Scientific Games Announces Full-Year and Fourth Quarter 2008 Results
2008 Revenues Increased 7%
2008 Adjusted EBITDA Increased 8%
Profitability Improvement Program Underway
-Recent Developments-
Production of instant lottery tickets began in
Termination of Mexican lottery contract
Exploring strategic alternatives for the Racing and Venue Management businesses
Expect cost savings of
Full-Year 2008 Results
Full-year 2008 revenues increased 7% to
For the full-year 2008, EBITDA decreased to
In 2008, EBITDA and adjusted EBITDA were also negatively impacted by
Net income for the full-year 2008 was
“The growth exhibited across our business groups in spite of the global economic meltdown in 2008 is a testament to the resilience of our business model,” commented
2008 Business Highlights
- Began production of instant lottery tickets in the People’s
Republic of China - 2008 China Sports Lottery instant ticket sales exceeded
$2 billion - Italian instant ticket sales grew 17% to €9.1 billion
- Awarded five-year
Pennsylvania lottery systems contract with five one-year extension options - Awarded six-year
Florida instant ticket cooperative services contract with two two-year extension options - Awarded three-year
Georgia instant ticket cooperative services contract extension - Awarded three-year
New South Wales exclusive instant ticket contract - Global Draw installed base grew 23% to 14,717 terminals
- Global Draw entered strategic alliances with Elixir Gaming Technologies in
Asia and Caribbean Cage inLatin America and theCaribbean - Games Media installed base grew six-fold to 1,613 terminals in 589 U.K. pubs
- Games Media entered into contracts with Enterprise Inns, Marstons, Orchid Group and Admiral Taverns
Fourth Quarter 2008 Results
Revenues in the fourth quarter of 2008 were
EBITDA for the fourth quarter of 2008 declined to
During the fourth quarter of 2008, EBITDA and adjusted EBITDA were negatively impacted by
Net loss for the quarter was
Profitability Improvement Program Initiatives
During the fourth quarter of 2008, management evaluated its organization, cost structure, product margins, and individual contract profitability in order to make performance improvements beginning in 2009.
- Revising selected contracts to provide the Company with increased revenues for expanding sales for our customers, such as
Florida ,Georgia , and Camelot (UK) - Entering into multi-state marketing ventures, such as the upcoming Wheel of Fortune(R) lottery game
- Entering into joint venture opportunities to expand revenues at reduced capital
- Exiting or declining to enter into any contracts or projects which offer inferior returns on capital
- Expected cost savings of
$15 to $20 million in 2009 and$30 to $40 million in 2010 - Headcount reduction of approximately 8%
- Freeze on all new hires, eliminating salary increases and restructuring 2009 compensation
- Capital expenditures in 2009 are expected to be reduced to
$125 million from$230 million in 2008 - Implementing a central purchasing function for the Company’s
$140 million in raw materials - Outsourcing of terminal manufacturing
- Combined cost savings expected to improve Printed Products Group gross margins to 43% from 39%
Mr. Wright added, “This profitability improvement program began last fall and is well underway. The studies are finished and we are already implementing these improvements and are expected to complete the year as a stronger Company in every way and better able to service our customers. We will be focusing on increasing our cash flow and reducing debt which will benefit our shareholders.”
Exploration of Strategic Alternatives
The Company’s Board of Directors has engaged a financial advisor to assist in reviewing strategic alternatives for its Racing and Venue Management businesses. The Company expects to consider and evaluate available alternatives during the review including, but not limited to, the sale of those businesses. The Company has not set any timetable for the conclusion of this strategic review and does not intend to comment further publicly with respect to this process unless or until a specific alternative is approved by its Board of Directors. There can be no assurance that the review process will result in the announcement or consummation of any sale or other transaction.
Printed Products
For the full-year 2008, Printed Products Group revenues, which represented 52% of the Company’s total revenues, grew to
Printed Products Group adjusted EBITDA for the full-year 2008 increased by 6% to
Printed Products Group revenues declined by 2% to
Printed Products Group adjusted EBITDA during the quarter declined 9% to
Instant ticket sales to
As previously announced, through a joint venture, the Company began production of instant lottery tickets in
Lottery Systems
For the full-year 2008, Lottery Systems Group revenues, which represented 27% of the Company’s total revenue, grew to
Lottery Systems Group revenues were
On
Mr. Chambrello commented, “The best opportunities to accelerate the sales growth rate on the Lottery Systems side are: utilizing licensed games like our multi-state linked Wheel of Fortune(R) game which we expect to release this year; increasing payouts and distribution; and raising the price points in a manner similar to the instant ticket business. Aside from that, we will maintain our focus on cost reduction and capital containment as we adjust to current market conditions and seek to improve margins.”
