Scientific Games Corp.SGMS recently reported fourth-quarter 2014 results. The company incurred loss per share of 55 cents in the quarter, lower than the Zacks Consensus Estimate of a loss of 61 cents. Following the earnings release on Mar 11, the company’s shares have declined nearly 16%, closing at $11.69 on Mar 13.
In the quarter, the company completed its merger with Bally Technologies, Inc. The $5.1 billion deal included the latter’s debt refinancing of approximately $1.8 billion.
Quarterly Details
The company’s revenues of $565.8 million surged 40.8% year over year and beat the Zacks Consensus Estimate of $478 million. The year-over-year increase in revenues can be attributed to strong growth across all the segments primarily led by the company’s acquisitions.
Gaming Segment– Revenues soared 98.6% year over year to $202.9 million largely due to revenue contribution by the Bally ($148.6 million) acquisition and also from WMS Gaming that was acquired in Oct 2013. Revenues from services jumped $74.4 million year over year, while product sales revenues increased $75.4 million from the year-ago quarter.
Lottery Systems Group – Revenues inched up 0.5% year over year to $221.1 million. Higher revenues from instant games (up 2.6%) and product sales (up 10.1%) were partially offset by weakness in services (down 8.9%).
Interactive Group– Revenues increased 43.3% year over year to $43 million in the quarter. This was primarily due to Bally (contributed $2.9 million to segment revenues) and WMS acquisitions.
In the reported quarter, the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) were $173.3 million. EBITDA from gaming segment came in at $105.5 million. The same for Lottery Systems was $84.6 million and $8.6 million for Interactive segment.
Balance Sheet & Cash Flow
Scientific Games exited the quarter with $171.8 million in cash and cash equivalents compared with $18.1 million in the prior-year quarter. The company’s long-term debt stood at $8.5 billion as of Dec 31, 2014, compared with $3.2 billion on Dec 31, 2013. The increase was due to the acquisition of Bally Technologies for $5.1 billion.
Cash outflow to operations was $29.8 million compared with cash flow of $75.6 million in the prior-year period. Free cash outflow was $91.8 million in the reported quarter compared with $22 million in the previous quarter.
Our Take
Bally Technologies and WMS Industries acquisitions are positives for the company as they diversify its product portfolio and expand its global footprint. The addition of WMS expands Scientific Games’ footprint in interactive business, which will boost the top line over the long run.