LAS VEGAS, July 24, 2017 /PRNewswire/
-- Scientific Games Corporation (NASDAQ: SGMS)
("Scientific Games" or the "Company"), today reported results for
the second quarter ended June 30,
2017 and announced plans to take advantage of favorable
market conditions to refinance a portion of its debt to lower cash
interest costs, extend debt maturities, and generally lower its
cost of capital.
- 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%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
AEBITDA in
the 2017 and 2016 second quarter periods included $11.6 million and
$18.9 million, respectively, of EBITDA from equity investments in
Lotterie Nazionali S.r.l. ("LNS"), Northstar New Jersey Lottery
Group, LLC, Beijing Guard Libang Technology Co., Ltd., Beijing
CITIC Scientific Games Technology Co. Ltd. ("CSG"), Hellenic
Lotteries S.A. ("Hellenic Lotteries") and Northstar Lottery Group,
LLC ("Northstar Illinois").
|
- 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
Investor Relations:
Bill
Pfund +1 702-532-7663
Vice President, Investor Relations
bill.pfund@scientificgames.com
Media Relations:
Susan
Cartwright +1 702-532-7981
Vice President, Corporate Communications
susan.cartwright@scientificgames.com
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 and
estimates and are not guarantees of timing, future results or
performance. Therefore, you should not rely on any of these
forward-looking statements as predictions of future events. Actual
results may differ materially from those contemplated in these
statements due to a variety of risks and uncertainties and other
factors, including, among other things: competition; U.S. and
international economic and industry conditions, including slow
growth of new gaming jurisdictions, slow addition of casinos in
existing jurisdictions, and declines in the replacement cycle of
gaming machines; ownership changes and consolidation in the gaming
industry; opposition to legalized gaming or the expansion thereof;
inability to adapt to, and offer products that keep pace with,
evolving technology, including any failure of our investment of
significant resources in our R&D efforts; inability to develop
successful products and services and capitalize on trends and
changes in our industries, including the expansion of internet and
other forms of interactive gaming; laws and government regulations,
including those relating to gaming licenses and environmental laws;
dependence upon key providers in our social gaming business;
inability to retain or renew, or unfavorable revisions of, existing
contracts, and the inability to enter into new contracts; level of
our indebtedness, higher interest rates, availability or adequacy
of cash flows and liquidity to satisfy indebtedness, other
obligations or future cash needs; inability to reduce or refinance
our indebtedness; restrictions and covenants in debt agreements,
including those that could result in acceleration of the maturity
of our indebtedness; protection of our intellectual property,
inability to license third party intellectual property, and the
intellectual property rights of others; security and integrity of
our products and systems and reliance on or failures in information
technology and other systems; challenges or disruptions relating to
the implementation of a new global enterprise resource planning
system; failure to maintain internal control over financial
reporting; natural events that disrupt our operations or those of
our customers, suppliers or regulators; inability to benefit from,
and risks associated with, strategic equity investments and
relationships; failure to achieve the intended benefits of our
acquisitions; incurrence of restructuring costs; implementation of
complex revenue recognition standards or other new accounting
standards; changes in estimates or judgments related to our
impairment analysis of goodwill or other long-lived assets;
fluctuations in our results due to seasonality and other factors;
dependence on suppliers and manufacturers; risks relating to
foreign operations, including fluctuations in foreign exchange
rates, restrictions on the payment of dividends from earnings,
restrictions on the import of products and financial instability,
including the potential impact to our business resulting from the
affirmative vote in the U.K. to withdraw from the EU, and the
potential impact to our instant lottery game concession or VLT
lease arrangements resulting from the recent economic and political
conditions in Greece; changes in
tax laws or tax rulings, or the examination of our tax positions;
dependence on key employees; litigation and other liabilities
relating to our business, including litigation and liabilities
relating to our contracts and licenses, our products and systems,
our employees (including labor disputes), intellectual property,
environmental laws and our strategic relationships; influence of
certain stockholders; and stock price volatility.
Additional information regarding risks, 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 the Company's
current reports on Form 8-K, quarterly reports on Form 10-Q and its
latest annual report on Form 10-K filed with the SEC on
March 3, 2017 (including under the
headings "Forward Looking Statements" and "Risk Factors").
Forward-looking statements speak only as of the date they are made
and, except for Scientific Games' ongoing obligations under the
U.S. federal securities laws, Scientific Games undertakes no
obligation to publicly update any forward-looking statements
whether as a result of new information, future events or
otherwise.
Non-GAAP Financial Measures
The Company's management uses the following non-GAAP financial
measures in conjunction with GAAP financial measures: AEBITDA,
AEBITDA margin, free cash flow, EBITDA from equity investments, net
debt and net debt leverage ratio (each, as described more fully
below). These non-GAAP financial measures are presented as
supplemental disclosures. They should not be considered in
isolation of, as a substitute for, or superior to, the financial
information prepared in accordance with GAAP, and should be read in
conjunction with the Company's financial statements filed with the
SEC. The non-GAAP financial measures used by the Company may differ
from similarly titled measures presented by other companies.
Specifically, the Company's management uses AEBITDA to, among other
things: (i) monitor and evaluate the performance of the Company's
business operations; (ii) facilitate management's internal
comparisons of the Company's historical operating performance; and
(iii) analyze and evaluate financial and strategic planning
decisions regarding future operating investments and operating
budgets. In addition, the Company's management uses AEBITDA and
AEBITDA margin to facilitate management's external comparisons of
the Company's results to the historical operating performance of
other companies that may have different capital structures and debt
levels. The Company's management uses EBITDA from equity
investments to monitor and evaluate the performance of the
Company's equity investments. The Company's management uses net
debt and net debt leverage ratio in monitoring and evaluating the
Company's overall liquidity, financial flexibility and
leverage.
