Attached files
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| 8-K - CURRENT REPORT - SHFL entertainment Inc. | shuffle_8k-031011.htm |
Exhibit 99.1
 SHUFFLE MASTER, INC.
1106 Palms Airport Dr.
Las Vegas, NV 89119
www.shufflemaster.com
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News Release
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FOR FURTHER INFORMATION CONTACT:
Julia Boguslawski
Investor Relations/ Corporate Communications
ph: (702) 897-7150
fax: (702) 270-5161
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David Lopez, Interim CEO
Linster W. Fox, CFO
ph: (702) 897-7150
fax: (702) 270-5161
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Shuffle Master, Inc. Reports First Quarter 2011 Results
Shuffle Master Reports First Quarter EPS of $0.09 and Revenue of $43.8 Million
LAS VEGAS, Nevada, Thursday, March 10, 2011 - Shuffle Master, Inc. (NASDAQ Global Select Market: SHFL) (“Shuffle Master” or the “Company”) today announced its results for the first quarter ended January 31, 2011.
"I am pleased with the performance in each of our product segments, particularly our strong growth in shuffler leases and significant margin improvement in our slot machine business,” said David Lopez, Interim Chief Executive Officer and Chief Operating Officer. “Our commitment to aggressively grow our lease base was evident in the first quarter with recurring revenue improving 13% year-over-year and comprising approximately 58% of total revenue and 62% of gross profit. Total revenue of approximately $44 million reinforces the fact that our customers are deriving significant value from our products and solutions.”
First Quarter 2011 Financial Highlights
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Total revenue increased year-over-year by 9% to $43.8 million, a first quarter record, due to strong recurring revenue growth in nearly all product segments.
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Total lease, royalty and service revenue was up 13% year-over-year and approximately 3% sequentially, and totaled $25.4 million, or 58% of total revenue as compared to 56% of total revenue in the year-ago quarter.
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GAAP net income grew 31% year-over-year to $4.8 million. Diluted earnings per share ("EPS") grew 29% year-over-year to $0.09.
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Gross margin increased 500 basis points to approximately 67% due primarily to improved segment margin performance and reduced amortization expense in the Utility, Electronic Table Systems (“ETS”), and Electronic Gaming Machine (“EGM”) segments.
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Selling, general and administrative ("SG&A") expenses increased $1.8 million year-over-year from $14.4 million to $16.2 million for the quarter due primarily to a $1.0 million increase in sales and profit-driven compensation expense in the United States, Australia and Macau due to improved revenue and profitability, and greater depreciation expense of approximately $0.4 million primarily due to information technology infrastructure.
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Adjusted EBITDA totaled $13.5 million, up 7% from $12.7 million in the year-ago quarter.
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Net debt (total debt, less cash and cash equivalents) was $61.7 million as compared to $56.3 million as of October 31, 2010.
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"We remain confident about the strength of our strategy and the opportunities in our industry. We continue to leverage our diverse product portfolio and customer relationships to pursue many significant long-term growth opportunities including those in Asia, Latin America, Australia and the U.S.,” stated Linster Fox, Chief Financial Officer. “Our strong balance sheet and financial disciplines have enabled us to execute our core strategy through investment in our recurring revenue model, global intellectual property and R&D.”
First Quarter 2011 Business Segment Highlights
Utility
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Total Utility lease and service revenue of $11.6 million grew 20% year-over-year driven by the Company’s aggressive emphasis on leasing, and partly as a result of the accumulation of new lease placements in Asia.
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Total Utility revenue of $17.4 million declined slightly as compared to $17.6 million year-over-year due to a decrease in the number of sold units, in line with the Company’s strategic focus on leasing versus sales.
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The Company achieved a record lease installed base of 7,344 shufflers, a 28% increase in units year-over-year. Approximately 410 new leases were recorded in the first quarter.
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Gross margin increased year-over-year from 61% to 63% due primarily to strong recurring revenue growth and approximately $0.5 million in reduced amortization.
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The total i-Deal® installed base grew to approximately 3,100 units, of which 63% are units on lease. Approximately 540 of these units, or 17% of the total installed base, were placed in the first quarter.
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Proprietary Table Games ("PTG")
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Total PTG lease, royalty and service revenue for the first quarter increased 16% year-over-year to a record $10.3 million primarily due to increased placements of Ultimate Texas Hold’em® and Three Card Poker Progressive™ in domestic markets.
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Total PTG revenue increased by 24% year-over-year to $11.2 million largely as a result of strong recurring revenue growth.
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Gross margin remained relatively flat year-over-year at approximately 83%.
