Multimedia Games Holding Company, Inc. (Nasdaq:MGAM) (“Multimedia Games” or the “Company”) today reported operating results for its fiscal 2014 fourth quarter and full year ended September 30, 2014, as summarized below. On September 8, 2014, Multimedia Games entered into a definitive merger agreement with Global Cash Access Holdings, Inc. (NYSE: GCA) (“GCA”), which provides for GCA to acquire Multimedia Games, with each outstanding share of Multimedia Games common stock, with certain exceptions, being converted into the right to receive $36.50 in cash.

Financial results for the three and twelve month periods ended September 30, 2014 include a pre-tax impact of $6.6 million in selling, general and administrative expenses related to acquisition costs and expenses associated with both the pending acquisition of Multimedia Games by GCA and Multimedia Games’ recent acquisition of PokerTek.

       

Summary of 2014 Q4 and Fiscal Year Results

(In millions, except per-share and player terminal data)

 
Three Months Ended Twelve Months Ended
September 30, September 30,
2014     20132014     2013
Revenue $ 50.5 $ 50.4 $ 218.1 $ 189.4
Operating income $ 6.9 $ 13.0 $ 51.9 $ 52.4
Net income $ 3.8 $ 10.0 $ 31.9 $ 34.9
Diluted earnings per share(1) $ 0.12 $ 0.32 $ 1.02 $ 1.14
 
EBITDA(2) $ 20.3 $ 25.3 $ 104.8 $ 95.7
Adjusted EBITDA(3) $ 26.9 $ 25.3 $ 112.8 $ 95.7
 
Units sold 612 807 3,697 2,678
 
Domestic participation installed units:
Average 13,252 12,201 12,865 11,631
Quarter-end 13,329 12,440
 

(1)

 

Diluted earnings per share for the three month period ended September 30, 2014 reflects non-recurring acquisition costs and expenses of approximately $6.6 million, pre-tax. Diluted earnings per share for the twelve month period ended September 30, 2014 reflects non-recurring insurance and severance charges as well as acquisition costs and expenses of approximately $8.0 million, pre-tax.

(2)

EBITDA is defined as net income before net interest expense, income taxes, depreciation, amortization and accretion of contract rights. A reconciliation of EBITDA to net income, the most comparable Generally Accepted Accounting Principles (“GAAP”) financial measure, can be found attached to this release.

(3)

Adjusted EBITDA for the three month period ended September 30, 2014 reflects the add-back of non-recurring acquisition costs and expenses of approximately $6.6 million. Adjusted EBITDA for the twelve month period ended September 30, 2014 reflects the add-back of non-recurring insurance and severance charges as well as acquisition costs and expenses of approximately $8.0 million. Please see the reconciliation tables at the end of this release for a detailed breakdown of these add-backs.

 

Patrick Ramsey, Chief Executive Officer of Multimedia Games, commented, “Multimedia Games generated record financial results in fiscal 2014, including full-year revenue of $218.1 million and full-year adjusted EBITDA of $112.8 million. Our fiscal 2014 growth reflects our success in expanding the number of our addressable licensed markets, as well as our initiatives to further expand our product portfolio by developing new games that excite players and deliver value to operators. This allowed us to overcome the challenging North American gaming market, as our fiscal 2014 unit sales increased 38%, or by over 1,000 units, to nearly 3,700 units, while our installed base of participation units increased 7%, or nearly 900 units. Importantly, our installed base of higher-yielding premium participation units grew by 521 units in fiscal 2014 as the player appeal and strong performance of our High Rise Games attracted operators in increasing numbers nationwide.

“Overall, our financial performance in fiscal 2014 demonstrates the ability of the entire Multimedia Games team to create exciting, distinctive games that attract players, provide an unmatched entertainment experience and deliver value to our customers. At the recently concluded Global Gaming Expo (“G2E”) in Las Vegas, we displayed our most extensive lineup of new products, including 100 unique games and three new cabinet platforms. We also recently completed the acquisition of PokerTek, adding eTables to our product portfolio, further diversifying our geographic base and adding attractive recurring revenue to our already strong recurring revenue base.

“As we head into fiscal 2015, our product development teams remain singularly focused on further expanding our portfolio of attractive gaming content and our newly acquired eTable business while bringing to market some of the newest products we demonstrated at G2E – including the Platinum MPX and The Texan HDX. In addition, we continue to work closely with the team at Global Cash Access as they move towards the completion of their acquisition of Multimedia Games.”

