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Bally Technologies reports results

14 Feb 2008

VEGAS, Nevada -- (PRESS RELEASE) -- Bally Technologies, Inc. (NYSE: BYI), a leader in slots, video machines, casino management systems and networked solutions for the global gaming industry, announced today diluted earnings per share ("Diluted EPS") of $0.42 and $0.79 and revenue of $230.7 million and $419.7 million for the three months and six months ended December 31, 2007, respectively. Diluted EPS adjusted for share-based compensation ("Adjusted EPS") for the three months and six months ended December 31, 2007 was $0.45 and $0.86, respectively.

"We are very pleased to report record quarterly results for our second quarter," said Richard M. Haddrill, the Company's Chief Executive Officer. "Our great game performance and continued system success is reflected in record quarterly revenues in each of our game sales, gaming operations and systems businesses."

Three Months Ended December 31, 2007 Compared with Three Months Ended December 31, 2006

-- Total revenues increased 53 percent to $230.7 million as compared with $150.9 million in the same period last year.

-- Operating income increased by $41.1 million to $46.8 million, as compared with $5.7 million in the same period last year; operating margin was 20 percent in the three months ended December 31, 2007.

-- Net income increased by $26.9 million to $24.4 million, as compared with a loss of $2.5 million in the same period last year, primarily as a result of improved margin and cost leverage.

-- Adjusted EBITDA was $63.9 million, a 172 percent increase as compared with the same period last year.

-- Selling, general and administrative expenses declined to 26 percent of total revenue from 33 percent as compared with the same period last year.

Six Months Ended December 31, 2007 Compared with Six Months Ended December 31, 2006

-- Total revenues increased 38 percent to $419.7 million as compared with $304.7 million in the same period last year.

-- Operating income increased by $74.0 million to $88.0 million, as compared with $14.0 million in the same period last year; operating margin was 21 percent in the six months ended December 31, 2007.

-- Net income increased by $48.4 million to $45.7 million, as compared with a loss of $2.7 million in the same period last year, primarily as a result of improved margin and cost leverage.

-- Adjusted EBITDA was $122.4 million, a 146 percent increase as compared with the same period last year.

-- Selling, general and administrative expenses declined to 27 percent of total revenue from 33 percent as compared with the same period last year.

"We are again pleased with our operating leverage this quarter," said Robert C. Caller, the Company's Chief Financial Officer. "Our SG&A in the current quarter compared with the September 2007 quarter increased by $8.7 million primarily due to higher professional and accounting fees, Global Gaming Expo trade-show expenses, and commission and bad-debt expenses associated with higher revenue. However, as a percent of revenue, SG&A decreased to 26 percent from 28 percent in the September 2007 quarter."

Highlights of Certain Results for the Three Months Ended December 31, 2007

Gaming Equipment

-- Revenues increased to approximately $108.4 million, a 54 percent increase as compared with the same period last year.

-- A 53 percent increase in new gaming device sales to 7,144 units as compared with 4,672 units in the same period last year.

-- A 4 percent increase in the ASP of new gaming devices, excluding OEM sales, primarily due to product mix and the effect of foreign currency exchange rates on international pricing.

-- Gross margin increased from 34 percent in the same period last year to 44 percent, a slight decline from 46 percent in the first quarter of fiscal 2008. The improvement in margins over the same period last year was primarily related to the increase in ASP discussed above, the elimination of lower margin OEM sales, and improved purchasing and manufacturing efficiencies due to increased volumes and lower manufacturing costs. Game equipment margins were negatively impacted by approximately $2.0 million in one-time expenses related to the entrance into new international markets in the current quarter.

Gaming Operations

-- Revenues increased 34 percent to approximately $54.2 million as compared with the same period last year.

-- Gross margin remained consistent at 58 percent in this year and in the same period last year.

-- Revenue and gross margin in fiscal 2007 includes daily fees that relate to certain contracts that were deferred in the first and second quarter of fiscal 2008 due to new contractual commitments made to the customers. Approximately $4.4 million in daily fees generated during the second quarter of fiscal 2008 were deferred pending delivery of the commitments.

