SHFL Entertainment, Inc. Reports Record Revenue Of $77.4 Million In Second Quarter, Up 17% Year-Over-Year

  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, jboguslawski@shfl.com or Gavin Isaacs, CEO or Linster W. Fox,
CFO, ph (702) 897-7150, fax: (702) 270-5161
 
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