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Issue 343
April 9 - April 15, 2007
Volume 7
page 1
 

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Gaming News

Casino City's April Sweepstakes

IGT signs investment deal

High Stakes Poker begins taping

Massachusetts tribe pushes for resort casino

Atlantic City casinos post record results

Show Time LeAnn Rimes at the Luxor

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Bally rhymes with rally
by Howard Stutz, Las Vegas Gaming Wire

LAS VEGAS, Nev. - Poor earnings, decreased slot machine sales and a plunging stock price made Bally Technologies the gaming equipment sector's version of Rodney Dangerfield for the past three years.

No matter what it tried, the Las Vegas-based slot machine manufacturer got "no respect" from Wall Street.

Now, Bally Technologies is once again the industry's darling, viewed by gaming analysts and investors as a company that has returned from the doldrums financially and is ready to grab some of the worldwide slot machine market share -- estimated to be in the high 60 percent range -- now controlled by industry giant International Game Technology.

An annual survey of the slot machine industry, conducted recently by the Goldman Sachs investment firm, found that casino slot floor managers universally regard Bally's new gaming machines as some of the better products coming into the market. Recent sales announcements of the company's systems technology, which provide accounting and bonusing features for casinos, have given that revenue stream a boost.

Bally Technologies also recently completed a nearly two-year endeavor to restate the company's earnings since 2005. While the company's net loss increased from 2005 to 2006, revenues grew more than 11 percent over the same period, a trend Bally executives are predicting will continue well into the current fiscal year.

Meanwhile, investors have come home to roost as Bally's stock price, which lingered below $10 a share almost two years ago, has climbed back to a respectable low $20 a share range since mid-February.

On the downside, Bally Technologies and IGT have nearly a dozen different federal antitrust lawsuits pending in which the companies have sued and countersued each other over purported patent infringements. Also, a new replacement cycle, where casinos nationwide are expected to change out older slot machines with newer games, is at least 18 months to two years away.

Neveretheless, gaming analysts are again singing Bally's praises.

"After a couple of troubling years, Bally appears to be re-emerging with a better range of products that can cater to the needs in mechanical reel and video spinning reels," Goldman Sachs gaming analyst Steven Kent said in the company's seventh annual slot survey, which was released in early March.

"Management has done a great job of getting the company back on track," Kent said. "We note that Bally is still behind on filing its financial reports due to accounting problems that date back almost two years. But, putting those issues aside, Bally appears to have the momentum for the next year, which may help it bridge the gap to the next replacement cycle."

Nollenberger Capital Partners gaming analyst David Barteld recently upgraded his rating of Bally's stock to a Buy from a Neutral rating, saying the company had brought new products to the casinos quicker than he previously anticipated.

"With the successful management and operational restructuring behind us, the valuation metrics on Bally shares are likely to return to more normalized levels," Barteld said in a note to investors. "While management acknowledges that profitability levels remain below historic levels, improvement is being made and successful placement of new games has ramped up significantly faster then we expected in the company's turnaround efforts."

Even gaming analyst Joel Simkins of Prudential Equity Group, who doesn't officially cover Bally Technologies but recently met with management, came away impressed with the strides the slot maker has achieved in the past few years.

Simkins said casino operators have praised Bally's games and have shown a willingness to pay an additional cost for the machines.

"Rather than discounting its products like it had in the past, (Bally Technologies) has been raising prices and now that its games are performing well and volumes have resurged, (the company) is focused on taking cost out of its manufacturing process," Simkins said.

The comments from analysts and customers boost the spirits of Bally Technologies Chief Executive Officer Richard Haddrill, who has spent most of his tenure alleviating concerns and dire predictions about the company's future.

Haddrill, who headed gaming equipment maker Powerhouse Technologies for three years prior to its purchase by Anchor Gaming in 1999, joined the Bally's board of directors in 2003 when the company was known as Alliance Gaming.

He became CEO within a year and the company hit a transition period. In 2004, Alliance sold its slot machine route operation, a casino in Sparks and purchased a Reno-based systems and technology business.

