LV firm reports higher operating earnings

By Liz Benston (contact)

Tuesday, Oct. 15, 2002 | 11:09 a.m.

Slot machine manufacturer Alliance Gaming Corp. on Monday reported a 44 percent increase in operating earnings per share for its first fiscal quarter -- beating Wall Street's average estimates by 1 cent per share -- primarily due to a strong performance in the company's slot machine unit and chief growth engine, Bally Gaming and Systems.

The Las Vegas-based company reported earnings of $6.3 million, or 13 cents per share, for the first fiscal quarter ended Sept. 30 compared to earnings of $7.4 million, or 16 cents per share, a year ago. Because of credits, no federal income tax expense was recognized during the 2001 quarter. If federal taxes had been paid, net income would have been $4.2 million, or 9 cents per share, for the 2001 quarter.

Revenues increased 13 percent, from $130 million in the first quarter of last year to $146.7 million this year. A 40 percent increase in revenues at the company's Bally Gaming and Systems unit helped boost overall revenues, the company said.

Cash flow decreased somewhat across all other business units except for Bally Gaming and Systems, which reported an increase in cash flow of 55 percent, to $18.4 million.

Revenues from sales of slot machines at Bally Systems increased 61 percent over the prior year's quarter. Gaming operations revenues increased 27 percent due to a 9 percent increase in the installed base of "wide-area progressive" and "daily fee" games, from which Bally receives recurring revenue, and an increase in the average revenue earned per device.

Alliance's Bally unit rolled out more than 100 different slot machine titles at an industry conference in Las Vegas last month, a dramatic increase from the few dozen games the company had introduced in years past.

"We think this pricing increase is impressive, as few companies are showing increased pricing power in this difficult economic period," Steve Kent of Goldman, Sachs & Co. wrote in a research note. "These results support our thesis that (Alliance) is quickly becoming the number two slot supplier in the United States and we expect continued strong results as the company takes market share from struggling competitors and capitalizes on the strong fundamentals of the slot industry."

International Game Technology of Reno is the world's largest slot machine maker. Analysts disagree on which manufacturer is No. 2 in the United States, with Alliance and Chicago-area manufacturer WMS Gaming periodically capturing that slot.

Besides IGT, the biggest manufacturers in Nevada are Alliance, WMS and Australia-based Aristocrat Technologies. Aristocrat, which recently moved into a new domestic headquarters in Las Vegas and has expanded its staff, has reported goals of aiming to capture more than three times the 6 percent market share it now commands in the North American slot machine business.

"While (Alliance) shares have faced pressure in recent weeks, we continue to believe fundamentals remain very strong," Jason Ader of Bear, Stearns & Co. wrote.