Net income per diluted share of $0.31; Non-GAAP net income per diluted
share of $0.35 including stock compensation expense and $0.41 per diluted
share excluding stock compensation expense
NEW YORK, July 31 /PRNewswire-FirstCall/ -- Scientific Games
Corporation (Nasdaq: SGMS) today reported second quarter 2008 revenues of
$306.0 million, up 14% from $269.6 million in the second quarter of 2007.
Net income was $29.0 million or $0.31 per diluted share, up from net income
of $27.1 million or $0.28 per diluted share in the second quarter of 2007.
Non-GAAP adjusted net income, excluding the Global Draw earn-out accrual,
the early extinguishment of debt charge, expenses associated with the
retirement of a division President and settlement with the California Horse
Racing Board, was $33.4 million or $0.35 per diluted non-GAAP share.
Excluding stock compensation expense, earnings were $38.8 million or $0.41
per non-GAAP diluted share, compared to non-GAAP adjusted net income of
$30.7 million or $0.32 per non-GAAP diluted share in the second quarter of
2007.
EBITDA for the second quarter of 2008 was $93.1 million, up from $84.3
million in the second quarter of 2007. Adjusted EBITDA increased 16% to
$104.0 million for the second quarter of 2008, compared to adjusted EBITDA
of $89.3 million for the second quarter of 2007.
For the six months ended June 30, 2008, revenues were $563.0 million,
compared to $511.8 million for the six months ended June 30, 2007, an
increase of 10%. Net income was $48.9 million or $0.52 per diluted share,
compared to $51.9 million or $0.54 per diluted share in 2007. EBITDA
increased to $169.9 million from $160.1 million in 2007. Adjusted EBITDA
increased 13% to $193.9 million.
During the quarter the Company completed a refinancing which included a
$250 million senior secured revolving credit facility, a $550 million
senior secured term loan credit facility, and $200 million of senior
subordinated notes. Proceeds of this refinancing were used to repay all
amounts outstanding under the Company's prior credit agreement. The
refinancing extended the average maturity of the Company's debt, created
additional borrowing capacity and loosened certain financial covenants.
Lorne Weil, Chairman and CEO of Scientific Games commented, "We were
pleased to complete $1 billion of financing on favorable terms in an
otherwise difficult credit market. The undrawn revolver positions us for
the growth we expect in coming years."
Printed Products Group
Printed Products Group service revenue increased by 16% to $146.8
million in the second quarter. Excluding revenues from Oberthur Gaming
Technologies (OGT), the Pennsylvania cooperative service contract
re-pricing, and instant tickets shipped to China, "same store" sales growth
in the quarter was approximately 6%. The China Sports Lottery continues to
perform exceedingly well, with weekly retail sales having recently exceeded
$60 million, or more than $3 billion on an annualized basis. We remain very
excited about this unique opportunity and have targeted the end of the year
to begin producing instant tickets in our plant in Beijing. In the meantime
we will continue to absorb the negative impact of air freight and duty,
which accounted for more than $3 million of incremental cost in the second
quarter. As a consequence overall Printed Product Group gross margins
declined from 42% in the second quarter of 2007 to 40% this year; however,
excluding the impact of the foregoing, margins were essentially flat
year-over-year.
Lottery Systems Group
Lottery Systems Group service revenues grew by 16% in the quarter to
$61.3 million from $52.8 million last year, while service gross margins
increased from 47% to 49%. "Same store" service revenue growth was about
7.5% overall, largely due to international growth, domestic jackpot
activity and strong associated instant tickets validation revenues. Much of
the overall increase in revenue and margin was attributable to the new
contract for instant ticket activation, validation and tracking services
for the China Sports Lottery, whose distribution network has reached 50,000
retailers on file.
Lottery Systems Group sales revenues increased to $24.5 million from
$10.5 million in the second quarter of 2007. Most of the revenue increase
was driven by the shipment of the first 3,000 Leonardo/Wave(TM) terminals
to Sisal but, because of a range of start-up expenses associated with the
contract, there was very little margin earned on these shipments in the
second quarter. As we progress through the full 25,000 unit contract, we
anticipate that margins will improve significantly.
The Televisa Mexican lottery contract negatively impacted earnings by
$3.7 million or nearly $0.03 per share in the second quarter of 2008.
During the second quarter, Televisa began to develop plans to re-launch the
Multijuegos online lottery with an improved offering of games, payouts and
price points, while we continue to await the launch of instant tickets,
which we see as key to the success of the overall project.
Diversified Gaming Group
Diversified Gaming Group service revenues increased by 3% overall in
the second quarter, with a 29% increase in Global Draw revenues offset by a
modest decline in racing-related revenues and a sharp decline in Games
Media revenue. As explained previously, Games Media is in the deliberate
process of transitioning from a one-time product sale business model to one
driven by participation-based recurring revenues and, while we are tracking
well according to plan, we expect that it will take a few more quarters for
revenue to return to previous levels. Gross margins in the Diversified
Gaming Group were ahead of both the first quarter of this year and the
second quarter of last year despite absorbing the cost of the Global Draw
earn-out and the settlement of the California Horse Racing Board matter.
