shfl 2012 annual report

7/28/2019 SHFL 2012 Annual Report

1/13

2012 annual report


2/13

$259.0

2012

$227.8

2011

$201.3

2010

$179.4

2009

$190.0

2008

$178.9

2007

$163.0

2006

$112.9

2005

$84.8

2004

$58.4

2003

14%INCREASE IN

TOTAL REVENUEY-O-Y


3/13

$44

$0.09 $0.14 $0.17 $0.18 $0.14 $0.17 $0.18 $0.19

Q1FY11

GAAP EPS

REVENUE (millions)

Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12

$60 $58 $66 $56 $66 $63 $74

19%ANNUAL EPS GROWTH *

* Includes $2.2M in due diligence expenses associated with the terminated Ongame acquisition; normalized for those expenses,EPS grew 25% to $0.71 in FY 2012.


4/13

16.1%

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12

20.3%

21.8%

21.9%

19.8%

22.3%

21.1%

22.1%

21%ANNUAL OPERATING MARGIN *UP 110 BASIS POINTS Y-O-Y

* Includes $2.2M in due diligence expenses associated with the terminated Ongame acquisition; normalized for those expenses,Operating Margin was 22% for FY 2012.


5/13

$31.5million

$20.2million

Q4FY08

Q4FY12

16CONSECUTIVEQUARTERS OF

GROWINGRECURRINGREVENUE


6/13

The Company will turn 30 this year. Looking back and reflecting on what it took to get to where weare today, I can only think of two words: passion and perseverance. These were evident in the early days

of founder John Breeding as he worked tirelessly to perfect a shuffler prototype and toyed around withthe math on a little game called Let It Ride. And these are evident as I watch our 830 employees aroundthe globe continue to challenge the status quo and bring products to life that in some cases we neverdreamed were possible. Passion and perseverance have resulted in who we are today: a unique

Company with a diverse and intriguing team and a product portfolio unlike any I have encounteredbefore in the gaming industry. And its that perfect composition of people and products that deliveredyet another year of record financials, sustainable growth, and increasing momentum.

Although we have been executing steadily on a strategic course, there generally is a story or a themethat defines each year. Looking back at the accomplishments and events of 2012, I believe the year wasdefined by the convergence of two themes: one of change and evolution, and one of legacy and

tradition. This marks our first year as SHFL entertainment, and in many ways, the energy and excitementwere generating feels like that of a startup company; like were building something new and thefuture is full of promise. At the same time, our team executed with the poise, discipline, and a thought-ful, customer-driven approach to innovation that only comes with three decades of perspective.

Im very pleased to present SHFLs 2012 Annual Report, which documents a phenomenal year ofdelivering innovaton, improving execution, growing recurring revenue, generating substantial cash,and expanding our global footprint across all product categories.

what we achieved inFY 2012

Financial Highlights

Record revenue of $259 million, up 14% year-over-year, fueled by strong performance in ourElectronic Gaming Machine, Utility, and Proprietary Table Games businesses

Recurring revenue is at an all-time high at $118.2 million, representing 12% year-over-year growthand demonstrating our commitment to grow our product lease base

Diluted earnings per share (EPS) growth of 19%*

Record Adjusted EBITDA of $87 million, up 17% year-over-year

Record net income of $38.6 million

Operating margin of 21%, up 110 basis points year-over-year*

Inventory turns of 4.3x are the best in the Companys history

SHFL is truly a global enterprise; international business represents 56% of total revenue

Free Cash Flow** of $43.8 million

Pristine balance sheet: zero net debt as of fiscal year-end

* Includes $2.2M in due diligence expenses associated with the terminated Ongame acquisition; normalized for those expenses,

EPS was $0.71 and Operating Margin was 22%.** Free Cash Flow is Adjusted EBITDA less capital expenditures and cash paid for taxes.

to ourshareholders


7/13

Operating Highlights

The successful launch of the new MD3 card shuffler contributed $13 million in annual revenue

The new DeckMate 2 card shuffler for poker debuted at the Global Gaming Expo (G2E) in October

The Electronic Gaming Machine business generated $81.6 million in annual revenue, up 22% year-over-year

Global expansion of the Electronic Gaming Machine business: approximately 440 and 170 placedin Asia and Latin America, respectively

Approximately 1,200 total progressive upgrades by the end of the fiscal year, all on lease andcontributing $7.5 million in recurring revenue

Proprietary Table Games revenue grew 19% year-over-year; 92% is recurring

New and improved Electronic Table System innovations Rapid Fusion and Widescreen for bothVegas Starand Rapidwere unveiled at G2E

Our intellectual property (IP) portfolio now consists of over 2,600 registered and pending patents,trademarks and copyrights

Nine online demo versions of our renowned specialty table games available on playshfl.com

Obtained Gibraltar, Alderney and Nevada iGaming licenses and established iGaming operationaloffices in Gibraltar

Im very proud of the results SHFL achieved in fiscal year 2012 but Im even more excited for what liesahead. I believe it is truly a new era for SHFL an era of opportunity for us and more importantly forour customers.

