IGT Outlook for 2021 Upped as Cash Flow Improves, Leverage Declines
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Posted on: August 3, 2021, 09:29h.
Last updated on: August 3, 2021, 09:34h.
On the back of impressive second-quarter results, International Game Technology (NYSE:IGT) raised its full-year outlook today. It noted it expects to top some 2019 metrics, but the stock is trading lower.
The maker of the popular Wheel of Fortune slot machine said revenue for the June quarter surged 74 percent to $1 billion, as earnings before interest, taxes, depreciation and amortization (EBITDA) soared 170 percent to a record $442 million.
Supplier stocks are among this year’s best-performing gaming stocks, and are broadly topping land-based casino operators. As such, some analysts expected IGT would beat second-quarter estimates. Still, generating $500 million in cash flow from continuing operations and a record $380 million in free cash flow in the first half of 2021 could be seen as pleasant surprises, and signs that the company’s efforts to firm its balance sheet are paying off.
Why IGT Outlook Matters
IGT forecasts revenue for the second half of 2021 of $2 billion on operating income from continuing operations of $300 million. While that forecast doesn’t account for any potential restrictions that could be caused by the coronavirus pandemic, those numbers are “meaningfully higher” than in the same period last year.
The lottery services provider joins a parade of gaming companies that are inching closer to or beating 2019 financial results. That’s crucial for the industry, because analysts and investors essentially wrote off 2020 as a lost year, noting the COVID-19 crisis skewed profit and revenue so low that it’s not relevant to measure this year’s results against last year’s.
As such, 2021 figures are being measured against 2019’s, and Wall Street is focusing on gaming companies’ ability to get back to profitability and sales seen two years ago sooner rather than later.
For IGT, one of the driving forces in getting back to pre-pandemic metrics is lottery strength. Buoyed by a 35 percent jump in same-store sales, the company’s global revenue climbed 58 percent to $725 million in the second quarter.
IGT Balance Sheet Getting Stronger
Thanks to the aforementioned increase in free cash flow, IGT’s balance sheet is increasingly tidy and its leverage profile is improving.
Our leverage profile improved substantially, reaching pre-pandemic levels well ahead of expectations, and improving our credit profile and overall financial condition,” said CFO Max Chiara in a statement.
Year-over-year, net interest expense declined to $91 million from $96 million. Last week, IGT amended its term loan facility, a move that will save the company $65 million in annual interest costs.
Since Dec. 31, 2020, IGT’s debt burden is down to $6.3 billion from $7.3 billion, while its net leverage ratio is down to 4.3x from 6.4x. As of June 30, the company has $639 million in unrestricted cash and $1.3 billion in borrowing capacity.
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