Debt financing expenses sent Scientific Games’ second quarter net loss tumbling 12 times larger than the gaming equipment’s decline a year ago, but the company’s CEO said reducing the leverage is creating a stronger operating position.
In a statement Thursday, Scientific Games said the $75 million net loss was driven by $60 million in debt financing expenses the lowered interest costs and extended maturities. A year ago, Scientific Games net loss was $5.8 million.
The Las Vegas-based company now has $8.8 billion in long term debt, down from nearly $9 million a year ago.
Scientific Games, which provides gaming equipment to both the casino industry and lotteries worldwide, said revenues for the quarter that ended June 30 were $845 million, nearly the same figure as a year ago.
“The second quarter really highlights the diversity of our business and the many avenues we have to generate revenue across the globe,” company CEO Barry Cottle said in a statement.
The investment community, however, wasn’t impressed. Company shares closed at $20.77 on the Nasdaq, up 32 cents or 1.56 percent. Following the earnings announcment, shares declined almost 11 percent in after-hours trading.
While gaming revenue declined 9.3 percent, revenue from the sales of lottery products grew 11.5 percent. Also, revenue produced by the company social gaming division – SciPlay – grew 12 percent.
During the quarter, Scientific Games sold an 18 percent interest in the social games segment, spinning off SciPlay on the Nasdaq. Of the total proceeds from the stock sale, $342 million, $30 million went to initial public offering fees and general corporate expenses, which went toward reducing debt.
Scientific Games Chief Financial Officer Michael Quartieri said the company paid down $155 million in debt during the quarter and now paid down $300 down $300 million in debt this year.
“The SciPlay IPO proceeds will continue to enable us to make substantial payments on our debt as we work toward our deleveraging goal,” Quartieri said.
The company said SciPlay’s revenue increase was more than twice the rate of market growth and driven by players spending nominal fees on virtual tokens and chips.
“We are pleased with the growth we are continuing to see across Lottery, Digital, and SciPlay while also stabilizing gaming operations driven by the successful launches of several new games,” Cottle said.
Overall, the growth other areas was offset by a decline in gaming revenue due to fewer casino openings and systems launches compared to last year, as well as lower game replacement sales.
Gaming operations, where Scientific Games shares in the revenues with casinos from the company’s slot machines, was flat due to a decrease in the number of games by more than 900 and the closure of a Northwest racetrack casino in the Northeast. Gaming machines revenues declined due to decreased sales.
Still, Cottle said, “The entire organization is laser focused on strengthening our core business and capturing market share in emerging digital markets while making our business more efficient.”
Activity around the company’s stock has spurred interest in the company since last year.
In June, Scientific Games Chairman Ronald Perelman spent $6.1 million to purchase 305,000 shares of the company’s stock. In December, Perelman spent $27 million to purchase 1.5 million shares.
Perelman, through his New York-based MacAndrews & Forbes investment arm, controls more than 36.4 million shares of Scientific Games, or almost 40 percent of company.
Last week, Greenlight Capital, a hedge fund controlled by David Einhorn, told clients the firm added stock positions in three companies, including Scientific Games. The position was described as “small.”
Scientific Games has made several moves in the past few months. In May, Former Aristocrat Leisure Ltd. CEO Jamie Odell joined the company as a special advisor to Perelman. In July, former Aristocrat Technologies Executive Matt Wilson was named CEO of the gaming division, but he won’t begin his role until next year.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
