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 September 10, 2012, regarding the Company’s financial results for its third quarter ended July 31, 2012.
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SHUFFLE MASTER, INC.
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(Registrant)
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Date: September 10, 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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¨
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Total revenue increased year-over-year by 9% to $63.4 million due to recurring revenue growth in Proprietary Table Games (“PTG”) and Utility, in addition to strong performance in Electronic Gaming Machines (“EGM”).
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¨
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Total recurring revenue, driven by growth in the Utility and PTG segments, was up 12% year-over-year and totaled approximately $30.0 million.
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¨
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GAAP net income grew 14% year-over-year to $10.4 million.
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¨
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Diluted earnings per share ("EPS") grew 6% year-over-year to $0.18.
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¨
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Gross margin increased 100 basis points year-over-year to 63%, due primarily to increased shuffler sales with higher average sales prices, as well as an increase in the number of PTG units on lease.
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¨
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Operating income margin decreased 66 basis points year-over-year to 21%. The decrease can be attributed to higher operating expenses compared to the year-ago quarter, offset by higher revenues in the current quarter. Excluding the final expenses associated with the now terminated Ongame acquisition, operating income margin was 22%.
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¨
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Adjusted EBITDA was $21.2 million, up 9% from $19.5 million in the year-ago quarter.
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¨
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Selling, general and administrative ("SG&A") expenses increased $2.2 million year-on-year to $19.0 million and reflects an increase of approximately $1.2 million in payroll and related expenses, primarily driven by the hiring of a Chief Strategic Officer at the end of fiscal 2011 and filling the General Counsel role, in addition to increased sales and profit driven compensation. The increase was also attributable to the Company’s entrance into new jurisdictions, in addition to approximately $0.5 million in final due diligence expenses and related professional fees for the now terminated Ongame acquisition.
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¨
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The Company’s cash and cash equivalents exceeded its total debt by $11.8 million on July 31, 2012 compared to net debt (total debt less cash and cash equivalents) of $17.1 million on October 31, 2011.
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¨
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Free Cash Flow1, a non-GAAP financial measure, was $11.9 million, a decrease of 15% year-over-year primarily due to an increase in cash taxes paid, and to a lesser extent an increase in capital expenditures largely related to the development of the Company’s online gaming platform.
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¨
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Total Utility recurring revenue grew 10% to $13.7 million, driven mainly by increased MD3 shuffler leases in the United States.
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¨
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Total Utility revenue grew 8% to $24.4 million. The increase was primarily due to strong recurring revenue in addition to an increase in shuffler units sold, driven largely by a sale of MD3 units to a casino customer in Macau.
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¨
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The leased installed base of shufflers at the end of the quarter was 8,245, and represented a 7% increase year-over-year.
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¨
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Gross margin increased 580 basis points year-over-year to approximately 63%, due primarily to the increase in total revenue and higher average sales prices, and to a lesser extent a decrease in amortization expense associated with the one2six shuffler and the Easy Chipper.
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¨
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The total MD3 installed base grew to 1,381 units; 53% are units on lease.
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¨
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Total PTG recurring revenue for the third quarter increased 17% year-over-year to $12.4 million, primarily due to increased placements across all PTG categories: premium branded table games Ultimate Texas Hold’em and Mississippi Stud, progressive units Fortune Pai Gow Poker Progressive and Three Card Poker Progressive, and side bets Fortune Pai Gow Poker, Dragon Bonus and Fire Bet.
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¨
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Total PTG revenue increased by 18% year-over-year to approximately $13.0 million, driven by strong lease placements across all PTG categories mentioned above.
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Gross margin increased 290 basis points year-over-year to 82% due to the overall increase in total revenues.
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The progressive installed base totaled 1,139 units, up 356 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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¨
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Total ETS recurring revenue of $3.6 million increased 2% year-over-year.
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Total ETS revenue for the quarter declined 11% year-over-year to $6.1 million due to a 29% decrease in sales revenue and lower average sales prices. The prior year period included $1.3 million in sales of Vegas Star and RapidTable Games seats primarily in Australia.
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Gross margin declined 1,310 basis points year-over-year to 34%, largely due to decreased sales revenue.
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Total EGM revenue grew 11% year-over-year to approximately $20.0 million, driven by an increase in units due to a large sale to a customer in the Philippines, as well as sales of the new Super Top Box for Equinox.
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¨
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Gross margin decreased 360 basis points year-over-year to 60% due to a decline in average sales price primarily related to a large sale in the Philippines, and to a lesser extent import duties and freight expenses to place machines on lease in Mexico and Latin America.
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¨
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Total placements of 1,050 EGMs in the third quarter grew 20% from the prior year period driven by Equinox placements into Australia, 150 units placed in the Philippines, and increased leased placements in Mexico and Latin America.
