Scientific Games Corporation (SGMS) Q3 2021 Earnings Conference Call November 9, 2021 4:30 PM ET Company Participants Jim Bombassei – Senior Vice President of Investor Relations Barry Cottle – President and Chief Executive Officer Connie James – Executive Vice President, Chief Financial Officer, Treasurer and Corporate Secretary Conference Call Participants Barry Jonas – Truist Securities John Decree – CBRE Ryan Sigdahl – Craig-Hallum Capital Group David Katz – Jefferies Jeff Stantial – Stifel Ted Beynon – ...

Financial Performance - Total revenue for the three months ended September 30, 2021, was $539 million, a 25% increase from $432 million in the same period of 2020[22]. - Net income for the three months ended September 30, 2021, was $187 million, compared to a net loss of $111 million in the same period of 2020[26]. - Operating income for the nine months ended September 30, 2021, was $106 million, a significant improvement from an operating loss of $235 million in the same period of 2020[22]. - Total revenue for the nine months ended September 30, 2021, was $1.572 billion, an increase from $1.219 billion for the same period in 2020, reflecting a 29% growth[74]. - Total revenue for the Gaming business segment was $339 million for the three months ended September 30, 2021, compared to $231 million for the same period in 2020, representing a 47% increase[69]. - AEBITDA for the Gaming segment was $172 million for Q3 2021, up from $77 million in Q3 2020, indicating a significant improvement in profitability[69]. - The company reported a net loss from continuing operations before income taxes of $72 million for Q3 2021, compared to a net loss of $184 million for Q3 2020[69]. - The company experienced a $19 million or 7% increase in revenue from discontinued operations for the three months ended September 30, 2021[183]. - The net income from discontinued operations increased by $11 million or 14% for the three months ended September 30, 2021, due to higher revenue from Lottery and Sports Betting[183]. Expenses and Costs - Research and development expenses increased to $47 million for the three months ended September 30, 2021, up from $36 million in the same period of 2020[22]. - The company incurred restructuring costs of $45 million for the three months ended September 30, 2021, compared to $17 million in the same period of 2020[22]. - Total operating expenses for the same period were $505 million, a 9% increase from $462 million in 2020[174]. - Selling, general and administrative expenses rose by 12% to $164 million for the three months ended September 30, 2021, driven by higher stock-based compensation[176]. - The company incurred restructuring and other costs of $45 million for Q3 2021, compared to $17 million for Q3 2020, reflecting ongoing optimization efforts[79]. Income and Gains - The company recognized a $63 million gain related to the SportCast acquisition transaction for the nine months ended September 30, 2021[23]. - The company reported a net income attributable to SGC of $182 million for the three months ended September 30, 2021, compared to a net loss of $117 million in the same period of 2020[22]. - Total comprehensive income attributable to SGC for the three months ended September 30, 2021, was $155 million, compared to a loss of $85 million in the same period of 2020[26]. - Net income for the nine months ended September 30, 2021, was $291 million, a significant improvement compared to a net loss of $464 million for the same period in 2020[31]. Assets and Liabilities - As of September 30, 2021, total assets decreased to $7.85 billion from $7.98 billion as of December 31, 2020, reflecting a decline of approximately 1.6%[29]. - Total liabilities decreased to $10.04 billion as of September 30, 2021, from $10.51 billion as of December 31, 2020, a reduction of approximately 4.4%[29]. - Cash, cash equivalents, and restricted cash at the end of the period were $901 million, down from $1.141 billion at the end of the previous year[31]. - Total assets as of September 30, 2021, were $5.946 billion, a slight decrease from $6.069 billion as of December 31, 2020[69]. - Total assets of businesses held for sale as of September 30, 2021, were $1.904 billion, slightly down from $1.915 billion at the end of 2020[60]. - Total liabilities of businesses held for sale as of September 30, 2021, were $399 