The Company's management believes that each of these non-GAAP
financial measures are useful as they provide investors with
information regarding the Company's financial condition and
operating performance that is an integral part of management's
reporting and planning processes. In particular, the Company's
management believes that AEBITDA, both on a consolidated and
business segment basis, is helpful because this non-GAAP financial
measure eliminates the effects of restructuring, transaction,
integration or other items that management believes have less
bearing on the Company's ongoing underlying operating performance.
Management believes AEBITDA margin, both on a consolidated and
business segment basis, is useful for analysts and investors as
this measure allows an evaluation of the performance of our ongoing
business operations and provides insight into the cash operating
income margins generated from our business, from which capital
investments are made and debt is serviced. Moreover, management
believes AEBITDA and EBITDA from equity investments are useful to
investors because the Company's Lottery business is also conducted
through a number of equity investments, and those measures
eliminate financial items from the equity investees' earnings that
management believes have less bearing on the equity investees'
performance. Management believes that free cash flow provides
useful information regarding the Company's liquidity and its
ability to service debt and fund investments. Management also
believes that free cash flow is useful for investors because it
provides them with an important perspective on the cash available
for debt repayment and other strategic measures, after making
necessary capital investments in property and equipment and
necessary license payments to support the Company's ongoing
business operations and taking into account cash flows relating to
the Company's equity investments. Management believes that net debt
and net debt leverage ratio are useful for investors in evaluating
the Company's overall liquidity.
AEBITDA
AEBITDA, as used herein, is a non-GAAP financial measure that is
presented as supplemental disclosure and is reconciled to net
income (loss) as the directly comparable GAAP measure, which is
further reconciled to operating income (loss) by business segment,
as set forth in the schedules titled "Reconciliation of Net Loss to
Attributable EBITDA" below. We also present AEBITDA by business
segment in this earnings release. AEBITDA should not be considered
in isolation of, as a substitute for, or superior to, the financial
information prepared in accordance with GAAP, and should be read in
conjunction with the Company's financial statements filed with the
SEC. AEBITDA may differ from similarly titled measures presented by
other companies.
AEBITDA, as used herein, is reconciled to net income (loss) in the
following table and includes our net loss with the following
adjustments: (1) interest; (2) income taxes; (3) depreciation and
amortization expense and impairment charges (including goodwill
impairment charges); (4) restructuring and other, which includes
charges or expenses attributable to: (i) employee severance; (ii)
management changes; (iii) restructuring and integration; (iv)
M&A and other, which includes: (a) M&A transaction costs,
(b) purchase accounting, (c) unusual items (including certain legal
settlements), and (d) other non-cash items; and (v) cost savings
initiatives; and (5) stock-based compensation. In addition to the
preceding adjustments, we exclude earnings from equity method
investments and add (without duplication) our pro rata share of the
EBITDA of our equity investments.
In the third quarter of 2016, we simplified our reconciliation of
AEBITDA on a prospective basis. This change does not modify our
calculation or definition of AEBITDA or the items that are included
as adjustments. This presentation change merely consolidates the
amounts previously included in adjustments (4) and (6) above, which
were previously reported as two separate line items ("M&A and
other charges (incl. purchase accounting)" and "Employee
termination and restructuring"), into a single line item
("Restructuring and other") in order to align with our GAAP
financial statement presentation.
AEBITDA Margin
AEBITDA margin, as used herein, represents our AEBITDA (as
defined above) for the three- and six-month periods ended
June 30, 2017 and 2016, each
calculated as a percentage of revenue. AEBITDA margin is a non-GAAP
financial measure that is presented as supplemental disclosures for
illustrative purposes only and is reconciled to net loss in a
schedule below. We also present AEBITDA margin by business segment
in this release. These amounts are reconciled to consolidated net
income (loss) as the nearest GAAP measure, which is further
reconciled to operating income (loss) by operating segment.
Free Cash Flow
Free cash flow, as used herein, represents net cash provided by
operating activities less total capital expenditures (which
includes lottery and gaming systems expenditures and other
intangible assets and software expenditures), less payments on
license obligations, less additions to equity investments plus
distributions of capital on equity investments. Free cash flow is a
non-GAAP financial measure that is presented as supplemental
disclosure for illustrative purposes only and is reconciled to net
cash provided by operating activities in a schedule below.
EBITDA from Equity Investments
EBITDA from equity investments, as used herein, represents our
share of the EBITDA (i.e., earnings (whether or not distributed to
us) plus income tax expense, depreciation and amortization expense
and interest (income) expense, net of other) of our joint ventures
and minority investees. EBITDA from equity investments is a
non-GAAP financial measure that is presented as supplemental
disclosure for illustrative purposes only and is reconciled to
earnings from equity investments in a schedule below.
Net Debt and Net Debt Leverage Ratio
Net debt is defined as total principal face value of debt
outstanding less cash and cash equivalents. Net debt leverage
ratio, as used herein, represents net debt divided by AEBITDA (as
defined above) for the trailing twelve-month period.
