Scientific Games reports Q4, full year 2016 results

Fourth Quarter 2016 Financial Highlights:

• Revenue was $752.2 million, an increase of $15.2 million, or 2 percent, over the strong revenue generated in the year-ago quarter, despite $12.2 million of unfavorable currency translation. Revenue growth included a 52 percent increase in social B2C gaming, as well as a 37 percent increase in table products.
• Operating loss was $12.3 million, which included a $69.0 million non-cash goodwill impairment charge and restructuring and other charges of $36.3 million compared to a loss of $54.4 million in the prior-year period, which included goodwill and other impairment charges of $129.4 million. These items also are reflected in the improvement in Net loss decreasing to $110.8 million compared to a net loss of $127.5 million in the prior-year period.
• Attributable EBITDA ("AEBITDA"), a non-GAAP financial measure as defined below, was $293.5 million compared to $292.9 million in the prior-year period, benefiting from lower selling, general and administrative expense as a result of the actions implemented in the fourth quarter under our business improvement initiative. The improvement was partially offset by slightly lower revenue in the gaming and lottery segments, which benefited in the prior-year period from several non-recurring items, as well as higher interactive marketing and player acquisition costs related to the launch of the three social gaming apps launched during the preceding 12 months.
• Net cash from operating activities decreased to $76.2 million from $158.7 million in the prior-year quarter, largely reflecting the unfavorable timing of certain items that impacted changes in working capital as well as higher cash costs related to recent restructuring activities. Free cash flow, a non-GAAP financial measure as defined below, declined to $2.1 million compared to $59.2 million in the year-ago quarter, largely reflecting an unfavorable impact from changes in working capital, as well as higher cash costs related to restructuring.
• The Company maintained focus on deleveraging by paying down $17.2 million of debt in the fourth quarter.

Full Year 2016 Financial Highlights:

• Revenue increased 5 percent, or $124.6 million, year over year to $2,883.4 million.
• Operating income was $130.6 million, which included a $69.0 million non-cash goodwill impairment charge as well as $57.0 million of restructuring and other expense. The prior-year operating loss was $1,024.6 million, which included $1,002.6 of goodwill impairment charges as well as $205.2 million of other long-term asset impairments, and $62.8 million of restructuring and other expense, integration costs and other charges, and legal contingencies and settlement costs. These items, as well as a $25.2 million non-cash gain on early extinguishment of debt in 2016, are also reflected in the improvement in the Net loss of $353.7 million compared to a net loss of $1,394.3 million in the year-ago period.
• AEBITDA, a non-GAAP financial measure as defined below, was $1,103.6 million, a 3 percent increase over the prior year.
• Net cash from operating activities increased to $419.0 million compared with $414.2 million in the prior year. Free cash flow, a non-GAAP financial measure as defined below, rose to $120.0 million from $86.1 million in the prior year.
• During 2016, the Company reduced the principal amount of its total debt by $169.4 million.

Scientific Games CEO Kevin Sheehan said, "2016 was another year of growth, progress and industry-leading product innovation for Scientific Games. The 2016 fourth quarter was the fifth consecutive quarter of growth with year-over-year revenue growth besting last year's strong performance. Our Gaming division continues to lead with innovation and strong execution, including the launch of the Gamescape™ platform, which in the fourth quarter helped drive the first quarterly sequential increase in our wide-area progressive ("WAP") premium participation installed base in more than three years, as well as the initial very promising performance of our innovative TwinStar™ J43 for-sale gaming cabinet. Our Lottery division extended its steady momentum with several big contract wins and successful systems launches in the U.S. and around the world. Our SG Interactive® performance remains stellar, with the exciting play of our social game apps driving social B2C gaming revenue up 52 percent versus the year-ago quarter. A third-party report estimates that the rapid growth of SG Interactive in its B2C business has led to five consecutive quarters of outperforming the social casino market, including fourth quarter 2016 year-over-year growth that was five times the social gaming industry growth.

"With 2017 off and running, we are maintaining focus on playing smart to galvanize our business growth. We are driving innovation to create new, differentiated products for our customers, improve financial performance to accelerate deleveraging, and build a culture open to new ideas and committed to exceeding the expectations of our customers and stakeholders," Sheehan said.

Scientific Games CFO Michael Quartieri added, "We continue to refine our business processes to yield greater financial discipline, while ensuring continued investment in innovation to drive profitable growth. While improvement initiatives implemented in the fourth quarter had a cash cost of $6 million, we expect these actions will expand our margins and cash flow in 2017. Importantly, in early 2017 we took steps that reduced our annual cash interest burden by approximately $30 million at current rates, while extending the average maturity of our capital structure. We expect these steps will yield a planned increase in cash flow that supports our goal of additional deleveraging in 2017."