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Bally Technologies (NYSE: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 (NYSE: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 and 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.

We still expect our game equipment margin will approach 48% to 49% within the next 2 to 3 quarters, due to continued reductions in material costs on each of the Pro Series cabinets.

Revenues from gaming operations set a sixth consecutive all-time quarterly record at $93.7 million, up 14% from $82.3 million in the comparable period last year, principally as a result of the full quarter benefit from games placed at Resorts World Casino in New York City, continued placements of our premium games, and most importantly, strong recent success with Cash Connection.

Wide-area progressive revenue set another all-time quarterly record, increasing by 15% over the March quarter, and 71% versus last year. By quarter-end, we had increased our overall wide-area progressive installed base by 31% versus last quarter, and 72% last year. The margin on gaming operations was within our expected range at 72%.

On to systems. Systems revenues were $55.3 million for the quarter, marking our third consecutive quarter with revenues in excess of $50 million. Maintenance revenues for the quarter were $19.5 million, up 15% from $17 million in the comparable period last year. For fiscal 2012, maintenance revenues were $74.9 million, which was up 15% from fiscal 2011 and exceeded our expectations.

The margins on systems revenue was 74% for the quarter and for the full fiscal year, both within our expected range of 70% to 75%. The effective income tax rate for the year was 38.6%, higher than our expectations, due to the mix of foreign versus domestic income. We anticipate our effective income tax rate in fiscal 2013 will be between 38% and 39%. This rate does not assume reinstatement of the U.S. research and development credit.

Turning to the balance sheet. As of June 30, 2012, we had unrestricted cash of $32.7 million and our DSOs were 113 days, down from 116 days last year, and more importantly, continue to remain among the lowest levels in our industry.

We continue to generate strong free cash flow, which enabled us to maintain our leverage ratio comfortably below 2 turns and buy back almost 1.6 million shares of stock for $73 million during the quarter.

Since June 30, we have purchased approximately $30 million of additional stock. We currently have approximately $60 million remaining under our Board-authorized share repurchase plan.

With that, I'll turn the call over to Ramesh for some discussions on our product innovations and on our operating results for the year. Ramesh?

Ramesh Srinivasan

Thank you, Neil. We finished FY '12 very strong, with the last 2 quarters setting several new records. Revenues in gaming operations and game sales were up from the comparable prior year quarter for the fifth consecutive time.

FY '12 was a record year for Bally in many respects, including record annual overall revenue, gaming operations revenue, overall gross margin dollars and diluted earnings per share.

We have good reasons to feel positive about our business and the upcoming future. Our innovation engine continues to fire on all cylinders. In June, Bally's products earned 3 of the 4 major awards in the prestigious annual Top 20 Innovative Products Awards given by the Casino Journal Magazine. Additionally, recently, 5 Bally products recently took first place out of 6 entered categories in the 2012 Hospitality Operations Technology (NYSE:HOT) Award, including products from our interactive division. Accomplishments like winning first place in 5 of 6 categories, and winning more than 50 major awards in the past 4 years are absolutely remarkable, any way one looks at that.

In July, several of our Elite Bonusing Suite products went live floor-wide on a mix of iVIEW and iVIEW DM at Mr. Michael Gaughan's South Point Casino in Las Vegas. Since launching weekly Virtual Racing events, South Point had seen an improvement in foot traffic, carded play and player club enrollment.

We continue to make good progress in executing on our carefully thought out interactive strategy. During the quarter, we became the first company to receive an interactive gaming supply license in the U.S. Customers seem very supportive of our strategy thus far. Our cloud-based value mobile product continues to move forward at good speed.

A total of 58 gaming and non-gaming sites are currently using our mobile product with some combination of 60 applications running. We believe our Bally Mobile Solutions will be far and away the #1 such product in the industry.

We have made good progress with the integration of Bally Mobile with our core systems player tracking products. We continue to make solid progress with porting game content to our remote gaming servers and expect to have our content generating revenue on various portals in regulated international market sometime in the near future. The first U.S.-based play for poker -- play-for-free poker site belonging to Golden Nugget, using our back-end B2B iGaming platform, went live this quarter.

Our international products are natural extensions of our system's backbone, and we expect to make continued good progress in the months and years ahead.

Now turning to the quarterly highlights. Gaming operations continue to shine bright, led by our new WAP products and market expansion in jurisdictions such as New York and Maryland. Gaming operations revenue of $94 million was a new quarterly record. We placed an additional 404 incremental linked progressive units this quarter, the fifth consecutive quarterly increase, and a significant improvement over last quarter's 125-unit record quarterly increase.

