Columnist: CDS changes, projects brighten future

Friday, July 12, 1996 | 11:59 a.m.

LAST WEEK, we discussed Casino Data Systems, a leading designer, manufacturer and distributor of a diversified line of high-technology products and services for the gaming industry.

Today, we'll highlight Casino Data's new products, services and opportunities which may eventually lead to increasing values for CDS's shareholders.

In our view, Casino Data Systems has laid the foundation for possible further explosive growth. This, of course, is nothing new -- Casino Data's revenues for its most recent quarter were up an incredible 165 percent to $14.5 million from $5.5 million posted in 1995's first quarter.

However, what has changed is that CDS has started to derive a significant and ever-increasing portion of its gross and net revenues from operational areas that were not even in existence a few quarters ago.

For example, in its most recent quarter (1996-Q1), Casino Data had revenues from progressive operations of $4.6 million. Yet in 1994, for example, its progressive operations were not yet in existence. In 1996-Q1, it is estimated that CDS posted revenues of about $2 million in its meters and signs division, up from nothing in 1994.

What is most exciting about CDS' new operational areas, however, is that these areas seem to be growing even faster than CDS' traditional core businesses. Compared with first quarter 1995, CDS' progressive revenues have quadrupled and projected 1996 revenues for CDS' meters and signs division are about four times the revenues from that division in 1995.

What else is new at Casino Data Systems? A lot.

* CDS appears to be making a successful transition from a loosely structured company, common among small entrepreneurial firms, to a more formally organized company complete with job descriptions, reporting lines and authority and, yes, organizational charts.

The factors associated with this successful transition include an experienced middle- and upper-management team made up of individuals such as Diana Bennett (formerly senior executive with Circus Circus), Rob Dickenson (a General Electric and Bally alumnus and founder of Paradise Graphics), Mike Coppert (a 17-year veteran with IBM), Phil Bryan (25-year casino operating veteran), and Jose "Pepe" Charles (a former marketing executive with Knorr Foods, a division of CPC Foods).

* Casino Data has recently created a customer support unit which will proactively service any problems or questions customers might have with their CDS products. This will further CDS' relationships with its expanding customer base.

* Hilton's recent acquisition of Bally Entertainment, already a CDS customer, may result in Casino Data's ability to vie for a lucrative project sometime down the road with Hilton (a company which is not currently a CDS customer) to liken Bally's information systems with Hilton's.

* Casino Data's new video poker game, Caribbean Stud, after a shaky start, seems to be gaining momentum. The reason? On May 29, CDS announced that it was increasing the betting range of Caribbean Stud by changing the games from a $1 denomination to a quarter denomination.

A player now has the option of betting as little as 75 cents or as much as $25 on a single deal. This change gives Caribbean Stud greater initial appeal and flexibility to its customers vis-a-vis its previous betting range which required customers to make at least a $3 wager and also limited them to a maximum bet of $10.

* CDS' Cool Millions Quarters progressive slot machines are exceeding original coin-in estimates in Mississippi. This will only serve to further increase CDS' top- and bottom-line progressive gaming operation revenues in upcoming quarters. From a starting point in December 1994, CDS presently has an installed base of more than 700 progressive system games.

* CDS' new video draw poker machines appear to be very popular with video poker players. According to informed analysts, these machines are generating daily coin-in of about two times house average.

* CDS is nearing completion of its first virtual reel-spinning slot machine, using recently acquired Telnaes technology (these machines should be out by October). The technology will allow CDS to create slot machines with a large number of stops per reel, manufacture reel-spinning slot machines instead of just video slot machines and also enable CDS to more effectively compete with companies like IGT. This factor is especially significant looking ahead to Wall Street's estimates of CDS' future earnings per share (estimates which do not include allowances for reel-spinning slot sales and which may be too low).

* Finally, Casino Data Systems may be on the verge of a further major source of revenues: a small graphics-and-character display module, known simply as vacuum florescent display or VFD. These tiny, single-color, television-like displays act as a message board for slot players when they insert their player-tracking cards into a slot machine.

However, unlike their predecessors, the older and much slower light-emitting diode displays, Casino Data's VFDs can convey to customers a far greater, more lifelife and more colorful informational message. VFD technology allows CDS's slot displays the flexibility of including graphics and other "smart" messages to customers.

As an example, VFD displays (once your personalized slot player card is inserted) permit your host hotel-casino to inform you about tickets, dining, comps and other useful marketing information. VFD's cost? For an additional $495, a slot machine can be fitted or retrofitted with the new display.

Are these new displays popular with gaming companies? The Monte Carlo ordered VFDs for all its slot machines. What does this new technology mean for Casino Data System's top and bottom lines as they continue to move forward? Considering the fact that CDS has an install base of nearly 100,000 slot machines, a retrofitting of just 25 percent of them would mean gross revenues to CDS of more than $12 million, a large piece of incremental business, considering that Casino Data's annual revenues were only $31.5 million in 1995.

CDS appears to be successfully making the transition from a small to a far larger company as it puts in place the building blocks of organization, reporting lines, job descriptions and the many factors which have placed so many small companies in similar situations in difficult posture.

It is doing so at the same time that it is developing significant new revenue sources which, in our opinion, are not yet generally recognized. As CDS improved operational structure, combined with many new revenue sources, becomes apparent, CDS common stock may, once again, begin to outperform the gaming manufacturing group.