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Bally Technologies, Inc. Reports Record Revenue of $1.2 Billion and Record Adjusted EPS of $4.32 with GAAP Diluted EPS of $2.52 for the Year Ended June 30, 2014

August 27, 2014

LAS VEGAS--(BUSINESS WIRE)-- Bally Technologies, Inc. (NYSE: BYI)

Bally Technologies' Chief Executive Officer Richard Haddrill (Photo: Business Wire)

Bally Technologies' Chief Executive Officer Richard Haddrill (Photo: Business Wire)

  • TOTAL REVENUE INCREASES TO A RECORD $1.2 BILLION, UP 22 PERCENT FROM PRIOR YEAR
  • ACHIEVES QUARTERLY NORTH AMERICA REPLACEMENT-UNIT SALES OF 2,503, UP 3 PERCENT FROM PRIOR YEAR
  • SYSTEMS REVENUE SETS AN ANNUAL RECORD OF $328 MILLION, UP 30 PERCENT FROM PRIOR YEAR
  • WIDE-AREA PROGRESSIVE REVENUE SETS ANNUAL AND QUARTERLY RECORDS

    Bally Technologies, Inc. (NYSE: BYI) (“Bally” or the “Company”), a leader in gaming machines, table game products, casino-management systems, interactive applications, and networked and server-based systems for the global gaming industry, today announced record annual and quarterly revenue of $1.2 billion and $342 million, respectively, and Adjusted EPS of $4.32 for the year ended June 30, 2014 and $1.20 for the three months ended June 30, 2014. Adjusted EPS for the year and three months ended June 30, 2014 includes a $0.11 and $0.01 per share loss, respectively, from unfavorable foreign currency movements. Diluted earnings per share (“GAAP Diluted EPS”) were $2.52 and $0.31 for the year and three months ended June 30, 2014, respectively.

    “Fiscal 2014 highlights our commitment to our partners and customers in delivering world-class player experiences through innovative products and services,” said Richard Haddrill, the Company’s Chief Executive Officer. “Strong demand for our newest cabinet, the Pro Wave™, helped grow domestic new unit sales by 18 percent over the previous quarter. With SHFL in the mix, we grew our international new unit sales by 25 percent further driving our global presence. We continued to deliver new and exciting titles such as Titanic™ that drove our WAP revenue to record levels. Our Systems technology continues to present a compelling value proposition to our customers as evidenced by another year of record revenue. On the interactive side, we acquired Dragonplay on July 1, 2014, a leading online social casino company, further strengthening our presence in the fast-growing social and mobile gaming platform.”

    Fiscal Year 2014 Highlights

                 
    Three Months Ended June 30,Year Ended June 30,

    2014

     

    %

    Rev

    2013

     

    %

    Rev

      2014 (3)  

    %

    Rev

      2013  

    %

    Rev

    (dollars in millions, except per share amounts)
    Revenues:
    Electronic Gaming Machines (“EGM”) $

    119.9

    35 % $ 88.7   34 % $ 381.7   32 %   $ 339.8 34 %
    Gaming Operations 104.8 31 % 102.8 39 %   405.4 33 % 405.0 41 %
    Systems 75.7 22 % 72.9 27 % 327.8 27 % 252.2 25 %
    Table Products 41.8 12 %   100.2 8 %
    Total revenues $ 342.2 100 % $ 264.4 100 % $ 1,215.1 100 % $ 997.0 100 %
     
    Gross Margin: (1)
    EGM $ 62.2 52 % $ 44.0 50 % $ 190.5 50 % $ 170.6 50 %
    Gaming Operations 61.3 59 % 71.0 69 % 266.6 66 % 282.8 70 %
    Systems 54.0 71 % 57.7 79 % 236.1 72 % 192.6 76 %
    Table Products 30.7 73 %   70.6 70 %
    Total gross margin $ 208.2 61 % $ 172.7 65 % $ 763.8 63 % $ 646.0 65 %
     
    Selling, general and administrative $ 91.5 27 % $ 72.1 27 % $ 343.1 28 % $ 276.7 28 %
    Research and development costs 37.0 11 % 30.3 11 % 135.9 11 % 111.1 11 %
    Depreciation and amortization 20.1 6 %   5.7 3 % 57.6 5 % 22.7 3 %
    Operating income $ 59.6 17 % $ 64.6 24 % $ 227.2 19 % $ 235.5 24 %
    GAAP Diluted EPS $ 0.31 $ 0.95 $ 2.52   $ 3.45
     
