Scientific Games Corporation News
Scientific Games First Quarter Revenues Rise 6% to $257 Million
EBITDA for the first quarter of 2008 was
During the quarter ended
Printed Products
Printed Products Group revenue increased by 19% overall to
As expected, overall margins in the Printed Products Group improved sequentially from 39% in the fourth quarter of 2007 to 43% in the first quarter of this year, and nearly back to the pre-OGT level of 44% recorded in the first quarter of 2007. The integration of OGT was completed part way through the first quarter of 2008 and we expect to see the full benefits accruing in future quarters. First quarter revenue and gross margin were further impacted by the fact that while close to a billion instant tickets were manufactured and delivered to
As mentioned previously, the Printed Products Group underwent a restructuring of the phone card business in the
During the quarter, Scientific Games announced the successful launch of Olympic-themed instant lottery tickets by the China Sports Lottery (CSL) in
These initial results are all due to our successful design, installation and operation of the national instant ticket network with the CSL, comprising a central monitoring and control system and a national call center. We expect to have 40,000 instant ticket validation terminals online by the start of the Beijing Olympics, and at least 90,000 terminals by the end of 2009. Our CSL printing agreement to establish a state-of-the-art instant ticket production facility in
Subsequent to the end of the quarter, Scientific Games announced it had been awarded its fourth cooperative service contract in
Lottery Systems Group
A year to year decline in one-time lottery equipment sales of nearly
During the first quarter of 2008, Scientific Games announced a contract to supply 25,000 Leonardo/WAVE(TM) terminals to SISAL S.p.A., a leading Italian lottery and gaming company. Terminal deliveries will begin in the second quarter of this year and continue for the next 36 months.
The Televisa Mexican lottery contract continued to have a negative impact on earnings, costing the company
Subsequent to the end of the quarter, after an open and competitive procurement process, the Pennsylvania Department of Revenue announced it selected Scientific Games to enter into negotiations for its lottery systems contract to supply a new range of lottery equipment, including the "next-generation" WAVE(TM) terminal. The contract begins in
Diversified Gaming
Global Draw's 'same store' sales were up 36% in win per shop for the first quarter of 2008 versus 2007; and 17% on a win per terminal basis, both achieving record highs. By the end of the first quarter, Global Draw had connected 547 William Hill betting shops, representing approximately 2,100 dual-screen
In contrast to strong revenue growth in Global Draw, revenues within Diversified Gaming were down in the racing-related businesses and in Games Media Limited. The former was impacted by the shift of the racing communications business from our own books to the Roberts Communications Network, LLC joint venture in the second quarter of 2007. Games Media was impacted by the strategic shift in its business mix from one-time sale of analog machines in the first quarter of last year, to a digital, participation-based recurring revenue model at present. As previously reported, the roll-out of the new Games Media model, which builds on the Global Draw infrastructure, is proceeding exceedingly well. Lastly, as indicated earlier in this release, Diversified Gaming profits were impacted by nearly
During the quarter, Scientific Games signed new contracts with Nassau Regional Off-Track Betting Corporation to replace the existing totalisator services agreement for the provision of wagering systems hardware, software, service, wagering devices and a new digital Interactive Voice Response (IVR) telephone wagering system as well as provide for the implementation of a new Trackplay(TM) advanced deposit wagering (ADW) website. We also signed four new contracts with customers in
Information about the use of non-GAAP financial information is provided under the section "Non-GAAP Disclosure" below. The non-GAAP measures (adjusted net income, diluted adjusted net income per share, EBITDA and adjusted EBITDA) are reconciled to the corresponding GAAP measures in the financial schedules accompanying this release.
