Friday, January 16, 2004
Copyright © Las Vegas Review-Journal

Alliance Gaming earnings leap 57 percent; revenue rises

Duane Jasin troubleshoots a "Saturday Night Live" progressive nickel video slot machine Wednesday at Alliance Gaming. Photo by John Gurzinski.

Earnings at Alliance Gaming Corp. soared 57 percent in the quarter ending Dec. 31, thanks largely to booming slot machine sales and the company's new focus on core operations.

Chief Financial Officer Box Saxton Thursday attributed the earnings to strong sales by Bally Gaming and Systems, the company's slot machine subsidiary, and an improved performance by the Rainbow Casino in Vicksburg, Miss.

Net income increased to $18.7 million in the company's just ended second fiscal quarter, up from $11.9 million in the same period a year earlier.

Cash flow, a key gauge of profits in the gaming industry, increased to $34 million, up 30 percent from $26.1 percent in the quarter ending Dec. 31, 2002. Cash flow is generally defined as earnings before interest, taxes, depreciation and amortization.

And revenue rose 11 percent to $108.6 million from $98.2 million.

Bally Gaming and Systems posted quarterly operating income of $27.2 million, up 25 percent from $21.8 million in the same period a year ago, and a 34 percent cash flow margin.

Rainbow Casino posted operating income of $3.8 million in the quarter, up 45 percent from $2.6 million a year earlier. It also reported a 37 percent cash flow margin.

Alliance President Bob Miodunski said the sale of three subsidiaries -- United Coin, VSI and the Rail City Casino -- all represented substantial steps in focusing the company on its core business of providing technology to the gaming industry.

"We had an exceptional quarter and positioned the company solidly for the future," he said.

Deutsche Bank analyst Marc Falcone said with earnings per share of 28 cents, up from 17 cents a year earlier, Alliance outperformed expectations.

"In addition, the company indicated EPS for fiscal 2005 would be at least $1.40 (up 35 percent), which is in line with our expectations, but higher than street numbers. We think this should improve investors' comfort level," he said.

Bear Stearns & Co. in a report to investors said the company's sale of noncore segments demonstrates management's commitment to growing its primary business.

"As a result, we believe the company's recently announced entrance into the potentially lucrative Class II-market could differentiate Alliance from its competition," Bear Stearns reported.

Class II gaming devices are electronic bingo machines that resemble slot machines and are sold in tribal jurisdictions where casino gambling is not legal.

Looking ahead, Miodunski predicted Alliance will have the most recognized titles and the most recognized machines in most emerging markets. He emphasized the company foresees growth prospects with tribal casinos, and in the United Kingdom and other European jurisdictions.

"The approval processes are no longer slow, but the volume of paperwork is enormous and as a result things are not moving as quickly as they should be," Miodunski said.

"We have 200 titles under development. We filed 4,000 submissions last year and had 2,000 approvals. It's not a problem, but it's a roadblock we all have to live with," he said.

However, analysts cautioned against banking too heavily on the proliferation of gaming, with new regulations likely to put off until 2007 in the United Kingdom and Gov. Arnold Schwarzenegger yet to start negotiations with tribal operators in California.

"Anytime expanded gaming is pending, it's a fact of life there are uncertainties involved," said Brian Gordon, spokesman for Applied Analysis, a Las Vegas financial consulting company.