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Multimedia Games reports results

6 February 2008

AUSTIN, Texas -- (PRESS RELEASE) -- Multimedia Games, Inc. (Nasdaq: MGAM)today reported operating results for its fiscal 2008 first quarter for the period ended December 31, 2007,

Fiscal 2008 First Quarter Review

For the Q1 FY '08 period, Multimedia Games ("Multimedia") reported revenue of $30.2 million representing a 4.1% year-over-year improvement from revenue of $29.1 million for the Q1 FY '07 period and a modest quarterly sequential decline that reflects the historical seasonality in Multimedia's business. The year-over-year revenue improvement was primarily driven by a 96% increase in revenue from games played under the Oklahoma compact, a 367% increase in revenue from the Mexico electronic bingo market, a 40% rise in revenue derived from Multimedia's New York Lottery operations, and $0.7 million in revenue related to the sale of 50 player terminals to a Washington State customer. In aggregate, these increases offset a 47% year-over-year decline in gross Class II revenue, which was primarily a result of the Company's efforts to transition a large percentage of its Oklahoma linked, standard sequence bingo games to one-touch, stand-alone offerings.

Q1 FY '08 net income was approximately $0.4 million, or $0.01 per diluted share, compared to a net loss of approximately $2.8 million, or a loss of $0.10 per diluted share, for the Q1 FY '07 period. The net loss incurred in the Q1 FY '07 period in part reflected the impact of higher selling, general and administrative expenses compared with the Q1 FY '08 period. EBITDA in the Q1 FY '08 period was $14.7 million, a 28.6% rise over EBITDA of $11.4 million in Q1 FY '07.

Clifton E. Lind, Multimedia's President and Chief Executive Officer, commented, "While Multimedia's Q1 FY '08 operating results reflect the historical seasonality that typically causes the December quarter to be the lowest performing period in our fiscal year, the Company continued to make progress on several key initiatives aimed at improving our competitive position. Specifically, we ended Q1 FY '08 with an installed base of gaming units that was 10% larger than the installed base at the end of Q1 FY '07 and which was 6.4%, or 868 units, larger than the installed base at the end of Q4 FY '07. We expect that operating results over the near- and long-term will benefit from this larger installed base of player terminals, anticipated meaningful additions to this installed base in Mexico and Oklahoma throughout FY '08, and the continued introduction of new products for current and new markets.

"The transition of our of linked, standard sequence bingo games and server-based compact games in Oklahoma to one-touch, stand-alone offerings continued in Q1 FY '08 with our stand-alone base rising by 319 units on a quarterly sequential basis. As of December 31, 2007, stand-alone games comprised 68% of our Oklahoma installed base compared with 63% of our installed base as of September 30, 2007 and 32% as of December 31, 2006. With the completion late in calendar '07 of the development of our new game framework and mGAME™ Traditional Style Video platform, our focus for the Oklahoma market going forward is on the expansion of our library of proprietary video and mechanical reel game themes and the strategic deployment of these offerings in concert with the continued roll-out of popular, licensed third-party games for which we currently have exclusive rights for certain of the larger facilities we serve.

"Late in Q3 FY '08, we expect the opening of the initial phase of a key customer's facility expansion in southern Oklahoma at which time we will add approximately 840 new compact units at this facility. The Company will then add approximately 560 additional compact units at this facility near the end of FY '08. Our placements for both the first and second phases of this expansion will include a mix of our proprietary titles and the third-party titles that we are licensed to place in this market. The continued roll-out of stand-alone units and the significant expansion at our key customer's premiere property is expected to drive long-term revenue growth in Oklahoma.

"In Mexico, our installed base as of December 31, 2007 rose by nearly 1,000 units on a quarterly sequential basis with 459 of the incremental units being added in the last month of Q1 FY '08. Reflecting this progress, we now have units installed across 14 facilities between two customers. Our installed base in Mexico grew by 282% year over year, and we continue to expect meaningful unit growth in this market throughout the balance of calendar 2008. With the ongoing growth in our Mexico installed base, we will seek additional ways to support our current customers' efforts to improve hold per day as a means of building the contributions to operating results from this market.

