Galaxy Gaming Inc. (OTC BB: GLXZ)

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October 30, 2009 Issue

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Having Just Become A Public Company, Galaxy Gaming With A High Margin Recurring Revenue Model Has Prospered During The Recession And Is Well Positioned To Explode During The Recovery

About Galaxy Gaming

Headquartered in Las Vegas, Galaxy Gaming (www.galaxygaming.com), is the world’s second largest developer, manufacturer and distributor of casino table games including Lucky Ladies, Texas Shootout and Emperor’s Challenge. In addition, it develops innovative and enhanced electronic wagering platforms such as its Bonus Jackpot System. Galaxy Gaming distributes its products to casinos throughout North America and on cruise ships worldwide.


Casinos use proprietary table games and bonus jackpot products in lieu of those available in the public domain (e.g. blackjack, craps, roulette, etc.) because of their popularity with players and because the casinos generate significantly more profit.

 

Robert B. Saucier, President and CEO
Biography

Robert B. Saucier is the founder, Chief Executive Officer and Chairman of the Board of Galaxy Gaming, Inc. In that capacity, he has led the Company from inception to its current status as a publically traded company. Prior to forming Galaxy Gaming, he was the founder and CEO of the Mars Hotel Corporation, which operated the first non-tribal casino in the State of Washington. House-banked casino gaming became legal in Washington in 1998 as a result of several legislative bills authored by Mr. Saucier. In addition to his gaming experience, Mr. Saucier has been an entrepreneur since 1976 having founded and developed numerous successful companies including International Pacific, Inc., a technology-oriented telecommunications company. International Pacific gained the distinction of being the 78th fastest growing company in America, as awarded by Inc. Magazine’s “Inc. 500 Award” in recognition of its sales growth rate of 2,447%.


In addition to building companies from the ground up, Mr. Saucier has invested in, and/or has acted as a consultant to, numerous successful micro-cap companies and real estate ventures. He is also a noted public speaker, having served as a keynote speaker and panelist for numerous trade organizations and conventions, including the annual Global Gaming Expo. Mr. Saucier resides in Las Vegas.


Gaming
(OTC BB: GLXZ)


Galaxy Gaming Inc.
6980 O’Bannon Drive
Las Vegas, NV 89117
Phone: 702-939-3254

 

Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – October 30, 2009

 

CEOCFO: Mr. Saucier, how was it that you started Galaxy Gaming?
Mr. Saucier: Galaxy Gaming started out as almost an accident. I used to own a small casino and I ended up creating a side bet for blackjack that became very popular with our players and financially, very profitable for our casino. As a result of the success we were having, our competitors sought to have our product added to the blackjack games in their casinos as well. So, it became the a “tail that wags the dog” story. The demand for this product by both players and casinos kept growing and growing, and that was the beginning of Galaxy Gaming. It really was not planned; it was the result of a pleasant accidental surprise.

 

CEOCFO: What is Galaxy Gaming all about today?

Mr. Saucier: We provide table games and electronic enhancements for casinos throughout North America on cruise ships worldwide.

 

CEOCFO: Will you tell us more about the casino table game industry; particularly the growth trends?

Mr. Saucier:  In the 40’s and 50’s casino table games were king. Slot machines had very little impact on the casino industry but were provided mainly to give spouses something to do while the men played table games. Eventually however, slots became more prominent and the percentage of floor space they occupied increased over table games. This trend seemed to be endless, at least in North America anyway, but several events kept table games a very important component of the gaming floor.

 

First, proprietary table games were invented back in about 1988 when a new casino table game called “Caribbean Stud” was introduced. The game featured a progressive jackpot prize that progressively grew with each wager placed. It was like a mini lottery on the table game. For one dollar, a player could potentially win hundreds of thousands of dollars. The game became a hit and casinos all over the world couldn’t wait to have it because of the huge player demand. Caribbean Stud made its owners extremely wealthy and the table game gold rush was on!

 

Second, table games had a resurgence about ten to twelve years ago. We first noticed a change at the Hard Rock Hotel and Casino in Las Vegas. Obviously, the Hard Rock caters to a younger crowd and they prefer the live human interaction of table games, compared to merely depositing their money into a computer.