million, down from $435 million at the end of 2020[60]. Cash Flow and Liquidity - The company reported net cash provided by operating activities of $459 million for the nine months ended September 30, 2021, compared to $312 million in the prior year, representing an increase of approximately 47.2%[31]. - The company’s total available liquidity was $1.016 billion as of September 30, 2021, which included $503 million of undrawn availability under SGI's revolving credit facility[40]. - Net cash provided by operating activities from continuing operations was $199 million for the nine-month period, a significant increase from $2 million in the previous year[226]. - The company made a voluntary payment of $135 million on SGI's revolving credit facility, leaving the entire facility undrawn and available[224]. Acquisitions and Divestitures - The company announced the divestiture of its Lottery and Sports Betting businesses, with total consideration for the Lottery business at $6.05 billion, including $5.825 billion in cash[33]. - The company expects to complete the divestiture transactions during the first half of 2022, subject to regulatory approvals[33]. - In July 2021, the company proposed to acquire the remaining 19% equity interest in SciPlay, aligning with its strategic review[35]. - The company completed several acquisitions, including Koukoi Games Oy and Lightning Box Games, enhancing its offerings in the mobile and iGaming sectors[44][45]. - Total consideration for acquisitions related to continuing operations was $60 million, with $39 million allocated to goodwill[48]. Legal and Regulatory Matters - A putative class action complaint was filed against Scientific Games Corporation (SGC) in Washington, seeking unspecified damages for alleged violations of gambling laws related to virtual coins in online casino games[140]. - The TCS John Huxley matter involves federal antitrust claims against SGC, alleging an illegal monopoly in the market for automatic card shufflers, with ongoing litigation and no current estimate of possible losses[141]. - The Tonkawa Tribe matter includes federal antitrust claims against SGC for creating an alleged monopoly in card shufflers, with the plaintiffs seeking unspecified damages and costs[142][143]. - Casino Queen filed a putative class action against SGC for alleged antitrust violations related to automatic card shufflers, seeking unspecified damages and costs[144]. - SGI, a subsidiary of SGC, faces claims from Ecosalud in Colombia, with a potential liability of approximately $30.2 million plus interest, although the company believes it has defenses against these claims[148][149]. - The SciPlay IPO matters involve multiple putative class actions in New York and Nevada, with claims for violations of the Securities Act and potential compensatory damages of at least $146 million[150][151]. - SGC recorded approximately $8 million in accrued liabilities related to the SciPlay IPO matters, with no material impact on its financial statements for the periods ended September 30, 2021[152]. Tax and Accounting - The company recognized an income tax benefit of $181 million in the three months ended September 30, 2021, due to the reversal of valuation allowances on U.S. deferred income tax assets[129]. - The effective tax rate for the company in 2021 differed from the U.S. statutory rate of 21% primarily due to the release of certain valuation allowances[132]. - The company adopted new accounting guidance related to leases in the third quarter of 2021, which did not have a material effect on consolidated financial statements[53]. - The company does not expect any other recently issued accounting guidance to have a significant effect on its consolidated financial statements[55]. Market and Operational Insights - iGaming revenues increased due to growth in the U.S. market, with a market share of 27% across five states[172]. - The company continues to face supply chain challenges that may impact the fulfillment of orders and revenue recognition[189]. - Average Daily Active Users (DAU) decreased for both comparable periods, while Average Revenue Per DAU (ARPDAU) increased due to lower average DAU[208]. - The acquisition of Lightning Box in August 2021 expanded the iGaming content portfolio, and the acquisition of Authentic Gaming in November 2021 enhanced premium product offerings[214][215].

