Earnings per diluted share are $0.26; $0.28 excluding accelerated stock
compensation expense, and $0.32 excluding all stock compensation expense
NEW YORK, May 3 /PRNewswire-FirstCall/ -- Scientific Games Corporation
(Nasdaq: SGMS) today reported first quarter 2007 revenues of $242.3
million, up 16 percent from $208.1 million in the first quarter of 2006.
Net income was $24.8 million or $0.26 per diluted share, net of $7.1
million of stock compensation expense, up from net income of $22.4 million
or $0.24 per diluted share in the first quarter of 2006. Non-GAAP adjusted
net income before accelerated stock compensation expense (explained below)
was $26.8 million or $0.28 per non-GAAP diluted share, and $29.9 million or
$0.32 per non-GAAP diluted share before all stock compensation expense,
compared to non-GAAP adjusted net income of $26.9 million or $0.29 per
non-GAAP diluted share in the first quarter of 2006.
EBITDA for the first quarter of 2007 was $75.8 million, up 31 percent
from $57.8 million in the first quarter of 2006. Excluding stock
compensation expense, adjusted EBITDA increased 30 percent to $82.9 million
for the first quarter of 2007, compared to adjusted EBITDA of $64.0 million
for the first quarter of 2006.
During the first quarter of 2007 the Company recorded an accelerated
stock compensation charge of $2.9 million or $0.02 per diluted share. The
charge reflected a requirement to expense 100 percent of the fair market
value of stock options and restricted stock units granted to certain key
executives in February 2007 who are of retirement age, rather than being
amortized over the five-year vesting period. Total stock compensation
expense for the first quarter of 2007 was $7.1 million or $0.05 per diluted
share.
"Printed Products service revenue showed a continued steady growth
pattern at 12 percent in the first quarter," said Lorne Weil, Chairman and
CEO. "'Same store' sales growth decelerated to 8 percent in the first
quarter, partly as a result of production bottlenecks. We expect this to
pick up in future quarters with the launch of new licensed property games
and additional production capacity coming online."
Mr. Weil continued, "Italy's strong contribution was felt twofold in
the first quarter, in the revenue line and from our 20 percent ownership of
the Italian instant ticket joint venture which added to a record level of
equity income. Our negotiations in China are progressing well as evidenced
by the recent announcement of our contract in Shandong. And lastly, we
expect the necessary instant ticket game approvals in Mexico sometime in
the second quarter, and anticipate launching this summer."
Printed Products sales revenue in the first quarter was $9.3 million, a
decrease of 34 percent from $14.1 million in the first quarter of 2006. The
decline is primarily due to a continuing decline in phone card prices and
volumes reflecting the market driven shift to lower priced products.
Printed Products sales margins went from 24 percent in the first quarter of
2006 to 18 percent in the first quarter of 2007 due to pricing pressure and
decreased economies of scale.
"Lottery Systems Group service revenue grew 3 percent during the first
quarter," added Weil. "Excluding EssNet service revenue of approximately
$3.4 million, new contract revenues and elapsed contracts, 'same store'
sales decreased 1 percent. This was largely due to the absence of a $365
million Powerball jackpot that occurred in the first quarter of 2006, but
was ameliorated by the growth of certain international business. We
successfully launched the Mexican online lottery Multijuegos(R) with our
partner Televisa with approximately 3,500 terminals in February 2007. As of
this week, we currently have over 4,800 terminals installed, and expect to
expand this installed base to 10,000 terminals by year end driven primarily
by the addition of approximately 4,000 retailers from our largest
chain-store customer."
Lottery Systems sales revenue was $11.0 million, a decrease of 25
percent from $14.7 million in the first quarter of 2006. This is primarily
due to the absence of an $8.2 million terminal sale in 2006, but includes a
$5.2 million sale to the Ontario Lottery in 2007. Add-on sales of terminals
and other equipment continued to suffer from legislative uncertainty in the
German market.
"Diversified Gaming Group service revenue grew 70 percent, largely due
to the addition of Global Draw," noted Mr. Weil. "Excluding $19.7 million
of Global Draw service revenues, our pari-mutuel related businesses showed
margin improvement despite flat revenue because of cost reduction
initiatives. Customers continue to migrate over to the Quantum Data
Centers, a development that should continue to improve margins in this
segment."
