and uncertainties. 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.
More information on factors, 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 Reports on Form 10-K for the year ended June 30, 2007 and other public filings we make with the Securities and Exchange Commission. The forward-looking statements made on this call and webcast, the archive version of the webcast and any transcripts of this call speak only as of this date February 13, 2008.
We do not undertake and expressly disclaim any obligation to update or alter these forward-looking statements whether as a result of new information, future events or otherwise except as required by applicable law. We cannot ensure that any forward-looking statement will in fact transpire.
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 release.
Now, I’ll turn the call over to Robert for a review of our financial results.
Robert Caller
Today, we reported financial results for the second quarter of fiscal 2008. The company set new overall records for quarterly reviews in each of our divisions under Bally Gaming Equipment and Systems.
Total revenues increased to $237 million, a 53% increase from the prior year period. We were especially pleased with the growth in our systems business, which increased to $56.3 million, a 95% increase from the prior year period and a 44% increase over the September quarter.
We also reported significant increases in revenues in both gaming equipment, which increased to $108.4 million, a 54% increase over the prior year period and gaming operations, which increased to $54.2 million, a 34% increase.
Net income for the quarter was $24.4 million or $0.42 per share on a fully diluted basis as compared to a net loss of $0.05 per share in the comparable prior year period. Adjusted EPS, which adds back the effect of stock-based compensation, was $0.45 per share in the current period.
Adjusted EBITDA was $63.9 million, 172% increase as compared with the same period last year. Operating income increased to $46.8 million in the current period or 20% of total revenue as compared to only $5.7 million in the comparable period of the prior year.
The 54% increase in revenues in our gaming equipment business was driven by a significant increase in games recognized. During the quarter, we recognized revenue on 7,144 games as compared to 4,672 games in the prior period, a 53% increase. This increase reflects the larger ship-share percentages the company has been enjoying in both new casino openings and in expansions.
Of the total units sold this quarter, approximately 6,100 units were to customers in North America. Our average selling price or ASP declined slightly during the quarter as compared to the September quarter, largely due to the impact of fluctuations in foreign currency rates and product mix.
Margins on new games sales for the quarter were 44%, which is approximately 200 basis points lower than margins in the September quarter.
The improvement in our game margins over the past 12 months has been significant, from a low of 34% in the prior year period to 45% in the current year today. We continue to remain focused on improving our game sale margins and expect some improvements over the next six to 18 months.
The increase in our systems revenue was truly exciting and the backlog in our systems business continues to be strong. Revenues in the quarter increased 95% to $56.3 million during the period reflecting an increase in the go-lives of a number of new system installations, sales of approximately 18,000 additional iVIEW units and the continued increases in our maintenance revenue to $9.9 million.
Margin in the system business remained relatively consistent at 73% for the quarter. The iVIEW sales bring our total iVIEWs, either installed or under contract to sell, to approximately 97,000 units, which continues to validate our evolutionary server-based gaming strategy.
Our gaming operations business also reported strong results. Revenues in gaming operations increased 34% to $54.2 million from the prior year period. Revenues in gaming operations were modestly higher than in the September quarter as a result of seasonality factors and the deferral of an additional $1.1 million in revenue in the current quarter.
In total, $4.4 million in revenue on approximately 7,400 centrally determined units was deferred in the current quarter as compared to $3.2 million in the September quarter and none in the prior year. Revenue on these units will be deferred until delivery of all customer commitments.
Rental and daily fee games increased to 9,290 units in the December 31, 2007 quarter, a 90% increase from December 31, 2006, an increase by 516 units from the September quarter.
Certain devices that we have previously classified in the centrally determined category, which have been converted to standalone devices have been reclassified to rental and daily fee games. The install base of centrally determined games increased to 42,773 games, a 38% increase over the prior period and a 6% increase over the units installed at September 30, 2007.
Gaming operations margin was 58% in the current quarter, which is the same as the margin in the quarter in the comparable period of the prior year and a decline from 67% in the September 30, 2007 quarter. The deferred revenue mentioned above had a negative impact on the gaming operations margin and was also negatively impacted by approximately $2 million in higher jackpot expenses.
Selling, general, and administrative expenses increased 21% to $61 million for the quarter as compared to $50.4 million in the prior quarter, but declined as a percent of revenue to 26% from 33% last year.
