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Bally transaction plays a part in Scientific Games net loss

12 March 2015

LAS VEGAS -- The last three months of 2014 gave the investment community a partial look at the financial potential of gaming equipment giant Scientific Games Corporation.

Company CEO Gavin Isaacs said Wednesday it will take a few more quarters to get a better handle on the operation, which purchased slot machine giant Bally Technologies, Inc. last year.

The $5.1 billion acquisition completed Nov. 21 had a direct impact on Las Vegas-based Scientific Games fourth-quarter results.

Overall revenue increased almost 29 percent in the quarter that ended Dec. 31 to $565.8 million, which included 40 days of operating the gaming industry’s largest slot machine manufacturer.

In the quarter, Scientific Games had a net loss of $47.1 million, or 55 cents per share, more than 13 times what the company lost in the same quarter a year earlier. The company said pretax charges and items related to the Bally acquisition contributed $75.8 million toward the net loss.

Scientific Games was primarily a lottery industry provider before acquiring Bally and slot machine maker WMS Industries Incorporated for $1.5 billion in 2013.

Because of the rapid growth, Scientific Games did not provide investors with financial projections.

“Once we have a few quarters of the companies operating together, we’ll have better picture of our ability to lead the sector,” Isaacs said.

He said the company’s goal is to launch a variety products across several platforms.

“We believe that our planned new product and service introductions will demonstrate that no other company can match the breadth and depth of our differentiated solutions to address the needs of gaming, lottery and interactive customers,” Isaacs said.

In the quarter, revenue in Scientific Games’ gaming segment, which includes slot machine sales from Bally and WMS products and table game systems from SHFL, almost doubled, reaching $301.7 million. Lottery revenue increased less than 1 percent to $221.1 million. Revenue from the interactive segment increased 43.3 percent to $43 million.

Isaacs said the Scientific Games has begun rolling out Bally and SHFL products on interactive and social platforms. Scientific Games Chief Financial Officer Scott Schweinfurth said the company is on track to complete 80 percent of the targeted $235 million in annualized cost savings related to the Bally merger by the end of 2015.

Before the quarterly earnings announcement, Eilers Research founder Todd Eilers said he was “confident” Scientific Games would meet its cost-savings goals and reduce debt.

Scientific Games said it had total debt of $8.5 billion, compared with $3.2 billion at the end of 2013. The increase was primarily because of the financing of the Bally acquisition.

“Despite the weakness in the broader gaming equipment sector, we continue to like the risk-reward profile for Scientific Games,” Eilers said.
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