SHFL reported 3Q09 results, handily beating Street EBITDA and EPS expectations.



Shuffle Master reported $45.1MM of revenues and $15.6MM of EBITDA, slightly ahead of Street revenue expectations of $44.3MM and handily beating EBITDA estimates of $14.2MM.


"We are continuing to see the real impact on our bottom line of specific cost containment measures initiated earlier this year and are confident that regional expansions, new openings in Asia, increased momentum in the shuffler replacement cycle and the i-Table roll-out this fall are all milestones on the path toward future top line improvements as well."


3Q09 Highlights

  • 967 installed iDeal shufflers replaced old Ace shufflers which are being phased out; 133 of which were installed in the 3Q09, 3000 (of the total 4500 in the field) Aces are expected to be converted to iDeal by the end of 2010
  • Proprietary table game revenue increased primarily due to Texas Hold Em
  • New Rapid concept - Rapid 37 for Indian Gaming markets where roulette isn't legal
  • Customers expressing interest in paying for shufflers based on usage; however, determining/tracking usage is a challenge
  • Continue to acquire and develop properietary table games - newest game incorporates iDeal into the game, still in preliminary testing stages
  • Stronger USD has caused their top-line results to look weaker, however, bottom line impact is very small
    • 3Q09 gross margins where impacted by FX though - Australia and EGM, ex FX GM would have been 59% (unchanged y-o-y)
  • Leasing products (iDeal) negatively impacted gross margins since they were initially rolled out under "introductory" discount pricing
    • Will continue to focus on emphasizing this business
  • Utility sales declined (shifting to lease); however pricing increased
  • Proprietary table games revenue increase was driven by sales activity
    • Margins were down as a result of higher depreciation
  • Electronic Table Systems - majority of tables sold in the quarter were in Australia
    • Higher lease prices were offset by higher amortization
  • Electronic Gaming Machines margin increase driven by higher conversions
  • Cost containment has generated 8.7MM of non-FX related savings
  • SG&A reduced by 2.6MM (ex FX)
  • Leverage was 1.8x
  • Expected full year tax rate is 28-33%
  • Working capital - inventory is the largest tangible asset on the balance sheet. Increase related to ramp of utility projects going to openings in Asia and products close to completion to be shipped in the 4Q09
  • $55MM available on RC
  • Openings of Genting and LVS Marina Bay - nice opportunity for them. City Center will also have some of their products.  Delaware & PA table game introductions will present an opportunity to ship shufflers


  • 3Q09 level of stock comp is a good run rate to use going forward
  • Internal goal for operating margin as they move their mix more towards lease?
    • Taking advantage of cost efficiencies to not always need to raise rates, but want to get to remain in the high 50's maybe eventually low 60's
  • Use of free cash
    • Nothing obvious on the M&A front - just add on products and game titles
    • Look to paydown debt as their primary use of cash
    • As they continue to increase leases they will need to spend money on inventory
  • Expecting to replace over 3,000 of the 4,500 old Ace shufflers over of the next 14 months or so
  • Trying to become more "build to order" and improve supply chain management
  • Shipping to Singapore in F1Q2010 (their FY), both lease and sales

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