Scientific Games inches closer to profitability with 4Q loss

March 3, 2017 2:10 PM
  • Aaron Stanley
March 3, 2017 2:10 PM
  • Aaron Stanley

Scientific Games reported a net loss of $12.3 million for the fourth quarter and $127.5 million for the full year 2016 Thursday evening, but its revenue and EBITDA growth coupled with debt reduction and new operating efficiencies suggest clearer skies lie ahead.

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“Our fourth quarter results marked the fifth consecutive quarter of year-over-year increases in both revenue and attributable EBITDA, exceeding last year’s strong performance,” said Kevin Sheehan, the company’s chief executive officer.

Revenue for the quarter grew 2 percent year-over-year to $752 million while attributable EBITDA was flat $294 million.

For the full year, Scientific Games posted 5 percent revenue growth to $2.9 billion and attributable EBITDA of $1.1 billion – a 3 percent jump. The company also paid down the principal on its outstanding debt by $169 million.

The showing for the quarter and the year was driven by strong performance in the company’s interactive segment, which was up 52 percent for the fourth quarter and 58 percent for the full year. While gaming and lottery were slightly down for the quarter, this was attributable in part to unfavorable foreign currency adjustments.

While Scientific Games still holds $8.2 billion in debt, this burden was lessened through a refinancing that will create $30 million in annual savings on interest costs. Through the restructuring, about 95 percent of the company’s debt is now scheduled to mature in 2021 or 2022.

“We continue to refine our business processes to yield greater financial discipline, while ensuring continued investment in innovation to drive profitable growth,” said Michael Quartieri, chief financial officer, adding that process improvement efforts should have a positive impact on margins and cash flow in 2017.

All told, the investment community reacted with optimism that the company is headed in the right direction under Sheehan’s leadership – particularly in light of guidance issued in early February that braced investors for a net loss for the quarter and the year.

“Overall, the results were in line with the preliminary release and the fundamental outlook for the gaming business appears to be improving along with continued growth in the Interactive,” said DeCree of Union Gaming, who upgraded his target price from $21 to $23 on the heels of higher projected cash flow generation and debt reduction.

“The games continue to out-sell our expectations, casino systems are setting up for a strong year and the interactive business is growing strongly into a significant portion of the business,” said David Katz of the Telsey Group. “While we believe the story is evolving positively, we recommend investors seek a more opportune entry point for new positions.”

Chad Beynon, an analyst with Macquarie, said that he expects the company to generate approximately $1.2 billion in EBITDA for 2017 – an 8 percent year-over-year jump – and for that trend to continue into 2018.

Sheehan maintained that the gaming, lottery and interactive giant was off to a fast start in 2017.

“With 2017 off and running, we are maintaining focus on playing smart to galvanize our business growth,” he said. “We are driving innovation to create new, differentiated products for our customers, improve financial performance to accelerate deleveraging, and build a culture open to new ideas and committed to exceeding the expectations of our customers and stakeholders.”