SHFL Entertainment, Inc. Reports Record Revenue Of $77.4 Million In Second Quarter, Up 17% Year-Over-Year SHFL Also Achieves Record Net Income of $11.8 Million and Record Adjusted EBITDA of $25.4 Million PR Newswire LAS VEGAS, June 4, 2013 LAS VEGAS, June 4, 2013 /PRNewswire/ -- SHFL entertainment, Inc. (NASDAQ Global Select Market: SHFL) ("SHFL" or the "Company") today announced its results for the second quarter ended April 30, 2013. (Logo: http://photos.prnewswire.com/prnh/20121008/LA88315LOGO) "Our record second quarter results reflect a continuation of the strong worldwide demand for our innovative products, particularly in Australia and Asia," said Gavin Isaacs, SHFL's Chief Executive Officer. "What's more, we achieved 17% year-over-year growth against a strong comparable quarter last year that included over $2 million in sales from new openings. The MD3 card shuffler helped fuel this quarter's growth with record placements of 520 units, its strongest performance to date. Our slot machine, shuffler, and specialty table games businesses continued to gain momentum, with each segment reporting record revenue in the quarter. Given the 22% increase in net profit that we announced today, we strongly believe that consistent execution against our strategic initiatives is the right blueprint for building long-term, sustainable value for our shareholders." Second Quarter 2013 Financial Highlights oTotal revenue grew to a record $77.4 million, representing a 17% increase from the prior year period. The Utility, Electronic Gaming Machine ("EGM"), and Proprietary Table Games ("PTG") businesses all saw double-digit growth over the same period last year. oRecurring revenue grew 8% year-over-year to $31.2 million. A $1.2 million increase in PTG recurring revenue accounted for over half of recurring revenue growth. oNet income increased 22% year-over-year to a record $11.8 million. oCompared to the prior year quarter, diluted earnings per share ("EPS") increased 24% to $0.21. Excluding adjustments for expenses related to the terminated Ongame acquisition in last year's comparable quarter, EPS grew 5%. oGross margin, driven by an increase in Utility, EGM, and PTG revenue, grew 40 basis points year-over-year to 65%. oOperating margin was relatively flat year-over-year at 22%. oSelling, general and administrative ("SG&A") expenses grew to approximately $23.9 million, up $4.1 million year-over-year. The increase primarily relates to the following:$1.5 million in compensation and related expenses, driven by growth related to headcount increases as well as increased medical costs; $0.5 million was due to greater sales and profit-driven compensation expenses as a result of more revenue during the current quarter; $1.3 million was due to legal expenses, driven largely by costs associated with protecting and defending the Company's valuable intellectual property; $0.5 million was due to expanding the Company's iGaming sales team and offices; $0.4 million was related to advertising and tradeshow expenses. Slightly offsetting SG&A expenses were corporate development and due diligence expenses, which relate to the Company's evaluation of strategic M&A, and were $0.6 million less in the current quarter than the year-ago quarter; the prior year period included expenses from the terminated Ongame acquisition. oResearch & Development ("R&D") expenses increased $1.2 million year-over-year to $9.1 million. The increased costs were evenly divided between the hiring of additional iGaming personnel and compliance expenses for new content releases and territory expansion related to the EGM segment. oAdjusted EBITDA grew 7% year-over-year to a record $25.4 million. oFree Cash Flow ("FCF")^1, a non-GAAP financial measure, was down $3.1 million year-over-year to $8.6 million. FCF was impacted by an approximately $2.3 million increase in cash taxes paid due to increased profitability in the U.S. and Australia, in addition to an increase of $2.5 million in capital expenditures, largely attributable