GGRAsia – Scientific Games widens 1Q loss, reduces debt a little

Scientific Games widens 1Q loss, reduces debt a little

May 06, 2016 Newsdesk Latest News, Macau, Top of the deck

The net loss at casino equipment and lottery services firm Scientific Games Corp widened to US$92.3 million in the first three months of 2016, from US$86.4 million in the prior-year period.

The group’s pre-tax loss narrowed to US$111.5 million from US$148.7 million in the prior-year period.

The net loss per share in the first quarter was US$1.07, compared with a net loss of US$1.01 per share in the prior-year period, the firm said in a filing to Nasdaq on Thursday.

But total debt for the company narrowed to approximately US$8.19 billion by the end of the quarter, compared to total debt of US$8.21 billion at March 31, 2015. Scientific Games acquired most of its debt via a series of leveraged acquisitions of rival gaming equipment suppliers over several years, culminating in the US$5.1-billion deal in November 2014 to acquire Bally Technologies Inc.

Scientific Games’ gaming machine sales revenue increased 5.7 percent in the first quarter, to US$134.5 million, on global shipments of 6,748 new units. A total of 4,365 units went to U.S. and Canadian customers and 2,383 new units to international customers.

Gaming systems revenue declined 10.9 percent to US$59.7 million, reflecting, the firm said in its filing, “quarterly variability inherent in hardware and software sales,” even though revenue from maintenance work increased 8 percent year-on-year in the period.

Table products revenue increased 13.1 percent to US$43.1 million in the first quarter, “reflecting steady growth in revenue from leased shufflers, proprietary table games and progressives,” said the firm. The installed base of shufflers increased 8 percent to a quarter-end record level of installed units, it added.

“I’m particularly delighted with our electronic table business which performed very well, with revenue up 33 percent against last year,” said Gavin Isaacs, the firm’s president and chief executive, on a conference call with analysts following the filing of the first quarter numbers.

“New games including themes with the highly successful Lock It Link feature are performing well. And we are now expanding [the] Dualos [cabinet] with these new games into Asia,” said Mr Isaacs on the earnings call.

Group revenue

The group’s first quarter revenue rose 3.5 percent year-on-year to US$682.0 million. Scientific Games said the improvement was driven by a 54.8-percent growth in revenue from online interactive play, and was “notable” given an unfavourable climate for currency exchange that cost the group US$7 million, a decline in gaming systems revenue and the expiration of a China Sports Lottery validation contract.

The group’s operating income in the first quarter increased 177.9 percent year-on-year to US$50.3 million, “reflecting cost synergies from 2015 integration initiatives and lower costs associated with integration and restructuring activities,” said the filing. The savings were partially offset by increased investments.

Attributable EBITDA (earnings before interest, taxation, depreciation and amortisation) – a non-GAAP financial measurement used by Scientific Games – increased by 2.7 percent year-on-year to US$258.8 million.

Net cash from operating activities rose 29.9 percent from the prior-year period, to US$101 million.

Free cash flow increased to US$41.8 million, up from US$0.5 million a year earlier, leading to a US$17-million increase in cash and US$28 million in debt repayment during the first quarter.

As of March 31, 2016, the company’s cash and availability under its revolving credit facility increased to US$605.1 million.

“By driving profitable growth and increased conversion of AEBITDA into cash flow, we expect to remain on a path to further deleverage in 2016 and beyond,” said Michael Quartieri, Scientific Games’ executive vice president and chief financial officer, in prepared remarks accompanying the results.

Investment analysts David Katz and Brian Davis of Telsey Advisory Group said in a note on Thursday following the first quarter numbers: “The quarter generated a modest improvement in cash generation, which over the longer term will need to accelerate in order to have a meaningful impact on the leverage of the company.”

Analyst Carlo Santarelli of Deutsche Bank Securities Inc said in a Thursday note that Scientific Games’ first quarter results “were below our forecast (US$258 million AEBITDA versus our US$278 million) and consensus.”

He added: “Our views remain unchanged as we continue to see a challenging industry backdrop making for an uphill battle for a levered company.”

On Tuesday, Scientific Games’ unit SHFL Entertainment Asia Ltd reportedly withdrew a Macau lawsuit against Hong Kong-listed casino equipment maker Paradise Entertainment Ltd, related to patents on table games products. The news was a given in a press release by Paradise Entertainment. Scientific Games has not so far commented on the report.