Financial Performance - Consolidated revenue increased by 63% year-over-year, reaching $880 million[4, 24] - AEBITDA (Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization) hit a company record of $383 million, a 217% increase year-over-year[4, 24] - The company delivered Free Cash Flow (FCF) of $133 million in Q2 and $213 million year-to-date[5] - Net Debt Leverage Ratio decreased by nearly one-third, from 105x to 72x[5] Business Segment Highlights - North American Gaming operations revenue exceeded 2019 levels, reaching $118 million in Q2 2021 compared to $115 million in Q2 2019[4, 8] - Lottery achieved record revenue and signed major renewals and new deals[4] - SciPlay delivered sequential growth, with payer conversion rate increasing to 85%[4, 14] - iGaming achieved record results and increased its U S market share to 25%, up from 23% in Q1[4] - U S iGaming revenue increased by 106% year-over-year[18] - U S Sports Betting revenue increased by 205% year-over-year[18] Strategic Initiatives - The company paid down $150 million of debt in Q2, with an additional $150 million paid down post-quarter end[5] - U S instant games sales increased by 21% year-over-year and 30% compared to 2019[12]

Financial Data and Key Metrics Changes - The company reported a total revenue increase of 63% year-over-year, with AEBITDA more than tripling compared to the previous year, achieving the highest quarterly AEBITDA in the company's history [16][57][58] - Free cash flow for the quarter was $133 million, with a year-to-date total of $213 million, reflecting strong operational performance [77][78] - Net debt leverage decreased from 10.5 times to 7.2 times in just six months, indicating significant progress in deleveraging [15][60][75] Business Line Data and Key Metrics Changes - The gaming segment saw revenue triple year-over-year, with AEBITDA rebounding to $196 million, driven by strong product performance and market recovery [62] - The lottery business achieved a revenue growth of 27% and AEBITDA growth of 42%, marking another record quarter [68][70] - SciPlay delivered a sequential revenue growth of 2% and AEBITDA growth of 4%, achieving its second-highest revenue quarter ever [71] Market Data and Key Metrics Changes - North American Gaming Operations revenue exceeded 2019 levels, with a significant increase in the installed base and average daily revenue [19][20] - The U.S. instant lottery game sales increased by 21% year-to-date compared to last year, and up 30% versus 2019 [26] - The U.S. iLottery market is projected to grow fourfold to $11 billion by 2025, indicating strong future growth potential [32] Company Strategy and Development Direction - The company is transitioning from a holding company to a focused game development company, planning to divest its Lottery and Sports Betting businesses [10][12] - Strategic investments are being made in content and digital markets to accelerate growth, with a focus on building franchises across platforms [13][14] - The acquisition of SciPlay's remaining equity interest is part of the strategy to enhance growth opportunities [6][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to continue delivering strong results, citing resilience in business operations despite potential COVID-related challenges [91][92] - The company is optimistic about the ongoing recovery in international markets and expects continued growth in key performance indicators [97][98] - Management highlighted the importance of maintaining operational excellence and productivity to support margin improvement [104][105] Other Important Information - The company is experiencing strong interest in its divested assets, with multiple viable options to monetize both Lottery and Sports Betting businesses [85][86] - The integration of new acquisitions, such as Lightning Box, is expected to enhance the company's content offerings and market position [116][119] Q&A Session Summary Question: Can you provide additional color on the sales process for lottery and sports betting? - Management expressed satisfaction with the progress and strong interest in divested assets, indicating multiple viable options to unlock value for shareholders [84][85] Question: How is the business performing in July amid the resurgence of COVID cases? - Management noted that there has been no slowdown in business performance through July, with key performance indicators showing expansion [90][91] Question: Can you discuss the recovery cadence in international markets? - Management reported that international markets are opening up, with active units and revenue per day improving significantly [96][97] Question: What is the outlook for margins considering supply chain issues? - Management acknowledged supply chain challenges but stated that they are well-positioned to meet demand without impacting revenue or margins [100][103] Question: How is the North American Premium installed base performing? - Management highlighted that the installed base has exceeded 2019 levels, driven by new product launches and market recovery [110][112] Question: What advantages does the OGS provide for iGaming content and acquisitions? - Management emphasized that OGS offers significant value by providing access to a wide range of games and insights into market performance, enhancing acquisition opportunities [122][125]

PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (unaudited)](index=7&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2021, show a significant turnaround from the prior year, with revenue increasing to $880 million for the quarter, driving a net income of $113 million, compared to a net loss of $198 million in Q2 2020, while the balance sheet reflects total assets of $7.76 billion and total liabilities of $10.13 billion, and cash flow from operations was positive at $272 million for the six-month period [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2021, the company reported total revenue of $880 million, a significant increase from $539 million in the same period of 2020, resulting in operating income of $163 million, a sharp reversal from an operating loss of $56 million in the prior-year quarter, and net income attributable to SGC was $109 million, or $1.10 per diluted share, compared to a net loss of $203 million, or ($2.15) per share, in Q2 2020 Consolidated Statements of Operations (Three Months Ended June 30) | Financial Metric | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Total Revenue | $880 | $539 | | Operating Income (Loss) | $163 | $(56) | | Net Income (Loss) Attributable to SGC | $109 | $(203) | | Diluted Net Income (Loss) per Share | $1.10 | $(2.15) | Consolidated Statements of Operations (Six Months Ended June 30) | Financial Metric | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Total Revenue | $1,609 | $1,264 | | Operating Income (Loss) | $244 | $(88) | | Net Income (Loss) Attributable to SGC | $94 | $(362) | | Diluted Net Income (Loss) per Share | $0.97 | $(3.85) | - A notable item in Q2 2021 was a **$63 million** gain related to the SportCast acquisition, recorded under 'Other income (expense), net'[19](index=19&type=chunk) [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2021, the company's balance sheet showed total assets of $7.76 billion, a slight decrease from $7.98 billion at year-end 2020, while total liabilities decreased to $10.13 billion from $10.51 billion, primarily due to a reduction in long-term debt, and the total stockholders' deficit improved to $(2.37) billion from $(2.52) billion at the end of 2020 Consolidated Balance Sheet Highlights (as of June 30, 2021) | Account | June 30, 2021 (in millions) | Dec 31, 2020 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $932 | $1,016 | | Total Assets | $7,762 | $7,984 | | Long-term debt, excluding current portion | $8,975 | $9,259 | | Total Liabilities | $10,132 | $10,508 | | Total Stockholders' Deficit | $(2,370) | $(2,524) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2021, net cash provided by operating activities was $272 million, an improvement from $172 million in the prior-year period, net cash used in investing activities was $98 million, mainly for capital expenditures, and net cash used in financing activities was $324 million, driven by a $250 million repayment of the SGI revolving credit facility, contrasting with a net borrowing of $440 million in the first half of 2020 Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $272 | $172 | | Net cash used in investing activities | $(98) | $(84) | | Net cash (used in) provided by financing activities | $(324) | $402 | | (Decrease) increase in cash | $(150) | $489 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail significant corporate actions and accounting policies, including a strategic review resulting in plans to divest the Lottery and Sports Betting businesses, a proposal to acquire the remaining public equity in SciPlay, the ongoing impact of COVID-19 on the Gaming segment despite most establishments reopening, and the completion of the SportCast acquisition in May 2021 - On June 29, 2021, the company announced its intention to divest its Lottery and Sports Betting operations to significantly de-lever and focus on growth, with strategic alternatives being considered including an IPO, SPAC combination, or a sale[30](index=30&type=chunk) - On July 15, 2021, the company proposed to acquire the remaining **~19%** of SciPlay it does not already own in an all-stock transaction[31](index=31&type=chunk) - In May 2021, the company acquired SportCast