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

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.

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"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

• Total 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.
• Recurring 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.
• Net income increased 22% year-over-year to a record $11.8 million.
• Compared 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%.
• Gross margin, driven by an increase in Utility, EGM, and PTG revenue, grew 40 basis points year-over-year to 65%.
• Operating margin was relatively flat year-over-year at 22%.
• Selling, 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.
• Research & 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.
• Adjusted EBITDA grew 7% year-over-year to a record $25.4 million.
• Free 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

• Utility recurring revenue grew 3% year-over-year to $13.7 million, primarily driven by MD3 card shuffler lease placements in the U.S.
• Total 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.
• Total 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.
• Gross 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.
• Total 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 Games²

• PTG 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.
• Total PTG revenue increased 18% year-over-year to $14.0 million driven by strong lease placements and increased sales revenue.
• Gross margin increased 20 basis points to 82% due to the increase in total revenues.
• Total 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")

• ETS 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.
• Total ETS revenue grew 4% year-over-year to $7.1 million driven by increased sales of SHFL Fusion Virtual in Australia.
• ETS 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

• Total EGM revenue grew 16% year-over-year to a record $25.7 million, driven primarily by strong sales in Australia and Asia.
• Gross margin remained relatively flat year-over-year at 62%.
• There 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.
• Approximately 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.

SOURCE SHFL entertainment