to the Company's construction of a new consolidated facility in Las Vegas. "Our diverse businesses continue to deliver solid financial results," said Linster Fox, SHFL's Chief Financial Officer. "We are confident that keeping our IP-rich businesses well-capitalized has been, and will continue to be, our most important use of cash. However, given our balance sheet's current strong position, we will continue to look at the best way to manage a balance between investing in our business and capital allocation for potential M&A, stock repurchases, and dividends." Second Quarter 2013 Business Segment Highlights Utility oUtility recurring revenue grew 3% year-over-year to $13.7 million, primarily driven by MD3 card shuffler lease placements in the U.S. oTotal Utility revenue increased 22% over the prior year period to $30.5 million. Growth was driven by sales of the MD3 shuffler in Asia as well as the sale of previously leased i-Deal shufflers to a large casino customer in the U.S. oTotal shufflers on lease declined by 28 units year-over-year to 8,073. The decrease was driven by the sale of previously leased i-Deal shufflers to a large casino customer in the U.S. and slightly offset by new shuffler lease placements. oGross margin grew 120 basis points year-over-year to 66%, driven by the sale of previously leased i-Deal shufflers to a large casino customer in the U.S., in addition to shuffler sales in Asia and the U.S. oTotal MD3 units installed totaled 2,734, representing an increase of 1,781 units year-over-year. 520 of those units were placed in the second quarter. Approximately 50% of all MD3 units are currently on lease. Proprietary Table Games^2 oPTG recurring revenue increased 11% year-over-year to $13.0 million. Increased lease placements in all PTG categories - premium table games (Ultimate Texas Hold'em, Mississippi Stud), side bets (6 Card Bonus, Fire Bet), and progressives (Ultimate Texas Hold'em Progressive, Three Card Poker Progressive) – contributed to recurring revenue growth. oTotal PTG revenue increased 18% year-over-year to $14.0 million driven by strong lease placements and increased sales revenue. oGross margin increased 20 basis points to 82% due to the increase in total revenues. oTotal progressive units installed grew 12% year-over-year to 1,245, driven by installations of Ultimate Texas Hold'em Progressive and Three Card Poker Progressive. Electronic Table Systems ("ETS") oETS recurring revenue grew 16% to $4.3 million, compared to $3.7 million in the prior year period, due largely to increased placements of SHFL Fusion Virtual (formerly Vegas Star) on participation in New York. To a lesser extent, increases in recurring revenue from SHFL Fusion Hybrid (formerly Rapid) and i-Table also contributed to the increase. oTotal ETS revenue grew 4% year-over-year to $7.1 million driven by increased sales of SHFL Fusion Virtual in Australia. oETS gross profit decreased 420 basis points year-over-year to 35% due to accelerated depreciation of Table Master units on lease in advance of the new Table Master Fusion launch. Electronic Gaming Machines oTotal EGM revenue grew 16% year-over-year to a record $25.7 million, driven primarily by strong sales in Australia and Asia. oGross margin remained relatively flat year-over-year at 62%. oThere were 1,192 net sold EGM units in the quarter compared to 1,044 in the year-ago quarter. The current year period included the removal of 78 older eStar units on lease, slightly offset by the addition of 36 Equinox units on lease. oApproximately 100 units of the Duo Fu Duo Cai progressive jackpot link were sold in Macau in the quarter. Further detail and analysis of the Company's financial results for the second quarter ended April 30, 2013, is included in its Form 10-Q, which the Company intends to file with the Securities and Exchange Commission today, June 4, 2013. Webcast & Conference Call Information Company executives will provide additional perspective on the Company's second quarter results during a conference call on June 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 Second 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 second 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 July 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 414102. Highlights from the conference call can be accessed on the Company's Investor Relations Twitter account, www.twitter.com/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 configurations; 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, Twitter and YouTube. 