Game equipment revenue for the quarter was $97 million, our best quarter in 3 years, representing a 33% increase over the comparable prior-year quarter.

Increasing acceptance of our ALPHA 2 based new core video content and the state-of-the-art Pro Series cabinets continue to drive game sales. We sold 4,143 new units in domestic markets, and almost 1,200 in international markets for a total of 5,322 units, the fifth consecutive year-over-year quarterly increase.

We are also very pleased with our recently announced partnership agreement with High 5, a leading third-party development company. We expect to further strengthen our game content offerings in the near future, some of which will debut at G2E this year.

We are encouraged by possible future growth in several global markets, including Italy, Australia and Canada. I'm particularly happy to report that we successfully completed product approvals in Italy. And as of today, are live in multiple locations.

While we are still in our early days in that market, the net win per day numbers from our games, so far, are very encouraging. The implementation process will continue at a deliberate pace across several other locations during the coming weeks and months. We expect to have an installed base of around 1,000 VLT units in Italy by the end of FY '13.

We continue to make progress in jurisdictions like Australia, where new unit sales continue to show steady improvement. We should also have our first systems inflation in Australia successfully completed during the next few weeks.

During May, we announced our first ever Canadian VLT contract, wherein we will be providing approximately 1,600 VLTs to the Atlantic Lottery Corporation. Among North American opportunities, we continue to make good progress with the Illinois VLT market. We expect to begin initial shipments, both for sales and participation-based VLTs in Illinois, beginning Q2 FY '13, pending final approval of location.

Finally, Ohio continues to unfold as a good growth opportunity for us, with 2 more casino openings coming up in the next 12 months and up to 6 additional race track VLT facilities coming over the next few years.

With respect to systems, revenues for the quarter were at $55 million. Gross margin for the quarter were 74%, within our expected range. FY '12 was a record year for systems in terms of total value of deals closed, services and maintenance revenue, which sets up the systems business well for FY '13.

The combination of iVIEW DM and EBS, and other features, like universal card across multiple properties, are becoming increasingly very compelling ROI argument with multiple customer instances of demonstrable value generated from such implementations. We are also making good progress with international systems implementations including those in Canada, South Africa, New Zealand and Australia.

In summary, we are on a solid growth path and continue to expand our great team of people. We are making significant investments in new technology and tools as we continue to progress on our mission to be the best technology provider in the gaming industry. We expect our final results -- our financial results to continue to reflect our progress.

Now back to you, Dick.

Richard M. Haddrill

Well, thank you, Ramesh and Neil. The success that we are enjoying and our positioning for the future are very consistent with the roadmap we had communicated. Our strategies have been solid and our overall execution has been excellent.

So let's take a moment and look at the last 4 years, a period of overall economic weakness and considering the investments we have made, the level of consistent innovation we have achieved and how strongly this positions Bally for the future.

First, we have more than doubled the number of game studios and launched our state-of-the-art ALPHA 2 game platform.

Second, we introduced the industry to a number of exciting new hardware innovations, like the iDeck button deck and the curved LCD, which conduct -- combines stepper-style play with video flexibility, all of which make Bally games smart investments for our customers.

Third, we transitioned from a company which produce predominantly separate products, to one that develops innovative video products, positioning us for greater ship share, for growth in the international and video lottery markets and from converging chip sales.

Fourth, we evolved from having one of the weakest average selling prices for our games to one of the strongest, which combined with reasonable DSOs, avoids the short-term benefits of discounting and extended financing terms that can cause longer-term challenges.

Fifth, we leveraged our expanded game development talents, our new game platform and our innovative hardware with exciting brands to further grow our profitable game ops business.

Sixth, we created floor-wide excitement and personalized player experiences, unlike anything seen in the industry before, with the successful commercialization of our iVIEW DM technology and Elite Bonusing Suite of applications.

Seventh, we invested in new and expanding markets, such as South Africa, Canada, Italy, Illinois, Ohio, Australia, and the overall video lottery market that will produce share owner returns for years to come.

Eighth, we made sensible investments in new business-to-business products for mobile and interactive gaming, which position us well to benefit from these new growth areas in partnership with our customers.

Finally, in these last 4 years of economic weakness, we have increased the number of Bally personnel by 26% to keep the innovation and customer-centric progress continuing.