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Unaudited,
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue:
|
|
|
|
|
|
|
|
|
Services
|
|
$
385.8
|
|
$
363.5
|
|
$
748.3
|
|
$
713.8
|
Product
sales
|
|
231.1
|
|
214.8
|
|
453.8
|
|
412.4
|
Instant
games
|
|
149.4
|
|
150.9
|
|
289.6
|
|
285.0
|
Total revenue
|
|
766.3
|
|
729.2
|
|
1,491.7
|
|
1,411.2
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Cost of services
(1)
|
|
98.9
|
|
101.4
|
|
202.2
|
|
196.3
|
Cost of product
sales(1)
|
|
108.7
|
|
100.7
|
|
215.3
|
|
195.1
|
Cost of instant
games(1)
|
|
71.3
|
|
74.1
|
|
141.4
|
|
141.1
|
Selling, general and
administrative
|
|
145.9
|
|
144.9
|
|
286.6
|
|
287.2
|
Research and
development
|
|
48.1
|
|
51.7
|
|
90.5
|
|
101.5
|
Depreciation,
amortization and impairments
|
175.0
|
|
193.1
|
|
340.1
|
|
373.7
|
Restructuring and
other
|
|
1.1
|
|
4.2
|
|
10.3
|
|
6.9
|
Total
operating expenses
|
|
649.0
|
|
670.1
|
|
1,286.4
|
|
1,301.8
|
Operating income
|
|
117.3
|
|
59.1
|
|
205.3
|
|
109.4
|
Other (expense)
income:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(151.2)
|
|
(165.3)
|
|
(310.6)
|
|
(331.0)
|
Earnings from equity
investments
|
|
3.1
|
|
8.0
|
|
12.6
|
|
11.2
|
Gain (loss) on
extinguishment and modification of debt
|
-
|
|
25.2
|
|
(29.7)
|
|
25.2
|
Other income
(expense), net
|
|
(1.9)
|
|
1.7
|
|
5.6
|
|
2.4
|
Total other
expense, net
|
|
(150.0)
|
|
(130.4)
|
|
(322.1)
|
|
(292.2)
|
Net loss before
income taxes
|
|
(32.7)
|
|
(71.3)
|
|
(116.8)
|
|
(182.8)
|
Income tax
(provision) benefit
|
|
(6.4)
|
|
19.6
|
|
(23.1)
|
|
38.8
|
Net loss
|
|
$
(39.1)
|
|
$
(51.7)
|
|
$
(139.9)
|
|
$
(144.0)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net
loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
(0.44)
|
|
$
(0.59)
|
|
$
(1.58)
|
|
$
(1.66)
|
Diluted
|
|
$
(0.44)
|
|
$
(0.59)
|
|
$
(1.58)
|
|
$
(1.66)
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares used in per share calculations:
|
|
|
|
|
|
|
|
Basic
shares
|
|
89.1
|
|
87.3
|
|
88.6
|
|
86.9
|
Diluted
shares
|
|
89.1
|
|
87.3
|
|
88.6
|
|
86.9
|
|
|
|
|
|
|
|
|
|
(1) Exclusive of
depreciation and amortization.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
December
31,
|
|
|
2017
|
|
2016
|
Assets:
|
|
|
|
|
Cash and cash
equivalents
|
|
$
198.2
|
|
$
115.1
|
Restricted
cash
|
|
26.0
|
|
24.7
|
Accounts receivable,
net
|
|
479.3
|
|
495.0
|
Notes receivable,
net
|
|
123.3
|
|
125.4
|
Inventories
|
|
252.7
|
|
242.3
|
Prepaid expenses,
deposits and other current assets
|
|
117.6
|
|
114.1
|
Total
current assets
|
|
1,197.1
|
|
1,116.6
|
|
|
|
|
|
Restricted
cash
|
|
16.6
|
|
17.1
|
Notes receivable,
net
|
|
50.8
|
|
48.1
|
Property and
equipment, net
|
|
574.8
|
|
612.2
|
Goodwill
|
|
2,930.7
|
|
2,888.4
|
Intangible assets,
net
|
|
1,710.3
|
|
1,768.3
|
Software,
net
|
|
378.7
|
|
409.1
|
Equity
investments
|
|
157.1
|
|
179.9
|
Other
assets
|
|
49.9
|
|
47.7
|
Total
assets
|
|
$
7,066.0
|
|
$
7,087.4
|
|
|
|
|
|
Liabilities and
Stockholders' Deficit:
|
|
|
|
|
Current portion of
long-term debt
|
|
$
39.5
|
|
$
49.3
|
Accounts
payable
|
|
213.0
|
|
188.9
|
Accrued
liabilities
|
|
434.4
|
|
454.2
|
Total
current liabilities
|
|
686.9
|
|
692.4
|
|
|
|
|
|
Deferred income
taxes
|
|
78.2
|
|
70.2
|
Other long-term
liabilities
|
|
236.3
|
|
235.6
|
Long-term debt,
excluding current portion
|
|
8,062.7
|
|
8,024.9
|
Total stockholders'
deficit
|
|
(1,998.1)
|
|
(1,935.7)
|
Total
liabilities and stockholders' deficit
|
|
$
7,066.0
|
|
$
7,087.4
|
|
|
|
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
June
30,
|
|
June
30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
(39.1)
|
|
$
(51.7)
|
|
$
(139.9)
|
|
$
(144.0)
|
Adjustments to
reconcile net loss to net cash provided by operating
activities
|
200.3
|
|
192.4
|
|
402.1
|
|
386.3
|
Changes in
working capital accounts
|
|
5.6
|
|
(10.8)
|
|
12.6
|
|
7.8
|
Changes in
deferred income taxes and other
|
|
1.7
|
|
(39.1)
|
|
4.7
|
|
(58.2)
|
Net cash
provided by operating activities
|
|
168.5
|
|
90.8
|
|
279.5
|
|
191.9
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
(78.9)
|
|
(81.4)
|
|
(140.2)
|
|
(132.6)
|
Acquisitions of
businesses, net of cash acquired
