Light & Wonder (LNW) Q4 2004 earnings summary

Executive summary

• FY04 marked a recovery: revenue rose 28.8% YoY to $230.2M and net loss narrowed to $0.9M from $8.3M; new Bluebird/CPU-NXT products drove stronger demand.

• New gaming-device shipments increased 84.4% to 12,661 units; the new product portfolio expanded coverage to all casino slot-floor categories.

Financial highlights

• Product sales increased 70.2% to $145.9M, led by new-unit revenue of $111.5M, up 95.3%; gaming operations revenue decreased 9.4% to $84.3M.

• Operating loss improved to $1.8M from $17.6M; net loss was $0.9M, or $0.03 diluted loss per share, versus $8.3M, or $0.27, in FY03.

• Cash and short-term investments totaled $116.2M at June 30, 2004, down $44.1M YoY; operating cash use was $36.3M, versus $19.9M provided in FY03.

Outlook and guidance

• FY05–FY07 expected to bring market-share gains from video, WAP and poker products and first mechanical-reel shipments; management anticipated significantly higher operating cash flow.

• FY05 R&D expense expected to exceed comparable prior-year quarters as product approvals, product-line expansion and game offerings increase; selling and administrative costs also expected to rise.

• Working-capital investment expected to continue in FY05–FY06, but at a slower growth rate than FY04; Bluebird unit mix was expected to lift average selling price in the following two quarters.

• Growth opportunities included Pennsylvania gaming legislation, California tribal casino expansion, and potential UK liberalization from FY06; California targets were 20%–25% of new tribal-casino units.