 

Third, table games received another boost a little over six years ago when the poker craze took off on television. Although that primarily affected live poker rooms, collaterally that trend also benefited casino table games. Sort of a “rising tide lifting all boats” equation.

 

Finally, the expansion of gaming in the Asian markets has drastically increased the popularity of table games. In those markets, such as Macau, slot machines are insignificant compared to the live table game play.

 

CEOCFO: Tell us specifically about your games and other products?,

Mr. Saucier: We divide the proprietary table games we provide into two classifications. One is what we refer to as a side bet which is an additional bet on a game that is in the public domain, for example, a separate wager made in the game of blackjack. The other type is what we refer to as stand-alone premium games. These are unique games in and of themselves. An example of a game like that is the table game known as Texas Shootout, which is a casino variation of Texas Hold’em.

 

In addition to our proprietary games, we also have electronic enhancements for table games. One such enhancement is our Bonus Jackpot System, where players, while they are playing table games, can participate in an electronic bonusing platform where they can win a very substantial jackpot for maybe as little as a dollar.

 

CEOCFO: Who is doing the inventing?
Mr. Saucier: Since we have an extensive and growing distribution system, we see at least 100 new games a year that come to us from inventors who demonstrate different games that they have invented. Most of those will never see the inside of a casino, but there are many people with many ideas. Mainly however, we develop our own games internally and I lead our game development team.

 

CEOCFO: How do you go from concept to finished product?

Mr. Saucier: If we develop a new game and feel good about it, we brand it and give it a name. We work on the graphics, both in terms of the logo and how it is going to actually play on the table surface. Once we have that and feel good about it, then one of the things that we will do is file a patent application to see if we can protect the concept with a patent. We also have a mathematical analysis done on it. We first do it internally, then go outside and get one or more mathematical analysis done so that we understand what the house advantages of the game are and how the game will play out. Once we have all of that done, we then go to some of our existing casino clients who we know like to experiment with new games. From their feedback and our own observations, we rate the game’s popularity with players and the profitability of the game.

 

CEOCFO: What is your revenue model for these games and products? Are they sold outright or do they compliment your recurring revenue model?

Mr. Saucier: The short answer is both, and I do not mean not “either / or.” Let me explain this. Most of us are familiar with the classic “razor blade” example of giving away the razor so that you can sell the blades. In Galaxy Gaming’s case and with our products and particularly the Bonus Jackpot System, we have an unusual opportunity to sell both the razors and the blades. Casinos purchase the equipment they need from us but then they also pay us monthly fees for its use.

 

For example, with our proprietary games a casino will agree to pay us a fixed amount per month such as $500 per table per month. Plus, when our electronic enhancements are used, the Company receives additional recurring revenue as well in direct proportion to the game’s performance. We refer to this as “performance based pricing,” whereby we get a fee for every wager a player places. So the better our game does, the greater the fee we receive.

 

CEOCFO: Will people go to a particular casino because of the variety?

Mr. Saucier: The answer is yes, people will go to a certain casino because games exist there that do not exist in other casinos. The reason people gamble in the first place is because they have to have a belief that at times they can beat the casinos. Over the long run, people know that they can’t, but from time to time they may be able to. So, if they see a new game and they think they have it figured out how to win at it, then that will attract them to that particular game.

 

CEOCFO: What is your geographic reach?

Mr. Saucier: Roughly, we last counted about 262 casinos who are Galaxy Gaming clients. They are located throughout North America and on cruise ships worldwide. We do plan to expand into Europe, Asia, and throughout the globe in the coming years.

 

CEOCFO: Is it casino by casino, a chain of casinos or line of cruise ships; how does it work?

Mr. Saucier: Both, but generally speaking it is casino by casino. For example, even though we may have national agreements with major gaming corporations such as Harrah’s, each casino makes its own decision as to which games they would like to put in. However, we also have other clients such as cruise ships whereby the cruise ship corporation will make the decision to put the product in on all of their ships.

 

CEOCFO: What has changed for you in the current economy?

Mr. Saucier: The positive effect is that our products are in higher demand now than they were before. Particularly in a down economy, casinos have a need to make more money. Since we don’t require a large capital expenditure and we can immediately improve the bottom line for casinos, they are very attentive to the types of products we offer. It is significant to note that the last time we experienced this level of growth was during the months that followed the tragedies of September 11th.

