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Wall Street unimpressed by record shuffler revenues

Aug 26, 2003 7:38 AM

Reporting strong growth in its shuffler division, Shuffle Master Inc. (SHFL) completed its fiscal third quarter with net income of $4.6 million and diluted earnings per share of $0.27.

This was in the range of the majority of analysts who had forecast earnings in the range of between $0.25 and $0.27 per share.

The company said revenues for the quarter were $17.4 million, an increase of 15% over the $15.1 million recorded during the comparable period of 2002. The quarterly revenues were the highest ever in the company’s history.

"Not only did our shuffler segment generate record revenue," said Mark L. Yoseloff, chairman and CEO, "but our table games business exhibited broad-based success with multiple titles. In addition, our slot business generated year-over-year gains and the early fourth quarter approval of our ticket-in ticket-out capability is anticipated to produce sequential growth in the four quarter.

"As we look to the conclusion of our fiscal year in October, we are pleased to be on track to deliver 25% plus year-over-year earnings per share growth in fiscal 2003," he remarked.

For the entire year, the company said it had refined its full-year earnings guidance to a range of $0.97 to $0.99 from the previous guidance of $0.95 to $0.97.

Among the highlights of the third fiscal quarter report were:

EBITDA (earnings before interest, taxes, depreciation and amortization) of $8.8 million, or 51% of total revenue.

Free cash flow of $5.3 million.

A total of 23 consecutive quarters of growth.

Surpassed 10,500 shufflers installed.

532 net shufflers placed for the quarter, highlighted by the net placement of 102 Deck Mates.

64 net proprietary table games placed.

Repurchased 40,000 shares of company stock at a cost of $1.07 million, an average price of $26.81 per share.

Despite the optimism expressed by company officials, Wall Street was not impressed. By the end of trading on Friday, the company’s shares had declined by $3.75 to $28.25, a drop of 11.72%.

Of particular concern to some analysts was the 37% less in slot machine sales and slot revenue that they felt came in at some 30% below previous estimates.

Soft machine sales were attributed to a delay in regulatory approval of the company’s ticket-in/ticket-out machines.

Scientific Games

Scientific Games Corporation (SGMS) has amended its 2002 annual report and restated some of its quarterly financial filings with the Security and Exchange Commission. The restatements arose to restate some of the operating loss carryforwards (NOL) that developed during the merger between SGMS and Autotote Inc.

The company emphasized that the restatements involved non-cash adjustments that have no effect on previously reported revenues or EBITDA.

Second quarter 2003 revenues increased 13% to $128.8 million from the $114.3 million reported in the second quarter of 2002. Pre-tax income increased 111% to $19.6 million in the second quarter of 2003 from $9.3 million a year earlier.

Net income before the non-cash preferred stock dividend was $12.6 million of $0.14 per diluted share in the second quarter of 2003 compared to restated net income of $8.1 million or $0.11 per diluted share in the second quarter of 2002.

For the first half of 2003, revenues were $252.1 million compared to $221.2 million in the first half of 2002. Pre-tax income increased 111% to $37.3 million in the first half of 2003 from $17.7 million in the first six months last year.