Share Repurchase Program
During the quarter Scientific Games purchased 1,000,000 shares at an aggregate cost of approximately
Convertible Debentures
A market price event did not occur for the quarter ended
Conference Call Details
We invite you to join our conference call tomorrow at
About Scientific Games
Scientific Games Corporation is the leading integrated supplier of instant tickets, systems and services to lotteries worldwide, a leading supplier of fixed odds betting terminals and systems, Amusement and Skill with Prize betting terminals, interactive sports betting terminals and systems, and wagering systems and services to pari-mutuel operators. It is also a licensed pari-mutuel gaming operator in
Company Contact: Investor Relations Scientific Games 212-754-2233
Forward-Looking Statements
In this press release the Company makes "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as "may"," "will," "estimate," "intend," "continue," "believe," "expect," "anticipate," "could," "potential," "opportunity," or similar terminology. These statements are based upon management's current expectations, assumptions and estimates and are not guarantees of future results or performance. Actual outcomes may differ materially from those projected in these statements due to a variety of risks and uncertainties and other factors, including, among other things: competition; material adverse changes in economic and industry conditions in the Company's markets; technological change; retention and renewal of existing contracts and entry into new contracts; availability and adequacy of cash flow to satisfy obligations and indebtedness or future needs; protection of intellectual property; security and integrity of software and systems; laws and government regulation, including those relating to gaming licenses, permits and operations; inability to identify, complete and integrate future acquisitions; seasonality; dependence on suppliers and manufacturers; factors associated with foreign operations; dependence on key personnel; failure to perform on contracts; resolution of pending or future litigation; labor matters; and stock price volatility. Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in the Company's filings with the Securities and Exchange Commission, including the Company's most recent Annual Report on Form 10-K. Forward-looking statements speak only as of the date they are made, and except for the Company's ongoing obligations under the U.S. federal securities laws, the Company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.
Non-GAAP Disclosure
EBITDA, as included herein, represents net income plus income tax expense, interest expense, and depreciation and amortization expenses, net of other income. EBITDA is included in this document as it is a basis upon which the Company assesses its financial performance, and it provides useful information regarding the Company's ability to service its debt. In addition, EBITDA is useful to investors in evaluating the Company's financial performance because it is a commonly used financial analysis tool for measuring and comparing gaming companies in several areas of liquidity, operating performance and leverage. EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operations, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles (GAAP) as measures of the Company's profitability or liquidity. EBITDA as defined in this press release may differ from similarly titled measures presented by other companies.
EBITDA, adjusted EBITDA, non-GAAP adjusted net income and diluted non-GAAP adjusted net income per share are non-GAAP financial measures that are presented as supplemental disclosures and are reconciled to GAAP net income and GAAP net income per diluted share in financial schedules accompanying this release. In calculating the adjusted financial measures, the Company excludes certain items in order to better facilitate an understanding of the Company's operating performance.
The Company's management uses these adjusted financial measures in conjunction with GAAP financial measures to monitor and evaluate the performance of the Company's business operations; facilitate management's internal comparisons of the Company's historical operating performance of its business operations; facilitate management's external comparisons of the results of its overall business to the historical operating performance of other companies that may have different capital structures and debt levels; review and assess the operating performance of the Company's management team and as a measure in evaluating employee compensation and bonuses; analyze and evaluate financial and strategic planning decisions regarding future operating investments; and plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
The Company's management believes that these adjusted financial measures are useful to investors to provide them with disclosures of the Company's operating results on the same basis as that used by the Company's management. The Company's management also believes that because it has historically provided such adjusted non-GAAP financial measures in its earnings releases, continuing to do so provides consistency in its financial reporting and continuity to investors for comparability purposes. Accordingly, the Company's management believes that the presentation of the adjusted non-GAAP financial measures, when used in conjunction with GAAP financial measures, provides both management and investors with useful financial information that can be used in assessing the Company's financial condition and operating performance.
The adjusted financial measures should not be considered in isolation or as a substitute for net income or net income per diluted share prepared in accordance with GAAP. The adjusted financial measures as defined in this press release may differ from similarly titled measures presented by other companies. The adjusted financial measures, as well as other information in this press release should be read in conjunction with the Company's financial statements filed with the Securities and Exchange Commission.
