Galaxy Gaming Reports Record Q-1 Results

Recurring Revenues Increase for 10th Consecutive Quarter; On Track for Record Breaking 2014

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| Source: Galaxy Gaming, Inc.

LAS VEGAS, May 15, 2014 (GLOBE NEWSWIRE) -- Galaxy Gaming, Inc. (OTC:GLXZ), the world's largest independent producer of casino table games and enhanced systems, announced today its financial results for the quarter ending March 31, 2014. Highlights include:

Q-1 2014 vs. Q-1 2013

  • Revenue of $2,264K increased 19% or $368K from $1,896K.
  • EBITDAS of $979K increased 21% or $167K from $812K.
  • Pre-tax profit of $244K increased 61% or $92K from $152K.
  • Net income of $151K increased 45% or $47K from $104K.

Q-1 2014 vs. Q-4 2013

  • Revenue of $2,264K increased 1% or $22K from $2,242K.
  • EBITDAS of $979K decreased 6% or $57K from $1,036K.
  • Pre-tax profit of $244K decreased $130K or 35% from $374K.
  • Net income of $151K decreased $244K or 62% from $395K.

"The results we posted for 2014's first quarter represent our best start ever for the new year," said Galaxy Gaming CEO Robert Saucier. "Revenues, EBITDAS and profits reached an all-time high compared to all prior first quarters. Once again, we are on a solid course to have another record-breaking year. Having just finished tallying our April results, we now believe that our second quarter could also be a record-breaker. And we continue to focus on increasing our revenues, boosting our profits through the expansion of our product lines and our distribution channels. For Galaxy, there's no limit to where we will go next." 

Galaxy executives made specific mention of several qualitative "wins" for the first quarter, including a high-profile expansion of its board of directors and the hiring of a well-regarded strategic consultant to aid the Company in its next-stage objectives. Finally, the Company noted that continued consolidation in the industry is a material benefit for Galaxy, as it gained recognition as the world's largest independent table game provider.

"2013 was more than another record-breaking year for our company – it was a validation of our core business principles and carefully constructed strategic plans," said Gary A. Vecchiarelli, Galaxy's CFO. "As we have said before, we have crossed the point where our business model starts to show how attractive it really is." 

Continuing, Vecchiarelli said, "The combination of our high-margin recurring revenue business model and our planning and execution is translating into an extremely profitable financial performance across the board. Of particular note is the direct contribution of increased revenue to EBITDAS. For example, for every dollar of added revenue in 2013, almost 60 cents went directly to EBITDAS. These are signs of strength and substance and exactly what our company set out to do."

Looking toward 2014, Mr. Saucier continued, "We hope our supporters will recognize the significance or increasing revenues and EBITDAS approximately 20% each and increasing our pre-tax and post-tax profits by 60% and 45%, respectively. Beyond the financial improvements from last year, we have made significant operational improvements. For example, we just completed the move into our new world headquarters in Las Vegas and now have the infrastructure to grow at an even faster rate.  We also successfully resolved all but one of the distractions and diversions of the last two years and expect to likewise be behind us in 2014. I can confidently predict that 2014 should be another record year."

Company Conference Call

In line with its updated strategic plan, Galaxy Gaming is instituting a semi-annual conference call schedule to allow team leaders to put increased focus and time into Company operations, product development and continued national/international expansion.  The Company also reasserted that it remains completely dedicated to timely, accurate and transparent SEC reporting.

Financial Summary

Revenue. Total revenue for the first quarter 2014 increased slightly 1%, to $2,260,809. Historically, the first quarter has been the Company's slowest growth period quarter over quarter. However, the Company continues to see growth in all product lines. As of March 31, 2014, the annual recurring revenue run-rate is approximately $9,043,236. 

Operating expenses. Operating expenses for the first three months 2014 increased 7.9%. The primary driver of the increase relates to an increase in selling, general & administrative expenses of 15%, and a decrease of 40% in the costs of ancillary products and assembled components. The SG&A increase is generally due to higher sales commission based on increased sales and an increase in overall employee headcount. The Company has also recognized increased professional and compliance expenses related to intellectual property maintenance fees and entrance into new jurisdictions. Additionally, the Company had $53,688 of stock compensation for the first three months 2014, which is included in SG&A expenses. Costs of ancillary products and assembled components decreased $12,905 due to less tangible goods being shipped to clients.

Net income. Net income for the first quarter 2014 decreased 62% to $151,165. The decrease was due to increased operating expenses, interest expense and tax provision for the first three months 2014.

EBITDAS. EBITDAS, a non-GAAP financial measure (described below), decreased 5.5% to $979,498. The primary reason for the decrease relates to higher stock compensation expense for the first three months 2013.