Diversified Gaming
For the full-year 2008, Diversified Gaming Group revenues, which represented 21% of the Company’s total revenue, declined to
Diversified Gaming Group revenues were
Mr. Chambrello commented, “Our Global Draw and Games Media divisions provided significant growth in the fourth quarter and throughout 2008 and we anticipate they will continue to do so in 2009 and beyond. Our Global Draw business continues to outperform its peers in the U.K. and
Liquidity and Capital Resources
At
Mr. Wright commented, “The Company’s balance sheet is a significant source of strength, especially in today’s economic environment, as it provides us with a sound capital structure and a relatively low cost of capital. In 2008, the management team did a fantastic job by entering into new credit facilities with strong lenders that provided flexible terms in advance of an inflexible credit environment. Going forward I anticipate strengthening our balance sheet as we generate free cash flow as a way to maximize shareholder value.”
Non-GAAP Financial Measures
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
Conference Call Details
We invite you to join our conference call tomorrow at
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
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 December 31, 2007 and 2008
(Unaudited, in thousands, except per share amounts)
Three Months Ended
December 31,
2007 2008
Operating revenues:
Services $232,235 235,928
Sales 35,726 27,990
267,961 263,918
Operating expenses :
Cost of services (exclusive of depreciation
and amortization) 133,053 154,391
Cost of sales (exclusive of depreciation
and amortization) 25,532 22,048
Selling, general and administrative expenses 41,702 46,210
Employee termination costs 3,642 10,923
Depreciation and amortization 37,767 112,543
Operating income (loss) 26,265 (82,197)
Other (income) deductions:
Interest expense 15,409 19,064
Equity in earnings of joint ventures (9,629) (9,958)
Other income (1,885) (3,178)
3,895 5,928
Income (loss) before income tax expense 22,370 (88,125)
Income tax expense 5,991 (22,301)
Net income (loss) $16,379 (65,824)
Basic and diluted net income (loss) per
share:
Basic net income (loss) $0.18 (0.71)
Diluted net income (loss) $0.17 (0.71)
Weighted average number of shares
used in per share calculations:
Basic shares 92,939 92,704
Diluted shares 96,783 93,895
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Months Ended December 31, 2007 and 2008
(Unaudited, in thousands, except per share amounts)
Twelve Months Ended
December 31,
2007 2008
Operating revenues:
Services $922,415 999,972
Sales 124,289 118,857
1,046,704 1,118,829
Operating expenses :
Cost of services (exclusive of depreciation
and amortization) 521,433 594,785
Cost of sales (exclusive of depreciation
and amortization) 90,347 85,856
Selling, general and administrative expenses 165,080 184,213
Employee termination costs 3,642 13,695
Depreciation and amortization 160,366 218,643
Operating income 105,836 21,637
Other (income) deductions:
Interest expense 58,550 65,026
Equity in earnings of joint ventures (41,252) (58,570)
Early extinguishment of debt - 2,960
Other income (2,050) (4,691)
15,248 4,725
Income before income tax expense 90,588 16,912
Income tax expense 25,221 8,424
Net income $65,367 8,488
Basic and diluted net income per share:
Basic net income $0.71 0.09
Diluted net income $0.68 0.09
Weighted average number of shares
used in per share calculations:
Basic shares 92,566 92,875
Diluted shares 95,996 94,414
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED BALANCE SHEET DATA
December 31, 2007 and 2008
(Unaudited, in thousands)
December 31, December 31,
2007 2008
Assets:
Cash and cash equivalents $29,403 140,639
Other current assets 355,204 371,139
Property and equipment, net 574,894 575,479
Long-term assets 1,140,538 1,095,975
Total assets $2,100,039 2,183,232
Liabilities and Stockholders' Equity:
Current portion of long-term debt $4,942 43,384
Other current liabilities 212,572 217,300
