SHFL entertainment, Inc. Reports First Quarter 2013 Results

         SHFL entertainment, Inc. Reports First Quarter 2013 Results

SHFL Achieves Record First Quarter Revenue of $58.8 Million and Recurring
Revenue Growth of 12%

PR Newswire

LAS VEGAS, March 4, 2013

LAS VEGAS, March 4, 2013 /PRNewswire/ -- SHFL entertainment, Inc. (NASDAQ
Global Select Market: SHFL) ("SHFL" or the "Company") today announced its
results for the first quarter ended January 31, 2013.

(Logo: http://photos.prnewswire.com/prnh/20121008/LA88315LOGO)

"I'm pleased to report record first quarter revenue and several other
highlights including continued strong performance in Asia, which is the
fastest-growing gaming market in the world. PTG continued to grow 12%
year-over-year and, more impressively, the majority of revenue is recurring.
With 29% year-over-year revenue growth, our Utility segment achieved standout
results with over 470 MD3 shuffler placements, many of which were
replacements," said Gavin Isaacs, SHFL's Chief Executive Officer. "The
collective strength of our product categories delivered an overall solid
quarter and we intend to continue capitalizing on our unique business model to
drive profitable, long-term growth for our shareholders."

First Quarter 2013 Financial Highlights

  oTotal revenue grew 5% from the prior year period to $58.8 million. Growth
    in Utility and Proprietary Table Games ("PTG") revenues contributed to the
    increase. The comparable prior year period included $2.3 million received
    from online gaming operators for settlement and licensing fees for the
    usage of the Company's valuable intellectual property whereas the current
    period included approximately $0.3 million. Adjusted for these settlements
    and licensing fees, total revenue increased 9%.
  oRecurring revenue grew 12% year-over-year to $31.3 million. The increase
    was largely due to $1.4 million in additional PTG recurring revenue.
    Increases in Electronic Table Systems ("ETS") and Utility recurring
    revenue also contributed to the growth.
  oGAAP net income decreased 8% year-over-year to $7.1 million due to higher
    operating expenses related to global growth initiatives across all product
    categories. Adjusted for online settlement and licensing fees in both the
    current period and prior year period, net income increased 11%.
  oDiluted earnings per share ("EPS") decreased 14% to $0.12 compared to
    $0.14 in the prior year period. Adjusted for online settlement and
    licensing fees in both the current period and prior year period, EPS grew
    9%, or $0.01.
  oGross margin increased 50 basis points year-over-year to 64%, primarily
    due to an improvement in Utility gross margin driven by an increase in
    shuffler sales.
  oOperating margin decreased 350 basis points to 16.3% due to an increase in
    operating expenses over the same period last year, which, on an adjusted
    basis, was flat year-over-year.
  oSelling, general and administrative ("SG&A") expenses increased $2.9
    million year-over-year to $20.0 million. An increase in legal personnel
    and litigation expenses related to protecting and defending the Company's
    valuable intellectual property contributed approximately $0.8 million to
    the SG&A increase. Approximately $0.7 million of the increase was due to
    greater sales and profit-driven compensation expenses as a result of
    increased revenue during the current quarter and, to a lesser extent, due
    to expanding product management to support new products. Additionally,
    $0.6 million of the increase related to costs associated with the
    Company's newly introduced iGaming segment.
  oResearch & Development ("R&D") expenses increased $0.7 million over the
    prior year period. The increase was driven by the development and
    enhancement of Electronic Gaming Machine ("EGM") titles to support ongoing
    growth in Australia as well as geographic expansion into Asia, the United
    States, and Latin America. Additionally, the increase included expenses
    related to the development of next-generation products such as the new
    Table Master, the DeckMate 2, and the Nexus Command Hardware for
    progressives, as well as further development of iGaming content and
    delivery platforms.
  oAdjusted EBITDA decreased 2% year-over-year to $17.9 million. Adjusted for
    online settlement and licensing fees in both the current period and prior
    year period, Adjusted EBITDA grew 10%.
  oFree Cash Flow ("FCF")^1, a non-GAAP financial measure, grew 22%
    year-over-year to $9.6 million. FCF in the prior year period was impacted
    by the purchase of intellectual property related to the EGM segment.

"The diversity of our product segments among our widespread geographies
enabled us to report year-over-year revenue growth despite seasonality in our
EGM business in the first quarter, typically our softest of the year," said
Linster Fox, SHFL's Chief Financial Officer. "We remain committed to investing
internally in our team and in our products, expanding our business both
internationally and online, and looking for accretive M&A opportunities that
are a strategic fit. Our solid balance sheet and consistently strong cash
flows affords us the flexibility to pursue these growth initiatives."

