Thursday, October 16, 2003
Copyright © Las Vegas Review-Journal

Alliance earnings slide but top forecasts

Auditor Celia Yamasaki works on a slot machine Wednesday morning at Alliance Gaming Corp. headquarters in Las Vegas. The slot maker said third-quarter earnings fell compared with a year earlier. Photo by Clint Karlsen.

Alliance Gaming Corp. posted quarterly results for the three months ending Sept. 30 well ahead of Wall Street expectations, despite a slide in net income to $6 million, down 4 percent from $6.3 million in the same period of 2002.

The slippage in the company's just-ended fiscal 2004 first quarter was caused by a variety of nonrecurring items, primarily refinancing to cut debt service costs. Without the refinancing charges, earnings increased 54 percent compared with the previous year's quarter.

As a result, Alliance Gaming's reported earnings of 20 cents per diluted share, excluding charges for bank refinancing and early retirement of debt, was 5 percent to 10 percent ahead of analysts' projections.

In an advisory to investors, Goldman Sachs analyst Steve Kent said the results support Alliance Gaming's strong position as the No. 2 supplier in the slot market, something investors have been skeptical of because of the re-emergence of WMS Gaming.

Alliance's Bally Gaming and Systems business unit led other operating divisions in quarterly growth.

"Clearly the company's focus on systems and its recent acquisitions are paying dividends," Deutsche Bank analyst Marc Falcone said.

In the past year, Alliance has acquired Micro Clever Consulting, Honeyframe Systems Co., CMS and LSI Casino Management System.

"It is clear the systems business continues to gain momentum and should remain a key growth driver for the company as gaming continues to proliferate and existing casinos upgrade their systems to capitalize on new technologies," Falcone said.

Operating income from continuing operations increased to $23.1 million in the just-ended quarter, up 33 percent compared with $17.4 million in the quarter ending Sept. 30, 2002.

Cash flow from continuing operations increased to $29.4 million, up 34 percent from $21.9 million in the same quarter a year ago, led by a 42 percent increase at Bally Gaming. Cash flow is generally defined as earnings before interest taxes, depreciation and amortization.

And total revenue from continuing operations increased to $106.6 million in the first quarter, up 31 percent from $81.3 million in the same quarter of 2002, led by a 39 percent increase in revenue at Bally Gaming.

Accurate quarter-to-quarter comparisons have been difficult because of the first-quarter refinancing of company operations and discontinued operations, including the sale of such noncore assets as United Coin Machine Co. and Video Services, and its German wall machine and amusement games business unit, Bally Wulff. The sale of the route operations is expected to be completed in calendar 2004.

Alliance Gaming President Bob Miodunski said the sales represent a "major step forward" because they have helped enable Alliance to focus on its core business.

And he said the refinancing of operations in the recently completed quarter marks the last step in a process to transform Alliance Gaming into a company focused on providing technology for the gaming industry.

Alliance Gaming closed at $23.77, up $1.33, or 5.9 percent for the day on volume of 1.5 million shares.