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 belief that its innovation will continue to drive competition; (b) the Company's intention to continue to execute against our strategic initiatives; (c) the Company's belief that EPS, Adjusted EBITDA and FCF are useful, widely referenced performance measures in the Company's industry and the Company's belief that references to them are helpful to investors; (d) the Company's estimates of diluted EPS, Adjusted EBITDA and FCF and the assumptions upon which they are based; (e) the Company's belief that investing in its intellectual property is an important use of cash; (f) the Company's ability to develop products that achieve commercial success in the very competitive marketplace in which the Company operates; (g) 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) unexpected changes in demand for or increased competition with the Company's products; (b) unexpected factors that limit or eliminate the Company's ability to implement its strategic plan or undertake or complete any of its growth initiatives; (c) 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; (d) reduced demand for or increased competition with the Company's products that affects its EPS and Adjusted EBITDA; (e) unexpected changes to the Company's balance sheet or cash flows that would impede the Company's ability to pursue protection and pursuit of its intellectual property; (f) the Company's inability to accurately gauge the commercial appeal of its products; and (g) 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. As of FY 13, revenues from the iGaming segment are being reported ^2 separately from the Proprietary Table Games segment. Please see Business Segment Data table for more details. SHFL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended April 30, April 30, 2013 2012 2013 2012 Revenue: Product leases and $ 29,240 $ 26,947 $ 58,592 $ 52,900 royalties Product sales and 48,174 39,107 77,606 69,207 service Total revenue 77,414 66,054 136,198 122,107 Costs and expenses: Cost of leases and 10,582 9,427 20,454 18,378 royalties Cost of sales and 16,738 14,138 27,778 25,419 service Gross profit 50,094 42,489 87,966 78,310 Selling, general and 23,866 19,804 43,912 36,984 administrative Research and 9,101 7,925 17,348 15,452 development Total costs and 60,287 51,294 109,492 96,233 expenses Income from operations 17,127 14,760 26,706 25,874 Other income (expense): Interest income 188 174 342 313 Interest expense (299) (378) (523) (855) Other, net 315 (146) 270 29 Total other 204 (350) 89 (513) income (expense) Income before income taxes 17,331 14,410 26,795 25,361 Income tax provision 5,491 4,675 7,891 7,977 Net income $ 11,840 $ 9,735 $ 18,904 $ 17,384 Basic earnings per share: $ 0.21 $ 0.17 $ 0.33 $ 0.31 Diluted earnings per share: $ 0.21 $ 0.17 $ 0.33 $ 0.31 Weighted average shares outstanding: Basic 56,984 55,751 56,832 55,408 Diluted 57,721 56,653 57,541 56,154 SHFL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) (Unaudited) April 30, October 31, 2013 2012 ASSETS Current assets: Cash and cash equivalents $40,808 $24,160 Accounts receivable, net of allowance for bad 47,506 45,708 debts of $359 and $491 Investment in sales-type leases and notes receivable, net of allowance for bad debts of $224 and $8 9,342 9,287 Inventories 28,079 21,906 Prepaid income taxes 8,806 4,053 Deferred income taxes 4,847 4,622 Other current assets 8,308 6,901 Total current assets 147,696 116,637 Investment in sales-type leases and notes 