SEARCH NEWS:

 

Multimedia Games reports results

Summary and Review of Q1 Results:

       (In millions, except per-share and player terminal data)

                                              For the Three Months
                                                  December 31,
                                              2006           2005
                                          -------------  -------------
Revenue                                    $      29.1    $      34.0
EBITDA(1)                                  $      11.4    $      18.5
Net (loss) income                          $      (2.8)   $       1.5
Diluted (loss) earnings per share          $     (0.10)   $      0.05
Average installed player terminals:
  Class II
  (Legacy and Reel Time Bingo(R) games)          7,026          9,719
  Oklahoma compact games(2)                      2,859          1,105
  Other gaming units(3)                          3,289          2,572
------------------------------------------
(1) EBITDA is defined as earnings before interest, taxes,
    amortization, depreciation, and accretion of contract rights.
    A reconciliation of EBITDA to net income (loss), the most
    comparable Generally Accepted Accounting Principles ("GAAP")
    financial measure, can be found attached to this release.
(2) "Oklahoma compact games" includes stand-alone offerings and
    server-based games.
(3) "Other gaming units" include those placed in charity halls and in
    Mexico.

The year-over-year decline in fiscal 2007 first quarter EBITDA and net income is primarily the result of lower revenue from the Company's Oklahoma operations. Multimedia Games' ("Multimedia") Q1 FY '07 Oklahoma revenue continued to be impacted by players' preferences for one-touch, stand-alone games, while the Company's installed base mix in the December quarter remained heavily weighted towards multi-touch Class II and server-based compact offerings. Higher selling, general and administrative ("SG&A") expenses, which rose approximately 16.6% on a year-over-year basis, impacted both EBITDA and net income. The year-over-year SG&A increase is primarily due to: write-offs of third-party gaming content reflecting the Company's initiative to transition its Oklahoma installed base from multi-touch, Class II to stand-alone units; costs associated with the development of the new mGAME(TM) Gaming Cabinets and content; and, higher legal fees associated with litigation.

Clifton E. Lind, Multimedia's President and Chief Executive Officer, commented, "Class II electronic standard-sequence bingo games and server-based compact units accounted for more than 68% of our installed base in Oklahoma at December 31, therefore our Q1 FY '07 financial results do not yet fully reflect the expected benefits of our strategy to convert substantially all of our installed base in the market to stand-alone games. In addition, the removal of 444 Class II player terminals in Q1 FY '07, primarily at California facilities, contributed to the year-over-year quarterly revenue decline. We also incurred costs related to the accelerated development of our proprietary gaming cabinets and platform, which we expect initially to deploy in Class III markets including Oklahoma and California, beginning in Q3 FY '07, and later in selected Class II, charity and international markets.

"As reported last month, on December 31, 2006, 32% of our installed base in Oklahoma was comprised of stand-alone offerings, compared to approximately 13% of the installed base at September 30. The hold per day of the stand-alone offerings, which to date reflects placements of third-party, stand-alone units, continues to exceed that of the Class II and server-based units they have replaced. Our average revenue share for Class II and Class III placements in Oklahoma for the month of December 2006 was approximately 24.3%. While the placement of additional stand-alone units will further reduce our average revenue share, we also expect these placements to drive improvements in the Company's Oklahoma hold per day, which in the long term should more than offset the expected decline in average revenue share.

"While the transition of our installed base of units in Oklahoma to stand-alone games continues and remains a priority, the pace of conversions slowed in January due to the prolonged effects of ice storms in the market, which also reduced patronage and play at facilities in this market. Although the ice storms had a direct impact on our primary facilities for 12 days, including two weekends, the lingering effects of the storm delayed planned conversions in many cases for several weeks. We are working to return to our previous scheduled rate of conversions and will continue to provide monthly updates on our progress.

"To address the changing and evolving markets, we are taking actions to lower costs and focus resources on the domestic and international markets that offer the best short- and long-term growth opportunities for the Company. To support this initiative, Multimedia is initiating a number of measures that will reduce costs on an ongoing basis, including a reduction in staff, made possible in part by the fact that the new stand-alone units are less labor intensive than the systems-based offerings they are replacing. In addition, Multimedia will seek to further reduce costs and optimize the yield of its installed base through removals of approximately 250 low performing Class II games from selected facilities where conversion to stand-alone games is not warranted. Longer-term, Multimedia's ability to offer a wide variety of popular third-party games on an exclusive basis at selected locations, and the Q3 FY '07 introduction of new proprietary stand-alone offerings on our mGAME platform are expected to result in an increase in our Oklahoma installed base later in FY '07.