|
(30.6)
|
|
-
|
|
(52.1)
|
|
-
|
Distributions
of capital from equity investments
|
21.1
|
|
21.0
|
|
22.4
|
|
22.5
|
Other
|
|
8.0
|
|
4.6
|
|
10.0
|
|
6.1
|
Net cash used
in investing activities
|
|
(80.4)
|
|
(55.8)
|
|
(159.9)
|
|
(104.0)
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
|
Payments of
long-term debt, net of proceeds from issuance of long-term
debt
|
(9.9)
|
|
(52.6)
|
|
12.6
|
|
(80.1)
|
Payments of
debt issuance and deferred financing costs
|
(0.5)
|
|
-
|
|
(27.7)
|
|
-
|
Payments on
license obligations
|
|
(9.7)
|
|
(15.4)
|
|
(19.5)
|
|
(25.0)
|
Net redemptions
of common stock under stock-based compensation plans and
other
|
(3.3)
|
|
(4.4)
|
|
(3.9)
|
|
(4.4)
|
Net cash used
in financing activities
|
|
(23.4)
|
|
(72.4)
|
|
(38.5)
|
|
(109.5)
|
Effect of
exchange rate changes on cash, cash equivalents and restricted
cash
|
0.3
|
|
(3.7)
|
|
2.8
|
|
(1.9)
|
Increase
(decrease) in cash, cash equivalents and restricted
cash
|
65.0
|
|
(41.1)
|
|
83.9
|
|
(23.5)
|
Cash, cash
equivalents and restricted cash, beginning of
period
|
175.8
|
|
184.4
|
|
156.9
|
|
166.8
|
Cash, cash
equivalents and restricted cash, end of period
|
$
240.8
|
|
$
143.3
|
|
$
240.8
|
|
$
143.3
|
|
|
|
|
|
|
|
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATING
BUSINESS SEGMENT DATA AND
|
RECONCILIATION OF
NET LOSS TO ATTRIBUTABLE EBITDA
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gaming
|
|
Lottery
|
|
Interactive
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
237.8
|
|
$
41.2
|
|
$
106.8
|
|
$
-
|
|
$
385.8
|
Product
sales
|
|
219.4
|
|
11.7
|
|
-
|
|
-
|
|
231.1
|
Instant
games
|
|
-
|
|
149.4
|
|
-
|
|
-
|
|
149.4
|
Total revenue
|
$
457.2
|
|
$
202.3
|
|
$
106.8
|
|
$
-
|
|
$
766.3
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Cost of services
(1)
|
$
33.7
|
|
$
24.9
|
|
$
40.3
|
|
$
-
|
|
$
98.9
|
Cost of product sales
(1)
|
100.7
|
|
8.0
|
|
-
|
|
-
|
|
108.7
|
Cost of instant games
(1)
|
|
-
|
|
71.3
|
|
-
|
|
-
|
|
71.3
|
Selling, general and
administrative
|
65.2
|
|
13.7
|
|
32.8
|
|
34.2
|
|
145.9
|
Research and
development
|
35.4
|
|
1.9
|
|
10.2
|
|
0.6
|
|
48.1
|
Depreciation,
amortization and impairments
|
136.0
|
|
13.3
|
|
4.4
|
|
21.3
|
|
175.0
|
Restructuring and
other
|
0.3
|
|
(1.1)
|
|
0.3
|
|
1.6
|
|
1.1
|
Operating income (loss)
|
$
85.9
|
|
$
70.3
|
|
$
18.8
|
|
$
(57.7)
|
|
$
117.3
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense)
income:
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
$
(151.2)
|
Earnings from equity
investments
|
$
1.1
|
|
$
2.0
|
|
$
-
|
|
$
-
|
|
3.1
|
Other income,
net
|
1.6
|
|
|
|
|
|
(3.5)
|
|
(1.9)
|
Total other expense, net
|
|
|
|
|
|
|
|
|
$
(150.0)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before
income taxes
|
|
|
|
|
|
|
|
|
$
(32.7)
|
Income tax
provision
|
|
|
|
|
|
|
|
|
(6.4)
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
(39.1)
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net Loss to Attributable EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
(39.1)
|
Restructuring and
other (3)
|
$
0.3
|
|
$
(1.1)
|
|
$
0.3
|
|
$
1.6
|
|
1.1
|
Depreciation,
amortization and impairments
|
136.0
|
|
13.3
|
|
4.4
|
|
21.3
|
|
175.0
|
Other expense,
net
|
|
|
|
|
|
|
3.1
|
|
3.1
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
151.2
|
Income tax
provision
|
|
|
|
|
|
|
|
|
6.4
|
Stock-based
compensation
|
1.6
|
|
1.5
|
|
1.1
|
|
2.9
|
|
7.1
|
EBITDA from equity
investments (2)
|
1.5
|
|
11.6
|
|
-
|
|
-
|
|
13.1
|
Earnings from equity
investments
|
(1.1)
|
|
(2.0)
|
|
-
|
|
-
|
|
(3.1)
|
Attributable EBITDA
|
$
226.9
|
|
$
95.6
|
|
$
24.6
|
|
$
(32.3)
|
|
$
314.8
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to
Attributable EBITDA margin
|
Attributable
EBITDA
|
$
226.9
|
|
$
95.6
|
|
$
24.6
|
|
$
(32.3)
|
|
$
314.8
|
Revenue
|
|
$
457.2
|
|
$
202.3
|
|
$
106.8
|
|
-
|
|
$
766.3
|
Attributable EBITDA
margin
|
49.6%
|
|
47.3%
|
|
23.0%
|
|
|
|
41.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Exclusive of
depreciation and amortization.
|
|
|
|
|
(2) The Company
received $37.3 million in cash distributions and return of capital
payments from its equity investees.
