Scientific Games Reports Better than Expected Second Quarter 2020 Results

in Finance

Barry Cottle, President and Chief Executive Officer of Scientific Games, said, "I am very proud of how we are navigating the current environment, as evidenced by our strong cost containment and cash management, which allowed us to deliver better than expected cash flow for the quarter. This is a testament to our team's ability to effectively manage our business in the short term and maintain our strong customer relationships so we are set up for success as the economy begins to reopen. The diversity of our businesses and our position on the forefront of digital gaming were critical to allow us to successfully navigate the worst of this environment. We have the right team coupled with the best products across both land-based and mobile gaming to position us for future growth."

Scientific Games Reports Better than Expected Second Quarter 2020 Results

Continued Strong Liquidity Position of $943 million Increased by Recent Notes Offering

Exceeded Cash Flow Expectations through Effective Cost Containment

Resiliency and Diversity of Business Provides Strength & Competitive Advantage

LAS VEGAS, July 23, 2020 /PRNewswire/ -- Scientific Games Corporation (NASDAQ: SGMS) ("Scientific Games," "SGC" or the "Company") today reported results for the second quarter ended June 30, 2020. The Company's second quarter results were adversely impacted by the COVID-19 disruptions during the quarter, affecting comparability to the prior year period.

Second Quarter 2020 Financial Highlights:

  • Second quarter revenue was $539 million. The Company's Gaming and Lottery revenue was negatively impacted by the COVID-19 disruptions that resulted in temporary closures of casino operations globally and a lower level of lottery ticket sales. Our SciPlay and Digital businesses grew in the quarter, showcasing the power of our diverse portfolio.
     
  • Net loss was $198 million compared to $75 million in the prior year period, due to lower revenue and the effects of COVID-19.
     
  • Consolidated AEBITDA a non-GAAP financial measure defined below, was $121 million largely driven by COVID-19 disruptions, which affect prior year comparability. In addition, the results were impacted by a $33 million Gaming segment charge related to receivables credit allowances and charges for inventory valuation. Digital and SciPlay saw nearly 70 and 80 percent AEBITDA growth, respectively, driven by new launches and the continued "stay at home" environment.
     
  • Net cash provided by operating activities was $52 million compared to $95 million in the year ago period.
     
  • Second quarter consolidated net cash outflow, a non-GAAP financial measure defined below, was $16 million, which was better than prior expectations of approximately $70 million - $90 million. The upside relative to our prior expectations was driven by better than expected collections and better business performance in certain segments.
     
  • Available liquidity, including SciPlay, at quarter-end was $943 million. In July, as a result of successfully completing a private offering of our 2025 Notes (as defined below) and the redemption of the outstanding 2021 Notes (as defined below), total liquidity increased by approximately $200 million subsequent to quarter-end.

Barry Cottle, President and Chief Executive Officer of Scientific Games, said, "I am very proud of how we are navigating the current environment, as evidenced by our strong cost containment and cash management, which allowed us to deliver better than expected cash flow for the quarter. This is a testament to our team's ability to effectively manage our business in the short term and maintain our strong customer relationships so we are set up for success as the economy begins to reopen. The diversity of our businesses and our position on the forefront of digital gaming were critical to allow us to successfully navigate the worst of this environment. We have the right team coupled with the best products across both land-based and mobile gaming to position us for future growth."

"Streamlining our cost structure and focusing on operating efficiencies to drive free cash flow generation and de-lever our balance sheet is our top priority, said, Michael EklundExecutive Vice PresidentChief Financial Officer. While I have only been here a short time I see tremendous opportunity in all facets of our business to drive future growth and free cash flows that will benefit our team members and stakeholders. We are very pleased with how we have navigated the challenging current environment in the second quarter and are confident we have ample liquidity and the right road map to emerge from this crisis as a stronger and more efficient company."