Im confident that the potential upswing in global gaming growth over the next several years, coupled

with our increasing momentum, new product pipeline, and focus on improving execution, presentmany opportunities for us. In 2013 and beyond, it is our intention to continue to do the things thatkeep SHFL profitable and propel growth, such as:

Creating compelling gaming experiences for both land-based and online operations. Our IPportfolio is a testament to our ability to create, refine, protect, and acquire quality content. We cannever stop innovating or slow down our pursuit for best-in-class games, technology and services.

Strengthening and leveraging our operational capability. We will strive for greater synergiesand continually look for ways to gain greater efficiencies in our businesses. Our recent acquisition

of a content studio in China will assist us in scaling more efficiently to support our growing

product footprint.

Pursuing the strongest market opportunities. A huge part of our growth trajectory comesfrom expanding our global footprint with one, some, or all of our products. There are still so manymarkets where we are confident that we have opportunity for growth, such as the U.S., Asia, LatinAmerica, Australia, and online.

Growing recurring revenue. The fourth quarter of fiscal year 2012 marked the 16th consecutivequarter of recurring revenue growth and it is one of our proudest achievements. Our deeppipeline of shuffler replacements, new specialty table games, progressive upgrades, enhancede-Table innovations, and our new iGaming products create meaningful recurring revenue

opportunities for the future.
http://playshfl.com/http://playshfl.com/


8/13

Gavin Isaacs

SHFL entertainment CEOSHFL participated in the NASDAQ closing bell ceremony on June 7th,

2012 commemorating 20 years as a publicly traded company.

Investing in our business to secure future growth. We will aggressively pursue and invest inareas where we believe we can secure meaningful recurring revenue, such as iGaming. We willalways invest in R&D if we believe the opportunity is worth the investment. Similarly, exploitingthe latest technology has become a hallmark of the SHFL brand.

As CEO, I have one overarching objective and that is creating true value, which includes creating valuefor our customers with superior products, service, people and innovation. Thats the whole reason werein business because of our customers. I also have the responsibility of creating value for our share-

holders and for our people. To accomplish that, I need to be laser-focused on delivering meaningful,sustainable growth.

The points outlined above, such as investing in our business and broadening our horizons, are

necessary steps to secure future growth. Pursuing new recurring revenue opportunities like iGaming,consistently evaluating M&A and cash uses, and building the infrastructure and the team to create abigger and better presence for SHFL around the world, are all strategic pursuits of value creation.

Looking ahead, weve set ambitious goals for SHFL and, as we have since 1983, we believe that wellachieve them by leveraging the talent of our team, our robust IP portfolio, and our diverse product

suite. With the collective commitment to the principles that have driven our success so far, Imextremely optimistic about whats in store over the next 30 years for SHFL.

Please find the 10-Khere.

As always, thank you for your support.

Forward-Looking Statements: This report contains statements that do not relate to historical or current

facts, but are forward-looking statements within the meaning of the Private Securities Litigation Reform

Act of 1995. You can generally identify forward-looking statements by words such as may, might , will,

could, would, should, expect, intend, plan, anticipate, believe, estimate, predict, potential,

continue or other comparable terminology intended to identify performance or achievements to be

materially different from the information expressed or implied by these forward-looking statements. Actual

results could differ materially from those expressed or implied in our forward-looking statements, which are

subject to inherent risks and uncertainties. A discussion of these and other risks and uncertainties may be

found in documents filed by the Company with the Securities Exchange Commission, including the Compa-

nys current reports on Form 8-K, quarterly reports on Form 10-Q and its latest annual report on Form 10-K.

