Multimedia Games Reports Q4 FY ’08 Revenue of $38.4 Million

Multimedia Games, Inc. (Nasdaq: MGAM) today reported operating results for its fiscal 2008 fourth quarter and full year ended September 30, 2008, as summarized in the table below. The Company also reported today that it is streamlining operations with the goal of achieving an approximate $5 million reduction in annualized SG&A expenses as detailed below.

2008 Fourth Quarter Review

For the fiscal 2008 fourth quarter, Multimedia Games ("Multimedia’) reported revenue of $38.4 million, compared with revenue of $31.2 million in the fiscal 2007 fourth quarter and revenue of $30.3 million in the fiscal 2008 third quarter. Fiscal 2008 fourth quarter revenue benefited from $7.0 million in revenue related to the previously disclosed sale of 496 player terminals to an Oklahoma tribal customer in early September. Excluding this sale, Multimedia’s fiscal 2008 fourth quarter revenue was in line with levels in the 2007 fourth quarter and increased by 4% on a quarterly sequential basis. The 2007 fourth quarter and 2008 third quarter periods benefited from a full quarters’ contribution of recurring revenue from the above noted 496 player terminals while the 2008 fourth quarter period only benefited from a partial quarter’s contribution of recurring revenue from these units. On a quarterly sequential basis, the overall revenue increase reflects the benefit from the player terminal sale as well as a 3% increase in Oklahoma recurring revenues (which includes revenue from compact games and Class II games), a 22% increase in revenue derived from the electronic bingo market in Mexico and modest improvements in revenue generated from the New York and Washington State markets, offset in part by a 9% decline in revenue derived from the charity bingo market. In addition, fiscal 2008 fourth quarter recurring revenue derived from the Oklahoma market, the Company’s largest market, improved by 9% compared to the fiscal 2007 fourth quarter.

Multimedia reported a net loss for the 2008 fourth quarter period of $1.4 million, or $0.06 per diluted share, compared to net income of $1.4 million, or $0.05 per diluted share, in prior year period. The fiscal 2008 fourth quarter net loss reflects the impact of non-cash, pre-tax charges totaling approximately $5.9 million, or $0.12 per diluted share. The charges include reserves taken on game machines and certain third-party game licenses and the write-off of assets following the Company’s review of goodwill and long-lived assets (additional detail on these charges is provided on page 4). The fiscal 2008 fourth quarter net loss also reflects approximately $0.4 million, or $0.01 per diluted share, in higher year-over-year non-cash stock based compensation expense. Fourth quarter 2007 net income reflects non-recurring items that, in aggregate, benefited income taxes by $0.8 million, or $0.03 per diluted share.

Anthony Sanfilippo, Multimedia’s President and CEO, commented, "The fiscal 2008 fourth quarter and full year results are reflective of Multimedia’s growing installed base, which now totals more than 16,000 player terminals. We believe that as we address various organizational and operational issues that have impacted the Company’s ability to generate consistent profitability and cash flow, we can leverage our installed base and established relationships to improve the Company’s business and prospects. Importantly, we recently strengthened our balance sheet by reducing outstanding borrowings and Multimedia is now better positioned to begin generating increased cash flow as we implement new initiatives to drive revenue growth and diversification and improved profitability.”

New Management Team Implementing Strategic Plan

"Since June, Multimedia has added significant gaming industry expertise to our senior management team that will be responsible for the implementation of our new strategic initiatives,” said Mr. Sanfilippo. "Our new management appointments all bring valuable gaming knowledge and relationships that improve and expand our industry capabilities and further our relationships with current and potential new customers. In addition to the earlier appointments of Ginny Shanks as our Chief Marketing Officer and Uri Clinton as our in-house General Counsel, near the end of the fiscal fourth quarter we named Patrick Ramsey Chief Operating Officer. Patrick’s primary responsibilities include analyzing all of our current and prospective unit placements and working closely with customers to maximize the revenue and profitability from our revenue-sharing arrangements as well as right sizing the organization for the scope of our current operations while also positioning the Company to execute our growth strategies.

"Since joining the Company, Patrick has led our efforts to re-align our organization. We have re-positioned existing personnel so that dedicated Account Managers are tasked with ensuring deployment of an optimized mix of games across all customers’ floors, most importantly at venues where Multimedia has large percentages of committed floor share. We have also established Project Managers that enhance our ability to provide higher levels of service to our customers. By more effectively deploying our resources, we made these changes in our organization without incurring additional salary expense.