Highlights of Multimedia Games’ fiscal 2014 fourth quarter operating results include:

Gaming operations

  • The approximate 7.1%, or 889 unit, year-over-year increase in the Company’s installed base led to a 10.1% increase in revenue.
    • The installed base grew 162 units on a quarterly sequential basis.
    • The Company’s installed base of higher-yielding premium participation games increased by 111 units on a quarterly sequential basis to 1,399 units.
  • Revenue from the Company’s New York Lottery business decreased 0.4% year over year to $16.9 million.

Gaming equipment and system sales

  • Revenue declined 21.6% year over year, reflecting the sale of 612 units to customers in 18 markets, compared to the sale of 807 units in the year-ago quarter.
  • Total unit sales included the sale of 140 TournEvent units, bringing the Company’s nationwide TournEvent installed base to over 4,100 units in approximately 280 casinos.
  • The top three markets for unit sales were Mississippi, Nevada and Washington, which in aggregate accounted for 249 of the units sold during the quarter.

Operating expenses

  • The year-over-year increase in total operating expenses was driven by:
    • Higher research and development expenses as the Company prepared to launch several new products and game titles.
    • Increased depreciation and amortization expense largely reflecting the continued expansion of the Company’s installed base of participation units along with higher amortization expense for capitalized labor.
  • SG&A expenses increased 39.2% during the quarter, driven by:
    • PokerTek and GCA transaction costs of $0.9 million and $5.7 million, respectively.
    • SG&A expenses include approximately $1.3 million of non-cash stock-based compensation compared to $1.1 million in the prior-year period.

Multimedia Games ended fiscal 2014 with $138.1 million in cash and debt of $25.9 million, versus cash of $102.6 million and debt of $29.6 million at September 30, 2013. Capital expenditures in fiscal 2014 declined to $35.4 million, compared to $48.6 million in fiscal 2013.

Non-GAAP Financial Measures

See definitions of EBITDA and Adjusted EBITDA included in the discussion of Non-GAAP financial measures below.

About Multimedia Games Holding Company, Inc.

Through its wholly owned subsidiary, Multimedia Games, Inc., Multimedia Games Holding Company, Inc. (“Multimedia Games”) develops and distributes gaming technology. The company is a creator and supplier of comprehensive systems, content and electronic gaming units for Native American and commercial casinos. Revenue is derived from gaming units in operation on revenue-sharing arrangements as well as from the sale of gaming units and systems that feature proprietary game content and game themes licensed from others. Multimedia Games also supplies the central determinant system for the video lottery terminals (“VLTs”) installed at racetracks in the State of New York. The company is focused on pursuing market expansion and new product development for commercial and tribal casinos and VLT markets. Please visit www.multimediagames.com, twitter.com/MultimediaGames or facebook.com/MultimediaGames, where Multimedia Games discloses important information about the company, its sales, and its business.

Cautionary Language

This press release contains forward-looking statements based on Multimedia Games' current expectations and projections, which are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. The words “believe”, “expect”, “continue”, “intend”, “plan”, “seek”, “estimate", “project”, “may”, “should”, or the negative or other variations thereof or comparable terminology as they relate to Multimedia Games and our products, plans, and markets are intended to identify such forward-looking statements. These forward-looking statements include, but are not limited to, expectations regarding our future installed base and win per day; expectations regarding our financial performance and financial flexibility; expectations regarding the effect of the acquisition of PokerTek on our performance; expectations regarding customers’ preferences and demands for future gaming offerings; expectations regarding our product portfolio; expectations regarding shareholder value; expectations regarding market entry and expansion; expectations regarding tax rates; expectations regarding the share repurchase program; management’s plans and objectives for future operations; expectations regarding future investments; expenditures and product development; business prospects; anticipated sales performance; industry trends; market conditions; and other statements that are not historical facts. All forward-looking statements are based on current expectations and projections of future events.

