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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Shfl Entertainment, Inc. (MM) | NASDAQ:SHFL | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 23.20 | 0 | 01:00:00 |
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended July 31, 2012
|
|
OR
|
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
|
Minnesota
|
41-1448495
|
|
(State or Other Jurisdiction
|
(IRS Employer Identification No.)
|
|
of Incorporation or Organization)
|
||
1106 Palms Airport Drive, Las Vegas
|
NV
|
89119
|
(Address of Principal
|
(State)
|
(Zip Code)
|
Executive Offices)
|
Large accelerated filer
o
|
Accelerated filer
x
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Page
|
||
PART I—FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements (unaudited):
|
|
Condensed Consolidated Statements of Operations for the Three and Nine Months ended July 31, 2012 and 2011
|
3
|
|
Condensed Consolidated Balance Sheets as of July 31, 2012 and October 31, 2011
|
4
|
|
Condensed Consolidated Statements of Cash Flows for the Nine Months ended July 31, 2012 and 2011
|
5
|
|
Notes to Condensed Consolidated Financial Statements
|
6
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
20
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
43
|
Item 4.
|
Controls and Procedures
|
43
|
PART II—OTHER INFORMATION
|
||
Item 1.
|
Legal Proceedings
|
43
|
Item 1A.
|
Risk Factors
|
43
|
Item 2.
|
Unregistered Sale of Equity Securities and Use of Proceeds
|
44
|
Item 3.
|
Defaults Upon Senior Securities
|
44
|
Item 4.
|
Mine Safety Disclosures
|
44
|
Item 5.
|
Other Information
|
44
|
Item 6.
|
Exhibits
|
44
|
Signatures
|
45
|
Three Months Ended
July 31,
|
Nine Months Ended
July 31,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Revenue:
|
||||||||||||||||
Product leases and royalties
|
$ | 27,830 | $ | 24,785 | $ | 80,730 | $ | 72,625 | ||||||||
Product sales and service
|
35,556 | 33,542 | 104,763 | 89,400 | ||||||||||||
Total revenue
|
63,386 | 58,327 | 185,493 | 162,025 | ||||||||||||
Costs and expenses:
|
||||||||||||||||
Cost of leases and royalties
|
9,475 | 8,970 | 27,853 | 24,506 | ||||||||||||
Cost of sales and service
|
13,889 | 13,135 | 39,308 | 36,035 | ||||||||||||
Gross profit
|
40,022 | 36,222 | 118,332 | 101,484 | ||||||||||||
Selling, general and administrative
|
19,007 | 16,816 | 55,991 | 50,077 | ||||||||||||
Research and development
|
7,622 | 6,695 | 23,074 | 19,494 | ||||||||||||
Total costs and expenses
|
49,993 | 45,616 | 146,226 | 130,112 | ||||||||||||
Income from operations
|
13,393 | 12,711 | 39,267 | 31,913 | ||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
116 | 177 | 429 | 429 | ||||||||||||
Interest expense
|
(367 | ) | (659 | ) | (1,222 | ) | (2,031 | ) | ||||||||
Other, net
|
180 | 457 | 209 | (504 | ) | |||||||||||
Total other income (expense)
|
(71 | ) | (25 | ) | (584 | ) | (2,106 | ) | ||||||||
Income before income taxes
|
13,322 | 12,686 | 38,683 | 29,807 | ||||||||||||
Income tax provision
|
2,898 | 3,560 | 10,875 | 7,931 | ||||||||||||
Net income
|
$ | 10,424 | $ | 9,126 | $ | 27,808 | $ | 21,876 | ||||||||
Basic earnings per share:
|
$ | 0.19 | $ | 0.17 | $ | 0.50 | $ | 0.40 | ||||||||
Diluted earnings per share:
|
$ | 0.18 | $ | 0.17 | $ | 0.49 | $ | 0.40 | ||||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
56,284 | 54,446 | 55,700 | 54,317 | ||||||||||||
Diluted
|
57,029 | 55,123 | 56,445 | 55,009 |
July 31,
2012
|
October 31,
2011
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 28,030 | $ | 22,189 | ||||
Accounts receivable, net of allowance for bad debts of $447 and $402
|
38,299 | 39,713 | ||||||
Investment in sales-type leases and notes receivable, net of allowance
for bad debts of $26 and $44
|
7,939 | 5,006 | ||||||
Inventories
|
25,648 | 24,335 | ||||||
Prepaid income taxes
|
7,991 | 3,279 | ||||||
Deferred income taxes
|
5,072 | 4,911 | ||||||
Other current assets
|
6,753 | 4,291 | ||||||
Total current assets
|
119,732 | 103,724 | ||||||
Investment in sales-type leases and notes receivable, net of current portion
and net of allowance for bad debts of $4 and $5
|
6,304 | 3,704 | ||||||
Products leased and held for lease, net
|
35,791 | 35,196 | ||||||
Property and equipment, net
|
15,860 | 12,849 | ||||||
Intangible assets, net
|
65,144 | 66,517 | ||||||
Goodwill
|
83,523 | 85,392 | ||||||
Deferred income taxes
|
2,863 | 3,038 | ||||||
Other assets
|
2,586 | 2,467 | ||||||
Total assets
|
$ | 331,803 | $ | 312,887 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$ | 5,995 | $ | 5,001 | ||||
Accrued liabilities and other current liabilities
|
19,618 | 21,135 | ||||||
Deferred income taxes
|
83 | 96 | ||||||
Customer deposits
|
3,480 | 3,407 | ||||||
Income tax payable
|
6,187 | 2,595 | ||||||
Deferred revenue
|
4,503 | 3,862 | ||||||
Current portion of long-term debt
|
500 | 508 | ||||||
Total current liabilities
|
40,366 | 36,604 | ||||||
Long-term debt, net of current portion
|
15,749 | 38,757 | ||||||
Other long-term liabilities
|
1,818 | 2,969 | ||||||
Deferred income taxes
|
2,953 | 942 | ||||||
Total liabilities
|
60,886 | 79,272 | ||||||
Commitments and Contingencies (See Note 11)
|
||||||||
Shareholders' equity:
|
||||||||
Common stock, $0.01 par value; 151,368 shares authorized;
55,900 and 54,196 shares issued and outstanding
|
559 | 542 | ||||||
Additional paid-in capital
|
134,321 | 114,306 | ||||||
Retained earnings
|
108,646 | 80,838 | ||||||
Accumulated other comprehensive income
|
27,391 | 37,929 | ||||||
Total shareholders' equity
|
270,917 | 233,615 | ||||||
Total liabilities and shareholders' equity
|
$ | 331,803 | $ | 312,887 |
Nine Months Ended
July 31,
|
||||||||
2012
|
2011
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 27,808 | $ | 21,876 | ||||
Adjustments to reconcile net income to cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
18,657 | 17,951 | ||||||
Amortization of debt issuance costs
|
357 | 357 | ||||||
Share-based compensation
|
3,063 | 2,184 | ||||||
Provision for bad debts
|
113 | 140 | ||||||
Write-down for inventory obsolescence
|
533 | 626 | ||||||
Profit on sale of leased assets
|
(721 | ) | (4,182 | ) | ||||
Loss on sale of assets
|
231 | 238 | ||||||
Excess tax benefit from exercise of stock options
|
(1,370 | ) | (808 | ) | ||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable and investment in sales-type leases and notes receivable
|
(5,191 | ) | 3,961 | |||||
Inventories
|
(3,261 | ) | (3,948 | ) | ||||
Accounts payable and accrued liabilities
|
(2,658 | ) | (21,232 | ) | ||||
Customer deposits and deferred revenue
|
561 | 825 | ||||||
Income taxes payable
|
3,300 | 3,666 | ||||||
Deferred income taxes
|
2,590 | 1,036 | ||||||
Prepaid income taxes
|
(4,714 | ) | 3,812 | |||||
Other
|
(3,430 | ) | 10,190 | |||||
Net cash provided by operating activities
|
35,868 | 36,692 | ||||||
Cash flows from investing activities:
|
||||||||
Proceeds from sale of leased assets
|
1,640 | 6,240 | ||||||
Proceeds from sale of assets
|
- | 86 | ||||||
Payments for products leased and held for lease
|
(11,227 | ) | (11,608 | ) | ||||
Purchases of property and equipment
|
(5,852 | ) | (2,683 | ) | ||||
Purchases of intangible assets
|
(4,333 | ) | (6,269 | ) | ||||
Acquisition of business
|
(5,500 | ) | (6,499 | ) | ||||
Other
|
(690 | ) | (701 | ) | ||||
Net cash used in investing activities
|
(25,962 | ) | (21,434 | ) | ||||
Cash flows from financing activities:
|
||||||||
Proceeds from Revolver
|
11,000 | 16,500 | ||||||
Debt payments on Revolver
|
(34,000 | ) | (15,000 | ) | ||||
Proceeds from issuances of common stock, net
|
16,238 | 2,156 | ||||||
Excess tax benefit from exercise of stock options
|
1,370 | 808 | ||||||
Other
|
(43 | ) | (41 | ) | ||||
Net cash provided by (used in) financing activities
|
(5,435 | ) | 4,423 | |||||
Effect of exchange rate changes on cash and cash equivalents
|
1,370 | 522 | ||||||
Net increase in cash and cash equivalents
|
5,841 | 20,203 | ||||||
Cash and cash equivalents, beginning of period
|
22,189 | 9,988 | ||||||
Cash and cash equivalents, end of period
|
$ | 28,030 | $ | 30,191 |
|
·
|
persuasive evidence of an arrangement exists;
|
|
·
|
the price to the customer is fixed and determinable;
|
|
·
|
delivery has occurred and any acceptance terms have been fulfilled; and
|
|
·
|
collection is reasonably assured.
|
|
·
|
For fair value categorized in Level 3 of the fair value hierarchy:
|
|
1.
|
a quantitative disclosure of the unobservable inputs and assumptions used in the measurement,
|
|
2.
|
a description of the valuation processes in place (e.g., how the entity decides its valuation policies and procedures, as well as changes in its analyses of fair value measurements, from period to period), and
|
|
3.
