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Why Is Scientific Games (SGMS) Up 36.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Scientific Games (SGMS - Free Report) . Shares have added about 36.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Scientific Games due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Scientific Games Q1 Loss Narrows Y/Y, Revenues Rise

Scientific Games Corporation reported a loss of 16 cents per share for first-quarter 2021, which was much narrower than loss of $1.69 per share reported in the year-ago period.

Revenues came in at $729 million, up 0.6% year over year, driven by double-digit revenue growth in Lottery, SciPlay and Digital businesses, partially offset by decline in gaming revenues.

Notably, the Zacks Consensus Estimate for earnings and revenues was pegged at a loss of 45 cents per share and $732 million, respectively.

Services revenues increased 9.7% year over year to $463 million. Instant product revenues came in at $162 million, up 20% year over year. Meanwhile, Product sales were down 38.1% year over year to $104 million.

Quarter Details

Gaming revenues (33.5% of revenues) decreased 23.3% year over year to $244 million. The company’s Gaming revenues were negatively impacted by COVID-19 disruptions that resulted in continued reduced operations of casino operators in various jurisdictions globally.

On Jan 20, Scientific Games announced the expansion of its gaming portfolio developed under license from Hasbro with the release of its new online slot game CLUEDO Cash Mystery.

Moreover, Scientific Games launched its new sports-themed slot, Rainbow Riches Race Day in the first quarter of 2021. The 6x4 slot features numerous ways of winning and includes cascading wins, a popular mechanic in today’s online casino marketplace.

Meanwhile, Lottery revenues (34% of revenues) increased 17% year over year to $248 million driven by higher international product sales.

During the quarter, Scientific Games announced that Loto-Québec has extended its existing seven-year instant games and hybrid lottery games contracts with the former, through Jan 31, 2022.

SciPlay revenues (20.7% of revenues) rose 28% year over year to $151 million driven by continued growth in social casino games that outpaced the market and record payer conversion.

Moreover, average revenue per daily active user (ARPDAU) increased 36.7% to 67 cents. Moreover, SciPlay mobile penetration increased 300 basis points (bps) to 88%.

Digital (11.8% of revenues) revenues increased 11.7% year over year to $86 million. On Mar 8, Scientific Games announced that the company has secured a new three-year contract extension to continue powering its OpenGaming ecosystem for Entain plc, one of the world’s leading sports betting and gaming groups.

Consolidated adjusted EBITDA (AEBITDA) increased 35% year over year to $270 million. AEBITDA margin, as a percentage of revenues, expanded 950 bps to 37% in the reported quarter.

Gaming AEBITDA increased 12.5% year over year to $108 million. In addition, Gaming AEBITDA margin expanded 160 bps to 14.8%.

Lottery AEBITDA surged 52.6% from the year-ago quarter to $119 million. Further, Lottery AEBITDA margin expanded 560 bps to 16.3%.

SciPlay AEBITDA increased 31.4% to $46 million. In addition, AEBITDA margin expanded 150 bps to 6.3%.

Digital AEBITDA increased 26.1% from the year-ago quarter to $29 million. Digital AEBITDA margin expanded 80 bps to 4%.

Selling, general and administrative expenses decreased 6.1% year over year to $186 million. Meanwhile, research & development expenses increased 2% to $52 million.

Balance Sheet & Cash Flow

As of Mar 31, 2021 cash and cash equivalents were $967 million compared with $1.01 billion as of Dec 31, 2020.

Total debt was $9.1 billion as of Mar 31, 2021 compared with $9.3 billion as of Dec 31, 2020.

As of Dec 31, the company had $1.3 billion in available liquidity, which included SciPlay’s revolving credit facility.

On Oct 8, the company amended its credit agreement that extended the Covenant Relief Period under its revolving credit facility through the first quarter of 2022 and made a $100 million voluntary payment. In February 2021, the company made a $100 million voluntary repayment under SGI's revolving credit facility.

Net debt leverage ratio was 9.6 times as of Mar 31, 2021.

Cash from operating activities was $123 million compared with the prior quarter’s $159 million. Free cash flow was $80 million compared with $72 million in the previous quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 127.17% due to these changes.

VGM Scores

At this time, Scientific Games has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Scientific Games has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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