These forward-looking statements reflect the current views, models, and assumptions of Multimedia Games, and are subject to various risks and uncertainties that cannot be predicted or qualified and could cause actual results of Multimedia Games’ performance to differ materially from those expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to, the ability of Multimedia Games to increase our future installed base and win per day; improve our financial performance and financial flexibility; successfully integrate PokerTek into our existing business; successfully implement our product portfolio; increase shareholder value; successfully enter new markets and expand in current markets; grow our revenue, gaming operations or game sales businesses; garner new market share; secure new licenses and game approvals in new and current jurisdictions; successfully develop or place proprietary product such as premium games and the TournEvent slot tournament system; comply with regulations; or have our games met with approval by customers or players. Please refer to our most recent annual report on Form 10-K for our fiscal year ended September 30, 2014, and subsequent filings with the Securities and Exchange Commission for a further discussion of risks and uncertainties. All forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized. Readers are cautioned that all forward-looking statements speak only to the facts and circumstances present as of the date of this press release. Multimedia Games expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

CONSOLIDATED BALANCE SHEETS

As of September 30, 2014 and 2013

(In thousands, except share and per-share amounts)

       
ASSETS   2014     2013  
CURRENT ASSETS:
Cash and cash equivalents $ 138,086 $ 102,632

Accounts receivable, net of allowance for doubtful accounts of $150 and $342, respectively

25,265 26,566
Inventory 12,412 12,429
Notes receivable, current 2,375 2,093
Deferred tax asset 5,886 7,818
Prepaid expenses and other 4,440 2,423
Federal and state income tax receivable   4,400     2,855  
Total current assets 192,864 156,816
Property and equipment and leased gaming equipment, net 76,862 77,458
Intangible assets, net 32,022 34,723
Notes receivable, non-current 5,368 4,841
Deferred tax asset, less current portion 1,348

2,690

Value added tax receivable, net of allowance of $707 and $707, respectively 2,911 2,862
Other assets   3,637     2,135  
Total assets $315,012   $281,525  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,700 $ 3,700
Accounts payable and accrued liabilities 33,998 29,129
Deferred revenue   447     520  
Total current liabilities 38,145 33,349
Long-term debt, less current portion 22,200 25,900
Long term deferred tax liability 9,838 12,824
Other long-term liabilities   471     511  
Total liabilities   70,654     72,584  
Commitments and contingencies
Stockholders’ equity:

Preferred stock:

Series A, $0.01 par value, 1,800,000 shares authorized, no shares issued and outstanding

— —

Series B, $0.01 par value, 200,000 shares authorized, no shares issued and outstanding

— —
Common stock, $0.01 par value, 75,000,000 shares authorized, 38,628,091 and 37,802,950 shares issued, and 29,732,011 and 29,386,870 shares outstanding, respectively 386 378
Additional paid-in capital 148,828 131,232
Treasury stock, 8,896,080 and 8,416,080 respectively, common shares at cost (81,002 ) (66,886 )
Retained earnings   176,146     144,217  
Total stockholders’ equity   244,358     208,941  
Total liabilities and stockholders’ equity $315,012   $281,525  
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Twelve Months Ended September 30, 2014 and 2013

(In thousands, except per-share amounts)

       
Three Months Ended

September 30,

Full Year Ended

September 30,

  2014         2013     2014         2013  
REVENUES:
Gaming operations $ 38,488 $ 34,946 $ 147,897 $ 132,640
Gaming equipment and system sales 11,206 14,297 68,030 54,539
Other   829     1,145     2,202     2,187  
Total revenues   50,523     50,388     218,129     189,366  
 
OPERATING COSTS AND EXPENSES:
Cost of gaming operations revenue (1) 3,784 3,650 15,136 13,803
Cost of equipment and system sales 5,279 6,116 31,797 23,143
Selling, general and administrative expenses 18,678 13,420 58,720 48,350
Research and development 4,822 4,320 17,174 16,842
Amortization and depreciation   11,014     9,839     43,388     34,846  
Total operating costs and expenses   43,577     37,345     166,215     136,984  
Operating income 6,946 13,043 51,914 52,382
 
OTHER INCOME (EXPENSE):
Interest income 150 92 412 491
Interest expense (218 ) (273 ) (930 ) (1,139 )
Other income (expense)   142     —     166     33  
Income before income taxes 7,020 12,862 51,562 51,767
Income tax (expense) benefit   (3,233 )   (2,833 )   (19,633 )   (16,833 )
Net income $3,787   $10,029   $31,929   $34,934  
 
Basic earnings per common share $ 0.13   $ 0.35   $ 1.07   $ 1.21  
Diluted earnings per common share $ 0.12   $ 0.32   $ 1.02   $ 1.14  
 
Shares used in earnings per common share:
Basic 29,689 29,065 29,861 28,929
Diluted 30,903 30,936 31,269 30,677
 
     

(1)

 

Cost of gaming operations revenue excludes depreciation and amortization of gaming equipment, content license rights and other depreciable assets, which are included separately in the amortization and depreciation line item.

