SEARCH NEWS:

 

Multimedia Games Results Up

AUSTIN, Texas -- (PRESS RELEASE) -- Multimedia Games, Inc. (NASDAQ: MGAM) today reported operating results for its fiscal first quarter, ended December 31, 2004, as summarized in the table below:

Clifton Lind, Multimedia Games' ("Multimedia's") President and Chief Executive Officer, commented, "The fiscal 2005 first-quarter results are consistent with the previously provided financial guidance, and demonstrate the Company's success in generating meaningful operating cash flow and EBITDA while addressing ongoing challenges relating to the dynamic regulatory situation in both California and Oklahoma. We also believe that our improved year-over-year EBITDA is, in part, the result of our initiatives over the past several years to develop products for new markets and thereby create new revenue sources. We believe that our investments in R&D, government relations, new market development and support of customers' facility expansion projects have provided a good foundation for future growth and revenue diversification. Notwithstanding our expectations for longer-term growth, we expect our net income for each quarter of fiscal 2005 to fall below that of the corresponding quarter of fiscal 2004. As we enter new markets and begin converting our Oklahoma operations to offer compacted games, we expect to regain our competitive position in this, our largest revenue market.

"Our recent acquisition of the assets of Sigma Game Inc. ("Sigma") is indicative of our strategy to both expand our portfolio of intellectual property and further diversify into new markets. Sigma has a number of important gaming patents that we believe complement our existing gaming systems, and will support our goal of marketing new games and systems to new markets, including commercial casinos and Native American Class III gaming facilities. In addition, Sigma brings several market-proven video poker and both mechanical and video reel games to our library of content and products, which, in addition to our own proprietary video poker and reel games, we expect to offer to customers in all applicable jurisdictions.

"In addition, we recently licensed 'Red Hot Re-Spin(TM),' another Oklahoma-market-proven skill game targeted for reintroduction into Oklahoma as a compacted game. Our ability to offer these games demonstrates our commitment to move forward in Oklahoma with a full arsenal of products for the Class II and Class III markets, while maintaining a disciplined approach to managing our installed base in the state to optimize the future value of this market for our shareholders.

"Diversification continues to be an important goal for Multimedia. We continue to leverage our industry-leading central-determinant-based gaming systems into new markets where we expect to be the first to market with creative solutions for each customer's unique gaming needs.

"To that end, we also announced today that we were selected by Mifal Hapayis, the operator of the Israeli National Lottery, to be the provider of the country's first electronic instant lottery product to be delivered to players at retail outlets. This represents the first international market where our technology has been acknowledged for its robustness, flexibility, and our ability to quickly customize our technology to fit the customer's needs. We are honored to be selected by Mifal Hapayis, and look forward to working with their officers and management team to develop additional products for this important emerging market.

"Furthermore, in a competitive procurement process recently conducted by a domestic gaming regulatory agency for the acquisition and operation of a central monitoring system, Multimedia's proposal achieved the highest scores among all bidders both for our technology and for the quality of our technology and operating teams, thus validating both the strength of our technology and the value of our operating system.

"We will continue to aggressively pursue additional domestic and international lottery opportunities. We expect that our lottery system solution's increasing level of visibility, the positive reviews by regulators and testing labs, and our selection to provide a modern electronic central delivery system to supplement or replace the scratch-off systems currently in use by most domestic and international lotteries will support our efforts to increase our footprint in new and diverse markets."

Fiscal 2005 First Quarter Review:

Multimedia generated revenue in Q1 2005 of $39.2 million, an increase of 13.7% compared to Q1 2004, primarily resulting from an increase in the installed base of player terminals in the C-TILG and charity markets. The Company's first-quarter 2004 results benefited from the sale of 239 player terminals, compared to the sale of 43 player terminals in the first quarter of 2005. First-quarter 2005 EBITDA (earnings before interest, taxes, depreciation and amortization), rose 10.8% to $21.5 million, from $19.4 million in the fiscal 2004 first quarter.

Multimedia's combined installed base of Class II, C-TILG and charity player terminals as of December 31, 2004 was 16,179 units, an increase of 5,458 units, or 50.9%, from 10,721 units as of December 31, 2003. This total was also 2,775 units higher (including the removal of 141 Legacy units) than the installed base as of September 30, 2004, reflecting installations during the quarter ended December 31, 2004 of 1,034 player terminals in Class II or charity facilities, and the installation of 2,864 C-TILG player terminals in November. These installations were partially offset by the removal of 1,123 player terminals during the quarter, primarily from Oklahoma facilities.

