GGRAsia – Sci Games 2Q beats consensus, firm plans debt refinancing

Sci Games 2Q beats consensus, firm plans debt refinancing

Jul 25, 2017 Newsdesk Latest News, Top of the deck, World

U.S.-based Scientific Games Corp on Monday reported second quarter revenue of US$766.3 million, up by 5.1 percent from the prior-year period and above market expectations. The casino equipment maker and lottery services provider said the revenue growth was driven by its gaming and interactive segments.

The company’s operating income in the three months to June 30 doubled to US$117.3 million. Such increase reflected “revenue growth, a more effective organisational structure and lower depreciation and amortisation,” Scientific Games said in a press release.

Attributable earnings before interest, taxation, depreciation and amortisation (EBITDA) in the second quarter increased 13 percent year-on-year, to US$314.8 million. Attributable EBITDA margin improved to 41.1 percent from 38.4 percent in the prior-year period, said Scientific Games.

“Second quarter results represent our seventh quarter of consecutive year-over-year growth, including US$169 million of cash flow from operating activities, as a result of ongoing improvements in our gaming, lottery and interactive operations,” said Kevin Sheehan, the firm’s chief executive, in a prepared statement.

“We achieved year-over-year revenue growth in global gaming machine sales, gaming systems, table products and interactive; as well as in U.S. instant games revenue,” he added. “As a result of our improving organisational structure, we increased our attributable EBITDA margin by 270 basis points.”

Scientific Games’ share price surged on the back of the strong second-quarter earnings. After closing at US$26.85 last Friday, the company’s share price rose to close at US$34.15 on Monday, up nearly 27.2 percent.

The firm’s second-quarter earnings beat market consensus, said Deutsche Bank Securities Inc in a note on Monday.

Analysts Carlo Santarelli and Danny Valoy said Scientific Games’ revenue for the period was above the bank’s estimate of US$727.7 million and market consensus of US$736.2 million. Attributable EBITDA came in above the institution’s US$285.3-million forecast and above the market’s consensus figure of US$288.9 million, they added.

Deutsche Bank said it was revising higher its 2017 estimates for Scientific Games “to account for better than previously assumed margins on modestly stronger than previously forecast revenue growth”.

Scientific Games nonetheless reported a net loss of US$39.1 million for the second quarter, down from US$51.7 million in the prior-year period. The company recorded a US$14.1-million decrease in net interest expense, partially offset by a US$26.0-million increase in its provision for income tax.

Refinancing plan

The firm’s gaming segment – which includes gaming operations, gaming machine sales, gaming systems, and table products – recorded total revenue of U$457.2 million for the three months ended June 30, up 3.5 percent from a year earlier.

Gaming machine sales revenue increased by 5.8 percent year-on-year to US$163.3 million in the second quarter. The company shipped 7,778 new gaming machines between April and June, including 4,367 new units shipped to North America customers and 3,411 units to international customers.

Revenue from sales of table products increased 15.2 percent year-on-year, to US$48.4 million. But revenue from gaming operations fell by 4.1 percent year-on-year, to US$178.4 million.

Second-quarter revenue for Scientific Games’ lottery business went down 0.8 percent year-on-year to US$202.3 million. Total revenue for the interactive segment increased by 28.1 percent year-on-year, to US$106.8 million, the Nasdaq-listed firm said.

During the second quarter, Scientific Games acquired social game developer Spicerack Media Ltd and online casino game developer Red7Mobile Ltd. The respective terms of the deals were not disclosed.

On Monday, Scientific Games announced plans to refinance a portion of its debt, by initiating a process to amend and extend its existing term loans, which stood at approximately US$3.2 billion at 4.75 percent. The firm intends to lower cash interest, extend maturities to 2024 and lower its cost of capital, it said.

At of the end of June, Scientific Games had a total outstanding debt of US$8.18 billion, according to its latest release. In March, the company redeemed all US$250-million of its outstanding 8.125-percent senior subordinated notes due 2018, using net proceeds from an offering of US$1.15 billion of 7.0-percent senior secured notes due 2022.

Michael Quartieri, the firm’s chief financial officer, said in a statement included in Monday’s release: “Our focus on innovative new products, continuous process improvement and fiscal discipline has enabled us to grow operating income and cash flow, leading to a reduction in our net debt.”

He added: “This has resulted in our net debt leverage ratio at June 30, 2017 declining to 6.8 times twelve-month attributable EBITDA. With our strengthened performance, we are well positioned to further improve our capital structure and lower our cost of capital.”

Telsey Advisory Group LLC’s analyst David Katz said in a Monday memo: “Scientific Games continues to execute ahead of expectations from an operating perspective, which should position the company to accelerate its cash generation.”

He added: “Scientific Games has more going for it than the positive operating environment, as its new games are performing well and management has managed costs aggressively, which is generating stronger progress than we expected.”