The nationwide shutdown of the casino industry due to the COVID-19 coronavirus pandemic has also silenced gaming equipment manufacturer assembly lines.
The closure of 984 casinos in more than 40 states has led to zero revenues and cash flow on the balance sheets for slot machine, gaming systems and table game providers.
Eilers and Krejcik Gaming principal Todd Eilers, in research notes evaluating International Game Technology, Scientific Games and AGS, said Thursday he doesn’t expect commercial and tribal casinos to begin reopening until the middle of May.
He said the majority won’t return until July.
“We are also assuming that player demand does not immediately return to prior levels and gradually improves throughout the year,” Eilers wrote.
Todd Eilers
That scenario, he said, would likely lead to casino operator capital expenditure budgets for gaming equipment being cut by as much as 30% to 40% for all of 2020.
In addition to the loss of revenues, gaming equipment providers have seen their stock prices hammered on the markets since the middle of February. Companies saw declines of as much as 97% from their 52-week highs.
Shares of IGT closed at $4.98, down 73 cents or 12.78%. AGS closed at $1.55, down 20 cents or 11.43%. Both companies are traded on the New York Stock Exchange. Scientific Games closed Thursday at $7.27 on the Nasdaq, down $1.11 or 13.25%.
Revenue estimates off
Eilers told investors revenue estimates for the rest of the year for Scientific Games will be off by at least 8%, and as much as 20% for AGS.
IGT, he said, is looking at a more than $1.2 billion drop in 2020 revenues, due primarily to the company’s lottery business in Italy, which has been shut down for more than a month due to the pandemic.
However, he believes all three companies will bounce back in 2021.
“Our new model assumes a cash burn in the first half of 2020 and a return to positive free cash flow generation in the second half of 2020,” Eilers said.
The U.S. lottery business for IGT and Scientific Games is also suffering. Retail sales are down 5% to 10% over the last two weeks, and Eilers said he expects the sales to get worse in the second quarter before recovering in the second half of the year.
As for online gaming and social casino play, he expects IGT and Scientific Games to receive a boost in the near term “as it is one of the few forms of entertainment and gambling available to consumers.”
At the end of 2019, Scientific Games had total liquidity of $906 million, a $467 million increase from 2018. The company had $8.6 billion of long-term debt and raised $1.2 billion in November to pay down debt and extend maturity dates out to 2029.
On Monday, Scientific Games said it was furloughing an undisclosed number of employees, reducing pay and work hours for others, and slicing the salaries of its executive leadership by 50%. CEO Barry Cottle gave up his entire salary.
IGT also carries a large debt, $7.6 billion. But the company has $662 million in cash and access to credit line of $1.2 billion.
On Wednesday IGT said it was reducing the base salary for “senior leaders” and implementing “short-term furlough programs for certain employee groups.” Providence Business News reported Thursday IGT was furloughing 320 workers at its Rhode Island offices.
Supplier jobs in jeopardy
As for AGS, Eilers noted that the gaming equipment company ended 2019 with $519 million in long term debt but without any near-term maturities. AGS also has $13 million on hand and another $30 million available under a credit line, giving the company a total liquidity of $43 million.
Before the pandemic struck, AGS officials said 2020 was shaping up as a “meaningful product release year.” However, casinos are now expected to hold back on equipment purchases. It’s also unclear how long tribal casinos in Oklahoma, AGS’s largest market, will remain closed.
AGS did not respond to a question about employee furloughs or cutbacks.
The American Gaming Association has said some 17,000 gaming supplier jobs will be jeopardized if casinos remain closed for two months. The casino industry also supports the employment of some 350,000 American businesses either directly or indirectly.
Last week, gaming equipment provider Everi Holdings furloughed an undisclosed number of employees, while others took salary cuts. CEO Mike Rumbolz said he would reduce his $750,000 annual salary to zero, and the executive team elected to reduce their salaries by 70%.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
