Q4 revenue came in at $214 million, up 9% from the same period last year. For the full year, sales decreased 2.57% to $758 million (off a total of $778 million in 2010).
The company is split into three segments, all of which increased revenues year-over-year in the fourth quarter. Gaming Equipment was up 14.5% to $72.7 million in the quarter, but down just under 10% for the year to $245 million. Gaming Operations (largest component at roughly 37% of total sales in 2010) was the strongest segment, driving fourth quarter and full year sales increases of 6.33% and 11%, respectively. The third segment, Systems, increased sales by 7.9% to $58.7 million in the quarter, but saw sales drop 11.26% for the year.
In the Gaming Equipment segment, the company was negatively affected by sluggish new gaming device sales, which decreased to 13,537 units as compared with 17,334 units last year (average selling price per unit in the quarter was a record $16,719). This was driven by weak North America replacement market, fewer new casino openings and expansions, and lower international sales. However, they saw some recovery in the fourth quarter, with replacement game sales growing by 18% over Q4 2010, “the first meaningful increase in replacement sales in four quarters”.
Part of the company’s plan for future growth is dependent upon international markets. Here is what President and Chief Operating Officer Ramesh Srinivasan had to say on Bally’s success in one key international market, Macau: “Our systems market share in Macau in terms of slot machine connections has grown from 30% in 2009 to 64% in 2011. In terms of the number of tables and our TableView system, our market share in Macau has grown from 7% to 33%. I think it’s reasonable to expect that we can repeat that kind of performance in other international markets as well during the next couple of years”. They also pointed out that they are positioned to be a leading U.S. company in the new Italian market, with orders for over 5,000 machines (which should start to generating revenue by the end of this year).
Diluted EPS from continuing operations increased to $0.51 in the quarter, an increase of 6.25% from $0.48 last year (Q4 2011 includes an after-tax debt extinguishment cost of $0.05 /share). For the full year, diluted EPS from continuing operations decreased to $1.82, down 3.7% from 2010.
For the year, the company bought back $475 million of common stock (equal to nearly 30% of current market cap), primarily through a tender offer in the quarter (May) that resulted in the repurchase of 9.9 million shares (roughly 19% of shares out at the time) at a cost of nearly $400 million, or roughly $40/share ($152 million remaining under our stock repurchase plan). Noting that the stock is 25% below that price today, management said they would be “opportunistic in buying stock.”
Financially, the company is in a good position, with roughly $66 million in cash/equivalents and a current ratio of 2.94. Looking out longer term, the company has $500 million of long term debt, which shot up in the quarter in order to finance the large share repurchase; as noted by CEO Neil Davidson in the press release, the company took steps in the right direction in the quarter, closing on a $700 million credit facility, which increases their financial flexibility and lowers their borrowing costs.
Looking forward to 2012, the company has released guidance, with expectations for fiscal 2012 diluted EPS to exceed $2.15, and Q1 EPS to exceed $0.40/share; the stock currently trades at roughly $30 per share after diving more than 14% on Friday.
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I hope to own a collection of great businesses; to ever sell one, I demand a substantial premium to the average market valuation due to what I believe are the understated benefits to the long term investor of superior fundamentals and time on intrinsic value. I don't have a target when I purchase a stock; my goal is to replicate the underlying returns of the business in question - which if I've done my job properly, should be very attractive over many years.