"Multimedia's revenue generated by providing the central determinant system to the New York Lottery increased by approximately 40% in Q1 FY '08 as compared to Q1 FY '07. The increase in revenue is attributable to an increase in the overall number of units on the system as well as to growth in revenue on a same-facility basis. Multimedia has relatively fixed costs associated with operating and supporting the system deployed in the New York market. As such, continued growth in revenues at existing facilities and market expansion would be beneficial to our operating results.

"We continue to address the new and replacement unit opportunities for the Washington State market. Multimedia has games and content to address this opportunity, and we're well positioned to realize new sales revenue as well as ongoing participation in a modest daily recurring revenue stream as our new placements in this market are expected to continue throughout FY '08.

"Revenue diversification and expansion into markets not previously served by Multimedia remains a corporate priority. In December, we installed our first 50 Class III units in Rhode Island, and we are encouraged by the initial performance of these units. We are pursuing further opportunities to enter traditional Class III markets, and we believe the solid initial performance of our proprietary Class III units in both Oklahoma and Rhode Island bodes well for our potential success in other new jurisdictions.

"Last month Multimedia was selected to develop and provide electronic bingo ("eBingo") gaming software, support systems, technical assistance, training and related services to the Ontario Lottery and Gaming Corporation ("OLG"). The initial agreement calls for Multimedia to complete software development and provide support services and site licenses during the first year of operation and we plan to complete development work on our product for this market by the end of calendar 2008. This agreement marks Multimedia's latest venture into the large, traditional charitable bingo gaming market, and we believe that there are several domestic and international jurisdictions where our systems development capabilities can lead to additional contracts of this type for Multimedia.

"As noted above, the first phase of a customer's facility expansion in southern Oklahoma is expected to come online this June, and at that time we will have completed our portion of the economic funding of this expansion. The completion of this funding requirement totaling $66 million, which has averaged approximately $1 million a week since May 2007, and the placement of new units at this facility is expected to benefit cash flow during the last quarter of FY '08 and beyond."

Lind concluded, "With our diversification efforts gaining market acceptance, the expected benefit from the roll-out of new products in new markets and the inflection point on cash flow generation drawing closer, we anticipate progress toward our goal of delivering improved operating results for the balance of FY '08."

Multimedia will provide an update on its total installed base and product mix at January 31, 2008 on or about February 15, 2008.

Selling, general and administrative expense in the December 31, 2007 quarter decreased by $2.5 million to $16.1 million from $18.6 million for the December 31, 2006 quarter, due primarily to a lower head count, a decrease in consulting and contract labor related to the design of our mGAME™ Gaming Cabinets, a decline in legal fees associated with litigation, and the inclusion in the SG&A expenses in the prior year period of write-offs of third party gaming content reflecting Multimedia's initiative to transition its Oklahoma installed base from multi-touch, Class II units to stand-alone Class III units.

Research and development expense in the December 31, 2007 quarter decreased by $1.1 million, or 22%, to $4.0 million, from $5.1 million for the December 31, 2006 quarter. Multimedia capitalized $1.2 million in costs related to the internal development of software for its gaming products and systems during the quarter ended December 31, 2007 compared to $0.6 million during the quarter ended September 30, 2007. Approximately $0.9 million of the capitalized costs in the December 2007 quarter were related to the development of new content, and approximately $0.3 million was for systems. For the three months ended December 31, 2007, capital expenditures were $12.3 million, of which $3.7 million was related to the building of our proprietary mGAME™ Gaming Cabinets, $6.7 million was related to gaming equipment and licenses purchased under the third party vendor agreements, and $1.9 million was related to Mexico additions and maintenance capital expenditures. Multimedia's "Share-based Payment" under the Statement of Financial Accounting Standards, or SFAS, No. 123(R), reflects a charge of approximately $0.4 million on a pre-tax basis in Q1 FY '08, compared with a pretax charge of $0.4 million in Q1 FY '07.

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