Attached files
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| 8-K - FORM 8-K - SHFL entertainment Inc. | shufflemaster_8k-083111.htm |
EXHIBIT 99.1
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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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Gavin Isaacs, CEO
Linster W. Fox, CFO
ph: (702) 897-7150
fax: (702) 270-5161
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SHUFFLE MASTER, INC. REPORTS RECORD NET INCOME AND ADJUSTED EBITDA IN THE THIRD QUARTER; REPORTS EPS OF $0.17
LAS VEGAS, Nevada, Wednesday, August 31, 2011 - Shuffle Master, Inc. (NASDAQ Global Select Market: SHFL) (“Shuffle Master” or the “Company”) today announced its results for the third quarter ended July 31, 2011, including record net income and Adjusted EBITDA.
“We achieved record EBITDA in the quarter through superior execution on three fronts: product innovation, continued commitment to grow recurring revenue, and disciplined expense management,” commented Gavin Isaacs, Chief Executive Officer of Shuffle Master. “Innovation has driven the success of the Equinox cabinet and this quarter was no exception with EGM sales of nearly $18 million. Recurring revenue growth of 11% highlights our continued commitment to create greater stability through product leasing. And finally, we remained focused on cost controls as part of an overall effort to drive operational excellence. However, our biggest accomplishment is how we have positioned Shuffle Master to take advantage of significant opportunities across the globe, providing an even stronger foundation for long-term, sustainable earnings growth."
1
THIRD QUARTER 2011 FINANCIAL HIGHLIGHTS
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♦
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Total revenue increased year-over-year by 13% to $58.3 million driven by strong Electronic Gaming Machines (“EGM”) performance and recurring revenue growth in Utility and Proprietary Table Games (“PTG”).
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♦
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Total recurring revenue was up 11% year-over-year and approximately 2% sequentially, and totaled $26.6 million, or 46% of total revenue.
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♦
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Gross margin improved year-over-year from 61% to 62% due to improved EGM margins driven by higher average sales prices and value engineering on the new Equinox™ cabinet.
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♦
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GAAP net income increased year-over-year by 56% to a record $9.1 million. Diluted earnings per share (“EPS”) was $0.17, as compared to $0.11 in the year-ago quarter.
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♦
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Adjusted EBITDA totaled $19.5 million, up 25% from $15.5 million in the year-ago quarter.
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♦
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Operating income margin increased 540 bps year-over-year to 22%.
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♦
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Free Cash Flow, a non-GAAP financial measure, was $14.0 million as compared to $7.7 million in the prior year period.
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♦
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Net debt (total debt, less cash and cash equivalents) was $38.6 million as compared to $56.3 million as of October 31, 2010. The Company paid approximately $5.0 million on its $200 million senior secured revolving credit facility during the third quarter.
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♦
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International revenue accounted for approximately 54% of total revenues in the third quarter; Australia represented 35% of total revenues.
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“I believe that our financial strength and flexibility, evidenced by our strong earnings and cash flow trends, enable us to continuously identify and successfully execute on opportunities that increase our value proposition to our customers and our shareholders,” stated Linster Fox, the Company’s Chief Financial Officer.
2
THIRD QUARTER 2011 BUSINESS SEGMENT HIGHLIGHTS
Utility
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♦
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Total Utility lease and service revenue was a record $12.4 million and grew 18% year-over-year driven by the Company’s strong emphasis on leasing, the accumulation of new lease placements in Macau during the quarter and in other parts of Asia in the prior year, and also as a result of continued i-Deal® upgrades.
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♦
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Total Utility revenue of $22.6 million grew 14% year-over-year due to the increased lease placements in the quarter, and to a lesser extent, an 8% increase in average sales prices as compared to the year-ago quarter.
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♦
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The Company achieved a record lease installed base of approximately 7,800 shufflers, an 18% increase in units year-over-year.
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Gross margin declined year-over-year from 60% to 57% due primarily to increased depreciation on newly installed leased shufflers and inventory write-downs on older products.
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Approximately 180 new MD2CR™ shufflers have been deployed; all units are leased.
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♦
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The total i-Deal® installed base grew to 3,407 units, a 66% increase year-over-year.
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Proprietary Table Games
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♦
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Total PTG lease, royalty and service revenue for the third quarter increased 11% year-over-year to a record $10.6 million, primarily due to increased placements of premium games, progressives and side bets in the U.S., namely, Three Card Poker®, Ultimate Texas Hold’ em®, Mississippi Stud®, Blackjack Switch®, Dragon Bonus® and Three Card Poker Progressive®. The quarter also included new leased placements of premium games and progressives in Singapore.
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Total PTG revenue remained relatively flat year-over-year at approximately $11.0 million, largely as a result of fewer sold units in the quarter.