Diversified Gaming Group sales revenue increased from $2.3 million in
the first quarter of 2006 to $11.0 million in 2007, due to the acquisition
of Games Media Limited which contributed $10.3 million of sales revenue in
the quarter.
First quarter business development included a significant licensing
deal with Hasbro, giving us global exclusive lottery rights to 20 Hasbro
brands over multiple lottery platforms. The Company was also awarded an 11
year racing contract with the Camarero Group of Puerto Rico; an extension
with the Connecticut Lottery for a new lottery system to be launched in
2008; and an agreement with Sportech/Littlewoods, of the United Kingdom, to
upgrade their pari-mutuel technology and services.
Subsequent to the end of the quarter the Company announced a joint
venture with Inspur to launch instant tickets in the Shandong province of
China; the acquisition of Oberthur Gaming Technologies (OGT) another
leading instant ticket manufacturer; a Lottery Systems contract with Golden
Casket of Australia, a new 10-year agreement with Electronic Game Card, and
a technology contract with Churchill Downs.
Weil concluded, "We expect to continue executing on our previously
stated business goals: Continuing to grow existing lottery businesses,
launching new instant ticket businesses internationally, growing Global
Draw's and Games Media's installed base in the United Kingdom, expanding
Global Draw's technology into new jurisdictions, and improving margins
across all segments."
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.
Conference Call Details
We invite you to join our conference call tomorrow at 8:30 a.m.
Eastern. To access the call live via webcast please visit
http://www.scientificgames.com and click on the webcast link under the Investors
tab. To access the call by telephone, please dial 800.299.0148 (US &
Canada) or 617.801.9711 (International) fifteen minutes before the start of
the call. The Conference ID# is 97013855. The call will be archived for
replay on the Company's website for 30 days.
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 Connecticut, Maine and the
Netherlands and is a leading supplier of prepaid phone cards to telephone
companies. Scientific Games' customers are in the United States and more
than 60 other countries. For more information about Scientific Games,
please visit our web site atwww.scientificgames.com.
Company Contact:
Investor Relations
Scientific Games Corporation
212-754-2233
Forward-Looking Statements
In this press release we make "forward-looking statements" within the
meaning of the United States Private Securities Litigation Reform Act of
1995. In some cases, forward-looking statements can be identified by the
use of forward-looking terminology such as "may," "will," "estimate,"
"intend," "continue," "believe," "expect," "anticipate," "could,"
"optimistic," "potential," "opportunity," "eventually," or the negatives
thereof, variations thereon or similar terminology.
These forward-looking statements are based upon management's current
expectations, assumptions and estimates and are not guarantees of future
results or performance. Actual outcomes may differ from those projected in
forward-looking statements due to a variety of risks and uncertainties and
other factors, including relating to the following:
-- the availability and adequacy of our cash flow to satisfy our
obligations, including our debt service obligations and our need for
additional funds required to support capital improvements, development
and acquisitions;
-- economic, competitive, demographic, business and other conditions in
our local, regional and international markets;
-- changes or developments in the laws, regulations or taxes in the
gaming, racing and lottery industries;
-- actions taken or omitted to be taken by third parties, including
customers, suppliers, competitors and shareholders, as well as
legislative, regulatory, judicial and other governmental authorities;
-- changes in business strategy, capital improvements, development plans,
including those due to environmental remediation concerns, or changes
in personnel or their compensation, including federal, state and local
minimum wage requirements;
-- an inability to enter into new contracts, renew existing contracts or
the early termination of our existing contracts;
-- an inability to engage in or complete future acquisitions and integrate
those businesses successfully;
-- the loss of any license or permit, including the failure to obtain an
unconditional renewal of a required gaming license on a timely basis;
and
-- resolution of any pending or future litigation in a manner adverse to
us.
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 to time in the
Company's filings with the Securities and Exchange Commission, including
the Company's reports on Forms 10-K, 10-Q and 8-K. Forward-looking
statements speak only as of the date they are made, and except for our
ongoing obligations under the U.S. federal securities laws, we undertake no
obligation to publicly update any forward-looking statements whether as a
result of new information, future events or otherwise.
Convertible Debentures
During the first quarter of 2007, the average price of our common stock
exceeded the specified conversion price of $29.10 of our Convertible
Debentures. Because of this, an additional 684,000 shares of common stock
have been included in our weighted average number of diluted shares for the
first quarter of 2007. Although we purchased a hedge in December 2004 to
mitigate the potential economic dilution of the underlying Convertible
Debenture shares, we are precluded from reflecting this hedge in our GAAP
weighted average number of diluted shares because the effect would be
anti-dilutive. Upon conversion of the debentures, the dilutive share count
will revert to the true economic number.
