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
(Address of Principal Executive Offices)
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89119-3720
(Zip Code)
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Registrant’s telephone number, including area code: (702) 897-7150
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99.1
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Press release dated June 4, 2012, regarding the Company’s financial results for its second quarter ended April 30, 2012.
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SHUFFLE MASTER, INC.
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(Registrant)
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Date: June 4, 2012
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/s/ MICHAEL GAVIN ISAACS
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Michael Gavin Isaacs
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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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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 10% to $66.1 million, a quarterly record, due to strong Utility and Electronic Gaming Machine (“EGM”) performance as well as lease, royalty and service revenue (“recurring revenue”) growth in the Company’s Utility and Proprietary Table Games (“PTG”) segments.
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u
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Total recurring revenue was up 11% year-over-year and totaled $28.9 million.
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u
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GAAP net income grew 23% year-over-year to $9.7 million.
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u
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Diluted earnings per share ("EPS") grew 21% year-over-year to $0.17, compared to $0.14 in the prior year period. Excluding expenses incurred in connection with the proposed Ongame acquisition, EPS was $0.20.
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u
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Gross margin increased 400 basis points year-over-year to approximately 64%, due primarily to increased segment margin performance in the Utility, PTG and EGM segments.
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u
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Operating income margin increased 200 basis points year-over-year to 22%. Excluding expenses incurred in connection with the proposed Ongame acquisition, operating margin was 25% in the second quarter.
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u
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Adjusted EBITDA was a quarterly record, totaling $23.7 million, up 25% from $19.0 million in the year-ago quarter.
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u
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Selling, general and administrative ("SG&A") expenses increased $2.7 million year-over-year to $19.8 million for the quarter, largely driven by $1.5 million of expenses incurred in connection with the proposed Ongame acquisition, in addition to the hiring of several executive level positions during the 2011 fiscal year, the company filled the Chief Executive Officer and General Counsel positions and hired a Chief Strategy Officer. These positions, in addition to sales and profit driven compensation expenses due to increased revenue compared to the year-ago quarter, also largely contributed to the increase.
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u
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Net debt (total debt, less cash and cash equivalents) was $0.3 million, as compared to $17.1 million as of October 31, 2011.
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u
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Free Cash Flow1, a non-GAAP financial measure, was $11.8 million, a decrease of 23% year-over-year primarily due to an increase in cash taxes paid as compared to the prior year period, in addition to an increase in capital expenditures related to the Company’s land purchase in Las Vegas for a new consolidated facility.
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u
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Total Utility recurring revenue of $13.3 million grew 12% year-over-year, driven primarily by increased MD3™ shuffler leases in the United States and Asia.
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u
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Total Utility revenue grew 30% to a record $25.0 million, largely due to strong shuffler sales as a result of several new casino openings in the U.S., growing the shuffler footprint on existing tables, and replacements of previously sold shufflers in Asia.
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u
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The Company achieved a record lease installed base of 8,261 shufflers, a 14% increase in units year-over-year. Approximately 240 new leases were netted in the second quarter.
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Gross margin increased year-over-year from 60% to approximately 65%, due primarily to the significant increase in total revenue.
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u
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The total MD3™ installed base grew to approximately 950 units, of which 57% are units on lease.
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u
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Total PTG recurring revenue for the second quarter increased 13% year-over-year to a record $11.8 million, primarily due to increased placements of premium games Ultimate Texas Hold’em® and Mississippi Stud®, side bets Fortune Pai Gow Poker and Fire Bet, and continued momentum in progressive upgrades.
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Total PTG revenue increased by 13% year-over-year to $11.9 million, driven by strong lease placements across all PTG categories: premium, side bets and progressives.
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Gross margin increased 240 basis points year-over-year to 82% due to the overall increase in revenue.
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The progressive installed base totaled over 1,100 units, up 384 units from the year-ago quarter. Strong placements were fueled by installs of Fortune Pai Gow Poker® Progressive, Three Card Poker Progressive, and Ultimate Texas Hold’em® Progressive, and to a lesser extent, new inter-casino progressive upgrades (“O-WAP”).
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u
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Total ETS recurring revenue of $3.7 million remained relatively flat year-over-year.
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Total ETS revenue for the quarter declined 42% year-over-year to $6.9 million due to an 80% decrease in sales revenue. The prior year period included approximately $5.0 million in sales of Vegas Star® and Rapid Table Games in Australia.
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u
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Gross margin declined 190 basis points year-over-year to 39%, driven by the significant reduction in sales revenue.
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Total EGM revenue grew 21% to $22.2 million compared to the prior year period, driven by the continued success of the Equinox™ offerings.
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Gross margin grew 90 basis points year-over-year to 62% due to the increase in units sold, as well as higher average sales prices. The new Super Topbox games on the Equinox drove higher average sales prices in the quarter.