|
a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs.
|
|
·
|
The level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed.
|
July 31,
2012
|
October 31,
2011
|
|||||||
(In thousands)
|
||||||||
Net inventories:
|
||||||||
Raw materials and component parts
|
$ | 14,433 | $ | 12,984 | ||||
Work-in-process
|
3,532 | 3,947 | ||||||
Finished goods
|
7,683 | 7,404 | ||||||
Total
|
$ | 25,648 | $ | 24,335 |
July 31,
2012
|
October 31,
2011
|
|||||||
(In thousands)
|
||||||||
Other current assets:
|
||||||||
Other prepaid expenses
|
$ | 4,236 | $ | 2,302 | ||||
Other receivables
|
1,868 | 1,271 | ||||||
Other
|
649 | 718 | ||||||
Total
|
$ | 6,753 | $ | 4,291 |
July 31,
2012
|
October 31,
2011
|
|||||||
(In thousands)
|
||||||||
Products leased and held for lease:
|
||||||||
Utility
|
$ | 49,910 | $ | 47,073 | ||||
Less: accumulated depreciation
|
(33,863 | ) | (29,891 | ) | ||||
Utility, net
|
16,047 | 17,182 | ||||||
Proprietary Table Games
|
8,878 | 6,158 | ||||||
Less: accumulated depreciation
|
(4,256 | ) | (2,496 | ) | ||||
Proprietary Table Games, net
|
4,622 | 3,662 | ||||||
Electronic Table Systems
|
28,461 | 28,749 | ||||||
Less: accumulated depreciation
|
(15,655 | ) | (15,571 | ) | ||||
Electronic Table Systems, net
|
12,806 | 13,178 | ||||||
Electronic Gaming Machines
|
3,061 | 1,266 | ||||||
Less: accumulated depreciation
|
(745 | ) | (92 | ) | ||||
Electronic Gaming Machines, net
|
2,316 | 1,174 | ||||||
Total, net
|
$ | 35,791 | $ | 35,196 |
July 31,
2012
|
October 31,
2011
|
|||||||
(In thousands)
|
||||||||
Accrued and other current liabilities:
|
||||||||
Accrued compensation
|
$ | 13,776 | $ | 13,932 | ||||
Accrued taxes
|
1,784 | 2,124 | ||||||
Other accrued liabilities
|
4,058 | 5,079 | ||||||
Total
|
$ | 19,618 | $ | 21,135 |
Weighted Average
Useful Life
(years)
|
July 31,
2012
|
October 31,
2011
|
|||||||||||
(In thousands)
|
|||||||||||||
Amortizable intangible assets:
|
|||||||||||||
Patents, games and products
|
10 | $ | 65,807 | $ | 68,999 | ||||||||
Less: accumulated amortization
|
(51,068 | ) | (52,145 | ) | |||||||||
14,739 | 16,854 | ||||||||||||
Customer relationships
|
10 | 26,702 | 25,688 | ||||||||||
Less: accumulated amortization
|
(14,571 | ) | (12,829 | ) | |||||||||
12,131 | 12,859 | ||||||||||||
Licenses and other
|
6 | - | 9 | 22,971 | 18,925 | ||||||||
Less: accumulated amortization
|
(9,377 | ) | (7,581 | ) | |||||||||
13,594 | 11,344 | ||||||||||||
Total
|
$ | 40,464 | $ | 41,057 |
Activity by Segment
|
Utility
|
Proprietary
Table Games
|
Electronic
Table Systems
|
Electronic
Gaming Machines
|
Total
|
|||||||||||||||
(In thousands)
|
||||||||||||||||||||
Goodwill
|
$ | 42,560 | $ | 9,326 | $ | 34,188 | $ | 11,995 | $ | 98,069 | ||||||||||
Accumulated impairments
|
- | - | (22,137 | ) | - | (22,137 | ) | |||||||||||||
Balance as of October 31, 2010
|
$ | 42,560 | $ | 9,326 | $ | 12,051 | $ | 11,995 | $ | 75,932 | ||||||||||
Foreign currency translation adjustment
|
1,459 | - | 1,140 | 1,135 | $ | 3,734 | ||||||||||||||
Acquisition
|
4,799 | - | - | - | 4,799 | |||||||||||||||
Other
|
- | 927 | - | - | 927 | |||||||||||||||
Balance as of October 31, 2011
|
$ | 48,818 | $ | 10,253 | $ | 13,191 | $ | 13,130 | $ | 85,392 | ||||||||||
Foreign currency translation adjustment
|
(4,863 | ) | (348 | ) | (348 | ) | $ | (5,559 | ) | |||||||||||
Acquisition
|
3,000 | 3,000 | ||||||||||||||||||
Other
|
690 | 690 | ||||||||||||||||||
Balance as of July 31, 2012
|
$ | 43,955 | $ | 13,943 | $ | 12,843 | $ | 12,782 | $ | 83,523 |
July 31,
2012
|
October 31,
2011
|
|||||||
(In thousands)
|
||||||||
Revolver
|
$ | 14,446 | $ | 37,446 | ||||
Other debt
|
1,803 | 1,819 | ||||||
Total debt
|
16,249 | 39,265 | ||||||
Less: current portion
|
(500 | ) | (508 | ) | ||||
Total long-term debt
|
$ | 15,749 | $ | 38,757 |
|
·
|
the Federal Funds Rate plus .50%;
|
|
·
|
the prime commercial lending rate of the Administrative Agent, as defined; and
|
|
·
|
the one month LIBOR rate for such day plus 2.00%.
|
Three Months Ended
July 31,
|
Nine Months Ended
July 31,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
( In thousands)
|
||||||||||||||||
Net income
|
$ | 10,424 | $ | 9,126 | $ | 27,808 | $ | 21,876 | ||||||||
Currency translation adjustment
|
(3,436 | ) | (2,136 | ) | (10,538 | ) | 13,965 | |||||||||
Total comprehensive income
|
$ | 6,988 | $ | 6,990 | $ | 17,270 | $ | 35,841 |
Shares
|
Weighted
Average
|
Weighted
Average
|
Aggregate
Intrinsic
|
|||||||||||||
(In thousands, except per share amount)
|
||||||||||||||||
Outstanding at November 1, 2011
|
4,638 | $ | 14.04 | |||||||||||||
Granted
|
440 | 12.20 | ||||||||||||||
Exercised
|
(1,495 | ) | 10.86 | |||||||||||||
Forfeited or expired
|
(338 | ) | 17.51 | |||||||||||||
Outstanding at July 31, 2012
|
3,245 | $ | 14.90 | 5.6 | $ | 12,093 | ||||||||||
Fully vested and expected to vest at July 31, 2012
|
3,213 | $ | 14.93 | 5.5 | $ | 11,991 | ||||||||||
Exercisable at July 31, 2012
|
2,165 | $ | 17.29 | 4.1 | $ | 7,209 |
Shares
|
Weighted
Average
|
Remaining
Vesting
|
Aggregate
Intrinsic
|
|||||||||||||
(In thousands, except per share amount)
|
||||||||||||||||
Nonvested at November 1, 2011
|
394 | $ | 10.53 | |||||||||||||
Granted
|
455 | 12.35 | ||||||||||||||
Vested
|
(136 | ) | 11.40 | |||||||||||||
Forfeited
|
(50 | ) | 9.23 | |||||||||||||
Nonvested at July 31, 2012
|
663 | $ | 11.70 | 1.6 | $ | 9,679 | ||||||||||
Expected to vest
|
636 | $ | 11.69 | 1.6 | $ | 9,297 |
Three Months Ended
July 31,
|
Nine Months Ended
July 31,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Compensation costs:
|
||||||||||||||||
Stock options
|
$ | 363 | $ | 483 | $ | 1,366 | $ | 1,471 | ||||||||
Restricted stock
|
651 | 223 | 1,697 | 713 | ||||||||||||
Total compensation cost
|
$ | 1,014 | $ | 706 | $ | 3,063 | $ | 2,184 | ||||||||
Related tax benefit
|
$ | (375 | ) | $ | (245 | ) | $ | (1,088 | ) | $ | (761 | ) |
Three Months Ended
July 31, 2012
|
Nine Months Ended
July 31, 2012
|
|||||||
Option valuation assumptions:
|
||||||||
Expected dividend yield
|
None
|
None
|
||||||
Expected volatility
|
62.2 | % | 64.8 | % | ||||
Risk-free interest rate
|
0.6 | % | 0.7 | % | ||||
Expected term (in years)
|
4.4
|
4.5
|
Three Months Ended
July 31,
|
Nine Months Ended
July 31,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(In thousands, except per share amount)
|
||||||||||||||||
Net income available to common shares (1)
|
$ | 10,424 | $ | 9,126 | $ | 27,808 | $ | 21,876 | ||||||||
Basic
|
||||||||||||||||
Weighted average shares
|
56,284 | 54,446 | 55,700 | 54,317 | ||||||||||||
Diluted
|
||||||||||||||||
Weighted average shares, basic
|
56,284 | 54,446 | 55,700 | 54,317 | ||||||||||||
Dilutive effect of options
|
745 | 677 | 745 | 692 | ||||||||||||
Weighted average shares, diluted
|
57,029 | 55,123 | 56,445 | 55,009 | ||||||||||||
Basic earnings per share
|
$ | 0.19 | $ | 0.17 | $ | 0.50 | $ | 0.40 | ||||||||
Diluted earnings per share
|
$ | 0.18 | $ | 0.17 | $ | 0.49 | $ | 0.40 | ||||||||
Weighted average anti-dilutive shares excluded f
rom diluted EPS
|
1,593 | 3,484 | 1,981 | 3,312 |
Carrying Value
July 31, 2012
|
Fair Value
July 31, 2012
|
Carrying Value
October 31, 2011
|
Fair Value
October 31, 2011
|
Fair Value
Hierarchy
|
|||||||||||||
Revolver
|
$ | 14,446 | $ | 14,495 | $ | 37,446 | $ | 37,679 |
Level 2
|
Three Months Ended
July 31,
|
Nine Months Ended
July 31,
|
|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Revenue:
|
||||||||||||||||
Utility
|
$ | 24,382 | $ | 22,575 | $ | 68,988 | $ | 59,108 | ||||||||
Proprietary Table Games
|
12,994 | 10,994 | 38,623 | 32,766 | ||||||||||||
Electronic Table Systems
|
6,053 | 6,793 | 21,183 | 26,721 | ||||||||||||
Electronic Gaming Machines
|
19,957 | 17,965 | 56,699 | 43,430 | ||||||||||||
$ | 63,386 | $ | 58,327 | $ | 185,493 | $ | 162,025 | |||||||||
Gross profit:
|
||||||||||||||||
Utility
|
$ | 15,285 | $ | 12,852 | $ | 42,622 | $ | 35,284 | ||||||||
Proprietary Table Games
|
10,634 | 8,671 | 31,994 | 26,338 | ||||||||||||
Electronic Table Systems
|
2,055 | 3,197 | 8,868 | 12,684 | ||||||||||||
Electronic Gaming Machines
|
12,048 | 11,502 | 34,848 | 27,178 | ||||||||||||
$ | 40,022 | $ | 36,222 | $ | 118,332 | $ | 101,484 | |||||||||
Operating income:
|
||||||||||||||||
Utility
|
$ | 13,334 | $ | 11,208 | $ | 36,986 | $ | 30,294 | ||||||||
Proprietary Table Games
|
8,481 | 7,445 | 25,122 | 23,205 | ||||||||||||
Electronic Table Systems
|
(846 | ) | 328 | (967 | ) | 3,860 | ||||||||||
Electronic Gaming Machines
|
8,701 | 8,336 | 24,948 | 18,493 | ||||||||||||
Unallocated Corporate
|
(16,277 | ) | (14,606 | ) | (46,822 | ) | (43,939 | ) | ||||||||
$ | 13,393 | $ | 12,711 | $ | 39,267 | $ | 31,913 | |||||||||
