Scientific Games' revenue rises by 3% in the first quarter

Scientific Games Corporation reported Tuesday the results for the first quarter ended March 31, 2019. Revenue rose by 3 percent to $837 million, up from $812 million in the year ago period, reflecting growth in its Lottery and Social businesses. Net loss was $24 million compared to $202 million in the prior year period, driven by higher operating income, partly attributable to a $45 million reduction in restructuring and other expenses. The prior year net loss also included a $93 million charge related to its February 2018 refinancing.

Consolidated Adjusted EBITDA (Consolidated AEBITDA), a non-GAAP financial measure, increased by 3 percent to $328 million from $320 million in the prior year period, reflecting the revenue growth. Net cash provided by operating activities increased to $167 million from $30 million in the year ago period driven by the improved operating results, lower restructuring and other expenses and a $66 million favorable change in accrued interest.

On May 7, the Company completed the initial public offering of a 17.4% minority interest in its Social gaming business, SciPlay Corporation. SciPlay is trading on the NASDAQ Global Select Market under the ticker symbol "SCPL". Scientific Games received $301 million in proceeds from the offering, which enables the company to make substantial payments to reduce debt. The firm believes the offering provides SciPlay greater flexibility to pursue additional growth initiatives.

Barry Cottle, President and Chief Executive Officer of Scientific Games, said: "We are incredibly proud that we have continued to build on our momentum and are looking forward to the year ahead. We are focused on effectively operating our businesses, reducing costs and building upon the strong foundation for profitable growth that we see today. Last week, we successfully took SciPlay public as a new company, which accelerates our ability to pay down debt. All of these actions support our steadfast commitment to smartly grow our business, drive free cash flow and create meaningful value for our stakeholders."

Michael Quartieri, Chief Financial Officer of Scientific Games, added: "This quarter, we paid down $145 million in debt and completed a major refinancing that lowered our borrowing costs and extended our debt maturities. As a result of the SciPlay IPO, we expect to continue our deleveraging path and the efficient deployment of our resources to generate the returns needed to enhance our free cash flow."

Gaming operations revenues increased slightly on a quarter sequential basis as the company’s international operations average daily revenue per unit climbed $0.59 and the installed base increased 206 units, while the U.S. and Canadian operations average daily revenues increased $0.25 and the installed based decreased by 627 units.

As for gaming machine sales, total new unit shipments in the U.S. and Canada increased to 4,801 compared to 4,667 in the prior year due to increased shipments for new openings and expansions, partly from Encore Boston Harbor. SG recently launched its new Wave XL cabinet on a for sale model with three of its top internal brands. This cabinet is the successor to Pro Wave.

Gaming systems revenue was flat from the prior year reflecting fewer major site installations than the prior year, which was offset by strong maintenance revenue. Lottery systems revenue was $35 million higher than the prior year primarily related to equipment hardware sales and new lottery contracts in Maryland and Kansas from the prior year period. Domestic instant product revenue was down 11% related to a change in the mix shipment volumes among the firm’s contract types

Social gaming revenue increased by 22% from the prior year, which was twice the rate of market growth according to estimates from Eilers and Krejcik. The growth was driven by increased monetization of the paying players, with ARPDAU up 14%, while the average DAU also increased to 2.7 million from 2.6 million in the prior year.

SG’s digital casino platform reliably processed nearly $9 billion in total wagers in the first quarter. In April, Scientific Games announced a partnership with Wynn Resorts to support their launch of both iGaming and sports in the U.S.

Free cash flow, a non-GAAP financial measure, was $96 million compared to a cash usage of $63 million in the year ago period, due to the operating cash flow increase and lower capital expenditures.

During the quarter ended March 31, the company made debt repayments of $145 million, including $135 million of voluntary repayments under its revolving credit facility and $10 million in mandatory amortization of its term loans.

On March 19, Scientific Games successfully completed a private offering of $1.1 billion in aggregate principal amount of new 8.250% senior unsecured notes due 2026 and redeemed $1.0 billion of its 10.000% senior unsecured notes due 2022 in April 2019. SG also used the proceeds to pay accrued and unpaid interest plus related premiums, fees and costs, and pay offering related fees and expenses. This transaction extended its maturities and lowered the interest rates.

Capital expenditures totaled $67 million in the first quarter of 2019, compared to $88 million in the prior-year period. For 2019, the company continues to expect capital expenditures will be within a range of $345-$375 million.

Full Scientific Games Q1 report.