    Non-GAAP Measures: (2)
    Adjusted Operating Income $ 92.3 27 % $ 64.6 24 %

     

    $ 321.0 26 % $ 235.5 24 %
    Adjusted EBITDA $ 121.7 36 % $ 87.5 33 % $ 428.0 35 % $ 332.5 33 %
    Adjusted EPS $ 1.20 $ 0.95 $ 4.32 $ 3.45  
    (1)   Gross Margin excludes amortization related to intangible assets which are included in depreciation and amortization (“D&A”).
    (2) Adjusted Operating Income, Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, share-based compensation and restructuring and acquisition-related costs) and Adjusted EPS are Non-GAAP financial measures. Reconciliations between GAAP and Non-GAAP measures can be found at the end of this press release.
    (3) Results for the year ended June 30, 2014 include SHFL entertainment, Inc. (“SHFL”) results beginning on November 25, 2013.

     

        As of June 30,
    2014   2013
    End-of-period installed base:
    Linked progressive systems 2,486 2,463
    Rental and daily-fee games 16,080 14,855
    Lottery systems (1) 12,543 11,846
    Centrally determined systems 29,663 35,284
    Utility products 8,923 NA
    Proprietary Table Games (“PTG”) 3,037

    NA

    Table game progressive units, table game side bets, and add-ons 5,685 NA
    (1)   Excludes 703 and 727 third-party Electronic Table System (“ETS”) seats operating as of June 30, 2014 and 2013, respectively.
        Three Months Ended

    June 30,
        Year Ended

    June 30,
    2014     20132014     2013
    Operating Statistics

    Units

    Sold

     

    Average

    Selling

    Price (“ASP”)

    Units

    Sold

      ASP

    Units

    Sold

      ASP

    Units

    Sold

      ASP
    New EGM 6,350 $ 17,472 4,911 $ 16,224 20,775 $ 16,799 19,007 $ 16,411
    Utility products 630 $ 16,032 NA NA 1,556 $ 16,143 NA NA


    Highlights of Certain Results for the Three Months Ended June 30, 2014

    Overall

  • Total revenue increased 29 percent to a quarterly record $342 million as compared with $264 million last year.
  • Adjusted EBITDA increased 39 percent to a quarterly record $122 million as compared with $88 million last year.
  • Selling, general and administrative expenses (“SG&A”) remained constant at 27 percent of total revenues and includes $11 million of restructuring and acquisition-related costs. After adjusting for these costs, SG&A was 24 percent of total revenues in the current period, down from 27 percent last year.
  • Research and development expenses (“R&D”) remained constant at 11 percent of total revenue.
  • Operating income decreased 8 percent to $60 million as compared with $65 million last year. Adjusted Operating Income increased by 43 percent to a record $92 million. Adjusted operating margin increased to 27 percent from 24 percent last year.
  • GAAP Diluted EPS was $0.31 as compared with $0.95 last year. Adjusted EPS increased 26 percent to a quarterly record $1.20 from $0.95 last year. GAAP Diluted EPS and Adjusted EPS for the current period included a $0.01 per share loss from unfavorable foreign currency movements.

    Electronic Gaming Machines

  • Revenues increased 35 percent to $120 million as compared with $89 million last year, driven by higher replacement sales, and the sale of 1,262 Equinox™ units and 343 ETS seats.
  • ASP of new electronic gaming devices increased 8 percent to $17,472 per unit from $16,224 last year, primarily as a result of geographic mix and sales of the new Pro Wave™ cabinet, which carry higher ASPs.
  • New-unit sales to international customers were 36 percent of total new unit shipments compared to 24 percent in the prior year period.
  • Gross margin increased to 52 percent from 50 percent last year, primarily due to regional mix particularly towards the Australian and Asian markets.

    Gaming Operations

  • Revenues increased to $105 million as compared with $103 million last year, driven by continued placement of premium games, record wide-area progressive (“WAP”) revenue, and the inclusion of 2,173 leased ETS seats, partially offset by decreases in participation revenue during the same period.
  • Gross margin decreased to 59 percent from 69 percent last year, primarily due to higher jackpot expenses and $7 million of restructuring and acquisition-related costs. After adjusting for these costs, gross margin was 65 percent.

    Systems

  • Revenues increased 4 percent to $76 million as compared with $73 million last year, driven primarily by hardware revenue.
  • Maintenance revenues decreased 5 percent to $23 million as compared with $25 million last year, driven primarily by certain customer credits issued.
  • Gross margin decreased to 71 percent from 79 percent last year, primarily due to the higher mix of hardware revenues generated during the current period. Specifically, hardware sales were 37 percent of systems revenues, and software and service sales were 32 percent, as compared to 28 percent for hardware sales and 38 percent for software and services sales in the same period last year.

