Scientific Games reports results

9 May 2008

NEW YORK –- (PRESS RELEASE) -- Scientific Games Corporation (Nasdaq: SGMS) today reported first quarter 2008 revenues of $257.0 million, up 6% from $242.3 million in the first quarter of 2007. Net income was $19.9 million or $0.21 per diluted share, down from net income of $24.8 million or $0.26 per diluted share in the first quarter of 2007. Non-GAAP adjusted net income, excluding the Global Draw Limited earn-out accrual, phone card business restructuring cost, and stock compensation expense was $29.0 million or $0.31 per non-GAAP diluted share, compared to non-GAAP adjusted net income of $30.0 million or $0.32 per non-GAAP diluted share in the first quarter of 2007.

EBITDA for the first quarter of 2008 was $76.9 million, up from $75.8 million in the first quarter of 2007. Adjusted EBITDA increased 8% to $89.9 million for the first quarter of 2008, compared to adjusted EBITDA of $82.9 million for the first quarter of 2007.

During the quarter ended March 31, 2008, Scientific Games recorded charges of $1.8 million, or $0.01 per share, for a portion of the Global Draw contingent earn-out, $2.8 million, or $0.02 per share, for the phone card business restructuring costs and a charge of $8.5 million, or $0.06 per share, for stock compensation expense.

Printed Products

Printed Products Group revenue increased by 19% overall to $135.9 million in the first quarter; Printed Products Group service revenue for the quarter was $127.2 million, 22% ahead of the first quarter of 2007. Excluding revenues from Oberthur Gaming Technologies (OGT) of $19.5 million, the Pennsylvania cooperative service contract re-pricing, and instant tickets shipped to China, 'same store' sales growth in the quarter was just under 9%. Holding all of these things constant and excluding licensed products, 'same store' sales were up 15% in the quarter. Once again we saw strong results from instant ticket sales in the U.K. and in Italy.

As expected, overall margins in the Printed Products Group improved sequentially from 39% in the fourth quarter of 2007 to 43% in the first quarter of this year, and nearly back to the pre-OGT level of 44% recorded in the first quarter of 2007. The integration of OGT was completed part way through the first quarter of 2008 and we expect to see the full benefits accruing in future quarters. First quarter revenue and gross margin were further impacted by the fact that while close to a billion instant tickets were manufactured and delivered to China, revenue was recognized on less than a quarter of the production, with the balance expected to be recognized in the second quarter.

As mentioned previously, the Printed Products Group underwent a restructuring of the phone card business in the Leeds, England plant in the first quarter 2008 and incurred a charge of $2.8 million, predominantly for employee termination. The redesign of our phone card product allows us to significantly reduce the number of employees needed to package the product and we expect margins to improve from this segment going forward.

During the quarter, Scientific Games announced the successful launch of Olympic-themed instant lottery tickets by the China Sports Lottery (CSL) in the People's Republic of China ("PRC"). The program debuted on Sunday, March 23rd, in the Shandong province with over 1,500 initial retail locations. CSL has achieved approximately 1.3 billion Yuan or US$180 million in sales since this launch. CSL and Scientific Games have now expanded into nine provinces with 13,500 retailers with plans to expand into additional provinces approximately every two weeks until all 31 provinces in the PRC sell CSL instant tickets.

These initial results are all due to our successful design, installation and operation of the national instant ticket network with the CSL, comprising a central monitoring and control system and a national call center. We expect to have 40,000 instant ticket validation terminals online by the start of the Beijing Olympics, and at least 90,000 terminals by the end of 2009. Our CSL printing agreement to establish a state-of-the-art instant ticket production facility in China is also on track to be complete by the end of the year.

Subsequent to the end of the quarter, Scientific Games announced it had been awarded its fourth cooperative service contract in Germany with the Sachsen-Anhalt Lottery to supply instant tickets and cooperative services to 2.5 million people and approximately 670 retailers.