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Three Months Ended
July 31, |
Nine Months Ended
July 31, |
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2012
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2011
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2012
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2011
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Revenue:
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Product leases and royalties
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$ | 27,830 | $ | 24,785 | $ | 80,730 | $ | 72,625 | ||||||||
Product sales and service
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35,556 | 33,542 | 104,763 | 89,400 | ||||||||||||
Total revenue
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63,386 | 58,327 | 185,493 | 162,025 | ||||||||||||
Costs and expenses:
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Cost of leases and royalties
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9,475 | 8,970 | 27,853 | 24,506 | ||||||||||||
Cost of sales and service
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13,889 | 13,135 | 39,308 | 36,035 | ||||||||||||
Gross profit
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40,022 | 36,222 | 118,332 | 101,484 | ||||||||||||
Selling, general and administrative
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19,007 | 16,816 | 55,991 | 50,077 | ||||||||||||
Research and development
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7,622 | 6,695 | 23,074 | 19,494 | ||||||||||||
Total costs and expenses
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49,993 | 45,616 | 146,226 | 130,112 | ||||||||||||
Income from operations
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13,393 | 12,711 | 39,267 | 31,913 | ||||||||||||
Other income (expense):
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Interest income
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116 | 177 | 429 | 429 | ||||||||||||
Interest expense
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(367 | ) | (659 | ) | (1,222 | ) | (2,031 | ) | ||||||||
Other, net
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180 | 457 | 209 | (504 | ) | |||||||||||
Total other income (expense)
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(71 | ) | (25 | ) | (584 | ) | (2,106 | ) | ||||||||
Income before income taxes
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13,322 | 12,686 | 38,683 | 29,807 | ||||||||||||
Income tax provision
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2,898 | 3,560 | 10,875 | 7,931 | ||||||||||||
Net income
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$ | 10,424 | $ | 9,126 | $ | 27,808 | $ | 21,876 | ||||||||
Basic earnings per share:
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$ | 0.19 | $ | 0.17 | $ | 0.50 | $ | 0.40 | ||||||||
Diluted earnings per share:
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$ | 0.18 | $ | 0.17 | $ | 0.49 | $ | 0.40 | ||||||||
Weighted average shares outstanding:
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Basic
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56,284 | 54,446 | 55,700 | 54,317 | ||||||||||||
Diluted
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57,029 | 55,123 | 56,445 | 55,009 |
July 31,
2012 |
October 31,
2011 |
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ASSETS
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Current assets:
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Cash and cash equivalents
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$ | 28,030 | $ | 22,189 | ||||
Accounts receivable, net of allowance for bad debts of $447 and $402
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38,299 | 39,713 | ||||||
Investment in sales-type leases and notes receivable, net of allowance for bad debts of $26 and $44
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7,939 | 5,006 | ||||||
Inventories
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25,648 | 24,335 | ||||||
Prepaid income taxes
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7,991 | 3,279 | ||||||
Deferred income taxes
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5,072 | 4,911 | ||||||
Other current assets
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6,753 | 4,291 | ||||||
Total current assets
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119,732 | 103,724 | ||||||
Investment in sales-type leases and notes receivable, net of current portion and net of allowance for bad debts of $4 and $5
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6,304 | 3,704 | ||||||
Products leased and held for lease, net
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35,791 | 35,196 | ||||||
Property and equipment, net
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15,860 | 12,849 | ||||||
Intangible assets, net
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65,144 | 66,517 | ||||||
Goodwill
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83,523 | 85,392 | ||||||
Deferred income taxes
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2,863 | 3,038 | ||||||
Other assets
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2,586 | 2,467 | ||||||
Total assets
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$ | 331,803 | $ | 312,887 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Accounts payable
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$ | 5,995 | $ | 5,001 | ||||
Accrued liabilities and other current liabilities
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19,618 | 21,135 | ||||||
Deferred income taxes
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83 | 96 | ||||||
Customer deposits
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3,480 | 3,407 | ||||||
Income tax payable
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6,187 | 2,595 | ||||||
Deferred revenue
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4,503 | 3,862 | ||||||
Current portion of long-term debt
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500 | 508 | ||||||
Total current liabilities
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40,366 | 36,604 | ||||||
Long-term debt, net of current portion
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15,749 | 38,757 | ||||||
Other long-term liabilities
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1,818 | 2,969 | ||||||
Deferred income taxes
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2,953 | 942 | ||||||
Total liabilities
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60,886 | 79,272 | ||||||
