Stock Preacher

Multimedia Games Inc. (Nasdaq: MGAM)

Multimedia Games Inc. (MGAM) engages in the development and supply of comprehensive systems, content, electronic games and player terminals for the casino, charity, international bingo and video lottery markets in the United States and internationally. The Company offers interactive systems, server-based gaming systems, interactive electronic games, player terminals, stand-alone player terminals, video lottery terminals, electronic scratch ticket systems, electronic instant lottery systems, player tracking systems, casino cash management systems, slot accounting systems, slot management systems, unified currencies, and electronic and paper bingo systems.

MGAM is also involved in the design and development of networks, software and content that provide gaming systems, which are delivered through a telecommunications network that links player terminals with one another within and among gaming facilities.

The Company was founded in 1991 and is headquartered in Austin, Texas.

Source: pinksheets.com

FY ending June 30

Financial Summary

MGAM reported Q3 FY 2009 revenue of $32.1 million, compared with revenue of $30.3 million in Q3 FY 2008, mainly due to strong revenue growth from gaming equipment and the system sale and lease segments, which increased $3.5 million to $3.8 million for Q3 FY 2009.

MGAM reported a net loss for Q3 FY 2009 of $1.2 million, or $0.04 per diluted share, compared to net income of $0.2 million, or $0.01 per diluted share, in the prior year period. The Q3 FY 2009 net loss is primarily attributable to a 15%, or $2.0 million, year-over-year increase in depreciation and amortization expense related to the growth in the Company’s installed base of player stations, which more than offset the 3% reduction in selling, general and administrative expenses and a 66% reduction in net interest expense.

As of June 30, 2009, the Company had $9.4 million in unrestricted cash and cash equivalents, compared to $6.3 million as of September 30, 2008. The operating cash flow generated during the quarter was deployed to reduce outstanding borrowing during the quarter by 14%, or $14.1 million, as outstanding borrowings totaled $83.4 million as of June 30, 2009, compared with $97.5 million as of March 31, 2009.

Analyst Consensus

Source: http://www.reuters.com/finance/stocks/estimates?symbol=MGAM.O

Analysts polled by Thomson Reuters expect Multimedia to “Outperform,” with two analysts rating the pink sheet stock a “Buy,” down from three analysts three months ago and one analyst recommending the “Hold,” up from zero analysts three months ago. Thomson Reuters pooled analysts anticipate revenue of $123.2 million and EPS of ($0.27) for the fiscal year 2009.

Shares of MGAM increased 14% since August 17, mainly due to the announcement of installation of its new Class III Casino Commander® Tournament System at two casinos in Oklahoma and California.

Investment Highlights

The Company is a developer and distributor of comprehensive systems, content, electronic games and gaming player terminals for the casino, charity, international bingo and video lottery markets. Although MGAM continues to develop systems and products for Native American tribes throughout the United States, it now intends to further expand the efforts to include the development and marketing of products and services for: (i) the various commercial casino markets; (ii) the various domestic and international lotteries; and (iii) the various charity and international bingo and other emerging markets.

The Company derives the majority of its gaming revenue from participation (revenue sharing) agreements, pursuant to which it places systems, player terminals, proprietary and licensed content operated on player terminals and back-office systems and equipment (collectively referred to as gaming systems) into gaming facilities. To a lesser degree, the Company earns revenue from the sale or placement of gaming systems (e.g., the opening of a new casino, or a change in the law that allows existing casinos to increase the number of player terminals permitted under prior law) on a lease-purchase basis and from the back-office fees generated by video lottery systems, principally in the Washington State, Class III market. The Company has other meaningful revenue stream particularly from providing the central determinant system for a network of player terminals operated by the New York State Division of the Lottery.

The Company has installed approximately 17,000 gaming units that provide significant recurring revenue. Approximately 1,150 units are Class III titles. The Company’s units are installed in Oklahoma, Washington, Alabama, New York and Rhode Island in the U.S. and in Mexico. The Class III titles opportunity will allow the Company to enter the markets of California, Florida, Minnesota and Wisconsin.

In August, MGAM announced the first installation of its Class III Casino Commander® Tournament System at the Chickasaw Nation’s WinStar World Casino in Oklahoma. The Company also announced that it secured an agreement to install the Casino Commander system at the Chumash Casino Resort in California next month, subject to licensing requirements and regulatory approvals. Chumash Casino Resort selected MGAM’s slot tournament system following a review of competitive products from two other leading gaming equipment suppliers.

The Wall Street Transcript in its recently issued Casinos, Gambling and Gaming Technology Report expressed thoughts that the gaming companies that scaled back their capital expenditures are likely to become less competitive and ultimately will suffer severe losses in the future. And in order to maintain competitiveness over the long term, gaming companies will likely need to spend more in the future for upkeep of the existing properties in relation to the new competitive, higher-end properties.

Tribal casinos in the U.S. posted revenue of $26.7 billion in 2008, up 2.3% from the previous year, according to the National Indian Gaming Commission. In Nevada, the casinos had gaming revenue of $13.8 billion for the 12 months ended June 30, down nearly 14% from the previous 12 months. The regional casino markets are doing better than Vegas in hard economic times. Gamblers like to save money by staying closer to home, and therefore regional gaming companies are better placed in these days.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

MGAM is trading above its 13-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

The MACD for MGAM currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

Comparative Analysis

Technology leadership, a solid base of installed units, and opportunities for its Class III units that will likely result additional recurring revenue streams and allow MGAM to enter into additional markets, could suggest a better valuation for MGAM.

Source: Thomson Financial, Yahoo! Finance.

Insider Trading Activity

Net Share Purchase Activity

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