Depreciation and amortization:
|
||||||||||||||||
Utility
|
$ | 1,874 | $ | 2,252 | $ | 5,549 | $ | 5,451 | ||||||||
Proprietary Table Games
|
1,359 | 1,414 | 3,962 | 4,183 | ||||||||||||
Electronic Table Systems
|
1,630 | 1,397 | 4,940 | 5,300 | ||||||||||||
Electronic Gaming Machines
|
336 | 38 | 879 | 166 | ||||||||||||
Unallocated Corporate
|
1,061 | 974 | 3,327 | 2,851 | ||||||||||||
$ | 6,260 | $ | 6,075 | $ | 18,657 | $ | 17,951 | |||||||||
Capital expenditures:
|
||||||||||||||||
Utility
|
$ | 1,557 | $ | 2,171 | $ | 3,767 | $ | 6,537 | ||||||||
Proprietary Table Games
|
1,109 | 668 | 3,313 | 6,843 | ||||||||||||
Electronic Table Systems
|
2,634 | 1,299 | 4,860 | 4,376 | ||||||||||||
Electronic Gaming Machines
|
211 | 354 | 5,341 | 421 | ||||||||||||
Unallocated Corporate
|
852 | 659 | 4,131 | 2,383 | ||||||||||||
$ | 6,363 | $ | 5,151 | $ | 21,412 | $ | 20,560 |
Three Months Ended
July 31,
|
Nine Months Ended
July 31,
|
|||||||||||||||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||||
United States
|
$ | 28,372 | 44.8 | % | $ | 26,578 | 45.6 | % | $ | 83,327 | 44.9 | % | $ | 76,928 | 47.5 | % | ||||||||||||||||
Canada
|
2,422 | 3.8 | % | 2,696 | 4.6 | % | 6,166 | 3.3 | % | 5,970 | 3.7 | % | ||||||||||||||||||||
Other North America
|
1,046 | 1.6 | % | 1,308 | 2.2 | % | 3,224 | 1.8 | % | 3,668 | 2.3 | % | ||||||||||||||||||||
Europe
|
2,085 | 3.3 | % | 2,344 | 4.0 | % | 6,112 | 3.3 | % | 5,986 | 3.7 | % | ||||||||||||||||||||
Australia
|
20,785 | 32.8 | % | 20,395 | 35.0 | % | 64,772 | 34.9 | % | 55,909 | 34.5 | % | ||||||||||||||||||||
Asia
|
8,240 | 13.0 | % | 4,189 | 7.2 | % | 20,905 | 11.3 | % | 11,965 | 7.4 | % | ||||||||||||||||||||
Other
|
436 | 0.7 | % | 817 | 1.4 | % | 987 | 0.5 | % | 1,599 | 0.9 | % | ||||||||||||||||||||
$ | 63,386 | 100.0 | % | $ | 58,327 | 100.0 | % | $ | 185,493 | 100.0 | % | $ | 162,025 | 100.0 | % |
|
·
|
Business strategies, including with respect to development of new or enhanced products, investment of capital to maximize returns and build our economic engine, and our focus on leasing structures for commercialization of certain products to increase returns and gross margins;
|
|
·
|
Increasing our PTG content through development or acquisitions of new proprietary titles;
|
|
·
|
Expectations of increases in gross margins and revenues from leasing of certain products;
|
|
·
|
The growth opportunities and revenue potential from our i-Table
®
, i-Table Roulette
™
and MD3
™
shuffler products;
|
|
·
|
The benefits of our products;
|
|
·
|
Continued volatility in sales revenue from our Utility segment;
|
|
·
|
Expected increases in leasing revenue in the Utility segment, driven by the MD3
™
shuffler, with the majority of upgrade placements expected to be leases;
|
|
·
|
Expectations to begin revenue generation from Vegas Star
™
Live Roulette;
|
|
·
|
Expectations that EGM revenues will continue to come from sales of EGMs in Australia;
|
|
·
|
Expected growth of additional international markets, including Asia and Latin America;
|
|
·
|
Expectations of EGM placements and revenue in 2012 exceeding 2011 levels.
|
|
·
|
Cash and capital resources being sufficient to satisfy requirements for working capital, capital expenditures, debt service and other liquidity requirements of existing operations for at least the next 12 months;
|
|
·
|
Company expectations with respect to outstanding litigation;
|
|
·
|
Growing capital expenditures in proportion to revenue as a result of our leasing model extending into more capital-intensive products;
|
|
·
|
Expectations that there will be no further expenses recognized with respect to the terminated acquisition of Ongame; and
|
|
·
|
Expectations with respect to foreign currency exchange rate fluctuation risk.
|
|
·
|
Failure to maintain our regulatory licenses or obtain new licenses where necessary;
|
|
·
|
Legislative and regulatory changes that impact us or our customers;
|
|
·
|
Non-compliance with the covenants in our senior secured credit agreement, including as a result of factors that are beyond our control;
|
|
·
|
High volatility or extreme changes in foreign currency exchange rates;
|
|
·
|
Difficulties or delays in, or being prevented from, carrying out acquisitions and subsequent integration of acquired businesses;
|
|
·
|
Difficulties in maintaining and protecting our intellectual property rights;
|
|
·
|
Potential infringement of the intellectual property rights of third parties;
|
|
·
|
Adverse outcomes with respect to litigation regarding intellectual property, including our payment of damages, constraints on our business and operations and invalidation of our intellectual property;
|
|
·
|
Involvement in other legal proceedings, and adverse outcomes with respect to such proceedings which could have a materially adverse effect on our business or prospects;
|
|
·
|
Disruption or delays in our or our suppliers’ manufacturing processes that could prevent us from meeting demand for our products;
|
|
·
|
Revenue losses in any of our business segments due to technical difficulties or fraudulent activities experienced by end users;
|
|
·
|
Inability to obtain market acceptance of products currently in development;
|
|
·
|
Inability to maintain a competitive technological position with respect to our competitors and competitive products;
|
|
·
|
Lower than expected revenues from our transition in certain products to a lease-based commercialization model;
|
|
·
|
Decreased demand for our products, including as a result of developments with respect to competitive products;
|
|
·
|
Adverse economic conditions in the gaming industry, which is our sole industry of focus; and
|
|
·
|
Adverse developments with respect to economic, political, legal and other risks associated with our international sales and operations.
|
|
·
|
An unwavering commitment
to create innovative solutions and services for casino operators and compelling gaming experiences for players
through enhanced customer centricity.
|
|
·
|
Reinforce our relationships with our customers
by providing enhanced efficiencies, security and profitability on the casino floor. We continue to work toward developing innovative products that anticipate and respond to their needs.
|
|
·
|
Maintain a cost-conscious mindset
, promote a lean culture, and serve as prudent stewards of shareholder capital.
|
|
·
|
Seek long-term profitability and sustainability through our recurring revenue model.
We plan to continue to invest capital in our lease business to maximize our return and build on our economic engine.
|
|
·
|
Foster the spirit of invention and the commitment to innovation
that is at the heart of our success. With nearly 2,500 patents, trademarks and copyrights granted and pending, our pipeline for new intellectual property is robust. We believe our intellectual property collectively represents one of the strongest portfolios in the industry and our success depends upon our ability to preserve and protect these core assets.
|
|
·
|
Capitalize on emerging markets and the worldwide proliferation of gaming
. A large part of our success in fiscal 2011 was turning opportunities into achievements. As new markets continue to emerge across the globe and as existing gaming markets continue to evolve, we strive to make the most of every opportunity that arises.
|
|
·
|
S
ound balance sheet management to fuel growth through
:
|
|
o
|
continued investment
in our recurring revenue model, global intellectual property and research and development (“R&D”).
We believe this will promote growth on the Company’s top and bottom line without relying on the introduction of significant new markets;
|
|
o
|
continued
examination of acquisitions. We are seeking opportunities
that are accretive to earnings, have strong existing recurring revenues, and merit our efforts of integration; and
|
|
o
|
use of
our financial resources to improve our return to shareholders through continued deleveraging
.
|
|
·
|
Promote and foster internal staff development and deepen our bench strength
. We know our success is directly attributable to the caliber of our workforce and we remain committed to each and every employee’s development. We will continue to set the talent bar high.
|
|
·
|
Drive margin improvement
across all product categories. Our overall gross margin has shown continuous improvement over the past three fiscal years. We plan to continue our process improvement initiatives and uncover additional operational efficiencies.
|
|
·
|
Capitalize on opportunities created from existing online gaming markets and prepare ourselves for the potential legalization of Internet gambling in the United States.
