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Shuffle Master Posts Quarterly Loss

9 June 2006

LAS VEGAS -- Costs associated with the purchase of an Australian slot maker in February affected second-quarter earnings of gambling equipment supplier Shuffle Master.

The company Thursday announced a loss per share of 37 cents for the quarter ended April 30, despite a 60 percent jump in overall revenues and a 32 percent increase in cash flow, defined as earnings before interest, taxes, depreciation and amortization.

Las Vegas-based Shuffle Master, which supplies casinos with automated card shufflers and other table game equipment, management systems and table games such as Three Card Poker and Let It Ride, took a one-time write-off of $19.1 million associated with its $108 million purchase of Stargames.

Stargames, which distributes Rapid Roulette, an electronic version of the table game, is Australia's third-largest slot machine manufacturer.

Shuffle Master Chief Financial Officer Richard Baldwin said consolidating Stargames results into the company following the merger resulted in a net loss. In addition, Shuffle Master had increased legal expenses related to defending its intellectual property rights.

Expenses related to the Stargames merger helped send the company to a loss of $12.7 million, or 37 cents per share, compared with earnings of $6.8 million, or 19 cents a share, a year ago. Analysts polled by Thomson First Call predicted the company would earn 22 cents a share.

Despite the loss per share, the company said it was pleased with its performance in the quarter. Shuffle Master reported revenues of $43.3 million, an increase of 59.8 percent compared with $27.1 million a year ago. Cash flow was $17.6 million, an increase of 32.3 percent compared to $13.3 million in the second quarter of 2005.

"Although earnings were impacted by expense items, we are pleased with our second quarter performance, in particular with the quality and size of our revenue growth," Shuffle Master Chairman Mark Yoseloff said. "Revenue was driven by outstanding sales results in all categories, including our newly acquired Stargames products."

Yoseloff said the Stargames purchase positions for Shuffle Master's future growth.

"We are now ideally positioned in the fastest growing gaming region in the world, the Pacific Rim, with an expanded product portfolio that targets the entire casino floor," Yoseloff said, adding the company would have more products than any other equipment provider in Wynn Macau when the $1 billion casino opens in China in September.

"In addition, Shuffle Master now possesses the critical first-mover advantage in the multi-player, electronic-wagering format that provides increased profits for casinos and a fast-paced, more exciting playing experience. All-in-all, we have never been better positioned for sustained, long-term growth," Yoseloff added.

Shuffle Master announced earnings after the stock market closed Thursday. Company shares traded higher on the Nasdaq National Market, closing at $36.76, up 76 cents or 2.11 percent. In after-hours trading, shares in Shuffle Master were down more than $2 a share, or 6.15 percent.

Morgan Joseph gaming analyst Adam Steinberg, in initiating coverage of several gaming equipment manufacturers last month, said Shuffle Master has several catalysts to improve profitability. He said the company should benefit from the casino expansion in Macau, where an estimated 4,100 gambling tables could be added by 2008, which could house the company's automated shufflers, management systems and chip sorters.

Table Master, an automated multiplayer wagering game, could be rolled out in new American jurisdictions such as Pennsylvania and Florida, while products distributed by the recently acquired Stargames could be introduced into North American casinos.

"We believe Shuffle Master deserves a premium multiple to the gaming technology peer group given its better than average growth prospects, dominant market share of its core business and the strength of the company's management, as well as less competition for the company's table products than a typical slot machine manufacturer," Steinberg wrote in a May 19 report.