LAS VEGAS, Nov. 4, 2020 /PRNewswire/ -- Scientific Games
Corporation (NASDAQ: SGMS) ("Scientific Games," "SGC" or the
"Company") today reported results for the third quarter ended
September 30, 2020. The Company's third quarter results were
adversely impacted by the COVID-19 disruptions primarily in the
Gaming business unit during the quarter, affecting comparability to
the prior year period.
Third Quarter 2020 Financial Highlights:
- Third quarter revenue was $698
million compared to $855
million in the prior year period and an increase from
$539 million in the second quarter. The Company's Gaming
revenue was negatively impacted by the COVID-19 disruptions that
has resulted in continued reduced operations of casino operators
globally. Our Lottery, SciPlay and Digital businesses grew in the
quarter, highlighting the strategic investments we have made in the
Digital space and the breadth of our portfolio.
- Net loss was $111 million
compared to net income of $18 million
in the prior year period, due to lower revenue and the effects of
COVID-19. Results were also impacted by a $24 million loss on remeasurement of debt
compared to a $19 million gain in the
prior year period.
- Consolidated AEBITDA, a non-GAAP financial measure
defined below, was $235 million
largely driven by COVID-19 disruptions, which affect prior year
comparability. Our Lottery, SciPlay and Digital business all
increased AEBITDA by 10% or more with our Digital business up
nearly 50% and SciPlay up over 50% from the prior year.
- Net cash provided by operating activities was
$140 million consistent with the year
ago period.
- Free cash flow, a non-GAAP financial measure defined
below (which further adjusts our previously presented measure of
free cash flow), increased $11 million from the prior year to
$62 million driven primarily by working capital
improvements.
- Available liquidity, including SciPlay, at quarter-end
was $1.2 billion. On
October 8, 2020, subsequent to
quarter-end, the Company amended its credit agreement that extended
the Covenant Relief Period under its revolving credit facility
through the first quarter of 2022 and made a $100 million
voluntary payment.
Barry Cottle, President and
Chief Executive Officer of Scientific Games, said, "As a result
of our team's focus on our strategy, our diverse portfolio and our
commitment to cost management, we delivered strong cash flow in the
third quarter. I really am excited around all the great games,
products and solutions we have to help our partners navigate the
current environment and provide innovative solutions for the
future. I'd also like to welcome the proven industry leaders to our
board who will augment our focus on de-levering our balance sheet
and will help the company prudently and thoughtfully shape our
corporate strategy."
Michael Eklund, Executive Vice
President, Chief Financial Officer of Scientific Games, added,
"The team did a great job driving cash flow improvements this
quarter, and we will continue to diligently evaluate additional
opportunities to increase cash flow and de-lever. Looking ahead,
our team will remain highly focused on driving operational
efficiencies, further bolstering our liquidity and strengthening
our balance sheet. My overarching focus is to improve the balance
sheet through operational and business process improvements."
SUMMARY
CONSOLIDATED RESULTS
|
|
|
($ in
millions)
|
Three Months Ended
September 30,
|
|
2020
|
|
2019
|
Revenue
|
$
|
698
|
|
|
$
|
855
|
|
Net (loss)
income
|
(111)
|
|
|
18
|
|
Net cash provided by
operating activities
|
140
|
|
|
141
|
|
Capital
expenditures
|
50
|
|
|
75
|
|
|
|
|
|
Non-GAAP Financial
Measures(1)
|
|
|
|
Consolidated
AEBITDA
|
$
|
235
|
|
|
$
|
344
|
|
Consolidated AEBITDA
margin
|
34
|
%
|
|
40
|
%
|
Free cash
flow
|
$
|
62
|
|
|
$
|
51
|
|
|
|
|
|
Balance Sheet
Measures
|
As of September
30, 2020
|
|
As of December 31,
2019
|
Cash and cash
equivalents
|
$
|
1,045
|
|
|
$
|
313
|
|
Principal face value
of debt outstanding(2)
|
9,519
|
|
|
8,960
|
|
Available
liquidity
|
1,198
|
|
|
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 September 30, 2020 were 1.24 and 1.17,
respectively, resulting in an $39 million adjustment increasing the
principal face value of debt outstanding presented above.
Additionally, the 2020 and 2019 principal face values exclude $7
million and $11 million, respectively, in proceeds received in
2019 from transactions completed in 2018 which are presented as
debt but which require no cash repayment.
|
BUSINESS SEGMENT
HIGHLIGHTS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2020
|
|
|
|
|
|
|
($ in
millions)
|
Revenue
|
|
AEBITDA
|
|
AEBITDA
Margin
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
2020
|
|
2019
|
|
$
|
|
%
|
|
2020
|
|
2019
|
|
PP
Change(1)
|
Gaming
|
$
|
231
|
|
|
$
|
454
|
|
|
(223)
|
|
|
(49)
|
%
|
|
$
|
77
|
|
|
$
|
226
|
|
|
(149)
|
|
|
(66)
|
%
|
|
33
|
%
|
|
50
|
%
|
|
(17)
|
|
Lottery
|
241
|
|
|
220
|
|
|
21
|
|
|
10
|
%
|
|
109
|
|
|
99
|
|
|
10
|
|
|
10
|
%
|
|
45
|
%
|
|
45
|
%
|
|
—
|
|
SciPlay
|
151
|
|
|
116
|
|
|
35
|
|
|
30
|
%
|
|
49
|
|
|
32
|
|
|
17
|
|
|
54
|
%
|
|
33
|
%
|
|
28
|
%
|
|
5
|
|
Digital
|
75
|
|
|
65
|
|
|
10
|
|
|
15
|
%
|
|
25
|
|
|
17
|
|
|
8
|
|
|
47
|
%
|
|
33
|
%
|
|
26
|
%
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 54% from the prior year to
$49 million primarily driven by
revenue growth of 30%.
- Digital AEBITDA increased nearly 50% from the prior year
to $25 million. Domestic iGaming
revenue grew nearly 150% from the prior year period driven
primarily by strong growth in New
Jersey. During the quarter we announced new and extended
partnerships with Hard Rock, Flutter and Wynn Resorts among
others.
- Gaming revenue decreased 49% as COVID-19 disruptions
resulted in continued reduced operations of casino operators in
various jurisdictions globally. Over 90% of domestic casinos have
reopened including New York
commercial casinos a large market that opened in
mid-September.
- Gaming operations coin-in for turned on units were up
double-digits reflecting the popularity of our games and game
franchises like Dancing Drums Explosion.
- Gaming product sales received strong ship share
reflecting the breadth of our product offerings for commercial and
tribal openings this quarter.
- Lottery instant ticket sales are up over 20% for instant
game retail sales in the most recent twelve-week period compared to
the same period last year.
