Date of Report (Date of earliest event reported): June 8, 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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99.1
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Press release dated June 8, 2011, regarding the Company’s financial results for its second quarter ended April 30, 2011.
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SHUFFLE MASTER, INC.
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(Registrant)
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Date: June 13, 2011
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/s/ LINSTER W. FOX
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Linster W. Fox
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Chief Financial 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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Gavin Isaacs, CEO
Linster W. Fox, CFO
ph: (702) 897-7150
fax: (702) 270-5161
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u
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Total revenue increased year-over-year by 18% to $59.9 million, a quarterly record, due to strong recurring revenue growth in Utility and Proprietary Table Games, and significant sales of Electronic Gaming Machines.
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u
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Total lease, royalty and service revenue was up 12% year-over-year and approximately 3% sequentially, and totaled $26.1 million, or 44% of total revenue.
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u
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GAAP net income continued to be strong and remained consistent at $7.9 million. Diluted earnings per share (“EPS”) was $0.14, as compared to $0.15 in the year-ago quarter.
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u
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Selling, general and administrative ("SG&A") expenses increased $1.4 million year-over-year from $15.7 million to $17.1 million for the quarter due primarily to a $0.7 million increase in trademark, copyright and patent expenses, and an increase in depreciation expense of approximately $0.3 million driven by improvements to the Company’s IT network infrastructure. As a percentage of total revenue, SG&A decreased by 240 bps to 29%.
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u
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Adjusted EBITDA totaled $19.0 million, up 5% from $18.0 million in the year-ago quarter.
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Free Cash Flow, a non-GAAP financial measure, was $15.4 million as compared to $4.6 million in the prior year period.
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Net debt (total debt, less cash and cash equivalents) was $56.8 million as compared to $56.3 million as of October 31, 2010. The Company paid approximately $6.0 million on its $200 million senior secured revolving credit facility during the second quarter.
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u
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International revenue accounted for approximately 59% of total revenues in the second quarter; Australia represented 41%.
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Total Utility lease and service revenue of $12.0 million grew 19% year-over-year driven by the Company’s aggressive emphasis on leasing, the accumulation of new lease placements in Asia during the prior year, and to a lesser extent, continued i-Deal® upgrades.
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Total Utility revenue of $19.2 million declined 9% 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. The prior year period also included a large sale of shufflers to Singapore.
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The Company achieved a record lease installed base of approximately 7,400 shufflers, a 22% increase in units year-over-year.
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Gross margin declined slightly year-over-year from 61% to 60% due primarily to the overall decrease in total revenue.
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The total i-Deal installed base grew to 3,217 units, of which 63% are units on lease.
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Total PTG lease, royalty and service revenue for the second quarter increased 12% year-over-year to a record $10.4 million, primarily due to increased placements of premium games, progressives and side bets, namely, Ultimate Texas Hold’ em®, Mississippi Stud®, Blackjack Switch®, Dragon Bonus® and Three Card Poker Progressive™, in domestic markets.
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Total PTG revenue increased by 4% year-over-year to $10.6 million, largely as a result of strong recurring revenue growth.
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Gross margin increased 380 bps year-over-year to approximately 80%, primarily due to the increase in total revenue and a $0.5 million write-off of certain intangible licenses and related equipment in the prior year.
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Including approximately 200 trial units, the progressive add-on installed base totaled over 900 units. Three Card Poker Progressive™ and Fortune Pai Gow Poker Progressive® comprised approximately 70% of all progressive add-ons.
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Total ETS lease, royalty and service revenue was approximately $3.7 million, down 10% 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 5% to $11.8 million as compared to $12.4 million in the prior period due to a 9% decrease in sales revenue. The prior year included significant sales revenue from Vegas Star® and Rapid Table Games® placements in Australia, as well as sales of Table Master seats in Florida.
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Gross margin decreased year-over-year from 63% to 41% 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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Total EGM revenue grew over $11 million year-over-year to $18.4 million, a second quarter record. EGM performance was driven almost entirely by the new Equinox™ cabinet, which totaled 920 units in the quarter.
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Gross margin increased 660 bps year-over-year to 61% due to the increased Equinox™ placements driving higher average sales prices as well as more efficient production costs from a better designed cabinet.
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Total placements of EGM units grew 162% from the prior year period as a result of strong customer demand for the Equinox™ cabinet.
