Mikohn sheds outdoor sign business to focus on slots

David Strow

Monday, March 6, 2000 | 11:14 a.m.

Las Vegas-based Mikohn Gaming Corp. has sold its outdoor sign division for $6.5 million -- a move the company says will help it focus on its growing slot machine business.

The division, Mikohn Lighting Sign, was sold to H.I.G. Capital, a Miami-based private investment firm with significant holdings in the outdoor signage business across the country. Mikohn officials said they decided to sell the division because it didn't fit in with Mikohn's new focus on businesses that produce recurring revenue streams.

The sale does not include Mikohn's indoor signage division, which has an estimated 70 percent market share in Nevada, and is seen by company officials as fitting well with the rest of its product lines.

"(Mikohn Lighting Sign) had large contracts, so you'd see variances from quarter to quarter," said Don Stevens, Mikohn's chief financial officer. "We felt it just didn't fit in as well with our new strategy as other businesses did. We received a good offer, so we decided to take this opportunity to pare down our debt a bit."

Mikohn will receive $5 million in cash from the sale, which will allow the company to reduce its debt load to about $81 million, Stevens said. The division employs about 100, but Stevens said the new buyer isn't planning to reduce the group's payroll.

"One key component of the deal was H.I.G. wanted to be certain the management team would move with the company," Stevens said.

Friday's announced cutbacks also included the discontinuation of PM Coin, an older slot machine line. Mikohn said it will absorb a $1.5 million charge as a result of that move, but said it still expects to turn a profit for the fourth quarter.

Though Mikohn's division was not the largest supplier of outdoor signage in Las Vegas, it has produced some prominent projects on the Strip, including the signs at M&M's World, the Harley-Davidson Cafe, the Bellagio and the Sahara hotel-casinos.

"While this is a quality operation, the sale reflects our strategic focus and allows us to redeploy our capital to support our key initiatives," said David Thompson, Mikohn chairman and chief executive.

Much of the company's strategy lies with its themed slot machine business, particularly its new "Yahtzee"-themed slot machine line, introduced in September. Since its introduction, Mikohn has installed 700 of the machines across Nevada.

"It's really equal to the hottest game in the market right now in Nevada, so we're trying to concentrate more on that kind of product," Stevens said.

Since these games are sold on a revenue-participation basis, they produce a stream of ongoing revenues for the company and more predictable results.

"This Yahtzee machine is very, very popular," said Dave Ehlers, chairman of Las Vegas Investment Advisors. "This is a good machine by WMS (Gaming) and (International Game Technology) standards."

Should Mikohn be able to install 1,500 machines, it could see $7 million a quarter in revenues from that line alone, assuming $250 in play per day and a 20 percent cut of revenues for Mikohn, Ehlers said.

"That means you can eat into that debt pretty fast," Ehlers said. "So why not sell (the sign division), pay down the debt, and hone in on those things that are growth businesses.

"Mikohn's business plan is sounder than it's been for some time. They're zeroing in on profitability and consolidating their business."

Other new business lines for Mikohn include a themed "Monopoly" table game and TableLink, a system designed to help casinos track table game play automatically, much as slot play is tracked today.

Through the first nine months of 1999, Mikohn reported net income of $3.4 million, or 31 cents per share -- up significantly from a loss of $8.7 million, or 83 cents per share, in the year-ago period. Net income for the quarter ending Sept. 30 was $1.3 million, up from a loss of $8.7 million.

Investors have applauded Mikohn's progress. Mikohn now trades at $8.13, near a 52-week high, and up significantly from the $2.75 it traded at last summer.