First Quarter 2013 Business Segment Highlights

Utility

  oUtility recurring revenue grew 6% year-over-year to $13.8 million. The
    increase was driven mainly by the Company's ongoing MD3 shuffler upgrade
    initiative.
  oTotal Utility revenue grew 29% year-over-year to $25.3 million, driven
    mainly by a 94% increase in shuffler sales including MD3 units in the U.S.
    and Asia, as well as iDeal units in Asia.
  oThe shuffler lease installed base grew 2% year-over-year to 8,211.
  oGross margin increased to 64% from 57% due mainly to the significant
    increase in sales revenue.
  oTotal MD3 units installed increased to 2,214 from 695 in the prior year
    period. Approximately half of total installed units are on lease.

Proprietary Table Games^2

  oPTG recurring revenue increased 12% year-over-year to $12.7 million. New
    placements of premium table games (Ultimate Texas Hold'em, Mississippi
    Stud), side bets (Fire Bet, 6 Card Bonus), and strong performance from
    progressives (Fortune Pai Gow Poker Progressive, Three Card Poker
    Progressive, Ultimate Texas Hold'em Progressive) all contributed to the
    increase.
  oTotal segment revenue increased 12% year-over-year to $12.8 million,
    attributed to the strong increase in recurring revenue.
  oGross margin increased 60 basis points to 82% due to the increase in
    recurring revenue.
  oThe progressive installed base increased by 219 units to 1,228 over the
    prior year period. Ultimate Texas Hold'em Progressive and Three Card Poker
    Progressive helped drive the installs.

Electronic Table Systems

  oETS recurring revenue grew 29% year-over-year to $4.4 million due
    primarily to an increase in Table Master participation revenue. Recurring
    revenue from Vegas Star and Rapid Table Games ("Rapid") products also
    contributed to the increase.
  oTotal ETS revenue declined 14% year-over-year to $7.1 million due to fewer
    sales in the quarter. The prior year period included a sale of over 120
    Rapid seats to a customer in Australia.
  oGross margin decreased to 42% from 50% in the prior year period as a
    result of fewer sales in the quarter, as well as accelerated depreciation
    of Table Master units on lease in advance of the new product launch.

Electronic Gaming Machines

  oTotal EGM revenue decreased 8% year-over-year to $13.3 million. The prior
    year period included greater sales into Australia.
  oGross margin fell slightly from 62% in the prior year period to 61% as a
    result of fewer sales.
  o613 EGMs (sold and leased) were placed in the quarter as compared to 745
    in the year-ago quarter.

Further detail and analysis of the Company's financial results for the first
quarter ended January 31, 2013, is included in its Form 10-Q, which the
Company intends to file with the Securities and Exchange Commission today,
March 4, 2013.

Webcast & Conference Call Information
Company executives will provide additional perspective on the Company's first
quarter results during a conference call on March 4, 2013 at 2:00 pm Pacific
Time. Those interested in participating in the call may do so by dialing (201)
689-8263 or toll-free (877) 407-0792 and requesting SHFL entertainment's First
Quarter 2013 Conference Call. A hardcopy of the presentation materials may be
printed from the SHFL entertainment, Inc. Investor Relations website,
http://ir.shfl.com, shortly before the start of the call. In conjunction with
the call, a live audio webcast and a Company slide presentation highlighting
first quarter performance may be accessed at http://ir.shfl.com. In order to
access the live audio webcast please allow at least 15 minutes before the
start of the call to visit SHFL entertainment's Investor Relations website and
download/install any necessary audio/video software for the webcast.
Immediately following the call and through April 4, 2013, a playback can be
heard 24-hours a day by dialing (858) 384-5517 or toll-free (877) 870-5176;
replay pin number 408721. Highlights from the conference call can be accessed
on the Company's Investor Relations Twitter account, @SHFL_News.

About SHFL entertainment, Inc.
SHFL entertainment, Inc. is a leading global gaming supplier committed to
making gaming more fun for players and more profitable for operators through
product innovation, and superior quality and service. The Company operates in
legalized gaming markets across the globe and provides state-of-the-art,
value-add products in five distinct categories: Utility products, which
include automatic card shufflers and roulette chip sorters; Proprietary Table
Games, which includes live games, side bets and progressives; Electronic Table
Systems, which include various e-Table game platforms; Electronic Gaming
Machines, which include video slot machines; and newly introduced iGaming,
which features online versions of SHFL entertainment's table games, social
gaming, and mobile applications. The Company is included in the S&P SmallCap
600 Index. Information about the Company and its products can be found on the
Internet at www.shfl.com, or on Facebook and Twitter.