SUMMARY CONSOLIDATED RESULTS

($ in millions)

Three Months Ended June 30,

 

2020

 

2019

Revenue

$

539

   

$

845

 

Net loss

198

   

75

 

Net cash provided by operating activities

52

   

95

 

Capital expenditures

39

   

65

 
       

Non-GAAP Financial Measures(1)

     

Consolidated AEBITDA

$

121

   

$

335

 

Consolidated AEBITDA margin

22

%

 

40

%

Free cash flow

$

5

   

$

38

 
       

Balance Sheet Measures

As of June 30, 2020

 

As of December 31, 2019

Cash and cash equivalents

$

790

   

$

313

 

Principal face value of debt outstanding(2)

9,319

   

9,016

 

Available liquidity

943

   

906

 
       

(1) The financial measures "Consolidated AEBITDA", "Consolidated AEBITDA margin", and "free cash flow" 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) Principal face value of outstanding 2026 Secured Euro Notes and 2026 Unsecured Euro Notes are translated at the constant foreign exchange rate at issuance of these notes. Euro to USD exchange rates at issuance and as of June 30, 2020 were 1.24 and 1.12, respectively, resulting in a $67 million adjustment increasing the principal face value of debt outstanding presented above. Additionally, the 2020 and 2019 principal face values exclude $7 million and $10 million, respectively, in proceeds received from transactions completed in 2019 which are presented as debt but which require no cash repayment.

 

BUSINESS SEGMENT HIGHLIGHTS FOR THE THREE MONTHS ENDED JUNE 30, 2020

($ in millions)

Revenue

 

AEBITDA

 

AEBITDA Margin

 

2020

 

2019

 

$

 

%

 

2020

 

2019

 

$

 

%

 

2020

 

2019

 

PP Change(1)

Gaming

$

91

   

$

427

   

(336)

   

(79)

%

 

$

(31)

   

$

215

   

(246)

   

(114)

%

 

(34)

%

 

50

%

 

(84)

 

Lottery

209

   

231

   

(22)

   

(10)

%

 

97

   

103

   

(6)

   

(6)

%

 

46

%

 

45

%

 

1

 

SciPlay

166

   

118

   

48

   

41

%

 

60

   

33

   

27

   

80

%

 

36

%

 

28

%

 

8

 

Digital

73

   

69

   

4

   

6

%

 

20

   

12

   

8

   

67

%

 

27

%

 

17

%

 

10

 
                                           

PP - percentage points.

                                   
 

(1) As calculations are made using whole dollar numbers, actual results may vary compared to calculations presented in this table.

Key Highlights

  • SciPlay AEBITDA increased by 80% from the prior year to $60 million primarily driven by revenue growth of 41%. The growth was driven by increased game health driven by recently implemented game updates and features to maximize player engagement and the "stay at home" dynamic related to COVID-19.
     
  • Digital AEBITDA increased nearly 70% from the prior year to $20 million. Domestic iGaming revenue grew 135% from the prior year period driven by strong growth in New Jersey and the rollout of the Pennsylvania market. We delivered 4 key launches over a 4 week period in June demonstrating our notably improved speed to market.
     
  • Gaming revenues decreased as COVID-19 disruptions resulted in temporary closures of casino operations in various jurisdictions globally. As of July 23, 85% of domestic casinos have reopened.
     
  • Gaming operations coin-in for turned on units is trending up double-digits in casinos that have re-opened since mid-June.
     
  • Lottery instant ticket sales are up over 20% for instant game retail sales in the most recent four-week period compared to the same period last year.
     
  • Lottery revenue was 10% lower than the prior year, while AEBITDA was down 6% AEBITDA margins increased by 100 bps to 46%. The margin growth was primarily driven by a higher mix of revenue from our Scientific Games Enhanced Partnership (SGEP) program.

LIQUIDITY  

($ in millions)

Three Months Ended June 30,

     
 

2020

 

2019

 

Increase / (Decrease)

 

Net loss

$

(198)

   

$

(75)

   

$

(123)

   

Non-cash adjustments included in net loss

202

   

237

   

(35)

   
 
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