Lottery Systems Group

A year to year decline in one-time lottery equipment sales of nearly $3 million accounted for the overall decline in Lottery Systems Group revenue in the quarter. While Lottery Systems Group margins declined slightly to 45% from 46% in 2007, domestic system margins, which have been increasing steadily for several quarters, improved once again by nearly a full percentage point to 45%.

During the first quarter of 2008, Scientific Games announced a contract to supply 25,000 Leonardo/WAVE(TM) terminals to SISAL S.p.A., a leading Italian lottery and gaming company. Terminal deliveries will begin in the second quarter of this year and continue for the next 36 months.

The Televisa Mexican lottery contract continued to have a negative impact on earnings, costing the company $2.8 million, approximately $0.02 per share, in the first quarter of 2008. As previously indicated, we believe the launch of instant tickets is the key to future profitability. At the present time, progress has been made in this regard, and we are cautiously optimistic that instant tickets will be launched during the second half of 2008.

Subsequent to the end of the quarter, after an open and competitive procurement process, the Pennsylvania Department of Revenue announced it selected Scientific Games to enter into negotiations for its lottery systems contract to supply a new range of lottery equipment, including the "next-generation" WAVE(TM) terminal. The contract begins in January 2009, will have an initial term of five years, and will provide for five one-year extension options. Also during the quarter we were granted a nine-month contract extension by the West Virginia Lottery to allow our previously announced protest to run its course.

Diversified Gaming

Global Draw's 'same store' sales were up 36% in win per shop for the first quarter of 2008 versus 2007; and 17% on a win per terminal basis, both achieving record highs. By the end of the first quarter, Global Draw had connected 547 William Hill betting shops, representing approximately 2,100 dual-screen Nevada terminals, to the Global Draw server-based satellite network. The total Global Draw installed base in the U.K. has now reached 11,746 terminals. Initial installations into Corporacion Interamericana de Entretenimiento (CIE) in Mexico are performing ahead of expectations, recording win per day in excess of competitive products. Global Draw is also witnessing progress on expanding this network elsewhere in Latin America, Eastern Europe and Asia.

In contrast to strong revenue growth in Global Draw, revenues within Diversified Gaming were down in the racing-related businesses and in Games Media Limited. The former was impacted by the shift of the racing communications business from our own books to the Roberts Communications Network, LLC joint venture in the second quarter of 2007. Games Media was impacted by the strategic shift in its business mix from one-time sale of analog machines in the first quarter of last year, to a digital, participation-based recurring revenue model at present. As previously reported, the roll-out of the new Games Media model, which builds on the Global Draw infrastructure, is proceeding exceedingly well. Lastly, as indicated earlier in this release, Diversified Gaming profits were impacted by nearly $2 million due to the Global Draw earn-out accrual.

During the quarter, Scientific Games signed new contracts with Nassau Regional Off-Track Betting Corporation to replace the existing totalisator services agreement for the provision of wagering systems hardware, software, service, wagering devices and a new digital Interactive Voice Response (IVR) telephone wagering system as well as provide for the implementation of a new Trackplay(TM) advanced deposit wagering (ADW) website. We also signed four new contracts with customers in Germany and Finland for the provision of pari-mutuel wagering systems, terminal and services.

Information about the use of non-GAAP financial information is provided under the section "Non-GAAP Disclosure" below. The non-GAAP measures (adjusted net income, diluted adjusted net income per share, EBITDA and adjusted EBITDA) are reconciled to the corresponding GAAP measures in the financial schedules accompanying this release.

Share Repurchase Program

During the quarter Scientific Games purchased 1,000,000 shares at an aggregate cost of approximately $18.0 million or $18.03 per share. The remaining authorization under our stock repurchase program totaled $172 million at March 31, 2008.

Convertible Debentures

A market price event did not occur for the quarter ended March 31, 2008 and, accordingly, the Convertible Debentures are not convertible during the current quarter ending June 30, 2008. During the first quarter of 2008, the average price of the Company's common stock did not exceed the specified conversion price of $29.10 of the Convertible Debentures. Because of this, no additional shares of common stock have been included in the weighted average number of diluted shares for the first quarter of 2008.