Forward Looking Statements
This release contains forward-looking statements within the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. All
statements included in this release other than statements that are purely
historical are forward-looking statements. Forward-looking statements in this
press release include without limitation: (a) the Company's intention to
invest in its business, including its new iGaming business, will position it
for long-term sustainable growth; (b) the Company's belief that EPS, Adjusted
EBITDA and Free Cash Flow are useful, widely referenced performance measures
in the Company's industry and the Company's belief that references to them are
helpful to investors; (c) the Company's estimates of diluted EPS and Adjusted
EBITDA and the assumptions upon which they are based; (d) the Company's belief
in investing in its team, products, expansion of its business, and accretive
M&A opportunities that are a strategic fit and that its balance sheet and cash
flows will afford it the ability to pursue these initiatives; (e) the
Company's ability to develop products that achieve commercial success in the
very competitive marketplace in which the Company operates; (f) the fact that
the Company competes in a single industry and is dependent on the success of
its customers and the risks that impact the Company's customers, including a
change in demand for gaming, a downturn in general worldwide economic
conditions, or the gaming industry may adversely impact the Company or its
results of operations. The Company's beliefs, expectations, forecasts,
objectives, anticipations, intentions and strategies regarding the future,
including without limitation those concerning expected operating results,
revenues and earnings are not guarantees of future performance and are subject
to risks and uncertainties that could cause actual results to differ
materially from results contemplated by the forward-looking statements,
including but not limited to: (a) inability to accomplish the Company's
innovation objectives or unexpected factors that limit or eliminate the
Company's ability to implement its strategic plan or undertake or complete any
of its growth initiatives, including iGaming; (b) inaccuracies in the
Company's assumptions as to the financial measures that investors use or the
manner in which such financial measures may be used by such investors; (c)
reduced demand for or increased competition with the Company's products that
affects its EPS and Adjusted EBITDA; (d) unexpected changes to the Company's
balance sheet or cash flows that would impede the Company's ability to pursue
initiatives such as investing in its team, products or expansion of its
business or the Company's inability to locate suitable accretive M&A
opportunities; (e) the Company's inability to accurately gauge the commercial
appeal of its products; and (f) unexpected changes in the market and economic
conditions and reduced demand for or increased competition with the Company's
products. Additional information on risk factors that could potentially affect
the Company's financial results may be found in documents filed by the Company
with the Securities and Exchange Commission, including the Company's current
reports on Form 8-K, quarterly reports on Form 10-Q and its latest annual
report on Form 10-K, and are based on information available to the Company on
the date hereof. The Company does not intend, and assumes no obligation, to
update any forward-looking statements. Readers are cautioned not to place
undue reliance on forward-looking statements, which speak only as of the date
of this press release.

^1 Free Cash Flow is Adjusted EBITDA less capital expenditures and cash paid
for taxes.

^2 As of FY 13, revenues from the iGaming segment are being reported
separately from the Proprietary Table Games segment.



SHFL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)
                                          Three Months Ended
                                          January 31,
                                          2013           2012
Revenue:
      Product leases and royalties        $  29,352    $  25,953
      Product sales and service           29,432         30,100
            Total revenue                 58,784         56,053
Costs and expenses:
      Cost of leases and royalties        9,872          8,951
      Cost of sales and service           11,040         11,281
            Gross profit                  37,872         35,821
      Selling, general and administrative 20,046         17,180
      Research and development            8,247          7,527
            Total costs and expenses      49,205         44,939
Income from operations                    9,579          11,114
Other income (expense):
      Interest income                     154            139
      Interest expense                    (224)          (477)
      Other, net                          (45)           175
            Total other income (expense)  (115)          (163)
Income from operations before tax         9,464          10,951
Income tax provision                     2,400          3,302
Net income                                $   7,064   $   7,649
Basic earnings per share:                 $    0.12  $    0.14
Diluted earnings per share:               $    0.12  $    0.14
Weighted average shares outstanding:
      Basic                               56,680         55,064
      Diluted                             57,361         55,653