- Lottery revenue and AEBITDA were both 10% higher than
the prior year. The revenue growth was driven by domestic instant
tickets and international product sales.
LIQUIDITY
|
|
|
|
|
($ in
millions)
|
Three Months Ended
September 30,
|
|
|
|
2020
|
|
2019
|
|
Increase /
(Decrease)
|
Net loss
|
$
|
(111)
|
|
|
$
|
18
|
|
|
$
|
(129)
|
|
Non-cash adjustments
included in net loss
|
191
|
|
|
149
|
|
|
42
|
|
Non-cash
interest
|
5
|
|
|
6
|
|
|
(1)
|
|
Changes in deferred
income taxes and other
|
2
|
|
|
—
|
|
|
2
|
|
Distributed earnings
from equity investments
|
9
|
|
|
2
|
|
|
7
|
|
Changes in working
capital accounts
|
44
|
|
|
(34)
|
|
|
78
|
|
Net cash provided by
operating activities
|
$
|
140
|
|
|
$
|
141
|
|
|
$
|
(1)
|
|
- As of September 30, 2020, we had
$1.2 billion in available
liquidity, which included SciPlay's revolving credit facility.
- On October 8, 2020, the Company
and requisite lenders under the Company's revolving credit facility
entered into a Credit Agreement Amendment that extended the
Covenant Relief Period established in the May 8, 2020 amendment, by an additional three
quarters. Compliance with the consolidated net first lien leverage
ratio in the Credit Agreement will now resume with the quarter
ending March 31, 2022.
- On October 9, 2020 the Company
made a voluntary payment of $100 million against the balance
drawn on the revolving credit facility, demonstrating the
confidence we have in our diversified business model.
- Capital expenditures totaled $50 million in the third
quarter of 2020, compared to $75 million in the prior-year
period. For 2020, the Company now expects capital expenditures will
be $210 million - $225 million, which is lower than the prior range
of $210 million - $240 million.
- Year to date through September 30,
2020, the Company generated free cash flow, a non-GAAP
financial measure, of $114 million, including $62 million
of positive free cash flow in the third quarter due to the strength
of our diverse portfolio. We continue to expect to be free cash
flow positive for the full year 2020.
Completion of MacAndrews & Forbes Transaction
- Long-term institutional investors have completed their
acquisition of a 34.9% stake in the Company from MacAndrews &
Forbes Incorporated ("MacAndrews & Forbes"). The Stockholders
Agreement with MacAndrews & Forbes is now terminated and all
rights held by MacAndrews & Forbes, other than registration
rights, are no longer in effect.
- The reconstituted board will review all strategic options to
improve and maximize shareholder value with an objective to
de-lever the balance sheet. This broader review of strategy will be
supported by operational improvements along with renewed focus on
working capital management. This was demonstrated by the solid
financial results, improvements in working capital activities, and
strong free cash flow this quarter.
Announcing Hamish McLennan to
Serve As New Independent Member of the Board of Directors
- Mr. McLennan chairs several Australian Securities
Exchange-listed companies including REA Group Limited, a
$15 billion global digital
advertising company, and HT&E Limited, a media and
entertainment company operating radio, digital and outdoor
businesses, and is Deputy Chairman of Magellan Financial Group, a
globally-focused equity fund with approximately $100 billion worth of investments under
management. Mr. McLennan is also Chairman of Rugby Australia
Limited, the governing body of rugby union in Australia, and a director of Claim Central
Consolidated, a global digital claims solutions business. Mr.
McLennan is an experienced media and marketing executive,
previously serving as Executive Chairman and Chief Executive
Officer at Network Ten Holdings, an Australian entertainment and
news content company, Executive Vice President for News
Corporation, a global diversified media and information services
company, in Sydney and
New York, and Global Chairman and
Chief Executive Officer of Young & Rubicam, a division of WPP,
the world's largest communications services group.
Earnings Conference Call
Scientific Games executive leadership will host a conference
call on Wednesday, November 4, 2020,
at 4:15 pm. ET to review the
Company's third quarter results. To access the call live via a
listen-only webcast and presentation, please visit
http://www.scientificgames.com/investors/events-presentations/ and
click on the webcast link under the Investor Information section.
To access the call by telephone, please dial: +1 (412) 317-5420
(U.S. and International) and ask to join the Scientific Games
Corporation call. A replay of the webcast will be archived in the
Investors section on www.scientificgames.com.
About Scientific Games
Scientific Games Corporation (NASDAQ: SGMS) is the world leader
in offering customers a fully integrated portfolio of technology
platforms, robust systems, engaging content and services. The
Company is the global leader in technology-based gaming systems,
digital real-money gaming and sports betting platforms, table
games, table products and instant games, and a leader in
products, services and content for gaming, lottery and social
gaming markets. Scientific Games delivers what customers and
players value most: trusted security, creative entertaining
content, operating efficiencies and innovative technology. For more
information, please visit www.scientificgames.com, which is updated
regularly with financial and other information about the Company.
You can access our filings with the SEC through the SEC website at
www.sec.gov or through our website, and we strongly encourage you
to do so. We routinely post information that may be important to
investors on our website at www.scientificgames.com/investors/, and
we use our website as a means of disclosing material information to
the public in a broad, non-exclusionary manner for purposes of the
SEC's Regulation Fair Disclosure (Reg FD).
The information contained on, or that may be accessed through,
our website is not incorporated by reference into, and is not a
part of, this document.
COMPANY
CONTACTS
|
|
|
Media
Relations
|
Investor
Relations
|
Christina Karas +1
702-532-7986
|
Robert Shore +1
702-532-7641
|
Director, Corporate
Communications
media@scientificgames.com
|
Senior Director,
Corporate Finance & Investor Relations
IR@scientificgames.com
|
All ® notices signify marks registered in the United States. © 2020 Scientific Games
Corporation. All Rights Reserved.