Balance Sheet and Cash Flow Information

Cash provided by operations was $652,943 for the three months ended March 31, 2014 compared to $469,455 for the three months ended March 31, 2013. The improvement in cash provided by operating activities was primarily due to improved operating results, with a significant contribution to the increase in total revenues.

Cash used in financing activities was $722,572 for the three months ended March 310, 2014 compared to $571,048 for the three months ended March 31, 2013. The increase in cash used in financing activities was due to the increase in contractual principal payments due on notes payable.

As of March 31, 2014, the Company's cash and cash equivalents totaled $362,900.

Use of Non-GAAP Measures

Galaxy Gaming, Inc. prepares its consolidated financial statements in accordance with United States generally accepted accounting principles ("GAAP"). In addition to disclosing financial results prepared in accordance with GAAP, the Company discloses information regarding EBITDAS, which differs from the term EBITDA as it is commonly used. In addition to adjusting net income (loss) from continuing operations to exclude taxes, interest, and depreciation and amortization, EBITDAS also excludes noncash charges, certain non-recurring charges and share-based compensation expense. EBITDA and EBITDAS are not measures of performance defined in accordance with GAAP. However, EBITDAS is used internally in planning and evaluating the Company's operating performance. Accordingly, management believes that disclosure of this metric offers investors, bankers and other stakeholders an additional view of the Company's operations that, when coupled with the GAAP results, provides a more complete understanding of the Company's financial results.

EBITDAS should not be considered as an alternative to net loss or to net cash used in operating activities as a measure of operating results or of liquidity. It may not be comparable to similarly titled measures used by other companies, and it excludes financial information that some may consider important in evaluating the Company's performance. A reconciliation of GAAP net loss from continuing operations to EBITDAS is included in the accompanying financial schedules.

About Galaxy Gaming

Headquartered in Las Vegas, Galaxy Gaming (www.galaxygaming.com) develops, manufactures and distributes innovative proprietary table games, state-of-the-art electronic wagering platforms and enhanced bonusing systems to land-based, riverboat, cruise ships and online casinos worldwide. Through its iGaming partner Games Marketing Ltd., Galaxy Gaming licenses its proprietary table games to the online gaming industry.

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are made in accordance with the Private Securities Litigation Reform Act of 1995. The forward-looking statements herein include, but are not limited to, the expected adoption of our gaming systems by casinos and other customers, and the expected acceptance of our gaming systems by players. Our actual results may differ materially from those implied in these forward-looking statements as a result of many factors, including, but not limited to, the impact of global macroeconomic and credit conditions on our business and the business of our suppliers and customers, overall industry environment, customer acceptance of our products, delay in the introduction of new products, further approvals of regulatory authorities, adverse court rulings, production and/or quality control problems, the denial, suspension or revocation of permits or licenses by regulatory or governmental authorities, termination or non-renewal of customer contracts, competitive pressures, and our financial condition, including our ability to maintain sufficient liquidity to operate our business. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur, except as required by applicable laws, and you are urged to review and consider disclosures that we make in the reports that we file with the Securities and Exchange Commission that discuss other factors germane to our business.

 
GALAXY GAMING, INC.
BALANCE SHEETS
     
     
     
  March 31, 2014 December 31, 2013
ASSETS (Unaudited) (Unaudited)
Current assets:    
Cash and cash equivalents $362,900 $438,502
Restricted cash 253,455 244,416
Accounts receivables, net allowance for bad debts of $36,770 and $36,770 1,325,016 1,273,797
Prepaid expenses 106,171 34,973
Inventory 297,859 297,480
Note receivable – related party, current portion 18,487 18,212
Deferred tax asset 27,119 27,119
Other current assets 37,226 50,510
Total current assets 2,428,233 2,385,009
     
Property and equipment, net 49,866 44,952
Products leased and held for lease, net 114,751 85,883
Intangible assets, net 16,422,012 16,811,511
Goodwill 1,091,000 1,091,000
Note receivable – related party, net of current portion 364,811 365,086
Deferred tax assets, net of current portion 436,669 436,669
Other assets, net 48,133 7,245
     
Total assets $20,955,475 $21,227,355
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $292,326 $241,754
Accrued expenses 329,519 322,402
Income taxes payable 101,462 34,655
Deferred revenue 554,855 526,922
Jackpot liabilities 257,112 246,522
Notes payable, current portion 3,095,759 2,929,918
Total current liabilities 4,631,033 4,302,173
     
Notes payable, net of debt discount, net of current portion 14,884,619 15,645,939
     
Total liabilities 19,515,652 19,948,112
     
Commitments and Contingencies (See Note 11)    
     