for a total consideration of **$81 million**, which included a **$63 million** gain on the remeasurement of a previously held option[38](index=38&type=chunk)[40](index=40&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant recovery in financial results, driven by the reopening of gaming venues and strong performance in the Lottery and Digital segments, alongside a key strategic development to divest the Lottery and Sports Betting businesses to reduce debt and focus on becoming a content-led growth company, while the Gaming segment saw a dramatic rebound, aided by a $38 million UK FOBT recovery, and SciPlay's revenue declined slightly as player engagement normalized [Business Overview and Recent Events](index=30&type=section&id=Business%20Overview%20and%20Recent%20Events) The company reaffirmed its strategy to become a content-led growth company with a focus on digital markets, leading to the decision to divest the Lottery and Sports Betting businesses to significantly de-lever, and concurrently proposed acquiring the remaining 19% of SciPlay, while the business, particularly the Gaming segment, continues to be impacted by the lingering effects of the COVID-19 pandemic despite most gaming establishments reopening - The company completed a strategic review and intends to divest its Lottery and Sports Betting operations to de-lever and focus on digital markets[133](index=133&type=chunk) - The Gaming business segment was especially impacted by COVID-19 but has seen a notable rebound in the U.S. and U.K. markets due to the lifting of restrictions and pent-up consumer demand[138](index=138&type=chunk) [Consolidated Results](index=31&type=section&id=Consolidated%20Results) Consolidated revenue for Q2 2021 increased 63% year-over-year to $880 million, leading to operating income of $163 million compared to a loss of $56 million in Q2 2020, with the improvement driven by the recovery in the Gaming segment, including a $38 million UK FOBT recovery, and continued strength in Lottery and Digital, while operating expenses increased 21%, reflecting higher activity levels and increased SG&A, partially offset by lower D&A Consolidated Results Summary (Three Months Ended June 30) | Metric (in millions) | 2021 | 2020 | Variance | Variance % | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $880 | $539 | $341 | 63% | | Operating Income (Loss) | $163 | $(56) | $219 | 391% | | Net Income (Loss) | $113 | $(198) | $311 | 157% | - Gaming operations revenue for Q2 2021 benefited from a **$38 million** U.K. FOBT recovery related to a 2020 court ruling on overcharged value-added tax[151](index=151&type=chunk) - SG&A expenses increased primarily due to higher stock-based compensation (**$27M** for Q2) and the reversal of temporary austerity measures from the prior year[155](index=155&type=chunk) [Business Segments Results](index=34&type=section&id=Business%20Segments%20Results) The Gaming segment revenue surged 303% to $367 million in Q2 2021, with AEBITDA turning positive at $196 million, while the Lottery segment grew 27% to $266 million, the SciPlay segment saw a 7% revenue decline to $154 million as player engagement normalized post-pandemic, and the Digital segment's revenue increased 27% to $93 million, driven by U.S. market expansion Gaming Segment Revenue (Three Months Ended June 30) | Metric (in millions) | 2021 | 2020 | Variance % | | :--- | :--- | :--- | :--- | | Gaming operations | $181 | $16 | 1,031% | | Machine sales | $100 | $53 | 89% | | **Total Revenue** | **$367** | **$91** | **303%** | - Gaming segment's Average Daily Revenue Per Unit in the U.S. and Canada increased to **$44.58** in Q2 2021 from **$4.45** in Q2 2020[167](index=167&type=chunk) Revenue by Segment (Three Months Ended June 30, 2021) | Segment | Revenue (in millions) | YoY Change | | :--- | :--- | :--- | | Gaming | $367 | +303% | | Lottery | $266 | +27% | | SciPlay | $154 | -7% | | Digital | $93 | +27% | [Liquidity, Capital Resources and Working Capital](index=42&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Working%20Capital) As of June 30, 2021, total liquidity was $1.435 billion, including $932 million in cash and $503 million in available revolver capacity, and the company made a voluntary payment of $150 million on its revolving credit facility in July 2021, while net cash from operations for the first six months was $272 million, a $100 million increase from the prior year, reflecting improved earnings Liquidity Position (as of June 30, 2021) | Component (in millions) | Amount | | :--- | :--- | | Cash and cash equivalents | $932 | | Available Revolver Capacity | $503 | | **Total Liquidity** | **$1,435** | - In July 2021, the company made a voluntary repayment of **$150 million** on the SGI revolving credit facility, with a