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
(Unaudited,
in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Revenue:
|
|
|
|
|
|
|
|
Services
|
$
|
417
|
|
|
$
|
452
|
|
|
$
|
1,161
|
|
|
$
|
1,368
|
|
Product
sales
|
124
|
|
|
255
|
|
|
376
|
|
|
731
|
|
Instant
products
|
157
|
|
|
148
|
|
|
425
|
|
|
438
|
|
Total
revenue
|
698
|
|
|
855
|
|
|
1,962
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Cost of
services(1)
|
132
|
|
|
133
|
|
|
388
|
|
|
401
|
|
Cost of product
sales(1)
|
87
|
|
|
115
|
|
|
247
|
|
|
333
|
|
Cost of instant
products(1)
|
70
|
|
|
69
|
|
|
205
|
|
|
211
|
|
Selling, general and
administrative
|
164
|
|
|
175
|
|
|
513
|
|
|
535
|
|
Research and
development
|
41
|
|
|
47
|
|
|
123
|
|
|
142
|
|
Depreciation,
amortization and impairments
|
136
|
|
|
162
|
|
|
414
|
|
|
497
|
|
Goodwill
impairment
|
—
|
|
|
—
|
|
|
54
|
|
|
—
|
|
Restructuring and
other
|
20
|
|
|
11
|
|
|
58
|
|
|
24
|
|
Total operating
expenses
|
650
|
|
|
712
|
|
|
2,002
|
|
|
2,143
|
|
Operating income
(loss)
|
48
|
|
|
143
|
|
|
(40)
|
|
|
394
|
|
Other (expense)
income:
|
|
|
|
|
|
|
|
Interest
expense
|
(131)
|
|
|
(146)
|
|
|
(379)
|
|
|
(447)
|
|
Earnings (loss) from
equity investments
|
2
|
|
|
4
|
|
|
(3)
|
|
|
17
|
|
Loss on debt financing
transactions
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
(60)
|
|
(Loss) gain on
remeasurement of debt
|
(24)
|
|
|
19
|
|
|
(26)
|
|
|
21
|
|
Other (expense)
income, net
|
—
|
|
|
(5)
|
|
|
(4)
|
|
|
2
|
|
Total other expense,
net
|
(154)
|
|
|
(128)
|
|
|
(413)
|
|
|
(467)
|
|
Net (loss) income
before income taxes
|
(106)
|
|
|
15
|
|
|
(453)
|
|
|
(73)
|
|
Income tax (expense)
benefit
|
(5)
|
|
|
3
|
|
|
(11)
|
|
|
(8)
|
|
Net (loss)
income
|
(111)
|
|
|
18
|
|
|
(464)
|
|
|
(81)
|
|
Less: Net income
attributable to noncontrolling interest
|
6
|
|
|
4
|
|
|
15
|
|
|
6
|
|
Net (loss) income
attributable to SGC
|
$
|
(117)
|
|
|
$
|
14
|
|
|
$
|
(479)
|
|
|
$
|
(87)
|
|
Basic and diluted net
(loss) income attributable to SGC per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(1.23)
|
|
|
$
|
0.15
|
|
|
$
|
(5.09)
|
|
|
$
|
(0.94)
|
|
Diluted
|
$
|
(1.23)
|
|
|
$
|
0.15
|
|
|
$
|
(5.09)
|
|
|
$
|
(0.94)
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares used in per share calculations:
|
|
|
|
|
|
|
|
Basic
shares
|
95
|
|
|
93
|
|
|
94
|
|
|
93
|
|
Diluted
shares
|
95
|
|
|
94
|
|
|
94
|
|
|
93
|
|
|
|
|
|
|
|
|
|
(1) Excludes
depreciation and amortization.
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
|
2020
|
|
2019
|
Assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
1,045
|
|
|
$
|
313
|
|
Restricted
cash
|
85
|
|
|
51
|
|
Receivables, net of
allowance for credit losses of $67 and $36, respectively
|
662
|
|
|
755
|
|
Inventories
|
223
|
|
|
244
|
|
Prepaid expenses,
deposits and other current assets
|
256
|
|
|
252
|
|
Total current
assets
|
2,271
|
|
|
1,615
|
|
|
|
|
|
Restricted
cash
|
11
|
|
|
11
|
|
Receivables, net of
allowance for credit losses of $6 and $-, respectively
|
24
|
|
|
53
|
|
Property and
equipment, net
|
434
|
|
|
500
|
|
Operating lease
right-of-use assets
|
96
|
|
|
105
|
|
Goodwill
|
3,234
|
|
|
3,280
|
|
Intangible assets,
net
|
1,342
|
|
|
1,516
|
|
Software,
net
|
234
|
|
|
258
|
|
Equity
investments
|
260
|
|
|
273
|
|
Other
assets
|
196
|
|
|
198
|
|
Total assets
|
$
|
8,102
|
|
|
$
|
7,809
|
|
|
|
|
|
Liabilities and
Stockholders' Deficit:
|
|
|
|
Current portion of
long-term debt
|
$
|
44
|
|
|
$
|
45
|
|
Accounts
payable
|
230
|
|
|
226
|
|
Accrued
liabilities
|
573
|
|
|
495
|
|
Total current
liabilities
|
847
|
|
|
766
|
|
|
|
|
|
Deferred income
taxes
|
93
|
|
|
91
|
|
Operating lease
liabilities
|
79
|
|
|
88
|
|
Other long-term
liabilities
|
290
|
|
|
292
|
|
Long-term debt,
excluding current portion
|
9,334
|
|
|
8,680
|
|
Total stockholders'
deficit(1)
|
(2,541)
|
|
|
(2,108)
|
|
Total liabilities and
stockholders' deficit
|
$
|
8,102
|
|
|
$
|
7,809
|
|
|
|
|
|
(1) Includes $121
million and $104 million in noncontrolling interest as of
September 30, 2020 and December 31, 2019,
respectively.