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Total placements of 1,178 EGMs in the second quarter grew 22% from the prior year period, driven by Equinox placements into Australia, specifically Victoria, and to a lesser extent increased placements in Latin America and Asia.
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Three Months Ended
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Six Months Ended
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April 30,
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April 30,
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2012
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2011
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2012
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2011
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Revenue:
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Product leases and royalties
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$ | 26,947 | $ | 24,264 | $ | 52,900 | $ | 47,840 | ||||||||
Product sales and service
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39,107 | 35,619 | 69,207 | 55,858 | ||||||||||||
Total revenue
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66,054 | 59,883 | 122,107 | 103,698 | ||||||||||||
Costs and expenses:
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Cost of leases and royalties
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9,427 | 8,354 | 18,378 | 15,536 | ||||||||||||
Cost of sales and service
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14,138 | 15,435 | 25,419 | 22,900 | ||||||||||||
Gross profit
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42,489 | 36,094 | 78,310 | 65,262 | ||||||||||||
Selling, general and administrative
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19,804 | 17,060 | 36,984 | 33,261 | ||||||||||||
Research and development
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7,925 | 6,883 | 15,452 | 12,799 | ||||||||||||
Total costs and expenses
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51,294 | 47,732 | 96,233 | 84,496 | ||||||||||||
Income from operations
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14,760 | 12,151 | 25,874 | 19,202 | ||||||||||||
Other income (expense):
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Interest income
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174 | 126 | 313 | 252 | ||||||||||||
Interest expense
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(378 | ) | (671 | ) | (855 | ) | (1,372 | ) | ||||||||
Other, net
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(146 | ) | (1,118 | ) | 29 | (961 | ) | |||||||||
Total other income (expense)
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(350 | ) | (1,663 | ) | (513 | ) | (2,081 | ) | ||||||||
Income before income taxes
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14,410 | 10,488 | 25,361 | 17,121 | ||||||||||||
Income tax provision
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4,675 | 2,542 | 7,977 | 4,371 | ||||||||||||
Net income
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$ | 9,735 | $ | 7,946 | $ | 17,384 | $ | 12,750 | ||||||||
Basic earnings per share:
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$ | 0.17 | $ | 0.15 | $ | 0.31 | $ | 0.24 | ||||||||
Diluted earnings per share:
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$ | 0.17 | $ | 0.14 | $ | 0.31 | $ | 0.23 | ||||||||
Weighted average shares outstanding:
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Basic
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55,751 | 54,374 | 55,408 | 54,253 | ||||||||||||
Diluted
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56,653 | 55,010 | 56,154 | 54,953 |
April 30,
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October 31,
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2012
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2011
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 22,964 | $ | 22,189 | ||||
Accounts receivable, net of allowance for bad debts of $465 and $402
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38,952 | 39,713 | ||||||
Investment in sales-type leases and notes receivable, net of allowance
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for bad debts of $26 and $44
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5,753 | 5,006 | ||||||
Inventories
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27,138 | 24,335 | ||||||
Prepaid income taxes
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6,654 | 3,279 | ||||||
Deferred income taxes
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4,935 | 4,911 | ||||||
Other current assets
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5,898 | 4,291 | ||||||
Total current assets
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112,294 | 103,724 | ||||||
Investment in sales-type leases and notes receivable, net of current portion
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and net of allowance for bad debts of $2 and $5
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4,857 | 3,704 | ||||||
Products leased and held for lease, net
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35,184 | 35,196 | ||||||
Property and equipment, net
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15,155 | 12,849 | ||||||
Intangible assets, net
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67,193 | 66,517 | ||||||
Goodwill
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85,393 | 85,392 | ||||||
Deferred income taxes
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2,850 | 3,038 | ||||||
Other assets
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2,490 | 2,467 | ||||||
Total assets
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$ | 325,416 | $ | 312,887 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$ | 4,415 | $ | 5,001 | ||||
Accrued liabilities and other current liabilities
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19,887 | 21,135 | ||||||
Deferred income taxes
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89 | 96 | ||||||
Customer deposits
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3,333 | 3,407 | ||||||
Income tax payable
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4,218 | 2,595 | ||||||
Deferred revenue
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4,031 | 3,862 | ||||||
Current portion of long-term debt
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501 | 508 | ||||||
Total current liabilities
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36,474 | 36,604 | ||||||
Long-term debt, net of current portion
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22,750 | 38,757 | ||||||
Other long-term liabilities
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2,849 | 2,969 | ||||||
Deferred income taxes
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2,549 | 942 | ||||||
Total liabilities
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64,622 | 79,272 | ||||||
Commitments and Contingencies