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	Scientific Games reports results 9 May 2008 NEW YORK –- (PRESS RELEASE) -- Scientific Games Corporation (Nasdaq: SGMS) today reported first quarter 2008 revenues of $257.0 million, up 6% from $242.3 million in the first quarter of 2007. Net income was $19.9 million or $0.21 per diluted share, down from net income of $24.8 million or $0.26 per diluted share in the first quarter of 2007. Non-GAAP adjusted net income, excluding the Global Draw Limited earn-out accrual, phone card business restructuring cost, and stock compensation expense was $29.0 million or $0.31 per non-GAAP diluted share, compared to non-GAAP adjusted net income of $30.0 million or $0.32 per non-GAAP diluted share in the first quarter of 2007. EBITDA for the first quarter of 2008 was $76.9 million, up from $75.8 million in the first quarter of 2007. Adjusted EBITDA increased 8% to $89.9 million for the first quarter of 2008, compared to adjusted EBITDA of $82.9 million for the first quarter of 2007. During the quarter ended March 31, 2008, Scientific Games recorded charges of $1.8 million, or $0.01 per share, for a portion of the Global Draw contingent earn-out, $2.8 million, or $0.02 per share, for the phone card business restructuring costs and a charge of $8.5 million, or $0.06 per share, for stock compensation expense. Printed Products Printed Products Group revenue increased by 19% overall to $135.9 million in the first quarter; Printed Products Group service revenue for the quarter was $127.2 million, 22% ahead of the first quarter of 2007. Excluding revenues from Oberthur Gaming Technologies (OGT) of $19.5 million, the Pennsylvania cooperative service contract re-pricing, and instant tickets shipped to China, 'same store' sales growth in the quarter was just under 9%. Holding all of these things constant and excluding licensed products, 'same store' sales were up 15% in the quarter. Once again we saw strong results from instant ticket sales in the U.K. and in Italy. As expected, overall margins in the Printed Products Group improved sequentially from 39% in the fourth quarter of 2007 to 43% in the first quarter of this year, and nearly back to the pre-OGT level of 44% recorded in the first quarter of 2007. The integration of OGT was completed part way through the first quarter of 2008 and we expect to see the full benefits accruing in future quarters. First quarter revenue and gross margin were further impacted by the fact that while close to a billion instant tickets were manufactured and delivered to China, revenue was recognized on less than a quarter of the production, with the balance expected to be recognized in the second quarter. As mentioned previously, the Printed Products Group underwent a restructuring of the phone card business in the Leeds, England plant in the first quarter 2008 and incurred a charge of $2.8 million, predominantly for employee termination. The redesign of our phone card product allows us to significantly reduce the number of employees needed to package the product and we expect margins to improve from this segment going forward. During the quarter, Scientific Games announced the successful launch of Olympic-themed instant lottery tickets by the China Sports Lottery (CSL) in the People's Republic of China ("PRC"). The program debuted on Sunday, March 23rd, in the Shandong province with over 1,500 initial retail locations. CSL has achieved approximately 1.3 billion Yuan or US$180 million in sales since this launch. CSL and Scientific Games have now expanded into nine provinces with 13,500 retailers with plans to expand into additional provinces approximately every two weeks until all 31 provinces in the PRC sell CSL instant tickets. These initial results are all due to our successful design, installation and operation of the national instant ticket network with the CSL, comprising a central monitoring and control system and a national call center. We expect to have 40,000 instant ticket validation terminals online by the start of the Beijing Olympics, and at least 90,000 terminals by the end of 2009. Our CSL printing agreement to establish a state-of-the-art instant ticket production facility in China is also on track to be complete by the end of the year. Subsequent to the end of the quarter, Scientific Games announced it had been awarded its fourth cooperative service contract in Germany with the Sachsen-Anhalt Lottery to supply instant tickets and cooperative services to 2.5 million people and approximately 670 retailers. Lottery Systems Group A year to year decline in one-time lottery equipment sales of nearly $3 million accounted for the overall decline in Lottery Systems Group revenue in the quarter. While Lottery Systems Group margins declined slightly to 45% from 46% in 