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited,
in millions)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
|
Net (loss)
income
|
$
|
(111)
|
|
|
$
|
18
|
|
|
$
|
(464)
|
|
|
$
|
(81)
|
|
Adjustments to
reconcile net (loss) income to cash provided by operating
activities
|
205
|
|
|
157
|
|
|
665
|
|
|
597
|
|
Changes in working
capital accounts, net of effects of acquisitions
|
44
|
|
|
(34)
|
|
|
101
|
|
|
(120)
|
|
Changes in deferred
income taxes and other
|
2
|
|
|
—
|
|
|
10
|
|
|
7
|
|
Net cash provided by
operating activities
|
140
|
|
|
141
|
|
|
312
|
|
|
403
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
(50)
|
|
|
(75)
|
|
|
(142)
|
|
|
(207)
|
|
Acquisition of
business, net of cash acquired
|
—
|
|
|
—
|
|
|
(13)
|
|
|
—
|
|
Distributions of
capital from equity investments, net
|
—
|
|
|
—
|
|
|
(1)
|
|
|
17
|
|
Proceeds from sale of
asset and other
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
Net cash used in
investing activities
|
(50)
|
|
|
(75)
|
|
|
(134)
|
|
|
(190)
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
|
Proceeds (payments) of
long-term debt, net
|
198
|
|
|
(55)
|
|
|
618
|
|
|
(308)
|
|
Payments of debt
issuance and deferred financing and offering costs
|
(8)
|
|
|
(1)
|
|
|
(9)
|
|
|
(24)
|
|
Net proceeds from
issuance of SciPlay's common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
342
|
|
Payments on license
obligations
|
(6)
|
|
|
(13)
|
|
|
(21)
|
|
|
(26)
|
|
Sale of future revenue
and other, net
|
1
|
|
|
1
|
|
|
(1)
|
|
|
5
|
|
Net cash provided by
(used in) financing activities
|
185
|
|
|
(68)
|
|
|
587
|
|
|
(11)
|
|
Effect of exchange
rate changes on cash, cash equivalents and restricted
cash
|
2
|
|
|
(2)
|
|
|
1
|
|
|
(1)
|
|
Increase (decrease)
in cash, cash equivalents and restricted cash
|
277
|
|
|
(4)
|
|
|
766
|
|
|
201
|
|
Cash, cash
equivalents and restricted cash, beginning of period
|
864
|
|
|
425
|
|
|
375
|
|
|
220
|
|
Cash, cash
equivalents and restricted cash, end of period
|
$
|
1,141
|
|
|
$
|
421
|
|
|
$
|
1,141
|
|
|
$
|
421
|
|
|
|
|
|
|
|
|
|
Supplemental cash
flow information:
|
|
|
|
|
|
|
|
Cash paid for
interest
|
$
|
111
|
|
|
$
|
121
|
|
|
$
|
335
|
|
|
$
|
391
|
|
Income taxes
paid
|
11
|
|
|
10
|
|
|
18
|
|
|
28
|
|
Distributed earnings
from equity investments
|
9
|
|
|
2
|
|
|
22
|
|
|
24
|
|
Cash paid for
contingent consideration included in operating
activities
|
—
|
|
|
4
|
|
|
—
|
|
|
23
|
|
Supplemental non-cash
transactions:
|
|
|
|
|
|
|
|
Non-cash interest
expense
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
16
|
|
|
$
|
19
|
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
RECONCILIATION OF
NET (LOSS) INCOME TO CONSOLIDATED AEBITDA
|
AND SUPPLEMENTAL
BUSINESS SEGMENT DATA
|
(Unaudited,
in millions)
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30, 2020
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Reconciliation of
Net (Loss) Income Attributable to SGC to Consolidated
AEBITDA
|
|
|
|
|
|
|
|
|
Net (loss) income
attributable to SGC
|
|
$
|
(117)
|
|
|
$
|
14
|
|
|
$
|
(479)
|
|
|
$
|
(87)
|
|
Net income
attributable to noncontrolling interest
|
|
6
|
|
|
4
|
|
|
15
|
|
|
6
|
|
Net (loss)
income
|
|
(111)
|
|
|
18
|
|
|
(464)
|
|
|
(81)
|
|
Restructuring and
other(1)
|
|
20
|
|
|
11
|
|
|
58
|
|
|
24
|
|
Depreciation,
amortization and impairments
|
|
136
|
|
|
162
|
|
|
414
|
|
|
497
|
|
Goodwill
impairment
|
|
—
|
|
|
—
|
|
|
54
|
|
|
—
|
|
Other expense,
net
|
|
3
|
|
|
9
|
|
|
8
|
|
|
7
|
|
Interest
expense
|
|
131
|
|
|
146
|
|
|
379
|
|
|
447
|
|
Income tax expense
(benefit)
|
|
5
|
|
|
(3)
|
|
|
11
|
|
|
8
|
|
Stock-based
compensation
|
|
17
|
|
|
9
|
|
|
41
|
|
|
33
|
|
Loss on debt financing
transactions
|
|
1
|
|
|
—
|
|
|
1
|
|
|
60
|
|
Loss (gain) on
remeasurement of debt
|
|
24
|
|
|
(19)
|
|
|
26
|
|
|
(21)
|
|
EBITDA from equity
investments(2)
|
|
11
|
|
|
15
|
|
|
25
|
|
|
50
|
|
(Earnings) loss from
equity investments
|
|
(2)
|
|
|
(4)
|
|
|
3
|
|
|
(17)
|
|
Consolidated
AEBITDA
|
|
$
|
235
|
|
|
$
|
344
|
|
|
$
|
556
|
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Business Segment Data
|
|
|
|
|
Business segments
AEBITDA
|
|
|
|
|
|
|
|
|
Gaming
|
|
$
|
77
|
|
|
$
|
226
|
|
|
$
|
142
|
|
|
$
|
656
|
|
Lottery
|
|
109
|
|
|
99
|
|
|
284
|
|
|
306
|
|
SciPlay
|
|
49
|
|
|
32
|
|
|
144
|
|
|
90
|
|
Digital
|
|
25
|
|
|
17
|
|
|
68
|
|
|
42
|
|
Total business
segments AEBITDA
|
|
260
|
|
|
374
|
|
|
638
|
|
|
1,094
|
|
Corporate and
other(3)
|
|
(25)
|
|
|
(30)
|
|
|
(82)
|
|
|
(87)
|
|
Consolidated
AEBITDA
|
|
$
|
235
|
|
|
$
|
344
|
|
|
$
|
556
|
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to
Consolidated AEBITDA margin
|
|
|
|
|
Consolidated
AEBITDA
|
|
$
|
235
|
|
|
$
|
344
|
|
|
$
|
556
|
|
|
$
|
1,007
|
|
Revenue
|
|
698
|
|
|
855
|
|
|
1,962
|
|
|
2,537
|
|
Net (loss) income
margin
|
|
(16)
|
%
|
|
2
|
%
|
|
(24)
|
%
|
|
(3)
|
%
|
Consolidated AEBITDA
margin (Consolidated AEBITDA/Revenue)
|
|
34
|
%
|
|
40
|
%
|
|
28
|
%
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
(1) Refer to
Consolidated AEBITDA definition for description of items included
in restructuring and other.
|
(2) EBITDA from
equity investments is a non-GAAP financial measure reconciled to
the most directly comparable GAAP measure in the accompanying
supplemental tables at the end of this release. The Company
received $9 million and $22 million in cash distributions and
return of capital payments from its equity investees for the three
and nine months ended September 30, 2020, respectively, and $3
million and $43 million in cash distributions and return of capital
payments from its equity investees for the three and nine months
ended September 30, 2019, respectively.
|
(3) Includes
amounts not allocated to the business segments (including corporate
costs) and other non-operating expenses (income).