Last year, the company renamed itself Bally Technologies. The move reflected the company's original name in the 1970s, its reliance on the technology-intensive systems division and the hope that a fresh title would wash away the financial problems associated with Alliance.

"Our customers have been saying good things to the investment community even before they were talking to the analysts," Haddrill said. "We have so many new products hitting the market right now that we see a tremendous opportunity to grow our market share both in the games and systems side. Our revenues have increased tremendously and it's a trend we see continuing."

Bally Technologies said its revenues were $483.1 million in 2005 and $547.1 million in 2006. Haddrill predicted the company's revenues would exceed $670 million in 2007.

The finances, however, have not always been so positive.

During his tenure, Haddrill has worked with three different chief financial officers, announced the company needed to restate two years worth of earnings, and saw the company's stock price head south. Some investors, he said, won't reinvest until all the company's financial reports are filed with the U.S. Securities and Exchange Commission.

Haddrill has also had to deflect rumors the company was about to be sold. Many gaming analysts have predicted some type of consolidation would hit the manufacturing side of the gaming industry. In February, reports surfaced on Wall Street that Bally Technologies was merging with rival slot maker Aristocrat Technologies, but they were quickly dashed.

"It's a distraction, but it's become part of the business," Haddrill said of buyout rumors. "I think the talks are more intense now that private equity has entered the gaming space. There's more buzz because of private equity, but manufacturers aren't a real estate play."

Haddrill and gaming analysts credit the company's slot machines with the turnaround.

The slot survey cited the company's five-reel mechanical games and new platforms for video games, which include high-tech surround sound and colorful graphics. Kent commented that slot managers said they would dedicate 17 percent of a new casino floor to Bally machines, a marked increase from the 2006 survey.

Bally has struck several sales deals for its systems division recently, including a contract with the Chickasaw Nation to provide Bally slot and casino management systems and bonusing technology for more than 8,000 gaming machines in 17 locations in southeastern Oklahoma.

Deutsche Bank gaming analyst Bill Lerner said Bally Technologies could continue to turn around its financials once server-based gaming -- new slot machine technology under development throughout the manufacturing industry -- is ready for unveiling, possibly by late 2008 or early 2009.

Lerner said the company's server-based gaming plans could lead it to a ranking as the industry's No. 2 slot maker behind IGT.

"Assuming Bally can continue to execute on its re-emergence, is effective in its cost structure improvement and resolves the legal issues, we believe that Bally can bring net income margins into the 16 percent to 20 percent range," Lerner said, equaling the earnings ratio of its competition. "While still a few years away, normalized net income margins during the upcoming server-based gaming and expansion cycles could result in $2-plus annual earnings per share."

Lerner went as far to predict that Bally Technologies could see its annual revenues reach $965 million in two years.

 


IGT signs investment deal
Press Release


RENO, Nev. – International Game Technology (NYSE: IGT) announced today that it has entered into an agreement to make an investment in Digideal Corporation, a gaming technology company based in Spokane Valley, WA. The closing of the investment is subject to approval by Digideal's stockholders, the receipt of applicable regulatory approvals and subject to negotiated closing conditions. Financial terms related to the agreement or the investment were not released.

Concurrently with the closing of the investment, IGT will receive access to Digideal's intellectual property portfolio, a five-year term of exclusive manufacturing and distribution rights for Digideal products, and an option to acquire Digideal within five years.

Digideal's primary technology is a patented electronic table game platform. IGT expects to work jointly with Digideal to expand Digideal's game content library and electronic table game products.

"Our proposed distribution agreement and investment in Digideal reflect IGT's commitment to playing a key role in the developing electronic table game market," stated Steve Morro, President of IGT's Gaming Division. "We are excited about the opportunity to leverage Digideal's intellectual property portfolio and engineering talent with IGT's depth of research and development resources."

"Digideal is pleased to partner with IGT to further develop our game platforms, broaden our portfolio of intellectual properties and game content, and expand our manufacturing and distribution capabilities," said Michael Kuhn, Digideal's CEO.

 

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