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The progressive add-on installed base totaled 693 units, up 244 units from the year-ago quarter, and achieved a record number of net placements in the quarter. Fortune Pai Gow Poker Progressive® and Three Card Poker Progressive™ comprised approximately 70% of all progressive add-ons.
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Electronic Table Systems ("ETS")
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Total ETS lease, royalty and service revenue was $3.3 million, down 11% from the year-ago quarter, due to decreased revenue resulting from removals of Table Master® seats in Pennsylvania and Delaware in the prior year as those markets transitioned to live gaming.
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Total ETS revenue for the quarter declined by 3% to $8.1 million as compared to $8.4 million in the prior period as a result of decreased lease revenue from Table Master.
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Gross margin increased year-over-year from 47% to 57% due primarily to significant improvement in Vegas Star® margins as a result of improved average sales prices, reductions in material costs, and a reduction of approximately $0.5 million in amortization expense.
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Electronic Gaming Machines ("EGM")
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Total EGM revenue grew 34% to $7.1 million compared to the prior year period driven primarily by the new Equinox™ cabinet, which represented 76% of placements in the quarter.
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Gross margin increased year-over-year from 51% to 62% primarily due to the increased Equinox placements driving higher average sales prices as well as more efficient production costs from a better designed cabinet.
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Total placements of EGM units grew 48% from the prior year period driven largely by new Equinox placements.
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Further detail and analysis of the Company's financial results for the first quarter ended January 31, 2011, is included in its Form 10-Q, which has been filed with the Securities and Exchange Commission today, March 10, 2011.
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Webcast & Conference Call Information
Company executives will provide additional perspective on the Company’s first quarter results during a conference call on March 10, 2011 at 2 pm Pacific Time. Those interested in participating in the call may do so by dialing (201) 689-8263 or toll-free (877) 407-0792 and requesting Shuffle Master’s First Quarter 2011 Conference Call. A hardcopy of the presentation materials may be printed from the Shuffle Master, Inc. website, www.shufflemaster.com, shortly before the start of the call. In conjunction with the call, a live audio webcast may be accessed at www.shufflemaster.com. In order to access the live audio webcast please allow at least 15 minutes before the start of the call to visit Shuffle Master’s website and download/install any necessary audio/video software for the webcast. Immediately following the call and through April 10, 2011, a playback can be heard 24-hours a day by dialing (858) 384-5517 or toll-free (877) 870-5176; account number is 3055; conference I.D. number is 368199.
About Shuffle Master, Inc.
Shuffle Master, Inc. is a gaming supply company specializing in providing its casino customers with improved profitability, productivity and security, as well as popular and cutting-edge gaming entertainment content, through value-add products in four distinct categories: Utility products which include automatic card shuffler, roulette chip sorters and intelligent table system modules, Proprietary Table Games which include live games, side bets and progressives, Electronic Table Systems which include various e-Table game platforms and Electronic Gaming Machines which include traditional video slot machines for select markets. The Company is included in the S&P SmallCap 600 Index. Information about the Company and its products can be found on the Internet at www.shufflemaster.com.
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Forward Looking Statements
This release contains forward-looking statements that are based on management’s current beliefs and expectations about future events, as well as on assumptions made by and information available to management. The Company considers such statements to be made under the safe harbor created by the federal securities laws to which it is subject, and assumes no obligation to update or supplement such statements. Forward-looking statements reflect and are subject to risks and uncertainties that could cause actual results to differ materially from expectations. Risk factors that could cause actual results to differ materially from expectations include, but are not limited to, the following: the Company’s intellectual property or products may be infringed, misappropriated, invalid, or unenforceable, or subject to claims of infringement, invalidity or unenforceability, or insufficient to cover competitors' products; the gaming industry is highly regulated and the Company must adhere to various regulations and maintain its licenses to continue its operations; the Company’s ability to implement its ongoing strategic plan successfully is subject to many factors, some of which are beyond the Company’s control; litigation may subject the Company to significant legal expenses, damages and liability; the Company’s products currently in development may not achieve commercial success; the Company competes in a single industry, and its business would suffer if its products become obsolete or demand for them decreases; any disruption in the Company’s manufacturing processes or significant increases in manufacturing costs could adversely affect its business; the products in each of the Company’s segments may experience losses due to technical difficulties or fraudulent activities; the Company operates in a very competitive business environment; the Company is dependent on the success of its customers and is subject to industry fluctuations; risks that impact the Company’s customers may impact the Company; certain market risks may affect the Company’s business, results of operations and prospects; a continued downturn in general worldwide economic conditions or in the gaming industry or a reduction in demand for gaming may adversely affect the Company’s results of operations; the Company’s domestic and global growth and ability to access capital markets are subject to a number of economic risks; economic, political, legal and other risks associated with the Company’s international sales and operations could adversely affect its operating results; changes in gaming regulations or laws; the Company is exposed to foreign currency risk; the Company could face considerable business and financial risk in implementing acquisitions; if the Company’s products contain defects, its reputation could be harmed and its results of operations adversely affected; the Company may be unable to adequately comply with public reporting requirements; the Company’s continued compliance with its financial covenants in its senior secured credit facility is subject to many factors, some of which are beyond the Company’s control; the restrictive covenants in the agreement governing the Company’s senior secured credit facility may limit its ability to finance future operations or capital needs or engage in other business activities that may be in its interest; and the Company’s business is subject to quarterly fluctuation. Additional information on these and other risk factors that could potentially affect the Company’s financial results may be found in documents filed by the Company with the Securities and Exchange Commission, including the Company’s current reports on Form 8-K, quarterly reports on Form 10-Q and its latest annual report on Form 10-K.
