Bally Meets Expectations

Gaming equipment maker Bally Technologies Inc. (BYI) posted fiscal 2010 first-quarter results yesterday after the closing bell. The company recorded net income of $30.6 million, or 53 cents per share, compared to $30.3 million, or 52 cents in the year-ago period. The results matched the Zacks Consensus Estimate.

Bally Technologies is a leading gaming systems company, which designs, manufactures, operates and distributes advanced gaming devices, systems and technology solutions worldwide. The company's product line includes reel-spinning slot machines, video slots, wide-area progressives and class II, lottery and central determination games and platforms. The company also offers casino management, slot accounting, bonusing, cashless and table-management solutions and also operates the Rainbow Casino in Vicksburg, Mississippi.

The Las Vegas-based company’s sales slipped 17.2% year over year to $196.5 million. The decline was the results of weakness in North American gaming machine replacement market as customers continue to slash discretionary spending.

In terms of segments, Gaming Equipment plunged 42.2% year over year to $62 million as new gaming device sales slipped 40.3% to 3,936 units, partially offset by a marginal 0.4% rise in average selling price (ASP) to $14,115. Gaming Operations expanded 5.2% to $71.3 million, primarily driven by higher sales of premium revenue units and increased revenue per unit. The Systems segment rose 3.3% to $54 million driven by growth in maintenance and services revenue.

Bally’s gross margin (excluding casino operations) grew 580 basis points (bps) year over year to 62.9%, mainly due to higher ASP, lower material costs and decreased inventory write-downs in the Gaming Equipment segment. The margin also benefited from growth in rental, participation and license revenue related to Gaming Operations segment.

Total operating income dipped 4.8% year over year to $50.9 million, while operating margin grew 340 bps to 25.9%. The operating margin growth was driven by improved gross margin, partially offset by a 150 bps increase in research and development as a percentage of sales to 9.9%.

During the quarter, the company generated free cash flow of $36.4 million, compared to $21.2 million in the year-ago quarter. The growth in free cash flow was primarily the result of healthy earnings performance coupled with liquidation of inventories, which decreased by 34.6% year over year to $52.9 million at the end of the quarter. Bally also stated that it reduced debt by $6 million and bought back 392,000 shares of its common stock for about $15 million during the quarter.

Meanwhile, Bally raised its full fiscal 2010 guidance and now expects earnings to range between $2.30 and $2.55 per share, compared to the previous forecast of $2.25 to $2.50. The guidance is in-line with the Zacks Consensus Estimate of $2.42 per share, which has increased by 2 cents over the past month as 2 of 11 covering analysts raised expectations.

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