In my 15 years as a CEO across 3 companies, I have never felt more confident in a team and a company's prospects to produce returns for its shareowners in the coming year and beyond. We have demonstrated that confidence with share repurchases totaling over $800 million since November 2007.

In summary, we are very pleased with our fourth quarter and fiscal 2012 results, but we are even more excited about fiscal 2013 and beyond.

In closing, I want to give my sincere thanks to all Bally team members, who continue to work hard to ensure the success of our customers and of Bally for the long-term.

Keith, let's now open it up for questions.

Question-and-Answer Session


[Operator Instructions] Our first question is coming from the line of Steve Kent from Goldman Sachs.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

Two questions. First, on the legal accrual. Could you just give us a little bit more color as to exactly what that is? And then, second, could you just give us more on Michael Jackson and the GREASE games? So for example, is there any cannibalization of your existing games due to this? Is there any backlog? Can you talk about the backlog for GREASE and Michael Jackson? And then, average win per day or any other metrics that you could give us that allow us to feel confident that this -- these 2 games are gaining traction and have staying power?

Richard M. Haddrill

Sure. Steve, first on the legal accrual. Because it's a legal accrual, we've told you about all we're going to tell you. It is for several legal matters. So more than 1 and less than 6. We feel we were very prudent to make this accrual in our completed fiscal year, it kind of cleaned the runway for '13. And aside from that, there's not much more we're prepared to say there. With respect to Michael Jackson and GREASE, I think we have said historically that we saw both of these games as having the potential to reach total placements of 750 each and we still feel that way. The numbers are meeting or achieving our expectations. And as we've said before, cannibalization is very hard to measure, but cannibalization does appear low, and low partly because Bally has produced small WAP footprint and because these games are quite unique. I would also add just in this general area, we really haven't -- we've sliced and diced our gaming operations data and really haven't seen any weakness, yet, from the consumer. We see normal trends from a controlled rollout plan. We see normal trends from seasonality. But we haven't seen any impact yet from the consumer. Again, could be because of the nature of our games, but we really tried to analyze this and haven't seen that yet. Also, I would just add one other point, our gaming operations margin, not revenues, but margin was somewhat impacted in the fourth quarter by a higher jackpot expense than we experienced in the third quarter. But that's going to vary quarter-by-quarter. So I think that's about all the rundown we'll give you on GREASE and Michael Jackson. But generally, very, very pleased with those 2 games, the best ever in our history, and we continue to be pleased with them.

Steven E. Kent - Goldman Sachs Group Inc., Research Division

And I don't know if you can, but average win per day or something like that?

Richard M. Haddrill

Well, average win is meeting our expectations. If you -- our overall WAP footprint is up nicely year-over-year and in line with seasonal trends. So they're doing very well.

Neil P. Davidson

Yes, I'll tell you, Steve. Last year, we were just talking about this before the call. Last year, when we look at our wide-area progressive footprint, we didn't really peak above $100 for our revenue per day. In each one of the quarters this year, we peaked above $100. And in fact, in the last 2 quarters, we were slightly above that. But very happy with the performance thus far.


Your next question is coming from the line of Joe Greff from JPMorgan.

Joseph Greff - JP Morgan Chase & Co, Research Division

Two quick questions. One on the fiscal '13 guidance. Maybe you can help us understand what you think is at the $3.30 level and what's at the $2.95, and what has to go right for you to hit $3.30? Is it better-than-expected traction in game ops? Is it Pro Series related margin improvement? Is it more buyback? If you can help us identify some of those larger items to go from high to low? And then my second question is on the wide-area progressive topic. Obviously, early results have been phenomenal, it's great to see that. Has there been a more recent competitor who responds to how you're offering your wide-area progressives, either in a percentage of coin in? Or kind of a capped fee basis? Anything more recent on that front would be helpful to understand.

