Net income per diluted share of $0.21; $0.24 excluding Global Draw earn-out
accrual and phone card restructuring charges; $0.31 excluding stock
compensation expense
NEW YORK, May 8 /PRNewswire-FirstCall/ -- Scientific Games Corporation
(Nasdaq: SGMS) today reported first quarter 2008 revenues of $257.0
million, up 6% from $242.3 million in the first quarter of 2007. Net income
was $19.9 million or $0.21 per diluted share, down from net income of $24.8
million or $0.26 per diluted share in the first quarter of 2007. Non-GAAP
adjusted net income, excluding the Global Draw Limited earn-out accrual,
phone card business restructuring cost, and stock compensation expense was
$29.0 million or $0.31 per non-GAAP diluted share, compared to non-GAAP
adjusted net income of $30.0 million or $0.32 per non-GAAP diluted share in
the first quarter of 2007.
EBITDA for the first quarter of 2008 was $76.9 million, up from $75.8
million in the first quarter of 2007. Adjusted EBITDA increased 8% to $89.9
million for the first quarter of 2008, compared to adjusted EBITDA of $82.9
million for the first quarter of 2007.
During the quarter ended March 31, 2008, Scientific Games recorded
charges of $1.8 million, or $0.01 per share, for a portion of the Global
Draw contingent earn-out, $2.8 million, or $0.02 per share, for the phone
card business restructuring costs and a charge of $8.5 million, or $0.06
per share, for stock compensation expense.
Printed Products
Printed Products Group revenue increased by 19% overall to $135.9
million in the first quarter; Printed Products Group service revenue for
the quarter was $127.2 million, 22% ahead of the first quarter of 2007.
Excluding revenues from Oberthur Gaming Technologies (OGT) of $19.5
million, the Pennsylvania cooperative service contract re-pricing, and
instant tickets shipped to China, 'same store' sales growth in the quarter
was just under 9%. Holding all of these things constant and excluding
licensed products, 'same store' sales were up 15% in the quarter. Once
again we saw strong results from instant ticket sales in the U.K. and in
Italy.
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 China, revenue was recognized on less
than a quarter of the production, with the balance expected to be
recognized in the second quarter.
As mentioned previously, the Printed Products Group underwent a
restructuring of the phone card business in the Leeds, England plant in the
first quarter 2008 and incurred a charge of $2.8 million, predominantly for
employee termination. The redesign of our phone card product allows us to
significantly reduce the number of employees needed to package the product
and we expect margins to improve from this segment going forward.
During the quarter, Scientific Games announced the successful launch of
Olympic-themed instant lottery tickets by the China Sports Lottery (CSL) in
the People's Republic of China ("PRC"). The program debuted on Sunday,
March 23rd, in the Shandong province with over 1,500 initial retail
locations. CSL has achieved approximately 1.3 billion Yuan or US$180
million in sales since this launch. CSL and Scientific Games have now
expanded into nine provinces with 13,500 retailers with plans to expand
into additional provinces approximately every two weeks until all 31
provinces in the PRC sell CSL instant tickets.
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 China is also on track to be complete
by the end of the year.
Subsequent to the end of the quarter, Scientific Games announced it had
been awarded its fourth cooperative service contract in Germany with the
Sachsen-Anhalt Lottery to supply instant tickets and cooperative services
to 2.5 million people and approximately 670 retailers.
Lottery Systems Group
A year to year decline in one-time lottery equipment sales of nearly $3
million accounted for the overall decline in Lottery Systems Group revenue
in the quarter. While Lottery Systems Group margins declined slightly to
45% from 46% in 2007, domestic system margins, which have been increasing
steadily for several quarters, improved once again by nearly a full
percentage point to 45%.
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 $2.8 million, approximately $0.02
per share, in the first quarter of 2008. As previously indicated, we
believe the launch of instant tickets is the key to future profitability.
At the present time, progress has been made in this regard, and we are
cautiously optimistic that instant tickets will be launched during the
second half of 2008.
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 January 2009,
will have an initial term of five years, and will provide for five one-year
extension options. Also during the quarter we were granted a nine-month
contract extension by the West Virginia Lottery to allow our previously
announced protest to run its course.
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 Nevada terminals, to the Global Draw server-based
satellite network. The total Global Draw installed base in the U.K. has now
reached 11,746 terminals. Initial installations into Corporacion
Interamericana de Entretenimiento (CIE) in Mexico are performing ahead of
expectations, recording win per day in excess of competitive products.
Global Draw is also witnessing progress on expanding this network elsewhere
in Latin America, Eastern Europe and Asia.
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 $2 million due to the Global Draw earn-out accrual.
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 Germany and
Finland for the provision of pari-mutuel wagering systems, terminal and
services.
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 $18.0 million or $18.03 per share. The
remaining authorization under our stock repurchase program totaled $172
million at March 31, 2008.
Convertible Debentures
A market price event did not occur for the quarter ended March 31, 2008
and, accordingly, the Convertible Debentures are not convertible during the
current quarter ending June 30, 2008. During the first quarter of 2008, the
average price of the Company's common stock did not exceed the specified
conversion price of $29.10 of the Convertible Debentures. Because of this,
no additional shares of common stock have been included in the weighted
average number of diluted shares for the first quarter of 2008.
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 (866) 510-0712 (US &
Canada) or (617) 597-5380 (International) fifteen minutes before the start
of the call. The Conference ID# is 46874432. 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 at http://www.scientificgames.com .
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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