Actionable news
0
All posts from Actionable news
Actionable news in SGMS: Scientific Games Corp,

Scientific Games Reports Second Quarter 2017 Results and Announces Intent to Refinance a Portion of its Debt

  • Second quarter revenue rose 5 percent to $766.3 million, up from $729.2 million a year ago. The growth was driven by revenue increases in the gaming and interactive segments. Foreign exchange had an $8.0 million, or 1 percent, unfavorable impact on revenue.

  • Operating income in the second quarter doubled to $117.3 million from $59.1 million a year ago, reflecting revenue growth, a more effective organizational structure and lower depreciation and amortization. Net loss declined to $39.1 million from $51.7 million in the prior-year period, reflecting the increase in operating income and a $14.1 million decrease in net interest expense, partially offset by a $26.0 million increase in the income tax provision. In addition, the prior year included a $25.2 million gain on early extinguishment of debt.

  • Attributable EBITDA ("AEBITDA"), a non-GAAP financial measure defined below, increased 13 percent to $314.8 million from $279.7 million a year ago driven by higher revenue and a more effective organizational structure, which was partially offset by $7.7 million of lower EBITDA from equity investments. The AEBITDA margin, a non-GAAP financial measure defined below, improved to 41.1 percent from 38.4 percent in the prior-year period.

  • Net cash flow from operating activities increased $77.7 million to $168.5 million, from $90.8 million a year ago. The primary driver was a $61.4 million increase in net income after adjustments for non-cash items, reflecting operating improvements across the Company.

"Second quarter results represent our seventh quarter of consecutive year-over-year growth, including $169 million of cash flow from operating activities, as a result of ongoing improvements in our gaming, lottery and interactive operations," said Kevin Sheehan, Chief Executive Officer of Scientific Games. "We achieved year-over-year revenue growth in global gaming machine sales, gaming systems, table products and interactive; as well as in U.S. instant games revenue. In addition, as a result of our improving organizational structure, we increased our AEBITDA margin by 270 basis points.

"Across the Company, we are maintaining a laser focus on executing our strategies and capitalizing on our many opportunities," Sheehan added. "I am proud of all of our dedicated team members who daily commit themselves to empower our customers with the best gaming and lottery experiences in the world, while remaining focused on delivering our financial goals."

Michael Quartieri, Chief Financial Officer of Scientific Games, added, "Our focus on innovative new products, continuous process improvement and fiscal discipline have enabled us to grow operating income and cash flow, leading to a reduction in our net debt. This has resulted in our net debt leverage ratio at June 30, 2017 declining to 6.8 times twelve-month AEBITDA. With our strengthened performance, we are well positioned to further improve our capital structure and lower our cost of capital."

SUMMARY CONSOLIDATED RESULTS

($ in millions)

Three Months Ended June 30,


2017


2016

Revenue

$

766.3


$

729.2

Operating income

117.3


59.1

Net loss before income taxes

(32.7)


(71.3)

Net loss(2)

(39.1)


(51.7)

Net cash provided by operating activities

168.5


90.8

Capital expenditures

78.9


81.4

Increase (decrease) in cash and cash equivalents

66.3


(44.3)





Non-GAAP Financial Measures:(1)




AEBITDA

$

314.8


$

279.7

AEBITDA margin

41.1%


38.4%

Free cash flow

101.0


15.0






As of June 30,


As of Dec. 31,

Balance Sheet Measures:

2017


2016

Cash and cash equivalents

$

198.2


$

115.1

Principal face value of debt outstanding

8,179.4


8,235.3

Available liquidity

729.2


631.6





(1)

The financial measures "AEBITDA", "AEBITDA margin", "free cash flow", and "EBITDA from equity investments" (disclosed in a table below) are
non-GAAP financial measures defined below under "Non-GAAP Financial Measures" and reconciled to the most directly comparable GAAP measures
in the accompanying supplemental tables at the end of this release.



(2)

The 2017 second quarter includes $26.0 million of higher income tax provision, and the prior year included a $25.2 million non-cash gain on early extinguishment of debt.

GAMING SEGMENT HIGHLIGHTS FOR THE THREE MONTHS ENDED JUNE 30, 2017

GAMING SEGMENT

Three Months Ended



($ in millions)

June 30,


Increase/(Decrease)


2017


2016


Amount


%

Revenue(1)








Gaming operations

$

178.4


$

186.0


$

(7.6)


(4.1)%

Gaming machine sales

163.3


154.4


8.9


5.8%

Gaming systems

67.1


59.5


7.6


12.8%

Table products

48.4


42.0


6.4


15.2%


$

457.2


$

441.9


$

15.3


3.5%









Operating income

$

85.9


$

46.7


$

39.2


83.9%

AEBITDA(2)

$

226.9


$

201.3


$

25.6


12.7%

AEBITDA margin

49.6%


45.6%













(1)

Gaming operations revenue is included in services revenue, gaming machine sales revenue is included in product sales revenue, and portions of gaming
systems and table products revenue are included in both services revenue and product sales revenue.