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
SUPPLEMENTAL
INFORMATION - SEGMENT KEY PERFORMANCE INDICATORS AND SUPPLEMENTAL
FINANCIAL DATA
|
(Unaudited,
in millions, except unit and per unit data)
|
|
Three Months
Ended
|
|
September
30,
|
|
September
30,
|
|
June
30,
|
|
2020
|
|
2019
|
|
2020
|
Gaming Business
Segment Supplemental Financial Data:
|
|
|
|
|
|
Revenue by line of
business:
|
|
|
|
|
|
Gaming
operations
|
$
|
92
|
|
|
$
|
149
|
|
|
$
|
16
|
|
Gaming machine
sales
|
71
|
|
|
168
|
|
|
53
|
|
Gaming
systems
|
43
|
|
|
77
|
|
|
17
|
|
Table
products
|
25
|
|
|
60
|
|
|
5
|
|
Total
revenue
|
$
|
231
|
|
|
$
|
454
|
|
|
$
|
91
|
|
|
|
|
|
|
|
Gaming Operations
Revenue:
|
|
|
|
|
|
U.S. and
Canada:
|
|
|
|
|
|
Installed base at
period end
|
30,208
|
|
|
31,509
|
|
|
30,324
|
|
Average daily revenue
per unit
|
$
|
26.90
|
|
|
$
|
38.85
|
|
|
$
|
4.45
|
|
International:(1)
|
|
|
|
|
|
Installed base at
period end
|
33,493
|
|
|
33,663
|
|
|
34,333
|
|
Average daily revenue
per unit
|
$
|
5.65
|
|
|
$
|
9.62
|
|
|
$
|
0.83
|
|
|
|
|
|
|
|
Gaming Machine
Sales:
|
|
|
|
|
|
U.S. and Canada new
unit shipments
|
3,114
|
|
|
5,530
|
|
|
1,431
|
|
International new unit
shipments
|
1,887
|
|
|
2,731
|
|
|
2,917
|
|
Total new unit
shipments
|
5,001
|
|
|
8,261
|
|
|
4,348
|
|
Average sales price
per new unit
|
$
|
12,881
|
|
|
$
|
17,500
|
|
|
$
|
11,137
|
|
|
|
|
|
|
|
Gaming Machine Unit
Sales Components:
|
|
|
|
|
|
U.S. and Canada
unit shipments:
|
|
|
|
|
|
Replacement
units
|
1,523
|
|
|
4,152
|
|
|
640
|
|
Casino opening and
expansion units
|
1,591
|
|
|
1,378
|
|
|
791
|
|
Total unit
shipments
|
3,114
|
|
|
5,530
|
|
|
1,431
|
|
|
|
|
|
|
|
International unit
shipments:
|
|
|
|
|
|
Replacement
units
|
1,887
|
|
|
2,631
|
|
|
2,532
|
|
Casino opening and
expansion units
|
—
|
|
|
100
|
|
|
385
|
|
Total unit
shipments
|
1,887
|
|
|
2,731
|
|
|
2,917
|
|
|
|
|
|
|
|
Lottery Business
Segment Supplemental Financial Data:
|
|
|
|
|
|
Instant products
revenue by geography:
|
|
|
|
|
|
United
States
|
$
|
113
|
|
|
$
|
104
|
|
|
$
|
104
|
|
International
|
44
|
|
|
46
|
|
|
29
|
|
Instant products
revenue
|
$
|
157
|
|
|
$
|
150
|
|
|
$
|
133
|
|
|
|
|
|
|
|
Lottery systems
revenue by financial statement line item:
|
|
|
|
|
|
Services
revenue
|
$
|
55
|
|
|
$
|
50
|
|
|
$
|
54
|
|
Product sales
revenue
|
29
|
|
|
20
|
|
|
22
|
|
Total Lottery systems
revenue
|
$
|
84
|
|
|
$
|
70
|
|
|
$
|
76
|
|
|
|
|
|
|
|
Digital Business
Segment Supplemental Financial Data:
|
|
|
|
|
|
Revenue by Line of
Business:
|
|
|
|
|
|
Sports and
platform
|
$
|
31
|
|
|
$
|
29
|
|
|
$
|
26
|
|
Gaming and
other
|
44
|
|
|
36
|
|
|
47
|
|
Total
revenue
|
$
|
75
|
|
|
$
|
65
|
|
|
$
|
73
|
|
|
|
|
|
|
|
Wagers processed
through OGS (in billions)
|
$
|
12.4
|
|
|
$
|
9.0
|
|
|
$
|
14.0
|
|
|
|
|
|
|
|
SciPlay Business
Segment Supplemental Financial Data:
|
|
|
|
|
|
Revenue by
Platform:
|
|
|
|
|
|
Mobile
|
$
|
132
|
|
|
$
|
97
|
|
|
$
|
144
|
|
Web and
other
|
19
|
|
|
19
|
|
|
22
|
|
Total
revenue
|
$
|
151
|
|
|
$
|
116
|
|
|
$
|
166
|
|
|
|
|
|
|
|
Mobile
penetration(2)
|
87
|
%
|
|
84
|
%
|
|
87
|
%
|
Average
MAU(3)
|
7.3
|
|
|
7.8
|
|
|
8.1
|
|
Average
DAU(4)
|
2.6
|
|
|
2.7
|
|
|
2.7
|
|
ARPDAU(5)
|
$
|
0.63
|
|
|
$
|
0.47
|
|
|
$
|
0.67
|
|
(1) Excludes the
impact of game content licensing revenue.
|
(2) Mobile
penetration is defined as the percentage of SciPlay revenue
generated from mobile platforms.
|
(3) MAU = Monthly
Active Users is a count of visitors to our sites during a month. An
individual who plays multiple games or from multiple devices may,
in certain circumstances, be counted more than once. However, we
use third-party data to limit the occurrence of multiple
counting.
|
(4) DAU = Daily
Active Users is a count of visitors to our sites during a day. An
individual who plays multiple games or from multiple devices may,
in certain circumstances, be counted more than once. However, we
use third-party data to limit the occurrence of multiple
counting.
|
(5) ARPDAU =
Average revenue per DAU is calculated by dividing revenue for a
period by the DAU for the period by the number of days for the
period.