The gaming landscape is quickly evolving and we will strive to be a leading content-provider in this arena. We believe online gaming represents a significant opportunity for our future growth.
|
|
·
|
We expect to continue increasing lease revenues in our Utility segment within the United States. One of the current growth drivers for this segment has been the Ace® shuffler upgrade initiative. We expect the next revenue driver to be our new MD3™ shuffler. The MD3™ shuffler is our next generation upgrade for the legacy MD series shufflers. As the MD1 shuffler reaches its end of life where replacement parts will no longer be available, our strategy is to encourage our customers to upgrade the MD1 shufflers, both leased and previously sold, with the MD3™ shuffler. The majority of these placements are expected to be leases.
|
|
·
|
We expect to continue seeing volatility in sales revenue in our Utility segment outside the United States. While we encourage leasing outside the United States, a large majority of our international Utility product placements historically have been sales. We are starting to see increased lease activity in international markets such as Australia, Asia and Latin America. Growth drivers for the Utility segment outside the United States are new jurisdictional openings, such as the new openings in Singapore and the Philippines during fiscal 2010, as well as the expansion of existing markets such as Macau. In the current year, we have seen an increase in the demand for our shufflers in Macau, particularly the MD3™ shuffler.
|
|
·
|
Majority of our PTG segment revenue is derived from royalties and leases. While we have a strong leasing presence in the United States, we are constantly looking to expand our proprietary table games in other parts of the world where the current penetration of proprietary table games is lower. With the opening of new casino markets in Asia, we have recently seen some successes with new lease placements of our premium table games as well as progressives and side bets.
|
|
·
|
Although the majority of our PTG revenue comes from our premium table games, we also offer a number of progressive upgrades and side bets. These products are available for our own proprietary table game titles as well as public domain games such as poker, blackjack, baccarat and pai gow poker. These progressives and side bets, offered almost exclusively through leases, are providing a growing share of our total PTG revenue.
|
|
·
|
We also pursue opportunities to place PTG products in new properties and jurisdictions in the United States. Several states have approved live table games over the past year, and we have seen significant placements of our table game products in those new jurisdictions.
|
|
·
|
We intend to increase our PTG content through development and acquisition of new proprietary titles. By increasing our footprint with new titles, we hope to increase our domestic market penetration and expand further into international markets.
|
|
·
|
We intend to seek enforcement against parties that infringe our intellectual property on the Internet in legalized markets where legal systems and availability of cost-effective remedies are available to us.
|
|
·
|
Although we continually pursue opportunities to increase lease revenues in our ETS segment within the United States, we have seen some of our leased ETS products returned from those same markets as some states have approved live table games. While this has caused some setbacks in the growth of our domestic ETS business, we have been able to return some of these products to service in other markets such as Latin America. However, the new placements are not yet performing to the same revenue and profitability levels as the units that were removed.
|
|
·
|
Through development of new products and enhancements of our existing products we expect to generate revenue and growth for the ETS segment. New products include the following:
|
|
o
|
The new i-Table® and i-Table Roulette™ combine an electronic betting interface with a live table game and graphically-enhanced central display screens. We expect these products to provide us with growth opportunities in domestic and international markets if they achieve customer acceptance; and
|
|
o
|
In Australia and Asia, we have begun generating revenue from placements of our new multi-game feature on Rapid Table Games®, which offers enhanced live statistics at the touch of a button and betting can be conducted across multiple games.
|
|
·
|
Our EGM segment is primarily a sales model and we expect to continue to realize the majority of our EGM revenues from sales of EGMs in Australia and Asia.
|
|
·
|
We expect that EGM revenue and placements in fiscal 2012 will continue above 2011 levels primarily driven by updated game content as well as our new Super Topbox for the Equinox™ cabinet.
|
|
·
|
A portion of our EGM revenue base comes from conversions of existing units to new game titles. We are continually developing new titles for our existing machines, and installation of these new titles provides us with an ongoing source of conversion revenue.
|
|
·
|
We also expect growth in additional international markets such as Asia and Latin America. Initial installations into Asia began during the third quarter 2011, of which a majority was Equinox™. In the current year we have placed units in Mexico and Latin America
|
Three Months Ended
July 31,
|
Nine Months Ended
July 31,
|
|||||||||||||||||||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||||
Utility
|
$ | 24,382 | 38.5 | % | $ | 22,575 | 38.7 | % | $ | 68,988 | 37.2 | % | $ | 59,108 | 36.5 | % | ||||||||||||||||
Proprietary Table Games
|
12,994 | 20.5 | % | 10,994 | 18.9 | % | 38,623 | 20.8 | % | 32,766 | 20.2 | % | ||||||||||||||||||||
Electronic Table Systems
|
6,053 | 9.5 | % | 6,793 | 11.6 | % | 21,183 | 11.4 | % | 26,721 | 16.5 | % | ||||||||||||||||||||
Electronic Gaming Machines
|
19,957 | 31.5 | % | 17,965 | 30.8 | % | 56,699 | 30.6 | % | 43,430 | 26.8 | % | ||||||||||||||||||||
Total revenue
|
63,386 | 100.0 | % | 58,327 | 100.0 | % | 185,493 | 100.0 | % | 162,025 | 100.0 | % | ||||||||||||||||||||
Cost of revenue
|
23,364 | 36.9 | % | 22,105 | 37.9 | % | 67,161 | 36.2 | % | 60,541 | 37.4 | % | ||||||||||||||||||||
Gross profit
|
40,022 | 63.1 | % | 36,222 | 62.1 | % | 118,332 | 63.8 | % | 101,484 | 62.6 | % | ||||||||||||||||||||
Selling, general and administrative
|
19,007 | 30.0 | % | 16,816 | 28.8 | % | 55,991 | 30.2 | % | 50,077 | 30.9 | % | ||||||||||||||||||||
Research and development
|
7,622 | 12.0 | % | 6,695 | 11.5 | % | 23,074 | 12.4 | % | 19,494 | 12.0 | % | ||||||||||||||||||||
Income from operations
|
13,393 | 21.1 | % | 12,711 | 21.8 | % | 39,267 | 21.2 | % | 31,913 | 19.7 | % | ||||||||||||||||||||
Other income (expense):
|
||||||||||||||||||||||||||||||||
Interest income
|
116 | 0.2 | % | 177 | 0.3 | % | 429 | 0.2 | % | 429 | 0.3 | % | ||||||||||||||||||||
Interest expense
|
(367 | ) | (0.6 | %) | (659 | ) | (1.1 | %) | (1,222 | ) | (0.6 | %) | (2,031 | ) | (1.3 | %) | ||||||||||||||||
Other, net
|
180 | 0.3 | % | 457 | 0.8 | % | 209 | 0.1 | % | (504 | ) | (0.3 | %) | |||||||||||||||||||
Total other income (expense)
|
(71 | ) | (0.1 | %) | (25 | ) | (0.0 | %) | (584 | ) | (0.3 | %) | (2,106 | ) | (1.3 | %) | ||||||||||||||||
Income from operations before tax
|
13,322 | 21.0 | % | 12,686 | 21.8 | % | 38,683 | 20.9 | % | 29,807 | 18.4 | % | ||||||||||||||||||||
Income tax provision
|
2,898 | 4.6 | % | 3,560 | 6.2 | % | 10,875 | 5.9 | % | 7,931 | 4.9 | % | ||||||||||||||||||||
Net income
|
$ | 10,424 | 16.4 | % | $ | 9,126 | 15.6 | % | $ | 27,808 | 15.0 | % | $ | 21,876 | 13.5 | % |
Three Months Ended
July 31,
|
Percentage
|
Nine Months Ended
July 31,
|
Percentage
|
|||||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||
Leases and royalties
|
$ | 27,830 | $ | 24,785 | 12.3 | % | $ | 80,730 | $ | 72,625 | 11.2 | % | ||||||||||||
Sales and service
|
35,556 | 33,542 | 6.0 | % | 104,763 | 89,400 | 17.2 | % | ||||||||||||||||
Total
|
$ | 63,386 | $ | 58,327 | 8.7 | % | $ | 185,493 | $ | 162,025 | 14.5 | % | ||||||||||||
Cost of revenue:
|
||||||||||||||||||||||||
Leases and royalties
|
$ | 9,475 | $ | 8,970 | 5.6 | % | $ | 27,853 | $ | 24,506 | 13.7 | % | ||||||||||||
Sales and service
|
13,889 | 13,135 | 5.7 | % | 39,308 | 36,035 | 9.1 | % | ||||||||||||||||
Total
|
$ | 23,364 | $ | 22,105 | 5.7 | % | $ | 67,161 | $ | 60,541 | 10.9 | % | ||||||||||||
Gross profit:
|
||||||||||||||||||||||||
Leases and royalties
|
$ | 18,355 | $ | 15,815 | 16.1 | % | $ | 52,877 | $ | 48,119 | 9.9 | % | ||||||||||||
Sales and service
|
21,667 | 20,407 | 6.2 | % | 65,455 | 53,365 | 22.7 | % | ||||||||||||||||
Total
|
$ | 40,022 | $ | 36,222 | 10.5 | % | $ | 118,332 | $ | 101,484 | 16.6 | % | ||||||||||||
Gross margin:
|
||||||||||||||||||||||||
Leases and royalties
|
66.0 | % | 63.8 | % | 65.5 | % | 66.3 | % | ||||||||||||||||
Sales and service
|
60.9 | % | 60.8 | % | 62.5 | % | 59.7 | % | ||||||||||||||||
Total
|
63.1 | % | 62.1 | % | 63.8 | % | 62.6 | % |
|
·
|
Increase of $3.0 million in our lease and royalty revenue was primarily due to our continued strategic focus on leasing:
|
|
o
|
Increased PTG lease and royalty revenue due to a 25.6% increase in units on lease; and
|
|
o
|
Increased Utility lease revenue due to a 7.3% increase in shuffler units on lease, driven primarily by the MD3
™
shuffler
,
primarily in the United States and Asia.
