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Scientific Games Reports Fourth Quarter Results and Full Year 2018 Results

George Miller

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Scientific Games Reports Fourth Quarter Results and Full Year 2018 Results
Photo Source: miifotos.com
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Operating results provide strong finish to year with path set for growth and deleveraging in 2019

 

Scientific Games Corporation today reported results for the fourth quarter and year ended December 31, 2018.

Fourth Quarter 2018 Financial Highlights:

  • Fourth quarter revenue rose 8 percent to $885.7 million, up from $823.0 million in the year ago period, reflecting $51.7 million in revenue from NYX, along with growth in our Lottery and Social businesses.
  • Net income was $206.8 million compared to a net loss of $43.1 million in the prior year period, driven by improvement in operating income and due to a $183.1 million reversal of 55% of the previously established reserve related to the Shuffle Tech legal matter.
  • Consolidated Adjusted EBITDA (“Consolidated AEBITDA”), a non-GAAP financial measure defined below, increased 6 percent to $343.5 million from $324.5 million in the prior year period, primarily driven by higher revenue and continued operational efficiencies. Consolidated AEBITDA margin, a non-GAAP financial measure defined below, was 38.8 percent, compared to 39.4 percent in the prior year period reflective of a shift in revenue mix primarily driven by NYX.
  • Net cash (used in) provided by operating activities decreased to ($9.8) million from $118.1 million in the year ago period, driven primarily by making a $151.5 million payment to resolve the Shuffle Tech legal matter.
  • Social Gaming IPO Filing: On December 17, 2018, our Social gaming business confidentially submitted a draft registration statement on Form S-1 to the Securities and Exchange Commission (“SEC”) relating to a possible initial public offering of a minority interest in our Social business (the “contemplated IPO”). The Company anticipates that the proceeds from the contemplated IPO would primarily be used to repay debt. On February 14, 2019, our Social gaming business confidentially submitted Amendment No. 1 to its draft registration statement on Form S-1.

Full Year 2018 Financial Highlights:

  • Revenue increased 9 percent, or $279.6 million, year over year to $3,363.2 million.
  • Net loss was $352.4 million compared to a net loss of $242.3 million a year ago, driven by $253.4 million in restructuring and other charges primarily consisting of the $151.5 million payment to resolve the Shuffle Tech legal matter and $27.5 million for contingent consideration associated with the higher-than-expected results from the 2017 acquisition of Spicerack.
  • Consolidated AEBITDA, a non-GAAP financial measure as defined below, increased 9 percent to $1,329.7 million compared to $1,224.9 million in the prior year.
  • Net cash provided by operating activities was $346.1 million compared to $507.1 million in the prior year, reflective of the $151.5 million payment to resolve the Shuffle Tech legal matter and a $52.4 million unfavorable change in accrued interest, due to the timing of our interest payments, which were modified in connection with our refinancing transactions.

Barry Cottle, CEO and President of Scientific Games, said, “This is a very exciting time for Scientific Games. We’re focused on developing the best games and the most innovative platforms to deliver outstanding gaming experiences wherever and whenever players choose to play. We are building momentum and continuing to grow our business while at the same time operating more efficiently. The entire organization is enthused about 2019 and focused on helping our customers win, which will drive our free cash flow and create meaningful value for our shareholders.”

Michael Quartieri, Chief Financial Officer of Scientific Games, added, “We continue to grow our top line driven by the strength of our products. We believe there are opportunities for further growth in 2019, both on a top line and bottom line basis as we are firmly committed to maximize free cash flow and delever our balance sheet.”

SUMMARY CONSOLIDATED RESULTS





















Three Months Ended December 31,



($ in millions)

2018



2017



Revenue 

$

885.7





$

823.0





Net income (loss)

206.8





(43.1)





Net cash (used in) provided by operating activities 

(9.8)

(1)



118.1





Capital expenditures 

97.7





79.6















Non-GAAP Financial Measures (2)

















Consolidated AEBITDA 

$

343.5





$

324.5





Consolidated AEBITDA margin 



38.8%







39.4%





Free cash flow 

$

(229.2)

(3)



$

9.7









































Balance Sheet Measures

As of Dec 31, 2018



As of Dec 31, 2017



Cash and cash equivalents

$

168.2





$

788.8





Principal face value of debt outstanding (4)



9,218.8







8,869.4





Available liquidity 



438.7







1,009.4























(1) Includes a $151.5 million payment to resolve the Shuffle Tech legal matter.

(2) 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.

(3) Includes a $151.5 million payment to resolve the Shuffle Tech legal matter, $104.2 million for the final LNS concession funding contribution, and an approximate $49.5 million change in accrued interest.

