Boosted by an 80 percent increase in its social gaming business, Scientific Games posted a 7 percent year-over-year jump in net revenue to $720 million, beating consensus estimates by 2 percent.
In the inaugural quarter under new chief executive Kevin Sheehan, who formerly led Norwegian Cruise Lines, the gaming, interactive and lottery giant posted $33.5 million in operating income, $271.6 million in attributable EBITDA and $61.1 million in free cash flow – up 57 percent from the prior year quarter.
“Scientific Games is focused on building momentum. The dedicated efforts of our employees combined with the benefits that our products and technology solutions deliver to our gaming, lottery and interactive customers and players led to year-over-year increases in revenue, AEBITDA and free cash flow.”
Sheehan also stressed that creating a simpler and leaner operation more attuned to its core business segments was one of the signature elements of his strategy.
“Our priorities are: 1) drive further innovation to create new, differentiated products for our customers that power growth, 2) focus on prudent fiscal management to improve financial returns and free cash flow to accelerate deleveraging, and 3) build a corporate culture open to new ideas and opportunities that help to accelerate our progress,” he said.
“As we work on our business plan and budget for 2017, we’re being smart and we’re being disciplined. We’re setting clear priorities and targets,” Sheehan added.
Pursuant to that approach, the company announced that is moving forward with a new plan to realize cost savings by trimming off excess fat wherever it may be found.
“We are increasing our concentration on disciplined cost management with process improvement and lean initiatives across our global businesses,” said Michael Quartieri, chief financial officer. “Yesterday, we embarked on a business improvement initiative to manage our expenses more efficiently, which we expect will reduce our annualized cost structure by $75 million.”
Sheehan added that this initiative was necessary to remove inefficiencies and make the company smarter, leaner, more responsive, more adaptable and better able to quickly respond to change.
“It’s not that we expect to deliver $75 million, we are delivering $75m,” he emphasized.
The company also paid down $42.4 million in debt during the quarter and stressed that it would continue accelerating its push to deleverage.
“The results from SGMS are positive for the shares, given the in line EBITDA performance, the acceleration in cash flow generation, and promise for enhanced efficiency,” wrote David Katz of the Telsey Group. “We believe the recent run up in the shares largely prices in these dynamics, although we expect the shares to react positively to the earnings report.”
Scientific Games shares fell to $11.35 at close on Wednesday after opening at $12.15.
Growth was realized in varying amounts across all three of Scientific Games’ verticals. The gaming vertical posted a 4.5 percent year-over-year jump in revenues to $448.2 million, and this segment figures to be bolstered moving ahead by the pending acquisition of DEQ – a transaction that should close by year’s end. Revenue from gaming machine sales also grew 22 percent due to the sale of 1700 more units than the prior year quarter.
Net revenues were down slightly by 2.5 percent for the lottery segment, while operating income and attributable EBITDA were up 4.6 percent and 0.7 percent, respectively. The interactive segment realized net revenue grew to $85.2 million from $51.2 million for the prior year quarter, with the vast majority of this coming from an 80.6 percent increase in social gaming revenue.