|
SCIENTIFIC GAMES
CORPORATION AND SUBSIDIARIES
|
(Unaudited,
in millions, except for ratio)
|
|
CALCULATION OF
CONSOLIDATED AEBITDA AND NET DEBT LEVERAGE RATIO
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
Ended
|
|
|
September 30,
2020
|
|
September 30,
2019
|
Net (loss) income
attributable to SGC
|
|
$
|
(522)
|
|
|
$
|
120
|
|
Net income
attributable to noncontrolling interest
|
|
21
|
|
|
6
|
|
Net (loss)
income
|
|
(501)
|
|
|
126
|
|
Restructuring and
other
|
|
62
|
|
|
(147)
|
|
Depreciation,
amortization and impairments
|
|
564
|
|
|
660
|
|
Goodwill
impairment
|
|
54
|
|
|
—
|
|
Other expense
(income), net
|
|
13
|
|
|
(9)
|
|
Interest
expense
|
|
521
|
|
|
596
|
|
Income tax
expense
|
|
9
|
|
|
15
|
|
Stock-based
compensation
|
|
45
|
|
|
43
|
|
Loss on debt financing
transactions
|
|
41
|
|
|
60
|
|
Gain on remeasurement
of debt
|
|
38
|
|
|
(35)
|
|
EBITDA from equity
investments
|
|
42
|
|
|
68
|
|
Earnings from equity
investments
|
|
(4)
|
|
|
(26)
|
|
Consolidated
AEBITDA
|
|
$
|
884
|
|
|
$
|
1,351
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
|
|
|
September 30,
2020
|
|
September 30,
2019
|
Principal face value
of debt outstanding(1)
|
|
$
|
9,519
|
|
|
$
|
8,960
|
|
Less: Cash and cash
equivalents
|
|
1,045
|
|
|
363
|
|
Net debt
|
|
$
|
8,474
|
|
|
$
|
8,597
|
|
Net debt leverage
ratio
|
|
9.6
|
|
|
6.4
|
|
(1) 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 September 30, 2020 were 1.24 and 1.17, respectively,
resulting in an $39 million adjustment increasing the principal
face value of debt outstanding presented above. Additionally, the
2020 and 2019 principal face values exclude $7 million and $11
million, respectively, in proceeds received in 2019 from
transactions completed in 2018 which are presented as debt but
which require no cash repayment.
|
|
|
|
CALCULATION OF
FREE CASH FLOW
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Net cash provided by
operating activities
|
|
$
|
140
|
|
|
$
|
141
|
|
|
$
|
312
|
|
|
$
|
403
|
|
Less: Capital
expenditures
|
|
(50)
|
|
|
(75)
|
|
|
(142)
|
|
|
(207)
|
|
(Less)/Add:
Distributions of capital from equity investments, net of
contributions
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
17
|
|
Less: Payments on
license obligations
|
|
(6)
|
|
|
(13)
|
|
|
(21)
|
|
|
(26)
|
|
Less: Change in
restricted cash impacting working capital
|
|
(22)
|
|
|
(2)
|
|
|
(34)
|
|
|
(6)
|
|
Free cash
flow(1)
|
|
$
|
62
|
|
|
$
|
51
|
|
|
$
|
114
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
INFORMATION - RECAST QUARTERLY CALCULATION OF FREE CASH
FLOW
|
|
|
FY
2020
|
|
FY
2019
|
|
|
Q1
|
|
Q2
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
FY
|
Free cash flow, as
previously reported
|
|
$
|
59
|
|
|
$
|
5
|
|
|
$
|
96
|
|
|
$
|
38
|
|
|
$
|
53
|
|
|
$
|
56
|
|
|
$
|
243
|
|
Adjust for change in
restricted cash impacting working capital
|
|
(4)
|
|
|
(8)
|
|
|
(1)
|
|
|
(3)
|
|
|
(2)
|
|
|
(4)
|
|
|
(10)
|
|
Recast free cash
flow(1)
|
|
$
|
55
|
|
|
$
|
(3)
|
|
|
$
|
95
|
|
|
$
|
35
|
|
|
$
|
51
|
|
|
$
|
52
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Calculation of
free cash flow, a non-GAAP financial measure, have been recast to
further adjust our previously presented measure, free cash flow, to
exclude changes in restricted cash, substantially associated with
the recent expansion of iLottery operations, that impacts working
capital, and align such calculation with the revised management
view and definition of such non-GAAP financial
measure.
|
|
RECONCILIATION OF
EARNINGS (LOSS) FROM EQUITY INVESTMENTS
TO EBITDA FROM EQUITY INVESTMENTS
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
EBITDA from equity
investments:
|
|
|
|
|
|
|
|
Earnings (loss) from
equity investments
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
(3)
|
|
|
$
|
17
|
|
Add: Income tax
expense
|
—
|
|
|
2
|
|
|
2
|
|
|
7
|
|
Add: Depreciation and
amortization
|
9
|
|
|
9
|
|
|
23
|
|
|
25
|
|
Add: Interest income,
net and other
|
—
|
|
|
—
|
|
|
3
|
|
|
1
|
|
EBITDA from equity
investments
|
$
|
11
|
|
|
$
|
15
|
|
|
$
|
25
|
|
|
$
|
50
|
|
|
RECONCILIATION OF
CONSOLIDATED NET (LOSS) INCOME
MARGIN TO CONSOLIDATED AEBITDA MARGIN
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Consolidated AEBITDA
Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
margin(1)
|
(16)
|
%
|
|
2
|
%
|
|
(24)
|
%
|
|
(3)
|
%
|
Restructuring and
other(2)
|
3
|
%
|
|
1
|
%
|
|
3
|
%
|
|
1
|
%
|
Depreciation,
amortization and impairments
|
20
|
%
|
|
19
|
%
|
|
21
|
%
|
|
20
|
%
|
Goodwill
impairment
|
—
|
%
|
|
—
|
%
|
|
3
|
%
|
|
—
|
%
|
Interest
expense
|
20
|
%
|
|
17
|
%
|
|
20
|
%
|
|
18
|
%
|
Income tax expense
(benefit)
|
(1)
|
%
|
|
—
|
%
|
|
(1)
|
%
|
|
1
|
%
|
Stock-based
compensation and other expense, net
|
3
|
%
|
|
2
|
%
|
|
3
|
%
|
|
2
|
%
|
Loss on debt financing
transactions
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
2
|
%
|
Loss (gain) on
remeasurement of debt
|
4
|
%
|
|
(2)
|
%
|
|
1
|
%
|
|
(2)
|
%
|
Equity
investments
|
1
|
%
|
|
1
|
%
|
|
2
|
%
|
|
1
|
%
|
Consolidated AEBITDA
Margin
|
34
|
%
|
|
40
|
%
|
|
28
|
%
|
|
40
|
%
|
|
|
|
|
|
|
|
|
(1) Calculated as
net (loss) income as a percentage of revenue.
|
(2) Refer to
Consolidated AEBITDA definition for description of items included
in restructuring and other.
|
Forward-Looking Statements
In this press release, Scientific Games makes
"forward-looking statements" within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking
statements describe future expectations, plans, results or
strategies and can often be identified by the use of terminology
such as "may," "will," "estimate," "intend," "plan," "continue,"
"believe," "expect," "anticipate," "target," "should," "could,"
"potential," "opportunity," "goal," or similar terminology. These
statements are based upon management's current expectations,
assumptions and estimates and are not guarantees of timing, future
results or performance. Therefore, you should not rely on any of
these forward-looking statements as predictions of future events.