(4) Principal face value of outstanding 2026 Secured Euro Notes and 2026 Unsecured Euro Notes are presented at the constant foreign exchange rate at issuance of these notes.

GAMING HIGHLIGHTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2018



Three Months Ended December 31,



Increase/(Decrease)

($ in millions)

2018



2017



Amount



%

Revenue















   Gaming operations(1)

$

151.4





$

169.2





$

(17.8)



(11)

%

   Gaming machine sales

166.7





189.8





(23.1)



(12)

%

   Gaming systems

91.6





83.5





8.1



10

%

   Table products

60.1





50.0





10.1



20

%



$

469.8





$

492.5





$

(22.7)



(5)

%



















AEBITDA

$

233.2





$

237.8





$

(4.6)



(2)

%

AEBITDA margin 



49.6%







48.3%











































(1) Gaming operations includes $6.8 million in WAP jackpots as a reduction to revenue in 2018, compared to the 2017 presentation in which $5.4 million of WAP jackpots was classified as cost of services. This change in classification has no impact on AEBITDA.

  • Total gaming revenue decreased $22.7 million, including an unfavorable $6.8 million impact on Gaming operations from revenue recognition accounting effective in 2018. AEBITDA decreased 2 percent, or $4.6 million, to $233.2 million, but reflects a 130 basis point improvement in the AEBITDA margin to 49.6 percent driven by product mix shift in the comparable quarter to higher margin table products and gaming systems.
  • Gaming operations revenue declined $17.8 million in the fourth quarter of 2018, including the negative impact from the new revenue recognition accounting. Our WAP, premium and daily-fee participation ending installed base was impacted on a year over year basis by the long-term strategic relationship we entered into in Oklahoma in the third quarter. On a quarterly sequential basis, we experienced a 111 unit increase in the installed base and a $1.65 increase in average revenue per day. Our installed base on a quarterly sequential basis of other leased and participation games increased by 121 units with average daily revenue down $0.34, which reflects additional lower yielding units in Greece.
  • Gaming machine sales revenue decreased $23.1 million year over year. The prior year included 884 units for new opening and expansion units and 700 VLT units to Canada versus only 286 units in this year’s quarter for new openings and expansions. The average sales price was $16,113, in the fourth quarter reflecting a greater mix of lower priced units.
  • Gaming systems revenue increased $8.1 million to $91.6 million, primarily due to ongoing systems installations in Canada, coupled with increased hardware sales, primarily the iVIEW®4.
  • Table products revenue increased $10.1 million to $60.1 million, reflecting strong global demand for shufflers and table products.

LOTTERY HIGHLIGHTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2018



Three Months Ended

December 31, 



Increase/(Decrease)

($ in millions)

2018



2017



Amount



%

Revenue





























   Instant products 

$

150.2





$

151.1





$

(0.9)





(1)

%

   Lottery systems  (1)

80.5





66.1





14.4





22

%



$

230.7





$

217.2





$

13.5





6

%

















AEBITDA 

$

105.0





$

94.6





$

10.4





11

%

AEBITDA margin

45.5%





43.6%









































(1) Lottery systems revenue includes $20.4 million in product sales revenue, compared to $21.5 million in 2017.

  • Total lottery revenue increased $13.5 million, or 6 percent, to $230.7 million. AEBITDA increased 11 percent to $105.0 million, compared to $94.6 million in the prior year, with AEBITDA margin improving to 45.5 percent, primarily reflecting the increased margins on domestic lottery systems revenue.
  • Instant products revenue of $150.2 million was essentially flat from the prior year.
  • Lottery systems revenue increased $14.4 million, or 22 percent, to $80.5 million, driven by a combination of organic growth, higher multi-state jackpot activity in the quarter, a new contract in Kansas and the addition of keno in Pennsylvania.

SOCIAL HIGHLIGHTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2018

($ in millions)

Three Months Ended

December 31,



Increase/(Decrease)

Revenue



2018



2017



Amount



%

   Mobile



$

91.2





$

72.0





$

19.2





27

%

   Web and other 





22.5







23.5







(1.0)





(4)

%





$

113.7





$

95.5





$

18.2





19

%

































AEBITDA



$

28.3





$

21.8





$

6.5





30

%

AEBITDA margin



24.9%





22.8%











  • Social revenue grew 19 percent to $113.7 million, reflecting the ongoing popularity of Bingo ShowdownTM, the success of the recently launched MONOPOLY themed casino app and continued growth in Jackpot Party® Social Casino from new game features on our mobile platform.
  • AEBITDA rose 30 percent to $28.3 million, and AEBITDA margin increased to 24.9 percent, primarily reflecting our continued scalable growth in revenue.

