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In a release, the Company provided a third quarter financial review:
Systems revenues were $13.7 million for the three-month period ended September 30. Systems revenues for the three-month period ended September 30, 2007 were $18.3 million. The decline in systems revenues reflects a deferral of a significant number of installations expected to occur in the third quarter of 2008 as a result of delays in casino expansions and more cautious capital spending by customers.
The Company reported a loss of $63.6 million, or $8.12 per diluted share, inclusive of a non-cash asset impairment charge of $43.8 million, or $5.59 per diluted share, related to the Company's review of goodwill and long-lived assets, a non-cash charge of $6.7 million, or $0.86 per diluted share, related to fair value adjustments for financing transactions during the third quarter 2008 period, restructuring charges of $3.5 million or $0.44 per diluted share, for severance costs incurred as a result of an organizational restructuring and $1.7 million or $0.22 per share for reserves net of the reversal of certain accruals for tradeshows and bonuses. Excluding these items, Progressive Gaming reported an adjusted net loss of $1.01 per diluted share, in the third quarter of 2008 compared to an adjusted net loss of $0.83 per diluted share, in the third quarter of 2007. Net loss per diluted share (including discontinued operations) was $8.12 for the quarter ended September 30, compared to $8.29 for the quarter ended September 30, 2007. Reflecting the one for eight reverse stock split effected on September 15, there were approximately 7.8 million and 4.8 million weighted average shares outstanding in the September 2008 and September 2007 quarterly periods, respectively (all per share amounts have been adjusted to reflect this split).
Progressive Gaming's slot management systems installed base as of September 30, was 85,423, representing year-over-year growth of 19 percent, or 13,701 systems, and quarterly sequential growth of 626 systems. The Company's installed base of table management systems as of September 30, was 6,969, representing year-over-year growth of 43 percent, or 2,095 systems and quarterly sequential growth of 90 table management systems. As noted above, the lower than historical level of quarterly slot and table management systems installations reflect the deferral of several systems installations that were anticipated to occur in the third quarter of 2008 as customers have recently been more cautious on capital outlays.
Progressive Gaming International Corp.'s President and Chief Executive Officer, Terrance W. Oliver, said , "Progressive Gaming continues to proactively address a challenging operating environment and several other factors that are impacting our financial results. Given the current economic environment, and in consideration of a number of systems installations agreements that remain effective but have been delayed, we recently implemented a significant re-alignment of the Company that has streamlined our operating structure. Cost reduction measures undertaken late in the third quarter and continuing into the fourth quarter have eliminated approximately $13 - $15 million in total annualized cost of sales, selling general and administrative and research and development expenses, the full benefit of which is expected to be realized in fiscal 2009. Importantly, these cost reductions were effected in a manner that we believe does not impair the Company's ability to meet all of the installation requirements currently in our pipeline or planned forecasts.
"We believe Progressive Gaming's systems applications have an established track record of success in generating attractive returns on investment for our customers as they help to generate higher revenues at attractive price points. As such, we believe our technologies continue to provide casino operators with viable options to improve their casino floor performance as evidenced by the progress we continue to achieve in the rollout of our Casinolink Jackpot System module in Nevada and in securing new contracts that are expected to be implemented in the next several quarters including a full roll-out of our RFID suite of products in California and Europe, and new contracts for slot and table management systems installations in Asia.
Oliver concluded, "Last month the Board of Directors of the Company initiated a review of strategic alternatives aimed at enhancing shareholder value. This process is ongoing and we look forward to reporting our progress on this initiative in the near future. We also continue to work with our lenders regarding our non-compliance with the third quarter 2008 financial covenants under our senior credit facility and convertible note agreement. On November 7, our senior lender issued an acceleration notice for our senior secured revolving credit facility and term loan. On November 17, we executed a forbearance letter which provides for forbearance on a day-to-day basis until November 21 while the Company works on strategic alternatives including a potential sale of the company. Our senior lenders have the right to cancel the forbearance at their sole discretion."
Third Quarter 2008 Financial Review
Revenues
Revenues in the third quarter of 2008 were approximately $13.7 million compared to revenues (adjusted for the impact of discontinued operations) of $18.3 million in the third quarter of 2007.
During the third quarter of 2008 the Company's system installed base growth reflected 626 installations of slot management systems and 90 installations of table management systems, all of which are expected to contribute to the Company's recurring revenue base going forward. Slot and table game division revenues are included in the results of discontinued operations.
Gross Margins
Gross margins were 44 percent in the third quarter of 2008, reflecting the impact of lower levels of revenues in the period and the impact of the write down of $0.5 million of inventory related to products no longer being offered by the Company.
SG&A and R&D Expenses
Third quarter 2008 selling, general and administrative and research and development expenses ("SG&A and R&D") (excluding depreciation and amortization) were approximately $12.4 million, including approximately $2.7 million in bad debt reserves, and $0.8 million in non-cash stock compensation expense, partially offset by a reversal of an accrual of $1.2 million related to trade show and bonus cancellations. This compares to second quarter of 2008 expenses of $10.8 million that included approximately $0.8 million in non-cash stock compensation expense.
Interest Expense
Net interest expense for the third quarter of 2008 was $1.4 million compared to $2.4 million in the third quarter of 2007.
EBITDA and Adjusted EBITDA
Adjusted EBITDA was $(3.7) million compared to $1.3 million in the third quarter of 2007. EBITDA is earnings before interest, taxes, depreciation and amortization. EBITDA is presented solely as a supplemental disclosure because management believes that it is a widely used measure of operating performance in the gaming supplier industry.
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