cumulative **$500 million** repaid as of August 9, 2021, since Q4 2020[206](index=206&type=chunk)[209](index=209&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from interest rates and foreign currency exchange rates, with $4.32 billion of its $9.11 billion in long-term debt being variable-rate as of June 30, 2021, meaning a hypothetical 1% change in interest rates would impact annual interest expense by approximately $43 million, and the company uses interest rate swaps and cross-currency swaps to mitigate these risks - As of June 30, 2021, the company had **$9.11 billion** in long-term debt, with **$4.32 billion** being variable-rate obligations[213](index=213&type=chunk) - A hypothetical **1%** change in interest rates would impact annual interest expense by approximately **$43 million**[213](index=213&type=chunk) - The company uses cross-currency interest rate swaps to effectively convert **$460 million** of USD-denominated notes to Euro-denominated debt and designates a portion of its Euro notes as a net investment hedge to reduce currency volatility[215](index=215&type=chunk)[217](index=217&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[220](index=220&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 16 of the financial statements for a detailed description of the company's legal proceedings, including litigation related to social casino games in Washington State, an antitrust complaint regarding card shufflers, a long-standing dispute in Colombia, and shareholder lawsuits concerning the SciPlay IPO, which have reached an agreement in principle to settle - For a full description of legal proceedings, the report refers to Note 16 in the financial statements and Note 21 in the 2020 10-K[222](index=222&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) The company highlights new material risks associated with its strategic review, including the uncertainty that the planned divestitures of the Lottery and Sports Betting businesses and the proposed acquisition of SciPlay will be consummated or yield additional value, as the process could divert management attention, incur significant expenses, and disrupt business relationships, and the company also notes increased supply chain pressures, which contributed to a $5 million inventory obsolescence charge in the quarter - A new risk factor addresses the strategic review, stating there is no assurance that the divestiture of Lottery and Sports Betting businesses or the acquisition of public SciPlay shares will be completed or create value[224](index=224&type=chunk) - The evaluation of strategic alternatives exposes the company to risks such as management diversion, significant expenses, difficulty retaining key personnel, and potential loss of customers or partners[225](index=225&type=chunk) - The company experienced supply chain pressures related to parts sourcing, which led to an approximately **$5 million** inventory obsolescence charge during the three months ended June 30, 2021[229](index=229&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no stock repurchase activity during the three months ended June 30, 2021 - There was no stock repurchase activity during the three months ended June 30, 2021[238](index=238&type=chunk) [Item 6. Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amendments to employment agreements, the amended 2003 Incentive Compensation Plan, an amendment to the Credit Agreement, and CEO/CFO certifications - Key exhibits filed include Amendment No. 8 to the Credit Agreement, dated July 28, 2021, and various executive employment agreements and compensation plans[241](index=241&type=chunk)

Scientific Games Corporation (SGMS) Q1 2021 Earnings Conference Call May 10, 2021 8:00 AM ET Company Participants Jim Bombassei - Senior Vice President, Investor Relations Barry Cottle - President & Chief Executive Officer Mike Eklund - Executive Vice President & Chief Financial Officer Conference Call Participants Barry Jonas - Truist Securities John DeCree - Union Gaming Chad Beynon - Macquarie Ryan Sigdahl - Craig-Hallum Capital Group David Katz - Jefferies Jeff Stantial - Stifel Operator Good afternoon. ...

First Quarter 2021 Earnings Presentation May 10, 2021 Forward-Looking Statements In this presentation, Scientific Games Corporation ("Scientific Games," "SGMS" or the "Company") makes "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as "may," "will," "estimate," "intend," "plan," "continue," "believe," "e ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-Q For the transition period from to ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR (Zip Code) Commission file number: 001-11693 (702) 897-7150 SCIENTIFIC GAMES CORPORATION (Registrant's telephone number, including area code) (Exact name of registran ...