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Gross margin decreased year-over-year from 81% to 79% primarily due to inventory write-downs on older products, and to a lesser extent, fewer conversions of leased to sold units in the quarter. Conversions of leased to sold units initially drive high profit margins.
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♦
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The progressive add-on installed base grew 231 units year-over-year to 785 units.
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3
Electronic Table Systems ("ETS")
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♦
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Total ETS lease, royalty and service revenue was $3.5 million, down 9% 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. Many of these units have been redeployed but are not generating average lease prices and margins equivalent to the removed units.
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♦
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Total ETS revenue for the quarter declined by 42% year-over-year to $6.8 million due to a significant decrease in sales revenue. The prior year included significant sales of Vegas Star® and Rapid Table Games® seats in Australia driven by favorable regulatory changes, as well as sales of Rapid Table Games® seats in Singapore.
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♦
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Gross margin decreased year-over-year from 54% to 47% due primarily to the overall decrease in revenue and the unfavorable margin effect from Table Master® removals in the U.S.
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Electronic Gaming Machines
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♦
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Total EGM revenue grew 96% year-over-year to approximately $18.0 million, a third quarter record. EGM performance was driven by sales of the new Equinox™ cabinet, which totaled approximately 800 units in the quarter.
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Gross margin increased 1,180 bps year-over-year to 64% 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 72% from the prior year period as a result of strong customer demand for the Equinox™ cabinet.
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Further detail and analysis of the Company's financial results for the third quarter ended July 31, 2011, is included in its Form 10-Q, which has been filed with the Securities and Exchange Commission today, August 31, 2011.
4
Webcast & Conference Call Information
Company executives will provide additional perspective on the Company’s third quarter results during a conference call on August 31, 2011 at 2:00 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 Third 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 and a Company slide presentation highlighting third quarter performance 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 October 1, 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 27059448. Highlights fromthe conference call can be accessed on the Company’s Investor Relations Twitter account, www.twitter.com/shfl_news, or by clicking the “For Investors” tab on the Shuffle Master website.
About Shuffle Master, Inc.
Shuffle Master, Inc. is a leading global gaming supplier committed to making gaming more fun for players and more profitable for operators through product innovation, and superior quality and service. The Company operates in legalized gaming markets across the globe and provides state-of-the-art, value-add products in five distinct categories: Utility products, which include automatic card shufflers and roulette chip sorters; Proprietary Table Games, which includes live games, side bets and progressives; Electronic Table Systems, which include various e-Table game platforms; Electronic Gaming Machines, which include video slot machines; and newly introduced i-Gaming, which features online versions of Shuffle Master’s table games, social gaming, and mobile applications. 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, or on Facebook, Twitter and YouTube.
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5
Forward Looking Statements
This release contains forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements included in this release other than statements that are purely historical are forward-looking statements. Forward-looking statements in this press release include, without limitation: (a) our belief that EBITDA and EPS are widely referenced financial measures in the financial markets and our belief that references to them are helpful to investors; (b) the Company’s ability to implement its strategic and operational plan successfully is subject to many factors, some of which are beyond the Company’s control; (c) the Company’s products that are developed may not achieve commercial success in the very competitive marketplace in which the Company operates; (d) the Company, is dependent on the success of its customers and risks that impact the Company’s customers, including a change in demand for gaming, may adversely impact the Company; and (e) the Company competes in a single industry, is subject to industry fluctuations and a continued downturn in general worldwide economic conditions, in the gaming industry or a reduction in demand for gaming may adversely affect the Company’s results of operations. Our beliefs, expectations, forecasts, objectives, anticipations, intentions and strategies regarding the future, including without limitation those concerning expected operating results, revenues and earnings are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from results contemplated by the forward-looking statements, including but not limited to: (a) inaccuracies in our assumptions as to the financial measures that investors use or the manner in which such financial measures may be used by such investors; (b) unanticipated inability to accomplish our innovation objectives or unexpected factors that limit or eliminate our ability to implement our strategic and operational plans; (c) or our inability to accurately gauge the commercial appeal of our products; and (d) unexpected changes in the market and economic conditions and reduced demand for or increased competition with our products. Additional information on 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 and are based on information available to us on the date hereof. We do not intend, and assume no obligation, to update any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this press release.
