Press Release

Scientific Games Reports Second Quarter 2017 Results and Announces Intent to Refinance a Portion of its Debt
Seventh Consecutive Quarter of Year-over-Year Growth, Driven by Gaming and Interactive Segments
Operating Income Doubles, Leading to Strong Cash Flow

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