Scientific Games Reports Third Quarter 2014 Results
Scientific Games Corporation, a leading global supplier of games and technology to gaming and lottery operators, today reported its financial results for the third quarter ended September 30, 2014.
Third quarter revenue increased to $415.6 million from $234.4 million in the prior-year quarter, primarily reflecting the contribution of WMS operations and a 9% increase in total lottery revenue. Attributable EBITDA, a non-GAAP financial measure, increased $38.3 million from the prior-year quarter to $128.2 million. The Company incurred a net loss of $69.8 million, or $0.82 per share, inclusive of: a $19.7 million, or $0.23 per share, non-cash impairment charge to write down the Company's equity investment in its Northstar Illinois joint venture; $5.9 million, or $0.07 per share, of transaction- and financing-related costs associated with the pending acquisition of Bally Technologies, Inc. and $1.9 million, or $0.02 per share, of employee termination and restructuring expense. In the prior-year period, the Company reported a net loss from continuing operations of $0.4 million, or $0.01 per share, inclusive of $2.5 million, or $0.03 per share, of WMS-related transaction costs.
"During the quarter, the Company generated $126 million of cash flow from operations, which after $62 million of capital expenditures resulted in $65 million of free cash flow," said Gavin Isaacs, President and Chief Executive Officer. "While our operating results still require further improvement to achieve the level of performance we expect, we believe we are making solid progress in utilization of working capital, implementation of WMS-related integration initiatives, strengthening the organization-wide focus on disciplined cost management and directing capital allocation only toward our highest-return opportunities."
For the nine months ended September 30, 2014, revenue increased $531.6 million from the prior-year period to $1,220.6 million, primarily reflecting the contribution from WMS' operations. Attributable EBITDA increased to $383.1 million from $252.0 million. The net loss increased to $187.2 million from $26.7 million, primarily reflecting an operating loss of $16.3 million, which includes $13.0 million of transaction-related costs and legal contingencies, and $12.4 million of employee termination and restructuring expense, compared to operating income of $49.2 million in the prior-year period. In addition, the net loss for the first nine months of 2014 was also impacted by a $25.9 million loss on early extinguishment of debt, the $19.7 million non-cash impairment charge referenced above and $8.0 million related to the Company's share of an estimated net shortfall accrual recorded by its Northstar Illinois joint venture, and $67.6 million of higher interest expense, partially offset by a $14.5 million gain on the sale of the equity investment in Sportech PLC. In the prior-year nine month period, the Company had $9.5 million of transaction- and financing-related expenses and $0.3 million of employee termination and restructuring expense.
"In addition to the progress being made with the WMS integration, we are focused on the potential to meaningfully increase free cash flow following the Bally acquisition, which we continue to anticipate closing this quarter, and deploying our free cash flow to reduce net debt," Isaacs continued. "Reflecting the superb efforts of our integration teams, our plans are now expected to yield greater expected financial savings than originally anticipated. As a result, we are increasing our estimate of annual cost synergies anticipated to be realized from the pending Bally transaction by the end of 2016 from $220 million to $235 million. In addition, we now expect to realize an additional $15 million in annual cost synergies from the WMS acquisition, bringing the total to $115 million in annual cost savings by the end of 2015, of which slightly more than half has been achieved to date. We expect to incur an additional $3 million of costs to achieve the additional $15 million of expected WMS cost synergies and an additional $4 million of costs to achieve the incremental $15 million of anticipated cost synergies from the pending Bally acquisition.
"With contributions from WMS, the exciting launch of the MONOPOLY MILLIONAIRES' CLUB(TM) lottery game on October 19, 2014, and increased projections for cost synergies expected to increase free cash flow, we remain confident the combination of Scientific Games and Bally will deliver significant strategic and financial benefits as we bring together two organizations with similar cultures: a customer-first approach and deep-rooted passion for the development of great gaming entertainment. The collaborative and productive integration planning by our teams has reinforced this belief," Isaacs added.
Completion of the Bally acquisition is subject to approval by Bally's stockholders, receipt of certain gaming regulatory approvals and other customary closing conditions.