The Company does not intend, and assumes no obligation, to update any forward-looking statements.
http://ir.shfl.com/files/2012_Annual_Report.pdfhttp://ir.shfl.com/files/2012_Annual_Report.pdf


9/13

SHFL ENTERTAINMENT, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)(Unaudited)

2012 2011 2012 2011

Revenue:

Product leases and royalties 29,549$ 25,744$ 110,279$ 98,369$

Product sales and service 44,005 40,002 148,768 129,402

Total revenue 73,554 65,746 259,047 227,771

Costs and expenses:

Cost of leases and royalties 9,860 9,583 37,713 34,089

Cost of sales and service 16,888 15,092 56,196 51,127

Gross profit 46,806 41,071 165,138 142,555Selling, general and administrative 21,448 18,532 77,439 68,609

Research and development 9,106 8,134 32,180 27,628

Total costs and expenses 57,302 51,341 203,528 181,453

Income from operations 16,252 14,405 55,519 46,318

Other income (expense)

Interest income 146 206 575 635

Interest expense (297) (605) (1,519) (2,636)

Other, net (324) (493) (115) (997)Total other income (expense) (475) (892) (1,059) (2,998)

Income from operations before tax 15,777 13,513 54,460 43,320

Income tax provision 4,979 3,799 15,854 11,730

Net income 10,798$ 9,714$ 38,606$ 31,590$

Basic earnings per share: 0.19$ 0.18$ 0.69$ 0.58$

Diluted earnings per share: 0.19$ 0.18$ 0.68$ 0.57$

Weighted average shares outstanding:

Basic 56,444 54,425 55,884 54,344

Diluted 57,185 54,959 56,628 54,997

Three Months Ended

October 31,

Twelve Months Ended

October 31,

:


10/13

gavin isaacschief executive officer

As CEO, I have

one overarching

objective and that

is creating truevalue... for our

customers, for our

shareholders, and

for our people.

management team


11/13

roger snowexecutive vice president &chief product officer

deron hunsbergersenior vice president - sales

ken jollyexecutive vice president - Asia

kim miramontessenior vice president -

operations & administration

alexander grohsmanaging director - Europe,

Middle East & Africa

terri conwaysenior vice president - talent

nathan waddssenior vice president -

research & development

julia boguslawskivice president - investor relations

& corporate communications

kathryn s. leverexecutive vice president &general counsel

adrian halpennypresident - Australasia

linster lin w. foxexecutive vice president, chief

financial officer & secretary

louis j. castle, IIchief strategy officer


12/13

CORPORATE HEADQUARTERS

SHFL entertainment, Inc.1106 Palms Airport Drive

Las Vegas, Nevada 89119

(702) 897-7150

REGIONAL HEADQUARTERS

SHFL Asia

Unit B, 1/F, CAM Office Tower

Avenida Wai Long

Taipa, Macau

+853 28 722 539

SHFL Australasia

1 Sheridan Close

Milperra NSW 2214, Australia

+61 2 9773 0299

SHFL Europe

Wipplingerstrasse 25

A-1010 Vienna, Austria

+43 1 25 35 500 100

SHFL MexicoTorre Esmeralda II Blvd.

Avila Camacho No. 36, Piso 12

Lomas de Chapultepec, 11000

Mexico, D.F.

+52 55 9171 1662

BOARD OF DIRECTORS

Garry W. SaundersChairman of the Board

A. Randall Thoman

Audit Committee Chairman

John R. Bailey

Governance Committee Chairman

Daniel M. Wade

Compensation Committee Chairman

Eileen F. Raney

Michael Gavin Isaacs

EXECUTIVE OFFICERS

Michael Gavin Isaacs

Chief Executive Officer

Linster (Lin) W. Fox

Executive Vice President,

Chief Financial Officer andSecretary

Louis J. Castle, II

Chief Strategy Officer

Roger Snow

Executive Vice President and

Chief Product Officer

Kathryn S. Lever

Executive Vice President and

General Counsel

SECURITIES COUNSEL

Morrison & Foerster LLP755 Page Mill Road

Palo Alto, CA 94304

(650) 813-5600

Larkin Hoffman Daly & Lindgren Ltd.

7900 Xerxes Avenue S.

1500 Wells Fargo Plaza

Minneapolis, Minnesota 55431

(952) 835-3800

INDEPENDENT AUDITORSPricewaterhouseCoopers LLP

3800 Howard Hughes Parkway

Suite 650


(702) 691-5400

TRANSFER AGENT & REGISTRAR

Wells Fargo Bank, N.A.

Shareowner Services

1110 Centre Point Curve, Ste. 101

Mendota Heights, Minnesota 55120(800) 468-9716

REQUEST FOR INFORMATION

SHFL entertainment, Inc.

c/o Investor Relations

1106 Palms Airport Drive


(702) 897-7150

[email protected]

Click here to view our 2012 10-K

shareholderinformation
http://ir.shfl.com/files/2012_Annual_Report.pdfhttp://ir.shfl.com/files/2012_Annual_Report.pdf

shfl 2012 annual report

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