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Scientific Games (SGMS) Q2 Loss Widens Y/Y, Revenues Flat

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Scientific Games Corporation (SGMS - Free Report) reported second-quarter 2019 loss of 83 cents per share, much wider than the year-ago quarter’s loss of 6 cents.

The wider loss was primarily attributed to higher debt refinancing expenses and remeasurement of debt.

Revenues were $845 million, flat year over year. Growth in Lottery, SciPlay and Digital segments was fully offset by lower Gaming revenues.

Services revenues increased 4.3% to $457 million. Product sales declined 7.4% to $238 million. Instant products revenues were flat year over year.

The Zacks Consensus Estimate for revenues and earnings was pegged at $860 million and 2 cents, respectively.

Scientific Games shares decreased almost 1.1% to close at $20.55 on Aug 2, following dismal second-quarter 2019 results. However, shares rebounded 2.8% to close at $21.13 on Aug 5.

Shares have returned 18.2% year to date compared with the industry’s growth of 20.2%.

Year-to-date Performance




 

Quarter Details

Gaming revenues (50.5% of revenues) declined 9% year over year to $427 million. The year-over-year decline was primarily attributed to fewer casino openings and system launches. Lower replacement sales also hurt top-line growth.

During the quarter, the company launched Twinstar Wave XL cabinet on a for-sale model with six themes and the entire library of content from Twinstar J43.

Lottery revenues (27.3% of revenues) were up 24% year over year to $231 million. The top line benefited from equipment sales as part of a recent 10-year sports betting contract in Turkey.

SciPlay revenues (14% of revenues) increased 18% year over year to $118 million. The segment benefited from increased monetization of paying players, with ARPDAU up 14% to 48 cents.

Digital (8.2% of revenues) revenues increased 3% year over year to $69 million. Notably, the digital casino platform processed more than $9 billion in total wagers in the reported quarter.

Operational Details

Consolidated adjusted EBITDA (AEBITDA) decreased 1.5% year over year to $335 million primarily due to lower Gaming revenues. AEBITDA margin stayed flat at 40%.

Gaming AEBITDA decreased 9% year over year to $215 million. However, Gaming AEBITDA margin was unchanged at 50%.

Lottery AEBITDA increased 12% from the year-ago quarter to $103 million. However, Lottery AEBITDA margin contracted 300 basis points (bps) to 45%.

SciPlay AEBITDA jumped 44% to $33 million. Moreover, AEBITDA margin expanded 500 bps to 28%.

However, Digital AEBITDA declined 8% from the year-ago quarter to $12 million. Digital AEBITDA margins contracted 200 bps on a year-over-year basis to 17%.

Selling, general and administrative expenses were unchanged at $174 million on a year-over-year basis. However, research & development expenses declined 6.1% to $46 million.

Balance Sheet & Cash Flow

As of Jun 30, 2019, cash and cash equivalents were $369 million compared with $1.21 billion as on Mar 31, 2019.

Net debt was $8.6 billion ($9 billion in face value of debt outstanding less $369 million of cash and cash equivalents) at the end of the second quarter. The company reduced debt by $155 million in the reported quarter.

Net debt leverage ratio decreased 0.5 times on a year-over-year basis to 6.5 times. Scientific Games targets net debt leverage of approximately 5.5 times by the end of 2020.

Cash from operating activities was $95 million compared with $167 million in the previous quarter. Free cash flow was $38 million compared with $96 million in the first quarter.

Zacks Rank & Stocks to Consider

Scientific Games currently has a Zacks Rank #5 (Strong Sell).

Amtech Systems (ASYS - Free Report) , CACI International (CACI - Free Report) and Cisco Systems (CSCO - Free Report) are some better-ranked stocks in the broader computer and technology sector. All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Amtech is set to release quarterly results on Aug 8, both CACI International and Cisco Systems are scheduled to report on Aug 14.

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