6,499 6,310 receivable, net of current portion Products leased and held for lease, net 32,235 34,639 Property and equipment, net 23,717 17,417 Intangible assets, net 58,591 62,836 Goodwill 88,156 84,950 Deferred income taxes 3,548 5,183 Other assets 2,588 3,079 Total assets $363,030 $331,051 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $12,102 $6,702 Accrued liabilities and other current liabilities 18,098 22,402 Deferred income taxes 16 16 Customer deposits 3,206 3,383 Income tax payable 3,189 4,179 Deferred revenue 6,177 4,799 Current portion of long-term debt 530 - Total current liabilities 43,318 41,481 Long-term debt 7,299 1,303 Other long-term liabilities 2,085 2,004 Deferred income taxes 1,998 1,493 Total liabilities 54,700 46,281 Commitments and contingencies (See Note 11) Shareholders' equity: Common stock, $0.01 par value; 151,368 shares authorized; 56,384 and 55,973 shares issued and 564 560 outstanding Additional paid-in capital 140,517 135,758 Retained earnings 138,348 119,444 Accumulated other comprehensive income 28,901 29,008 Total shareholders' equity 308,330 284,770 Total liabilities and shareholders' equity $363,030 $331,051 SHFL ENTERTAINMENT, INC. SUPPLEMENTAL DATA (Unaudited, in thousands) Three Months Ended Six Months Ended April 30, April 30, 2013 2012 2013 2012 Cash Flow Data: Cash provided by operating $ 5,042 $ 4,161 $ 18,253 $ 20,604 activities Cash used in investing activities: Payments for products leased $ (3,778) $ (2,856) $ (6,623) $ (6,706) and held for lease Purchases of property and (4,944) (3,358) (6,371) $ (4,240) equipment Purchases of intangible (91) (73) (139) (4,103) assets Acquisition of business (1,590) - (1,590) (5,500) Proceeds from sale of leased 3,987 988 5,140 1,029 assets Proceeds from sale of assets - - - - Other (235) (236) (475) (454) $ (6,651) $ (5,535) $(10,058) $(19,974) Cash provided by (used in) $ 7,766 $ (2,429) $ 8,602 $ (695) financing activities Free cash flow (2) $ 8,623 $11,758 $ 18,240 $ 19,648 Reconciliation of net income to Adjusted EBITDA: Net income $11,840 $ 9,735 $ 18,904 $ 17,384 Other expense (income) (204) 350 (89) 513 Share-based compensation 1,478 1,117 2,887 2,049 Income tax provision 5,491 4,675 7,891 7,977 Depreciation and 6,768 6,380 13,656 12,397 amortization Ongame acquisition expenses - 1,448 - 1,653 Adjusted EBITDA (1) $25,373 $23,705 $ 43,249 $ 41,973 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 1. 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. 2. 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 Six Months Ended April 30, April 30, 2013 2012 2013 2012 Utility: Revenue $30,517 $24,990 $ 55,801 $ 44,606 Gross profit 20,077 16,154 36,134 27,337 Gross margin 65.8% 64.6% 64.8% 61.3% Proprietary Table Games: Revenue $14,003 $11,886 $ 26,831 $ 23,311 Gross profit 11,509 9,750 22,014 19,042 Gross margin 82.2% 82.0% 82.0% 81.7% Electronic Table Systems: Revenue $ 7,113 $ 6,866 $ 14,218 $ 15,130 Gross profit 2,483 2,684 5,453 6,813 Gross margin 34.9% 39.1% 38.4% 45.0% Electronic Gaming Machines: Revenue $25,745 $22,244 $ 39,062 $ 36,742 Gross profit 15,994 13,833 24,087 22,800 Gross margin 62.1% 62.2% 61.7% 62.1% iGaming: Revenue $ 36 $ 68 $ 286 $ 2,318 Gross profit 31 68 278 2,318 Gross margin 86.1% 100.0% 97.2% 100.0% Total: Revenue $77,414 $66,054 $136,198 $122,107 Gross profit 50,094 42,489 87,966 78,310 Gross margin 64.7% 64.3% 64.6% 64.1% Adjusted EBITDA 25,373 23,705 43,249 41,973 as a percentage of total 32.8% 35.9% 31.8% 34.4% revenue Income from operations $17,127 $14,760 $ 26,706 $ 25,874 as a percentage of total 22.1% 22.3% 19.6% 21.2% revenue SOURCE SHFL entertainment Website: http://www.shfl.com Contact: Julia Boguslawski, Investor Relations/ Corporate Communications, ph (702) 897-7150, email@example.com or Gavin Isaacs, CEO or Linster W. Fox, CFO, ph (702) 897-7150, fax: (702) 270-5161
SHFL Entertainment, Inc. Reports Record Revenue Of $77.4 Million In Second Quarter, Up 17% Year-Over-Year
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