SG&A increased $8.7 million sequentially from the previous quarter primarily due to G2E trade show costs and costs associated with higher revenues such as bad debts and commission and also by increased professional and accounting fees. Despite these increased costs, SG&A as a percent of revenue declined by approximately 200 basis points sequentially.
Research and development expenses were $14.6 million for the quarter as compared to $13.3 million in the prior year period, a 10% increase. Our R&D spend is benefiting from the savings being generated by our two offshore India development centers, which currently house over 400 software engineers.
Combined SG&A and R&D expenses as a percent of revenue declined to 33% in the current quarter as compared to 42% in the prior year period.
As of December 31, 2007, we had cash of $48.3 million after a $15 million unscheduled pay-down of our term loan in the first quarter and the repurchase of $6 million of our common stock in the current quarter.
Inventories declined to $90 million as of December 31, 2007 from $98.9 million at September 30, 2007, largely as a result of a $6.5 million reduction in finished goods as finished games on hand at September 30, 2007 were either shipped to fulfill existing orders or replaced as recurring revenue games. This caused our days in inventory at December 31, 2007 to decline to approximately 108 days.
Receivables grew to $189.9 million largely as a result of our growth in sales, but days sales outstanding remained relatively consistent at 69 days.
I’ll now turn the call over to Dick for a few business highlights.
Richard Haddrill
I’d like to say that the continued momentum at Bally is truly exciting. Each of our technology components were at record levels for the current quarter.
In summary, our second quarter was an excellent quarter for revenues, a very good quarter for profitability, and okay quarter with respect to margin. Ideally I would have liked to have seen better margins in both game sales and gaming operations. However, we experienced $2 million of new market entry expenses in game cost of sales and in gaming operations some jackpot expenses and revenue deferrals which negatively affected comparability.
In addition, seasonality and weakness in North American casino play also impacted gaming operations revenues and margins in this quarter. However, we do expect gaming operations revenues to resume growth in Q3 and Q4 from the current levels.
Game unit sales were also at record levels for the quarter. We are very pleased with our sales of 7,144 games during the quarter, including 6,100 in North America. Over the past year, we have garnered approximately 19% to 28% ship share on new opening and our percentages on expansions and replacements is often even higher.
Also, we recently announced the new three-year operating agreement with the Florida Seminoles for an initial order for 2,000 Las Vegas style Class III gaming devices to be deployed in their casinos over the next few quarters. This will result in recurring revenue for Bally over the next three-year term of the agreement. We will not have a significant impact on our fiscal 2008 earnings.
We’ve also been pleased with orders we’ve received in California as a result of the recent referendum. We estimate our ship share on orders placed to date is about 25%.
The strength of our systems business is very exciting. The significant revenue growth in the current quarter reflects a number of successful goal-lives with our customers and is a demonstration of our increasing market share in the systems world, and our business momentum in revenue pipeline for systems remains very strong. For example, we announced today that Harrah’s will be deploying our Power Bonusing products worldwide and expanding our core software footprint with them globally.
Also announced today was that Harrah’s has selected a competitor’s iVIEW like hardware device for its casinos. We were unsuccessful in this procurement due to price and other factors, but as you can see Harrah’s remains a committed long-term software partner with Bally on many fronts.
Such a procurement of iVIEW like devices and technology is consistent with Bally’s server gaming strategy and should encourage other customers to buy iVIEW technology. Our server gaming strategy was very well received at this year’s G2E Gaming Expo. Our evolutionary approach using iVIEW devices enhanced by server-based software has resulted in almost 100,000 iVIEW network devices installed or committed.
Interest in our Power Winners products, secondary iVIEW games and tournament products remains very strong and we’ll be announcing enhanced iVIEW roadmap and product offering at our Systems User Conference next week here in Las Vegas.
So let me try to give you a vision for how server gaming and a network for the future are evolving. First, Bally has been committed to the systems business for 31 years and we have never abandoned a product. And Bally continues to win new systems business at a strong rate and experience conversions from our competitors to Bally Systems.
Today, there are 27 casinos worldwide that have 3,000 or more slot machines; 19 of those 27 companies use Bally Systems or use the Aristocrat systems and one each for other competitors or in-house. So, the biggest and most complex casinos rely on Bally for their systems technology.
Today, Bally has eight customers utilizing high-speed floor networks in the Class III marketplace. We are not aware of either of our major system competitors servicing any Class III customers via a high-speed floor network. Now this experience is giving Bally valuable knowledge on how to work with these technologies to improve transaction speed and provide a more enhanced customer experience.