Stockholders' equity    
Preferred stock, 10,000,000 shares, $.001 par value preferred stock authorized; 0 shares issued and outstanding  --    --   
Common stock, 65,000,000 shares authorized; $.001 par value 38,485,591 and 38,310,591 shares issued and outstanding 38,486 38,311
Additional paid-in capital 2,426,738 2,330,676
Stock warrants 147,504 190,053
Accumulated deficit (851,023) (1,002,188)
Accumulated other comprehensive income (loss) (321,882) (277,609)
Total stockholders' equity 1,439,823 1,279,243
     
Total liabilities and stockholders' equity $20,955,475 $21,227,355
     
 
GALAXY GAMING, INC.
STATEMENTS OF OPERATIONS
     
     
  THREE MONTHS ENDED
  March 31, 2014 March 31, 2013
  (Unaudited) (Unaudited)
Revenue:    
 Product leases and royalties $2,260,809 $1,889,430
 Product sales and service 4,002 6,948
 Total revenue 2,264,811 1,896,378
Costs and expenses:    
 Cost of ancillary products and assembled components 19,320 27,251
 Selling, general and administrative 1,206,345 957,583
 Research and development 113,336 100,445
 Depreciation 14,293 10,159
 Amortization 389,499 397,226
 Total costs and expenses 1,742,793 1,492,664
     
Income (loss) from operations 522,018 403,714
     
Other income (expense):    
 Interest income 5,627 5,863
 Interest expense (283,237) (257,017)
 Gain on settlement -- --   
 Total other income (expense) (277,610) (251,154)
Income before provision for income taxes 244,408 152,560
Provision for income taxes (93,243) (48,763)
Net income $151,165 $103,797
     
Basic income per share $0.00 $0.00
Diluted income per share $0.00 $0.00
     
Weighted average shares outstanding:    
 Basic 38,380,816 38,310,591
 Diluted 38,409,600 38,310,591
     
 
GALAXY GAMING, INC.
STATEMENTS OF CASH FLOWS
     
  FOR THE THREE MONTHS ENDED
MARCH 31,
  2014 2013
Cash flows from operating activities: (Unaudited) (Unaudited)
Net income for the period  $ 151,165  $ 103,797
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation expense 14,293 10,159
Amortization expense 389,499 397,226
Amortization of debt discount 52,158 52,158
Deferred income tax provision --    48,763
Share-based compensation 53,688 1,451
Changes in operating assets and liabilities:    
Increase in restricted cash (9,039) (5,145)
(Increase) decrease in accounts receivable (51,081) 31,325
Decrease (increase) in other current assets 13,284 (6,264)
Increase in inventory (36,929) (111,779)
(Increase) decrease in prepaid expenses (94,198) 10,841
(Increase) in other long-term assets (18,794) --   
(Increase) in accounts payable 50,547 (23,048)
Increase (decrease) in accrued expenses 7,359 (57,824)
Increase in income taxes payable 92,468 --   
Increase in deferred revenue 27,933 4,023
Increase in jackpot liabilities 10,590 13,772
Net cash provided by operating activities 652,943 469,455
     
Cash flows from investing activities:    
Acquisition of property and equipment (10,619) (2,791)
Payments received on note receivable --    4,177
Net cash (used in) provided by investing activities (10,619) 1,386
     
Cash flows from financing activities:    
Principal payments on notes payable (722,572) (571,048)
Net cash used in financing activities (722,572) (571,048)
     
Effect of exchange rate changes on cash 4,646 (7,474)
     
Net decrease in cash and cash equivalents (75,602) (107,681)
Cash and cash equivalents – beginning of period 438,502 398,424
Cash and cash equivalents – end of period  $ 362,900  $ 290,743
     
Supplemental cash flow information:    
Cash paid for interest  $ 283,237  $ 257,017
Inventory transferred to leased assets  $ 36,550  $ 13,231
Cash paid for income taxes  --      --    
Supplemental non-cash financing activities information:    
 Effect of exchange rate on note payable in foreign currency  $ 74,935  $ 596,748
     
 
 
GALAXY GAMING, INC.
RECONCILIATION TO EBITDAS
       
     
  Three Months Ended 
March 31,
 Three Months Ended
December 31,
 
  2014 2013 2013
Net income $151,165 $103,797 $395,313
Interest income (5,627) (5,863) (5,865)
Interest expense 283,237 257,017 258,208
Income tax provision (benefit) 93,243 48,763 (20,798)
Depreciation 14,293 10,159 10,636
Amortization 389,499 397,226 397,227
Share based compensation 53,688 1,451 1,452
 EBITDAS(1) $979,498 $812,550 $1,036,173
       

(1) EBITDAS is defined as net income (loss) from continuing operations before interest, taxes, depreciation, amortization, share-based compensation, and non-cash charges. EBITDAS does not purport to represent net earnings or net cash used in operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alternative to such measurements or as indicators of the Company's performance. The Company's definition of EBITDAS may not be comparable with similarly titled measures used by other companies.

Jonathan Wilcox
(702) 939-3254