Date of Report (Date of earliest event reported): March 10, 2011
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SHUFFLE MASTER, INC.
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(Exact name of registrant as specified in its charter)
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Minnesota
(State or Other Jurisdiction
of Incorporation or Organization)
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0-20820
(Commission File Number)
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41-1448495
(IRS Employer Identification No.)
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1106 Palms Airport Drive, Las Vegas, Nevada 89119
(Address of Principal Executive Offices)
Registrant’s Telephone Number, Including Area Code: (702) 897-7150
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99.1
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Press release dated March 10, 2011, regarding the Company’s financial results for its first quarter ended January 31, 2011.
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SHUFFLE MASTER, INC.
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(Registrant)
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Date: March 14, 2011
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/s/ DAVID B. LOPEZ
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David B. Lopez
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Interim Chief Executive Officer
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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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David Lopez, Interim CEO
Linster W. Fox, CFO
ph: (702) 897-7150
fax: (702) 270-5161
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¨
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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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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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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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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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Total EGM revenue grew 34% to $7.1 million compared to the prior year period driven primarily by the new Equinox™ cabinet, which represented 76% of placements in the quarter.
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Gross margin increased year-over-year from 51% to 62% primarily due to the increased Equinox placements driving higher average sales prices as well as more efficient production costs from a better designed cabinet.
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Total placements of EGM units grew 48% from the prior year period driven largely by new Equinox placements.
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Three Months Ended
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January 31,
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2011
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2010
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Revenue:
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Product leases and royalties
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$ | 23,576 | $ | 20,493 | ||||
Product sales and service
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20,239 | 19,843 | ||||||
Total revenue
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43,815 | 40,336 | ||||||
Costs and expenses:
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Cost of leases and royalties
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7,182 | 6,304 | ||||||
Cost of sales and service
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7,465 | 9,185 | ||||||
Gross profit
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29,168 | 24,847 | ||||||
Selling, general and administrative
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16,201 | 14,357 | ||||||
Research and development
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5,916 | 4,962 | ||||||
Total costs and expenses
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36,764 | 34,808 | ||||||
Income from operations
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7,051 | 5,528 | ||||||
Other income (expense):
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Interest income
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126 | 138 | ||||||
Interest expense
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(701 | ) | (1,056 | ) | ||||
Other, net
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157 | 654 | ||||||
Total other income (expense)
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(418 | ) | (264 | ) | ||||
Income from operations before tax
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6,633 | 5,264 | ||||||
Income tax provision
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1,829 | 1,585 | ||||||
Net income
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$ | 4,804 | $ | 3,679 | ||||
Basic and diluted earnings per share:
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$ | 0.09 | $ | 0.07 | ||||
Weighted average shares outstanding:
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Basic
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54,132 | 53,216 | ||||||
Diluted
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54,895 | 54,056 |
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 | ||||
Accounts receivable, net of allowance for bad debts of $502 and $466
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28,737 | 41,176 | ||||||
Investment in sales-type leases and notes receivable, net of allowance
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for bad debts of $108 and $113
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2,190 | 1,806 | ||||||
Inventories
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32,234 | 27,351 | ||||||
Prepaid income taxes
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7,041 | 7,086 | ||||||
Deferred income taxes
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5,075 | 5,091 | ||||||
Other current assets
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14,258 | 14,969 | ||||||
Total current assets
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107,634 | 107,467 | ||||||
Investment in sales-type leases and notes receivable, net of current portion
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817 | 1,104 | ||||||
Products leased and held for lease, net
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32,911 | 31,975 | ||||||
Property and equipment, net
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13,006 | 12,642 | ||||||
Intangible assets, net