(2)

AEBITDA in the 2017 and 2016 second quarter periods included $1.5 million and $1.9 million, respectively, of EBITDA from equity investments in International Terminal Leasing ("ITL") and Roberts Communications Network, LLC ("RCN").

  • Total gaming revenue increased $15.3 million, or 3 percent, compared to the year-ago period, inclusive of a $4.9 million unfavorable foreign exchange impact.

  • Operating income improved $39.2 million to $85.9 million. The increase primarily reflected the benefit of the higher revenue and a more profitable business mix, along with lower depreciation and amortization compared to the 2016 second quarter. In the prior year, selling, general and administrative expense included the benefit from $7.5 million of insurance proceeds related to settlement of a legal matter.

  • AEBITDA increased to $226.9 million with an AEBITDA margin of 49.6 percent, reflecting the higher revenue and more profitable business mix compared to the prior year.

  • Gaming operations revenue declined $7.6 million, or 4 percent, largely reflecting a year-over-year decrease in the installed base of WAP, premium, and daily-fee participation gaming machines. On a quarterly sequential basis, gaming operations revenue grew $6.1 million, or 4 percent, including the benefit from a 1,191-unit increase in the installed base of other leased and participation gaming machines due to the placement of additional VLTs at New York gaming facilities and the ongoing roll-out of VLTs in Greece. On a quarterly sequential basis, revenue from WAP, premium and daily-fee participation units was essentially flat, as a $1.08 increase in the average daily revenue per unit, partially reflecting the strong performance of the innovative Gamescape™ cabinet, offset a 187-unit decline of older units in the installed footprint of WAP, premium, and daily-fee participation units.

  • Gaming machine sales revenue increased $8.9 million, or 6 percent, year over year, despite no new casino openings, primarily reflecting a 24-percent increase in shipments of U.S. and Canadian replacement gaming machines. The average sales price increased to $17,550 from $16,859 in the prior year, reflecting a favorable mix of units. U.S. and Canadian shipments totaled 4,367 gaming machines, including 3,773 replacement units and 594 VGTs for the Illinois market. In the prior-year period, U.S. and Canadian shipments totaled 4,678 units, which comprised 3,037 replacement units, 431 VLTs to Oregon, 470 units for new casino openings and expansions, and 740 VGTs for the Illinois market. International shipments increased 421 units, or 14 percent, to 3,411 units, including 54 units for new casino openings, up from a total of 2,990 units in the prior year, which had included 125 units for new casino openings.

  • Gaming systems revenue increased 13 percent to $67.1 million, primarily reflecting an increase in software and hardware sales, including shipment of innovative new iVIEW4 player-interface display units, and the installation of new systems at the ilani tribal casino, the Baha Mar Resort and the Aliante Casino Hotel.

  • Table products revenue increased 15 percent to $48.4 million, principally reflecting growth in leased shufflers, proprietary table games, and progressives, including a benefit from the acquisition of DEQ Systems Corp. completed on January 18, 2017.

LOTTERY SEGMENT HIGHLIGHTS FOR THE THREE MONTHS ENDED JUNE 30, 2017

LOTTERY SEGMENT

Three Months Ended



($ in millions)

June 30,


Increase/(Decrease)


2017


2016


Amount


%

Revenue








Instant games

$

149.4


$

150.9


$

(1.5)


(1.0)%

Services

41.2


44.1


(2.9)


(6.6)%

Product sales

11.7


8.9


2.8


31.5%


$

202.3


$

203.9


$

(1.6)


(0.8)%









Operating income

$

70.3


$

57.9


$

12.4


21.4%

AEBITDA(1)

$

95.6


$

95.2


$

0.4


0.4%

AEBITDA margin

47.3%


46.7%













  • Total lottery revenue decreased $1.6 million, or 1 percent, inclusive of a $2.2 million unfavorable foreign exchange impact compared to the year-ago period.

  • Operating income increased $12.4 million, primarily reflecting a more profitable business mix coupled with lower selling, general and administrative expense and lower depreciation and amortization.

  • AEBITDA was essentially flat at $95.6 million compared to $95.2 million in the prior year, primarily reflecting a more profitable business mix and lower selling, general and administrative expense, offset by $7.3 million of lower EBITDA from equity investments, which had benefited in the prior-year period from a multi-year, value-added tax credit at our LNS joint venture. The AEBITDA margin increased to 47.3 percent, largely reflecting a more profitable business mix and lower selling, general and administrative expense.

  • Instant games revenue decreased $1.5 million, as a $4.9 million, or 5 percent, increase in U.S. revenue was offset by a $6.4 million decline in international revenue, reflecting unfavorable timing of instant game launches in markets with price-per-unit contracts and an unfavorable foreign exchange impact of $1.8 million. During the second quarter, the Company won a four-year contract, with two two-year extension options to continue to provide the New Hampshire Lottery with instant games and services, and more recently won a six-year contract, with two extension options for up to four more years, to continue to be the primary supplier of instant games and services to Colorado.

