Exhibit 99.1
Scientific Games
Second Quarter Revenues Up 21% to $240 Million
Earnings per diluted share of $0.26 net of stock compensation expense and
convertible debenture shares; $0.30 excluding stock compensation expense and
convertible debenture shares
NEW YORK, August 2, 2006 — Scientific Games [Nasdaq:SGMS] today reported second quarter 2006 revenues of $239.6 million, up 21 percent from $197.4 million in the second quarter of 2005. Net income was $25.0 million or $0.26 per diluted share, net of $4.9 million of stock compensation expense, compared to $24.8 million or $0.27 per diluted share in the second quarter of 2005. Non-GAAP adjusted net income before stock compensation expense and excluding convertible debenture shares was $28.5 million or $0.30 per diluted share, up 11 percent from the second quarter of 2005.
EBITDA (see the following EBITDA definition and reconciliation) for the second quarter of 2006 was $69.6 million, up 20 percent from the second quarter of 2005. Excluding the stock compensation expense, adjusted EBITDA for the second quarter of 2006 was $74.6 million, or approximately 29 percent ahead of adjusted EBITDA of $57.8 million for the second quarter of 2005.
For the six months ending June 30, 2006, revenues were $447.8 million, compared to $382.0 million for the six months ending June 30, 2005, an increase of 17 percent. Net income was $47.3 million or $0.50 per diluted share, compared to $45.8 million or $0.50 per diluted share in 2005. EBITDA increased to $127.4 million, compared to $108.6 million in 2005. Excluding stock compensation expense, adjusted EBITDA increased 28 percent to $138.5 million.
This is the second quarter in which Scientific Games has reported through its three new reporting segments: Printed Products, Lottery Systems and Diversified Gaming. The acquisition of EssNet, which closed in March 2006, was consolidated into the Lottery Systems Group, and accounted for $9.8 million in revenue in the second quarter of 2006. The acquisition of Global Draw in April 2006 accounted for $20.8 million of revenue in the second quarter of 2006, and was consolidated into the Diversified Gaming Group for the full quarter.
“As expected, total instant ticket service revenue accelerated in the second quarter, growing at 21 percent. Excluding contribution of $3.6 million from new contracts, ‘same-store’ sales growth was approximately 16 percent,” said Lorne Weil, Chairman and CEO of Scientific Games. “We benefited from continued growth in our licensed properties and cooperative services businesses.”
“The Lottery Systems Group experienced strong service revenue growth of 32 percent, largely due to new contracts and the EssNet acquisition,” added Weil. “Despite ‘jackpot fatigue’ from the two large Powerball jackpots during the first quarter, ‘same store’ on-line lottery revenues grew approximately 4 percent. Recovery from the ‘jackpot fatigue’ seems to be
underway in the current quarter with the current Powerball jackpot of $178 million this week.”
“The acquisition of EssNet has strengthened our position as a leader in the European lottery market,” added Weil. “The integration has been a very smooth process, as evidenced by our recent contract wins in Norway and Hessen, which were existing EssNet customers. EssNet’s margins in the second quarter were well below our historical margins in the lottery systems business, accounting for more than half of the year to year decline in the lottery systems gross margins. As we continue to integrate EssNet with our existing lottery operations, these margins are steadily improving and we expect that during 2007, they will reach a level consistent with our historical experience.”
The Diversified Gaming Group revenue grew 53 percent in the second quarter. Excluding the Global Draw and Shoreline acquisitions, Diversified Gaming Group revenues were slightly down, but the division experienced an EBITDA margin improvement of approximately 20 percent due to cost-cutting initiatives and technology upgrades. Weil commented, “Global Draw contribution exceeded expectations, and we see Diversified Gaming contributing meaningfully to future earnings, especially when the group expands to Video Lottery Terminal (VLT ) jurisdictions outside of the UK. During the quarter, a number of exciting sports betting opportunities came closer to maturity and we hope to report on these developments in the coming months.”
Business development in the quarter included the award of the primary instant ticket contract in New Hampshire, an electronic bingo game in Michigan, a sports betting system in Norway, and an internet system in Hessen, Germany.
Convertible Debentures
During the second quarter of 2006, the average price of our common stock exceeded the specified conversion price of $29.10 of our Convertible Debentures. Because of this, an additional 1,994,000 shares and 1,416,000 shares of common stock have been included in our weighted average number of diluted shares for the second quarter and six months of 2006, respectively. Although we purchased a hedge in December 2004 to mitigate the potential economic dilution of the underlying Convertible Debenture shares, we are precluded from reflecting this hedge in our GAAP weighted average number of diluted shares because the effect would be anti-dilutive. Upon conversion of the debentures, the dilutive share count will revert to the true economic number.