2007, domestic system margins, which have been increasing steadily for several quarters, improved once again by nearly a full percentage point to 45%. During the first quarter of 2008, Scientific Games announced a contract to supply 25,000 Leonardo/WAVE(TM) terminals to SISAL S.p.A., a leading Italian lottery and gaming company. Terminal deliveries will begin in the second quarter of this year and continue for the next 36 months. The Televisa Mexican lottery contract continued to have a negative impact on earnings, costing the company $2.8 million, approximately $0.02 per share, in the first quarter of 2008. As previously indicated, we believe the launch of instant tickets is the key to future profitability. At the present time, progress has been made in this regard, and we are cautiously optimistic that instant tickets will be launched during the second half of 2008. Subsequent to the end of the quarter, after an open and competitive procurement process, the Pennsylvania Department of Revenue announced it selected Scientific Games to enter into negotiations for its lottery systems contract to supply a new range of lottery equipment, including the "next-generation" WAVE(TM) terminal. The contract begins in January 2009, will have an initial term of five years, and will provide for five one-year extension options. Also during the quarter we were granted a nine-month contract extension by the West Virginia Lottery to allow our previously announced protest to run its course. Diversified Gaming Global Draw's 'same store' sales were up 36% in win per shop for the first quarter of 2008 versus 2007; and 17% on a win per terminal basis, both achieving record highs. By the end of the first quarter, Global Draw had connected 547 William Hill betting shops, representing approximately 2,100 dual-screen Nevada terminals, to the Global Draw server-based satellite network. The total Global Draw installed base in the U.K. has now reached 11,746 terminals. Initial installations into Corporacion Interamericana de Entretenimiento (CIE) in Mexico are performing ahead of expectations, recording win per day in excess of competitive products. Global Draw is also witnessing progress on expanding this network elsewhere in Latin America, Eastern Europe and Asia. In contrast to strong revenue growth in Global Draw, revenues within Diversified Gaming were down in the racing-related businesses and in Games Media Limited. The former was impacted by the shift of the racing communications business from our own books to the Roberts Communications Network, LLC joint venture in the second quarter of 2007. Games Media was impacted by the strategic shift in its business mix from one-time sale of analog machines in the first quarter of last year, to a digital, participation-based recurring revenue model at present. As previously reported, the roll-out of the new Games Media model, which builds on the Global Draw infrastructure, is proceeding exceedingly well. Lastly, as indicated earlier in this release, Diversified Gaming profits were impacted by nearly $2 million due to the Global Draw earn-out accrual. During the quarter, Scientific Games signed new contracts with Nassau Regional Off-Track Betting Corporation to replace the existing totalisator services agreement for the provision of wagering systems hardware, software, service, wagering devices and a new digital Interactive Voice Response (IVR) telephone wagering system as well as provide for the implementation of a new Trackplay(TM) advanced deposit wagering (ADW) website. We also signed four new contracts with customers in Germany and Finland for the provision of pari-mutuel wagering systems, terminal and services. Information about the use of non-GAAP financial information is provided under the section "Non-GAAP Disclosure" below. The non-GAAP measures (adjusted net income, diluted adjusted net income per share, EBITDA and adjusted EBITDA) are reconciled to the corresponding GAAP measures in the financial schedules accompanying this release. Share Repurchase Program During the quarter Scientific Games purchased 1,000,000 shares at an aggregate cost of approximately $18.0 million or $18.03 per share. The remaining authorization under our stock repurchase program totaled $172 million at March 31, 2008. Convertible Debentures A market price event did not occur for the quarter ended March 31, 2008 and, accordingly, the Convertible Debentures are not convertible during the current quarter ending June 30, 2008. During the first quarter of 2008, the average price of the Company's common stock did not exceed the specified conversion price of $29.10 of the Convertible Debentures. Because of this, no additional shares of common stock have been included in the weighted average number of diluted shares for the first quarter of 2008.