OREANDA-NEWS. Galaxy Gaming, Inc. (OTC:GLXZ), the world's largest independent developer, manufacturer and distributor of casino table games and enhanced systems, announced today its results for the three months ended March 31, 2016.

Financial Highlights

Q-1 2016 vs. Q-1 2015

  • Revenue of $2,984K increased 15% or $400K from $2,584K.
  • Adjusted EBITDA of $1,231K increased 49% or $402K from $829K.
  • Pre-tax gain of $536K increased 362% or $420K from $116K.
  • Net income of $379K increased 502% or $316K from $63K.

Q-1 2016 vs. Q-4 2015

  • Revenue of $2,984K increased 2% or $54K from $2,930K.
  • Adjusted EBITDA of $1,231K increased 75% or $528K from $703K.
  • Pre-tax gain of $536K increased $550K from loss of $14K.
  • Net income of $379K increased $445K from loss of $66K.

Executive Comments

Gary A. Vecchiarelli, Galaxy’s CFO commented, “2016 started with increases across the board.  We have now increased our recurring revenues 17 of the last 18 quarters.  Our EBITDA has also improved significantly, with a one-two punch of an increase in our recurring revenues and a decrease in our operating expenses.”

Robert B. Saucier, Galaxy’s CEO added, “It's always encouraging to start the year on such a high note.  While the numbers speak for themselves, it is important to comprehend that throughout 2015 and early 2016, we were engaged in time consuming and expensive litigation.  As previously reported, we prevailed in the litigation, which we are in the final stages of winding up.  Accordingly, we are now able to focus on more productive things, such as growing our core business.  Our results prove that our products are gaining solid market acceptance and as a result, we continue to increase placements.  These increases combined with the reduction of operating expenses permit us to aggressively pay down our long-term debt.”

Financial Summary

Revenue.  Total revenue for the first quarter 2016 increased 15% to $2,984,099, over the same quarter 2015.  This increase is primarily due to additional placement of premium games and expansion into new territories.  Between the first quarter 2016 and fourth quarter 2015, total revenues increased 2% to $2,984,099.  This increase was recognized in all categories of products, with premium games netting the largest gains.  The annualized recurring revenue run-rate as of March 31, 2016 is $11,927,280.

Total costs and expenses.  Expenses for the first quarter 2016 remained relatively consistent with a decrease less than 1% to $2,189,730, when compared to the same quarter 2015.  The total costs and expenses in the first quarter 2016 decreased 19% to $2,189,730 compared to the fourth quarter 2015.  This decrease was primarily due to legal costs decreasing as litigation commenced formal proceedings in the fourth quarter 2015.

Adjusted EBITDA.  Adjusted EBITDA, a non-GAAP financial measure (described below), for the first quarter 2016 increased 49% to $1,230,814, compared to the same quarter 2015.  Lower selling, general & administrative expenses contributed to the increase in Adjusted EBITDA between the periods.  Adjusted EBITDA in the first quarter 2016 increased 75% to $1,230,814 compared to the fourth quarter in 2015.  This increase was primarily driven by the combination of an increase in revenues and a decrease in selling, general & administrative expenses.  The decrease in selling, general & administrative expenses was primarily driven by lower legal costs attributed to litigation.

Net income.  Net income for the first quarter 2016 was $379,367, which was an increase of 502% from the same quarter 2015.  The increase was primarily due to the increases in our recurring revenues and lower costs and expenses.  The net income of $379,367 in the first quarter reversed a net loss recognized in fourth quarter of 2015.  This reversal was the combined result of increased revenues and decreases in selling, general & administrative expenses, for reasons previously mentioned.

Use of Non-GAAP Measures

Galaxy Gaming, Inc. (the “Company”) 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 Adjusted EBITDA, 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, Adjusted EBITDA also excludes noncash charges, certain non-recurring charges and share-based compensation expense.  EBITDA and Adjusted EBITDA are not measures of performance defined in accordance with GAAP. However, Adjusted EBITDA 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.

Adjusted EBITDA 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 Adjusted EBITDA is included in the accompanying financial schedules.

About Galaxy Gaming

Headquartered in Las Vegas, Nevada, Galaxy Gaming 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.  The Company is also expanding its global presence through its partnership with WPT Enterprises, Inc., owner of the World Poker Tour. 

GALAXY GAMING, INC.
CONDENSED BALANCE SHEETS
(Unaudited) 		  
   
ASSETS   March 31,
2016		     December 31, 2015  
Current assets:                
Cash and cash equivalents   $ 1,077,985     $ 570,623  
Restricted cash     46,815       97,859  
Accounts receivables, net allowance for bad debts of $31,000 and $30,944     1,750,430       1,828,669  
Prepaid expenses     56,177       106,338  
Inventories, net     456,385       411,700  
Deferred tax asset     10,477       43,017  
Other current assets     —       2,489  
Total current assets     3,398,269       3,060,695  
Property and equipment, net     278,012       298,877  
Products leased and held for lease, net     133,275       134,485  
Intangible assets, net     12,889,324       13,261,636  
Goodwill     1,091,000       1,091,000  
Deferred tax assets, net of current portion     —       82,562  
Other assets, net     41,793       41,793  
Total assets   $ 17,831,673     $ 17,971,048  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 1,310,608     $ 1,421,848  
Accrued expenses     880,018       823,964  
Income taxes payable     305,123       170,331  
Deferred revenue     813,983       717,690  
Jackpot liabilities     84.201       106,671  
Capital lease obligations, current portion     49,366       59,196  
Long-term debt, current portion     4,565,293       4,648,120  
Deferred rent, current portion     8,382       6,197  
Total current liabilities     8,016,974       7,954,017  
Deferred rent, net of current portion     50,001       52,643  
Capital lease obligations, net of current portion     70,397       78,008  
Long-term debt, net of debt discount, net of current portion     6,824,638       7,436,171  
Total liabilities     14,962,010       15,520,839  
Commitments and Contingencies                
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 39,315,591 and 39,215,591 shares issued and outstanding     39,316       39,216  
Additional paid-in capital     2,984,312       2,963,841  
Accumulated deficit     (413,079 )     (792,446 )
Accumulated other comprehensive income     259,114       239,598  
Total stockholders’ equity     2,869,663       2,450,209  
Total liabilities and stockholders’ equity   $ 17,831,673     $ 17,971,048  
                 
