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Bally Technologies, Inc. Reports Adjusted EPS and GAAP Diluted EPS for the Second Quarter of Fiscal 2014

February 11, 2014

Bally Technologies, Inc., a company focusing on gaming machines, table-game products, casino-management systems, interactive applications, and networked and server-based systems for the global gaming industry, 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.

According to a release, 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."

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.

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. 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.

Bally Technologies provides the global gaming industry with games, table game products, systems, mobile, and iGaming solutions that drive revenue and provide operating efficiencies for gaming operators.

More Information:

http://www.ballytech.com

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