Open Letter to Shareholders
January 30, 2013
Dear Shareholders and Friends of Galaxy Gaming:
A belated, but very enthusiastic Happy New Year!
With 2012 now drawn to a close, I wanted to reflect on the highlights of the past 12 outstanding months, discuss some important recent events and provide a glimpse into what we see for 2013 and beyond.
Based upon the enthusiastic feedback I continue to receive from our supporters, I am delighted to present this comprehensive summary for your review.
Financial Performance –2012 was a great year for GLXZ – in fact our best ever:
- Revenues in each of our first three quarters were up 111%, 139% and 155%, respectively, over 2011′s comparable quarters.
- Gross margins remained well over 95%, as did our percentage of recurring revenue.
- We paved a path to profitability – from losses in 2011 to a year-to-date profit at the end of the third quarter.
- We expect to meet or exceed our 2012 internal goals of reaching $7 million in revenues, $2 million in EBITDA and a break-even net profit.
Placement Expansion – In most regions, we experienced increased market share:
- Domestically, we saw significant growth in many existing markets, particularly in Colorado, Pennsylvania and Nevada.
- Internationally, we experienced 7% revenue growth in the United Kingdom. (Forecasts were 1% growth)
- As a result of our acquisitions and a substantial order placed by Caesar’s Entertainment, our presence on the Las Vegas Strip expanded significantly.
Acquisitions – We completed the acquisition of two competitors:
- Unax Gaming, which added Double Action Blackjack to our game library.
- Red Card Gaming, which added High Card Flush.
Personnel – We enhanced our Executive Leadership team:
- Gary Vecchiarelli joined as our CFO in July. His talents, accomplishments and enthusiasm have been vital to our success.
Exhibitions – We had extremely successful showings at:
- International Casino Exhibition (January – London)
- Northwest Indian Gaming (July – Washington State)
- Global Gaming Expo (October – Las Vegas)
Following a successful 2012, we are well positioned to capitalize on the enormous opportunities in the market and execute our ambitious expansion plans for 2013. In addition, a number of additional strategies we are employing may act as a further catalyst to expedite our growth and increase shareholder value. I recently participated in a three-day, off-site summit incorporating most of our sales and executive teams, where these strategies were developed and endorsed.
Investments in our Future
We believe the following strategies may contribute to future results:
Increase investment in new product development
We are significantly stepping up our research and development efforts in 2013. This month, we added additional personnel to our development team, including Dan Lubin to lead our game development. Working closely with me and senior staff members, Dan has already compiled an impressive list of new games that we will be introducing in 2013. Additionally, we have increased our comprehensive beta testing and incubation of the new products we introduce. This expanded process is expected to increase the success rate of new product roll-outs.
Also in January, we released a recent upgrade of our Bonus Jackpot System, known as Andromeda – 4. With two more upgrades scheduled this year, our Bonus Jackpot System will likely surpass all other competitors in all categories. We strongly believe that the combination of our impressive game content library with innovative electronic enhancements allows us to provide the best solution for casinos worldwide. The enhancements we made should provide an immediate benefit to our Inter-Casino Jackpot Network program. (addressed below)
Acquire expanded facilities
Sometimes success obsoletes the tools used to achieve it. In our case, we have outgrown our corporate offices and commenced our search for a new and larger facility to accommodate our ambitious expansion plans. Fortunately, the commercial real estate market in Las Vegas contains an abundant supply of available buildings at affordable prices. We expect to be in new facilities before the end of this year.
Actively explore strategic acquisitions.
In just the past few years, we have completed six successful acquisitions of competitors. Large or small, all of these acquisitions have been accretive to our core business and simultaneously, have resulted in minimal shareholder dilution. We continue to actively search and negotiate for additional acquisition opportunities, which are an excellent way to increase market share and grow our revenues and profits.
Future Growth Prospects
Focus on premium table games and Bonus Jackpot System installations
The percentage of premium game placements compared to our side-bet placements has historically been disproportionate. Since premium games generally command a higher monthly price-point than side-bets, it is critical that our focus turn to the increased placements of premium proprietary table games.
Our Bonus Jackpot System also has proven its ability to capture a higher price-point. It was designed from the beginning to be multi-functional and flexible and can be configured as either a stand-alone daily jackpot or progressive jackpot device. Also, it can collectively link multiple tables together within a casino and link multiple casinos together using our Inter-Casino Jackpot System. Our Bonus Jackpot System also supports our social jackpot concepts of Envy Bonus, Share the Wealth Bonus and MEGA-Share Bonus. This product line has represented our best, but as yet unattained, potential. We are stepping up our commitment to this opportunity in all areas – engineering, sales and deployment.
Increase market share penetration
In most of the markets we currently serve, the overall penetration of our products as compared to the potential available is less than 10%. We see this as a fabulous opportunity for us to exploit in 2013 and beyond. Accordingly, we intend to increase our sales efforts in existing jurisdictions through the introduction of our new products.
New jurisdiction expansion
We have included select new jurisdictions in our expansion plans. Throughout this recession, governments worldwide are thirsty for new revenue sources and are turning to the gaming industry to contribute. Additionally, there are a number of jurisdictions which were limited to machine gaming only that have opened up to live table games.
Our partner in this product line, TableMAX Corporation, has developed their latest version of their e-Table, known as the “Model E.” We showcased this new model in our booth at the Global Gaming Expo last October in Las Vegas. Without question, the new model received a high level of interest from numerous casino operators. We continue to rely upon TableMAX to provide us with a fully tested and approved model. Until this is accomplished, we are unable to accurately predict the impact of these e-Tables on our operations. If we are able to obtain and place sufficient quantities in early 2013, they could have a significant impact on our financial results for future quarters and for the year.
We currently receive a scant amount of revenue from licensing our intellectual property used in internet gaming. Last year we signed an additional distribution agreement and we expect this revenue to grow, but still not very meaningful. When the internet gaming market takes off, we may be able to count of this for a greater portions of our revenues.
Investor Visibility and Communication
Late last year we compiled a two-year plan to increase our visibility to investors and the financial markets. We commenced this plan in early December at the LD Micro conference in Los Angeles. We expect this plan will gain momentum in 2013 through a combination of increased publicity from conferences, road shows and press releases and through strategic partnerships such as the one recently announced with Merriman Capital. We have planned a number of improvements to our web presence and are particularly focusing on our investor relations section. Also, we are developing a Galaxy Gaming Investor application designed for iPhone, iPad and Android platforms. We expect to announce the application’s availability in the next few months.
Besides increasing visibility, we are committed to taking appropriate steps to increase liquidity for our investors. We have established ambitious targets pertaining to our daily stock trading volume. Although we still remain far from our ultimate goals, we clearly are gaining meaningful momentum, as the chart below indicates.
Average Daily Volume – GLXZ
We met many milestones in 2012 and have demonstrated successful execution through the expansion of our products into various markets. 2012 is turning out to be a trend-setting year for GLXZ and I am comfortable in my belief that 2013 will be better still. I am very proud of the accomplishments our team has achieved and thank them for their dedication and hard work. At the same time, we all recognize that our work is not finished and the entire Galaxy organization is committed to accomplishing our vision of becoming the global leader in providing innovative, value added table game solutions to the gaming industry.
As you read this, I am in numerous meetings in England and will later be attending the International Casino Exhibition in London, February 4th – 6th, where once again we will be showcasing our products. Because Galaxy Gaming has obtained the #1 status in providing casino table games in the U.K., we attract a great deal of attention from participants at this conference from across the globe. I am looking forward to completing a successful trip and would love to hear from you upon my return.
Robert B. Saucier
Founder and CEO