|
|
·
|
Increase of $2.0 million in our sales and service revenue:
|
|
o
|
Increase in our EGM segment driven by a significant sale to a customer in the Philippines;
|
|
o
|
Increase in shuffler sales in Asia and an increase in shuffler average sales price; and
|
|
o
|
Offset by decreased revenue in our ETS segment primarily driven by the sale of refurbished units at a lower average sales price.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total revenue was negatively impacted by approximately $1.8 million due to the exchange effect of a strengthening U.S. dollar.
|
|
·
|
Increased segment margin performance:
|
|
o
|
Utility was favorably impacted by increases in the number of shufflers sold and an increase in average sales price; and
|
|
o
|
Increased margins in the PTG segment were driven primarily by an increase in the number of units on lease.
|
|
·
|
Offset by ETS and EGM which were unfavorably impacted by reductions in the average sales price.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total gross profit was negatively impacted by approximately $1.0 million due to the exchange effect of a strengthening U.S. dollar.
|
|
·
|
Increase of $15.4 million in our sales and service revenue:
|
|
o
|
Increase in our EGM segment driven by a substantial increase in sold units due to the continued popularity of our Equinox
™
cabinet as well as our expansion into Victoria, Australia;
|
|
o
|
EGM also increased due to a significant sale to a customer in the Philippines;
|
|
o
|
Increase in shuffler sales in Asia and to new casino openings in the United States;
|
|
o
|
$2.3 million in settlement and license fees from online operators driven by our strategy to protect and license our intellectual property; and
|
|
o
|
Offset by decreased revenue in our ETS segment primarily driven by decreases in the number of seats sold.
|
|
·
|
Increase of $8.1 million in our lease and royalty revenue was primarily due to our strategic focus on leasing:
|
|
o
|
Increased PTG lease and royalty revenue due to a 25.6% increase in units on lease; and
|
|
o
|
Increased Utility lease revenue due to a 7.3% increase in shuffler units on lease, primarily in the United States and Asia.
|
|
·
|
Increased segment margin performance:
|
|
o
|
Increased margins in the PTG segment were driven primarily by settlement and license fees of $2.3 million from online operators with little associated direct costs and an increase in the number of units on lease; and
|
|
o
|
Increased lease and royalty revenue in Utility and PTG.
|
|
·
|
Partially offset by ETS which was unfavorably impacted by reductions in the number of units sold and decrease in average sales prices.
|
Three Months Ended
July 31,
|
Percentage
|
Nine Months Ended
July 31,
|
Percentage
|
|||||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||
Selling, general and administrative
|
$ | 19,007 | $ | 16,816 | 13.0 | % | $ | 55,991 | $ | 50,077 | 11.8 | % | ||||||||||||
Percentage of revenue
|
30.0 | % | 28.8 | % | 30.2 | % | 30.9 | % | ||||||||||||||||
Research and development
|
$ | 7,622 | $ | 6,695 | 13.8 | % | $ | 23,074 | $ | 19,494 | 18.4 | % | ||||||||||||
Percentage of revenue
|
12.0 | % | 11.5 | % | 12.4 | % | 12.0 | % | ||||||||||||||||
Total operating expenses
|
$ | 26,629 | $ | 23,511 | 13.3 | % | $ | 79,065 | $ | 69,571 | 13.6 | % | ||||||||||||
Percentage of revenue
|
42.0 | % | 40.3 | % | 42.6 | % | 42.9 | % |
|
·
|
Compensation and related expenses:
|
|
o
|
Increase of approximately $1.2 million in payroll and related expenses driven by the hiring of two executive level positions; our General Counsel and our newly created Chief Strategy Officer role, as well as, expansion into new jurisdictions, and an increase in sales and profit driven compensation expenses related to the increase in revenue.
|
|
·
|
Ongame acquisition related expenses:
|
|
o
|
Due diligence expenses and professional fees related to the terminated Ongame acquisition were approximately $0.5 million. We do not anticipate any further expenses related to the terminated Ongame acquisition.
|
|
·
|
Legal expenses:
|
|
o
|
Increase of approximately $0.3 million in legal and consulting expenses primarily related to the Macau Rapid Baccarat® Patent Issue and TCS South Africa litigation described in Note 11 of this Form 10-Q.
|
|
·
|
Offset by impact of foreign currency fluctuations:
|
|
o
|
Total SG&A was positively impacted by approximately $0.5 million due to the exchange effect of a strengthening U.S. dollar.
|
|
·
|
PTG
|
|
o
|
Ongoing enhancements to the successful progressive offering to our table game titles including the development of our Operator Wide Area Progressive (“O-WAP”); and
|
|
o
|
Development of online platforms and versions of our table games for online, social gaming and mobile applications.
|
|
·
|
Utility:
|
|
o
|
Expenses primarily related to development of next generation shufflers such as the DeckMate®2, as well as ongoing development of our existing Utility products.
|
|
·
|
ETS:
|
|
o
|
Expenses primarily related to the development of updated ETS products including the next generation of the Table Master
®
, and the multigame and concurrent gaming enhancements to the Rapid Table Games
®
and Vegas Star
®
products as well as ongoing development of i-Table
®
and i-Table Roulette™.
|
|
·
|
EGM:
|
|
o
|
R&D efforts were spent on developing additional new EGM titles for the Equinox
™
cabinet and to support ongoing business growth and geographic expansion into Asia.
|
|
·
|
Compensation and related expenses:
|
|
o
|
Increase of approximately $3.5 million in payroll and related expenses, partially driven by the hiring of several executive level positions during 2011, including our Chief Executive Officer, our General Counsel and our newly created Chief Strategy Officer role, as well as, sales and profit driven compensation expenses due to increased revenue during the nine months ended July 31, 2012, as compared to the prior year period.
|
|
·
|
Ongame acquisition related expenses:
|
|
o
|
Due diligence expenses and professional fees related to the terminated Ongame acquisition were approximately $2.0 million. We do not anticipate any further expenses related to the terminated Ongame acquisition.
|
|
·
|
Development of online platforms and versions of our table games for online, social gaming and mobile applications.
|
|
·
|
PTG
|
|
o
|
Ongoing enhancements to the successful progressive offering to our table game titles including the development of our O-WAP; and
|
|
o
|
Development of online platforms and versions of our table games for online, social gaming and mobile applications.
|
|
·
|
EGM:
|
|
o
|
R&D efforts were spent on developing additional new EGM titles for the Equinox
™
cabinet and to support ongoing business growth and geographic expansion into Asia.
|
|
·
|
ETS:
|
|
o
|
Expenses primarily related to the development of updated ETS products including the next generation of the Table Master
®
, and the multigame and concurrent gaming enhancements to the Rapid Table Games
®
and Vegas Star
®
products as well as ongoing development of i-Table
®
and i-Table Roulette™.
|
|
·
|
Utility:
|
|
o
|
Expenses primarily related to development of next generation shufflers such as the DeckMate®2, as well as ongoing development of our existing Utility products.
|
Three Months Ended
July 31,
|
Percentage
|
Nine Months Ended
July 31,
|
Percentage
|
|||||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||
Gross margin:
|
||||||||||||||||||||||||
Depreciation
|
$ | 3,164 | $ | 2,521 | 25.5 | % | $ | 9,126 | $ | 7,528 | 21.2 | % | ||||||||||||
Amortization
|
1,400 | 1,729 | (19.0 | %) | 4,271 | 5,078 | (15.9 | %) | ||||||||||||||||
Total
|
4,564 | 4,250 | 7.4 | % | 13,397 | 12,606 | 6.3 | % | ||||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Depreciation
|
862 | 1,021 | (15.6 | %) | 2,745 | 3,011 | (8.8 | %) | ||||||||||||||||
Amortization
|
834 | 804 | 3.7 | % | 2,515 | 2,334 | 7.8 | % | ||||||||||||||||
Total
|
1,696 | 1,825 | (7.1 | %) | 5,260 | 5,345 | (1.6 | %) | ||||||||||||||||
Total:
|
||||||||||||||||||||||||
Depreciation
|
4,026 | 3,542 | 13.7 | % | 11,871 | 10,539 | 12.6 | % | ||||||||||||||||
Amortization
|
2,234 | 2,533 | (11.8 | %) | 6,786 | 7,412 | (8.4 | %) | ||||||||||||||||
Total
|
$ | 6,260 | $ | 6,075 | 3.0 | % | $ | 18,657 | $ | 17,951 | 3.9 | % |
|
·
|
Expenses recorded in the prior quarter for transaction costs related to the Ongame acquisition, which became deductible in the current quarter due to our decision not to proceed with the acquisition; and
|
|
·
|
Expiration of the statute of limitations with regard to several of our uncertain tax positions.
|
|
·
|
Changes in geographic income before taxes.