New Contract Activity
During the quarter we were awarded new cooperative service contracts by
the Florida Lottery and the Sachsen-Anhalt Lottery in Germany, a new online
contract by the Pennsylvania Lottery, and a race book contract by the
Tunica Biloxi tribal casino in Louisiana.
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.
Convertible Debentures
A market price event did not occur for the quarter ended June 30, 2008
and, accordingly, the Convertible Debentures are not convertible during the
current quarter ending September 30, 2008. During the second quarter of
2008, the average price of the Company's common stock exceeded the
specified conversion price of $29.10 of the Convertible Debentures. Because
of this, approximately 19,000 and 10,000 shares of common stock underlying
the Convertible Debentures have been included in the weighted average
number of diluted shares for the second quarter of 2008 and first half of
2008, respectively. Although the Company purchased a hedge in December 2004
to mitigate the potential dilution from the conversion of the Convertible
Debenture, the Company is precluded from reflecting this hedge in the GAAP
weighted average number of diluted shares because the effect would be anti-
dilutive. However, to the extent the Convertible Debentures are converted
during the term of the hedge, the diluted share amount will decrease
because the hedge will offset the dilution from conversion of the
Convertible Debentures.
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) 659-2056 (US &
Canada) or (617) 614-2714 (International) fifteen minutes before the start
of the call. The Conference ID# is 18527527. 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 server-based gaming machines 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 results 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 financial
information that can be useful 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 June 30, 2007 and 2008
(Unaudited, in thousands, except per share amounts)
Three Months Ended
June 30,
2007 2008
Operating revenues:
Services $234,661 264,661
Sales 34,916 41,308
269,577 305,969
Operating expenses:
Cost of services (exclusive of depreciation
and amortization) 129,698 152,536
Cost of sales (exclusive of depreciation and
amortization) 26,456 29,707
Selling, general and administrative expenses 40,495 49,050
Depreciation and amortization 32,256 35,108
Operating income 40,672 39,568
Other (income) deductions:
Interest expense 14,274 14,419
Equity in earnings of joint ventures (11,401) (18,397)
Early extinguishment of debt -- 2,960
Other (income) expense 347 (745)
3,220 (1,763)
Income before income tax expense 37,452 41,331
Income tax expense 10,345 12,335
Net income $27,107 28,996
Basic and diluted net income per share:
Basic net income $0.29 0.31
Diluted net income $0.28 0.31
Weighted average number of shares
used in per share calculations:
Basic shares 92,581 92,645
Diluted shares 96,280 94,420
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2007 and 2008
(Unaudited, in thousands, except per share amounts)
Six Months Ended
June 30,
2007 2008
Operating revenues:
Services $445,654 498,614
Sales 66,189 64,362
511,843 562,976
Operating expenses:
Cost of services (exclusive of depreciation
and amortization) 246,445 282,914
Cost of sales (exclusive of depreciation and
amortization) 48,941 46,551
Selling, general and administrative expenses 79,640 98,838
Depreciation and amortization 61,335 69,612
Operating income 75,482 65,061
Other (income) deductions:
Interest expense 27,166 28,303
Equity in earnings of joint ventures (23,279) (35,256)
Early extinguishment of debt -- 2,960
Other income (44) (695)
3,843 (4,688)
Income before income tax expense 71,639 69,749
Income tax expense 19,773 20,846
Net income $51,866 48,903
Basic and diluted net income per share:
Basic net income $0.56 0.53
Diluted net income $0.54 0.52
Weighted average number of shares
used in per share calculations:
Basic shares 92,289 92,979
Diluted shares 95,605 94,473
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED BALANCE SHEET DATA
December 31, 2007 and June 30, 2008
(Unaudited, in thousands)
December 31, June 30,
2007 2008
Assets:
Cash and cash equivalents $29,403 177,830
Other current assets 368,474 396,428
Property and equipment, net 561,624 618,195
Long-term assets 1,140,538 1,175,891
Total assets $2,100,039 2,368,344
Liabilities and Stockholders' Equity:
Current portion of long-term debt $4,942 54,259
Other current liabilities 212,572 216,214
Long-term debt, excluding current portion 1,072,625 1,218,125
Other long-term liabilities 148,685 150,032
Stockholders' equity 661,215 729,714
Total liabilities and stockholders' equity: $2,100,039 2,368,344
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Three Months Ended June 30, 2007 and 2008
