Scientific Games’ revenue rises 4% in Q3

Scientific Games reported Thursday results for the third quarter ended September 30, 2019.

"Each of our business segments is growing on both the top and bottom line, enabling us to continue on our path to 5.5x net debt leverage by the end of 2020," said Barry Cottle, President and Chief Executive Officer. "We showcased our great games and products at G2E which demonstrated our industry-leading position as a one-stop solution across platforms and key content. This positioning will allow us to enhance partner operations, grow in existing markets and win in emerging markets."

Third Quarter 2019 financial highlights included an increase in revenue by 4% to $855 million, up from $821 million in the year-ago period. The growth was achieved across every business segment.

Net income was $18 million compared to a net loss of $352 million in the prior-year period, driven by growth in revenue and a $19 million gain on remeasurement of Euro-denominated debt versus a $4 million loss in the prior-year period. The prior-year period included $339 million in restructuring and other charges primarily related to the verdict in the Shuffle Tech legal matter.

Consolidated Adjusted EBITDA, a non-GAAP financial measure, increased 6 percent to $344 million from $326 million in the prior-year period, primarily driven by higher revenues and business improvements.

Net cash provided by operating activities was $141 million compared to $223 million in the year-ago period, primarily due to a $48 million change in the timing of interest payments and an increase in receivables driven by higher game sales and the timing of collections throughout the quarter.

Free cash flow, a non-GAAP financial measure, was $53 million. Net debt, a non-GAAP financial measure, decreased $50 million sequentially to $8.6 billion at quarter-end ($9 billion in face value of debt outstanding less $363 million of cash and cash equivalents). Net debt leverage ratio, a non-GAAP financial measure, decreased to 6.4x. The company is targeting net debt leverage of approximately 5.5x by the end of 2020.

"Our products grew the top-line, and operating leverage was driven by business improvements. We believe there are a number of avenues for further growth driven by share gains and new market opportunities," said Michael Quartieri, Chief Financial Officer of Scientific Games. "We remain firmly committed to maximize cash flows and deliver our balance sheet."

Key Highlights vs. Third Quarter 2018

• Gaming machine sales - total new unit shipments in the U.S. and Canada increased 10% due to continued strong demand for the Twinstar J43 and momentum in the Twinstar Wave XL cabinet. U.S. and Canadian replacements units increased 24% excluding units from a strategic long-term relationship entered into in Oklahoma in the prior year. Openings and expansion units increased by over 600 units driven by strong sales into Illinois and a new opening in California.
• Gaming operations - total gaming operations revenues decreased by $1 million sequentially. The U.S. and Canadian installed base decreased 547 units sequentially from the removal and convert to sale of some low fee per day machines. International gaming operations revenue increased driven by strength in the Europe, Middle East, and Africa (EMEA) region offsetting the anticipated removal of machines in the U.K.
• Gaming systems revenue was higher due to growth in maintenance and services revenue from existing systems.
• Table Products continued to grow with revenue, up $8 million from the prior-year period to $60 million on continued strength in the business.
• Lottery awarded multiple long-term contracts including being named the exclusive supplier to the joint venture operating the Turkey National Lottery and the exclusive terminal hardware partner to Sisal in Italy. In early October, the Florida Lottery selected Scientific Games as its primary instant games provider through 2027, continuing a more than 30-year partnership.
• Lottery systems revenue was $5 million higher primarily related to hardware sales as part of a recent award of a 10-year sports betting contract in Turkey.
• Lottery instant products revenue was $8 million higher with strength both domestically and internationally.
• SciPlay revenue increased by 11%, which exceeded the market rate of growth. The growth was driven by increased monetization of paying players, with ARPDAU up 9% to $0.47.
• Digital revenue increased by 7% and AEBITDA increased by 42%. Received the Digital Product of the Year prize at the Global Gaming Awards 2019 for OpenSports, our end-to-end sports betting product suite, for the second consecutive year.