-- Revenue and gross margin was negatively impacted by $1.1 million due to the additional deferred revenue and normal seasonality and the softness in casino revenues in the domestic market compared with the September 2007 quarter.

-- Gross margins were negatively impacted by the deferral of revenue discussed above and approximately $2.0 million of jackpot expenses compared with the September 2007 quarter and the same period last year.

Systems

-- Revenues increased 95 percent to approximately $56.3 million as compared with the same period last year, primarily as a result of continued acceptance of the Company's products and an increase in the number of go-lives.

-- Gross margin increased slightly to 73 percent from 72 percent in the same period last year.

-- Maintenance revenues increased to approximately $9.9 million from approximately $8.3 million in the same period last year.

-- As of December 31, 2007, the Company had sold approximately 67,000 units of its iVIEW(TM) player-communication units. iVIEW units purchased and committed to be purchased now exceed 97,000.

Highlights of Certain Results for the Six Months Ended December 31, 2007

Gaming Equipment

-- Revenues increased 45 percent to approximately $192.7 million as compared with the same period last year.

-- A 52 percent increase in new gaming device sales to 12,295 units as compared with 8,099 units in the same period last year.

-- A 7 percent increase in the ASP of new gaming devices, excluding OEM sales, primarily due to product mix and the effect of foreign currency exchange rates on international pricing. ASP was negatively impacted in the prior year as a result of incentive pricing and discounts offered to customers related to the roll-out of Bally's Alpha OS(TM) platform products.

-- Gross margin increased to 45 percent from 33 percent in the same period last year. The improvement in margins was primarily related to the increase in ASP discussed above, the elimination of lower margin OEM sales, and improved purchasing and manufacturing efficiencies related to increased volumes and lower manufacturing costs.

Gaming Operations

-- Revenues increased 34 percent to approximately $108.3 million as compared with the same period last year.

-- Revenue and gross margin in fiscal 2007 include daily fees that relate to certain contracts that were deferred in the first and second quarter of fiscal 2008 due to new contractual commitments made to customers. Approximately $7.6 million in daily fees generated during the six months ended December 31, 2007 was deferred pending delivery of the commitments.

Systems

-- Revenues increased 41 percent to approximately $95.5 million as compared with the same period last year primarily as a result of continued acceptance of the Company's products and an increase in the number of go-lives principally in the second quarter for fiscal 2008.

-- Gross margin increased to 74 percent from 68 percent in the same period last year primarily as a result of an increase in the proportion of software and maintenance sales as compared with hardware sales. Hardware sales have lower gross margins compared with software and maintenance revenue.

-- Maintenance revenues increased to approximately $19.3 million from approximately $15.9 million in the same period last year.

Fiscal 2008 Business Update

The Company raised its fiscal 2008 guidance for Diluted EPS to $1.60 to $1.90, from an earlier range of $1.55 to $1.85. Adjusted EPS is now estimated between $1.75 to $2.05 from an earlier range of $1.70 to $2.00.

The Company now expects revenues in fiscal 2008 to exceed $875 million, with continued year-over-year growth in each of game sales, gaming operations and system revenues. The Company continues to forecast an increase in the placement of premium daily-fee games and an increase in the number of gaming devices sold, and also expects margins on game sales and operations to continue to improve in fiscal 2008 as compared with fiscal 2007. The Company also continues to expect its selling, general and administrative expenses as a percentage of revenue to be lower in fiscal 2008 as compared with fiscal 2007. The Company expects its effective tax rate for fiscal 2008 will be between 37 and 38 percent.

The Company has provided this broad range of earnings guidance to give investors general information on the overall direction of its business. The guidance provided is subject to numerous uncertainties, including, among others, overall economic conditions, the market for gaming devices and systems, 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 may update this fiscal 2008 guidance from time to time as the year progresses.

 
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