GALAXY GAMING, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)		  
   
    FOR THE THREE MONTHS ENDED
March 31,		  
      2016       2015    
Revenue:          
  Product leases and royalties   $   2,981,820     $   2,578,310    
  Product sales and service     2,279       5,783    
  Total revenue     2,984,099       2,584,093    
Costs and expenses:          
  Cost of ancillary products and assembled components     21,640       23,289    
  Selling, general and administrative     1,652,303       1,579,073    
  Research and development     79,342       152,987    
  Depreciation     43,662       41,293    
  Amortization     372,312       378,073    
  Share-based compensation     20,471       18,870    
  Total costs and expenses     2,189,730       2,193,585    
           
  Income from operations     794,369       390,508    
           
Other income (expense):          
  Interest income     56       5,885    
  Interest expense     (258,195 )     (279,939 )  
  Total other expense     (258,139 )     (274,054 )  
Income before provision for income taxes     536,230       116,454    
Provision for income taxes     (156,863 )     (53,595 )  
  Net income   $    379,367     $    62,859    
           
Basic earnings per share   $   0.01     $   0.00    
Diluted earnings per share   $   0.01     $    0.00    
           
Weighted average shares outstanding:          
  Basic     39,351,147       38,990,591    
  Diluted     39,455,591       39,015,591    
GALAXY GAMING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)		  
   
    FOR THE THREE MONTHS
ENDED
March 31,		  
    2016     2015  
Cash flows from operating activities:                
Net income for the period   $   379,367       $ 62,859  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation expense       43,662         41,293  
Amortization expense       372,312         378,073  
Amortization of debt discount       52,158         52,158  
Deferred income tax provision       156,863         53,595  
Share-based compensation       20,471         18,870  
Changes in operating assets and liabilities:                
Decrease (increase) in restricted cash       51,044         (7,839 )
Decrease in accounts receivable       76,900         13,125  
Decrease (increase) in other current assets       2,489         (6,155 )
(Increase) decrease in inventory       (54,958 )       3,487  
Decrease (increase) in prepaid expenses       50,161         (6,171 )
(Decrease) increase in accounts payable       (111,065 )       8,491  
Increase in income taxes payable       134.792         —  
Increase (decrease) in accrued expenses       56,598         (56,799 )
Increase in deferred revenue       96,293         3,279  
(Decrease) increase in jackpot liabilities       (22,470 )       14,988  
(Decrease) increase in deferred rent       (457 )       1,758  
Net cash provided by operating activities       1,304,160         575,012  
Cash flows from investing activities:                
Acquisition of property and equipment       (11,314 )       (7,895 )
Net cash used in investing activities       (11,314 )       (7,895 )
Cash flows from financing activities:                
Principal payments on capital leases       (17,441 )       (16,085 )
Principal payments on notes payable       (766,081 )       (841,203 )
Net cash used in financing activities       (783,522 )       (857,288 )
Effect of exchange rate changes on cash       (1,962 )       (9,380 )
Net increase (decrease) in cash and cash equivalents       507,362         (299,551 )
Cash and cash equivalents – beginning of period       570,623         560,184  
Cash and cash equivalents – end of period   $   1,077,985       $ 260,633  
Supplemental cash flow information:                
Cash paid for interest   $   185,718       $ 279,939  
Inventory transferred to leased assets   $   10,273       $ —  
Cash paid for income taxes   $   5,000       $ —  
Supplemental non-cash financing activities information:                
Effect of exchange rate on note payable in foreign currency   $   19,663       $ 288,601  
                 
  GALAXY GAMING, INC.
RECONCILIATION TO ADJUSTED EBITDA
(Unaudited)
  
   
    Three Months Ended
March 31,		   Three Months Ended
December 31,		        
      2016       2015       2015          
Net income   $   379,367     $   62,859     $   (66,284 )        
Interest income     (56 )     (5,885 )     (48 )        
Interest expense     258,195       279,939       248,026          
Income tax provision     156,863        53,595        51,829           
Depreciation     43,662        41,293        49,934           
Amortization     372,312        378,073        372,313           
Share based compensation     20,471        18,870        46,826           
  Adjusted EBITDA(1)   $   1,230,814     $   828,744     $   702,596          
                                 

(1) Adjusted EBITDA is defined as net income (loss) from continuing operations before interest, taxes, depreciation, amortization, share-based compensation, and non-cash charges.  Adjusted EBITDA 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 Adjusted EBITDA may not be comparable with similarly titled measures used by other companies.