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended March 31, 2007 and 2008 (Unaudited, in thousands, except per share amounts) Three Months Ended March 31, 2007 2008 Operating revenues: Services $210,993 233,953 Sales 31,273 23,054 242,266 257,007 Operating expenses : Cost of services (exclusive of depreciation and amortization) 116,747 130,378 Cost of sales (exclusive of depreciation and amortization) 22,485 16,844 Selling, general and administrative expenses 39,145 49,788 Depreciation and amortization 29,078 34,504 Operating income 34,811 25,493 Other (income) deductions: Interest expense 12,892 13,884 Equity in net income of joint ventures (11,878) (16,859) Other (income) expense (390) 50 624 (2,925) Income before income tax expense 34,187 28,418 Income tax expense 9,428 8,511 Net income $24,759 19,907 Basic and diluted net income per share: Basic net income $0.27 0.21 Diluted net income $0.26 0.21 Weighted average number of shares used in per share calculations: Basic shares 91,993 93,314 Diluted shares 95,288 94,718 SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES SELECTED CONSOLIDATED BALANCE SHEET DATA December 31, 2007 and March 31, 2008 (Unaudited, in thousands) December 31, March 31, 2007 2008 Assets: Cash and cash equivalents $29,403 31,924 Other current assets 368,474 371,865 Property and equipment, net 561,624 596,094 Long-term assets 1,140,538 1,166,649 Total assets $2,100,039 2,166,532 Liabilities and Stockholders' Equity: Current portion of long-term debt $4,942 13,777 Other current liabilities 212,572 203,151 Long-term debt, excluding current portion 1,072,625 1,111,920 Other long-term liabilities 148,685 148,952 Stockholders' equity 661,215 688,732 Total liabilities and stockholders' equity: $2,100,039 2,166,532 SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES CONSOLIDATED SEGMENT OPERATING DATA Three Months Ended March 31, 2007 and 2008 (Unaudited, in thousands) Three Months Ended March 31, 2007 Printed Lottery Diversified Products Systems Gaming Group Group Group Totals Service revenues $104,631 54,331 52,031 210,993 Sales revenues 9,262 11,049 10,962 31,273 Total revenues 113,893 65,380 62,993 242,266 Cost of services (1) 55,662 29,391 31,694 116,747 Cost of sales (1) 7,624 6,238 8,623 22,485 Selling, general and administrative expenses 11,481 7,997 5,348 24,826 Depreciation and amortization (2) 8,400 14,131 6,322 28,853 Segment operating income $30,726 7,623 11,006 49,355 Unallocated corporate expense 14,544 Consolidated operating income $34,811 Three Months Ended March 31, 2008 Printed Lottery Diversified Products Systems Gaming Group Group Group Totals Service revenues $127,226 54,646 52,081 233,953 Sales revenues 8,671 7,764 6,619 23,054 Total revenues 135,897 62,410 58,700 257,007 Cost of services (1) 70,813 28,649 30,916 130,378 Cost of sales (1) 6,245 5,872 4,727 16,844 Selling, general and administrative expenses 17,741 9,278 6,783 33,802 Depreciation and amortization (2) 9,976 14,974 9,285 34,235 Segment operating income $31,122 3,637 6,989 41,748 Unallocated corporate expense 16,255 Consolidated operating income $25,493 (1) Exclusive of depreciation and amortization (2) Includes amortization of service contract software SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES CALCULATION OF NON-GAAP ADJUSTED NET INCOME (Unaudited, in thousands, except per share amounts) Three Months Ended March 31, 2007 2008 Income before income tax expense $34,187 28,418 Add: Stock compensation charges 7,129 8,518 Add: Printed Products restructuring — 2,772 Add: Global Draw earn-out — 1,776 Non-GAAP net income before income tax expense 41,316 41,484 Non-GAAP income tax expense 11,362 12,445 Non-GAAP adjusted net income 29,954 29,039 Diluted non-GAAP net income per share $0.32 0.31 Diluted GAAP net income per share $0.26 0.21 Weighted average number of shares used in per share calculations 95,288 94,718 Less: Diluted shares included in weighted average number of shares related to potential conversion of convertible debt 684 — Non-GAAP weighted average number of shares used in per share calculations 94,604 94,718 SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA (Unaudited, in thousands) Three Months Ended March 31, 2007 2008 Net income $24,759 19,907 Add: Income tax expense 9,428 8,511 Add: Depreciation and amortization expense 29,078 34,504 Add: Interest expense, net of other income or loss 12,502 13,934 EBITDA $75,767 76,856 Add: Printed Products restructuring — 2,772 Add: Global Draw earn-out — 1,776 Add: Stock compensation charges 7,129 8,518 Adjusted EBITDA $82,896 89,922
SOURCE Scientific Games Corporation
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