|
Three Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
Utility Segment Revenue:
|
||||||||||||||||
Lease
|
$ | 11,915 | $ | 10,796 | $ | 1,119 | 10.4 | % | ||||||||
Sales - Shuffler
|
9,027 | 8,315 | 712 | 8.6 | ||||||||||||
Sales - Chipper
|
608 | 537 | 71 | 13.2 | ||||||||||||
Service
|
1,814 | 1,639 | 175 | 10.7 | ||||||||||||
Other
|
1,018 | 1,288 | (270 | ) | (21.0 | ) | ||||||||||
Total sales and service
|
12,467 | 11,779 | 688 | 5.8 | ||||||||||||
Total Utility segment revenue
|
$ | 24,382 | $ | 22,575 | $ | 1,807 | 8.0 | % | ||||||||
Utility segment gross profit
|
$ | 15,285 | $ | 12,852 | $ | 2,433 | 18.9 | % | ||||||||
Utility segment gross margin
|
62.7 | % | 56.9 | % | ||||||||||||
Utility segment operating income
|
$ | 13,334 | $ | 11,208 | $ | 2,126 | 19.0 | % | ||||||||
Utility segment operating margin
|
54.7 | % | 49.6 | % | ||||||||||||
Shuffler unit information:
|
||||||||||||||||
Lease units, end of period (1)
|
8,245 | 7,682 | 563 | 7.3 | % | |||||||||||
Average monthly lease price
|
$ | 461 | $ | 451 | 10 | 2.2 | % | |||||||||
Sold units during the period
|
563 | 540 | 23 | 4.3 | % | |||||||||||
Average sales price
|
$ | 16,034 | $ | 15,398 | $ | 636 | 4.1 | % | ||||||||
Chipper unit information:
|
||||||||||||||||
Lease units, end of period
|
228 | 211 | 17 | 8.1 | % | |||||||||||
Sold during period
|
35 | 28 | 7 | 25.0 | % | |||||||||||
Average sales price
|
$ | 17,371 | $ | 19,179 | $ | (1,808 | ) | (9.4 | %) |
|
·
|
A 10.4% increase in lease revenue:
|
|
o
|
The number of shufflers on lease has increased 7.3% over the prior year led primarily by placements of MD2
™
shuffler in Asia and MD3
™
shufflers
in the United States; and
|
|
o
|
Placements of the newly introduced MD3
™
shuffler, which accounted for the majority of our new lease placements during the quarter. The MD3
™
shuffler lease base has grown to over 700 units as of the end of the quarter.
|
|
·
|
A 8.6% increase in shuffler sales revenue:
|
|
o
|
An increase of 4.3% in the number of units sold, driven primarily by a sale of MD3
™
shuffler units to a large casino customer in Macau and sales to new casinos opening in the United States; and
|
|
o
|
An increase of 4.1% in shuffler average sales price driven by changes in the mix of shuffler models sold.
|
|
·
|
The overall increase in total revenues as noted above; and
|
|
·
|
A decrease in amortization expense associated with the underlying intangible assets related to the one2six® shuffler and Easy Chipper® that are approaching the end of their original estimated useful lives.
|
Nine Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
Utility Segment Revenue:
|
||||||||||||||||
Lease
|
$ | 34,787 | $ | 31,077 | $ | 3,710 | 11.9 | % | ||||||||
Sales - Shuffler
|
24,477 | 18,007 | 6,470 | 35.9 | ||||||||||||
Sales - Chipper
|
1,068 | 1,010 | 58 | 5.7 | ||||||||||||
Service
|
5,280 | 4,951 | 329 | 6.6 | ||||||||||||
Other
|
3,376 | 4,063 | (687 | ) | (16.9 | ) | ||||||||||
Total sales and service
|
34,201 | 28,031 | 6,170 | 22.0 | ||||||||||||
Total Utility segment revenue
|
$ | 68,988 | $ | 59,108 | $ | 9,880 | 16.7 | % | ||||||||
Utility segment gross profit
|
$ | 42,622 | $ | 35,284 | $ | 7,338 | 20.8 | % | ||||||||
Utility segment gross margin
|
61.8 | % | 59.7 | % | ||||||||||||
Utility segment operating income
|
$ | 36,986 | $ | 30,294 | $ | 6,692 | 22.1 | % | ||||||||
Utility segment operating margin
|
53.6 | % | 51.3 | % | ||||||||||||
Shuffler unit information:
|
||||||||||||||||
Lease units, end of period (1)
|
8,245 | 7,682 | 563 | 7.3 | % | |||||||||||
Average monthly lease price
|
$ | 450 | $ | 432 | 18 | 4.2 | % | |||||||||
Sold units during the period
|
1,565 | 1,159 | 406 | 35.0 | % | |||||||||||
Average sales price
|
$ | 15,640 | $ | 15,537 | $ | 103 | 0.7 | % | ||||||||
Chipper unit information:
|
||||||||||||||||
Lease units, end of period
|
228 | 211 | 17 | 8.1 | % | |||||||||||
Sold during period
|
59 | 51 | 8 | 15.7 | % | |||||||||||
Average sales price
|
$ | 18,102 | $ | 19,804 | $ | (1,702 | ) | (8.6 | %) |
|
·
|
A 35.9% increase in shuffler sales revenue:
|
|
o
|
An increase of 35.0% in the number of units sold, driven by increased MD3
™
shuffler sales in Asia and in the United States primarily to new casinos opening and replacement of previously sold shufflers.
|
|
·
|
A 11.9% increase in lease revenue:
|
|
o
|
An increase in the number of MD2
™
shuffler units on lease in Asia and MD3
™
shuffler units on lease in the United States; and
|
|
o
|
Placements of the newly introduced MD3
™
shuffler, which accounted for the majority of our new lease placements during the year to date period. The MD3
™
shuffler lease base has grown to over 700 units as of the end of the quarter.
|
|
·
|
The overall increase in total revenues as noted above;
|
|
·
|
A decrease in amortization expense associated with the underlying intangible assets related to the one2six® shuffler and Easy Chipper® that are approaching the end of their original estimated useful lives.
|
Three Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
PTG segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 12,324 | $ | 10,543 | $ | 1,781 | 16.9 | % | ||||||||
Sales
|
552 | 331 | 221 | 66.8 | ||||||||||||
Service
|
27 | 29 | (2 | ) | (6.9 | ) | ||||||||||
Other
|
91 | 91 | - | - | ||||||||||||
Total sales and service revenue
|
670 | 451 | 219 | 48.6 | ||||||||||||
Total PTG segment revenue
|
$ | 12,994 | $ | 10,994 | $ | 2,000 | 18.2 | % | ||||||||
PTG segment gross profit
|
$ | 10,634 | $ | 8,671 | $ | 1,963 | 22.6 | % | ||||||||
PTG segment gross margin
|
81.8 | % | 78.9 | % | ||||||||||||
PTG segment operating income
|
$ | 8,481 | $ | 7,445 | $ | 1,036 | 13.9 | % | ||||||||
PTG segment operating margin
|
65.3 | % | 67.7 | % | ||||||||||||
PTG unit information (1):
|
||||||||||||||||
Premium units, end of quarter
|
2,699 | 2,417 | 282 | 11.7 | % | |||||||||||
Side bet units, end of quarter
|
2,542 | 1,969 | 573 | 29.1 | % | |||||||||||
Progressive units, end of quarter
|
1,139 | 783 | 356 | 45.5 | % | |||||||||||
Add-on units, end of quarter
|
341 | 180 | 161 | 89.4 | % | |||||||||||
Total revenue generating lease base
|
6,721 | 5,349 | 1,372 | 25.6 | % | |||||||||||
Average monthly lease/license price
|
$ | 611 | $ | 657 | (46 | ) | (7.0 | %) | ||||||||
Sold during quarter
|
10 | 29 | (19 | ) | (65.5 | %) | ||||||||||
Average sales price
|
$ | 54,750 | $ | 11,414 | 43,336 | 379.7 | % |
|
·
|
A 16.9% increase in royalty and lease revenue:
|
|
o
|
Increased placements of premium table games in the United States, primarily Ultimate Texas Hold ‘Em
®
and Mississippi Stud
®
;
|
|
o
|
Increased placements of progressive table games in the United States, primarily Fortune Pai Gow Poker
®
Progressive, Three Card Poker Progressive and Ultimate Texas Hold ‘Em
®
Progressive;
|
|
o
|
Increased placements of side bets in the United States, primarily Fortune Pai Gow Poker
®
, Dragon Bonus, and the acquisition of the Fire Bet
®
side bet in the first quarter; and
|
|
o
|
Offset by a 7.0% decrease in average monthly lease/license price due to the change in mix of table games on lease.
|
|
·
|
A 66.8% increase in PTG sales revenue:
|
|
o
|
Driven primarily by a 379.7% increase in average sales price in the current quarter. The prior year quarter sales consisted primarily of side bets and current quarter sales consisted primarily of premium table games in the United States; and
|
|
o
|
Offset by a 65.5% decrease in the number of table games sold.
|
|
·
|
The overall increase in total revenues.
|
|
·
|
The increase in gross margin and gross profit referred to above.
|
|
·
|
An increase in R&D costs associated with our online gaming development of games and platforms for online, social gaming, and mobile devices; and
|
|
·
|
Offset by the increase in gross margin and gross profit referred to above.
|
Nine Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
PTG segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 35,379 | $ | 31,204 | $ | 4,175 | 13.4 | % | ||||||||
Sales
|
2,941 | 1,225 | 1,716 | 140.1 | ||||||||||||
Service
|
92 | 86 | 6 | 7.0 | ||||||||||||
Other
|
211 | 251 | (40 | ) | (15.9 | ) | ||||||||||
Total sales and service revenue
|
3,244 | 1,562 | 1,682 | 107.7 | ||||||||||||
Total PTG segment revenue
|
$ | 38,623 | $ | 32,766 | $ | 5,857 | 17.9 | % | ||||||||
PTG segment gross profit
|
$ | 31,994 | $ | 26,338 | $ | 5,656 | 21.5 | % | ||||||||
PTG segment gross margin
|
82.8 | % | 80.4 | % | ||||||||||||
PTG segment operating income
|
$ | 25,122 | $ | 23,205 | $ | 1,917 | 8.3 | % | ||||||||
PTG segment operating margin
|
65.0 | % | 70.8 | % | ||||||||||||
PTG unit information (1):
|
||||||||||||||||
Premium units, end of period
|
2,699 | 2,417 | 282 | 11.7 | % | |||||||||||
Side bet units, end of period
|
2,542 | 1,969 | 573 | 29.1 | % | |||||||||||
Progressive units, end of period
|
1,139 | 783 | 356 | 45.5 | % | |||||||||||
Add-on units, end of period
|
341 | 180 | 161 | 89.4 | % | |||||||||||
Total revenue generating lease base
|
6,721 | 5,349 | 1,372 | 25.6 | % | |||||||||||
Average monthly lease/license price
|
$ | 585 | $ | 648 | $ | (63 | ) | (9.7 | %) | |||||||
Sold during period
|
12 | 48 | (36 | ) | (75.0 | %) | ||||||||||
Average sales price
|
$ | 51,598 | $ | 25,521 | $ | 26,077 | 102.2 | % |
|
·
|
A 13.4% increase in royalty and lease revenue:
|
|
o
|
Increased placements of premium table games in the United States, primarily Ultimate Texas Hold ‘Em
®
and Mississippi Stud
®
;
|
|
o
|
Increased placements of progressive table games in the United States, primarily Three Card Poker Progressive, Fortune Pai Gow Poker
®
Progressive
and Ultimate Texas Hold ‘Em
®
Progressive;
|
|
o
|
Increased placements of side bets in the United States, primarily Fortune Pai Gow Poker
®
, Dragon Bonus and the acquisition of the Fire Bet
®
side bet during the period; and
|
|
o
|
Offset by a 9.7% decrease in average monthly lease/license price due to the change in mix of table games on lease.