Actual results may differ materially from those contemplated in
these statements due to a variety of risks and uncertainties and
other factors, including, among other things:
- the impact of the COVID-19 pandemic and any resulting
unfavorable social, political, economic and financial conditions,
including the temporary and potentially recurring closure of
casinos and lottery operations on a jurisdiction-by-jurisdiction
basis;
- natural events and health crises that disrupt our operations or
those of our customers, suppliers or regulators;
- incurrence of restructuring costs;
- changes in demand for our products and services;
- dependence on suppliers and manufacturers;
- dependence on key employees;
- goodwill impairment charges including changes in estimates or
judgments related to our impairment analysis of goodwill or other
intangible assets;
- level of our indebtedness, higher interest rates, availability
or adequacy of cash flows and liquidity to satisfy indebtedness,
other obligations or future cash needs;
- inability to reduce or refinance our indebtedness;
- restrictions and covenants in debt agreements, including those
that could result in acceleration of the maturity of our
indebtedness;
- stock price volatility;
- competition;
- U.S. and international economic and industry conditions;
- slow growth of new gaming jurisdictions, slow addition of
casinos in existing jurisdictions and declines in the replacement
cycle of gaming machines;
- ownership changes and consolidation in the gaming
industry;
- opposition to legalized gaming or the expansion thereof and
potential restrictions on internet wagering;
- inability to adapt to, and offer products that keep pace with,
evolving technology, including any failure of our investment of
significant resources in our R&D efforts;
- inability to develop successful products and services and
capitalize on trends and changes in our industries, including the
expansion of internet and other forms of interactive gaming;
- laws and government regulations, both foreign and domestic,
including those relating to gaming, data privacy and security,
including with respect to the collection, storage, use,
transmission and protection of personal information and other
consumer data, and environmental laws, and those laws and
regulations that affect companies conducting business on the
internet, including online gambling;
- the continuing evolution of the scope of data privacy and
security regulations, and our belief that the adoption of
increasingly restrictive regulations in this area is likely within
the U.S. and other jurisdictions;
- significant opposition in some jurisdictions to interactive
social gaming, including social casino gaming and how such
opposition could lead these jurisdictions to adopt legislation or
impose a regulatory framework to govern interactive social gaming
or social casino gaming specifically, and how this could result in
a prohibition on interactive social gaming or social casino gaming
altogether, restrict our ability to advertise our games, or
substantially increase our costs to comply with these
regulations;
- legislative interpretation and enforcement, regulatory
perception and regulatory risks with respect to gaming, especially
internet wagering, social gaming and sports wagering;
- reliance on technological blocking systems;
- expectations of shift to regulated online gaming or sports
wagering;
- expectations of growth in total consumer spending on social
casino gaming;
- SciPlay's dependence on certain key providers;
- inability to win, retain or renew, or unfavorable revisions of,
existing contracts, and the inability to enter into new
contracts;
- protection of our intellectual property, inability to license
third-party intellectual property and the intellectual property
rights of others;
- security and integrity of our products and systems, including
the impact of any security breaches or cyber-attacks;
- reliance on or failures in information technology and other
systems;
- challenges or disruptions relating to the implementation of a
new global enterprise resource planning system;
- failure to maintain adequate internal control over financial
reporting;
- inability to benefit from, and risks associated with, strategic
equity investments and relationships;
- inability to achieve some or all of the anticipated benefits of
SciPlay being a standalone public company;
- implementation of complex new accounting standards;
- fluctuations in our results due to seasonality and other
factors;
- risks relating to foreign operations, including anti-corruption
laws, fluctuations in currency rates, restrictions on the payment
of dividends from earnings, restrictions on the import of products
and financial instability, including the potential impact to our
business resulting from the continuing uncertainty around the
U.K.'s withdrawal from the European Union;
- possibility that the 2018 renewal of the LNS concession to
operate the Italian instant games lottery is not final (pending
appeal against existing court rulings relating to third-party
protest against the renewal of the concession);
- the impact of U.K. legislation approving the reduction of
fixed-odds betting terminals maximum stakes limit on LBO operators,
including the related closure of certain LBO shops;
- changes in tax laws or tax rulings, or the examination of our
tax positions;
- difficulty predicting what impact, if any, new tariffs imposed
by and other trade actions taken by the U.S. and foreign
jurisdictions could have on our business;
- the discontinuation or replacement of LIBOR, which may
adversely affect interest rates; and
- litigation and other liabilities relating to our business,
including litigation and liabilities relating to our contracts and
licenses, our products and systems, our employees (including labor
disputes), intellectual property, environmental laws and our
strategic relationships.
Additional information regarding risks and uncertainties and
other factors that could cause actual results to differ materially
from those contemplated in forward-looking statements is included
from time to time in our filings with the SEC, including the
Company's Current Reports on Form 8-K, Quarterly Reports on Form
10-Q and its latest Annual Report on Form 10-K filed with the SEC
on February 18, 2020 (including under
the headings "Forward Looking Statements" and "Risk Factors").
Forward-looking statements speak only as of the date they are made
and, except for our ongoing obligations under the U.S. federal
securities laws, we undertake no and expressly disclaim any
obligation to publicly update any forward-looking statements
whether as a result of new information, future events or
otherwise.
Due to rounding, certain numbers presented herein may not
precisely agree or add up on a cumulative basis to the totals
previously reported.
Non-GAAP Financial Measures
The Company's management uses the following non-GAAP financial
measures in conjunction with GAAP financial measures: Consolidated
AEBITDA, Consolidated AEBITDA margin, free cash flow, EBITDA from
equity investments, and net debt and net debt leverage ratio (each,
as described more fully below). These non-GAAP financial measures
are presented as supplemental disclosures. They should not be
considered in isolation of, as a substitute for, or superior to,
the financial information prepared in accordance with GAAP, and
should be read in conjunction with the Company's financial
statements filed with the SEC. The non-GAAP financial measures used
by the Company may differ from similarly titled measures presented
by other companies.
Specifically, the Company's management uses Consolidated AEBITDA
to, among other things: (i) monitor and evaluate the performance of
the consolidated Company's business operations; (ii) facilitate
management's internal and external comparisons of the Company's
consolidated historical operating performance; and (iii) analyze
and evaluate financial and strategic planning decisions regarding
future operating investments and operating budgets.
In addition, the Company's management uses Consolidated AEBITDA
and Consolidated AEBITDA margin to facilitate management's external
comparisons of the Company's consolidated results to the historical
operating performance of other companies that may have different
capital structures and debt levels.
The Company's management uses EBITDA from equity investments to
monitor and evaluate the performance of the Company's equity
investments. The Company's management uses net debt and net debt
leverage ratio in monitoring and evaluating the Company's overall
liquidity, financial flexibility and leverage.