|
(3) Refer to
AEBITDA definition for description of items included in this
line.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATING
BUSINESS SEGMENT DATA AND
|
RECONCILIATION OF
NET LOSS TO ATTRIBUTABLE EBITDA
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gaming
|
|
Lottery
|
|
Interactive
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
465.0
|
|
$
80.2
|
|
$
203.1
|
|
$
-
|
|
$
748.3
|
Product
sales
|
|
432.2
|
|
21.6
|
|
-
|
|
-
|
|
453.8
|
Instant
games
|
|
-
|
|
289.6
|
|
-
|
|
-
|
|
289.6
|
Total revenue
|
|
$
897.2
|
|
$
391.4
|
|
$
203.1
|
|
$
-
|
|
$
1,491.7
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Cost of services
(1)
|
$
72.9
|
|
$
51.4
|
|
$
77.9
|
|
$
-
|
|
$
202.2
|
Cost of product sales
(1)
|
200.3
|
|
15.0
|
|
-
|
|
-
|
|
215.3
|
Cost of instant games
(1)
|
-
|
|
141.4
|
|
-
|
|
-
|
|
141.4
|
Selling, general and
administrative
|
124.2
|
|
28.0
|
|
66.0
|
|
68.4
|
|
286.6
|
Research and
development
|
72.6
|
|
2.8
|
|
13.7
|
|
1.4
|
|
90.5
|
Depreciation,
amortization and impairments
|
259.3
|
|
27.2
|
|
8.4
|
|
45.2
|
|
340.1
|
Restructuring and
other
|
4.5
|
|
(0.8)
|
|
1.1
|
|
5.5
|
|
10.3
|
Operating income (loss)
|
$
163.4
|
|
$
126.4
|
|
$
36.0
|
|
$
(120.5)
|
|
$
205.3
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense)
income:
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
$
(310.6)
|
Earnings from equity
investments
|
$
3.6
|
|
$
9.0
|
|
$
-
|
|
$
-
|
|
12.6
|
Loss extinguishment
and modification of debt
|
|
|
|
|
|
|
(29.7)
|
|
(29.7)
|
Other income,
net
|
2.8
|
|
|
|
|
|
2.8
|
|
5.6
|
Total other expense, net
|
|
|
|
|
|
|
|
|
$
(322.1)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before
income taxes
|
|
|
|
|
|
|
|
|
$
(116.8)
|
Income tax
provision
|
|
|
|
|
|
|
|
|
(23.1)
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
(139.9)
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net Loss to Attributable EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
(139.9)
|
Restructuring and
other (3)
|
$
4.5
|
|
$
(0.8)
|
|
$
1.1
|
|
$
5.5
|
|
10.3
|
Depreciation,
amortization and impairments
|
259.3
|
|
27.2
|
|
8.4
|
|
45.2
|
|
340.1
|
Other expense,
net
|
|
|
|
|
|
|
(2.0)
|
|
(2.0)
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
310.6
|
Income tax
provision
|
|
|
|
|
|
|
|
|
23.1
|
Stock-based
compensation
|
3.3
|
|
2.3
|
|
2.1
|
|
5.3
|
|
13.0
|
Loss on
extinguishment and modification of debt
|
|
|
|
|
|
|
29.7
|
|
29.7
|
EBITDA from equity
investments (2)
|
3.3
|
|
25.8
|
|
-
|
|
-
|
|
29.1
|
Earnings from equity
investments
|
(3.6)
|
|
(9.0)
|
|
-
|
|
-
|
|
(12.6)
|
Attributable EBITDA
|
$
436.6
|
|
$
180.9
|
|
$
47.6
|
|
$
(63.7)
|
|
$
601.4
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to
Attributable EBITDA margin
|
Attributable
EBITDA
|
$
436.6
|
|
$
180.9
|
|
$
47.6
|
|
$
(63.7)
|
|
$
601.4
|
Revenue
|
$
897.2
|
|
$
391.4
|
|
$
203.1
|
|
-
|
|
$
1,491.7
|
Attributable EBITDA
margin
|
48.7%
|
|
46.2%
|
|
23.4%
|
|
|
|
40.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Exclusive of
depreciation and amortization.
|
|
|
|
|
(2) The Company
received $41.0 million in cash distributions and return of capital
payments from its equity investees.
|
(3) Refer to
AEBITDA definition for description of items included in this
line.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATING
BUSINESS SEGMENT DATA AND
|
RECONCILIATION OF
NET LOSS TO ATTRIBUTABLE EBITDA
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gaming
|
|
Lottery
|
|
Interactive
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
236.0
|
|
$
44.1
|
|
$
83.4
|
|
$
-
|
|
$
363.5
|
Product
sales
|
|
205.9
|
|
8.9
|
|
-
|
|
-
|
|
214.8
|
Instant
games
|
|
-
|
|
150.9
|
|
-
|
|
-
|
|
150.9
|
Total revenue
|
$
441.9
|
|
$
203.9
|
|
$
83.4
|
|
$
-
|
|
$
729.2
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Cost of services
(1)
|
$
44.4
|
|
$
26.8
|
|
$
30.2
|
|
$
-
|
|
$
101.4
|
Cost of product sales
(1)
|
93.4
|
|
7.3
|
|
-
|
|
-
|
|
100.7
|
Cost of instant games
(1)
|
-
|
|
74.1
|
|
-
|
|
-
|
|
74.1
|
Selling, general and
administrative
|
61.2
|
|
17.8
|
|
26.8
|
|
39.1
|
|
144.9
|
Research and
development
|
38.5
|
|
2.6
|
|
8.4
|
|
2.2
|
|
51.7
|
Depreciation,
amortization and impairments
|
154.3
|
|
17.2
|
|
3.8
|
|
17.8
|
|
193.1
|
Restructuring and
other
|
3.4
|
|
0.2
|
|
0.5
|
|
0.1
|
|
4.2
|
Operating income (loss)
|
$
46.7
|
|
$
57.9
|
|
$
13.7
|
|
$
(59.2)
|
|
$
59.1
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense)
income:
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
$
(165.3)
|
Earnings from equity
investments
|
$
1.4
|
|
$
6.6
|
|
$
-
|
|
$
-
|
|
8.0
|
Gain on early
extinguishment of debt
|
|
|
|
|
|
|
25.2
|
|
25.2
|
Other expense,
net
|
|
|
|
|
|
|
1.7
|
|
1.7
|
Total other expense, net
|
|
|
|
|
|
|
|
|
$
(130.4)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before
income taxes
|
|
|
|
|
|
|
|
|
$
(71.3)
|
Income tax
benefit
|
|
|
|
|
|
|
|
|
19.6
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
(51.7)
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net Loss to Attributable EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
(51.7)
|
Restructuring and
other(3)
|
$
3.4
|
|
$
0.2
|
|
$
0.5
|
|
$
0.1
|
|
4.2
|
M&A and other
charges (incl. purchase accounting)(3)(4)
|
(6.8)
|
|
-
|
|
-
|
|
3.8
|
|
(3.0)
|
Depreciation,
amortization and impairments
|
154.3
|
|
17.2
|
|
3.8
|
|
17.8
|
|
193.1
|
Other expense,
net
|
|
|
|
|
|
|
(2.2)
|
|
(2.2)
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
165.3
|
Income tax
benefit
|
|
|
|
|
|
|
|
|
(19.6)
|
Stock-based
compensation
|
1.8
|
|
1.0
|
|
0.2
|
|
3.0
|
|
6.0
|
Gain on early
extinguishment of debt
|
|
|
|
|
|
|
(25.2)
|
|
(25.2)
|
EBITDA from equity
investments (2)
|
1.9
|
|
18.9
|
|
-
|
|
-
|
|
20.8
|
Earnings from equity
investments
|
(1.4)
|
|
(6.6)
|
|
-
|
|
-
|
|
(8.0)
|
Attributable EBITDA
|
$
201.3
|
|
$
95.2
|
|
$
18.2
|
|
$
(35.0)
|
|
$
279.7
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to
Attributable EBITDA margin
|
Attributable
EBITDA
|
$
201.3
|
|
$
95.2
|
|
$
18.2
|
|
$
(35.0)
|
|
$
279.7
|
Revenue
|
|
$
441.9
|
|
$
203.9
|
|
$
83.4
|
|
-
|
|
$
729.2
|
Attributable EBITDA
margin
|
45.6%
|
|
46.7%
|
|
21.8%
|
|
|
|
38.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Exclusive of
depreciation and amortization.
