03/11/2010

Shuffle Master, Inc. Reports First Quarter 2010 Results

Shuffle Master, Inc. today announced its results for the first quarter and fiscal year ended January 31, 2010.

First Quarter 2010 Financial Highlights
• Revenue of $40.3 million increased by 17%, or $5.8 million, year-over-year from $34.5 million. Adjusted for foreign exchange impact, total revenue increased 9% year-over-year.

• Total lease, royalty and service revenue was up 11% year-over-year and 2% sequentially, and totaled $22.4 million, or 56% of total revenue.

• Gross margin increased 200 basis points to 62%.

• GAAP net income and diluted earnings per share ("EPS") increased to $3.7 million and $0.07, respectively, compared to a net loss of ($1.0) million and ($0.02) in the prior year period.

• Adjusted EBITDA totaled $12.7 million, up 39% from $9.1 million year-over-year.

• Selling, general and administrative ("SG&A") expenses decreased by $1.3 million to $14.4 million, or 8% year-over-year. Excluding the $2.4 million impact of severance charges in the prior year period SG&A expense increased by 8%, but as a percentage of revenue was 36% as compared to 38% in the year-ago quarter. Foreign exchange negatively impacted SG&A expense by approximately $1.0 million.

• Net debt (total debt, less cash and cash equivalents) was $79.3 million as compared to $85.4 million as of October 31, 2009.

“Our results this quarter reflect solid year-over-year growth in ETS leases, continued momentum of our progressive upgrade strategy, and real progress in our Ace to i-Deal shuffler conversion process,” said Tim Parrott, Chief Executive Officer. “This, and the continued strong acceptance of our varied and improved product offerings in existing and new markets, are exciting as we enter the new year.”

First Quarter 2010 Business Segment Highlights
Utility
• Total Utility lease and service revenue of $9.7 million grew 5% year-over-year driven by i-Deal?, MD-2, and one2six® shuffler placements.

• Total Utility revenue increased 12% to $17.6 million as compared to $15.8 million year-over-year, driven by increases in one2six, Deck Mate®, and i-Deal shuffler sales.

• Total leased shuffler installed base grew year-over-year by approximately 300 units to 5,741 units.

• Gross margin increased year-over-year from 54% to 61% primarily due to the increase in sales revenue as well as reduced amortization expense associated with the one2six shuffler and Easy Chipper? C.

• Significant year-over-year placements of the i-Deal shuffler with 780 units installed since the year-ago quarter; 226 of those were installed in the first quarter 2010.

• The total i-Deal installed base grew to approximately 1,400 units, of which approximately 60% are units on lease.

Proprietary Table Games ("PTG")
• Total PTG lease, royalty and service revenue increased 5% year-over-year to $8.9 million.

• Total PTG revenue decreased 6% to $9.0 million as compared to $9.7 million in the year-ago quarter. Approximately $0.6 million of revenue was included in the prior year period related to the Company’s Three Card Poker World Championship Tournament. No such tournament was held in the current period.

• Gross margin remained flat year-over-year at 83%.

• Approximately 120 net placements of progressive upgrades in the first quarter, as compared to 38 net placements made in year-ago quarter, which contributed $0.9 million in lease revenue for the first quarter.

• As of the first quarter, there were approximately 480 total progressives. Fortune Pai Gow Poker® Progressive and Three Card Poker® Progressive comprised approximately 70% of all upgrades.

Electronic Table Systems ("ETS")
• Total ETS lease, royalty and service revenue was a record $3.8 million, up 44% year-over-year, as a result of increased Table Master® seats on lease, led by proprietary titles such as Royal Match 21®, Bet the Set “21”®, and Three Card Poker®.

• Total ETS revenue increased 111% to $8.4 million as compared to $4.0 million in the prior year period as a result of a significant increase in leased Table Master® and sold Rapid Table Game® seats.

• Approximately 340 net placements of ETS seats installed in the first quarter, with Table Master placements comprising 61% of the total.

• Gross margin increased year-over-year from 39% to 47% primarily due to the mix of revenue including sales of higher margin products.

Electronic Gaming Machines ("EGM")
• Total EGM revenue grew 4% to $5.3 million compared to the prior year period mainly due to foreign exchange favorability of approximately $1.3 million. Total EGM revenue excluding the effect of foreign exchange decreased 21%.

• Gross margin increased year-over-year from 48% to 51%, led by increased game conversion kits sales which carry a substantially higher margin than completed units.

• Total placements of EGM seats decreased by 29% from the prior year period but were offset by foreign exchange favorability and, to a lesser extent, increased average sales prices.

“We continue to improve our year-over-year profitability and generate strong cash flow,” said Linster Fox, Chief Financial Officer. “This has enabled us to reduce our net debt to 1.3x our trailing 12 months Adjusted EBITDA.”

Further detail and analysis of the Company's financial results for the year ended January 31, 2010, is included in its Form 10-Q, which has been filed with the Securities and Exchange Commission today, March 11, 2010.

Webcast & Conference Call Information
Company executives will provide additional perspective on the Company’s first quarter earnings results during a conference call on March 11, 2010 at 2 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 Shuffle Master’s First Quarter 2010 Conference Call. A hardcopy of the presentation materials may be printed from the Shuffle Master, Inc. website, www.shufflemaster.com, shortly before the start of the call. In conjunction with the call, a live audio webcast may be accessed at www.shufflemaster.com. In order to access the live audio webcast please allow at least 15 minutes before the start of the call to visit Shuffle Master’s website and download/install any necessary audio/video software for the webcast. Immediately following the call and through April 11, 2010, a playback can be heard 24-hours a day by dialing (201) 612-7415 or toll-free (877) 660-6853; account number is 3055; conference I.D. number is 346156.

This release contains forward-looking statements that are based on management’s current beliefs and expectations about future events, as well as on assumptions made by and information available to management. The Company considers such statements to be made under the safe harbor created by the federal securities laws to which it is subject, and assumes no obligation to update or supplement such statements. Forward-looking statements reflect and are subject to risks and uncertainties that could cause actual results to differ materially from expectations. Factors that could cause actual results to differ materially from expectations include, but are not limited to, the following: changes in the level of consumer or commercial acceptance of the Company’s existing products and new products as introduced; advances by competitors; acceleration and/or deceleration of various product development, promotion and distribution schedules; product performance issues; higher than expected manufacturing, service, selling, administrative, product development, promotion and/or distribution costs; changes in the Company’s business systems or in technologies affecting the Company’s products or operations; reliance on strategic relationships with distributors and technology and manufacturing vendors; current and/or future litigation or claims; tax matters, including changes in tax legislation or assessments by taxing authorities; acquisitions or divestitures by the Company or its competitors of various product lines or businesses and, in particular, integration of businesses that the Company may acquire; changes to the Company’s intellectual property portfolio, such as the issuance of new patents, new intellectual property licenses, loss of licenses, claims of infringement or invalidity of patents; regulatory and jurisdictional issues (e.g., technical requirements and changes, delays in obtaining necessary approvals, or changes in a jurisdiction’s regulatory scheme or approach, etc.) involving the Company and its products specifically or the gaming industry in general; general and casino industry economic conditions; the financial health of the Company’s casino and distributor customers, suppliers and distributors, both nationally and internationally; the Company’s ability to meet its debt service obligations, including the Notes, and to refinance its indebtedness, which will depend on its future performance and other conditions or events and will be subject to many factors that are beyond the Company’s control; and various risk related to the Company’s customers’ operations in countries outside the United States, including currency fluctuation risks, which could increase the volatility of the Company’s results from such operations. Additional information on these and other 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 annual report on Form 10-K.

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