This spring we’ll have a major casino live with Bally’s customer-centric bonusing, Bally’s tournament, and Bally’s secondary games server products deployed on iVIEW. They will be managing these products with Bally’s command and control panel to create a truly unique customer experience using server technology on a high-speed floor network.
They will also use Bally’s business intelligence tool to better manage machine purchases and floor layout. We fully expect other casino customers will follow.
By summer, customers will be using Bally’s command and control product to manage peripheral devices, printers and bill acceptors for cost savings; and to handle configuration management, denomination change, for example, to enhance game profitability especially during peak period; and to download game content.
So, by this autumn we are likely to see several casinos fully implemented in a server-based world following Bally’s evolutionary cost effective and technologically advanced approach. You can see that we have prioritized these server components based on return on investment.
It’s also important to note the Bally’s approach does not go through the game core, the game CPU. This streamlines the approval process and avoids complex between the manufacturers. Any game that is GSA compliant will be connected.
Now, turning for a moment to guidance for the balance of fiscal year 2008, we currently believe that our revenues for the full 2008 fiscal year will exceed $875 million. This is an increase of $10 million from our prior minimum revenue guidance.
We also believe that our diluted earnings per share will be in the range of $1.60 to $1.90 per share as opposed to the prior range of $1.55 to $1.85 per share. We continue keep a wide range of earnings per share due to our complex revenue recognition rules.
We would now like to open it up for any questions
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from the line of David Katz - Oppenheimer.
David Katz - Oppenheimer
Your earnings guidance, the press release says $1.62 to $1.87 from an earlier range of $1.60 to $1.90. I thought the earlier range was $1.55 to $1.85. Is that what you said there?
Robert Caller
It’s quite possible that the wire service picked up some other draft of the release. The current guidance range for fully diluted earnings per share is $1.60 to $1.90. Our prior guidance for fully diluted earnings per share was $1.55 to $1.85. Anything else that you might have seen or read is either a typo or inaccurate in some way.
David Katz - Oppenheimer
Can I have also the casino ops; a little better detail what the EBITDA generated? Was there a DNA for modeling purposes?
Richard Haddrill
David, we don’t have that information readily available. We can derive that information and get it back to you later.
Robert Caller
If you were to adjust for what is unusual jackpot expenses that occurred in the quarter compared to the other quarters under comparison, the immediately preceding or the prior year quarter, which was $2 million and this $1.1 million additional revenue deferral. You could look at a gaming operations margin of about 62%, compared to the September quarter 67%.
That decline would be principally due to the seasonality and the impact of casino play during the December quarter, which I think our competitors have also experienced slightly lower.
To add a little more color on that, about 26% of our devices out on gaming operations are on daily fee, the remainder on rev share. Consequently, we are exposed to rev share, although perhaps less than some others. That may help you with your modeling and I think there are some details in our 10-Q on our depreciation as well.
Operator
Your next question comes from the line of Todd Eilers - Roth Capital Partners.
Todd Eilers - Roth Capital Partners
With regards to the new Harrah’s deal that you announced, from the incremental products that you’re adding there, is there any impact at fiscal ‘08 for you or is this primarily a fiscal ‘09 event?
Robert Caller
This will be fiscal ‘09 and beyond, principally.
Richard Haddrill
And then Todd, let me be clear too. We will be recognizing revenue, for example, on power winners as it’s approved in various jurisdictions. So there could be a little bit in fiscal ‘08, but we don’t expect very much. And then the international will depend on Harrah’s international growth plans.
Todd Eilers - Roth Capital Partners
You obviously rose by $0.05 on the top and bottom end, EPS-wise. Is that primarily all new California compacts, or is there anything else in there that caused you to raise that guidance as well?
Richard Haddrill
There’s a lot of yin and yang in that guidance, right. Our tax rate’s coming in a little higher because of this FIN 48. Our interest expense is coming a little higher than we thought three or four months ago because of the spreads with LIBOR and the continued growth of our gaming ops business, which has required a little capital. On the other hand, California, there’ll be maybe $5 to $10 million of revenue for California coming in, so that’s positive.
So the guidance has a number of factors. We continue to have under this Revenue Recognition 97-2, some variability based on revenue recognition, which is one reason we’ve kept a fairly wide range, although directionally the business remains very positive.
