Scientific Games Reports First Quarter 2020 Results

LAS VEGAS, May 11, 2020 /PRNewswire/ -- Scientific Games Corporation (NASDAQ: SGMS) ("Scientific Games" or the "Company") today reported results for the first quarter ended March 31, 2020. The Company's first quarter results were adversely impacted by the COVID-19 disruptions late in the quarter.

First Quarter 2020 Financial Highlights:

• First quarter revenue decreased 13 percent to $725 million, down from $837 million in the year ago period. The Company's Gaming revenue was negatively impacted by the COVID-19 disruptions that resulted in temporary closures of casino operations in jurisdictions globally. Lottery revenue was lower as the prior year included significant equipment sales.
• Net loss was $155 million compared to $24 million in the prior year, due to lower revenue and the effects of COVID-19. 2020 Net loss includes a $54 million goodwill impairment charge related to our legacy U.K. Gaming reporting unit and a negative impact of $37 million related to Gaming business segment receivable credit allowances and inventory write-down charges, all driven by COVID-19 disruptions.
• Consolidated Adjusted EBITDA ("Consolidated AEBITDA"), a non-GAAP financial measure defined below, decreased 39 percent to $200 million from $328 million in the prior year period, driven by the previously mentioned $37 million charge related to receivables credit allowances and inventory write-down charges and the time between the sudden drop in revenue from COVID-19 and the benefits of the cost savings measures implemented late in the quarter.
• Net cash provided by operating activities was $120 million versus $167 million in the year ago period.
• Operational and capital cost-savings measures are expected to improve quarterly cash flows in the second quarter by over $150 million. The Company implemented these cost-savings measures as a result of the COVID-19 disruptions. The cost reductions are related to lower capital expenditures, workforce related savings, and reduced expenses.
• Second quarter projected consolidated net cash outflow, a non-GAAP financial measure defined below, is expected to be approximately $70 million - $90 million. The COVID-19 impact accelerated in the latter half of March 2020 and the Company expects this trend to reach its peak in the second quarter.
• Available liquidity, including SciPlay at quarter-end was $967 million.

Barry Cottle, President and Chief Executive Officer of Scientific Games, said, "We are working around the clock to take care of our employees, customers, shareholders and other key stakeholders in these difficult times, while providing uninterrupted products and services to those customers who continue to operate. I am confident that the measures we are implementing now will allow us to take advantage of opportunities to strengthen our business and prepare us to come out of the crisis even stronger than before. We have a diverse portfolio of assets, products and services, and our previous investments in digital gaming technologies uniquely position us to navigate and ultimately excel, as we emerge from this challenging environment."

Michael Quartieri, Chief Financial Officer of Scientific Games, added, "We have made swift and meaningful reductions to our cost structure in response to the current environment. We believe these changes in conjunction with our available liquidity provide us the tools to withstand the impact from COVID-19. I'm confident that our streamlined cost structure will allow for accelerated cash flow generation and deleveraging in the future."

Key Highlights

• SciPlay AEBITDA increased 40% from the prior year to $35 million driven by lower marketing expense and the elimination of internal IP payments. SciPlay generated record monthly revenue in April, up over 20% compared to March.
• Digital AEBITDA increased 77% from the prior year to $23 million. Online casino revenue was up 4% from the prior year. We expanded our iGaming partnership, added sports wagering with Golden Nugget, extended our partnership with William Hill and partnered with Betfred to launch sports betting in Pennsylvania.
• Gaming revenues decreased as COVID-19 disruptions resulted in temporary closures of casino operations in various jurisdictions globally. Other factors impacting revenues included the completion of certain Canadian systems launches that we benefited from in the prior year.
• Gaming machine sales included 525 historical racing machines, which represented our first sales into this emerging market. From a comparison perspective, the prior year included two large new casino openings.
• Lottery was recently awarded key contracts for the lottery system in Iowa, technology in Germany, instant tickets in Connecticut and the SGEP program South Carolina. The Company is now the primary supplier to all of the top 10 performing instant game lotteries in the world.
• Lottery systems revenue was $11 million lower as the prior year was a tough comp due to significant equipment sales. Lottery AEBITDA was down 25% on lower JV contributions related to the COVID-19 impact in Italy and Greece, lower margin on equipment sales in 2020, and the impact of contract repricing for renewals.

• As of March 31, 2020, we had $967 million in available liquidity, which included SciPlay's revolving credit facility. On April 9, 2020, we borrowed $480 million under SGI's revolving credit facility, which was substantially all of the remaining availability thereunder.
• On May 8, 2020, we amended our credit agreement to obtain relief on the net first lien leverage ratio covenant through and including Q1 2021. We will be required to maintain a minimum liquidity of at least $275 million (excluding SciPlay) through the covenant relief period, with a potential step-down in minimum liquidity to $200 million in Q2 2021. The amendment imposes additional limitations on restricted payments, debt and liens incurrence and investments during the covenant relief period.
• Net cash provided by operating activities was $120 million versus $167 million in the year ago period due to a $67 million decrease in earnings after noncash adjustments in net loss, partially offset by a $20 million favorable change in working capital accounts and other.
• Free cash flow, a non-GAAP financial measure defined below, was $59 million compared to $96 million in the year ago period.
• Capital expenditures totaled $53 million in the first quarter of 2020, compared to $67 million in the prior-year period. For 2020, the Company now anticipates that capital expenditures will be in the range of $210 million - $240 million, due to capital liquidity-saving measures implemented as a result of the COVID-19 disruptions, as compared to the $300 million - $330 million estimate set forth in our fourth quarter 2019 earnings release.

Earnings Conference Call

Scientific Games executive leadership will host a conference call on Monday, May 11, 2020, at 4:15 p.m. EDT to review the Company's first 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. 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 and shall not be deemed "filed" under the Securities Exchange Act of 1934, as amended.

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