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US – Scientific hails progress made in second quarter

By - 7 August 2015

Scientific Games made ‘significant progress’ during its second quarter ending June 30, 2015, with the company posting growth in revenue and a net loss less than expected.

Revenue for the second quarter came in at $691.5m, up from the $416.9m posted year-on-year, whilst operating income dropped to a loss of $100,000 down from $3.6 m in the same period last year.
Net loss increased from $72.4m last year to a loss of $102.2m this year although analysts said this was less than expected.

Gavin Isaacs, Scientific Games’ President and Chief Executive Officer, said: “Throughout the second quarter we made further significant progress on implementing our key initiatives targeting revenue growth opportunities, advancing our comprehensive integration efforts and implementing our planned cost savings. We have heightened our focus on innovation to take advantage of the unique value proposition we can deliver to drive growth for our customers, and we’re looking forward to a strong showing next week at the Australia Gaming Expo, and demonstrating our entire portfolio of innovative solutions in the next two months at the Global Gaming Expo and National Association of State and Provincial Lotteries conference.

“In this regard, our recent new product introductions have been well received, including our Friends and The Flintstones participation games and our WMS-branded s32 hybrid slant slot cabinet,” continued Mr. Isaacs. ‘We’ve launched the Shuffle Master Classic national tournament at more than 200 U.S. casinos, attracting thousands of players. Elsewhere, following the successful premiere season of the Monopoly Millionaires Club TV game show, the show’s second season syndication run is scheduled to begin next month. Also, we’ve achieved great traction in the commercialization of our SG Universe suite of interactive products, including signing agreements for 14 additional properties in the second quarter.

“Our focus on accelerating revenue growth is balanced with our commitment to deliver the realization of anticipated cost savings that will drive expected further enhancement of operating margin and cash flow in the second half of 2015 and beyond,” Mr. Isaacs added. “Our cost savings progress is reflected in the year-over-year and quarterly-sequential improvement in AEBITDA and AEBITDA margin. By July 31, 2015, we had implemented $184 million in Bally-related annual cost savings and, as a result of accelerating actions originally planned for 2016 into 2015, we are raising our first-year target from $188m of cost savings to an expected $200m, while also implementing an additional $30 million of WMS-related annual cost savings by the end of 2015. We expect the progress from rapidly implementing our integration strategies during the first half of 2015 will be favorably reflected in our performance during the second half of this year.”

Overall, revenue for the company increased $272.8m, mainly due to the inclusion of $310.3m from Bally, which included $143.7m in service revenue and $166.6m in product sales revenue.
The inclusion of 15,128 Bally WAP, premium and daily-fee units to the ending installed base was partially offset by a 640 unit decrease in the legacy Gaming installed base. The inclusion of Bally’s installed base of WAP, premium and daily-fee units led to a $18.68 per unit decrease in average daily revenue, while average daily revenue for the legacy Gaming installed base increased 11 percent, or $8.32, year over year to $83.77 per unit, reflecting strong performance of WMS WAP games.

Gaming machine sales revenue increased $58.1m, reflecting the inclusion of $95.7m from Bally, partially offset by $37.6m in lower legacy Gaming product sales due to lower market demand. The Company shipped 6,805 new gaming machines, including 4,001 new units to US and Canadian customers and 2,804 new units to international customers. Other product sales revenue increased $5.9 million, inclusive of $12.3 million from Bally, partially offset by $6.4m in lower legacy Gaming revenue, primarily due to lower used gaming machine sales. The 13 percent increase in average sales price per new unit reflected the benefit from Bally units, particularly sales of premium Bally Pro Wave gaming machines.

Total new unit shipments in the 2015 second quarter were lower than the combined new unit shipments of the legacy Gaming business and Bally during the prior-year quarter, primarily reflecting 508 fewer unit sales to the Illinois VLT market, 677 fewer unit sales for new casino openings and 1,436 replacement units due to lower market demand.

Primarily due to the inclusion of Bally, gaming systems revenue increased $74.4m to $77.6m and table products revenue increased to $43.6m.

Lottery revenue meanwhile declined $17.6m, inclusive of an aggregate $8.8 million unfavorable foreign currency translation impact, reflecting $12.6m in lower lottery systems product sales and $5.1m in lower services revenue, while instant games revenue was essentially flat.

Scott Schweinfurth, Scientific Games’ Executive Vice President, Chief Financial Officer and Corporate Secretary, said: “Concurrent with our commitment to deliver new products that support our customers’ goal of increasing player engagement, our teams remain focused on the implementation of our comprehensive integration initiatives. Through June 30, 2015, implementation of our integration efforts has generated approximately $150 million of annualised cost savings related to the Bally integration. These savings largely reflect the elimination of duplicative positions in the Gaming and Interactive businesses and corporate functions, as well as the elimination of duplicative overhead costs. Notably, we began the closure of the WMS Waukegan, Illinois facility during the second quarter and, as of today, it is operationally closed. As a result of cost-savings actions implemented through July 2015, we now have implemented approximately $184m of Bally-related annual cost savings synergies, or nearly all of the $188 million in annual savings that had been anticipated to be implemented by December 31, 2015. As a result of accelerating cost savings actions originally planned for 2016 into 2015, we are raising our Bally-related cost savings target for 2015 to $200m of anticipated cost savings to be implemented.”

Mr. Schweinfurth continued: “The benefit of these Bally-related savings, as well as the savings realised from the earlier WMS- and SHFL-related integration initiatives, is primarily reflected in the $52.4m year-over-year decrease in aggregate quarterly selling, general and administrative expense and research and development costs on a pro forma basis, notwithstanding $9.8m of higher integration, acquisition, bad debt expense and legal settlement costs, plus we’ve implemented cost savings in cost of product sales and cost of services. As a result of our cost savings, second quarter 2015 AEBITDA margin increased to 38 percent from 32 percent in the prior-year quarter.”

In addition to the Bally integration savings, the Company has also implemented approximately $26m of the anticipated $30m of second-year incremental cost savings actions related to the WMS acquisition through July 2015. As originally planned, the Company continues to expect to achieve a total of $115m of annualized cost savings from the WMS acquisition by the end of 2015.

In addition to approximately $14.6m in aggregate restructuring and integration costs incurred in the 2015 second quarter, the company expects to incur $5m to $10m of additional costs to achieve anticipated cost savings and $10m – $15m of capital expenditures related to integration efforts during the remainder of 2015. In 2016, the Company expects to incur $10m to $15m in additional operating costs to achieve anticipated cost savings and $15m to $25m of additional integration-related capital expenditures.

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