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Shuffle Master's quarterly profits miss Street forecast

14 September 2007

LAS VEGAS, Nevada -- A Las Vegas company that makes automatic card-shuffling devices plans to do a little corporate reshuffling itself.

Officials from Shuffle Master announced the changes Monday during a conference call with analysts during which they also revealed the company earned $2.7 million, or 8 cents per share, in its third quarter ended July 31, compared with earnings of $7.3 million, 20 cents per share, a year earlier.

Analysts polled by Thomson Financial had forecast earnings 13 cents per share for the latest quarter.

Shuffle Master Chairman and CEO Mark Yoseloff urged investors to be patient with the company as the business moves to a lease-based format he said would be more stable and profitable in the long run.

"Management is committed to building sustainable long-term value," Yoseloff said. "We must be willing to sacrifice short-term (profit) from time to time."

Bill Lerner, a Deutsche Bank analyst who participated in the conference call, said Yoseloff's explanation made sense. Lerner said he expects changes at Shuffle Master to eventually pay off for investors.

"This is a company that is trying to do the right thing for the long term and experiencing some short-term pain because of it," Lerner said.

Shuffle Master will also shift its corporate structure as it changes its emphasis from selling machines to leasing them. The reorganization at the company's Las Vegas headquarters will include a division into two groups, a Corporate Headquarters Group and entity called Shuffle Master-Americas.

The Corporate Headquarters Group is an umbrella group that will include oversight of the entire company, which has resources in Australia, Austria and the Americas. It will include corporate finance and accounting, worldwide marketing, information technology, human resources and a Corporate Product Group that will be responsible for creating and developing future products.

Shuffle Master-Americas will be responsible for sustaining and expanding the company's business in the Americas, and it will be headquartered in the same Las Vegas location as the overall corporation.

Yoseloff will lead the product development group with help from Jim Jackson, who the company hired to fill the newly created position of senior vice president of research and development.

Jackson had been at the firm Gaming and Technology Consultants and before that was president and CEO of Sigma Game, and senior vice president of gaming operations at WMS.

Shuffle Master's quarterly revenue 10.8 percent to $45.1 million from $40.7 million.

Total costs and expenses, however, also increased to $38.9 million, an increase of 42 percent. Much of the increase on the expense side, however, was because the comparable period had a one-time expense offset of more than $4.5 million. Excluding that offset expenses were up about 25 percent.

Revenue in leasing categories was up, in some cases significantly. Yoseloff said that bodes well considering it is the area Shuffle Master plans to emphasize going forward.

Leases of utility products were up almost 7 percent to $6.3 million and leases of entertainment products were up 32 percent.

"For the longer term investor who is looking for us to fulfill this promise, I think it was actually a positive quarter," Yoseloff said.

The company also announced a new shuffle device, called iDeal, that it expects will boost revenue. The device is twice as fast as a previous shuffler, includes features like an electronic eye that can recall and read back dealt cards to settle disputes and can re-sort cards at the end of a shift so they can be easily boxed and canceled.

"It does everything practically except boil water at the table," Yoseloff said.

It has a list price of $23,000 compared to $15,000 for a previous model and is available for lease.

Lerner characterized changes at the company as a return to a more profitable and sustainable leasing model.

"They went a little too far moving away from lease toward sale then started trying to move the pendulum back," he said.