Summit buyer GameTech is turnaround story
Pub Date: 10/1/2006
GameTech international, Inc., the Reno, Nev., based company set to acquire Montana's Summit Gaming, is viewed by Wall Street analysts as a turnaround success story.
GameTech's revenues and earnings had been flat for several years, but a new management team put in place in 2005 moved rapidly to bolster profits by reducing costs while adopting strategies for a resumption of revenue growth.
GameTech "designs, develops and markets portable and fixed-based interactive electronic bingo player terminals and systems operating in approximately 500 locations with 1,500 operators in 38 states and five foreign countries."
The company, founded in 1994, is headquartered in Reno and holds about 70 gaming licenses.
Roth Capital Partners, a respected investment firm, had issued a "buy" recommendation for GameTech (GMTC) stock even before the announced acquisition of Summit Gaming based on "three consecutive quarters of strong earnings growth on reduced costs and our expectations for domestic market share gains and international expansion leading to increased revenue and earnings in Fiscal Year 2007."
A Roth research report said the new management "eliminated $5 million in costs by streamlining the product development process and eliminating unneeded overhead," and estimated "management is on pace to eliminate another $3-$4 million in Fiscal Year '06."
Roth was anticipating GameTech would drive revenue upward of 10 percent a better than $5 million increase from FY '06 to '07 "based on domestic share gains and international expansion."
The Roth analysts thought further product development cost reductions would accrue through the company bringing the manufacturing and assembly operations in-house. That, coupled with cost reductions, was expected to set the stage for GMTC's earnings per share to triple.
Even back in late June, the Roth analysts may have seen the merger handwriting on the wall when they noted GMTC had over $10 million in cash on hand and no long-term debt, setting the stage for the company "to accelerate international expansion plans and seek strategic acquisitions."
And in the opinion of leaders at both GMTC and Summit, this marriage certainly is designed to achieve just that.
The company's business model calls for supplying operators with electronic bingo
equipment both fixed and portable terminals at no cost, instead receiving fixed fees per use, per week or a percentage of revenue.
The company has 68,500 units in service with revenue per unit averaging $2.25-$2.75 per day. The Roth analysts estimated GameTech controls 50 percent of the electronic bingo market.
GameTech is a leader in wireless hand-held bingo terminals, so is thought to be well positioned to enter the market for hand-held, portable gaming terminals legalized in Nevada and expected to spread to other jurisdictions.
A little over a year ago, GameTech announced that Jay Meilstrup had been named to lead the company as President and CEO. The announcement was made by Chairman of the Board, Richard Fedor.
In a company news release at the time, Fedor said, "John was brought in to restore GameTech to profitability after a period of disappointing performance. The Company under John has made significant progress. Both John and the board felt the company now needs a President and CEO with a background in all aspects of the gaming industry and can restore the company to its leading position in the electronic bingo industry.
Fedor continued, "Jay brings 17 years of experience in gaming and understands the casino business from the operations and management perspective."
Prior to joining GameTech, Meilstrup was the Senior Vice President of Niagara Properties at Niagara Falls Casino in Niagara Falls, Ontario, Canada. Meilstrup was also the General Manager of Casino Niagara, Canada's most popular tourist attraction, for five years and previously served as Vice President of Game Development for Shuffle Master Gaming.
Source: The Montana Tavern Times, Oct., 2006, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.