 

So from that standpoint the recession has been good for us as our recurring revenues have been growing significantly. For example, the revenues we posted in the 1st and 2nd quarters represent a 30% and 34% increase respectively over the same quarters a year ago. We estimate our 3rd Quarter revenues to exceed 40% growth. So, that part of our business has been excellent.

 

The negative effect that the economy has had on us, particularly for a small company like ours, is reduced access to capital. But we are fortunate in that we are cash flowing, so we don’t need capital to sustain our operations. However, to be able to grow or take advantage perhaps of acquisition opportunities we need capital and the access to capital is very difficult right now in today’s financial market place. In spite of this, we have been successful in attracting new capital to our company and a recent offering we completed was over-subscribed. So, it can be done, its just a lot harder in this economy.

 

CEOCFO: What is the competitive landscape; are there many companies coming out with new ideas, or is it a limited field?

Mr. Saucier: Actually, it is quite limited. It used to be greater, but there have been a number of mergers and acquisitions. The industry is dominated by Shuffle Master and they are the largest company in the space. We are the second largest company in the space and then below that there are maybe about ten or twelve small to medium-size companies, with only one other one that is a public company.

 

CEOCFO: What is ahead for Galaxy?
Mr. Saucier: We have some exciting new products that I just can’t wait to come out. I’d love to talk about them, but I’m sure you understand why, for legal and competitive reasons, I can’t yet. But here is one clue. The Bonus Jackpot System that I mention previously is continually evolving, so we are doing new versions of it.

 

The Bonus Jackpot System is really our big story for 2009 and beyond. We just released it in March of this year and we limited its distribution to one trial market, which was Washington State. We did that with the intent to gain an understanding of the product and to experience its reliability and determine field service requirements. Our goal was to get it in the field for about six months and get about 100 units out before we started to go into other jurisdictions. Now that we have accomplished those goals, we are now negotiating with other jurisdictions and plan on spreading our Bonus Jackpot system throughout North America and on cruise ships. Eventually we intend on expanding globally.

 

CEOCFO: You recently became a public company; why was this the time?

Mr. Saucier: I can’t say that we specifically picked this time other than it was a long process that had begun several years earlier. It just so happens that we became public in what is probably the worst recession in history, but from that standpoint our investors are very pleased. If you are going to invest into a company, everybody knows the goal is to buy low and sell high. So from that standpoint, there is probably no better time than now for an investor to invest in a company like ours. Valuations over all are low, but the import thing to consider is to find quality and to separate those companies that you think will do well, versus those that won’t prosper or even survive. As a result, our investors are very pleased since we are doing very well in tough times and will do even better as we all pull out of this recession. That is why I think Galaxy Gaming represents a great opportunity for investors at this time.

 

CEOCFO: Haven’t you recently expanded your sales force?

Mr. Saucier: Yes and we intend on expanding it further in the future. Our primary use of proceeds for any funds that we might raise, and in fact our primary strategies to rapidly grow our company is: to expand our sales force and distribution networks, and escalate our research, development and engineering.

 

CEOCFO: Would you address potential investors; there are so many companies to choose from, why pick Galaxy Gaming out of the crowd?

Mr. Saucier: The first thing that people get excited about with our company is that our revenues are high margin recurring revenues. Typically our recurring revenues are 95% or more of our total revenues and they represent very high margins. That is something that most investors get thrilled about, because there is a lot of stability in a revenue model like that. Second of all is that we have shown phenomenal growth throughout the recession, and really without attracting much in the way of outside capital. So once we get out of the recession our company should do extremely well, because we have proven how well we can do in the tough times. Plus, we now have the ability to raise some capital to fuel our expansion.

 

Also, we have been in business for twelve years, so whatever was going to kill us probably would have done so by now. We are a very stable and solid company with an excellent management team and a great reputation in the industry.

 

CEOCFO: Final thoughts, what should people remember most when they read about Galaxy Gaming?

Mr. Saucier: To our clients; we treat them with the utmost of respect and we have a tremendous reputation among our clients for our fairness and quality of service. To our investors; all of us here are striving to make their decision to invest in Galaxy Gaming the best investment decision they ever made.

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