Earnings per diluted share are $0.28; $0.35 excluding Mexico startup loss,
stock compensation expense and convertible debenture shares
NEW YORK, Aug. 2 /PRNewswire-FirstCall/ -- Scientific Games (Nasdaq:
SGMS) today reported second quarter 2007 revenues of $269.6 million, up 13
percent from $239.6 million in the second quarter of 2006. Net income was
$27.1 million or $0.28 per diluted share, up from net income of $25.0
million or $0.26 per diluted share in the second quarter of 2006. Non-GAAP
adjusted net income, excluding a net loss from the startup in Mexico, stock
compensation expense and convertible debenture shares, was $32.7 million or
$0.35 per non- GAAP diluted share, compared to non-GAAP adjusted net income
of $28.5 million or $0.30 per non-GAAP diluted share in the second quarter
of 2006.
EBITDA for the second quarter of 2007 was $84.3 million, up 21 percent
from $69.6 million in the second quarter of 2006. Adjusted EBITDA increased
23 percent to $91.5 million for the second quarter of 2007, compared to
adjusted EBITDA of $74.6 million for the second quarter of 2006.
For the six months ended June 30, 2007, revenues were $511.8 million,
compared to $447.8 million for the six months ended June 30, 2006, an
increase of 14 percent. Net income was $51.9 million or $0.54 per diluted
share, compared to $47.3 million or $0.50 per diluted share in 2006. EBITDA
increased to $160.1 million, compared to $127.4 million in 2006. Adjusted
EBITDA increased 26 percent to $175.0 million, compared to $138.5 million
in 2006.
"Printed Products service revenue grew 26 percent versus the second
quarter of 2006, including revenues from Oberthur Gaming Technologies
(OGT). 'Same store' sales growth of 9% would have been considerably higher-
approximately 13%- had $3 million of Major League Baseball (MLB) revenue
expected to have been realized in the second quarter not slipped into the
third quarter," said Lorne Weil, Chairman and CEO of Scientific Games.
"Italy continued to achieve record sales and our 20 percent ownership of
the consortium contributed approximately $10.4 million in equity income
during the second quarter. It has truly exceeded our initial expectations,
and serves as a model for future international growth opportunities such as
China, Mexico and Germany."
In addition, the Company has introduced an industry wide initiative to
link instant ticket sales across lotteries in North America. Beginning in
August, the first games will go on sale with a total of 23 states launching
a linked version of Deal or No Deal(TM). Winners will get a chance to fly
to Hollywood and participate in a Deal or No Deal(TM) game with host Howie
Mandel and the models. This represents a significant step in bringing a new
level of entertainment to the Lottery industry, and will contribute to
Scientific Games' revenue beginning in the third quarter.
Added Weil, "Recently we were pleased to announce the acquisition of
50% of Guard Libang, the instant ticket division of REXCAPITAL Financial
Holdings Limited. The partnership will give us immediate access to 17
provinces in China where we plan on implementing instant ticket cooperative
services. With an addressable market of 792 million people, this deal
should contribute meaningfully to future earnings, and maintain the
Company's position as the industry leader for years to come. We look
forward to executing on our strategy with our new partners."
Weil continued, "The acquisition of OGT strengthens our presence in
several key international markets, most notably Canada, Australia and
Europe. OGT was consolidated beginning in May and accounted for $15.9
million of service revenue and $0.5 million of EBITDA during the quarter.
Including approximately $1.4 million of interest and other expenses, OGT
accounted for a loss of over $0.01 per diluted share in the quarter. When
we purchased OGT in May they were operating well below our historical
Printed Products margins. However, the integration process is progressing
according to plan and we expect to see margin improvement from OGT in
future quarters. We also plan to launch a new state-of-the art printer (P6)
in Georgia during the third quarter, which will bring on additional, highly
efficient capacity."
Printed Products sales revenue for the quarter ended June 30, 2007 was
$10.1 million compared to $11.8 million for the quarter ended June 30,
2006. This decrease was primarily attributable 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 22 percent in the
second quarter of 2006 to 17 percent in the second quarter of 2007 due to
pricing pressure and decreased economies of scale.
Lottery Systems Group service revenue increased 7 percent during the
second quarter. Excluding new contract revenues and elapsed contracts,
'same store' sales increased 5 percent. Mr. Weil noted, "Although we
incurred a net loss of approximately $0.02 per diluted share this quarter
from the start-up of the Mexican online lottery, we remain excited about
the Mexican online lottery Multijuegos(R) with our partner Televisa. As of
this week, we currently have over 5,400 terminals installed, and expect to
expand this installed base to eight to ten thousand by year end. While we
had initially planned to have already launched instant tickets in Mexico,
we now expect instant tickets to launch this fall, which together with
expanded distribution should improve sales dramatically, and help turn the
corner to profitability."