"In the Mexico market, five facilities with a total of approximately 900 player terminals have been opened. Based on the current scale of our operations in Mexico, we have not yet reached the point where revenue offsets costs related to our operations in this market. Provided current plans for new facility openings remain on schedule, we expect that our operations in Mexico will begin contribute to earnings in Q3 FY '07. Further, we believe that the recent decision of the Supreme Court of Mexico, which resolved questions of the legality of licenses to conduct electronic bingo in that market, will result in a resumption of a more aggressive schedule of new facility openings and create new opportunities for Multimedia to place additional electronic bingo offerings.

"In the New York video lottery ("VLT") market, revenues and the installed base of VLTs continue to grow, and there are current expectations for an additional 1,500 VLTs to be added at the Empire City facility at Yonkers Raceway later this quarter. In addition, we expect to deliver units in markets where we sell player terminals and receive a modest, on-going revenue-share. We expect this to benefit revenues and operating results in the latter part of FY '07.

"Multimedia continues to make progress in transitioning its Oklahoma installed base and our operations in other markets, including New York, Mexico, Alabama and Washington have prospects for growth. At the same time, we see opportunities to reduce SG&A costs and expect to achieve at least a $1.0 million reduction in Q2 '07 from Q1 '07 levels. The staff reductions noted above are expected to result in at least $4 million in annual savings on a going-forward basis beginning in Q3 FY '07."

Lind concluded, "Finally, we have received several proposals to increase our borrowing capacity to a total of $150 million, and we are close to selecting a lender. Our Board and strategic review committee continue to work actively with our financial advisor, Bear Stearns, to analyze strategic alternatives for the Company. We expect to report the results of that review process at or prior to our annual shareholders' meeting in May."

The table below sets forth Multimedia Games' ("Multimedia's") end-of-period installed player terminal base by product line or market for the fiscal quarters ended December 31, 2006, September 30, 2006 and December 31, 2005.

                                              Mexico
            Reel           Total   Oklahoma Electronic
   Month     Time         Class II Compact    Bingo    Charity  Total
   Ended    Bingo  Legacy   Units  Units(1)    Units    Units   Units
----------- ------ ------ -------- -------- ---------- ------- -------
12/31/2006  5,943    362    6,305    3,324        919   2,541  13,089
 9/30/2006  7,280    373    7,653    2,408        600   2,519  13,180
12/31/2005  8,915    390    9,305    1,229        ---   2,589  13,123
-----------
(1) "Oklahoma Compact Units" represents installations of games
    pursuant to the approved gaming compact between Native American
    tribes, racetracks and the State of Oklahoma, including
    Multimedia's and other vendors' stand-alone games.

The "Reel Time Bingo," "Total Class II Units" and "Total Units" totals as of December 31, 2006 reflect the removal of 444 units from non-Oklahoma tribal gaming facilities subsequent to September 30, 2006. The Company had units installed at four locations in Mexico as of September 30, 2006, and in five locations as of December 31, 2006.

Not included in the table above are approximately 1,318 video card readers which were installed as of December 31, 2006. The Birmingham, Alabama sweepstakes operations ceased on January 12, 2007.

The table below breaks out by product line Multimedia's end-of-period, Oklahoma installed player terminal base for the fiscal quarters ended December 31, 2006, September 30, 2006 and December 31, 2005.

                Total                    Other       Total
    Month      Class II   Stand-Alone   Compact     Compact    Total
    Ended        Units       Units      Units(1)     Units      Units
------------- ---------- ------------- ---------- ----------- --------
  12/31/2006      3,301         2,111      1,213       3,324    6,625
   9/30/2006      4,205           849      1,559       2,408    6,613
  12/31/2005      5,538           ---      1,229       1,229    6,767
-------------
(1) "Other Compact Units" represents server-based games.

Multimedia will provide an update on its total installed base and product mix at January 31, 2007 on or about February 15, 2007.

Multimedia adopted SFAS No. 123R effective October 1, 2005, using the modified prospective method. Q1 FY '07 and Q1 FY '07 EBITDA, net (loss) income and EPS reflect the impact of a pretax charge of approximately $0.4 million, compared with an impact to net income of $0.7 million in Q1 FY '06.

Research and development expense in the December 31, 2006 quarter increased by $300,000, or 6%, to $5.1 million, from $4.8 million for the December 31, 2005 quarter.

During the quarter ended December 31, 2006, Multimedia capitalized $0.8 million in costs related to the internal development of its gaming products and systems, compared to $1.3 million during the quarter ended September 30, 2006. Approximately $0.5 million of the capitalized costs in the December 2006 quarter were related to the development of new content, and approximately $0.3 million was for systems. For the three months ended December 31, 2006, capital expenditures were $16.9 million, of which $16.7 million was for gaming equipment and license purchases, and $0.2 million was for all other capital expense. Included in the gaming equipment purchases was $13.2 million of gaming equipment and licenses purchased under the third party vendor agreements. The remaining equipment purchases relate primarily to the hardware upgrade of the rental pool and systems.

< Gaming News