"In addition, Multimedia’s management is focusing on initiatives including increasing the number of markets in which the Company is licensed so that we can expand the opportunities to place and/or sell our games, working with customers on new marketing and promotional plans aimed at improving the win per day performance of our installed units and a implementing a more focused and analytical approach to new game development and commercialization.”

Optimizing Results from Current Markets

Sanfilippo added, "During the fiscal fourth quarter, the Chickasaw Nation’s WinStar World Casino, which is favorably located just 75 minutes north of Dallas, opened the first phase of its expanded facility and pursuant to our development agreement, we have now added approximately 900 new gaming units to the casino floor, which brings our total placements at WinStar to approximately 1,940 installed units. An additional 500 units are expected to be added at the facility prior to the casino’s grand opening which is scheduled for the New Year’s holiday weekend. With a footprint that has more than doubled at WinStar World, Multimedia’s focus on optimizing net revenue from committed floor space, an attractive, long-term, blended revenue share arrangement and our customer’s track record of development and expansion, which is anticipated to include a hotel at WinStar, we are hopeful that this relationship will generate attractive returns on invested capital.

"While Multimedia continues to prioritize the profitable expansion of our installed base of recurring revenue units, which is up approximately 18% to 16,599 units at November 30, 2008 compared to the year ago level, we also believe our market opportunities will be enhanced by offering a ‘for-sale’ model for current and prospective customers. As evidenced by the fourth quarter sale of units, properly structured equipment sales can provide significant and immediate revenue and income that can be deployed for debt reduction or the pursuit of other growth initiatives. Additionally, our ability to offer our products to customers on a ‘for sale’ basis can foster new channels of market and customer growth and become a meaningful component of our revenue mix as we advance the development and marketing of our Class III offerings.

"Our committed floor space in several markets, while significant, is not yet achieving appropriate levels of profitability and the management team is focused on conducting proper analysis and finding solutions to address these shortfalls. While the revenue derived from our unit placements in Mexico continues to improve on a quarterly sequential basis, these gains are being driven by higher unit placements as win per day performance remains below expectations and our expenses in this market remain too high. We are reviewing strategies to rationalize the number of unit placements we have at specific facilities and are evaluating several opportunities to broaden the mix of games we offer in this market with the goal of improving hold per day and profits from this emerging market.

"Similarly, for our placements with our largest customer in Alabama which total about 1,400 units, we are actively developing opportunities to increase the hold per day performance of the player terminals. Such opportunities include working with our customer to secure better locations for a portion of our unit placements while simultaneously updating our games so that they interface with the casino management system deployed at this venue. Accordingly, we are evaluating several approaches for transitioning our installed units at this venue to be on the facility’s player reward system beginning in early calendar 2009 with the goal of improving the performance and the returns from our unit placements at this facility.

"Our outlook for the New York video lottery market, where Multimedia has provided the central determinant system since 2003, continues to improve. Ongoing revenue growth from the current operations as well as recent clarity on development plans for Aqueduct, where approximately 4,500 video lottery terminals will be in operation in 2010 increasing the statewide installed base of VLT's by approximately 35%, drive our projections for improved profitability from this market.”

Operating Expense Reductions

As part of its efforts to more narrowly focus future game development and platform support efforts to focus on quality whereas previously the emphasis had been on quantity to fill committed floor space, Multimedia is engaged in an ongoing review of its game development and systems organizational structure. Among the changes that will be implemented is the establishment of dedicated game development studios that will each have the responsibility for managing specific product lines. The Company is also actively reviewing additional opportunities to streamline its operating structure with a goal of reducing annual general and administrative expenses by approximately $5 million by no later than March 31, 2009.

Mr. Sanfilippo said, "Multimedia’s primary objective is to drive profitability and enhanced cash flow through a more analytical approach to the levels of support we provide for our current installed base of gaming devices as well as a narrower focus on the new games and systems we will continue to develop. As we implement changes over the next few months that will redefine the Company as one with a focus on quality game development, we will take meaningful strides in rationalizing our expense structure to current revenue levels while continuing to maintain a talented, creative team capable of executing on current market expansion opportunities and new market growth initiatives.”

Strengthening Balance Sheet and Unlocking Shareholder Value

Mr. Sanfilippo concluded, "We’ve strengthened our balance sheet by reducing current outstanding borrowings to $89 million, representing a 15% reduction from June 30, 2008 levels. We also hold a note receivable from our largest customer that directly offsets more than 74% of these borrowings. With our commitments for cap-ex related to machine purchases to serve this customer’s facility expansion nearly fulfilled, our goal is to further strengthen our capital structure through ongoing debt reductions from free cash flow in the second half of fiscal 2009.

