Despite some negative press reports, Scientific Games remains fully committed to its $5.1bn buy out of Bally Technologies and is confident it will to complete marketing debt for the transaction within the month.
Scientific Games President and CEO Gavin Isaacs said he wanted to ‘clarify and end this confusion,’ that the merger remains on schedule with firm financing in place.
A report by Bloomberg has stated that JPMorgan, Bank of America and Deutsche Bank had failed to secure commitments for a $3.2bn bridge loan for the deal.
However Scientific has pointed out that the speculation was inaccurate. The company plans to issue a notes offering, the final piece of the merger financing, in the next two weeks. The company also said it was happy with the integration process for the merger and has increased its prediction of cost synergies from the Bally transaction.
Mr. Isaacs said: “Reflecting the superb efforts of our integration teams, our plans are now expected to yield greater expected financial savings than originally anticipated. As a result, we are increasing our estimate of annual cost synergies anticipated to be realised from the pending Bally transaction by the end of 2016 from $220m to $235m. In addition, we now expect to realize an additional $15m in annual cost synergies from the WMS acquisition, bringing the total to $115m in annual cost savings by the end of 2015, of which slightly more than half has been achieved to date. We expect to incur an additional $3m of costs to achieve the additional $15m of expected WMS cost synergies and an additional $4m of costs to achieve the incremental$15mof anticipated cost synergies from the pending Bally acquisition.”
Scientific saw third quarter revenue increase to $415.6m from $234.4m in the prior-year quarter, primarily reflecting the contribution of WMS operations and a nine per cent increase in total lottery revenue.
Mr. Isaacs added: “During the quarter, the company generated $126m of cash flow from operations, which after $62m of capital expenditures resulted in $65m of free cash flow. While our operating results still require further improvement to achieve the level of performance we expect, we believe we are making solid progress in utilisation of working capital, implementation of WMS-related integration initiatives, strengthening the organization-wide focus on disciplined cost management and directing capital allocation only toward our highest-return opportunities.”
“In addition to the progress being made with the WMS integration, we are focused on the potential to meaningfully increase free cash flow following the Bally acquisition, which we continue to anticipate closing this quarter, and deploying our free cash flow to reduce net debt,” Mr. Isaacs continued.
WMS’ installed base at September 30, 2014 of 9,054 units, comprising 3,625 WAP and 5,429 premium participation units, declined four from 9,437 units at September 30, 2013, which was composed of 3,682 WAP and 5,755 premium participation units; the installed base as of September 30, 2014 increased four per cent sequentially from 8,732 units at June 30, 2014. The average installed base of 8,678 WAP and premium participation gaming machines generated average daily revenue of $71.95 per unit, an eight per cent increase over the amount reported by WMS in the prior-year period, principally due to the strong performance of new games. The company’s average installed base of other leased and participation units was 26,667 units, reflecting the addition of an average of 2,114 other leased units within the WMS footprint, partially offset by a decline in the UK Gaming installed base largely due to the previously announced loss of the Betfred contract.
Mr. Isaacs added: “With contributions from WMS, the exciting launch of the MONOPOLY MILLIONAIRES’ CLUB™ lottery game on October 19, 2014, and increased projections for cost synergies expected to increase free cash flow, we remain confident the combination of Scientific Games and Bally will deliver significant strategic and financial benefits as we bring together two organizations with similar cultures: a customer-first approach and deep-rooted passion for the development of great gaming entertainment. The collaborative and productive integration planning by our teams has reinforced this belief,” Isaacs added.
Product sales revenue increased $61m, primarily due to $64.1m in revenue from WMS. New gaming machine sales reflected shipments of 1,933 new WMS gaming machines to U.S. and Canadian customers, comprised of an 18% increase in replacement units to 1,738 units for casino operators, 60 Illinois video gaming terminals (VGTs) and 135 units for new casino openings and expansions. New unit shipments for WMS declined 26 per cent to 3,070 units from 4,135 units in the prior-year period, primarily reflecting the impact of fewer U.S. new casino openings and lower Illinois VGT shipments; shipments for WMS in the prior-year quarter included 1,476 replacement units for U.S. and Canadian casino operators, 385 Illinois VGTs and 692 units for new U.S. casino openings. The 1,362 new unit shipments to international customers included 1,137 WMS units and 225 UK Gaming terminals.
Interactive gaming products and services revenue was $38.5m primarily reflecting the acquisition of WMS The growth in interactive gaming revenue from social gaming activities also reflected the 78 per cent growth in the average DAU for the Company’s social casinos in the 2014 third quarter to approximately 1.6m compared to the approximately 0.9m average DAU in the prior-year period for WMS, partially offset by a 26 per cent decline in ARPDAU to $0.23 reflecting the impact of a significantly larger player audience and growth in players on mobile platforms.
Interactive gaming revenue increased 19 per cent on a quarterly sequential basis from $32.3min the 2014 second quarter, reflecting an increase in DAU from 1.4m players, an increase in ARPDAU from $0.22 plus an increase in real-money gaming revenue.