Long-term debt, excluding current portion 1,072,625 1,216,264
Other long-term liabilities 148,685 129,857
Stockholders' equity 661,215 576,427
Total liabilities and stockholders'
equity: $2,100,039 2,183,232
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Three Months Ended December 31, 2007 and 2008
(Unaudited, in thousands)
Three Months Ended December 31, 2007
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $127,465 54,600 50,170 232,235
Sales revenues 10,233 18,803 6,690 35,726
Total revenues 137,698 73,403 56,860 267,961
Cost of services (1) 74,995 27,865 30,193 133,053
Cost of sales (1) 8,740 11,110 5,682 25,532
Selling, general and
administrative expenses 18,281 4,435 4,945 27,661
Employee termination costs 3,642 - - 3,642
Depreciation and amortization (2) 11,430 16,738 9,408 37,576
Segment operating income $20,610 13,255 6,632 40,497
Unallocated corporate expense 14,232
Corporate employee termination costs -
Consolidated operating income $26,265
Three Months Ended December 31, 2008
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $127,155 57,690 51,083 235,928
Sales revenues 7,295 15,373 5,322 27,990
Total revenues 134,450 73,063 56,405 263,918
Cost of services (1) 81,851 39,906 32,634 154,391
Cost of sales (1) 3,868 15,902 2,278 22,048
Selling, general and
administrative expenses 14,248 7,892 6,430 28,570
Employee termination costs 4,441 2,576 1,152 8,169
Depreciation and amortization (2) 14,363 79,999 14,800 109,162
Segment operating income $15,679 (73,212) (889) (58,422)
Unallocated corporate expense 21,021
Corporate employee termination costs 2,754
Consolidated operating income $(82,197)
(1) Exclusive of depreciation and amortization
(2) Includes amortization of service contract software
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
CONSOLIDATED SEGMENT OPERATING DATA
Twelve Months Ended December 31, 2007 and 2008
(Unaudited, in thousands)
Twelve Months Ended December 31, 2007
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $498,179 216,326 207,910 922,415
Sales revenues 38,967 48,747 36,575 124,289
Total revenues 537,146 265,073 244,485 1,046,704
Cost of services (1) 283,924 114,200 123,309 521,433
Cost of sales (1) 32,549 27,045 30,753 90,347
Selling, general and
administrative expenses 62,027 28,376 20,353 110,756
Employee termination costs 3,642 - - 3,642
Depreciation and amortization (2) 66,966 62,224 30,302 159,492
Segment operating income $88,038 33,228 39,768 161,034
Unallocated corporate expense 55,198
Corporate employee termination costs -
Consolidated operating income $105,836
Twelve Months Ended December 31, 2008
Printed Lottery Diversified
Products Systems Gaming
Group Group Group Totals
Service revenues $548,308 236,022 215,642 999,972
Sales revenues 31,943 62,708 24,206 118,857
Total revenues 580,251 298,730 239,848 1,118,829
Cost of services (1) 331,501 132,335 130,949 594,785
Cost of sales (1) 20,177 54,254 11,425 85,856
Selling, general and
administrative expenses 59,336 33,634 25,923 118,893
Employee termination costs 7,213 2,576 1,152 10,941
Depreciation and amortization (2) 43,091 125,764 45,575 214,430
Segment operating income $118,933 (49,833) 24,824 93,924
Unallocated corporate expense 69,533
Corporate employee termination costs 2,754
Consolidated operating income $21,637
(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 Twelve Months Ended
December 31, December 31,
2007 2008 2007 2008
Income (loss) before income tax
expense $22,370 (88,125) 90,588 16,912
Add: Stock compensation charges 6,904 9,774 25,312 34,122
Add: Printed Products employee
termination costs 3,642 4,441 3,642 7,213
Add: Printed Products Peru Lottery
business unit disposal costs 2,763 - 2,763 -
Add: Printed Products asset
impairment charges - 6,356 26,097 6,356
Add: Global Draw earn-out - 930 - 4,376
Add: Division President retirement - - - 930
Add: California Horse Race
Board resolution - - - 700
Add: Early extinguishment of debt - - - 2,960
Add: Lottery Systems employee
termination costs - 2,576 - 2,576
Add: Lottery Systems contract