|
|
|
|
|
(2) The Company
received $37.3 million in cash distributions and return of capital
payments from its equity investees.
|
(3) Refer to
AEBITDA definition for description of items included in this
line.
|
|
|
(4) Includes $7.5
million of insurance proceeds related to a settlement of a legal
matter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATING
BUSINESS SEGMENT DATA AND
|
RECONCILIATION OF
NET LOSS TO ATTRIBUTABLE EBITDA
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Gaming
|
|
Lottery
|
|
Interactive
|
|
Corporate
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
$
468.6
|
|
$
89.2
|
|
$
156.0
|
|
$
-
|
|
$
713.8
|
Product
sales
|
|
395.0
|
|
17.4
|
|
-
|
|
-
|
|
412.4
|
Instant
games
|
|
-
|
|
285.0
|
|
-
|
|
-
|
|
285.0
|
Total revenue
|
$
863.6
|
|
$
391.6
|
|
$
156.0
|
|
$
-
|
|
$
1,411.2
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Cost of services
(1)
|
$
85.6
|
|
$
54.9
|
|
$
55.8
|
|
$
-
|
|
$
196.3
|
Cost of product sales
(1)
|
181.2
|
|
13.9
|
|
-
|
|
-
|
|
195.1
|
Cost of instant games
(1)
|
-
|
|
141.1
|
|
-
|
|
-
|
|
141.1
|
Selling, general and
administrative
|
129.1
|
|
34.3
|
|
51.3
|
|
72.5
|
|
287.2
|
Research and
development
|
76.7
|
|
5.2
|
|
15.7
|
|
3.9
|
|
101.5
|
Depreciation,
amortization and impairments
|
295.9
|
|
35.0
|
|
7.5
|
|
35.3
|
|
373.7
|
Restructuring and
other
|
5.0
|
|
1.3
|
|
0.5
|
|
0.1
|
|
6.9
|
Operating income (loss)
|
$
90.1
|
|
$
105.9
|
|
$
25.2
|
|
$
(111.8)
|
|
$
109.4
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense)
income:
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
|
|
|
|
|
|
|
$
(331.0)
|
Earnings from equity
investments
|
$
1.4
|
|
$
9.8
|
|
$
-
|
|
$
-
|
|
11.2
|
Gain on early
extinguishment of debt
|
|
|
|
|
|
|
25.2
|
|
25.2
|
Other expense,
net
|
|
|
|
|
|
|
2.4
|
|
2.4
|
Total other expense, net
|
|
|
|
|
|
|
|
|
$
(292.2)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before
income taxes
|
|
|
|
|
|
|
|
|
$
(182.8)
|
Income tax
benefit
|
|
|
|
|
|
|
|
|
38.8
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
(144.0)
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net Loss to Attributable EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
(144.0)
|
Restructuring and
other (3)
|
$
5.0
|
|
$
1.3
|
|
$
0.5
|
|
$
0.1
|
|
6.9
|
M&A and other
charges (incl. purchase accounting) (3) (4)
|
(5.9)
|
|
-
|
|
-
|
|
3.8
|
|
(2.1)
|
Depreciation,
amortization and impairments
|
295.9
|
|
35.0
|
|
7.5
|
|
35.3
|
|
373.7
|
Other expense,
net
|
|
|
|
|
|
|
(0.6)
|
|
(0.6)
|
Interest
expense
|
|
|
|
|
|
|
|
|
331.0
|
Income tax
benefit
|
|
|
|
|
|
|
|
|
(38.8)
|
Stock-based
compensation
|
3.9
|
|
1.7
|
|
0.4
|
|
6.5
|
|
12.5
|
Gain on early
extinguishment of debt
|
|
|
|
|
|
|
(25.2)
|
|
(25.2)
|
EBITDA from equity
investments (2)
|
3.5
|
|
32.8
|
|
-
|
|
-
|
|
36.3
|
Earnings from equity
investments
|
(1.4)
|
|
(9.8)
|
|
-
|
|
-
|
|
(11.2)
|
Attributable EBITDA
|
$
392.5
|
|
$
176.7
|
|
$
33.6
|
|
$
(64.3)
|
|
$
538.5
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to
Attributable EBITDA margin
|
Attributable
EBITDA
|
$
392.5
|
|
$
176.7
|
|
$
33.6
|
|
$
(64.3)
|
|
$
538.5
|
Revenue
|
|
$
863.6
|
|
$
391.6
|
|
$
156.0
|
|
-
|
|
$
1,411.2
|
Attributable EBITDA
margin
|
45.4%
|
|
45.1%
|
|
21.5%
|
|
|
|
38.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Exclusive of
depreciation and amortization.