DIGITAL HIGHLIGHTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2018



Three Months Ended

December 31,



Increase/(Decrease)

($ in millions)

2018



2017



Amount



%

Revenue(1)































   Sports and platform



$

33.3





$





$

33.3





 nm 



   Gaming and other 





38.2







17.8







20.4





115

%





$

71.5





$

17.8





$

53.7





302

%

































AEBITDA



$

11.8





$

5.1





$

6.7





131

%

AEBITDA margin



16.5%





28.7%











































nm – not meaningful

(1) Includes the results of NYX since the completion of its acquisition on January 5, 2018.



  • Total digital revenue increased to $71.5 million, due in part to $51.7 million of revenue from NYX.
  • AEBITDA was $11.8 million and AEBITDA margin was 16.5 percent, reflecting the addition of NYX and the investment we are making in our domestic and international sports and platform business.

LIQUIDITY



Three Months Ended

December 31,



Increase/

($ in millions)

2018



2017



(Decrease)

Net income (loss) 

$

206.8





$

(43.1)





$

249.9



Non-cash adjustments included in net income (loss)

136.0





169.7





(33.7)



Non-cash interest

6.6





3.8





2.8



Changes in deferred income taxes and other

(33.5)





(9.6)





(23.9)



Distributed earnings from equity investments

8.5





12.9





(4.4)



Change in legal reserves (1)

(334.6)









(334.6)



Changes in working capital accounts 

0.4





(15.6)





16.0



Net cash (used in) provided by operating activities (2)

$

(9.8)





$

118.1





$

(127.9)



























(1) Includes reversal of a portion of the previously established legal reserve.

(2) Includes a $151.5 million settlement payment to resolve the Shuffle Tech legal matter.

  • Net cash (used in) provided by operating activities decreased to ($9.8) million from $118.1 million in the year ago period, principally related to the $151.5 million payment to resolve the Shuffle Tech legal matter and a $49.5 million impact from the timing of our interest payments, which were modified in connection with our refinancing transactions.
  • Capital expenditures totaled $97.7 million in the fourth quarter of 2018, compared to $79.6 million in the prior-year period. The increase from the prior year was related to several long-term and highly accretive projects, including ongoing platform development in Digital, the acceleration of our installed base of participation games and WAP games, including the successful rollout of our James Bond franchise, and our 7-year contract extension with Ladbrokes Coral in the U.K.
  • For 2019, we expect capital expenditures to be below 2018 and within a range of $345$375 million, based on existing contractual obligations and planned strategic investments that we believe will be highly accretive to our future cash flow generation.

 

 

About Scientific Games:

Scientific Games Corporation (NASDAQ: SGMS) is a leading developer of technology-based products and services and associated content for the worldwide gaming, lottery, social and digital gaming industries. Our portfolio of revenue-generating activities primarily includes supplying gaming machines and game content, casino-management systems and table game products and services to licensed gaming entities; providing instant and draw-based lottery products, lottery systems and lottery content and services to lottery operators; providing social casino solutions to retail consumers and regulated gaming entities, as applicable; and providing a comprehensive suite of digital RMG and sports wagering solutions, distribution platforms, content, products and services. We also gain access to technologies and pursue global expansion through strategic acquisitions and equity investments.

 

 

Source: Scientific Games Corporation

George Miller started his career in content marketing and has started working as an Editor/Content Manager for our company in 2016. George has acquired many experiences when it comes to interviews and newsworthy content becoming Head of Content in 2017. He is responsible for the news being shared on multiple websites that are part of the European Gaming Media Network.

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Gambling in the USA

Betfred USA and Elite Casino Resorts Sign Agreement for Iowa Sports Betting Operations

George Miller

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Betfred USA and Elite Casino Resorts Sign Agreement for Iowa Sports Betting Operations
Photo Source: prolificnorth.co.uk
Reading Time: 2 minutes

 

World’s largest privately-owned retail bookmaker moves into US market in partnership with Elite Casino Resorts in Iowa.

 

Betfred, the world’s largest privately-owned retail book maker, and premier gaming and resort destination operator, Elite Casino Resorts have executed a technology and operations agreement for Sports Wagering for their Iowa customers.

Subject to regulatory approval Betfred will be offering Elite Casino Resort customers on premise, online and mobile wagering with a full suite of managed products which includes BI/Analytics, Anti-Fraud, Trading, Compliance/GDPR, Customer Support, Payments and Marketing, as well as managed trading operations support. On July 11, 2019, the Iowa Racing and Gaming Commission approved Betfred Sports Iowa, LLC as an Out of State Vendor for Grand Falls Casino Resort, LLC.