Richard M. Haddrill

First on the guidance question. I would say that we've just finished a very solid quarter on every metric. Our adjusted operating income is up 35% year-over-year for the fourth quarter. About 50% of our fourth quarter revenue was recurring revenue. We just finished our annual sales meeting for the global sales team and they're as excited as ever about our products as the studios hit their stride and the new ALPHA 2 platform they get familiar with. And as we've said, we expect further cost reductions in our cabinet as well. We're also going into the fiscal '13 with excellent game ops momentum, with 2 hot products that have room to grow, but we have some strong products behind GREASE and Michael Jackson, that we haven't yet announced, and we will in the coming months. And we have good visibility in our strong system's backlog, whether it's Canada or Africa or the growing acceptance of iVIEW DM. And of course, our maintenance revenues increase every year in systems as well. And then, lastly, we've got some new market growth for us, whether it's Australia, New Zealand, Italy, Illinois or the Canadian VLT market. So lots of things in place for fiscal '13 and '14 that give us the optimism to have this strong guidance, much of which is only partially impacted by economics. Obviously, there's a lot of probability waiting that goes into what's really going to happen like how much of Illinois will be sale units versus recurring revenue units, and how much Illinois would really roll out in fiscal '13. Exactly how many units will get in Italy and what's the win-per-unit will be? Because we're very early into Italy going. So there's a wide variety of things there but it's a reasonably broad range of guidance that allows us to feel confident we can operate within that range of guidance. And in terms of giving you specifically what's in and out, I think it's our way of saying that we use a probability weighting in looking at the overall guidance range, and really don't want to give specific things that go in and out, because then we have to give you the probability we put associated with that. But overall, we feel very positive going into the year for all those reasons that I mentioned. With respect to the wide-area progressive, those products are performing solid, more games coming behind them. I wasn't sure, Neil, if you've got some more color you want to add there or Ramesh?

Ramesh Srinivasan

I don't think there’s any particular competitive measure we've seen, Joe. It's like competitive pressure that happens all the time. But I don't think there have been any particular price adjustments we've made. It’s just due to competitive pressure.

Neil P. Davidson

Yes, I would say since MJ and GREASE and others to come are performing well there might be competitors trying to keep up with us and trying to keep their games on the floor and not lose footprint. They may be doing some things, but it's not causing us to react.

Richard M. Haddrill

And from our own side, we've got some follow-on games, some games we haven't yet released, some math tweaks we think we might have made to just make the games even better, and to keep them going. So feeling pretty good about where we are with GREASE and Michael Jackson at this point.

Joseph Greff - JP Morgan Chase & Co, Research Division

Great. That's great. Hey, Neil, on the $33 million worth of stock that you've purchased so far in this quarter, how many shares does that represent, for modeling purposes?

Neil P. Davidson

Right about 745,000. I'll get you an exact number if that's not right on the money, but it's right around 745,000.


Your next question is coming from the line of Mark Strawn, Morgan Stanley.

Mark Strawn - Morgan Stanley, Research Division

One question on the WAP side. Just curious maybe not on the exact win-per-unit metric, but perhaps relative to floor average. Can you just give us a sense of how GREASE has trended since its initial launch? Clearly, it's performing well. But could you give us a sense of that trajectory so we could get a feeling for the staying power, and any, maybe, conversions you have behind that to continue to extend the life of these games?

Richard M. Haddrill

Sure. With respect to GREASE, which has been out there since March, Michael Jackson since May, we've got a little more data. And as we've said, we feel like both GREASE and Michael Jackson have the potential to achieve 750 games. We see nothing that would change that projection at this point. We do have, as I alluded to earlier, specifically for GREASE, a couple of follow-on games and changes that we can release over the next 3 to 6 months, if needed, to keep the life. Clearly, the wide-area progressive space is very competitive. So we've talked a lot about GREASE and Michael Jackson, which is relevant because they're such terrific games. But we want to assure you that our WAP strategy and Cash Connection strategy doesn't stop with these 2 games. But with respect to these 2 games, they're doing great, and we do have follow-on games to extend the life of them. But other games behind them as well.


Your next question is coming from the line of Todd Eilers, Roth Capital Partners.

Todd Eilers - Roth Capital Partners, LLC, Research Division

A couple of questions. First, I want to ask a question on pricing or, I guess, ASPs. Obviously, pretty healthy for you guys in the quarter, while your competitors seem to be down a little bit. Can you maybe talk a little bit about how you're able to hold that high level of ASPs, given, kind of, some of the competitors, what they've reported? Is it strong content? Is it hardware that you've provided in addition to the content? Combination of both? Or just maybe a little color on that will be helpful.