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Three Months Ended
April 30,
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Six Months Ended
April 30,
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2011
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2010
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2011
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2010
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Revenue:
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Product leases and royalties
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$ | 24,264 | $ | 21,477 | $ | 47,840 | $ | 41,970 | ||||||||
Product sales and service
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35,619 | 29,339 | 55,858 | 49,182 | ||||||||||||
Total revenue
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59,883 | 50,816 | 103,698 | 91,152 | ||||||||||||
Costs and expenses:
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Cost of leases and royalties
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8,354 | 7,158 | 15,536 | 13,462 | ||||||||||||
Cost of sales and service
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15,435 | 11,359 | 22,900 | 20,544 | ||||||||||||
Gross profit
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36,094 | 32,299 | 65,262 | 57,146 | ||||||||||||
Selling, general and administrative
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17,060 | 15,702 | 33,261 | 30,059 | ||||||||||||
Research and development
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6,883 | 5,244 | 12,799 | 10,206 | ||||||||||||
Total costs and expenses
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47,732 | 39,463 | 84,496 | 74,271 | ||||||||||||
Income from operations
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12,151 | 11,353 | 19,202 | 16,881 | ||||||||||||
Other income (expense):
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Interest income
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126 | 154 | 252 | 292 | ||||||||||||
Interest expense
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(671 | ) | (960 | ) | (1,372 | ) | (2,016 | ) | ||||||||
Other, net
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(1,118 | ) | 473 | (961 | ) | 1,127 | ||||||||||
Total other income (expense)
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(1,663 | ) | (333 | ) | (2,081 | ) | (597 | ) | ||||||||
Income before income taxes
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10,488 | 11,020 | 17,121 | 16,284 | ||||||||||||
Income tax provision
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2,542 | 3,135 | 4,371 | 4,720 | ||||||||||||
Net income
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$ | 7,946 | $ | 7,885 | $ | 12,750 | $ | 11,564 | ||||||||
Basic earnings per share:
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$ | 0.15 | $ | 0.15 | $ | 0.24 | $ | 0.22 | ||||||||
Diluted earnings per share:
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$ | 0.14 | $ | 0.15 | $ | 0.23 | $ | 0.21 | ||||||||
Weighted average shares outstanding:
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Basic
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54,374 | 53,251 | 54,253 | 53,234 | ||||||||||||
Diluted
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55,010 | 54,126 | 54,953 | 54,092 |
April 30,
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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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$ | 16,983 | $ | 9,988 | ||||
Accounts receivable, net of allowance for bad debts of $521 and $466
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43,538 | 41,176 | ||||||
Investment in sales-type leases and notes receivable, net of allowance for bad debts of $56 and $71
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2,289 | 1,806 | ||||||
Inventories
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33,549 | 27,351 | ||||||
Prepaid income taxes
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4,802 | 7,086 | ||||||
Deferred income taxes
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5,316 | 5,091 | ||||||
Other current assets
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5,565 | 14,969 | ||||||
Total current assets
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112,042 | 107,467 | ||||||
Investment in sales-type leases and notes receivable, net of current portion and net of allowance for bad debts of $14 and $42
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564 | 1,104 | ||||||
Products leased and held for lease, net
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33,097 | 31,975 | ||||||
Property and equipment, net
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13,795 | 12,642 | ||||||
Intangible assets, net
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72,069 | 64,144 | ||||||
Goodwill
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87,517 | 75,932 | ||||||
Deferred income taxes
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6,809 | 7,523 | ||||||
Other assets
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2,999 | 3,173 | ||||||
Total assets
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$ | 328,892 | $ | 303,960 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$ | 5,609 | $ | 7,013 | ||||
Accrued and other current liabilities
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18,721 | 34,762 | ||||||
Deferred income taxes, current
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124 | 116 | ||||||
Income tax payable
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2,306 | 74 | ||||||
Customer deposits
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3,273 | 2,973 | ||||||
Deferred revenue
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4,314 | 3,901 | ||||||
Total current liabilities
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34,347 | 48,839 | ||||||
Long-term debt
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73,776 | 66,262 | ||||||
Other long-term liabilities
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2,505 | 2,641 | ||||||
Deferred income taxes
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75 | 70 | ||||||
Total liabilities
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110,703 | 117,812 | ||||||
Commitments and contingencies
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Shareholders' equity:
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Common stock, $0.01 par value; 151,368 shares authorized; 54,061 and 53,650 shares issued and outstanding | 541 | 536 | ||||||
Additional paid-in capital
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111,890 | 108,705 | ||||||
Retained earnings
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61,998 | 49,248 | ||||||
Accumulated other comprehensive income
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43,760 | 27,659 | ||||||
Total shareholders' equity
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218,189 | 186,148 | ||||||
Total liabilities and shareholders' equity
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$ | 328,892 | $ | 303,960 |
FINANCIAL DATA
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Three Months Ended
April 30,
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Six Months Ended
April 30,
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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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$ | 8,223 | $ | 15,682 | $ | 16,510 | $ | 27,521 | ||||||||
Cash used in investing activities:
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Payments for products leased and held for lease
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$ | (2,986 | ) | $ | (8,113 | ) | $ | (7,263 | ) | $ | (13,139 | ) | ||||
Purchases of property and equipment
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(1,071 | ) | (1,824 | ) | (2,001 | ) | (2,553 | ) | ||||||||
Purchases of intangible assets
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(1,235 | ) | (595 | ) | (6,145 | ) | (2,171 | ) | ||||||||
Acquisition of business
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- | - | (6,499 | ) | - | |||||||||||
Proceeds from sale of leased assets
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1,724 | 3,157 | 3,810 | 4,953 | ||||||||||||
Proceeds from sale of assets
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29 | (12 | ) | 76 | 38 | |||||||||||
Other
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(225 | ) | (546 | ) | (446 | ) | (814 | ) | ||||||||
$ | (3,764 | ) | $ | (7,933 | ) | $ | (18,468 | ) | $ | (13,686 | ) | |||||
Cash provided by (used in) financing activities
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$ | (5,663 | ) | $ | (6,490 | ) | $ | 8,861 | $ | (3,660 | ) | |||||
Free cash flow (2)
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$ | 15,367 | $ | 4,566 | $ | 11,886 | $ | 9,455 | ||||||||
Reconciliation of income from continuing operations to Adjusted EBITDA:
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Net income
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$ | 7,946 | $ | 7,885 | $ | 12,750 | $ | 11,564 | ||||||||
Other expense (income)
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1,663 | 333 | 2,081 | 597 | ||||||||||||
Share-based compensation
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743 | 847 | 1,478 | 1,855 | ||||||||||||
Income tax provision
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2,542 | 3,135 | 4,371 | 4,720 | ||||||||||||
Depreciation and amortization
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6,115 | 5,825 | 11,876 | 11,950 | ||||||||||||
Adjusted EBITDA (1)
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$ | 19,009 | $ | 18,025 | $ | 32,556 | $ | 30,686 | ||||||||
Adjusted EBITDA margin
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31.7 | % | 35.5 | % | 31.4 | % | 33.7 | % |
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 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 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
April 30,
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Six Months Ended
April 30,
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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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$ | 19,172 | $ | 21,130 | $ | 36,533 | $ | 38,746 | ||||||||
Gross profit
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11,584 | 12,886 | 22,432 | 23,591 | ||||||||||||
Gross margin
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60.4 | % | 61.0 | % | 61.4 | % | 60.9 | % | ||||||||
Proprietary Table Games:
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Revenue
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$ | 10,546 | $ | 10,170 | $ | 21,772 | $ | 19,205 | ||||||||
Gross profit
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8,405 | 7,715 | 17,667 | 15,252 | ||||||||||||
Gross margin
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79.7 | % | 75.9 | % | 81.1 | % | 79.4 | % | ||||||||
Electronic Table Systems:
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Revenue
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$ | 11,797 | $ | 12,444 | $ | 19,928 | $ | 20,819 | ||||||||
Gross profit
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4,837 | 7,832 | 9,487 | 11,751 | ||||||||||||
Gross margin
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41.0 | % | 62.9 | % | 47.6 | % | 56.4 | % | ||||||||
Electronic Gaming Machines:
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Revenue
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$ | 18,368 | $ | 7,072 | $ | 25,465 | $ | 12,382 | ||||||||
Gross profit
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11,268 | 3,866 | 15,676 | 6,552 | ||||||||||||
Gross margin
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61.3 | % | 54.7 | % | 61.6 | % | 52.9 | % | ||||||||
Total:
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Revenue
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$ | 59,883 | $ | 50,816 | $ | 103,698 | $ | 91,152 | ||||||||
Gross profit
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36,094 | 32,299 | 65,262 | 57,146 | ||||||||||||
Gross margin
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60.3 | % | 63.6 | % | 62.9 | % | 62.7 | % | ||||||||
Adjusted EBITDA
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as a percentage of total revenue
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31.7 | % | 35.5 | % | 31.4 | % | 33.7 | % | ||||||||
Income from operations
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as a percentage of total revenue
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20.3 | % | 22.3 | % | 18.5 | % | 18.5 | % |