Conference Call Details
Scientific Games Corporation invites you to join its conference call tomorrow at 8:30 a.m. EDT. To access the call live via webcast please visit www.scientificgames.com and click on the webcast link. To access the call by telephone, please dial (866) 831-6272 (US & Canada) or (617) 213-8859 (International) fifteen minutes before the start of the call. The Conference ID# is 34192839. The call will be archived for replay on the company’s website for 30 days under the “Investors” tab.
About Scientific Games
Scientific Games Corporation is the leading integrated supplier of instant tickets, systems and services to lotteries, a leading supplier of fixed odds betting terminals and systems, interactive sports betting terminals and systems, and wagering systems and services to pari-mutuel operators. It is also a licensed pari-mutuel gaming operator in Connecticut and the Netherlands and is a leading supplier of prepaid phone cards to telephone companies. Scientific Games’ customers are in the United States and more than 60 other countries. For more information about Scientific Games, please visit our web site at www.scientificgames.com.
Forward-Looking Statements
In this press release we make “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate,” or the negatives thereof, variations thereon or similar terminology.
These forward-looking statements generally relate to plans and objectives for future operations and are based upon management’s reasonable estimates of future results or trends. Although we believe that the plans and objectives reflected in or suggested by such forward-looking statements are reasonable, such plans or objectives may not be achieved.
Actual results may differ from projected results due, but not limited, to unforeseen developments, including developments relating to the following:
· economic, competitive, demographic, business and other conditions in our local and regional markets;
· changes or developments in the laws, regulations or taxes in the gaming and lottery industries;
· actions taken or omitted to be taken by third parties, including customers, suppliers, competitors, members and shareholders, as well as legislative, regulatory, judicial and other governmental authorities;
· changes in business strategy, capital improvements, development plans, including those due to environmental remediation concerns, or changes in personnel or their compensation, including federal, state and local minimum wage requirements;
· the availability and adequacy of our cash flow to satisfy our obligations, including our debt service obligations and our need for additional funds required to support capital improvements, development and acquisitions;
· an inability to renew or early termination of our contracts;
· an inability to engage in future acquisitions;
· the loss of any license or permit, including the failure to obtain an unconditional renewal of a required gaming license on a timely basis; and
· resolution of any pending or future litigation in a manner adverse to us.
Actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.
Non-GAAP Disclosure
EBITDA, as included herein, represents net income plus income tax expense, interest expense, and depreciation and amortization expenses, net of other income. EBITDA is included in this document as it is a basis upon which we assess our financial performance, and it provides useful information regarding our ability to service our debt. In addition, EBITDA is useful to investors in evaluating the Company’s financial performance because it is a commonly used financial analysis tool for measuring and comparing gaming companies in several areas of liquidity, operating performance and leverage. EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operations, or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles as measures of our profitability or liquidity. EBITDA as defined in this document may differ from similarly titled measures presented by other companies.
Adjusted EBITDA, non-GAAP adjusted net income and diluted non-GAAP adjusted net income per share are non-GAAP financial measures that are presented as supplemental disclosures and are reconciled to GAAP net income and GAAP net income per diluted share in financial schedules accompanying this release. In calculating the adjusted financial measures, the Company excludes certain items in order to better facilitate an understanding of the Company’s operating performance.
The Company’s management uses these adjusted financial measures in conjunction with GAAP financial measures to monitor and evaluate the performance of the Company’s business operations; facilitate management’s internal comparisons of the Company’s historical operating performance of its business operations; facilitate management’s external comparisons of the results of its overall business to the historical operating performance of other companies that may have different capital structures and debt levels; review and assess the operating performance of the Company’s management team and as a measure in evaluating employee compensation and bonuses; analyze and evaluate financial and strategic planning decisions regarding future operating investments; and plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
The Company’s management believes that these adjusted financial measures are useful to investors to provide them with disclosures of the Company’s operating results on the same basis as that used by the Company’s management. The Company’s management also believes that because it has historically provided such non-GAAP financial measures in its earnings releases, continuing to do so provides consistency in its financial reporting and continuity to investors for comparability purposes. Accordingly, the Company’s management believes that the presentation of the adjusted non-GAAP financial measures, when used in conjunction with GAAP financial measures, provides both management and investors with useful financial information that can be used in assessing the Company’s financial condition and operating performance.
The adjusted financial measures should not be considered in isolation or as a substitute for net income or net income per diluted share prepared in accordance with GAAP. The adjusted financial measures as defined in this document may differ from similarly titled measures presented by other companies. The adjusted financial measures, as well as other information in this document should be read in conjunction with the Company’s financial statements filed with the Securities and Exchange Commission.
Contact Information:
Investor Relations— Scientific Games Corporation — (212) 754-2233