With over 50 years of market leading experience in the sports betting industry, as reflected in the over 1,600 retail stores in the United Kingdom, Betfred seeks to bring a best in class sports wagering experience to the customers of Grand Falls Casino & Golf Resort in Larchwood, IA. Said Dan Kehl, CEO of Elite Casino Resorts, “We are excited to offer our guests another world-class product.  With Betfred, Grand Falls Casino and Resort will be the best place in Iowa for sports betting at our casino and on a safe and secure platform.”

Fred Done, Chief Executive and co-founder of Betfred said, “I’m delighted to partner with Elite Casino Resorts in Iowaand we look forward to working with our new partners and sharing our joint expertise in what is a very exciting opportunity and market for Betfred.”

Betfred has partnered with SCCG Management in Las Vegas, led by its Principal Partner, Stephen Crystal, to represent the company in the US Native American and Non-Tribal gaming market development. SCCG is an internationally respected management consultancy focused on global sports betting, esports and the casino entertainment industries.

 

ABOUT ELITE CASINO RESORTS:
Elite Casino Resorts currently owns and operates three premier gaming and resort destinations in Iowa. The Kehl Family of Dubuque, IA, majority owners of Elite Casino Resorts, have been pioneers in Iowa gaming, awarded the first riverboat gaming operator’s license in Iowa on April 1, 1990 for the Dubuque Casino Belle, the first American-flagged vessel to offer gambling cruises in the United States.

ABOUT BETFRED:
The company was founded by brothers Fred and Peter Done who started with just one shop in Salford in 1967. Back then Betfred differentiated itself by offering excellent customer value and excellent service and those principles are still at the heart of the business now. Operating across multiple gaming channels including 1600 retail stores, Online & Mobile, positions the company as a leading gaming technology vendor. Built over years of experience providing industry leading in-person and digital betting services, Betfred is poised for an expansion into the American market through SCCG Management. Headquartered in Warrington in the United Kingdom. Betfred have an extensive sponsorship portfolio including the World Snooker Championship, in golf the British Masters, World Matchplay Darts, Rugby League’s Super League and Betfred is the Official Bookmaker of Royal Ascot.

ABOUT SCCG:
SCCG specializes in the investment in and development of worldwide brands, governmental and regulatory management support, intellectual property, and strategic business development within international land-based casinos, sports wagering, internet gambling, gaming, esports and entertainment markets.

 

Source: SCCG Management, LLC

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Gambling in the USA

Union Gaming Analytics to Evaluate Chicago Casino Feasibility

Niji Narayan

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Union Gaming Analytics to Evaluate Chicago Casino Feasibility
Photo Source: bettergov.org
Reading Time: 1 minute

 

The Illinois Gaming Board has selected Union Gaming Analytics of Las Vegas to conduct a feasibility study for a casino in Chicago.

The study is required by the gambling expansion law which is signed by Gov. J.B. Pritzker last month. It is to generate revenue for a $45 billion capital improvement plan.

According to a Gaming Board spokesman, the contract will not exceed $100,000.

Union Gaming will present its study regarding the feasibility and ability to finance a casino in Chicago to Pritzker and Chicago Mayor Lori Lightfoot in August. Chicago will pay for the study.

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Compliance Updates

Missouri Gaming Commission Considers Gaming Terminals as Illegal

Niji Narayan

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Missouri Gaming Commission Considers Gaming Terminals as Illegal
Photo Source: bmmagazine.co.uk
Reading Time: 1 minute

 

The Missouri Gaming Commission has deemed the gaming terminals illegal to slow the rapid-fire spread of untaxed and unregulated slot machines in Missouri.

The lead attorney for the Missouri Gaming Commission ruled that the terminals contain functions that make them “gambling devices,” which are prohibited outside of licensed casinos.

The ruling came in response to a question by the St. James Veterans of Foreign Wars Post 5608, which asked if having one of the terminals in their facility would jeopardise the organisation’s state-issued bingo license.

After testing the machine, the gaming commission said it would.

Although the gaming commission’s findings only apply to establishments that have bingo licenses, the decision comes as state and county officials are investigating what to do about the machines.

The terminals work like slot machines. A player inserts money, selects a game and decides how much to wager. Players who win money can cash out and get paid by the store cashier.

May Scheve Reardon, executive director of the Missouri Lottery told that she fears the terminals could divert money from the lottery’s games, which generate money for public schools.

Senate President Dave Schatz, R-Sullivan, also has pushed for legislation that would prohibit the machines and strip businesses of their liquor licenses if the terminals are present.

Dave Grothaus, executive director of the Gaming Commission said there have been discussions about whether state officials, like the commission, could use their licensing powers to strip businesses of their ability to sell lottery tickets or alcohol if they have the slot machines on their premises.

“Certainly that would be an administrative tool that the state could use to address the problem,” Grothaus said.

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