    Table Products

  • Revenues from Table Products were $42 million, with Utility products revenue of $27 million and PTG revenue of $15 million, and are entirely due to the acquisition of SHFL.
  • Gross margin was 73 percent. Gross margin was impacted by $2 million of acquisition-related costs. After adjusting for these costs, gross margin was 77 percent.

    Highlights of Certain Results for the Year Ended June 30, 2014

    Overall

  • Total revenue increased 22 percent to a record $1,215 million as compared with $997 million last year.
  • Adjusted EBITDA increased 29 percent to a record $428 million as compared with $333 million last year.
  • SG&A remained constant at 28 percent of total revenues and includes $44 million of restructuring and acquisition-related costs. After adjusting for these 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 4 percent to $227 million as compared with $236 million last year. Adjusted Operating Income increased 36 percent to a record $321 million. Adjusted operating margin increased to a 26 percent from 24 percent last year.
  • GAAP Diluted EPS was $2.52 as compared with $3.45 last year. Adjusted EPS increased 25 percent to a record $4.32 from $3.45 last year. GAAP Diluted EPS and Adjusted EPS for the current period included a $0.11 per share loss from unfavorable foreign currency movements.

    Electronic Gaming Machines

  • Revenues increased 12 percent to $382 million as compared with $340 million last year, driven by the shipment of 2,834 units into the Illinois Video Game Terminal (“VGT”) market, and the sale of 2,779 Equinox™ units and 644 ETS seats, partially offset by a decrease in Canadian video lottery terminal (“VLT”) units sold from 2,226 units in fiscal year 2013, when compared to 25 units this fiscal year 2014.
  • ASP of new gaming devices increased to $16,799 per unit from $16,411 last year, due primarily to geographic mix and sales of the new Pro Wave™ cabinet which carry higher ASPs.
  • New-unit sales to international customers were 31 percent of total new unit shipments compared with 19 percent last year.
  • Gross margin remained constant at 50 percent and includes approximately $4 million of acquisition-related costs. After adjusting for these costs, gross margin was 51 percent.

    Gaming Operations

  • Revenues increased in fiscal year 2014, driven by significant investments we have made in our game development studios and game platforms over the past few years, the continued placement of premium games, record WAP revenue, and the inclusion of 2,173 leased ETS seats, partially offset by decreases in participation revenue during the same period.
  • Gross margin decreased to 66 percent from 70 percent last year, primarily due to higher-than-expected jackpot expenses, the inclusion of lower margin leased ETS seats, and approximately $8 million of restructuring and acquisition-related costs. After adjusting for these costs, gross margin was 68 percent.

    Systems

  • Revenues increased 30 percent to a record $328 million as compared with $252 million last year, due primarily to large system installations and continued growth of our recurring customer base.
  • Maintenance revenues increased 7 percent to a record $97 million as compared with $91 million last year.
  • Gross margin decreased to 72 percent from 76 percent last year, primarily due to the higher mix of hardware revenues generated during the current period. Specifically, hardware sales were 38 percent of systems revenues, and software and service sales were 32 percent, as compared to 30 percent for hardware sales and 34 percent for software and services sales in the same period last year.

    Table Products

  • Revenues from Table Products were $100 million, with Utility products revenue of $65 million and PTG revenue of $35 million, and are entirely due to the acquisition of SHFL.
  • Gross margin was 70 percent. Gross margin was impacted by approximately $5 million of acquisition-related costs. After adjusting for these one-time costs, gross margin was 76 percent.

    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:

        Three Months Ended     Year Ended
    June 30,June 30,
    2014   20132014   2013

    (in millions)

    Net income attributable to Bally Technologies, Inc.$12.2$37.3$98.6$141.4
    Interest expense, net 17.7 3.0 47.8 12.8
    Income tax expense 21.6 21.2 66.1 76.6
    Depreciation and amortization 40.3 22.3 133.7 88.3
    Share-based compensation 3.6 3.7 14.0 13.4
    Restructuring and acquisition-related costs 19.0 60.5
    Loss on extinguishment of debt   7.3     7.3  
    Adjusted EBITDA$121.7$87.5$428.0$332.5


    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.

    The components of restructuring charges are related primarily to executive transition costs, inventory and fixed assets write-offs and non-cancelable lease costs related to excess facilities. Acquisition-related costs include financial advisory, legal and debt fees; accounting, consulting, and professional fees associated with due diligence, valuation and integration; severance; and adjustments related to step-up in inventory basis and amortization of purchased intangible assets.