|
|
|
|
|
(2) The Company
received $38.8 million in cash distributions and return of capital
payments from its equity investees.
|
(3) Refer to
AEBITDA definition for description of items included in this
line.
|
|
|
(4) Includes $7.5
million of insurance proceeds related to a settlement of a legal
matter.
|
|
|
|
|
|
|
|
|
|
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CALCULATION OF
FREE CASH FLOW
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities(1)
|
$
168.5
|
|
$
90.8
|
|
$
279.5
|
|
$
191.9
|
|
|
|
|
|
|
|
|
|
Less: Capital
expenditures
|
|
(78.9)
|
|
(81.4)
|
|
(140.2)
|
|
(132.6)
|
Add:
Distributions of capital from equity investments
|
21.1
|
|
21.0
|
|
22.4
|
|
22.5
|
Less: Payments on
license obligations
|
(9.7)
|
|
(15.4)
|
|
(19.5)
|
|
(25.0)
|
|
|
|
|
|
|
|
|
|
Free cash
flow(2)
|
|
$
101.0
|
|
$
15.0
|
|
$
142.2
|
|
$
56.8
|
|
|
|
|
|
|
|
|
|
(1) The 2017
includes $18.6 million of cash payments for costs in the 2016
fourth quarter related to the business improvement initiative and
$4.2 million of acquisition-related expenses.
|
|
(2) The 2017 cash
flows includes $52.1 million related to business acquisitions (DEQ,
Spicerack and Lapis) and $27.7 million in costs related to the
refinancing transactions reflected in investing and financing
activities, respectively.
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
|
RECONCILIATION OF
EARNINGS FROM EQUITY INVESTMENT TO EBITDA FROM EQUITY
INVESTMENTS
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
EBITDA from equity
investments(1):
|
|
|
|
|
|
|
|
|
Earnings from equity
investments
|
$
3.1
|
|
$
8.0
|
|
$
12.6
|
|
$
11.2
|
|
Add: Income tax
expense
|
|
1.4
|
|
3.5
|
|
3.7
|
|
5.5
|
|
Add: Depreciation and
amortization
|
8.6
|
|
8.8
|
|
17.1
|
|
17.5
|
|
Add: Interest
expense, net of other income
|
-
|
|
0.5
|
|
(4.3)
|
|
2.1
|
|
EBITDA from equity
investments
|
$
13.1
|
|
$
20.8
|
|
$
29.1
|
|
$
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) EBITDA from
equity investments includes results from the Company's
participation in LNS, RCN, ITL, CSG, Beijing
|
Guard Libang
Technology Co., Ltd., Northstar Illinois, Northstar New Jersey
Lottery Group, LLC, and Hellenic Lotteries.
|
|
|
|
|
|
|
|
|
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CALCULATION OF NET
DEBT LEVERAGE RATIO
|
(Unaudited,
in millions, except for ratios)
|
|
|
|
|
|
Twelve Months
Ended
|
|
|
June 30,
2017
|
|
|
|
|
|
Net loss
|
|
(349.6)
|
|
Restructuring and
other
|
|
60.4
|
|
Goodwill
impairment
|
|
69.0
|
|
Depreciation,
amortization and impairments
|
|
705.1
|
|
Other expense,
net
|
|
(10.3)
|
|
Interest
expense
|
|
641.0
|
|
Income tax benefit,
net
|
|
(63.1)
|
|
Stock-based
compensation
|
|
35.8
|
|
Loss on
extinguishment and modification of debt
|
|
29.7
|
|
EBITDA from equity
investments
|
|
62.9
|
|
Earnings from equity
investments
|
|
(14.4)
|
|
Attributable EBITDA
|
|
1,166.5
|
|
|
|
|
|
Principal face value
of debt outstanding
|
|
8,179.4
|
|
Less:
cash and cash equivalents
|
|
198.2
|
|
Net debt
|
|
7,981.2
|
|
Net debt leverage
ratio
|
|
6.8
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
SUPPLEMENTAL
INFORMATION - SEGMENT KEY PERFORMANCE INDICATORS AND SUPPLEMENTAL
REVENUE METRICS
|
(Unaudited,
in millions, except unit, per unit data and
ARPDAU)
|
|
|
|
|
|
|
The table below
presents certain key performance indicators and supplemental
revenue metrics. The information set forth in the table below
should be read in conjunction with the historical financial
statements of the Company that are included in the Company's Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q filed with
the SEC.
