Multimedia Games' CEO Discusses F2Q 2012 Results - Earnings Call Transcript

Multimedia Games, Inc. (MGAM)

F2Q 2012 Earnings Call

May 3, 2012 9:00 am ET

Executives

Jerome R. Smith – Senior Vice President, Chief Compliance Officer and General Counsel

Patrick J. Ramsey – President, Chief Executive Officer and Director

Adam D. Chibib – Senior Vice President and Chief Financial Officer

Analysts

Todd Eilers – ROTH Capital Partners LLC

Stephen Altebrando – Sidoti & Co. LLC

David Ehlers – Las Vegas Investment

Presentation

Operator

Good day, ladies and gentlemen and thank you, for standing by; and welcome to the Multimedia Games Incorporated Second Quarter 2012 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference maybe recorded.

And now it’s my pleasure to turn the call over to Jerry Smith. The floor is yours, sir.

Jerome R. Smith

Thank you. Good morning. Today’s call and webcast contains statements about future events and expectations which are characterized as forward-looking statements within the meaning of the applicable securities laws including without limitations the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current belief, assumptions and expectations of our future economic performance, taking into account information currently available to us.

Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial conditions to be materially different from the expectations of such results, performance or financial condition. Please refer to the Risk Factors section in our current and recent SEC filings for a description of certain of these risks and uncertainties. The company does not undertake and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Today’s call and webcast may include non-GAAP financial measures such as EBITDA within the meaning of Regulation G. A reconciliation of non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the company’s current and recent SEC filings and can also be found along with today’s earnings release on our website, www.multimediagames.com in the Investor Relations section.

Financial and operating metrics provided during today’s call and webcast maybe approximated. Please refer to the company’s financial statements as provided in today’s SEC filings and earnings release for more definitive numbers.

And now, it’s my pleasure to turn the call over to our President and CEO, Patrick Ramsey.

Patrick J. Ramsey

Thank you, Jerry, and good morning, everyone. Thank you for joining us on this call. With me this morning are Jerry Smith, our General Counsel; Adam Chibib, our Chief Financial Officer; and Mick Roemer, our Senior Vice President of Sales.

We are joining you today from the fantastic Pechanga Resort and Casino in Southern California, which is noteworthy, because our product position on this property is very representative of where we’ve been as a company over the last decade. Years ago, we were a major force on this casino floor as an equipment supplier, and after a long hiatus, it is great to see over 150 MGAM games, both Class II and Class III back in action at this facility.

This morning we reported first quarter revenues of $39.5 million, up over 31% year-over-year, and diluted earnings per share of $0.24 versus $0.04 last year, obviously a strong quarter for us. It is in fact our tenth consecutive quarter of increasing our operating income. As usual, I will start at the top because truly it our top line that’s most encouraging.

As noted in our press release this morning, our growth this quarter was significant and diversified. Said differently, we grew in every market outside of Mexico. First, we saw very strong results in our core Oklahoma market, where revenue increased 11% year-over-year from $15.3 million to $17 million. I believe this growth was driven by several factors.

First and foremost, we saw some very strong business results from our largest customer, the Chickasaw Nation, which was likely a result of the combination of factors that typically drive operating results, smart marketing, a focus on customer service and the effective usage of the amenities, as well as the benefits from our investments and new product development over the last few years. We’ve been investing millions of dollars in our footprint there. So we were able to capitalize on their growth as our machines continued to yield better results year-over-year.

Outside of the Chickasaw Nation, our results in Oklahoma were also impressive. Our footprint increased almost 300 units year-over-year as we continue to gain traction around many parts of the state through our own product expansion. Outside of Oklahoma, I won’t go through each and every market, but I’ll tell you that overall, the results are incredibly positive.

The New York Lottery has clearly been a big driver for us, but there are other great stories as well. We are seeing growth rates in our gaming operations revenue of well over 100% in several parts of the country, and thanks to those strong products and relationships in those regions. They are becoming significant revenue sources for us.

As for our sales business, we were conservative in adjusting our annual guidance after our first quarter. However, given another strong quarter where we essentially doubled our sales revenue year-over-year, and given our visibility into our third quarter, we have decided to significantly raise our annual EPS estimate to a level of approximately three times that we have projected before we began the year.

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