    The following tables reconcile the Company’s GAAP to Non-GAAP Financial Measures:

    Three Months Ended June 30, 2014

                   

     

    GrossSG&AOperatingNet
    Revenues   Margin (1)   Expenses   D&A   Income   Income (2)   EPS

     

    (in millions, except per share data)

    GAAP Measures$342.2$208.2$91.5$20.1$59.6$12.2$0.31
    GAAP %61%27%17%
    Amortization of purchased intangibles (13.4 ) 13.4 8.6 0.22
    Restructuring and acquisition-related costs 8.5 (10.8 ) 19.3 15.5 0.40
    Loss on extinguishment of debt 4.7 0.12
    One-time income tax items (3) 5.8 0.15
    Total adjustments   8.5     (10.8 )   (13.4 )   32.7     34.6   0.89
    Adjusted Non-GAAP Measures$342.2$216.7$80.7$6.7$92.3$46.8$1.20
    Adjusted %     63%   24%       27%        
    (1)   Gross Margin excludes amortization related to intangible assets which are included in depreciation and amortization.
    (2) Adjustments are tax affected at 35.5%, with the exception of non-deductible items included in restructuring and acquisition-related costs.
    (3) Income tax expense was impacted by the write-off of net operating loss carryforwards.

    Year Ended June 30, 2014

                   
    GrossSG&AOperatingNet
    Revenues   Margin (1)   Expenses   D&A   Income   Income (2)   EPS

     

    (in millions, except per share data)

    GAAP Measures$1,215.1$763.8$343.1$57.6$227.2$98.6$2.52
    GAAP %63%28%19%
    Amortization of purchased intangibles (33.0 ) 33.0 21.3 0.54
    Restructuring and acquisition-related costs 16.9 (43.9 ) 60.8 42.2 1.08
    Loss on extinguishment of debt 4.7 0.12
    One-time income tax items (3) 2.2 0.06
    Total adjustments   16.9     (43.9 )   (33.0 )   93.8     70.4   1.80
    Adjusted Non-GAAP Measures$1,215.1$780.7$299.2$24.6$321.0$169.0$4.32
    Adjusted %64%25%26%
    (1)   Gross Margin excludes amortization related to intangible assets which are included in depreciation and amortization.
    (2) Adjustments are tax affected at 35.5%, with the exception of non-deductible items included in restructuring and acquisition-related costs.
    (3) Income tax expense was favorably impacted by a one-time IRS settlement partially offset by a write-off of net operating loss carryforwards.


    Adjusted EPS and other such adjusted measures are supplemental Non-GAAP financial measures that the Company’s management believes more accurately reflects the Company’s operating results for the periods presented. Adjusted measures should not be considered an alternative to GAAP measures as determined in accordance with GAAP.

    About Bally Technologies, Inc.

    Founded in 1932, Bally Technologies (NYSE: BYI) provides the global gaming industry with innovative games, table game products, systems, mobile, and iGaming solutions that drive revenue and provide operating efficiencies for gaming operators. For more information, please visit http://www.ballytech.com. Connect with Bally on Facebook, Twitter, YouTube, and LinkedIn.

    This press release may contain “forward looking” statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and is subject to the safe harbors created thereby. Forward looking statements are subject to change and involve risks and uncertainties that could significantly affect future results, including those risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.Although the Company believes any expectations expressed in any forward looking statements are reasonable, future results may differ materially from those expressed in any forward looking statements. The Company undertakes no obligation to update the information in this press release except as required by law and represents that the information speaks only as of today’s date.

    BALLY TECHNOLOGIES, INC.

    BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

    UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

    FOR THE THREE MONTHS AND YEAR ENDED JUNE, 30 2014 AND JUNE 30, 2013

           
    Three Months EndedTwelve Months Ended
    June 30,June 30,
    201420132014

     

    2013

    (in 000s, except per share amounts)
    Revenues:
    Gaming equipment and systems $ 209,457

    $

    161,625 $ 743,571 $ 592,061
    Product lease, operation and royalty 132,754 102,777   471,521 404,978  
    342,211 264,402   1,215,092 997,039  
    Costs and expenses:
    Cost of gaming equipment and systems (1) 84,568 59,827 298,297 228,805
    Cost of product lease, operation and royalty(1) 49,458 31,868 152,979 122,188
    Selling, general and administrative 91,491 72,099 343,152 276,685
    Research and development costs 36,972 30,326 135,862 111,118
    Depreciation and amortization 20,108 5,687   57,568 22,733  
    282,597 199,807   987,858 761,529  
    Operating income 59,614 64,595 227,234 235,510
    Other income (expense):
    Interest income 1,965 1,590 8,911 5,328
    Interest expense (19,677 )