|
|
·
|
A 140.1% increase in PTG sales revenue:
|
|
o
|
Driven by $2.3 million settlement and license fees from online operators in line with our strategy to protect and license our intellectual property; and
|
|
o
|
Offset by a 75.0% decrease in table games sold, driven primarily by our strategic focus on leasing versus sales. Current and prior year sales included primarily sales related to new casino openings and conversions of leased to sold table games at premium prices. Average sales price increased due to the change in mix of table games sold.
|
|
·
|
The overall increase in total revenues; and
|
|
·
|
The settlement and license fees from online operators described above partially offset by the decrease in sales of table games.
|
|
·
|
The increase in gross margin and gross profit referred to above.
|
|
·
|
An increase in R&D costs associated with our online gaming development of games and platforms for online, social gaming, and mobile devices; and
|
|
·
|
Offset by the increase in gross margin and gross profit referred to above.
|
Three Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units and per unit/seat amounts)
|
||||||||||||||||
ETS segment revenue:
|
||||||||||||||||
Royalties and leases:
|
||||||||||||||||
Royalties and leases
|
$ | 3,437 | $ | 3,354 | $ | 83 | 2.5 | % | ||||||||
Sales
|
1,828 | 2,577 | (749 | ) | (29.1 | %) | ||||||||||
Service
|
149 | 153 | (4 | ) | (2.6 | %) | ||||||||||
Other
|
639 | 709 | (70 | ) | (9.9 | %) | ||||||||||
Total sales and service revenue
|
2,616 | 3,439 | (823 | ) | (23.9 | %) | ||||||||||
Total ETS segment revenue
|
$ | 6,053 | $ | 6,793 | $ | (740 | ) | (10.9 | %) | |||||||
ETS segment gross profit
|
$ | 2,055 | $ | 3,197 | $ | (1,142 | ) | (35.7 | %) | |||||||
ETS segment gross margin
|
34.0 | % | 47.1 | % | ||||||||||||
ETS segment operating income
|
$ | (846 | ) | $ | 328 | $ | (1,174 | ) | (357.9 | %) | ||||||
ETS segment operating margin
|
(14.0 | %) | 4.8 | % | ||||||||||||
ETS unit information:
|
||||||||||||||||
Rapid Table Games®, Table Master® and Vegas Star®:
|
||||||||||||||||
Lease seats, end of period
(1)
|
2,421 | 2,414 | 7 | 0.3 | % | |||||||||||
Average monthly lease price
|
$ | 459 | $ | 450 | $ | 9 | 2.0 | % | ||||||||
Sold during the period
|
115 | 78 | 37 | 47.4 | % | |||||||||||
Average sales price
|
$ | 15,896 | $ | 33,038 | $ | (17,142 | ) | (51.9 | %) | |||||||
i-Table®:
|
||||||||||||||||
Lease units, end of period
(1)
|
63 | 49 | 14 | 28.6 | % |
|
·
|
An 29.1% decrease in sales revenue:
|
|
o
|
A 51.9% reduction in average sales price primarily driven by the sale of refurbished units in Australia and Latin America; and
|
|
o
|
Offset by an increase of Rapid Table Games
®
seats sold totaling approximately $1.1 million to two large casino customers in Australia.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total revenue was negatively impacted by approximately $0.1 million due to the exchange effect of a strengthening U.S. dollar.
|
|
·
|
The decrease in the sales revenue described above; and
|
|
·
|
An increase over the prior year in depreciation expense of leased units without a corresponding increase in lease revenue.
|
|
·
|
The decreases in gross profit and gross margin noted above; and
|
|
·
|
An increase in R&D costs associated with the development of new ETS products as described in the research and development expense section above. We have been investing in the next generation products for our ETS segment, such as an updated version of our Table Master
®
, a wide-screen version of our Rapid Table Games
®
and Vegas Star
®
product, as well as a software enhancement that allows for multigame and concurrent gaming on our Rapid Table Games
®
and Vegas Star
®
in certain jurisdictions.
|
Nine Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units and per unit/seat amounts)
|
||||||||||||||||
ETS segment revenue:
|
||||||||||||||||
Royalties and leases
|
$ | 10,205 | $ | 10,062 | $ | 143 | 1.4 | % | ||||||||
Sales
|
7,579 | 13,348 | (5,769 | ) | (43.2 | %) | ||||||||||
Service
|
450 | 433 | 17 | 3.9 | % | |||||||||||
Other
|
2,949 | 2,878 | 71 | 2.5 | % | |||||||||||
Total sales and service revenue
|
10,978 | 16,659 | (5,681 | ) | (34.1 | %) | ||||||||||
Total ETS segment revenue
|
$ | 21,183 | $ | 26,721 | $ | (5,538 | ) | (20.7 | %) | |||||||
ETS segment gross profit
|
$ | 8,868 | $ | 12,684 | $ | (3,816 | ) | (30.1 | %) | |||||||
ETS segment gross margin
|
41.9 | % | 47.5 | % | ||||||||||||
ETS segment operating income
|
$ | (967 | ) | $ | 3,860 | $ | (4,827 | ) | (125.1 | %) | ||||||
ETS segment operating margin
|
(4.6 | %) | 14.4 | % | ||||||||||||
ETS unit information:
|
||||||||||||||||
Rapid Table Games®, Table Master® and Vegas Star®:
|
||||||||||||||||
Lease seats, end of period
(1)
|
2,421 | 2,414 | 7 | 0.3 | % | |||||||||||
Average monthly lease price
|
$ | 454 | $ | 453 | $ | 1 | 0.2 | % | ||||||||
Sold during the period
|
409 | 558 | (149 | ) | (26.7 | %) | ||||||||||
Average sales price
|
$ | 18,531 | $ | 23,921 | $ | (5,390 | ) | (22.5 | %) | |||||||
i-Table®:
|
||||||||||||||||
Lease units, end of period
(1)
|
63 | 49 | 14 | 28.6 | % |
|
·
|
A 43.2% decrease in sales revenue:
|
|
o
|
A 57.1% decrease in the number of Vegas Star
®
seats sold. The prior year included sales to large casino customers primarily in Australia;
|
|
o
|
Decrease of 60.7% in the number of Table Master
®
seats sold as the prior year included significant sales to individual regional casinos in the United States;
|
|
o
|
A 22.5% reduction in average sales price driven by discounts on refurbished units sold in Asia and Australia and discounts on units sold in Latin America; and
|
|
o
|
Offset by an increase of 69.6% in Rapid Table Games
®
seats sold primarily in Australia, totaling approximately $4.2 million.
|
|
·
|
Impact of foreign currency fluctuations:
|
|
o
|
Total revenue was positively impacted by approximately $0.3 million due to the exchange effect of a weakening U.S. dollar.
|
|
·
|
The decrease in sales revenue as a result of fewer seats sold; and
|
|
·
|
The decrease in average sales price noted above.
|
|
·
|
The decreases in gross profit and gross margin noted above; and
|
|
·
|
An increase in R&D costs associated with the development of new ETS products as described in the research and development expense section above. We have been investing in the next generation products for our ETS segment, such as an updated version of our Table Master
®
, a wide-screen version of our Rapid Table Games
®
and Vegas Star
®
product, as well as a software enhancement that allows for multigame and concurrent gaming on our Rapid Table Games
®
and Vegas Star
®
in certain jurisdictions.
|
Three Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
EGM segment revenue:
|
||||||||||||||||
Lease revenue
|
$ | 154 | $ | 92 | $ | 62 | 67.4 | % | ||||||||
Sales
|
18,153 | 16,348 | 1,805 | 11.0 | ||||||||||||
Service
|
35 | 33 | 2 | 6.1 | ||||||||||||
Other
|
1,615 | 1,492 | 123 | 8.2 | ||||||||||||
Total sales and service revenue
|
19,803 | 17,873 | 1,930 | 10.8 | ||||||||||||
Total EGM segment revenue
|
$ | 19,957 | $ | 17,965 | $ | 1,992 | 11.1 | % | ||||||||
EGM segment gross profit
|
$ | 12,048 | $ | 11,502 | $ | 546 | 4.7 | % | ||||||||
EGM segment gross margin
|
60.4 | % | 64.0 | % | ||||||||||||
EGM segment operating income
|
$ | 8,701 | $ | 8,336 | $ | 365 | 4.4 | % | ||||||||
EGM segment operating margin
|
43.6 | % | 46.4 | % | ||||||||||||
EGM unit information:
|
||||||||||||||||
Lease units, end of period
|
380 | 27 | 353 | 1,307.4 | % | |||||||||||
Sold during period
|
1,021 | 863 | 158 | 18.3 | % | |||||||||||
Average sales price
|
$ | 17,780 | $ | 18,943 | $ | (1,163 | ) | (6.1 | %) |
|
·
|
A 11.0% increase in sales revenue:
|
|
o
|
Driven by the 18.3% increase in units sold primarily related to a sale to a customer in the Philippines; and
|
|
o
|
A 6.1% decrease in average sales price primarily related to the sale in the Philippines. The decrease also relates to foreign exchange effects on the Australian Dollar. The average sales price in Australian dollars increased 3.1% reflecting a higher average sales price for the Equinox
TM
cabinet with Super Topbox.
|
|
·
|
Impact of foreign exchange fluctuations:
|
|
o
|
Total revenue was negatively impacted by approximately $1.2 million due to the exchange effect of a strengthening U.S. dollar.