|
|
|
|
|
Three Months
Ended
|
|
June
30,
|
|
June
30,
|
|
March
31,
|
Gaming Revenue -
Supplemental Revenue Metrics
|
2017
|
|
2016
|
|
2017
|
Revenue by Lines
of Business:
|
|
|
|
|
|
Gaming
operations revenue
|
$
178.4
|
|
$
186.0
|
|
$
172.4
|
Gaming machine
sales revenue
|
163.3
|
|
154.4
|
|
156.2
|
Gaming systems
revenue
|
67.1
|
|
59.5
|
|
61.5
|
Table products
revenue
|
48.4
|
|
42.0
|
|
49.9
|
Gaming
revenue
|
$
457.2
|
|
$
441.9
|
|
$
440.0
|
|
|
|
|
|
|
Gaming
operations:
|
|
|
|
|
|
Wide-area
progressive, premium and daily-fee participation revenue
(1)
|
$
100.2
|
|
$
105.50
|
|
$
98.2
|
Other leased,
participation and services revenue (2)
|
78.2
|
|
80.50
|
|
74.2
|
Gaming operations
revenue
|
$
178.4
|
|
$
186.0
|
|
$
172.4
|
|
|
|
|
|
|
Gaming machine
sales:
|
|
|
|
|
|
Gaming machine and
other product sales revenue
|
$
163.3
|
|
$
154.4
|
|
$
156.2
|
|
|
|
|
|
|
Gaming
systems:
|
|
|
|
|
|
Hardware,
software and services revenue
|
$
40.3
|
|
$
33.5
|
|
$
35.3
|
Maintenance
revenue
|
26.8
|
|
26.0
|
|
26.2
|
Gaming systems
revenue
|
$
67.1
|
|
$
59.5
|
|
$
61.5
|
|
|
|
|
|
|
Table
products:
|
|
|
|
|
|
Table products
sales revenue
|
$
12.1
|
|
$
11.6
|
|
$
14.5
|
Leased table
products revenue
|
36.3
|
|
30.4
|
|
35.4
|
Table products
revenue
|
$
48.4
|
|
$
42.0
|
|
$
49.9
|
|
|
|
|
|
|
Gaming
Revenue - Key Performance Indicators
|
|
|
|
|
|
Gaming
Operations
|
|
|
|
|
|
Wide-area
progressive, premium and daily-fee participation units
(1):
|
|
|
|
|
Installed base at
period end
|
20,956
|
|
21,909
|
|
21,143
|
Average daily revenue
per unit
|
$
52.30
|
|
$
52.85
|
|
$
51.22
|
|
|
|
|
|
|
Other participation
and leased units (2):
|
|
|
|
|
|
Installed base at
period end
|
48,645
|
|
47,857
|
|
47,454
|
Average daily revenue
per unit
|
$
14.94
|
|
$
15.95
|
|
$
14.96
|
|
|
|
|
|
|
Gaming Machine
Sales
|
|
|
|
|
|
U.S. and
Canadian new unit shipments
|
4,367
|
|
4,678
|
|
5,862
|
International
new unit shipments
|
3,411
|
|
2,990
|
|
2,497
|
New unit
shipments
|
7,778
|
|
7,668
|
|
8,359
|
Average sales price
per new unit
|
$
17,550
|
|
$
16,859
|
|
$
17,015
|
|
|
|
|
|
|
|
|
|
|
|
|
Lottery Revenue -
Supplemental Revenue Metrics
|
|
|
|
|
|
Lottery
Revenue:
|
|
|
|
|
|
Instant games
revenue
|
$
149.4
|
|
$
150.9
|
|
$
140.2
|
Services
revenue
|
41.2
|
|
44.1
|
|
39.0
|
Product sales
revenue
|
11.7
|
|
8.9
|
|
9.9
|
Lottery
revenue
|
$
202.3
|
|
$
203.9
|
|
$
189.1
|
|
|
|
|
|
|
Instant games revenue
by geography:
|
|
|
|
|
|
United
States
|
$
105.4
|
|
$
100.5
|
|
$
97.8
|
International
|
44.0
|
|
50.4
|
|
42.4
|
Instant games
revenue
|
$
149.4
|
|
$
150.9
|
|
$
140.2
|
|
|
|
|
|
|
Services revenue by
geography:
|
|
|
|
|
|
United
States
|
$
30.1
|
|
$
31.6
|
|
$
27.5
|
International
|
11.1
|
|
12.5
|
|
11.5
|
Services
revenue
|
$
41.2
|
|
$
44.1
|
|
$
39.0
|
|
|
|
|
|
|
Product sales revenue
by geography:
|
|
|
|
|
|
United
States
|
$
3.4
|
|
$
0.8
|
|
$
2.3
|
International
|
8.3
|
|
8.1
|
|
7.6
|
Product sales
revenue
|
$
11.7
|
|
$
8.9
|
|
$
9.9
|
|
|
|
|
|
|
Lottery Revenue -
Key Performance Indicators
|
|
|
|
|
|
Change in retail
sales of U.S. lottery instant games customers (3)(4)
|
5.3%
|
|
4.1%
|
|
2.2%
|
Change in retail
sales of U.S. lottery systems contract customers (3)(5)
|
-1.0%
|
|
7.2%
|
|
-12.9%
|
Change in Italy
retail sales of instant games (3)
|
-0.8%
|
|
-0.8%
|
|
-0.9%
|
|
|
|
|
|
|
Interactive
Revenue - Supplemental Revenue Metrics
|
|
|
|
|
|
Revenue by Lines of
Business:
|
|
|
|
|
|
Social gaming
B2C
|
$
91.1
|
|
$
69.1
|
|
$
80.2
|
Other
interactive B2B
|
15.7
|
|
14.3
|
|
16.1
|
Interactive
revenue
|
$
106.8
|
|
$
83.4
|
|
$
96.3
|
|
|
|
|
|
|
Interactive
Revenue - Key Performance Indicators
|
|
|
|
|
|
Social gaming
B2C:
|
|
|
|
|
|
Average
monthly active users (6)
|
7.5
|
|
8.0
|
|
7.7
|
Average daily
active users (7)
|
2.5
|
|
2.4
|
|
2.4
|
Average daily
revenue per daily active user (8)
|
$
0.40
|
|
$
0.31
|
|
$
0.37
|
Mobile
penetration (9)
|
72%
|
|
67%
|
|
72%
|
|
|
|
|
|
|
(1) Wide-area
progressive, premium and daily-fee participation units comprise
participation gaming machines, generally without fixed-term lease
periods.
|
(2) Other
leased, participation and services units comprise server-based
gaming machines, video lottery terminals, centrally determined
gaming machines, electronic table seats, Class II and other leased
units.
|
(3) Information
provided by third-party lottery operators.
|
|
|
|
|
|
(4) U.S. instant
games customers' retail sales include only sales of instant
games.
|
(5) U.S. lottery
systems customers' retail sales primarily include sales of draw
games, keno and instant games validated by the relevant
system.
|
(6) Monthly
Active Users (MAU) and is a count of unique visitors to our site
during a month.
|
|
|
|
|
(7) Daily
Active Users (DAU) and is a count of unique visitors to our site
during a day.
|
|
|
|
|
(8) Average daily
revenue per DAU is calculated by dividing revenue by the DAU by the
number of days in the period.
|
(9) Mobile
penetration = percentage of B2C social gaming revenue derived from
mobile platforms.
|
|
|
|
|
|
|
|
|
|
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SOURCE Scientific Games Corporation