Scientific Games today reported first quarter 2006 revenues of $208.1
million, up 13 percent from $184.6 million in the first quarter of 2005. Net
income was $22.4 million or $0.24 per diluted share, net of $6.4 million of
stock compensation expense and other unusual charges, up 6 percent from
$21.0 million and $0.23 per diluted share in the first quarter of 2005.
Non-GAAP adjusted net income before stock compensation expense and unusual
charges was $26.9 million or $0.29 per diluted share, up 28 percent from the
first quarter of 2005. EBITDA (earnings before interest, taxes, depreciation
and amortization — see the following EBITDA definition and reconciliation)
for the first quarter of 2006 was $56.2 million, up 10 percent from the
first quarter of 2005. Excluding the stock compensation expense and unusual
charges, adjusted EBITDA for the first quarter of 2005 was $62.4 million, or
approximately 22 percent ahead of $51.3 million for the first quarter of
2005.
This is the first quarter in which Scientific Games has reported through its
three new reporting segments: Printed Products, Lottery Systems and
Diversified Gaming, noted Lorne Weil, Chairman and CEO of Scientific Games.
“We changed our reporting segments to reflect the way we currently manage
our business,” he said. The Printed Products Group includes instant tickets
and related services, licensed brand games and prepaid telephone cards; the
Lottery Systems Group includes lottery systems and technology for, and the
operation of online lotteries; and the Diversified Gaming Group includes
pari- mutuel operations, off-track wagering, sports betting and other
non-lottery gaming initiatives. The Diversified Gaming Group will also
include the Global Draw business beginning in the second quarter of 2006.
“Revenue growth in the Lottery Systems Group was particularly strong in the
first quarter. Year-over-year growth in service revenue and service gross
profit were 32 percent and 31 percent respectively, with about half of the
revenue growth coming from new contracts and half from growth in ‘same store
sales’,” said Weil. Revenue and profitability levels of the three newest
contracts — Colorado, Catalunya and Oklahoma — improved relative to the
fourth quarter of last year, but were still below average and below target.
“We also continue to see strong demand for our instant lottery tickets and
services, particularly our licensed brands and cooperative services.
International instant ticket growth continues to be driven by Italy, where
the market is now at an annual rate of over three billion euros of retail
sales. Overall, Printed Products Group service revenues were up 12 percent
in the quarter; with new contracts ramping up, new orders for Major League
Baseball instant tickets, and expanded capacity in our UK printing facility,
we expect instant ticket sales to accelerate in the coming quarters.”
While revenue in the Diversified Gaming Group was essentially flat year-
over-year, EBITDA increased by 5.4 percent from $7.0 million in 2005 to $7.4
million in 2006, largely as a function of cost reduction initiatives that
began in the second half of 2005.
Added Weil, “We made good progress during the quarter regarding SG&A.”
Excluding severance charges of $0.9 million, business unit SG&A declined
from $21.0 million, or 11.4 percent of revenues in 2005, to $20.3 million,
or 9.7 percent of revenues in 2006. Similarly, excluding the $4.5 million of
stock compensation expense and the SERP expense, unallocated corporate
expense declined from $7.0 million, or 3.8 percent of revenues in 2005 to
$6.6 million, or 3.2 percent of revenues in 2006, notwithstanding the
addition of significant corporate personnel expense as reported last
quarter.
In addition to the non-cash stock compensation expense mentioned above,
pre-tax unusual charges included:
* Severance costs paid in conjunction with a reduction in force of $1.3
million.
* A CPI (Consumer Price Index) adjustment of $0.3 million on the SERP
termination charge taken in the fourth quarter of 2005.
* Interest expense paid on the EssNet acquisition before closing of $0.3
million.
Business development was strong in the quarter, highlighted by the award of
the instant ticket contract for the New York Lottery, the largest lottery in
the United States, and the completion of the EssNet purchase. Shortly after
the close of the quarter, we completed the acquisition of Global Draw.
Equally important was the continued stream of contract renewals, including
the Washington State, West Virginia, and Illinois lotteries, and the Mohegan
Sun racebook facilities management contract, one of the most profitable in
the Diversified Gaming Group.
At the end of the quarter, just before Opening Day, Scientific Games
completed a licensing deal with Major League Baseball that will include
team- oriented games and prizes. A Red Sox themed game for the Massachusetts
Lottery had an extremely strong launch early in the second quarter, to be
followed shortly by a “Subways Series” game featuring the Yankees and Mets
for the New York Lottery. The Company was also named the apparent successful
vendor for new instant ticket contracts to be the primary supplier to the
New Hampshire Lottery and the secondary supplier to the Maryland Lottery.
Both lotteries had not previously been an instant ticket customer of
Scientific Games.
