Shuffle Master reports second quarter 2012 results

“The second quarter yielded exceptional results from nearly every product category, particularly our Utility and EGM segments, with the MD3 shuffler and the Equinox cabinet driving overall segment performance. Our specialty table games business grew an impressive 13% year-over-year driven almost entirely by recurring revenue.  Our e-Table segment is in a period of transition and remains a key area of focus for us.  We believe that new innovations, such as the i-Table Roulette and the new Multigame enhancement for our Rapid Table Games, will help drive improved performance," added Gavin Isaacs. "We are confident that our continued strong momentum across our core businesses and the rollout of our interactive initiatives are key drivers of our future earnings potential and will write the next chapter of our profitable growth story."

Second quarter 2012 financial highlights

•    It achieved record quarterly revenue of us$ 66.1 million due to strong Utility and Electronic Gaming Machine (EGM) performance as well as lease, royalty and service revenue growth in the company's Utility and Proprietary Table Games (PTG) segments. 
•    Total recurring revenue was up 11% year-over-year and totaled us$ 28.9 million.
•    GAAP net income grew 23% year-over-year to us$ 9.7 million.
•    Diluted earnings per share (EPS) grew 21% year-over-year to us$ 0.17, compared to us$ 0.14 in the prior year period.  Excluding expenses incurred in connection with the proposed Ongame acquisition, EPS was us$ 0.20.
•    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.
•    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.
•    Adjusted EBITDA was a quarterly record, totaling us$ 23.7 million, up 25% from us$ 19 million in the year-ago quarter.
•    Selling, general and administrative (SG&A) expenses increased us$ 2.7 million year-over-year to us$ 19.8 million for the quarter, largely driven by us$ 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 CEO 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.
•    Net debt was us$ 0.3 million, as compared to us$ 17.1 million as of October 31, 2011. 
•    Free Cash Flow, a non-GAAP financial measure, was us$ 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. 

"Our balance sheet remains one of the strongest in the industry – and our numbers confirm it," said Lin Fox, CFO of Shuffle Master.  "We generated us$ 20.6 million of operating cash flow in the six month period ended April 30, 2012, ending the second quarter of fiscal 2012 with net debt at virtually zero.  We have the financial flexibility we need to invest in the business and fund compelling growth initiatives."

Second quarter 2012 business segment highlights

•    Total Utility recurring revenue of us$ 13.3 million grew 12% year-over-year, driven primarily by increased MD3 shuffler leases in the United States and Asia. 
•    Total Utility revenue grew 30% to a record us$ 25 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.
•    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.
•    Gross margin increased year-over-year from 60% to approximately 65%, due primarily to the significant increase in total revenue.
•    The total MD3 installed base grew to approximately 950 units, of which 57% are units on lease. 
Further detail and analysis of the company's financial results for the second quarter ended April 30, 2012, is included in its Form 10-Q, which has been filed with the Securities and Exchange Commission yesterday.