The Company's management believes that each of these non-GAAP
financial measures are useful as they provide management and
investors with information regarding the Company's financial
condition and operating performance that is an integral part of
management's reporting and planning processes. In particular, the
Company's management believes that Consolidated AEBITDA is helpful
because this non-GAAP financial measure eliminates the effects of
restructuring, transaction, integration or other items that
management believes is less indicative of the Company's ongoing
underlying operating performance and are better evaluated
separately. Management believes Consolidated AEBITDA margin is
useful for analysts and investors as this measure allows an
evaluation of the performance of our ongoing business operations
and provides insight into the cash operating income margins
generated from our business, from which capital investments are
made and debt is serviced. Moreover, management believes EBITDA
from equity investments is useful to investors because the
Company's Lottery business is conducted through a number of equity
investments, and this measure eliminates financial items from the
equity investees' earnings that management believes has less
bearing on the equity investees' performance. Management believes
that free cash flow provides useful information regarding the
Company's liquidity and its ability to service debt and fund
investments. Management also believes that free cash flow is useful
for investors because it provides them with an important
perspective on the cash available for debt repayment and other
strategic measures, after making necessary capital investments in
property and equipment and necessary license payments to support
the Company's ongoing business operations and taking into account
cash flows relating to the Company's equity investments. See
Supplemental Information- Recast Quarterly Calculation of Free Cash
Flow above for the recast of free cash flow, which further adjusts
our previously used measure, free cash flow, to exclude changes in
restricted cash, substantially associated with the recent expansion
of iLottery operations, that are impacting working capital, and
align such calculation with the revised management view and
definition of such non-GAAP financial measure. Such restricted cash
is excluded because it is not available to fund debt repayments or
other initiatives and therefore management believes this
calculation better aligns with the reason management uses this
non-GAAP information.
Consolidated AEBITDA
Consolidated AEBITDA, as used herein, is a non-GAAP financial
measure that is presented as supplemental disclosure and is
reconciled to net (loss) income as the most directly comparable
GAAP measure, as set forth in the schedule titled "Reconciliation
of Net (Loss) Income Attributable to SGC to Consolidated AEBITDA."
Consolidated AEBITDA should not be considered in isolation of, as a
substitute for, or superior to, the consolidated financial
information prepared in accordance with GAAP, and should be read in
conjunction with the Company's financial statements filed with the
SEC. Consolidated AEBITDA may differ from similarly titled measures
presented by other companies.
Consolidated AEBITDA is reconciled to consolidated net (loss)
income and includes net (loss) income attributable to SGC with the
following adjustments: (1) net income attributable to
noncontrolling interest, (2) restructuring and other, which
includes charges or expenses attributable to: (i) employee
severance; (ii) management restructuring and related costs; (iii)
restructuring and integration; (iv) cost savings initiatives; (v)
major litigation; and (vi) acquisition costs and other unusual
items; (3) depreciation and amortization expense and impairment
charges (including goodwill impairments); (4) change in fair value
of investments and remeasurement of debt; (5) interest expense; (6)
income tax expense; (7) stock-based compensation; (8) loss (gain)
on debt financing transactions; and (9) other expense (income),
net. In addition to the preceding adjustments, we exclude earnings
from equity method investments and add (without duplication) our
pro rata share of EBITDA of our equity investments, which
represents our share of earnings (whether or not distributed to us)
before income tax expense, depreciation and amortization expense,
and interest (income) expense, net of our joint ventures and
minority investees, which is included in our calculation of
Consolidated AEBITDA to align with the provisions of our long-term
debt arrangements. AEBITDA is presented exclusively as our segment
measure of profit or loss.
Consolidated AEBITDA Margin
Consolidated AEBITDA margin, as used herein, represents our
Consolidated AEBITDA (as defined above) for the three and nine
month periods ended September 30,
2020 and 2019, each calculated as a percentage of revenue.
Consolidated AEBITDA margin is a non-GAAP financial measure that is
presented as supplemental disclosure for illustrative purposes only
and is reconciled to net (loss) income attributable to SGC, the
most directly comparable GAAP measure, in a schedule above.
Free Cash Flow
Free cash flow, as used herein, represents net cash (used in)
provided by operating activities less total capital expenditures
(which includes lottery, gaming and digital systems expenditures
and other intangible assets and software expenditures), less
payments on license obligations, less contributions to equity
method investments plus distributions of capital from equity
investments, and adjusted for changes in restricted cash impacting
working capital. Free cash flow is a non-GAAP financial measure
that is presented as a supplemental disclosure for illustrative
purposes only and is reconciled to net cash provided by operating
activities, the most directly comparable GAAP measure, in a
schedule above. See Supplemental Information- Recast Quarterly
Calculation of Free Cash Flow above for the recast of free cash
flow, which further adjusts our previously used measure, free cash
flow, to exclude changes in restricted cash, substantially
associated with the recent expansion of iLottery operations, that
are impacting working capital, and align such calculation with the
revised management view and definition of such non-GAAP financial
measure. Such restricted cash is excluded because it is not
available to fund debt repayments or other initiatives and
therefore management believes this calculation better aligns with
the reason management uses this non-GAAP information.
EBITDA from Equity Investments
EBITDA from equity investments, as used herein, represents our
share of earnings (whether or not distributed to us) plus income
tax expense, depreciation and amortization expense (inclusive of
amortization of payments made to customers for LNS), interest
income, net, and other non-cash and unusual items from our joint
ventures and minority investees. EBITDA from equity investments is
a non-GAAP financial measure that is presented as supplemental
disclosure for illustrative purposes only and is reconciled to
earnings from equity investments, the most directly comparable GAAP
measure, in a schedule above.
Net Debt and Net Debt Leverage Ratio
Net debt is defined as total principal face value of debt
outstanding, the most directly comparable GAAP measure, less cash
and cash equivalents. Principal face value of debt outstanding
includes the face value of debt issued under Senior Secured Credit
Facilities, Senior Notes and Subordinated Notes, all described in
Note 15 of the Company's Annual Report on Form 10-K for the year
ended December 31, 2019, but it does
not include long term obligations under financing leases or
$7 million in proceeds received in
2019 from transactions completed in 2018 which are presented
as debt. In addition, principal face value of debt outstanding with
respect to the 2026 Secured Euro Notes and 2026 Unsecured Euro
Notes are translated at the constant foreign exchange rate at
issuance of these notes as those amounts remain payable at the
original issuance amounts in Euro. Net debt leverage ratio, as used
herein, represents net debt divided by Consolidated AEBITDA (as
defined above).
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SOURCE Scientific Games Corp.