As a result of these incremental placements, and more significantly, the continued impact in Oklahoma from competitors' games, Multimedia's fiscal 2005 first quarter blended average hold per day across its network declined to a level below the blended average hold per day generated in the fiscal 2004 fourth quarter. Over time, we expect this trend to reverse as we convert our large installed base of player terminals in Oklahoma to games approved under the tribal-state compact in that jurisdiction.

Total Other Gaming Units as of December 31, 2004 included 3,380 C-TILG units installed at two tribal customers' casinos in California. As of today, the Company is no longer running the C-TILG gaming system and player terminals, and now has approximately 2,500 Reel Time Bingo 2.0 ("RTB 2.0") player terminals installed at the two California tribal customers' casinos and has 900 of the original C-TILG units presently in storage. Furthermore, the tribal gaming agency of one of these California tribes has asked Multimedia to modify RTB 2.0 based on the recent approval of another company's Class II game by the National Indian Gaming Commission ("NIGC"). As is customary and routine, Multimedia is customizing RTB 2.0 to comply with this request, and will likely further modify the game when the NIGC's classification of games process is completed later this year.

Research and development expense in the December 31, 2004 quarter increased by 51.8% to $4.1 million, from $2.7 million for the December 2003 quarter. The increase is due to an increase in the number of employees in Multimedia's technical development groups, which are focused on developing new gaming products, systems and content for the Class II, Class III, commercial casino, charity, lottery, and other markets Multimedia may enter.

SG&A expenses increased $3.4 million, from $13.4 million in the December 2003 quarter, to $16.8 million in the December 2004 quarter. The increase continues to reflect higher salaries and wages, and the related employee benefits and taxes due to the additional personnel hired to develop our gaming systems and content and to monitor and develop proposals to address opportunities in both domestic and international markets. The increased number of player terminals in the field over the December 2003 quarter resulted in higher levels of repairs and maintenance and transportation and related costs by approximately $687,000. In addition, legal, professional and lobbying fees increased approximately $854,000, primarily related to our development of new products and entry into new markets.

Consistent with the increase in the average installed base of player terminals, amortization and depreciation expense in the December 31, 2004 quarter increased 69.1% from the prior-year period to $13.3 million, and 19.8% from the September 30, 2004 quarter.

During the quarter ended December 31, 2004, Multimedia capitalized $672,000 in costs related to the internal development of its gaming products and systems, compared to $871,000 during the quarter ended September 30, 2004.

Financial Guidance

The Company presently believes that for Q2 2005, its diluted earnings per share will approximate $0.10 - $0.12, and EBITDA will approximate $19 million - $20 million.

The current expectations are based on several factors that investors should also consider in making independent determinations of the Company's future financial outlook, including:

1) Multimedia notes that with the Company now addressing eight distinct markets, and having the potential for other new revenue sources, it is important to realize that each of these markets has different business models and economics. Multimedia expects that the business model for its current markets will also continue to evolve.

2) The passage of Oklahoma SQ 712 is expected to increase competition, possibly impacting the company's historical pricing model, player terminal placements, hold per day per player terminal, percentage of specific facilities' floor space, or the total number of player terminals the Company operates in the market. The Company expects that it will devote marketing resources to new and existing customers.

3) The Company currently anticipates placing games expected to be approved under the Oklahoma tribal-state compact as early as March 2005.

4) Over the next 12-18 months, Multimedia's revenue share percentage for Class II player terminals is expected to decline to 20% for large installations, both based on market conditions and the Company's further implementing the matrix pricing plans previously available to customers. Such pricing allows customers to pay a lower percentage of hold per day as they increase the number of Multimedia player terminals at their facilities. The Company also continues to evaluate ongoing placements of player terminals in lower-yielding facilities, with the goal of optimizing the earnings potential of its entire network.

5) Multimedia presently expects that its share of the gaming revenue generated from the Reel Time Bingo system and from terminals installed in California will be at least neutral to earnings over the period of time that they remain in operation in their Class II configuration. However, the Company continues to incur depreciation expense related to the player terminals presently in storage in California and that are not generating any gaming revenue. At this time, there are approximately 900 player terminals in storage.

6) Multimedia continues to believe that one and perhaps two new charity jurisdictions will open in fiscal 2005 and again in fiscal 2006, and that the Company will be a participant in these markets. The Company also believes there will be additional placements in its current charity markets.

7) Until either Aqueduct or Yonkers, the two largest approved racetracks in New York, opens its racino, the Company's operation of the central determinant system for the New York Lottery will continue to negatively impact quarterly earnings by approximately $0.02 - $0.03 per diluted share. Multimedia does not currently expect either of these two facilities to be open during fiscal 2005.

8) Over the next two years, Multimedia expects to garner additional revenue from the sale or delivery of new lottery systems.

< Gaming News