Todd Eilers - Roth Capital Partners
On California, you gave a ship share number of 25% I believe if I heard you correctly. Can you maybe give us what your existing static market share might be in the California market to illustrate maybe the increase in that market alone from the incremental orders there?
Richard Haddrill
Well, in North America we believe that our current footprint of gaming devices is somewhere around 13% to 14%. And yet on new openings, we’re getting around the 24%, 25% on average, as I mentioned in my comments somewhere between 19% and 28%. In California, I don’t have what our current footprint is. But the 25% is very consistent with what we’re seeing in the rest of the country.
Todd Eilers - Roth Capital Partners
Can you give us what the deferred revenue both long and short term was on the balance sheet for the quarter?
Robert Caller
For the quarter, the short term deferred revenue was $109.5 billion at 12/31. The long-term deferred revenue was $57.4 million at 12/31.
Todd Eilers - Roth Capital Partners
Can you give us a cash flow from ops and maybe CapEx number for the quarter?
Robert Caller
We’re going to be following our Q later today or first thing in the morning. Our cash flow from operations is $31.3 million. And then the total capital expenditure was $8.4 million for the six months and the amount of inventory transferred to leased gaming equipment was $40.2 million.
Todd Eilers - Roth Capital Partners
I think I heard you say repaid some debt in the quarter. Can you give what the long-term debt balance is right now at the end of the quarter?
Robert Caller
Yes, that pay down actually occurred in the first quarter Todd.
Richard Haddrill
We did buy back $6 million in stock during this quarter.
Robert Caller
That’s right and I believe that our term loan is down to $291 million at the end of December.
Todd Eilers - Roth Capital Partners
In a general sense of free cash flow allocation priorities taking into account where the stock is right now, would you view debt reduction or stock repurchases as your primary allocation right now?
Richard Haddrill
Well, Todd, I think the first thing is to continue to expand the gaming operations footprint. Beyond that, I think we will be opportunistic about stock repurchases. We have a very generous authorization from our Board of Directors, so I think we’ll do that.
At the same time, the spread’s widening with LIBOR such that the interest rate I think on our debt is right around 7.5% and so we’ll continue to pay down debt, but as the stock price volatility continues and as we have increasingly open windows where the company can buy back stock, I think you’ll see this volatility continue and the stock, we will weigh in and buy back stock at times as well.
Operator
Your next question comes from the line of Steve Kent - Goldman Sachs.
Steve Kent - Goldman Sachs
Robert, in your comments you said that the gross margins on machine sales would show some improvement in the next 16 to 18 months. Obviously, you’ve had incredible margin improvement there. Are you starting to max out there?
Is this one of the areas where you’ve at least commented to me, that you’re still trying to find new opportunities in some of the accounting and systems that you’re putting in place in your own operations are giving you that opportunity or what’s your sense as to how much more you have there?
Robert Caller
Well, Steve we do believe that there are opportunities for future enhancements in our gross margin on game sales over the next six to 18 months, as, not only as we begin to streamline our supply chain and procure goods on a more favorable basis to the company, but there are, we believe, manufacturing efficiencies that will allow us to move that the margin up closer to what some of our competitors have been enjoying.
Richard Haddrill
Steve as we’ve talked in the past too, our conversion kit sales in the past have been very low. We do expect that to continue and we are deploying a new warehouse management system in the next 30 days that should enable us to continue to drive on the inventory and the supply chain. The exact amount of improvement we’re not willing to comment on, but we do see opportunities there.
Operator
Your next question comes from the line of Amir Markowitz – JP Morgan.
Amir Markowitz – JP Morgan
You mentioned that you thought that the win per day on the game upside was going to improve going forward. Now is that a function of mix or do you see an improvement in overall play levels or is it seasonality or is it a combination of all of them?
Richard Haddrill
Yes, actually, Amir, what I think we said is we expect the gaming operations revenues and margins to improve in Q3 and Q4 compared to Q2, and that would be based on seasonality and the continued growth in our base of products.
In addition, Q2 was impacted by a $2 million jackpot expense and a $1.1 million revenue deferral. The $1.1 million revenue deferral we expect to go away in the very near term and the jackpot expense is hard to predict, but it’s more unusual than it is usual. So those would be what we expect to improve gaming operation.
The win per day is a daily block and tackle exercise by our sales force, where over the last year we have been working to continuously place our machines in better locations, get better rev share, but that will be somewhat dependent on how casino play is, because as I said earlier, about 74% of our devices are dependent upon on the win per day at the various casinos.