Lottery Systems Group sales revenue was $10.5 million, a decrease of 47
percent from $19.8 million in the second quarter of 2006. This is primarily
due to the absence of $11.3 million of terminal sales to customers in
Germany in 2006. Add-on sales of terminals and other equipment continued to
suffer from legislative uncertainty in the German market. However, the
Company expects this to improve if the German Lotto Bloc's contract is
extended this fall.
Diversified Gaming Group service revenue decreased from $57.0 million
in the second quarter of 2006 to $54.9 million in 2007, primarily due to
the sale of the racing and data communications business which contributed
$3.4 million of revenue in the second quarter of 2006. The Company's
continued ownership interest in this business is now reflected in the
income statement on the line labeled "equity in earnings of joint
ventures", and was approximately $1 million in the second quarter of 2007.
Global Draw continued to show growth and contributed $21.7 million of
service revenue in the second quarter of 2007.
Diversified Gaming Group sales revenue grew to $14.4 million from $1.2
million in the second quarter of 2006, due to $13.5 million of Games Media
revenue. Mr. Weil noted, "Games Media's revenue to date has come mostly
from the sales of analog Amusement with Prize (AWP) machines. We anticipate
a UK replacement cycle from analog to digital AWPs, which will also
transition the revenue from sales to participation. We have been testing
new digital games throughout the UK pub market and are receiving
exceptional results. Games Media and Global Draw give us confidence that
the Diversified Gaming Group can be a major growth driver for years to
come."
Second quarter business development included the acquisition of OGT, a
joint venture with Inspur to launch instant tickets in the Shandong
province of China, 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. Subsequent to the end of the
quarter, the Company announced the acquisition of a 50 percent interest in
Guard Libang, a leading provider of instant lottery ticket cooperative
services in China, several racing contracts with Great Canadian Gaming, and
new instant ticket contracts with Connecticut, Idaho, Ohio, and Rhode
Island.
Weil concluded, "We have been very active executing some of our
previously stated business goals. Most importantly, we have achieved a
strong foothold in China, which we expect will become one of the most
important lottery markets in the near future. As we have successfully done
in the past, we will look to simultaneously integrate completed
acquisitions, win new business, and execute on existing contracts. . This
three-pronged strategy should lead to accelerated earnings power in the
coming quarters."
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 866.203.3436 (US &
Canada) or 617.213.8849 (International) fifteen minutes before the start of
the call. The Conference ID# is 70033640. 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 we make "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 our 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 our filings
with the SEC, including our most recent Annual Report on Form 10-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 second 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 1,556,946 shares of common stock
have been included in our weighted average number of diluted shares for the
second quarter of 2007. For the first six months of 2007, we have added an
additional 1,122,802 shares of common stock in our weighted average number
of diluted shares. 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. Holders of the Convertible
Debentures may convert their Convertible Debentures upon the occurrence of
certain events, including during any quarter if the market price of the
common stock is equal to or greater than $34.92 (which is 120% of the
conversion price) for at least 20 trading days during the last 30
consecutive trading days of the immediately preceding calendar quarter;
this even known as a "market price event". Convertibility resulting from
market price events is determined on a quarterly basis. A market price
event occurred for the first time during the calendar quarter ending June
30, 2007; therefore the Convertible Debentures may be converted into cash
and shares of the Company's Class A common stock during the calendar
quarter beginning July 1, 2007 and ending September 30, 2007.