(Unaudited, in thousands)
Three Months Ended June 30, 2007
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $126,951 52,812 54,898 234,661
Sales revenues 10,094 10,466 14,356 34,916
Total revenues 137,045 63,278 69,254 269,577
Cost of services (1) 70,868 28,077 30,753 129,698
Cost of sales (1) 8,380 5,888 12,188 26,456
Selling, general and
administrative expenses 15,724 7,338 5,214 28,276
Depreciation and amortization (2) 10,123 15,225 6,679 32,027
Segment operating income $31,950 6,750 14,420 53,120
Unallocated corporate expense 12,448
Consolidated operating income $40,672
Three Months Ended June 30, 2008
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $146,785 61,332 56,544 264,661
Sales revenues 8,546 24,499 8,263 41,308
Total revenues 155,331 85,831 64,807 305,969
Cost of services (1) 87,378 31,183 33,975 152,536
Cost of sales (1) 5,641 20,899 3,167 29,707
Selling, general and
administrative expenses 15,789 9,604 7,261 32,654
Depreciation and amortization (2) 9,476 15,382 9,970 34,828
Segment operating income $37,047 8,763 10,434 56,244
Unallocated corporate expense 16,676
Consolidated operating income $39,568
(1) Exclusive of depreciation and amortization
(2) Includes amortization of service contract software
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Six Months Ended June 30, 2007 and 2008
(Unaudited, in thousands)
Six Months Ended June 30, 2007
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $231,582 107,143 106,929 445,654
Sales revenues 19,356 21,515 25,318 66,189
Total revenues 250,938 128,658 132,247 511,843
Cost of services (1) 126,530 57,468 62,447 246,445
Cost of sales (1) 16,004 12,126 20,811 48,941
Selling, general and
administrative expenses 27,205 15,335 10,562 53,102
Depreciation and amortization (2) 18,523 29,356 13,001 60,880
Segment operating income $62,676 14,373 25,426 102,475
Unallocated corporate expense 26,993
Consolidated operating income $75,482
Six Months Ended June 30, 2008
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $274,011 115,978 108,625 498,614
Sales revenues 17,217 32,263 14,882 64,362
Total revenues 291,228 148,241 123,507 562,976
Cost of services (1) 158,191 59,832 64,891 282,914
Cost of sales (1) 11,886 26,771 7,894 46,551
Selling, general and
administrative expenses 33,530 18,882 14,044 66,456
Depreciation and amortization (2) 19,452 30,356 19,255 69,063
Segment operating income $68,169 12,400 17,423 97,992
Unallocated corporate expense 32,931
Consolidated operating income $65,061
(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 Six Months Ended
June 30, June 30,
2007 2008 2007 2008
Income before income tax expense $37,452 41,331 71,639 69,749
Add: Printed Products restructuring -- -- -- 2,772
Add: Global Draw earn-out -- 1,670 -- 3,446
Add: Division President retirement -- 930 -- 930
Add: California Horse Racing Board
resolution -- 700 -- 700
Add: Early extinguishment of debt -- 2,960 -- 2,960
Non-GAAP net income before income
tax expense 37,452 47,591 71,639 80,557
Non-GAAP income tax expense 10,345 14,182 19,773 24,087
Non-GAAP adjusted net income 27,107 33,409 51,866 56,470
Diluted non-GAAP net income per share $0.29 0.35 0.55 0.60
Diluted GAAP net income per share $0.28 0.31 0.54 0.52
Non-GAAP net income before income
tax expense 37,452 47,591 71,639 80,557
Add: Stock compensation charges 4,966 7,610 12,095 16,128
Non-GAAP net income before income
tax expense 42,418 55,201 83,734 96,685
Non-GAAP income tax expense 11,707 16,450 23,111 28,909
Non-GAAP adjusted net income 30,711 38,751 60,623 67,776
Diluted non-GAAP net income per share $0.32 0.41 0.64 0.72
Weighted average number of shares
used in per share calculations 96,280 94,420 95,605 94,473
Less: Diluted shares included in
weighted average number of shares
related to potential conversion
of convertible debt 1,557 19 1,123 10
Non-GAAP weighted average number
of shares used in per share
calculations 94,723 94,401 94,482 94,463
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(Unaudited, in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2008 2007 2008
Net income $27,107 28,996 51,866 48,903
Add: Income tax expense 10,345 12,335 19,773 20,846
Add: Depreciation and amortization
expense 32,256 35,108 61,335 69,612
Add: Interest expense, net of other
income or loss 14,621 16,634 27,122 30,568
EBITDA $84,329 93,073 160,096 169,929
Add: Printed Products restructuring -- -- -- 2,772
Add: Division President retirement -- 930 -- 930
Add: California Horse Racing Board
resolution -- 700 -- 700
Add: Global Draw earn-out -- 1,670 -- 3,446
Add: Stock compensation charges 4,966 7,610 12,095 16,128
Adjusted EBITDA $89,295 103,983 172,191 193,905
SOURCE Scientific Games Corporation
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CONTACT:
Investor Relations, Scientific Games,
+1-212-754-2233
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