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5
SHUFFLE MASTER, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended
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January 31,
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2011
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2010
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Revenue:
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Product leases and royalties
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$ | 23,576 | $ | 20,493 | ||||
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Product sales and service
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20,239 | 19,843 | ||||||
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Total revenue
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43,815 | 40,336 | ||||||
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Costs and expenses:
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Cost of leases and royalties
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7,182 | 6,304 | ||||||
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Cost of sales and service
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7,465 | 9,185 | ||||||
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Gross profit
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29,168 | 24,847 | ||||||
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Selling, general and administrative
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16,201 | 14,357 | ||||||
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Research and development
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5,916 | 4,962 | ||||||
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Total costs and expenses
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36,764 | 34,808 | ||||||
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Income from operations
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7,051 | 5,528 | ||||||
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Other income (expense):
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Interest income
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126 | 138 | ||||||
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Interest expense
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(701 | ) | (1,056 | ) | ||||
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Other, net
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157 | 654 | ||||||
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Total other income (expense)
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(418 | ) | (264 | ) | ||||
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Income from operations before tax
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6,633 | 5,264 | ||||||
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Income tax provision
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1,829 | 1,585 | ||||||
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Net income
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$ | 4,804 | $ | 3,679 | ||||
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Basic and diluted earnings per share:
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$ | 0.09 | $ | 0.07 | ||||
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Weighted average shares outstanding:
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Basic
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54,132 | 53,216 | ||||||
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Diluted
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54,895 | 54,056 | ||||||
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SHUFFLE MASTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
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January 31,
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October 31,
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2011
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2010
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 18,099 | $ | 9,988 | ||||
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Accounts receivable, net of allowance for bad debts of $502 and $466
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28,737 | 41,176 | ||||||
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Investment in sales-type leases and notes receivable, net of allowance
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for bad debts of $108 and $113
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2,190 | 1,806 | ||||||
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Inventories
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32,234 | 27,351 | ||||||
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Prepaid income taxes
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7,041 | 7,086 | ||||||
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Deferred income taxes
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5,075 | 5,091 | ||||||
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Other current assets
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14,258 | 14,969 | ||||||
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Total current assets
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107,634 | 107,467 | ||||||
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Investment in sales-type leases and notes receivable, net of current portion
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817 | 1,104 | ||||||
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Products leased and held for lease, net
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32,911 | 31,975 | ||||||
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Property and equipment, net
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13,006 | 12,642 | ||||||
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Intangible assets, net
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69,701 | 64,144 | ||||||
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Goodwill
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81,052 | 75,932 | ||||||
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Deferred income taxes
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6,776 | 7,523 | ||||||
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Other assets
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3,078 | 3,173 | ||||||
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Total assets
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$ | 314,975 | $ | 303,960 | ||||
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$ | 5,396 | $ | 7,013 | ||||
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Accrued liabilities and other current liabilities
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24,080 | 34,762 | ||||||
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Deferred income taxes, current
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115 | 116 | ||||||
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Customer deposits
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3,204 | 2,973 | ||||||
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Income tax payable
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184 | 74 | ||||||
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Deferred revenue
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5,244 | 3,901 | ||||||
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Total current liabilities
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38,223 | 48,839 | ||||||
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Long-term debt
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79,781 | 66,262 | ||||||
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Other long-term liabilities
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2,512 | 2,641 | ||||||
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Deferred income taxes
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69 | 70 | ||||||
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Total liabilities
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120,585 | 117,812 | ||||||
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Commitments and Contingencies
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Shareholders' equity:
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Common stock, $0.01 par value; 151,368 shares authorized;
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54,013 and 53,650 shares issued and outstanding
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540 | 536 | ||||||
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Additional paid-in capital
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111,319 | 108,705 | ||||||
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Retained earnings
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54,052 | 49,248 | ||||||
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Accumulated other comprehensive income
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28,479 | 27,659 | ||||||
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Total shareholders' equity
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194,390 | 186,148 | ||||||
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Total liabilities and shareholders' equity
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$ | 314,975 | $ | 303,960 | ||||
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SHUFFLE MASTER, INC.