Commitments and Contingencies (See Note 11)
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Shareholders' equity:
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Common stock, $0.01 par value; 151,368 shares authorized; 55,900 and 54,196 shares issued and outstanding
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559 | 542 | ||||||
Additional paid-in capital
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134,321 | 114,306 | ||||||
Retained earnings
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108,646 | 80,838 | ||||||
Accumulated other comprehensive income
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27,391 | 37,929 | ||||||
Total shareholders' equity
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270,917 | 233,615 | ||||||
Total liabilities and shareholders' equity
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$ | 331,803 | $ | 312,887 |
FINANCIAL DATA
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Three Months Ended
July 31, |
Nine Months Ended
July 31, |
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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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$ | 15,264 | $ | 20,182 | $ | 35,868 | $ | 36,692 | ||||||||
Cash used in investing activities:
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Payments for products leased and held for lease
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$ | (4,521 | ) | $ | (4,345 | ) | $ | (11,227 | ) | $ | (11,608 | ) | ||||
Purchases of property and equipment
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(1,612 | ) | (682 | ) | (5,852 | ) | (2,683 | ) | ||||||||
Purchases of intangible assets
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(230 | ) | (124 | ) | (4,333 | ) | (6,269 | ) | ||||||||
Acquisition of business
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- | - | (5,500 | ) | (6,499 | ) | ||||||||||
Proceeds from sale of leased assets
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611 | 2,430 | 1,640 | 6,240 | ||||||||||||
Proceeds from sale of assets
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- | 10 | - | 86 | ||||||||||||
Other
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(236 | ) | (255 | ) | (690 | ) | (701 | ) | ||||||||
$ | (5,988 | ) | $ | (2,966 | ) | $ | (25,962 | ) | $ | (21,434 | ) | |||||
Cash provided by (used in) financing activities
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$ | (4,740 | ) | $ | (4,438 | ) | $ | (5,435 | ) | $ | 4,423 | |||||
Free cash flow (2)
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$ | 11,859 | $ | 13,962 | $ | 31,302 | $ | 25,848 | ||||||||
Reconciliation of net income to Adjusted EBITDA:
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Net income
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$ | 10,424 | $ | 9,126 | $ | 27,808 | $ | 21,876 | ||||||||
Other expense (income)
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71 | 25 | 584 | 2,106 | ||||||||||||
Share-based compensation
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1,014 | 706 | 3,063 | 2,184 | ||||||||||||
Income tax provision
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2,898 | 3,560 | 10,875 | 7,931 | ||||||||||||
Depreciation and amortization
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6,260 | 6,075 | 18,657 | 17,951 | ||||||||||||
Ongame Acquisition Expenses
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500 | 1,948 | ||||||||||||||
Adjusted EBITDA (1)
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$ | 21,167 | $ | 19,492 | $ | 62,935 | $ | 52,048 | ||||||||
Adjusted EBITDA margin
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33.4 | % | 33.4 | % | 33.9 | % | 32.1 | % |
1.
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Adjusted EBITDA is earnings before other expense (income), provision for income taxes, depreciation and amortization expense, Ongame acquisition expenses, 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
July 31, |
Nine Months Ended
July 31, |
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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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$ | 24,382 | $ | 22,575 | $ | 68,988 | $ | 59,108 | ||||||||
Gross profit
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15,285 | 12,852 | 42,622 | 35,284 | ||||||||||||
Gross margin
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62.7 | % | 56.9 | % | 61.8 | % | 59.7 | % | ||||||||
Proprietary Table Games:
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Revenue
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$ | 12,994 | $ | 10,994 | $ | 38,623 | $ | 32,766 | ||||||||
Gross profit
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10,634 | 8,671 | 31,994 | 26,338 | ||||||||||||
Gross margin
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81.8 | % | 78.9 | % | 82.8 | % | 80.4 | % | ||||||||
Electronic Table Systems:
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Revenue
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$ | 6,053 | $ | 6,793 | $ | 21,183 | $ | 26,721 | ||||||||
Gross profit
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2,055 | 3,197 | 8,868 | 12,684 | ||||||||||||
Gross margin
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34.0 | % | 47.1 | % | 41.9 | % | 47.5 | % | ||||||||
Electronic Gaming Machines:
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Revenue
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$ | 19,957 | $ | 17,965 | $ | 56,699 | $ | 43,430 | ||||||||
Gross profit
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12,048 | 11,502 | 34,848 | 27,178 | ||||||||||||
Gross margin
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60.4 | % | 64.0 | % | 61.5 | % | 62.6 | % | ||||||||
Total:
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Revenue
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$ | 63,386 | $ | 58,327 | $ | 185,493 | $ | 162,025 | ||||||||
Gross profit
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40,022 | 36,222 | 118,332 | 101,484 | ||||||||||||
Gross margin
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63.1 | % | 62.1 | % | 63.8 | % | 62.6 | % | ||||||||
Adjusted EBITDA
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as a percentage of total revenue
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33.4 | % | 33.4 | % | 33.9 | % | 32.1 | % | ||||||||
Income from operations
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as a percentage of total revenue
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21.1 | % | 21.8 | % | 21.2 | % | 19.7 | % |