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Bally Technologies CEO Richard Haddrill isn't waiting around for the much-anticipated slot machine replacement cycle to kick in or the expected influx of server-based games to invade casino floors.
His company, a Las Vegas-based gaming equipment provider, is instead using its systems division as a step toward improving revenue.
Boosted by recent sales of the iView slot machine technology to individual casinos and gaming companies with multiple gambling halls, Bally Technologies is fortifying its corporate revenue stream.
In July, Bally announced three agreements to place iView, a multiple-use slot machine enhancement product, at casinos from San Diego to Connecticut. The deals cover some 12,200 slot machines.
On Wednesday, the company announced a deal to place its systems technology throughout casinos operated by Pinnacle Entertainment, including the company's $475 million Lumeire Place, which is opening late this year in St. Louis. The deal includes the potential to add iView to 12,000 Pinnacle slot machines.
In April, Bally announced a $56 million contract with Las Vegas Sands Corp. to provide systems to the company's resorts under construction in Las Vegas, Macau and Singapore. A deal to add iView for up to 16,000 slot machines was part of the package.
IView serves as both a slot machine management tool and a player tracking system that allows casinos to market directly to customers sitting at a machine with personal messages offering, for example, free meals or other incentives. IView also has the software to offer secondary bonus play to gamblers who reach an initial jackpot on a slot machine.
Bally has told Wall Street that it had sales for 70,000 iView units, accounting for both the installed base and pending installations.
Bally did not disclose financial figures for the three July sales and the Pinnacle contract.
However, Roth Capital Partners gaming analyst Todd Eilers estimated the three July deals combined could add anywhere from 10 cents per share to 12 cents per share in earnings.
In a note to investors, Eilers said Bally could add about $4.3 million in revenue for a contract to place iView units at the Viejas Casino in San Diego. An additional $4.3 million could be realized from sales of iView to the Mount Airy casino in Pennsylvania.
A deal to equip 7,200 slot machines at the Foxwoods Casino in Connecticut could generate between $10.8 million and $14.4 million to the company, Eilers said.
CIBC World Markets gaming analyst David Katz said Bally's recent sales have helped the company carve out a much needed niche in the systems market.
"Overall, we believe this is positive for Bally and establishes (the company) as the market-share leader in this segment of the gaming equipment industry," Katz said in an investors note following the Viejas transaction.
Katz reiterated that belief after the Pinnacle deal was announced.
"We believe this contract is modestly positive for Bally shares, given that it provides incremental revenue visibility for the systems business for the next few years," Katz said in a note. "The deal also solidifies Bally as the market share leader in casino management systems among U.S.-based companies."
Haddrill, who took over as CEO of Bally in 2004 when the company was known as Alliance Gaming, said the company's gaming systems, about a dozen of which are being marketed to casinos, have given the company a long-term focus.
"(The sales) position us very well for the long term where systems and games will be more closely converged," Haddrill said. "We're well situated for what a casino of the future might look like."
Gaming systems and technology have become one of Bally's major revenue streams while the company has spent almost 24 months restating earnings from the past two fiscal years. Haddrill has told analysts the company hopes to show a 40 percent growth in revenues from systems when the last six months of earnings for 2006 are restated, possibly in the next few weeks.
Katz predicts Bally could see revenues of between $125 million and $130 million from the systems division in fiscal 2007-08.
Deutsche Bank gaming analyst Bill Lerner likes how Bally is growing the division.
"They have done a number of things quite well since Haddrill took over," Lerner said. "Video slots have helped turn around the company, as well as getting their finances in order and fixing their internal controls and internal finances. The systems business has also been one of their successes. Essentially, they are one of three players in this business with IGT (International Game Technology) and Aristocrat (Technologies)."
Haddrill said the growth in the gaming systems came at a cost to the company, such as increased expenses in research and development and hiring more than 300 more engineers worldwide.
"We maintained clear product roadmaps and we had a common release schedule that was extremely cost-effective in creating a new product," Haddrill said. "This has come at a time when our customers are in a competitive environment where they want to have the ability to learn more data about their customers and be able to communicate with them on a more continuous basis."
However, the recent iView placements have just touched the surface, Haddrill said. He said 300,000 slot machines are connected by Bally systems.
"That represents the potential over the next several years," Haddrill said. "We're not commenting on how many of those will become iView. At the same time, we're expanding that whole footprint of systems."
Wall Street analysts and slot machine pundits point to two potential growth initiatives that will fuel revenues for slot makers by the end of the decade: the replacement of older slot machines and the use of server-based gaming, also referred to as downloadable technology, which will give casinos and customers more freedom to choose the makeup of slot machines.
"We're already there in some ways," Haddrill said. "IView's secondary games are server-based and the systems we have developed are already downloadable compatible."
Using the Viejas casino as an example, Haddrill said Bally is helping the California Indian tribe prepare for the upcoming replacement cycle with the deal to place iView on its machines. He said it's more cost-effective for the casino to reconfigure the entire gaming floor.
"IView is a great return on investment because it's a lot less expensive than roping off the entire casino floor and buying new boxes," Haddrill said. "This resonates more strongly with our customers than tearing up their floor and completely replacing all their boxes."
BALLY PLAYING THE FIELD
Selected Bally Technologies iView Placements
Company/Casino No. of Machines
Boyd Gaming Corp. 7,667
Foxwoods Casino *7,217
Seminole Indian Tribe (Fla.) 5,933
Lincoln Park (Pa.) 4,752
Las Vegas Sands Corp. 4,227
Viejas Casino (San Diego) 2,555
Mount Airy Resort (Pa.) 2,500
Penn National Gaming 2,386
Total iViews 70,000
SOURCE: Bally Technologies
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