Shuffle Master reports best-ever first quarter

Friday, March 4, 2005 | 11 a.m.

Riding a 63 percent increase in revenue, Shuffle Master Inc. on Thursday reported its best-ever first quarter, beating analysts' expectations.

The Las Vegas-based gaming equipment manufacturer reported earnings of $6.1 million, 17 cents a share, on revenue of $25.4 million for the company's first quarter ended Jan. 31. That compared with earnings of $5.9 million, 15 cents a share, on revenue of $15.6 million for the same period a year earlier.

Revenue climbed despite a decline in table game leases. The company has sold "lifetime leases" to some casino outlets.

Nine analysts surveyed by Thomson First Call expected earnings of 15 cents a share for the quarter.

"It was the best first quarter in our history and far stronger than our forecast," said Mark Yoseloff, chairman and chief executive of Shuffle Master in a conference call that followed the earnings announcement Thursday.

An analyst who monitors Shuffle Master said in a note to investors today that while the company had a solid quarter, investors may still worry about a decline in table game leases.

"Despite a good quarter, investors will once again express come concern with respect to the sequential decline in the table games lease base during the quarter, as the number of lifetime license sales of Three Card Poker and Let it Ride were greater than the additions to the lease base during the quarter," said Marc Falcone of Deutsche Bank Securities Inc.

Falcone said he thinks the lease decline and a lower average lease price on them were anomalies for the quarter, since most of the conversions from leases to sales occurred for games on cruise ships.

"While a difficult decision for management given the controversy, we believe this was a smart business decision," Falcone wrote. "In a nutshell, we believe the company removed some of its lowest revenue tables from the lease base, which had a higher-than-normal probability of being returned to the company and instead monetized them by selling them at a discount."

The company attributed the strong revenue showing to 2004 acquisitions beginning to pay off.

Revenue from utility products climbed to $13.4 million compared with $8.2 million for the same period a year earlier. The company's May acquisition of Casinos Austria Research and Development, an Austrian maker of card shufflers and chip sorters, resulted in a greater number of shuffler units on lease.

The company's Entertainment Products division showed a 61 percent revenue increase to $12 million from $7.4 million a year ago, thanks to the growth in popularity of the company's new Four Card Poker game and games acquired from BET Technology Inc., Reno, in February 2004.

The company said its licenses for Let It Ride and Three Card Poker continue to be strong.

Yoseloff said the company is targeting year-over-year growth of between 25 percent and 30 percent in earnings per share for the second quarter and the 2005 fiscal year, projecting a range of between 17 cents and 19 cents a share for the second quarter and 77 cents to 79 cents for 2005.

He said he expects much of the company's growth to occur outside the United States.

"The growth opportunities for Shuffle Master continue to be signficant," Yoseloff said. "There's a table games renaissance and internationally, table games command much more of the casino floor space, unlike in the United States."

Yoseloff said the company has several new products that should fuel growth in the next couple of years. The company has acquired radio frequency identification intellectual property for chips to help track table game play and the company is rolling out its Easy Chipper product that sorts multicolored chips on roulette tables.

The company also is gearing to leverage its intellectual property with a subsidiary it formed in January, Shuffle Up Production Inc.

"We've historically operated tournaments for our customers," Yoseloff said. "We're now taking that tournament experience on a different scale."

The company will use Shuffle Up to develop Three Card Poker tournaments that will conclude with final rounds in Las Vegas and the winner collecting a $1 million prize.