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Shareholders' equity:
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Common stock, $0.01 par value; 151,368 shares authorized;
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55,698 and 54,196 shares issued and outstanding
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557 | 542 | ||||||
Additional paid-in capital
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131,188 | 114,306 | ||||||
Retained earnings
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98,222 | 80,838 | ||||||
Accumulated other comprehensive income
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30,827 | 37,929 | ||||||
Total shareholders' equity
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260,794 | 233,615 | ||||||
Total liabilities and shareholders' equity
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$ | 325,416 | $ | 312,887 |
FINANCIAL DATA
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Three Months Ended
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Six Months Ended
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April 30,
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April 30,
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2012
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2011
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2012
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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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$ | 4,161 | $ | 8,223 | $ | 20,604 | $ | 16,510 | ||||||||
Cash used in investing activities:
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Payments for products leased and held for lease
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$ | (2,856 | ) | $ | (2,986 | ) | $ | (6,706 | ) | $ | (7,263 | ) | ||||
Purchases of property and equipment
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(3,358 | ) | (1,071 | ) | (4,240 | ) | (2,001 | ) | ||||||||
Purchases of intangible assets
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(73 | ) | (1,235 | ) | (4,103 | ) | (6,145 | ) | ||||||||
Acquisition of business
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- | - | (5,500 | ) | (6,499 | ) | ||||||||||
Proceeds from sale of leased assets
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988 | 1,724 | 1,029 | 3,810 | ||||||||||||
Proceeds from sale of assets
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- | 29 | - | 76 | ||||||||||||
Other
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(236 | ) | (225 | ) | (454 | ) | (446 | ) | ||||||||
$ | (5,535 | ) | $ | (3,764 | ) | $ | (19,974 | ) | $ | (18,468 | ) | |||||
Cash provided by (used in) financing activities
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$ | (2,429 | ) | $ | (5,663 | ) | $ | (695 | ) | $ | 8,861 | |||||
Free cash flow (2)
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$ | 11,758 | $ | 15,367 | $ | 19,443 | $ | 11,886 | ||||||||
Reconciliation of income from continuing operations to Adjusted EBITDA:
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Net income
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$ | 9,735 | $ | 7,946 | $ | 17,384 | $ | 12,750 | ||||||||
Other expense (income)
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350 | 1,663 | 513 | 2,081 | ||||||||||||
Share-based compensation
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1,117 | 743 | 2,049 | 1,478 | ||||||||||||
Income tax provision
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4,675 | 2,542 | 7,977 | 4,371 | ||||||||||||
Depreciation and amortization
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6,380 | 6,115 | 12,397 | 11,876 | ||||||||||||
Ongame acquisition related expenses
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1,448 | - | 1,448 | - | ||||||||||||
Adjusted EBITDA (1)
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$ | 23,705 | $ | 19,009 | $ | 41,768 | $ | 32,556 |
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
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Six Months Ended
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April 30,
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April 30,
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2012
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2011
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2012
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2011
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Utility:
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Revenue
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$ | 24,990 | $ | 19,172 | $ | 44,606 | $ | 36,533 | ||||||||
Gross profit
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16,154 | 11,584 | 27,337 | 22,432 | ||||||||||||
Gross margin
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64.6 | % | 60.4 | % | 61.3 | % | 61.4 | % | ||||||||
Proprietary Table Games:
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Revenue
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$ | 11,954 | $ | 10,546 | $ | 25,629 | $ | 21,772 | ||||||||
Gross profit
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9,818 | 8,405 | 21,360 | 17,667 | ||||||||||||
Gross margin
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82.1 | % | 79.7 | % | 83.3 | % | 81.1 | % | ||||||||
Electronic Table Systems:
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Revenue
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$ | 6,866 | $ | 11,797 | $ | 15,130 | $ | 19,928 | ||||||||
Gross profit
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2,684 | 4,837 | 6,813 | 9,487 | ||||||||||||
Gross margin
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39.1 | % | 41.0 | % | 45.0 | % | 47.6 | % | ||||||||
Electronic Gaming Machines:
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Revenue
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$ | 22,244 | $ | 18,368 | $ | 36,742 | $ | 25,465 | ||||||||
Gross profit
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13,833 | 11,268 | 22,800 | 15,676 | ||||||||||||
Gross margin
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62.2 | % | 61.3 | % | 62.1 | % | 61.6 | % | ||||||||
Total:
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Revenue
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$ | 66,054 | $ | 59,883 | $ | 122,107 | $ | 103,698 | ||||||||
Gross profit
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42,489 | 36,094 | 78,310 | 65,262 | ||||||||||||
Gross margin
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64.3 | % | 60.3 | % | 64.1 | % | 62.9 | % | ||||||||
Adjusted EBITDA
|
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as a percentage of total revenue
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35.9 | % | 31.7 | % | 34.2 | % | 31.4 | % | ||||||||
Income from operations
|
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as a percentage of total revenue
|
22.3 | % | 20.3 | % | 21.2 | % | 18.5 | % |
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