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6
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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Nine Months Ended
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July 31,
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July 31,
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2011
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2010
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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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$ | 24,785 | $ | 22,043 | $ | 72,625 | $ | 64,013 | ||||||||
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Product sales and service
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33,542 | 29,504 | 89,400 | 78,686 | ||||||||||||
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Total revenue
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58,327 | 51,547 | 162,025 | 142,699 | ||||||||||||
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Costs and expenses:
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Cost of leases and royalties
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8,970 | 6,932 | 24,506 | 20,394 | ||||||||||||
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Cost of sales and service
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13,135 | 12,948 | 36,035 | 33,492 | ||||||||||||
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Gross profit
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36,222 | 31,667 | 101,484 | 88,813 | ||||||||||||
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Selling, general and administrative
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16,816 | 17,514 | 50,077 | 47,573 | ||||||||||||
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Research and development
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6,695 | 5,719 | 19,494 | 15,925 | ||||||||||||
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Total costs and expenses
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45,616 | 43,113 | 130,112 | 117,384 | ||||||||||||
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Income from operations
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12,711 | 8,434 | 31,913 | 25,315 | ||||||||||||
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Other income (expense):
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Interest income
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177 | 158 | 429 | 450 | ||||||||||||
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Interest expense
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(659 | ) | (1,023 | ) | (2,031 | ) | (3,039 | ) | ||||||||
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Other, net
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457 | 385 | (504 | ) | 1,512 | |||||||||||
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Total other income (expense)
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(25 | ) | (480 | ) | (2,106 | ) | (1,077 | ) | ||||||||
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Income before income taxes
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12,686 | 7,954 | 29,807 | 24,238 | ||||||||||||
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Income tax provision
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3,560 | 2,112 | 7,931 | 6,832 | ||||||||||||
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Net income
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$ | 9,126 | $ | 5,842 | $ | 21,876 | $ | 17,406 | ||||||||
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Basic earnings per share:
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$ | 0.17 | $ | 0.11 | $ | 0.40 | $ | 0.33 | ||||||||
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Diluted earnings per share:
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$ | 0.17 | $ | 0.11 | $ | 0.40 | $ | 0.32 | ||||||||
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Weighted average shares outstanding:
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Basic
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54,446 | 53,272 | 54,317 | 53,246 | ||||||||||||
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Diluted
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55,123 | 54,351 | 55,009 | 54,178 | ||||||||||||
7
SHUFFLE MASTER, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
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July 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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$ | 30,191 | $ | 9,988 | ||||
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Accounts receivable, net of allowance for bad debts of $421 and $466
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39,867 | 41,176 | ||||||
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Investment in sales-type leases and notes receivable, net of allowance for bad debts of $57 and $71
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2,516 | 1,806 | ||||||
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Inventories
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32,386 | 27,351 | ||||||
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Prepaid income taxes
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3,295 | 7,086 | ||||||
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Deferred income taxes
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5,917 | 5,091 | ||||||
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Other current assets
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4,854 | 14,969 | ||||||
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Total current assets
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119,026 | 107,467 | ||||||
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Investment in sales-type leases and notes receivable, net of current portion and net of allowance for bad debts of $8 and $42
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325 | 1,104 | ||||||
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Products leased and held for lease, net
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34,110 | 31,975 | ||||||
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Property and equipment, net
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13,200 | 12,642 | ||||||
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Intangible assets, net
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69,491 | 64,144 | ||||||
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Goodwill
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86,357 | 75,932 | ||||||
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Deferred income taxes
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6,233 | 7,523 | ||||||
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Other assets
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2,963 | 3,173 | ||||||
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Total assets
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$ | 331,705 | $ | 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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$ | 2,881 | $ | 7,013 | ||||
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Accrued and other current liabilities
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19,230 | 34,762 | ||||||
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Deferred income taxes, current
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119 | 116 | ||||||
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Income tax payable
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4,042 | 74 | ||||||
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Customer deposits
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3,272 | 2,973 | ||||||
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Deferred revenue
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4,490 | 3,901 | ||||||
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Total current liabilities
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34,034 | 48,839 | ||||||
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Long-term debt
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68,770 | 66,262 | ||||||
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Other long-term liabilities
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2,366 | 2,641 | ||||||
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Deferred income taxes
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73 | 70 | ||||||
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Total liabilities
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105,243 | 117,812 | ||||||
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Commitments and contingencies
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Shareholders' equity:
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Common stock, $0.01 par value; 151,368 shares authorized; 54,156 and 53,650 shares issued and outstanding
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541 | 536 | ||||||
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Additional paid-in capital
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113,173 | 108,705 | ||||||
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Retained earnings
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71,124 | 49,248 | ||||||
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Accumulated other comprehensive income
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41,624 | 27,659 | ||||||
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Total shareholders' equity
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226,462 | 186,148 | ||||||
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Total liabilities and shareholders' equity
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$ | 331,705 | $ | 303,960 | ||||
8
SHUFFLE MASTER, INC.