SUPPLEMENTAL DATA
(Unaudited, in thousands)
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Three Months Ended
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January 31,
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2011
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Cash Flow Data:
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Cash provided by operating activities
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$ | 8,287 | $ | 11,839 | ||||
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Cash used by investing activities:
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Payments for products leased and held for lease
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$ | (4,277 | ) | $ | (5,026 | ) | ||
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Purchases of property and equipment
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(930 | ) | (729 | ) | ||||
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Purchases of intangible assets
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(4,910 | ) | (1,576 | ) | ||||
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Acquisition of business
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(6,499 | ) | - | |||||
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Proceeds from sale of leased assets
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2,086 | 1,796 | ||||||
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Proceeds from sale of assets
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47 | 50 | ||||||
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Other
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(221 | ) | (268 | ) | ||||
| $ | (14,704 | ) | $ | (5,753 | ) | |||
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Cash provided by financing activities
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$ | 14,524 | $ | 2,830 | ||||
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Free cash flow (2)
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$ | (3,481 | ) | $ | 4,889 | |||
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Reconciliation of income from continuing operations to Adjusted EBITDA:
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Net income
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$ | 4,804 | $ | 3,679 | ||||
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Other expense (income)
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418 | 264 | ||||||
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Share-based compensation
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735 | 1,008 | ||||||
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Income tax provision
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1,829 | 1,585 | ||||||
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Depreciation and amortization
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5,761 | 6,125 | ||||||
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Adjusted EBITDA (1)
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$ | 13,547 | $ | 12,661 | ||||
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Adjusted EBITDA margin
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30.9 | % | 31.4 | % | ||||
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1.
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Adjusted EBITDA is earnings before other expense (income), provision for income taxes, depreciation and amortization expense, and share-based compensation. Adjusted EBITDA is presented exclusively as a supplemental disclosure because management believes that it is a useful performance measure and is widely used to measure performance, and as a basis for valuation, within the Company’s industry. Adjusted EBITDA is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparison. Management uses Adjusted EBITDA as a measure of the operating performance of its segments and to compare the operating performance of its segments with those of its competitors. The Company also presents Adjusted EBITDA because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements. Gaming equipment suppliers have historically reported Adjusted EBITDA as a supplement to financial measures in accordance with U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA should not be considered as an alternative to operating income (loss), as an indicator of the Company’s performance, as an alternate to cash flows from operating activities, as a measure of liquidity, or as an alternative to any other measure determined in accordance with GAAP. Unlike net income (loss), Adjusted EBITDA does not include depreciation and amortization or interest expense and therefore does not reflect current or future capital expenditures or the cost of capital. The Company compensates for these limitations by using Adjusted EBITDA as only one of several comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance. Such GAAP measurements include operating income (loss), net income (loss), cash flows from operations and cash flow data. The Company has significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in Adjusted EBITDA.
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Free cash flow is Adjusted EBITDA less capital expenditures and cash paid for taxes.
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SHUFFLE MASTER, INC.
BUSINESS SEGMENT DATA
(Unaudited, in thousands)
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Three Months Ended
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January 31,
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2011
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2010
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Utility:
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Revenue
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$ | 17,361 | $ | 17,616 | ||||
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Gross profit
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10,848 | 10,705 | ||||||
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Gross margin
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62.5 | % | 60.8 | % | ||||
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Proprietary Table Games:
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Revenue
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$ | 11,226 | $ | 9,035 | ||||
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Gross profit
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9,262 | 7,537 | ||||||
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Gross margin
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82.5 | % | 83.4 | % | ||||
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Electronic Table Systems:
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Revenue
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$ | 8,131 | $ | 8,375 | ||||
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Gross profit
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4,650 | 3,919 | ||||||
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Gross margin
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57.2 | % | 46.8 | % | ||||
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Electronic Gaming Machines:
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Revenue
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$ | 7,097 | $ | 5,310 | ||||
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Gross profit
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4,408 | 2,686 | ||||||
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Gross margin
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62.1 | % | 50.6 | % | ||||
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Total:
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Revenue
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$ | 43,815 | $ | 40,336 | ||||
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Gross profit
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29,168 | 24,847 | ||||||
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Gross margin
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66.6 | % | 61.6 | % | ||||
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Adjusted EBITDA
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as a percentage of total revenue
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30.9 | % | 31.4 | % | ||||
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Income from operations
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as a percentage of total revenue
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16.1 | % | 13.7 | % | ||||
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