 
       

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended September 30, 2014 and 2013

 
  2014     2013  
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
Net income $ 31,929 $ 34,934
Adjustments to reconcile net income to cash provided by operating activities:
Amortization and depreciation 43,388 34,846
Accretion of contract rights 9,357 8,468
Share-based compensation 5,874 3,926
Other non-cash items (195 ) 1,501
Deferred income taxes 287 6,662
Interest income from imputed interest (228 ) (376 )
Changes in operating assets and liabilities 10,149 (3,052 )
Tax benefit from exercise of stock options   (8,258 )   (10,396 )
 
NET CASH PROVIDED BY OPERATING ACTIVITIES   92,303     76,513  
CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisitions of property and equipment and leased gaming equipment

(35,408 ) (48,624 )
Capitalized labor and acquisition of intangible assets (13,114 ) (9,260 )
Advances under development and placement fee agreements (795 ) (8,535 )
Advances under promissory notes (4,750 ) —
Repayments under development agreements   3,304     7,749  
 
NET CASH USED IN INVESTING ACTIVITIES   (50,763)   (58,670)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 3,472 9,176
Tax benefit from exercise of stock options 8,258 10,396
Principal payments of long-term debt (3,700 ) (3,700 )
Purchase of treasury stock   (14,116 )   (4,838 )
 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   (6,086)   11,034  
 
Net increase in cash and cash equivalents 35,454 28,877
Cash and cash equivalents, beginning of period   102,632     73,755  
Cash and cash equivalents, end of period $ 138,086   $ 102,632  
 

Reconciliation of GAAP to Non-GAAP measures:

This press release and accompanying schedules provide certain information regarding (i) EBITDA and (ii) Adjusted EBITDA, both of which may be considered non-GAAP financial measures under the rules of the Securities and Exchange Commission. The non-GAAP financial measures included in the press release are reconciled to the corresponding GAAP financial measures below, as required under the rules of the Securities and Exchange Commission regarding the use of non-GAAP financial measures. We define (i) EBITDA as net income before net interest expense, income taxes, depreciation, amortization and accretion of contract rights; and, (ii) Adjusted EBITDA reflects an add-back to EBITDA of certain non-recurring charges incurred throughout fiscal 2014, primarily related to merger-related expenses. EBITDA is not a recognized financial measure under GAAP, but we believe that it is useful in measuring our operating performance. We believe that the use of the non-GAAP financial measure EBITDA enhances an overall understanding of the Company’s past financial performance, and provides useful information to the investor by comparing our performance across reporting periods on a consistent basis and the use of EBITDA by other companies in the gaming equipment sector as a measure of performance.

Investors should not consider these measures in isolation or as a substitute for net income, operating income, or any other measure for determining the Company’s operating performance that is calculated in accordance with GAAP. In addition, because these measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies.

    For the Three Months Ended     For the Twelve Months Ended
September 30, September 30,
2014     20132014     2013
(in thousands)
Net income $ 3,787 $ 10,029 $ 31,929 $ 34,934
Add back:
Amortization and depreciation 11,014 9,839 43,388 34,846
Accretion of contract rights(1) 2,210 2,435 9,357 8,468
Interest expense, net 68 181 518 648
Income tax expense   3,233   2,833   19,633   16,833
EBITDA $ 20,312 $ 25,317 $ 104,825 $ 95,729
 

1)

   

“Accretion of contract rights” relates to the amortization of intangible assets for development projects. These amounts are recorded net of revenues in the Consolidated Statements of Operations.

 
       

Adjusted EBITDA

 

For the Twelve
Months Ended
September 30,

For the Three Months Ended
December 31,     March 31,     June 30,     September 30,
20132014201420142014
(in thousands)
EBITDA $ 27,887 $ 30,714 $ 25,912 $ 20,312 $ 104,825
Add back:
Insurance claims 771 771
Severance charge 619 619
PTEK merger expenses 877 877
GCA merger expenses         5,736   5,736
Adjusted EBITDA $ 28,658 $ 30,714 $ 26,531 $ 26,925 $ 112,828