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69,701 | 64,144 | ||||||
Goodwill
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81,052 | 75,932 | ||||||
Deferred income taxes
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6,776 | 7,523 | ||||||
Other assets
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3,078 | 3,173 | ||||||
Total assets
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$ | 314,975 | $ | 303,960 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$ | 5,396 | $ | 7,013 | ||||
Accrued liabilities and other current liabilities
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24,080 | 34,762 | ||||||
Deferred income taxes, current
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115 | 116 | ||||||
Customer deposits
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3,204 | 2,973 | ||||||
Income tax payable
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184 | 74 | ||||||
Deferred revenue
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5,244 | 3,901 | ||||||
Total current liabilities
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38,223 | 48,839 | ||||||
Long-term debt
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79,781 | 66,262 | ||||||
Other long-term liabilities
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2,512 | 2,641 | ||||||
Deferred income taxes
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69 | 70 | ||||||
Total liabilities
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120,585 | 117,812 | ||||||
Commitments and Contingencies
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Shareholders' equity:
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Common stock, $0.01 par value; 151,368 shares authorized;
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54,013 and 53,650 shares issued and outstanding
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540 | 536 | ||||||
Additional paid-in capital
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111,319 | 108,705 | ||||||
Retained earnings
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54,052 | 49,248 | ||||||
Accumulated other comprehensive income
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28,479 | 27,659 | ||||||
Total shareholders' equity
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194,390 | 186,148 | ||||||
Total liabilities and shareholders' equity
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$ | 314,975 | $ | 303,960 |
Three Months Ended
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January 31,
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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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$ | 8,287 | $ | 11,839 | ||||
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 | ) | ||
Purchases of property and equipment
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(930 | ) | (729 | ) | ||||
Purchases of intangible assets
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(4,910 | ) | (1,576 | ) | ||||
Acquisition of business
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(6,499 | ) | - | |||||
Proceeds from sale of leased assets
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2,086 | 1,796 | ||||||
Proceeds from sale of assets
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47 | 50 | ||||||
Other
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(221 | ) | (268 | ) | ||||
$ | (14,704 | ) | $ | (5,753 | ) | |||
Cash provided by financing activities
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$ | 14,524 | $ | 2,830 | ||||
Free cash flow (2)
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$ | (3,481 | ) | $ | 4,889 | |||
Reconciliation of income from continuing operations to Adjusted EBITDA:
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Net income
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$ | 4,804 | $ | 3,679 | ||||
Other expense (income)
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418 | 264 | ||||||
Share-based compensation
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735 | 1,008 | ||||||
Income tax provision
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1,829 | 1,585 | ||||||
Depreciation and amortization
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5,761 | 6,125 | ||||||
Adjusted EBITDA (1)
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$ | 13,547 | $ | 12,661 | ||||
Adjusted EBITDA margin
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30.9 | % | 31.4 | % |
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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2.
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Free cash flow is Adjusted EBITDA less capital expenditures and cash paid for taxes.
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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 | ||||
Gross profit
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10,848 | 10,705 | ||||||
Gross margin
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62.5 | % | 60.8 | % | ||||
Proprietary Table Games:
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Revenue
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$ | 11,226 | $ | 9,035 | ||||
Gross profit
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9,262 | 7,537 | ||||||
Gross margin
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82.5 | % | 83.4 | % | ||||
Electronic Table Systems:
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Revenue
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$ | 8,131 | $ | 8,375 | ||||
Gross profit
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4,650 | 3,919 | ||||||
Gross margin
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57.2 | % | 46.8 | % | ||||
Electronic Gaming Machines:
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Revenue
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$ | 7,097 | $ | 5,310 | ||||
Gross profit
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4,408 | 2,686 | ||||||
Gross margin
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62.1 | % | 50.6 | % | ||||
Total:
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Revenue
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$ | 43,815 | $ | 40,336 | ||||
Gross profit
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29,168 | 24,847 | ||||||
Gross margin
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66.6 | % | 61.6 | % | ||||
Adjusted EBITDA
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as a percentage of total revenue
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30.9 | % | 31.4 | % | ||||
Income from operations
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as a percentage of total revenue
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16.1 | % | 13.7 | % |