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During a road show last week to promote an upcoming stock offering, Las Vegas-based Progressive Gaming International Corp. told Wall Street it was revising its third-quarter estimates to reflect a loss of 9 cents per share rather than earnings of 9 cents.
The news, announced in a filing with the Securities and Exchange Commission, sent shares of the equipment provider tumbling downward almost 30 percent on the Nasdaq National Market over two days of trading.
Progressive Gaming said its estimated results for the quarter ended Sept. 30 would be revenue of $17.8 million, down from the previous prediction of $23.8 million, and cash flow of $1 million, down from the previously predicted $5.5 million.
Cash flow is generally defined as earnings before interest, taxes, depreciation and amortization.
The company plans to announces its official third-quarter results next week.
Early Monday morning, Progressive Gaming executives worked to repair investor confidence in the company. They held a conference call before markets opened to further explain the revision of the earnings estimate. However, the call was conducted without the usual question-and-answer session.
Progressive Gaming Chairman Russ McMeekin said the company's growing dependence on fees from licensing products and intellectual property has changed its accounting procedures and practices.
"Our core business models and strategies are intact," McMeekin said during the call. "Our growth initiatives are heavily focused on driving growth in long-term recurring revenues and making these revenues a greater contributor to the overall revenue base."
He said approximately 60 percent of the company's overall revenue comes from licensing and the remaining 40 percent comes from sales.
Progressive Gaming shares kept sliding Monday, closing at $9.22, down 63 cents or 6.4 percent. Last week, Progressive's stock price dropped $3.75 on Thursday and ended the week at $9.85.
On an average day, about 450,000 shares of Progressive Gaming are traded. On Thursday, more than 6.67 million shares changed hands. On Friday, 2.49 million shares were traded. A more back-to-earth 825,000 shares were traded Monday.
The SEC filing by the company, which manufactures gaming management systems and slot machines, surprised some Wall Street analysts.
"The stock was down mainly due to lack of communication from Progressive Gaming and investor worries," Jefferies & Co. gaming analyst Aimee Marcel said in an advisory note. "We believe (the company) can get the (equity) offering done, but if it does not, we will have to substantially lower our estimates and (stock price) target."
The 18-cent earnings-per- share swing was based on Progressive Gaming not being able to recognize approximately $6 million in revenue and $1.5 million in costs related to two software licensing transactions that came near the end of the quarter. Company auditors caught the accounting error.
The company called the deals "complex" in the brief SEC filing and tried to explain them further on the conference call.
Progressive Chief Financial Officer Michael Sicuro said the transactions involved "high-value" intellectual property.
"The terms and conditions contained highly competitive information, as do many of these transactions that we execute in monetizing cash," Sicuro said. "As a result, we don't and we won't disclose the details of these transactions, including the parties that are involved. What we can discuss, though, is that these transactions, included a license of software that will yield $4.5 million, or approximately 17 cents per share of cash, over the term of the agreements."
Sicuro said the transactions were a one-time accounting event and shouldn't affect the company's previous earnings guidance for 2006. Company executives also said the changed third quarter estimates should not impact Progressive's previously announced deal with rival equipment manufacturers International Game Technology and Shuffle Master to co-develop a table games management system.
"The cash licensing deals in our pipeline for (the fourth quarter of 2005) are not expected to have the characteristics that, in our opinion, may have caused the above transactions to not be reflected in our (profits and losses)," Sicuro said.
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