Record business at Shuffle Master
stirs strong Wall Street interest

Dec 16, 2003 5:27 AM

Wall Street investors warmly greeted the news from Shuffle Master Inc. (SHFL) that the company had achieved record earnings for the quarter that ended on Oct. 31, and for the fiscal year.

Earnings for the fourth quarter reached $19.6 million, compared to $15.6 million in the comparable period of a year earlier. Net income for the quarter was $5 million or $0.29 a diluted share compared to last year’s $4.4 million or $0.25 per diluted share.

During the trading period on Friday, Shuffle Master shares were bid up to $32.93 each, an increase of $2.38 a share. There were more than 1.256 million shares traded, substantially higher than the 228,000 shares traded on a normal day.

Commenting on this year’s experience, Mark Yoseloff, chairman and CEO, said, "Our results for the fiscal fourth quarter and the full year reflect solid growth in shuffler and table game leases and sales, combined with high margins at the operating and net income levels."

He also announced that the company will now focus exclusively on its core businesses.

"After careful consideration," Yoseloff said, "we have made the decision to exit our slot operations and to focus on Shuffle Master’s core competency: table game products. We expect this divestiture to be done at a profit. We have already executed several letters of intent related to the divestiture and expect to consummate these transactions within the next few months.

"Once the divestiture is complete, we will have considerable human and capital resources available to purse a more aggressive product development and acquisition strategy as it relates to the table game utility and entertainment products areas."

Among the accomplishments listed were:

Delivered gross margin of 77%, operating margin of 38%, net income margin of 25% and return on average equity of 35%.

Produced recurring revenue of $47.4 million, or 70% of total revenue for the year, with the fourth quarter representing the 24th consecutive quarter of increasing recurring revenue.

Generated EBITDA (earnings before interest, taxes, depreciation and amortization) of $33.5 million, or 50% of total revenue, and free cash flow of $16.9 million.

Installed 363 Deck Mates, the company’s single deck and double deck card shuffler used in poker rooms and on blackjack tables.

Obtained approval for and rolled out its Four Card Poker and Dragon Bonus table games.

Purchased the assets and product intellectual property rights of Sega Gaming TechnologyInc.

Repurchased 1,214,000 shares of the company’s common stock at a cost of $25.6 million, an average of over $21 per share.

Authorized the repurchase of up to an additional $30 million worth of outstanding common shares.

Also last week, Shuffle Master announced that a preliminary injunction had been issued by a District Court relative to the company’s patent infringement litigation against Casinos Austria Research and Development concerning its One2Six Shuffler. The court enjoined the Austrian company and its affiliates from using the shuffler in the U.S.