Amir Markowitz – JP Morgan
On the international side, some of your competitors have had a lot of success recently selling internationally, so I wanted to get a sense of what your strategy is to increase your sales internationally. I know you opened some couple of offices, but do you see some further spending in order to help increase those sales.
Richard Haddrill
Yes, a couple points of clarification there. About three or four years ago, international revenues represented, I think, about 6% of our revenues. In fiscal ‘08, we’re estimating between 12% and 15% of our revenues from international. So plenty of opportunity for Bally to grow international revenues at an even faster rate than domestic, which we have been doing, but as you can see still below our competitor levels.
The $2 million expense we had in the second quarter was related to VAT, shipping and other costs directly related to getting products into the new market that have not yet been recognized as revenue. So that’s not new market opening costs, that’s direct hit to margin that should be helpful to future margins.
So our international business is growing, we’d love it to be a higher percent than it is, but we are trying to make the investments prudent, such that we enjoy profitability as we enter new markets. And I think you can look for our international revenue to continue to grow faster than domestic.
Operator
Your next question comes from the line of Berchmans Rivera – Credit Suisse.
Berchmans Rivera – Credit Suisse
Could comment on your plans and options for your credit facility given the September maturity for your revolver and the current state of the credit markets?
Robert Caller
Well, we wish the current state of the credit markets were better. Six, nine months ago we thought it’d be pretty easy to refinance our debt at a couple of hundred basis-point reduction. Today, if we were to refinance our debt and our rate being right around 7.5%, I believe, we probably would not have much savings from that rate.
So we’ll continue to monitor the credit markets and a reasonable worst case would be to redo the debt at the current interest rate. However, we’re looking at other options to do that, and as I mentioned earlier, we also would consider more aggressive pay-down of the debt, but at the same time, right now the credit markets are such that we don’t see much improvement in the current rate.
Operator
Your next question comes from the line of Bill Lerner - Deutsche Bank.
Bill Lerner - Deutsche Bank
Could you give me a sense or give us a sense for single-shift manufacturing capacity? On the manufacturing side as I think about margin opportunity going forward, why does it still make sense to be building games here? Especially, and maybe this is for a later discussion when international is a bigger chunk of the story, but especially for games that are internationally destined.
Gavin Isaacs
Single-shift capacity continues to improve, and at the moment I’d have to say it’s about $50,000 per annum. In relation to building games here, the labor component isn’t a major part of the manufacturing COGS, but having said that we are obviously looking at ways of getting product into international markets more efficiently and that in the future may include integration offshore.
Bill Lerner - Deutsche Bank
Obviously you have done a great job on the video side turning that story around in recent years, when you think about market share you talk generally about it, but where do you think you are on the video side? Does it match the mix between steppers and video domestically which are 42% or 43% of the total installed base or is there some distinction between your mechanical reels and your video market share?
Gavin Isaacs
Domestically, I would say that we do approximately 60% stepper at the moment. Video is clearly improving for us and our market share is increasing on an order-by-order basis, but I think at the moment we have bigger opportunities in video to grow as we continue to do extremely well in the stepper side.
Operator
Your next question comes from the line of Larry Gandler - Credit Suisse.
Larry Gandler - Credit Suisse
With regards to the 6,100 units in North America in the quarter, it was my impression that there weren’t too many new venue openings or expansions in the quarter is it fair to conclude that the 6,100 units were predominantly replacement sales into the market?
Gavin Isaacs
Larry, we have in that number, I understand, three small openings as well. Less than 20% would be in new openings.
Richard Haddrill
I think also relevant is we really didn’t have any units in the quarter to Oregon and very few, if any to Washington which are unique Bally markets over the near term. So we did extremely well in the replacement market in North America.
Larry Gandler - Credit Suisse
And as you mentioned, none to Oregon or Washington, was there, from what I also observed, doesn’t seem like there was much activity in the Class II markets in the quarter as well, so can I conclude that of that 6,100 again, a very large portion was Class III devices?
Richard Haddrill
That’s correct.
Operator
Your next question comes from the line of David Katz - Oppenheimer.
David Katz - Oppenheimer
So looking at your game ops and your installed base within the daily fee and rental category, can you talk a little bit about how many, Hot Shot has obviously been a pretty productive product and other variants of that that would baked into that number?