"The management team’s initiatives to drive improved operating results are expected to be reflected in fiscal 2009 and beyond. We believe our focus on utilizing significantly more robust game performance analysis and improvements in customer service will drive higher unit hold per day and that by adopting a more focused approach to new game development and commercialization -- while expanding the number of markets we serve -- we can gain market share in both tribal and commercial casino jurisdictions. Leveraging these improvements with benefits from a reduced expense structure, continued declines in outstanding debt and improving free cash flow will allow us to unlock the value inherent in Multimedia Games and generate new long-term value for our shareholders.”

2008 Fourth Quarter Financial Review

Selling, general and administrative expense in the September 30, 2008 quarter increased $7.7 million to $23.3 million from $15.6 million for the September 30, 2007 quarter. The year-over-year increase reflects non-cash charges totaling $5.9 million related to reserves taken on gaming machines and certain third-party game licenses and the write-off of assets following the Company’s review of goodwill and long-lived assets. These charges, which were taken pursuant to an organizational re-alignment following the appointment of a new senior management team that will pursue new strategic initiatives, had the effect of reducing net income in the September 2008 quarter by $3.3 million after-tax, or $0.12 per diluted share as detailed in the following table:

The year-over-year increase in SG&A expenses also reflects higher stock-based compensation expense and an increase in headcount, partially offset by a reduction in third-party consultants’ compensation compared to the prior year period. Multimedia’s "Share-based Payment” under the Statement of Financial Accounting Standards, or SFAS, No. 123(R), reflects a charge of approximately $0.6 million on a pre-tax basis in Q4 FY ’08, compared with a pretax charge of $0.2 million in Q4 FY ’07.

During the quarters ended September 30, 2008 and June 30, 2008, Multimedia capitalized $0.8 million and $0.9 million in costs related to the internal development of software for its gaming products and systems, respectively. Approximately $0.7 million of the capitalized costs in the September 2008 quarter were related to the development of new content, and approximately $0.1 million was for systems. For the three months ended September 30, 2008, capital expenditures were $15.3 million, all which was for gaming equipment and license purchases. Included in the gaming equipment purchases was $7.0 million related to gaming equipment and licenses purchased under the third party vendor agreements. The remaining equipment purchases relate primarily to the hardware associated with the development of our proprietary Class III products and maintenance capital expenditures.

Fiscal Quarter and Recent Monthly Installed Base Updates:

The table below sets forth Multimedia’s end-of-period installed player terminal base by product line or market for the fiscal quarters ended September 30, 2008, June 30, 2008, and September 30, 2007.

The table below sets forth Multimedia’s end-of-period, installed player terminal base by product line or market for the monthly periods ended November 30, 2008, October 31, 2008 and November 30, 2007.

The table below breaks out by product line Multimedia’s end-of-period, Oklahoma installed player terminal base for the fiscal quarters ended September 30, 2008, June 30, 2008, and September 30, 2007.

(1) "Total Compact Units” includes stand-alone units and server-based games.

The table below breaks out by product line Multimedia’s end-of-period, Oklahoma installed player terminal base at November 30, 2008, October 31, 2008 and November 30, 2007. As of November 30, 2008, Multimedia had placed approximately 807 proprietary stand-alone units at Oklahoma tribal gaming facilities.

(1) "Total Compact Units” includes stand-alone units and server-based games.

In the New York Lottery market, Multimedia provides the central determinant system for video lottery terminals ("VLTs”) at racetracks in the state for which it receives 0.75% of the net gaming win for all units installed on the system. As of November 30, 2008, there were approximately 13,000 VLTs installed in the state, consistent with the level reported at October 31, 2008.

The outstanding balance of Multimedia’s $150 million bank credit facility as of November 30, 2008 was $89 million compared with $87 million outstanding as of October 31, 2008.

Going forward, Multimedia will provide an update on its installed base, player terminal mix and the outstanding balance on its bank credit facility for the month ending December 31, 2008 in mid-January 2009. Following that, such updates will be released as part of the Company’s quarterly operating results as Multimedia believes such reporting will provide greater context for interested parties to assess current and long-term operating trends and the Company’s progress against strategic initiatives being implemented by the management team.

2008 Fourth Quarter Conference Call and Webcast

Multimedia Games, Inc. is hosting a conference call and webcast today, December 10, beginning at 9:00 a.m. ET (8:00 a.m. CT). Both the call and the webcast are open to the general public. The conference call number is 719-325-4845 (domestic or international). Please call five minutes prior to the presentation to ensure that you are connected.

Interested parties may also access the conference call live on the Internet at www.shareholder.com/mgam/medialist.cfm. Approximately two hours after the call has concluded, an archived version of the webcast will be available for replay at the same location or at www.multimediagames.com/Investors/Index.htm.

