MGAM F1Q2010 CONF CALL

MGAM F1Q2010 CONF CALL

 

While we don't closely follow MGAM, we thought the call may be of interest for other suppliers.  MGAM primarily operates in Class II / VLT markets and derives most of its earnings from leasing games to operators in Oklahoma, New York, Alabama, Washington, California and Mexico.

 

Highlights from the Release

  • "In addition to the impact from continued year-over-year reductions in consumer discretionary spending, the gaming operations revenue decline is primarily attributable to: 1) an approximate $1.4 million reduction related to the sale to Oklahoma customers of approximately 551 games subsequent to the fiscal 2009 first quarter; 2) the previously disclosed temporary removal of units at WinStar World Casino for a portion of the fiscal 2010 first quarter to allow for the redevelopment of older areas of the facility; and, 3) lower win per unit and blended revenue share from placements at WinStar World Casino resulting from the facility’s significant slot floor expansion completed subsequent to the fiscal 2009 first quarter."
  • Update on Alabama Charity Bingo Market:
    • "Three of the four facilities in Alabama which have installed charitable bingo units provided by Multimedia Games, as well as other game manufacturers, have recently voluntarily ceased operations for a yet to be determined amount of time, following an unsuccessful attempt by the Governor’s Task Force on Illegal Gambling to raid certain of those facilities."
    • "On January 29, 2010, the Governor’s Task Force attempted a raid on two of the facilities in Alabama where Multimedia Games has charitable bingo units installed. The operator of one of the facilities obtained a temporary restraining order that stopped the raid on its facility. The Governor’s Task Force promptly filed an emergency motion with the Alabama Supreme Court seeking to vacate the temporary restraining order."
    • "On February 4, 2010, the Alabama Supreme Court issued a ruling that vacated the temporary restraining order. The Alabama State Legislature is currently reviewing proposed legislation in the form of both a general bill and a constitutional amendment that are aimed at resolving the need for judicial intervention. The legislative or judicial outcomes are uncertain. If this legislation is not timely passed, the facilities of Multimedia Games’ Alabama customers could remain closed for an undetermined period of time."

CONF CALL

  • Mississippi license granted in December.  Expect to make placements in the 3rd Q of the year
  • Currently having application reviewed in LA and hope to get approval there shortly
  • Seeing an increased interest in Washington State, shipped Class III there
  • Alabama - cannot determine the ultimate financial impact of the facility closures. If the facilities remain closed they will suffer a loss of cash flow from those facilities and may need to take a write down of their net exposure to that market
    • IGT will likely have similar impact - except they have a lot more exposure there
  • Oklahoma market (70% of the 4Q09 results) because of dilution of net win per unit per day due to lower participation rates and some units at Winstar being temporarily taken off the floor
  • NY lottery business continues to grow modestly. They are preparing for the Acqueduct expansion

Q&A

  • For October approximately 400 games where out of commission at Winstar (due to renovation) and in March about 200 will be out of commission.  The games are Class II games and some of their better performing game. At the end of the quarter all 2.4k games at Winstar were operational
    • Have a higher revenue share of the floor in the older facility (Winstar), and as the facility gets renovated play spreads to some of the newer areas, so that impacts them to some extent. Although new entertainment options being opened should expand visitation and benefit everyone
  • Games operations install base: 5403 in Mexico, 2400 games in Alabama, most of the rest are in Oklahoma
    • Had 1100 units at Victoryland that were removed so have about 1300 left in Alabama
  • Will likely need to reduce their R/C capacity in return for covenant relief if they get close to the covenant levels due to the closure of certain facilities in Alabama ($60MM Min TTM EBITDA Covenant)
  • Timing of New York? Operating leverage in that market for them
    • Don't know about the timing, its 6 months after MOU signage- but who knows
    • NY is profitable for them, and 90% of the new revenues from Acqueduct would flow to the bottom line
    • Capex is $2.5MM for equipment plus labor
  • Washington was a market where MGAM used to have a great presence but then took their eye off of that market and lost share.  However, now they are gaining share again.
  • Lost 530 units at River Spirit in Tulsa facility (net of the games they lost from ops because they were purchased)

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