Alliance Gaming reports rise in revenue

By Liz Benston (contact)

Tuesday, April 15, 2003 | 11:27 a.m.

Las Vegas slot maker Alliance Gaming Corp. on Monday reported an increase in operating earnings and revenue driven by strong slot machine sales at higher prices.

The company said it earned $12.8 million for the quarter ended March 31, or 25 cents per share, on revenue of $175.5 million. That compares to profits of $11.1 million, or 22 cents per share, for the same period last year.

Analysts had expected the company to earn 22 cents per share for the quarter.

Including a one-time tax benefit for the third quarter of 2002, year-ago earnings would have been $15.9 million, or 32 cents per share. The company reported $155 million in revenue that quarter.

The company said it expects to earn 88 cents per share for the fiscal year ending June 30 and $1.08 per share for fiscal 2004, assuming 50.5 million shares outstanding.

Product sales revenue at the company's Bally Gaming and Systems unit in Las Vegas rose 43 percent compared to a the third quarter last year. A 91 percent increase in slot sales, to $46.7 million, drove that increase, the company said. The unit sold 4,550 games, a 50 percent increase from the year-ago quarter. The average selling price grew by 16 percent, to $8,670, partly because of the sale of 160 "premium-priced" units to the Monte Carlo casino resort in Las Vegas.

The company sold more machines than expected at higher prices than anticipated, Goldman, Sachs & Co. analyst Steven Kent told investors in a research note today.

"(Alliance's) premium games appear to be popular with slot managers and are driving the average selling price higher," he wrote. "We expect ... shares to react positively as investors should be more comfortable with (the company's) earning power, even though we and some others have been concerned that the company has not penetrated the market as deeply as they had expected."

While slot machine sales were strong, revenue from "participation games" was less than expected, Deutsche Bank analyst Marc Falcone said.

Participation games are leased to casinos and typically offer linked systems that allow large jackpots to build up over a wide geographic area. Leased Bally games include those based on cartoon characters such as "Popeye," "Blondie" and "Betty Boop."

Installations of "wide area progressive" and other daily fee games grew by 120 from the previous quarter. However, 130 of the company's latest "Cash for Life" games went live on March 24, boosting the installed base but contributing little to revenue growth, Falcone said.

Cash flow at Bally Gaming and Systems grew 43 percent, to $23.4 million, in the third quarter compared to the same period last year.

Cash flow for Alliance's three other business units fell 20 percent to $15.3 million, primarily because of a 38 percent drop in the company's German slot making division Bally Wulff.

The company's United Coin Machine Co. -- which features a cardless slot club in Nevada called "Gamblers Bonus" -- operates slot machines in bars, gas stations, grocery stores and other restricted gambling locations nationwide. Its Video Services Inc. operates slots in off track betting parlors in Louisiana.

The company's slot routes in Nevada and Louisiana reported a combined 29 percent decrease in cash flow, to $5.4 million.

Revenue from Nevada slot route operations fell 5 percent and cash flow dropped by 30 percent compared to a year earlier. The average number of games declined 3 percent and the average amount won from gamblers per machine decreased to $69 from $70.50.

During the quarter, eight former Raley's stores that had closed last year were reopened as Food4Less locations, the company said. "However, play at those locations is currently lower than the historical norms as as the Food4Less stores build their customer base," it said.

The company has completed the acquisition of a remaining interest in a slot route at Longs Drug Stores as well as an extension in the contract to operate the machines for another five years, through 2012. Longs will be opening an additional two locations in Southern Nevada in the coming months, the company said.

The company also owns the Rainbow Casino in Vicksburg, Miss., and the Rail City Casino in Sparks, Nev. Those casinos posted a 1 percent increase in cash flow, to $7.1 million.

Alliance Gaming shares rose about 2.5 percent, to $15.46, before noon trading today.