  • Services revenue decreased $2.9 million, primarily reflecting lower retail sales of multi-state games compared to sales in the prior year, and lower international revenue primarily due to an unfavorable foreign exchange impact of $0.4 million. During the quarter, the Company signed a new eight-year contract with the Maryland Lottery to provide systems and services.

  • Product sales revenue increased $2.8 million, primarily reflecting higher U.S. and international hardware sales.

INTERACTIVE SEGMENT HIGHLIGHTS FOR THE THREE MONTHS ENDED JUNE 30, 2017

INTERACTIVE SEGMENT


Three Months Ended



(in millions)

June 30,


Increase/(Decrease)



2017


2016


Amount


%

Revenue









Social gaming - B2C


$

91.1


$

69.1


$

22.0


31.8%

Other interactive - B2B


15.7


14.3


1.4


9.8%



$

106.8


$

83.4


$

23.4


28.1%










Operating income


$

18.8


$

13.7


$

5.1


37.2%

AEBITDA


$

24.6


$

18.2


$

6.4


35.2%

AEBITDA margin


23.0%


21.8%





  • Total interactive revenue grew 28 percent to $106.8 million, primarily reflecting a 32 percent increase in social gaming B2C revenue due to the ongoing popularity and growth of Jackpot Party® Social Casino, coupled with the success of more recent apps, such as the introduction of the 88 Fortunes app in the first quarter of 2017, and the acquisition of Spicerack Media, Inc. completed on April 7, 2017, which included the Bingo Showdown app.

  • Operating income increased 37 percent to $18.8 million, primarily reflecting the higher revenue. Selling, general and administrative expense and research and development expense increased primarily due to higher marketing expenses to support ongoing growth and pre-launch game development expenses.

  • AEBITDA rose 35 percent to $24.6 million and AEBITDA margin increased to 23.0 percent, primarily reflecting higher revenue and improved operating leverage, partially offset by increased marketing costs and ongoing development initiatives underlying the rapid growth.

LIQUIDITY

Cash flows from operating activities


Three Months Ended June 30,


Increase/(Decrease)

($ in millions)


2017


2016


2017 vs. 2016

Net loss


$

(39.1)


$

(51.7)



$

12.6

Non-cash adjustments included in net loss


179.0


165.9



13.1

Non-cash interest expense


5.1


10.2



(5.1)

Changes in deferred income taxes and other


1.7


(39.1)



40.8

Distributed earnings from equity investments


16.2


16.3



(0.1)

Changes in working capital accounts


5.6


(10.8)



16.4

Net cash provided by operating activities


$

168.5


$

90.8



$

77.7















  • Net cash flow from operating activities increased $77.7 million to $168.5 million, inclusive of approximately $6.0 million of cash payments related to the business improvement initiatives implemented in the 2016 fourth quarter. The primary driver was a $61.4 million increase in net income after adjustment for non-cash items included in net loss.

  • The change in deferred income taxes and other is a result of the valuation allowance on our deferred taxes.

  • The change in working capital accounts was primarily driven by a $2.9 million decrease in accounts and notes receivables primarily due to the timing of orders and an $8.0 million decrease in inventories, partially offset by a $5.3 million unfavorable net impact from changes in other current assets and liabilities.

  • Capital expenditures totaled $78.9 million for the quarter. For 2017, the Company continues to expect capital expenditures will be within a range of $280-$310 million, based on existing contractual obligations and planned investments.

  • The Company announced today an intent to capitalize on its improved financials and favorable market conditions by initiating a process to amend and extend its existing term loans, with the stated purpose of reducing cash interest cost and extending the maturity out to 2024.

Earnings Conference Call

Scientific Games executive leadership will host a conference call today, July 24, 2017, at 10:00 a.m. EDT to review the Company's second quarter results. To access the call live via a listen-only webcast and presentation, please visit scientificgames.com/investors/quarterly-earnings and click on the webcast link under the Investor Information section. To access the call by telephone, please dial: 1 (412) 317-5413 (U.S. and International) and ask to join the Scientific Games Corporation call. A replay of the webcast will be archived in the Investors section on ScientificGames.com, which is updated regularly with financial and other information about the Company.

About Scientific Games

Scientific Games Corporation (NASDAQ: SGMS) is a leading developer of technology-based products and services and associated content for the worldwide gaming, lottery and interactive gaming industries. The Company's portfolio includes gaming machines and game content; casino management systems; table game products and services; instant and draw-based lottery games; lottery systems; lottery content and services; interactive gaming and social casino solutions, as well as other products and services. For more information, please visit www.scientificgames.com, which is updated regularly with financial and other information about the Company.

COMPANY CONTACTS

All ® notices signify marks registered in the United States. © 2017 Scientific Games Corporation. All Rights Reserved.

Forward-Looking Statements

In this press release, Scientific Games 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," "plan," "continue," "believe," "expect," "anticipate," "target," "should," "could," "potential," "opportunity," "goal," or similar terminology. These statements are based upon management's current expectations, assumptions...


More