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 June 30, 2006 and 2007
(Unaudited, in thousands, except per share amounts)
Three Months Ended
June 30,
2006 2007
Operating revenues:
Services $206,809 234,661
Sales 32,828 34,916
239,637 269,577
Operating expenses:
Cost of services (exclusive of
depreciation and amortization) 113,461 129,698
Cost of sales (exclusive of
depreciation and amortization) 24,382 26,456
Selling, general and administrative expenses 35,346 40,495
Depreciation and amortization 23,525 32,256
Operating income 42,923 40,672
Other deductions:
Interest expense 11,115 14,274
Equity in net income of joint ventures (3,157) (11,401)
Other (income) loss (226) 347
7,732 3,220
Income before income tax expense 35,191 37,452
Income tax expense 10,214 10,345
Net income $24,977 27,107
Basic and diluted net income per share:
Basic net income $0.27 0.29
Diluted net income $0.26 0.28
Weighted average number of shares
used in per share calculations:
Basic shares 91,202 92,581
Diluted shares 95,989 96,280
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2006 and 2007
(Unaudited, in thousands, except per share amounts)
Six Months Ended
June 30,
2006 2007
Operating revenues:
Services $383,769 445,654
Sales 63,997 66,189
447,766 511,843
Operating expenses :
Cost of services (exclusive of
depreciation and amortization) 208,409 246,445
Cost of sales (exclusive of
depreciation and amortization) 48,926 48,941
Selling, general and administrative expenses 67,738 79,640
Depreciation and amortization 42,817 61,335
Operating income 79,876 75,482
Other deductions:
Interest expense 18,317 27,166
Equity in net income of joint ventures (4,733) (23,279)
Other income (869) (44)
12,715 3,843
Income before income tax expense 67,161 71,639
Income tax expense 19,814 19,773
Net income $47,347 51,866
Basic and diluted net income per share:
Basic net income $0.52 0.56
Diluted net income $0.50 0.54
Weighted average number of shares
used in per share calculations:
Basic shares 90,687 92,289
Diluted shares 94,992 95,605
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED BALANCE SHEET DATA
December 31, 2006 and June 30, 2007
(Unaudited, in thousands)
December 31, June 30,
2006 2007
Assets:
Cash and cash equivalents $27,791 27,811
Other current assets 316,911 353,419
Property and equipment, net 450,660 523,648
Long-term assets 964,248 1,078,096
Total assets $1,759,610 1,982,974
Liabilities and Stockholders' Equity:
Current portion of long-term debt $3,148 4,977
Other current liabilities 190,875 211,962
Long-term debt, excluding current portion 913,253 1,028,295
Other long-term liabilities 124,256 126,014
Stockholders' equity 528,078 611,726
Total liabilities and
stockholders' equity: $1,759,610 1,982,974
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Three Months Ended June 30, 2006 and 2007
(Unaudited, in thousands)
Three Months Ended June 30, 2006
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $100,615 49,236 56,958 206,809
Sales revenues 11,818 19,832 1,178 32,828
Total revenues 112,433 69,068 58,136 239,637
Cost of services (1) 52,695 28,560 32,206 113,461
Cost of sales (1) 9,206 13,995 1,181 24,382
Selling, general and
administrative
expenses 10,849 8,079 4,534 23,462
Depreciation and
amortization (2) 6,141 11,041 6,099 23,281
Segment operating
income $33,542 7,393 14,116 55,051
Unallocated
corporate expense 12,128
Consolidated
operating income $42,923
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
(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, 2006 and 2007
(Unaudited, in thousands)
Six Months Ended June 30, 2006
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $194,194 101,953 87,622 383,769
Sales revenues 25,939 34,531 3,527 63,997
Total revenues 220,133 136,484 91,149 447,766
Cost of services (1) 98,986 56,233 53,190 208,409
Cost of sales (1) 19,979 25,587 3,360 48,926
Selling, general and
administrative
expenses 22,205 15,528 6,975 44,708
Depreciation and
amortization (2) 11,326 21,534 9,495 42,355
Segment operating
income $67,637 17,602 18,129 103,368
Unallocated
corporate expense 23,492
Consolidated
operating income $79,876
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
(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,
2006 2007 2006 2007
Income before income
tax expense $35,191 37,452 67,161 71,639
Add: Employee
termination costs -- -- 1,336 --
Add: Stock
compensation charges 4,949 4,966 9,444 12,095
Add: SERP
termination charge -- -- 313 --
Add: EssNet acquisition
interest charge -- -- 263 --
Add: Loss on start-up
of Mexico online
lottery contract -- 2,783 -- 3,768
Non-GAAP net income
before income
tax expense 40,140 45,201 78,517 87,502
Non-GAAP income
tax expense 11,641 12,475 23,163 24,151
Non-GAAP adjusted
net income $28,499 32,726 55,354 63,351
Diluted non-GAAP net
income per share $0.30 0.35 0.59 0.67
Diluted GAAP net
income per share $0.26 0.28 0.50 0.54
Weighted average number
of shares used in per
share calculations 95,989 96,280 94,992 95,605
Less: Diluted shares
included in weighted
average number of
shares related to
potential conversion
of convertible debt 1,994 1,557 1,416 1,123
Non-GAAP weighted
average number of
shares used in per
share calculations 93,995 94,723 93,576 94,482
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,
2006 2007 2006 2007
Net income $24,977 27,107 47,347 51,866
Add: Income tax expense 10,214 10,345 19,814 19,773
Add: Depreciation and
amortization expense 23,525 32,256 42,817 61,335
Add: Interest expense,
net of other income
or loss 10,889 14,621 17,448 27,122
EBITDA $69,605 84,329 127,426 160,096
Add: Lottery Systems
Group employee
termination costs -- -- 1,336 --
Add: Stock compensation
charges 4,949 4,966 9,444 12,095
Add: SERP termination charge -- -- 313 --
Add: Loss on start-up of
Mexico online
lottery contract -- 2,187 -- 2,765
Adjusted EBITDA $74,554 91,482 138,519 174,956
SOURCE Scientific Games
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CONTACT:
Investor Relations, Scientific Games,
+1-212-754-2233
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