Without license fees, Progressive Gaming shows 3Q loss

Nov 1, 2005 4:18 AM

The surprise that Progressive Gaming International Inc. (PGIC) would report a loss for the third quarter of its fiscal year came a week ago when the company told the Securities and Exchange Commission that it was revising its results because of an accounting error discovered internally.

So on Monday, after the markets had close, the company reported a loss of $2 million or $0.08 per share compared to net income of $800,000 or $0.03 per share a year ago. The guidance had been for a gain of $0.09 per share.

Revenues were listed at $19.3 million compared to the $25.6 million reported in 2004.

The accounting problem came about because the company had to withdraw from the period nearly $6 million in license fees and $1.5 million of related costs from revenues that the company said it could not identify because "the terms and conditions (of the agreement) contained highly competitive information, as do many of these transactions that we execute in monetizing cash," explained CFO Michael Sicuro.

In releasing the quarterly report, Russel McMeekin, chairman and CEO, focused on the company’s sales experience.

"The strong year-over-year growth in our systems revenues is the results of our continued focus to transform this segment of our business into the foundation for our future. The customer response from the Global Gaming Expo in September was very positive and is being reflected in the rapidly building pipeline for both customer orders and opportunities for our key growth initiatives; the intelligent Table System and server-based wagering."

He added that there was a strong response to the company’s newest table game, Texas Hold ”˜Em Bonus Poker and that he expected the distribution to grow after the company obtains approval in Nevada.

The company said it expected earnings to be between $0.09 and $0.13 per share in the fourth quarter.

Penn National

During a week when the majority of gaming companies saw their share price fall precipitously, the industry was given a shot in the arm when Penn National Gaming Inc. (PENN) reported an unexpectedly strong quarter.

The company that recently completed the acquisition of Argosy Gaming Inc. (AGY) reported third-quarter earnings of $55.4 million or $0.64 a share, an increase from last year’s $17.2 million $0.21 per share.

The quarterly results included adjustments for a $19.1 million pretax expense attributed to Hurricane Katrina and an after-tax gain of $35.6 million from the sale of the Hollywood Casino-Shreveport, La.

When the adjusted numbers were removed from the final tally, Penn National earned $0.37 a share, easily beating the $0.31 per share forecast by the majority of gaming analysts.

Giving the company a big boost was the strong performance of its casino in Baton Rouge that benefited from the closing of the casinos in New Orleans. Also, the company’s 4,200 slot machines at the Charles Town Racetrack/Casino in West Virginia produced $118.4 million during the third quarter, a 13.3% increase from the track’s revenue of 2004.

Peter Carlino, chairman and CEO, noted that some regulators had approved the Argosy purchase only with the stipulation that certain properties be sold.

"While we would have preferred to have secured regulatory approvals without divesting any properties," Carlino said, "we remain enthusiastic about the financial and strategic benefits of completing this acquisition.

"Taking into account the potential sale of two Illinois properties and the recently completed sale of Argosy Casino-Baton Rouge, this accretive transaction further diversifies the company’s regional operating base as well as its sources of revenue and cash flow and brings two additional growth opportunities to the three expansion initiatives already being pursued by Penn National."

The company also boosted investors’ confidence by suggesting fourth quarter earnings would be $0.42 a share, ahead of the $0.38 forecast by analysts and that profit for the year would be $1.48 per share.

On Friday, PENN shares traded up to $28.91, an increase of $1.46 for the day.

MGM MIRAGE

As for MGM MIRAGE Inc. (MGM) shares, what a difference a week made. Following the company’s quarterly report, investors showed their lack of confidence by pushing the price down from Monday’s $43.48 per share to Thursday’s $37.

With an upbeat market on Friday, the share price recovered a bit before closing at $37.38.

Unfortunately, analysts appeared more concerned with the impact of Hurricane Katrina on the company’s Beau Rivage Casino Resort in Biloxi, Miss., rather than the improved performance of the Las Vegas Strip properties.

While analysts were looking for third quarter earnings of $0.41 per share, the company only reported $0.38 per share based on adjusted earnings of $112.3 million. Last year, third quarter earnings of $0.45 per share showed the benefits of the inclusion of a $74 million gain associated with the sale of the MGM Australia casino. Without that adjustment, earnings were $0.28 per share.

Terry Lanni, chairman and CEO, focused on the "solid operating results" of the Las Vegas properties and "the continued strength at our Las Vegas Strip resorts."