Shuffle Master, Inc. reports Q4 results

LAS VEGAS, Nevada -- (PRESS RELEASE) -- Shuffle Master, Inc. (“Shuffle Master” or the “Company”) today announced its results for the fourth quarter and fiscal year ended October 31, 2011.

“It was a sensational year at Shuffle Master and we ended it the way we wanted to, with a blockbuster fourth quarter,” said Gavin Isaacs, Chief Executive Officer of Shuffle Master. “By nearly every financial metric we use, including revenue, recurring revenue and Adjusted EBITDA, the quarter and the year, were record breakers for us. It’s important to view these results not only as a testament to past performance, but also as a benchmark for our future. By continuing to raise our expectations and our efforts, we believe we will ensure the best days for this Company are the ones that lie ahead.”

Fourth Quarter 2011 Financial Highlights

• Revenue increased year-over-year by 12% to a record $65.7 million, up from $58.6 million in the prior year period.
• Total lease, royalty and service (“recurring”) revenue was up 12% year-over-year and 3% sequentially, and totaled $27.6 million.
• GAAP net income increased 71% year-over-year to a record $9.7 million, compared to $5.7 million in the prior year period.
• Diluted earnings per share ("EPS") increased 80% year-over-year to $0.18, compared to $0.10 in the prior year period. EPS in the prior year period included one-time charges of $0.03 for a legal settlement and $0.01 for the Company’s previous credit agreement’s financing costs.
• Gross margin improved year-over-year from 60% to 63% due to improved Electronic Gaming Machine (“EGM”) margins driven by higher average sales prices and value engineering on the new Equinox™ cabinet.
• Operating income margin increased 480 basis points year-over-year to 22%.
• Adjusted EBITDA was a Company record, totaling $22.7 million and up 42% year-over-year.
• Selling, general and administrative ("SG&A") expenses decreased 4% year-over-year to $18.5 million for the quarter.

Free Cash Flow (1), a non-GAAP financial measure, was $15.9 million as compared to $11.3 million in the prior year period.
(1) Free cash flow is Adjusted EBITDA less capital expenditures and cash paid for taxes

Fiscal Year 2011 Financial Highlights

• Revenue reached a Company record of $227.8 million, a year-over-year increase of approximately 13% or $26.5 million.
• Year-to-date recurring revenue was up 12% year-over-year and totaled $105.8 million, or nearly half of total revenue.
• Net debt (total debt, less cash and cash equivalents) was $17.1 million, the lowest since 2003, and $39.2 million lower than the end of fiscal year 2010.
• Gross margin increased 100 basis points year-over-year to approximately 63% due to strong segment performance and positive foreign exchange impact.
• GAAP net income and diluted EPS increased to $31.6 million and $0.57, respectively, compared to $23.1 million and $0.43 in fiscal year ended 2010.
• Adjusted EBITDA totaled $74.7 million, up 20% year-over-year.
• SG&A increased $1.8 million, or 3% year-over-year. As a percentage of total revenue, SG&A represented 30% as compared to 33% in fiscal year ended 2010.
• Cash and cash equivalents totaled $22.2 million as of October 31, 2011 as compared to $10.0 million as of October 31, 2010.
• Revenues from outside of the United States totaled $126.8 million, representing 56% of total revenues in fiscal year ended 2011.

“What really stands out for me in our results is our ability to consistently generate such strong cash flow,” said Lin Fox, Chief Financial Officer of the Company. “Not only did we drive record revenue and net income this year, but at the same time we reduced our net debt by $39 million, or 70%. Our balance sheet is the best it’s been in years, something that gives us the flexibility to take advantage of any opportunities we find attractive.”

Fourth Quarter 2011 Business Segment Highlights

Utility

• Total Utility recurring revenue of $12.8 million grew over 13% year-over-year driven by increased leases of the i-Deal®, MD3™, and one2six® shufflers.
• Total Utility revenue grew 27% year-over-year to $23.8 million, due largely to increased units on lease and to 212 shufflers sold to a customer in Macau in the fourth quarter.
• Gross margin remained relatively flat year-over-year at 62%.
• The total MD3™ installed base grew to 475 units, of which approximately 55% are units on lease.
• The total i-Deal® installed base grew to 3,500 units, of which approximately 60% are units on lease. i-Deal® lease revenue was over $3.3 million in the fourth quarter and approximately $12.3 million for the fiscal year.

Proprietary Table Games ("PTG")

• Total PTG recurring revenue for the fourth quarter grew 12% year-over-year to $11.0 million.
• Total PTG revenue increased by 9% to $11.2 million, led by strong lease placements of premium games and progressives.
• Gross margin remained relatively flat at 81%.
• As of the fourth quarter the progressive add-on installed base totaled 860 units. Fortune Pai Gow Poker® Progressive and Three Card Poker Progressive comprised approximately 65% of all progressive add-ons.

Electronic Table Systems ("ETS")

• Total ETS recurring revenue grew 9% year-over-year to $3.7 million predominantly due to new lease placements of Vegas Star® in New York.
• Total ETS revenue for the quarter decreased by 28% to $7.2 million due to fewer sales as compared to the prior year period. The prior year quarter included an additional $3.5 million in sales of Vegas Star® and Rapid Table Games® in Australia and Singapore.
• Gross margin decreased year-over-year from 36% to 26% due to decreased sales, a service initiative in the U.S. to refurbish older Table Master® units in the field as well as sales of older Table Master® units into Latin America.

Electronic Gaming Machines

• Total EGM revenue grew over 20% to a record $23.5 million compared to the prior year period driven primarily by continued momentum from the Equinox™ cabinet and new, popular titles.
• Gross margin increased year-over-year from 60% to 66% primarily due to more efficient production costs from higher volumes, a better designed cabinet, and higher average sales prices.
• Total placements of 1,256 EGMs in fourth quarter grew 18% from the prior year period driven by Equinox™ placements in Australia.

Further detail and analysis of the Company's financial results for the year ended October 31, 2011, is included on the Company’s Form 10-K, which the Company intends to file with the Securities and Exchange Commission on January 5, 2012.