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Scientific Games' (SGMS) Q1 Loss Narrows Y/Y, Revenues Up

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Scientific Games Corporation (SGMS - Free Report) reported loss of 26 cents per share in first-quarter 2019, which was much narrower than the year-ago quarter’s loss of $2.24.

Revenues increased 3.1% from the year-ago quarter to $837 million. Robust performance of Lottery and Social segment drove the top line.

The Zacks Consensus Estimate for the top and the bottom lines was pegged at $833.8 million and loss of 6 cents, respectively.

Scientific Games Corp Price, Consensus and EPS Surprise

Scientific Games Corp Price, Consensus and EPS Surprise | Scientific Games Corp Quote

Quarter Details

Gaming Segment (50.4% of total revenues) revenues declined 4.7% year over year to $422 million. Additionally, Gaming operations declined 5.6% to $152 million.

However, the company’s Jin Ji Bao Xi is witnessing increasing adoption as it was rolled out in more states of the United States. It is currently available in 16 states. Notably, the game is listed as one of the top 10 games on Scientific Games’ platform.

Gaming Systems revenues declined 1.3% year over year due to the absence of key site installs in Canada in the reported quarter. Additionally, Gaming Machine Sales declined 6.2% from the year-ago quarter and Table Products sales declined 3.2% from the year-ago period.

Notably, Gaming machine average sales price declined 3.3% primarily due to the “mix of games in the international markets.”

Lottery Segment (27.1% of total revenues) revenues were up 12.4% from the prior-year quarter to $227 million.

Revenues from Lottery Systems increased 67.3% year over year due to increase in hardware sales and new contract wins in the reported quarter. However, Instant Products revenues by geography declined 6.7% year over year.

Social Segment (14.1% of total revenues) revenues increased 21.6% year over year to $118 million due to higher monetization opportunities. Notably, average revenues from daily active users in the first quarter increased to 48 cents compared with 42 cents in the year-ago period. Moreover, average monthly active users increased from 8.1 million in the year-ago quarter to 8.4 million users.

Notably, the company’s social gaming business performed really well by outperforming its peers by more than 2X, per research firm Eilers & Krejcik.

Digital Segment (8.4% of revenues) revenues remained flat year over year at $70 million.

Notably, in this segment, Scientific Games is expanding its market launches and winning new business in sports and iGaming. Additionally, the company noted that its OpenBet platform processed about “240 million account transactions, error free, over the three day Grand National festival in the U.K.”

Scientific Games’ social gaming business, SciPlay began trading last week. The company, which received $301 million in proceeds from the initial public offering (IPO), will use the funds to pay off its debt.

Operational Details

Consolidated adjusted EBITDA (AEBITDA) increased 2.5% from the year-ago period to $328 million. AEBITDA margin contracted 20 basis points (bps) to 39.2%.

Gaming AEBITDA decreased 1% year over year to $215 million. However, Gaming AEBITDA margin increased to 51% from 49% in the year-ago period.

Lottery AEBITDA increased 11% from the year-ago quarter to $104 million. However, Lottery AEBITDA margin contracted 100 bps to 46%. Social AEBITDA increased 9% to $25 million. However, Social AEBITDA margin contracted 200 bps to 21%.

However, Digital AEBITDA declined 24% from the year-ago period to $13 million. Digital AEBITDA margins were 19% compared with 25% in the year-ago quarter %

Selling, general and administrative expenses increased 8.1% year over year to $186 million in the reported quarter. However, research & development expenses declined 9.3% to $49 million.

Balance Sheet & Cash Flow

Scientific Games exited the quarter with cash and cash equivalents of $1.21 billion compared with $168.2 million in the previous quarter. The company’s long-term debt was $8.94 billion compared with $8.99 billion in the fourth quarter.

Cash from operating activities was $167 million compared with $30 million in the year-ago period. Capital expenditure in the reported quarter was $67 million compared with $88 million in the year-ago period.

Free cash flow was $96 million as against a negative free cash flow of $63 million in the year-ago period. The improvement was due to better working capital, increased operating cash flows and reduced capital expenditures.

Zacks Rank & Stocks to Consider

Scientific Games currently carries a Zacks Rank #3 (Hold).

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