Financial Performance - Scientific Games delivered sequential improvement in Revenue & AEBITDA[4, 22] - The company achieved Free Cash Flow (FCF) of $72 million in 4Q, with a FCF conversion of 23%, up nearly 600 bps year-over-year[5] - Scientific Games paid down $111 million of debt in 4Q and an additional $100 million post quarter end[5, 26] - The company improved available liquidity by $363 million to end 2020 at $1.3 billion[23] - Scientific Games reduced interest expense by $86 million[26] Business Segment Highlights - SciPlay achieved record full year results[4] and improved payer conversion rate from 6% in 2019 to 7.1% in 2020[17] - Lottery experienced record instant game retail sales with all 13 U S SGEP customers in FY2020[4, 13] - iGaming platform increased game rounds played on OGS by 38% to over 34 billion in 2020[19] Strategic Initiatives - Scientific Games is executing on a new global gaming strategy and centralized platform[7] - The company is expanding in the $20 billion casual gaming genre with Solitaire Pets™ Adventure[4, 18] - Scientific Games deployed 10 U S sportsbooks in 2020 and expects to more than double that in 2021[20]

Financial Data and Key Metrics Changes - The company achieved record results in Lottery, SciPlay, and Digital for the full year 2020, with free cash flow conversion of 23%, up nearly 600 basis points year-over-year [12][41][43] - Free cash flow for Q4 was $72 million, a $20 million improvement from the prior year [32][43] - The company ended the year with $8.4 billion in net debt, a $200 million improvement from 2019 [41] Business Line Data and Key Metrics Changes - Gaming revenue improved sequentially by 24% in Q4 compared to Q3, but was down 36% year-over-year [35] - Lottery revenue increased by 10% in Q4, with AEBITDA growing by 7% [37][19] - SciPlay reported a 25% increase in revenue for the full year and a 30% increase in Q4 [21][38] Market Data and Key Metrics Changes - The U.S. Lottery market saw a 70% growth in instant game retail sales for customers using the SGEP, compared to the industry growth of 10% [19] - iLottery in Pennsylvania experienced a 39% year-over-year growth in Q4 wagers, with full-year growth at 57% [20] - The number of game rounds played through the OGS platform increased by 38% over 34 billion in 2020 [23] Company Strategy and Development Direction - The company is conducting a strategic review to optimize its portfolio and capitalize on key growth areas [11] - A focus on building a high-performing culture and investing in R&D to target the largest profit pools is emphasized [10][11] - The company is excited about the cashless gaming market, having entered a cross-licensing agreement with IGT [15][61] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the gaming sector's recovery as vaccinations are distributed and restrictions ease [36] - The company is focused on maintaining strong cash flow and liquidity while managing costs effectively [32][34] - There is confidence in the growth potential of iGaming and iLottery as more states legalize these offerings [70][72] Other Important Information - The company paid down $100 million of debt during the quarter and an additional $100 million in February [12] - The gaming business is seeing early successes with new product launches, including Kascada and Coin Combo [14][51] - The company is targeting an additional $50 million in permanent cost savings for 2021 [34] Q&A Session Summary Question: What is the outlook for the gaming turnaround? - Management noted early signs of progress with new team efforts and product launches, indicating sequential growth in premium game operations [50][51] Question: Can you elaborate on working capital improvements? - The company achieved a $230 million improvement in working capital year-over-year, focusing on cash flow and liquidity [56][57] Question: What is the strategy behind the cashless gaming agreement with IGT? - The cross-licensing agreement allows the company to provide a comprehensive cashless gaming solution, leveraging its extensive patent portfolio [61] Question: How does the company view the iGaming and sports betting markets? - Management is bullish on iGaming, citing strong demand and a leading product offering, while also seeing growth opportunities in sports betting as more states legalize [69][70] Question: What are the plans for reducing leverage? - The company is focused on de-leveraging and maximizing shareholder value through strategic discussions with the board [75] Question: How does the company plan to compete in the casual gaming market? - The company aims to leverage its existing expertise and analytics capabilities to succeed in the casual gaming genre, which has significant growth potential [85]