Slot machine and gaming table maker Shuffle Master (Nasdaq: SHFL) recently posted better-than-expected third-quarter results, helped by higher demand for electronic gaming machines and increased recurring revenue. Its shares surged 13%.
The company has benefited from product innovation and cost management. Let's dive into the numbers.
Break it down
The company maintained both efficiency and growth as its top line grew by 13% to $58.3 million. Net profit jumped 56% to $9.1 million, or $0.17 per share. Analysts on average were expecting earnings of $0.15 per share.
Gross margin increased to 62.1% from 61.4% as a result of higher selling prices in the electronic gaming machine business and cost-cutting measures. The EGM segment's revenue jumped 96% to $18 million because of the rise in popularity of its Equinox cabinet, 800 units of which were installed during the quarter.
The company earned $26.2 million or nearly half its revenue from more recurring revenue from royalties and product leasing. Total recurring revenue recorded a significant growth of 11% compared to the previous-year quarter. It's worth emphasizing the importance of these kinds of recurring sales, as they tend to be more dependable revenue. Additionally, product and services sales grew 14%, while product leasing and royalties were up by 12%.
A diversified business
Demand for the products and services that Shuffle Master provides depends on the health of the economy and the casino industry to some extent. However, its vast geographical spread and varied product offerings keep the company diversified. Nearly 54% of the company's revenue comes from overseas operations, giving it exposure to thriving foreign markets.
Macau is considered the world's largest gambling destination, with a 57% year-over-year revenue growth at $3.08 billion for August. It is expected to post full-year revenue five times higher than its U.S. casino rival, Las Vegas. This has attracted several casino and gaming companies such as Melco Crown Entertainment, Wynn Resorts, and Las Vegas Sands to invest in Macau and other Asian cities. Shuffle Master also plans to increase its lease activity in these high-performing markets. This should help its growth.
The Foolish bottom line
Shuffle Master has shown good numbers in the quarter. Moreover, with reduced debt and increased cash flow, the books look good to me. I think exposure to emerging markets should enable the company to do well.
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