Richard M. Haddrill

Well, we've always, sort of, contended that discounting as a short term strategy that allows you to achieve some short-term objectives. But if your 4% gets above the win on the floor, it comes back to haunt you in the future. The same thing can apply to overly aggressive financing. That said, what we have developed in our current cabinet is the iDeck, which many customers see as a good value proposition because they don't have to change out button decks in the future, it allows them highly configurable game. The same thing with the curved LCD, it allows casinos to buy a separate product, but it can be configured into a variety of different stepper games, which again is a great value proposition. And they view the ALPHA 2 platform as a great long-term investment as well. So I think that helps. And then on the content side, they've seen what we've done with our studios, in our product management process over the last couple of years. And I think they have confidence in the content that will follow. And so it's been our objective, as we've rolled out the new cabinet and the new platform, to be prudent in how hard we push that into the marketplace to make sure we have good content to follow-on and we don't disappoint customers. And I think all of that helps support our pricing strategy.

Todd Eilers - Roth Capital Partners, LLC, Research Division

Okay. Great. And then just a second question on the premium gaming ops space. Obviously, sounds like your first 2, Michael Jackson and GREASE, are doing very well, sounds like you have some follow-on WAP titles coming out here this fall. Can you maybe talk a little bit about the mix of, I guess, resources and development dollars are being put into the premium space? I guess, my question really is, should we also see some new titles coming out on your premium daily-fee segment so that we can keep the current levels or even grow those units as well?

Ramesh Srinivasan

Hey, Todd, this is Ramesh. The R&D focus in games is across all the segments. We are making sure that we don't sacrifice one for the sake of the others. So in terms of non-WAP premium, WAP premium and the normal games sales, set of game titles, the focus is on all of them. And there are a bunch of new titles, and probably some of them branded, that are going to be coming out uniformly over the next 3, 6, 9, 12 months. So the R&D focus is not being sacrificed one for the others.

Neil P. Davidson

Yes. Specifically, we're really managing to the cabinets. So you'll see, for example, the Cash Wizard cabinet. We already announced the Beach Boys title coming. You're going to see at G2E. There is more content behind each one of our premium cabinets that's follow-on offering.

Ramesh Srinivasan

And there will be -- even the new premium cabinets have come out, that are announced new, there will be good content and titles coming behind them before we launch those, Todd.


Your next question is coming from the line of Carlo Santarelli, Deutsche Bank.

Carlo Santarelli - Deutsche Bank AG, Research Division

If you look at the mid-point of your guidance and kind of make normal assumptions for CapEx spend, et cetera, you guys will generate likely over $100 million of free cash flow next year. When you think about share repurchases versus other investments, how are you kind of balancing that with current leverage where it is? And then I have a quick follow-up for Ramesh.

Richard M. Haddrill

Well, clearly, we're very comfortable with our current leverage ratio, especially with 50% recurring revenue and the outlook and visibility we have. We've been a big believer in our stock and will likely continue to be a big investor in our own stock. I would say that we've been in a very heavy phase of execution, where we can generate a lot of shareowner returns by executing well. And much of that execution risk is behind us. ALPHA 2 is going very well, iVIEW DM now has got the technical things worked out. Italy is going well. We're in -- well into the Canadian and African system projects. So a lot of the execution risk is behind us, which can make accretive acquisitions more interesting to us. So that is something we will probably keep some powder for to try to leverage our global footprint, our sales and regulatory infrastructure. But again, look for us to make acquisitions that are either very strategic or near-term accretive because we have a lot of shareowner value we can still deliver through good execution.

Neil P. Davidson

From a buyback standpoint, we'll probably continue -- we've been rather aggressive the last 2 quarters and going into the fourth -- first quarter, as we mentioned in the press release. But we've traditionally bought back in the $15 million to $20 million a quarter range.

Carlo Santarelli - Deutsche Bank AG, Research Division

And Neil, is that kind of the assumption baked in $2.95 to $3.30 is anywhere from $60 million to $80 million in buyback this year?

Neil P. Davidson

I think that's a fair assumption.

Carlo Santarelli - Deutsche Bank AG, Research Division

Great. And then, Ramesh, as it pertains to the systems. Outside the new installs in this most recent fiscal 4Q, were there meaningful DM shipments?

Ramesh Srinivasan

Overall positive in Q4, and for the fiscal year FY '12, the number of DMs both sold and installed are multiple times that of the FY '11 level. And I expect that rate of increase of DM sales and installs to continue into FY '13 as well. For example, there is one casino that went live in Asia that was 100% DM. Every single game had DM on it. So DM is a normal part of what we are doing now, and I do expect that to keep increasing year after year.


Your next question is coming from the line of Darnel Bentz, KeyBanc.