    (4,576

    )

     

    (56,760 )

    (18,120

    )

    Loss on extinguishment of debt (7,346 ) (7,346 )
    Other, net (637 )

    (3,107

    )

     

    (6,199 ) (6,443 )
    Income from operations before income taxes 33,919 58,502 165,840 216,275
    Income tax expense (21,597 )

    (21,229

    )

     

    (66,074 )

    (76,574

    )

    Net income 12,322 37,273 99,766 139,701

    Less net income (loss) attributable to noncontrolling interests

    161

    (64

    )

     

    1,166

    (1,743

    )

    Net income attributable to Bally Technologies, Inc.

    $ 12,161 $ 37,337   $ 98,600 $ 141,444  
     
    Basic and Diluted earnings per share attributable to Bally Technologies, Inc.:
    Basic earnings per share $ 0.32 $ 0.96   $ 2.56 $ 3.53  
    Diluted earnings per share $ 0.31 $ 0.95   $ 2.52 $ 3.45  
     
    Weighted average shares outstanding:
    Basic 38,511 38,696   38,489 40,120  
    Diluted 39,022 39,374   39,138 40,992  
    (1)   Cost of gaming equipment and systems and product lease, operation and royalty exclude amortization related to intangible assets which are included in depreciation and amortization.

    BALLY TECHNOLOGIES, INC. AND SUBSIDIARIES

    UNAUDITED CONSOLIDATED BALANCE SHEETS

    AS OF JUNE 30, 2014 AND JUNE 30, 2013

           
    June 30,

    2014
    June 30,

    2013
    (in 000s, except par value amount)
    ASSETS
    Current assets:
    Cash and cash equivalents $ 77,439 $ 63,220
    Restricted cash 17,179 12,939
    Accounts and notes receivable, net of allowances for doubtful accounts of $14,806 and $14,813 314,119 248,497
    Inventories 82,289 68,407
    Prepaid and refundable income tax 21,938 21,845
    Deferred income tax assets 36,934 38,305
    Deferred cost of revenue 15,723 22,417
    Prepaid assets 21,800 14,527
    Other current assets 6,013     2,920  
    Total current assets 593,434 493,077
    Restricted long-term cash and investments 93,977 14,786
    Long-term accounts and notes receivables, net of allowances for doubtful accounts of $929 and $1,764 50,329 65,456
    Property, plant and equipment, net 70,218 35,097
    Leased gaming equipment, net 131,504 113,751
    Goodwill 1,003,377 172,162
    Intangible assets, net 508,245 25,076
    Deferred income tax assets 3,892 17,944
    Income tax receivable 457 1,837
    Deferred cost of revenue 6,989 12,105
    Other assets, net 56,389     27,974  
    Total assets $ 2,518,811     $ 979,265  
     
    LIABILITIES AND STOCKHOLDERS’ EQUITY
    Current liabilities:
    Accounts payable $ 37,651 $ 25,863
    Accrued and other liabilities 115,010 91,127
    Jackpot liabilities 11,726 11,731
    Deferred revenue 43,161 62,254
    Income tax payable 5,554 11,345
    Current maturities of long-term debt 38,465     24,615  
    Total current liabilities 251,567 226,935
    Long-term debt, net of current maturities 1,886,953 580,000
    Deferred revenue 20,209 23,696
    Other income tax liability 10,355 12,658
    Deferred income tax liabilities 110,899 171
    Other liabilities 32,907     16,633  
    Total liabilities 2,312,890 860,093
    Commitments and contingencies
    Stockholders’ equity:
    Common stock, $.10 par value; 100,000 shares authorized; 66,047 and

    65,318 shares issued and 38,694 and 38,855 outstanding
    6,595 6,523
    Treasury stock at cost, 27,353 and 26,463 shares

    (1,134,407

    )

     

    (1,058,381 )
    Additional paid-in capital 593,427 535,759
    Accumulated other comprehensive loss

    (5,423

    )

     

    (10,692 )
    Retained earnings 744,939     646,339  
    Total Bally Technologies, Inc. stockholders’ equity 205,131 119,548
    Noncontrolling interests 790     (376 )
    Total stockholders’ equity 205,921     119,172  
    Total liabilities and stockholders’ equity $ 2,518,811     $ 979,265  






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