Richard Haddrill
Well, we stopped three months ago disclosing individual product lines for competitive reasons. Hot Shot does continue to grow. It’s a great product. It seems to have great legs to it. We’re also seeing momentum in their new Reel Winners products and the Millionaire Sevens product and we have others coming out of the pipeline too. So we’re pretty optimistic and pretty bullish on our premium daily fee and rev share games.
David Katz - Oppenheimer
We saw some interesting new product, the G2E, Pong and some other interesting items. If you, an update on an approval schedule and a little more specific as to when some of those will hit and when we can start to see some of those numbers would be helpful.
Gavin Isaacs
Quick Hit Platinum has started to roll out and is proving to be very successful for us. Our Roulette with the new bet stacking software is doing extremely well. We’ve started to roll out the Pair’Em Up. In the video section Golden Monkey and some of our basic titles are beginning to perform for us and obviously in the step of the Blazing Sevens brand, the Quick Hits brand, they continue to do well.
Game Maker has started to roll out in a couple of instances and we’re looking forward to that. Obviously some of our poker, we’ve got multi-hand Pick Em’, which seems to be doing quite well for us. And our first bar-tops going to United Coin should go out within the next, we hope, 30 days. Our first CineReels are starting to roll out. Our first ones were at Palazzo and we’re starting to put some into Southern California.
And all the high-denom games that we’ve started to show at the gaming show have started to be released. So over the 60 to 90 days we hope to have everything out and some of it in the field.
David Katz - Oppenheimer
Is it sitting today versus the last time you updated guidance would you say the March and June quarter your outlook is the same, better or not better?
Richard Haddrill
Well, first of all, the second quarter was a great quarter, right. The systems revenue is still very strong and really a great shipment quarter on games. That said we have increased the minimum guidance by $10 million and due to the complex revenue recognition we have on both systems and games, we have put that out there as a minimum and a pretty wide range of earnings guidance.
One of the things to keep in mind is that if we hit anywhere near the low end of the revenue range it’s going to be revenues that got deferred into the next year as opposed to went away. So business remains very strong for us. We continue to gain ship share on the machine side. We continue to grow the gaming ops business and have very good success on the system business.
But predicting exactly which quarter it’s going to fall in is what allows us to continue to have such a wide range of earnings guidance and put forward only a minimum range on revenue guidance.
David Katz - Oppenheimer
And then one of the footnotes you have in the press release is on some daily fee revenue from 7,400 units included in central determined systems that has been deferred. I’m not sure we’ve encountered that before. What exactly happened there? That looks like a special case.
Richard Haddrill
It is rather unusual. We have a very good customer for which we have a long-term contract and as their business needs evolved we agreed to do some additional functionality into the system. And in doing that it causes us to defer gaming operations revenue until we deliver that functionality, which we expect to deliver before the end of the fiscal year.
So in total it’s been a little over $3 million in both the September and December quarter, and then in the December quarter we had $1.1 million of additional gaming operations revenue deferred for a similar issue with another customer.
David Katz - Oppenheimer
On the product sale side in the past you’ve actually had a category of “other and parts”. I realize there was no OEM sale in the quarter. But is there in your unit sale revenue numbers is there any other/parts baked in there somewhere? And how much would that be?
Gavin Isaacs
There are no OEM sales.
Robert Caller
That’s correct and we haven’t separately disclosed other or part sales in the past, David, they have always been included in our total revenue from gaming equipment.
Operator
Your final question comes from the line of Ethan Silverman - Wexford Capital.
Ethan Silverman - Wexford Capital
A very important part of your recent success has been gaining market share and there’s an impressive build out of capacity coming in Las Vegas in the next three or four years. Could you address how you plan to sell your product differentially and what market share you would expect to garner in the next couple years with all these new projects?
Richard Haddrill
Our recent history over the past say nine to 12 months has been hitting around this 23%, 28%, 25%, we had one down as low as 19% ship share. We’re doing extremely well in the stepper space about half of our products year-to-date shipped have been stepper. In the video space we have some great offerings. We feel we need to broaden that to get to 30%, 35% ship share.
So it remains to be seen whether the products in the queue will do that for us, but we’ve got some great products in the queue. Gavin touched on a number of them in the video space, but also in the stepper space, the CineReels looks great and we continue to enhance the stepper product.
So I’d say we’d be disappointed if we averaged less than this 23%, 25%, 27% share on new openings and our goal is with our energized development teams to strive towards the 30 plus percent.
Let me thank our investors for your continued support. We’re working hard on your behalf. And we will end the call at this time.
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