Scientific Games continues debt reduction in Q2 while revenue remains flat

Scientific Games Corporation reported results for the second quarter ended June 30, 2019.

In accordance with the report, growth in Lottery, SciPlay, and Digital was offset by Gaming revenue down due to fewer casino openings and systems launches compared to last year, as well as lower replacement sales.

"We are pleased with the growth we are continuing to see across Lottery, Digital, and SciPlay while also stabilizing gaming operations driven by the successful launches of several new games. The second quarter really highlights the diversity of our business and the many avenues we have to generate revenue across the globe," said Barry Cottle, President and Chief Executive Officer of Scientific Games.

Net loss was $75 million compared to $6 million in the prior-year period, primarily driven by a $60 million debt financing expense related to the successful notes offering that lowered cash interest costs and extended debt maturities. This quarter also included a $3 million loss on remeasurement of Euro-denominated debt versus a $34 million gain in the prior-year period.

Consolidated Adjusted EBITDA, a non-GAAP financial measure defined below, decreased 1 percent to $335 million from $340 million in the prior-year period, while Net cash provided by operating activities was $95 million compared to $102 million in the year-ago period, driven by the factors impacting Gaming revenue described above.

Free cash flow, a non-GAAP financial measure, increased by $109 million from the year-ago period to $38 million. Net debt, a non-GAAP financial measure, was $8.6 billion ($9 billion in face value of debt outstanding less $369 million of cash and cash equivalents) at quarter-end. Net debt leverage ratio, a non-GAAP financial measure, decreased to 6.5x on a $308 million decrease in net debt. The company is targeting net debt leverage of approximately 5.5x by the end of 2020.

"The entire organization is laser-focused on strengthening our core business and capturing market share in emerging digital markets while making our business more efficient. These key focus areas will allow us to deliver the greatest returns for our stakeholders, set ourselves up for profitable growth, and generate significant cash flow to continue on our deleveraging path," Barry Cottle added.

In the second quarter, the company completed the initial public offering of an 18.0% minority interest in its social gaming business, SciPlay Corporation. The total proceeds to Scientific Games including the partial exercise of the over-allotment option were $342 million, of which $30 million was used by SciPlay for IPO fees and general corporate purposes, and the balance enables us to further reduce our debt.

Michael Quartieri, Chief Financial Officer of Scientific Games, added, "This quarter, we paid down another $155 million in debt bringing our year to date total to $300 million, and the SciPlay IPO proceeds will continue to enable us to make substantial payments on our debt as we work toward our deleveraging goal."

Key Highlights vs. Second Quarter 2018

• Gaming operations - U.S. and Canadian revenue was flat sequentially driven by a $0.52 increase in average daily revenues from the prior quarter, while the installed base decreased by 902 units from the removal of older machines and the closure of a racino in the Northeast. Total gaming operations revenues decreased by $2 million sequentially as international operations revenue was slightly impacted, as anticipated, by the implementation of the £2 max bet limit in April.
• Gaming machine sales – total new unit shipments in the U.S. and Canada decreased due to lower replacement units, while international units increased. The company launched the new TwinstarWave XL cabinet on a for sale model with six themes and the entire library of content from the Twinstar J43.
• Gaming systems revenue was down due to fewer Canadian systems launches.
• Table games continued to grow with revenue up $3 million from the prior year to $62 million on continued strength in the business.
• Lottery systems revenue was $24 million higher primarily related to equipment sales as part of a recent award of a 10-year sports betting contract in Turkey.
• Instant products revenue was flat reflecting growth in international business offset by a decline domestically related to the anniversary of the WillyWonka linked game.
• SciPlay revenue increased by 18%, which was more than twice the rate of market growth. The growth was driven by increased monetization of paying players, with ARPDAU up 14% to $0.48.
• Digital casino platform reliably processed over $9 billion in total wagers. The company was awarded platform of the year at the EGR 2019 B2B Awards for Open Gaming System (OGS) and Open Platform System (OPS). Currently launching mobile sports in Pennsylvania, Indiana, and Iowa with more on the horizon.