SUPPLEMENTAL DATA
(Unaudited, in thousands)
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Three Months Ended
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Nine Months Ended
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July 31,
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July 31,
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2011
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2010
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2011
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2010
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Cash Flow Data:
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Cash provided by operating activities
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$ | 20,182 | $ | 11,113 | $ | 36,692 | $ | 38,634 | ||||||||
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Cash used in investing activities:
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Payments for products leased and held for lease
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$ | (4,345 | ) | $ | (3,567 | ) | $ | (11,608 | ) | $ | (16,706 | ) | ||||
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Purchases of property and equipment
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(682 | ) | (1,761 | ) | (2,683 | ) | (4,314 | ) | ||||||||
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Purchases of intangible assets
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(124 | ) | (127 | ) | (6,269 | ) | (2,298 | ) | ||||||||
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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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2,430 | 2,324 | 6,240 | 7,277 | ||||||||||||
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Proceeds from sale of assets
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10 | 95 | 86 | 133 | ||||||||||||
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Other
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(255 | ) | (225 | ) | (701 | ) | (1,039 | ) | ||||||||
| $ | (2,966 | ) | $ | (3,261 | ) | $ | (21,434 | ) | $ | (16,947 | ) | |||||
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Cash provided by (used in) financing activities
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$ | (4,438 | ) | $ | 850 | $ | 4,423 | $ | (2,810 | ) | ||||||
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Free cash flow (2)
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$ | 13,962 | $ | 7,652 | $ | 25,848 | $ | 17,107 | ||||||||
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Reconciliation of net income to Adjusted EBITDA:
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Net income
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$ | 9,126 | $ | 5,842 | $ | 21,876 | $ | 17,406 | ||||||||
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Other expense (income)
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25 | 480 | 2,106 | 1,077 | ||||||||||||
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Share-based compensation
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706 | 1,469 | 2,184 | 3,324 | ||||||||||||
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Income tax provision
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3,560 | 2,112 | 7,931 | 6,832 | ||||||||||||
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Depreciation and amortization
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6,075 | 5,634 | 17,951 | 17,584 | ||||||||||||
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Adjusted EBITDA (1)
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$ | 19,492 | $ | 15,537 | $ | 52,048 | $ | 46,223 | ||||||||
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Adjusted EBITDA margin
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33.4 | % | 30.1 | % | 32.1 | % | 32.4 | % | ||||||||
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1.
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Adjusted EBITDA is earnings before other expense (income), provision (benefit) 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 and widely used performance measure, 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 and to compare the operating performance 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 provided by (used in) 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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2.
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Free cash flow is Adjusted EBITDA less capital expenditures and cash paid for taxes.
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9
SHUFFLE MASTER, INC.
BUSINESS SEGMENT DATA
(Unaudited, in thousands)
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Three Months Ended
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Nine Months Ended
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July 31,
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July 31,
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2011
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2010
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2011
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2010
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Utility:
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Revenue
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$ | 22,575 | $ | 19,807 | $ | 59,108 | $ | 58,554 | ||||||||
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Gross profit
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12,852 | 11,803 | 35,284 | 35,394 | ||||||||||||
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Gross margin
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56.9 | % | 59.6 | % | 59.7 | % | 60.4 | % | ||||||||
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Proprietary Table Games:
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Revenue
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$ | 10,994 | $ | 10,949 | $ | 32,766 | $ | 30,154 | ||||||||
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Gross profit
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8,671 | 8,858 | 26,338 | 24,111 | ||||||||||||
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Gross margin
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78.9 | % | 80.9 | % | 80.4 | % | 80.0 | % | ||||||||
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Electronic Table Systems:
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Revenue
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$ | 6,793 | $ | 11,607 | $ | 26,721 | $ | 32,426 | ||||||||
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Gross profit
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3,197 | 6,212 | 12,684 | 17,963 | ||||||||||||
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Gross margin
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47.1 | % | 53.5 | % | 47.5 | % | 55.4 | % | ||||||||
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Electronic Gaming Machines:
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Revenue
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$ | 17,965 | $ | 9,184 | $ | 43,430 | $ | 21,565 | ||||||||
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Gross profit
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11,502 | 4,794 | 27,178 | 11,345 | ||||||||||||
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Gross margin
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64.0 | % | 52.2 | % | 62.6 | % | 52.6 | % | ||||||||
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Total:
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Revenue
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$ | 58,327 | $ | 51,547 | $ | 162,025 | $ | 142,699 | ||||||||
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Gross profit
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36,222 | 31,667 | 101,484 | 88,813 | ||||||||||||
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Gross margin
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62.1 | % | 61.4 | % | 62.6 | % | 62.2 | % | ||||||||
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Adjusted EBITDA
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as a percentage of total revenue
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33.4 | % | 30.1 | % | 32.1 | % | 32.4 | % | ||||||||
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Income from operations
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as a percentage of total revenue
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21.8 | % | 16.4 | % | 19.7 | % | 17.7 | % | ||||||||
10