|
|
·
|
We are starting to generate lease revenue from machines on participation arrangements in Mexico and Asia. We have placed a significant number of machines in these jurisdictions and our installed base has grown to approximately 380 units.
|
|
·
|
The increase in EGM sales revenues as noted above, driven primarily by the increase in units sold.
|
|
·
|
The decrease in average sales price primarily driven by the large sale to a customer in the Philippines; and
|
|
·
|
Import duties and freight expenses to place machines on lease in Mexico and Latin America.
|
|
·
|
The changes in total EGM gross profit and gross margin described above.
|
Nine Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands, except for units/seats and per unit/seat amounts)
|
||||||||||||||||
EGM segment revenue:
|
||||||||||||||||
Lease revenue
|
$ | 359 | $ | 281 | $ | 78 | 27.8 | % | ||||||||
Sales
|
52,063 | 39,642 | 12,421 | 31.3 | ||||||||||||
Service
|
67 | 65 | 2 | 3.1 | ||||||||||||
Other
|
4,210 | 3,442 | 768 | 22.3 | ||||||||||||
Total sales and service revenue
|
56,340 | 43,149 | 13,191 | 30.6 | ||||||||||||
Total EGM segment revenue
|
$ | 56,699 | $ | 43,430 | $ | 13,269 | 30.6 | % | ||||||||
EGM segment gross profit
|
$ | 34,848 | $ | 27,178 | $ | 7,670 | 28.2 | % | ||||||||
EGM segment gross margin
|
61.5 | % | 62.6 | % | ||||||||||||
EGM segment operating income
|
$ | 24,948 | $ | 18,493 | $ | 6,455 | 34.9 | % | ||||||||
EGM segment operating margin
|
44.0 | % | 42.6 | % | ||||||||||||
EGM unit information:
|
||||||||||||||||
Lease units, end of period
|
380 | 27 | 353 | 1,307.4 | % | |||||||||||
Sold during period
|
2,726 | 2,155 | 571 | 26.5 | % | |||||||||||
Average sales price
|
$ | 19,099 | $ | 18,395 | $ | 704 | 3.8 | % |
|
·
|
A 31.3% increase in sales revenue:
|
|
o
|
Driven by the 26.5% increase in units sold as a result of a sale to a customer in the Philippines;
|
|
o
|
Our expansion in the Victoria, Australia market in the current year and to a lesser extent increased placements in Asia; and
|
|
o
|
A 3.8% increase in average sales price reflecting higher sales prices in Australia driven by higher average sales price for the Equinox
TM
cabinet with Super Topbox and partially offset by lower pricing for a sale to a single customer in the Philippines.
|
|
·
|
An increase of 22.3% in other revenue, driven by an increase in sales of conversion kits and other parts and peripherals.
|
|
·
|
We are starting to generate revenue from machines on lease and from participation arrangements in Mexico, Asia and Latin America. We have placed a significant number of machines in these jurisdictions and our installed base has grown to approximately 380 units.
|
|
·
|
The increase in EGM sales revenues as noted above, driven primarily by the increase in units sold and the increase in average sales price;
|
|
·
|
Increased sales of conversion kits and other parts and peripherals at higher margins; and
|
|
·
|
Offset by import duties and freight expenses to place several machines on lease in Mexico and Latin America.
|
|
·
|
The increases in total EGM revenue and gross profit as noted above.
|
July 31,
2012
|
October 31,
2011
|
Increase
(Decrease)
|
Percentage
Change
|
|||||||||||||
(In thousands, except ratios)
|
||||||||||||||||
Cash and cash equivalents
|
$ | 28,030 | $ | 22,189 | $ | 5,841 | 26.3 | % | ||||||||
Working capital
|
$ | 79,366 | $ | 67,120 | $ | 12,246 | 18.2 | % | ||||||||
Current ratio
|
3.0 : 1
|
2.8 : 1
|
Nine Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Net cash provided by operating activities
|
$ | 35,868 | $ | 36,692 | $ | (824 | ) | (2.2 | %) | |||||||
Net cash used in investing activities
|
(25,962 | ) | (21,434 | ) | 4,528 | 21.1 | % | |||||||||
Net cash provided by (used in) financing activities
|
(5,435 | ) | 4,423 | (9,858 | ) | 222.9 | % | |||||||||
Effects of exchange rates
|
1,370 | 522 | 848 | (162.5 | %) | |||||||||||
Net change in cash and cash equivalents
|
$ | 5,841 | $ | 20,203 |
Nine Months Ended
July 31,
|
Increase
|
Percentage
|
||||||||||||||
2012
|
2011
|
(Decrease)
|
Change
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Payments for products leased and held for lease
|
$ | (11,227 | ) | $ | (11,608 | ) | $ | (381 | ) | (3.3 | %) | |||||
Purchases of property and equipment
|
(5,852 | ) | (2,683 | ) | 3,169 | 118.1 | % | |||||||||
Purchases of intangible assets
|
(4,333 | ) | (6,269 | ) | (1,936 | ) | (30.9 | %) | ||||||||
Total capital expenditures
|
$ | (21,412 | ) | $ | (20,560 | ) |
|
·
|
An increased use of cash for working capital and operating accounts:
|
|
o
|
Cash paid for income tax liabilities was approximately $11.1 million more than the prior year period;
|
|
o
|
Days sales outstanding increased from 70.7 in the prior year to 76.3 as of July 31, 2012 due to an increase in sales-type leases with payment terms ranging generally from 24 to 36 months; and
|
|
·
|
Offset by strong operating performance, which led to an increase in net income of $5.9 million and the difference in non-cash items year over year provided an increase of additional $4.4 million.
|
|
·
|
A decrease of $4.6 million in proceeds from sale of leased assets; and
|
|
·
|
An increase of $3.2 million in cash used to purchase property and equipment, which is primarily related to the purchase of land for a consolidated corporate and operating facility in Las Vegas, Nevada.
|
|
·
|
Purchase of intangible assets during the nine months ended July 31, 2012 decreased by $1.9 million. Current year purchases related primarily to the acquisition of licenses to be used in our EGM segment; and
|
|
·
|
Acquisition of intellectual property which was recorded as a business acquisition for accounting purposes was $5.5 million during the nine months ended July 31, 2012 compared with the acquisition of Newton Shuffler, LLC for $6.5 million in the prior year period.
|
|
·
|
Cash used for debt payments on our Revolver, net of draws, was $23.0 million as compared to a net draw of $1.5 million during the nine months ended July 31, 2011; and
|
|
·
|
Offset by increased proceeds from issuance of common stock of $14.1 million, due to an increased weighted average exercise price of options exercised and an increase in the number of options exercised in the current period compared to the prior year period.
|
|
·
|
the Federal Funds Rate plus .50%;
|
|
·
|
the prime commercial lending rate of the Administrative Agent, as defined; and
|
|
·
|
the one month LIBOR rate for such day plus 2.00%.
|
Total Number of Shares Purchased
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Program
|
Maximum Value of Shares That May Yet Be Purchased Under the Stock Buyback Program (1)
|
|||||||||||||
May1 through May 31, 2012
|
-
|
$
|
-
|
-
|
$
|
21,077
|
||||||||||
June 1 through June 30, 2012
|
-
|
-
|
-
|
21,077
|
||||||||||||
July 1 through July 31, 2012
|
-
|
-
|
-
|
21,077
|
||||||||||||
Total
|
-
|
$
|
-
|
-
|
3.1
|
Articles of Incorporation of Shuffle Master, Inc. as amended July 15, 1992 (Incorporated by reference to exhibit 3.2 in our Annual Report on Form 10-K for the year ended October 31, 1995).
|
||
3.2
|
Articles of Amendment to Articles of Incorporation of Shuffle Master, Inc., effective January 14, 2005 (Incorporated by reference to exhibit 3.2 to our Annual Report on Form 10-K, filed January 13, 2005).
|
||
3.3
|
Articles of Correction of Articles of Amendment of Articles of Incorporation of Shuffle Master, Inc., effective March 15, 2005 (Incorporated by reference to exhibit 3.1 to our Current Report on Form 8-K, filed March 18, 2005).
|
||
3.4
|
Amended and Restated Bylaws of Shuffle Master, Inc., effective April 4, 2011 (Incorporated by reference to exhibit 3.4 to our Current Report on Form 8-K, filed April 8, 2011)
|
||
4.1
|
Registration Rights Agreement dated May 13, 2004, by and between Casinos Austria AG on the one hand and Shuffle Master, Inc. on the other hand (Incorporated by reference to exhibit 10.2 in our Quarterly Report on Form 10-Q for the quarter ended April 30, 2004).
|
||
10.1
|
Amendment No. 1 to Credit Agreement dated May 31, 2012 by and among Shuffle Master, Inc., Wells Fargo Bank, National Association and the lenders on the signature page thereto (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, filed May 31, 2012).
|
||
10.2
|
[Deed of Mutual Termination dated June 25, 2012 by and among SHFL Holdings (Gibraltar) Limited, Shuffle Master International, Inc., Shuffle Master, Inc., bwin.party services (Austria) GMBH and bwin.party digital entertainment plc.
|
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
32.2
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
|
101.INS
|
XBRL Instance**
|
101.SCH
|
XBRL Taxonomy Extension Schema**
|
101.CAL
|
XBRL Taxonomy Extension Calculation**
|
101.DEF
|
XBRL Taxonomy Extension Definition**
|
101.LAB
|
XBRL Taxonomy Extension Labels**
|
101.PRE
|
XBRL Taxonomy Extension Presentation**
|
SHUFFLE MASTER, INC.
|
|||
(Registrant)
|
|||
Date: September 10, 2012
|
|||
/s/ MICHAEL GAVIN ISAACS
|
|||
Michael Gavin Isaacs
|
|||
Chief Executive Officer
|
|||
(Principal Executive Officer)
|
|||
/s/ LINSTER W. FOX
|
|||
Linster W. Fox
|
|||
Chief Financial Officer
|
|||
(Principal Financial Officer)
|
1 Year Shfl Entertainment, Inc. (MM) Chart |
1 Month Shfl Entertainment, Inc. (MM) Chart |
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