impairment - 7,831 - 7,831
Add: Lottery Systems asset
impairment charges - 64,104 - 64,104
Add: Purchase accounting
reserve reversal (3,892) - (3,892) -
Add: Diversified Gaming
employee termination costs - 1,152 - 1,152
Add: Diversified Gaming asset
impairment charges - 2,585 - 2,585
Add: Corporate employee
termination costs - 2,754 - 2,754
Add: Corporate asset impairment
charges - 3,113 - 3,113
Non-GAAP net income before
income tax expense 31,787 17,491 144,510 157,684
Non-GAAP income tax expense 9,659 945 45,849 44,220
Non-GAAP adjusted net income 22,128 16,546 98,661 113,464
Diluted non-GAAP net income per
share $0.23 0.18 1.04 1.20
Diluted GAAP net income (loss)
per share $0.17 (0.71) 0.68 0.09
Weighted average number of
shares used in per share
calculations 96,783 93,895 95,996 94,414
Less: Diluted shares included in
weighted average number of
shares related to potential
conversion of convertible debt 1,507 - 1,357 5
Non-GAAP weighted average number
of shares used in per share
calculations 95,276 93,895 94,639 94,409
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA
(Unaudited, in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2008 2007 2008
Net income (loss) $16,379 (65,824) 65,367 8,488
Add: Income tax expense 5,991 (22,301) 25,221 8,424
Add: Depreciation and amortization
expense 37,767 112,543 160,366 218,643
Add: Interest expense, net of other
income or loss 13,524 15,886 56,500 63,295
EBITDA $73,661 40,304 307,454 298,850
Add: Printed Products employee
termination costs 3,642 4,441 3,642 7,213
Add: Printed Products Peru Lottery
business unit disposal costs 2,763 - 2,763 -
Add: Division President retirement - - - 930
Add: California Horse Race Board
resolution - - - 700
Add: Global Draw earn-out - 930 - 4,376
Add: Lottery Systems employee
termination costs - 2,576 - 2,576
Add: Lottery Systems contract
impairment - 7,831 - 7,831
Add: Diversified Gaming employee
termination costs - 1,152 - 1,152
Add: Corporate employee termination
costs - 2,754 - 2,754
Add: Purchase accounting reserve
reversal (3,892) - (3,892) -
Add: Stock compensation charges 6,904 9,774 25,312 34,122
Adjusted EBITDA $83,078 69,762 335,279 360,504
SCIENTIFIC GAMES CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO SEGMENT ADJUSTED EBITDA
(Unaudited, in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2008 2007 2008
Printed Products Group operating
income $20,610 15,679 88,038 118,933
Add: Depreciation and amortization
expense 11,430 14,363 66,966 43,091
Printed Products Group EBITDA $32,040 30,042 155,004 162,024
Add: Printed Products employee
termination costs 3,642 4,441 3,642 7,213
Add: Printed Products Peru Lottery
business unit disposal costs 2,763 - 2,763 -
Add: Stock compensation charges 390 973 1,448 3,152
Adjusted Printed Products Group
EBITDA $38,835 35,456 162,857 172,389
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2008 2007 2008
Lottery Systems Group operating
income $13,255 (73,212) 33,228 (49,833)
Add: Depreciation and amortization
expense 16,738 79,999 62,224 125,764
Lottery Systems Group EBITDA $29,993 6,787 95,452 75,931
Add: Division President retirement - - - 930
Add: Lottery Systems employee
termination costs - 2,576 - 2,576
Add: Lottery Systems contract
impairment - 7,831 - 7,831
Add: Purchase accounting reserve
reversal (3,892) - (3,892) -
Add: Stock compensation charges 300 803 1,092 2,588
Adjusted Lottery Systems Group
EBITDA $26,401 17,997 92,652 89,856
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2008 2007 2008
Diversified Gaming Group operating
income $6,632 (889) 39,768 24,824
Add: Depreciation and amortization
expense 9,408 14,800 30,302 45,575
Diversified Gaming Group EBITDA $16,040 13,911 70,070 70,399
Add: California Horse Race Board
resolution - - - 700
Add: Global Draw earn-out - 930 - 4,376
Add: Diversified Gaming employee
termination costs - 1,152 - 1,152
Add: Stock compensation charges 235 396 891 1,501
Adjusted Diversified Gaming Group
EBITDA $16,275 16,389 70,961 78,128
SOURCE Scientific Games Corporation