Balance Sheet
The Consolidated Balance Sheet as of March 31, 2007 has not been
provided in this release because our implementation of the newly effective
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
("FIN 48") is still in process. The results of our FIN 48 review will not
affect our results from operations for the quarter ended March 31, 2007 or
any prior period.
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 we assess our financial performance, and it provides useful
information regarding our ability to service our 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 as measures of our profitability or
liquidity. EBITDA as defined in this document 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
document may differ from similarly titled measures presented by other
companies. The adjusted financial measures, as well as other information in
this document 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, 2006 and 2007
(Unaudited, in thousands, except per share amounts)
Three Months Ended
March 31,
2006 2007
Operating revenues:
Services $ 176,960 210,993
Sales 31,169 31,273
208,129 242,266
Operating expenses :
Cost of services (exclusive of depreciation and
amortization) 94,948 116,747
Cost of sales (exclusive of depreciation and
amortization) 24,544 22,485
Selling, general and administrative expenses 32,392 39,145
Depreciation and amortization 19,292 29,078
Operating income 36,953 34,811
Other deductions:
Interest expense 7,202 12,892
Equity in net income of joint ventures (1,576) (11,878)
Other income (643) (390)
4,983 624
Income before income tax expense 31,970 34,187
Income tax expense 9,600 9,428
Net income $ 22,370 24,759
Basic and diluted net income per share:
Basic net income $ 0.25 0.27
Diluted net income $ 0.24 0.26
Weighted average number of shares
used in per share calculations:
Basic shares 90,166 91,993
Diluted shares 93,172
95,288
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Three Months Ended March 31, 2006 and 2007
(Unaudited, in thousands)
Three Months Ended March 31, 2006
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $93,579 52,717 30,664 176,960
Sales revenues 14,121 14,699 2,349 31,169
Total revenues 107,700 67,416 33,013 208,129
Cost of services (1) 46,291 27,673 20,984 94,948
Cost of sales (1) 10,773 11,592 2,179 24,544
Selling, general and
administrative expenses 11,356 7,449 2,441 21,246
Depreciation and amortization (2) 5,185 10,493 3,396 19,074
Segment operating income $34,095 10,209 4,013 48,317
Unallocated corporate expense 11,364
Consolidated operating income $ 36,953
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
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CALCULATION OF NON-GAAP ADJUSTED NET INCOME
(Unaudited, in thousands, except per share amounts)
Three Months Ended
March 31,
2006 2007(a) 2007(b)
Income before income tax expense $ 31,970 34,187 34,187
Add: Employee termination costs 1,336 -- --
Add: Stock compensation charges 4,495 7,129 2,864
Add: SERP termination charge 313 -- --
Add: EssNet acquisition interest charge 263 -- --
Non-GAAP net income before income tax expense 38,377 41,316 37,051
Non-GAAP income tax expense 11,513 11,403 10,226
Non-GAAP adjusted net income $ 26,864 29,913 26,825
Diluted non-GAAP net income per share $ 0.29 0.32 0.28
Diluted GAAP net income per share $ 0.24 0.26 0.26
Weighted average number of shares used in per
share calculations 93,172 95,288 95,288
Less: Diluted shares included in weighted
average number of shares related to potential
conversion of convertible debt -- 684 684
Non-GAAP weighted average number of shares
used in per share calculations 93,172 94,604 94,604
(a) Non-GAAP adjusted net income excluding stock compensation
expense of $7,129
(b) Non-GAAP adjusted net income excluding accelerated stock compensation
expense of $2,864
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(Unaudited, in thousands)
Three Months Ended
March 31,
2006 2007
Net income $ 22,370 24,759
Add: Income tax expense 9,600 9,428
Add: Depreciation and amortization expense 19,292 29,078
Add: Interest expense, net of other income 6,559 12,502
EBITDA $ 57,821 75,767
Add: Lottery Systems Group employee termination costs 1,336 --
Add: Stock compensation charges 4,495 7,129
Add: SERP termination charge 313 --
Adjusted EBITDA $ 63,965 82,896
SOURCE Scientific Games Corporation
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