SHFL ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)
                                                 January 31,  October 31,
                                                 2013           2012
ASSETS
Current assets:
 Cash and cash equivalents                       $34,185        $24,160
 Accounts receivable, net of allowance for bad   36,349         45,708
 debts of $462 and $491
 Investment in sales-type leases and notes
 receivable, net of allowance
                                                 9,333          9,287
 for bad debts of $9 and $8
 Inventories                                     25,438         21,906
 Prepaid income taxes                            6,343          4,053
 Deferred income taxes                           4,883          4,622
 Other current assets                            7,227          6,901
           Total current assets                  123,758        116,637
Investment in sales-type leases and notes        5,824          6,310
receivable, net of current portion
Products leased and held for lease, net          33,241         34,639
Property and equipment, net                      17,878         17,417
Intangible assets, net                           61,093         62,836
Goodwill                                         86,755         84,950
Deferred income taxes                            3,735          5,183
Other assets                                     3,042          3,079
Total assets                                     $335,326       $331,051
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable                                $5,836         $6,702
 Accrued liabilities and other current           15,647         22,402
 liabilities
 Deferred income taxes                           16             16
 Customer deposits                               3,444          3,383
 Income tax payable                              3,956          4,179
 Deferred revenue                                4,793          4,799
           Total current liabilities             33,692         41,481
Long-term debt, net of current portion           1,301          1,303
Other long-term liabilities                      2,099          2,004
Deferred income taxes                            1,778          1,493
           Total liabilities                     38,870         46,281
Commitments and Contingencies (See Note 11)
Shareholders' equity:
 Common stock, $0.01 par value; 151,368 shares
 authorized;
                                                 562            560
 56,199 and 55,973 shares issued and outstanding
 Additional paid-in capital                      137,284        135,758
 Retained earnings                               126,508        119,444
 Accumulated other comprehensive income         32,102         29,008
           Total shareholders' equity           296,456        284,770
Total liabilities and shareholders' equity       $335,326       $331,051





SHFL ENTERTAINMENT, INC.

SUPPLEMENTAL DATA

(Unaudited, in thousands)
                                                  Three Months Ended
                                                  January 31,
                                                 2013         2012
Cash Flow Data:
Cash provided by operating activities            $13,211      $ 16,443
Cash used in investing activities:
Payments for products leased and held for lease  $ (2,845)    $ (3,850)
Purchases of property and equipment              (1,427)      (882)
Purchases of intangible assets                   (48)         (4,030)
Acquisition of business                          -            (5,500)
Proceeds from sale of leased assets              1,153        41
Other                                            (240)        (218)
                                                 $ (3,407)    $(14,439)
Cash provided by (used in) financing activities  $   836    $  1,734
Free cash flow (4)                               $ 9,617     $  7,890
Reconciliation of net income to Adjusted EBITDA:
Net income                                       $ 7,064     $  7,649
Other expense (income)                           115          163
Share-based compensation                         1,409        932
Income tax provision                             2,400        3,302
Depreciation and amortization                    6,888        6,017
Ongame acquisition expenses                      -            205
Adjusted EBITDA (3)                             $17,876      $ 18,268



   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
3. 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.
4. Free cash flow is Adjusted EBITDA less capital expenditures and cash paid
   for taxes.





SHFL ENTERTAINMENT, INC.

BUSINESS SEGMENT DATA

(Unaudited, in thousands)
                                        Three Months Ended
                                       January 31,
                                       2013         2012
Utility:
 Revenue                               $25,284      $19,616
 Gross profit                          16,057       11,183
 Gross margin                          63.5%        57.0%
Proprietary Table Games:
 Revenue                               $12,828      $11,425
 Gross profit                          10,505       9,292
 Gross margin                          81.9%        81.3%
Electronic Table Systems:
 Revenue                               $ 7,105     $ 8,264
 Gross profit                          2,970        4,129
 Gross margin                          41.8%        50.0%
Electronic Gaming Machines:
 Revenue                               $13,317      $14,498
 Gross profit                          8,093        8,967
 Gross margin                          60.8%        61.8%
iGaming:
 Revenue                               $   250    $ 2,250
 Gross profit                          247          2,250
 Gross margin                          98.8%        100.0%
Total:
 Revenue                               $58,784      $56,053
 Gross profit                          37,872       35,821
 Gross margin                          64.4%        63.9%
 Adjusted EBITDA                    17,876       18,268
   as a percentage of total revenue 30.4%        32.6%
 Income from operations             $ 9,579     $11,114
   as a percentage of total revenue 16.3%        19.8%



SOURCE SHFL entertainment, Inc.

Website: http://www.shfl.com
Contact: Julia Boguslawski, Investor Relations/ Corporate Communications,
+1-702-897-7150, jboguslawski@shfl.com, or Gavin Isaacs, CEO, or Linster W.
Fox, CFO, ph, +1-702-897-7150, fax, +1-702-270-5161
 
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