Scientific Games delivered stronger than expected first quarter results Thursday afternoon, riding a strong haul across all of its business segments to consensus-topping revenues and EBITDA.
The gaming equipment and interactive supplier reported revenue of $725 million – 3 percent above consensus estimates and up 6 percent from the prior year period.
Attributable EBITDA of $287 million, 4 percent above consensus and up 11 percent year-over-year. AEBITDA margin improved from 37.9 percent to 39.5 percent.
“Our first quarter results mark the sixth consecutive quarter of year-over-year increases in both revenue and attributable EBITDA,” said Kevin Sheehan, chief executive officer. “On a constant currency basis revenue would have been up nearly 8 percent.”
Operating income for the quarter grew to 75 percent to $88 million, but that was offset by debt modification and income tax provision resulting in a $101 million loss, a 9 percent jump from the prior year quarter.
The company is sitting on $132 million in cash vis-à-vis $8.2 billion in total debt, with a debt-to-EBITDA ratio of roughly 7 times.
“This is a great start to the year, all three of our operating business segment contributed to the revenue and earnings growth,” Sheehan continued.
Revenue from the company’s gaming segment grew 4 percent to $440 million. The figure was a function of strong performances from gaming machine sales, gaming systems and table products offset by a 7 percent drop in gaming operations.
Total lottery revenues increased incrementally to $189 million, while AEBITDA for the segment grew 5 percent to $85 million.
The interactive division improved revenues to $96 million, up from $73 million, and AEBITDA by 49 percent to $23 million.
Analysts on Wall Street viewed the earnings report as continued steady plodding in the right direction.
“The financial profile of the story continues to edge forward, as the quarter reflected strength in some important areas more than others and the modest free cash is deployed to grow the business more than reduce debt,” said David Katz of the Telsey Group. “Importantly, the story is presently simpler than at any previous point with the primary focus on profitably increasing the sales of the company’s products.”
“The gaming operations segment was down 320 units quarter-over-quarter, which may indicate we are not quite at stabilization yet in the business,” said Cameron McKnight of Wells Fargo Securities. “That said, there have been a number of recent positives for Scientific Games, including 1) refinancing last quarter, 2) continued growth in interactive, 3) recent M&A activity in social gaming, and 4) continued outperformance in table products.”
Others cautioned that a slowdown in demand for replacement gaming machines among operators could be on the horizon.
“Although the Interactive business continues to ramp and the Lottery segment’s results remain consistent, we believe the reported Gaming segment results could be masking a structural industry headwind that could eventually derail the recent momentum that has built behind SGMS shares,” said Steven M. Wieczynski of Stifel, noting that while total slot shipments increased 24 percent, sales of replacement units only grew 2 percent.
“More specifically, we are talking about the apparent lack of demand stimulation for North American slot replacement units and the continued shrinkage of SGMS’ North American game ops installed base,” he added.