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

I just had a couple of quick questions. First, I was wondering if you could talk about the international opportunities you have, and how you see them playing out, in particular, in Italy and Canada? And then I'm wondering if you could give just some detail on how many new WAPs you're going to have on display at G2E that aren't iterations of existing games? Like how many brand-new titles are we going to see there?

Richard M. Haddrill

First on the international opportunity. If you look at our last 7 years or so, we've grown international revenue as a percent of revenue, from about 5%, 6%, to about 19% at a time when our total company revenues have doubled. So we've done a good job. But on the other hand, our international revenues are still only 19% and several of our competitors are over 30%. So we think, as we continue to buildout the international infrastructure, there's lots of upside for us. Italy and Canada just being a couple of those. But we've talked about Australia, Africa, et cetera, and we can certainly do with a higher video content, we can do even better than we have in places like Europe and South America. So in Italy, we have fairly modest prospects because of our delays in getting approved. So we've said that we expect to have 1,000 machines by the end of this fiscal '13. I think there is a chance to do much better in Italy over time. But we have to sort of earn our stripes after this delayed technical approval process. Canada is a great opportunity for us because -- we've announced the BCLC contract. We've announced that we're the preferred vendor with Ontario Lottery for systems. We've announced the Saskatchewan systems opportunity and the VLT opportunity with ALC and we have other VLT opportunities in Canada. And overall, the VLT market is a great market for us as we put more emphasis on them. So very excited about those 2 markets. But again, Italy growing more slowly, Canada, more near term. On the WAP and G2E, we're going to make you wait for G2E. Sorry.

Ramesh Srinivasan

Also, specifically international opportunities. The systems opportunity is also growing internationally, other than the games and VLTs. And so our first system just went live in Australia for the first time. And we are looking at further opportunities -- at New Zealand we just went live over the last few months. And, of course, the South Africa installs are going on schedule. So lots of international opportunities in the systems areas.

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

As a follow-up, have you have a greater mix of VLTs going forward? Is that going to put pressure on your ASP? You have some -- your competitors talking about ASP being pressured because of the mix of VLTs. Are you guys going to experience that same phenomena?

Neil P. Davidson

Yes, I would say with respect to particularly Canadian VLT, those come in at a slightly lower ASP. They don't have quite as many bells and whistles. We have guided to higher margins. So the good news is on a margin-dollar basis, they're still accretive. Illinois, which is a VLT market, that'll come at a little cost to ASPs.


Your final question is coming from the line of Jon Oh, CLSA.

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

Most of my questions have been answered. But I guess I have a question for either Dick or Ramesh. What do you guys think about your competitors that are going in a bit more aggressive towards -- investing towards the interactive business, either cloud computing and some of them even doing a lot of -- in the poker space, as the next leg of growth for their business, how do you think about that from a strategic standpoint as you steer value over the next couple of years?

Richard M. Haddrill

John, we're very pleased with our position in our gaming. Our strategy is to go in partnership with casino customers into the space. And we've purchased the Chili Gaming platform and are integrating it into our core system, which is a huge strength for us in this area because we can give our customers one view of their player. So it's been very well received by our customers. And in fact, yesterday, I think at Golden Nugget where they're running free play poker using our platform, they had 15,000 discreet users log on, so that makes them one of the more successful free play poker sites in the United States. In the mobile applications area, we purchased and are building out a great success, a leader in the MacroView acquisition we made about 1 year ago. We now have 58 sites up and running. We think mobile can be more profitable in the near term than Internet gaming, which is highly competitive and likely to just evolve as poker, at least in the United States. But then the third thing we're doing is transporting our games and content, of course, to the Internet in legal jurisdictions, which should be again generating revenue for us early on -- in calendar '13. So we're feeling really good about our strategy and with our strong system backbone, good cash flow, if there is an acquisition needed down the road to fill that out, we're in a great position to do that.

Ramesh Srinivasan

And with respect to cloud computing, John, there are many areas in which we are using the Cloud, where it is relevant. For example, our Bally Mobile platform runs off the cloud. And in our systems area, we are taking a look at it, but we have been prudent about it. We are a reasonably customer-driven organization. So we are going to be using the Cloud where it is relevant, where it helps our customers. And that kind of R&D is also going on.

Richard M. Haddrill

Well, with that, I think we will conclude the call. We thank you for your interest. And hope you share our enthusiasm for our future. Bye for now.


Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.

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