Shuffle Master, Inc. Reports First Quarter 2010 Results

Shuffle Master, Inc. (NASDAQ Global Select Market: SHFL) ("Shuffle Master” or the "Company”) 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.

About Shuffle Master, Inc.

Shuffle Master, Inc. is a gaming supply company specializing in providing its casino customers with improved profitability, productivity and security, as well as popular and cutting-edge gaming entertainment content, through value-add products in four distinct categories: Utility products which include automatic card shuffler, roulette chip sorters and intelligent table system modules, Proprietary Table Games which include live table game tournaments, Electronic Table Systems which include various e-Table game platforms and Electronic Gaming Machines which include traditional video slot machines for select markets. The Company is included in the S&P Smallcap 600 Index. Information about the Company and its products can be found on the Internet at www.shufflemaster.com.

Forward Looking Statements

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. Risk factors that could cause actual results to differ materially from expectations include, but are not limited to, the following: the Company’s intellectual property or products may be infringed, misappropriated, invalid, or unenforceable, or subject to claims of infringement, invalidity or unenforceability, or insufficient to cover competitors' products; the gaming industry is highly regulated and the Company must adhere to various regulations and maintain its licenses to continue its operations; the Company’s ability to implement its ongoing strategic plan successfully is subject to many factors, some of which are beyond the Company’s control; litigation may subject the Company to significant legal expenses, damages and liability; the Company’s products currently in development may not achieve commercial success; the Company competes in a single industry, and its business would suffer if its products become obsolete or demand for them decreases; any disruption in the Company’s manufacturing processes or significant increases in manufacturing costs could adversely affect its business; the products in each of our segments may experience losses due to technical difficulties or fraudulent activities; the Company operates in a very competitive business environment; the Company is dependent on the success of its customers and is subject to industry fluctuations; risks that impact the Company’s customers may impact the Company; certain market risks may affect the Company’s business, results of operations and prospects; a continued downturn in general worldwide economic conditions or in the gaming industry or a reduction in demand for gaming may adversely affect the Company’s results of operations; the Company’s domestic and global growth and ability to access capital markets are subject to a number of economic risks; economic, political, legal and other risks associated with the Company’s international sales and operations could adversely affect its operating results; changes in gaming regulations or laws; the Company is exposed to foreign currency risk; the Company could face considerable business and financial risk in implementing acquisitions; if the Company’s products contain defects, its reputation could be harmed and its results of operations adversely affected; the Company may be unable to adequately comply with public reporting requirements; the Company’s continued compliance with its financial covenants in its senior secured credit facility is subject to many factors, some of which are beyond the Company’s control; the restrictive covenants in the agreement governing the Company’s senior secured credit facility may limit its ability to finance future operations or capital needs or engage in other business activities that may be in its interest; and the Company’s business is subject to quarterly fluctuation. 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 its latest annual report on Form 10-K.