About the Company

Gaming technology developer and distributor, Multimedia Games, Inc., creates and supplies comprehensive systems, content and electronic gaming units for Class III and Class II Native American gaming markets, as well as for commercial casinos and charity and international bingo markets. Multimedia Games has more than 16,000 gaming units in operation domestically and internationally installed on revenue-sharing arrangements. The Company also supplies the central determinant system for approximately 13,000 video lottery terminals ("VLTs”) installed at racetracks in New York State. Multimedia is focused on the further development of new gaming systems and products for the markets it currently serves as well as for new domestic and international market opportunities. Additional information may be found at www.multimediagames.com.

Cautionary Language

This press release contains forward-looking statements based on Multimedia's current expectations and projections, which are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. The words "will”, "expect”, "project”, "new”, "anticipate”, "continue”, "intend”, "pursue”, "believe" or the negative or other variations thereof or comparable terminology as they relate to Multimedia and its products and markets are intended to identify such forward-looking statements. These forward-looking statements include, but are not limited to, references to: future actions; new projects; new strategies, new licensing approvals, new marketing and/or promotional plans; new initiatives; ongoing negotiations to extend the terms of agreements with customers; ability to offer products to customers on a "for sale” basis; and improved future performance, outcomes of contingencies and future financial results of either Multimedia or its customers. All forward looking statements are based on current expectations and projections of future events.

These forward-looking statements reflect the current views and assumptions of Multimedia, and are subject to various risks and uncertainties that cannot be predicted or qualified and could cause actual results in Multimedia’s performance to differ materially from those expressed or implied by such forward looking statements. These risks and uncertainties include, but are not limited to: (i) the risk that new management may have difficulty identifying or executing strategies to improve Multimedia’s operating results, and the risk that new strategies such as adoption of a "for sale” model may adversely impact longer-term revenue from our existing business model; (ii) the adverse effects of local and national economic, credit and capital market conditions on the economy in general, and the gaming and tribal gaming industries in particular; (iii) unfavorable changes in laws and/or regulatory requirements or unanticipated enforcement action against us our games or tribal customers; (iv) inability to secure or maintain required licenses or approvals; (v) unfavorable changes in the preferences of Multimedia’s customers or their end users; (vi) failure to secure favorable outcomes in pending litigation, and consequences to our business, operating results or financial condition (including without limitation possible adverse effects on compliance with the terms of our credit facility with Comerica Bank) of any significant adverse litigation outcome or settlement; (vii) software or hardware malfunction or fraudulent manipulation thereof; (viii) inability to successfully introduce games and/or systems into new markets; (ix) failure to attract and/or retain key employees; (x) failure to expand Multimedia’s installed base in Mexico or the failure to achieve improved performance of our games placed in the Mexican market; (xi) the removal of terminals from facilities of existing customers; (xii) increased tax rates or accounting standards; and/or (xiii) adverse decisions by courts, regulators, and/or governmental bodies. Other important risks and uncertainties that may affect the Company's business are detailed from time to time in the "Certain Risks” and "Risk Factors” sections of Multimedia’s Annual Report on Form 10-K and elsewhere in Multimedia’s filings with the Securities and Exchange Commission. Readers are cautioned that all forward-looking statements speak only to the facts and circumstances present as of the date of this press release.

Multimedia expressly disclaims: any implied operating results based on the historical data presented in this release; or any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

(1) Gaming revenue: "All other” includes recurring revenue from Class III Washington State, lottery, Mexico and Malta markets.

(1) Gaming revenue: "All other” includes recurring revenue from Class III Washington State, lottery, Mexico and Malta markets.

Reconciliation of U.S. GAAP Net income to EBITDA:

EBITDA is defined as earnings before interest, taxes, amortization, depreciation, and accretion of contract rights. Although EBITDA is not a measure of performance calculated in accordance with generally accepted accounting principles ("GAAP”), Multimedia believes the use of the non-GAAP financial measure EBITDA enhances an overall understanding of Multimedia’s past financial performance, and provides useful information to the investor because of its historical use by Multimedia as a performance measure, and the use of EBITDA by other companies in the gaming equipment sector as a measure of performance. However, investors should not consider this measure in isolation or as a substitute for net income, operating income, or any other measure for determining Multimedia’s operating performance that is calculated in accordance with GAAP. In addition, because EBITDA is not calculated in accordance with GAAP, it may not necessarily be comparable to similarly titled measures employed by other companies. A reconciliation of EBITDA to the most comparable GAAP financial measure, net income (loss), follows: