Alliance starts earnings season with good numbers

David Strow

Tuesday, Jan. 15, 2002 | 10:46 a.m.

Expectations are low as earnings season begins in Las Vegas, as gaming companies prepare to report results for a quarter colored by the post-Sept. 11 tourism slowdown.

But Alliance Gaming Corp. started off the season with a bang Monday. The Las Vegas company posted net income of $12.8 million for the quarter ending Dec. 31, a 133 percent increase from the year-ago period. Revenues rose 16 percent to $150.5 million and cash flow increased 27 percent to $27.7 million.

Earnings per share rose 108 percent to 54 cents, handily beating analyst estimates of 26 cents per share.

Strength in Alliance's slot machine division, Bally Gaming and Systems, was one of the biggest engines of growth. Bally posted $12.4 million in cash flow on the quarter, up 39 percent from the year-ago period.

Revenues from the sale of slot machines rose 27 percent to $26.9 million, but gaming operation revenues -- that is, revenues from participation slot machines -- soared 105 percent to $12.9 million. Alliance now has 3,580 participation slot machines installed in casinos across the country, up from 2,650 one year ago.

An even stronger percentage increase was posted by Bally Wulff, which sells amusement machines in Germany. That business reported cash flow of $5.8 million, up 71 percent, as sale prices rose and revenues from participation games increased. But Bally Wulff also saw revenues boosted by $3 million from the sale of conversion kits, as Germany prepared for the introduction of the Euro on Jan. 1.

Alliance's slot route business also fared well during the quarter, as cash flow increased 10 percent to $6.6 million. Though cash flow from Alliance's Louisiana route fell, it was more than offset by a 15 percent increase from United Coin Co., Alliance's Nevada slot route. Win per day per machine increased 1 percent in Nevada, while the company increased the number of slots installed in Nevada by 4 percent to 8,380 machines.

The only business line that didn't show improvement during the quarter was casino operations. A slight increase in cash flow at Rail City in Sparks was offset by a $500,000 cash flow decline at Rainbow Casino in Vicksburg, Miss., sending cash flow from casino operations down 5 percent to $5.7 million.

Alliance remained optimistic about business going into 2002 -- the company told investors to expect earnings for the fiscal year ending June 30 of $1.95 to $2 per share. This is significantly higher than the $1.81 consensus estimate on Wall Street.

Alliance released its earnings after the markets closed Monday. This morning, its stock traded at $30.70, up $1.73.

"Earnings momentum should continue as (Alliance's) product sales grow as it takes share from struggling competitor WMS, its participation business continues to grow with the introduction of new games and (Alliance) continues to integrate newly acquired CMP (Casino Market Place Development Corp.) -- a new addition to its systems business," wrote Goldman Sachs analyst Steven Kent in a research note this morning. "We believe the shares are attractively valued ... given its 20 percent-plus growth rate."