Scientific Games Corp. (
reported dismal second quarter results. The company posted loss in
the reported quarter in contrast to the Zacks Consensus earnings
estimate of 12 cents per share. Revenue also fell well short of the
Zacks Consensus Estimate of $245.0 million.
Total revenue increased 4.1% year over year to $229.3 million,
primarily driven by higher sales of lottery systems and terminals
and better-than-expected service revenues. Instant ticket revenue
declined 8.3% year over year to $119.6 million, while sales of
lottery systems and terminals soared 172.1% year over year to $21.0
million. Service revenue increased 8.0% year over year to $88.6
Scientific Games' U.S. instant ticket retail sales increased
10.0% year over year in the quarter. U.S. lottery systems
customers' retail sales climbed 3.8% year over year in the second
quarter. This strong growth fully offset a sluggish 7.5% decrease
in China instant ticket retail sales and an 8.0% decline in instant
ticket retail sales in Italy during the reported quarter.
Segment-wise, Printed Products Group revenues were down 7.4%
year over year to $122.7 million, primarily due to lower revenue
contribution from licensed properties business (down $8.7 million),
lower U.S. and International revenue (down $12.2 million) and
unfavorable foreign exchange (down $1.0 million) in the reported
Lottery Systems Group revenues increased 13.7% year over year to
$64.6 million, primarily on the back of higher sales of software
and hardware to international customers and higher U.S. service
Gaming revenues surged 35.8% year over year to $42.0 million,
driven by a 6.3% year-over-year increase in Global Draw's gross win
per machine per day. Incremental revenue from the Barcrest
acquisition ($9.9 million) also drove growth during the
Attributable earnings before interest, taxes, depreciation and
amortization (EBITDA) declined to $83.5 million from $90.5 million
in the year-ago quarter. Joint venture EBITDA was $21.2 million in
the reported quarter compared with $24.5 million in the prior-year
Depreciation & Amortization (D&A) expense soared 34.8%
year over to $39.1 million in the quarter. Selling, general &
administrative expense (SG&A) increased 8.6% year over year to
$47.2 million in the reported quarter.
Higher expenses dragged down profit in the quarter. Operating
income (including stock-based compensation but excluding employee
termination and restructuring costs) plunged 47.6% year over year
to $15.1 million compared with $28.9 million in the year-earlier
Scientific Games reported a net loss of $12.6 million or 14
cents per share compared to net income of $7.0 million or 8 cents
per share in the year-ago quarter. Including one-time items and
charges, net loss was $9.3 million or 10 cents per share in the
Scientific Games exited the quarter with $112.4 million in cash
and cash equivalents compared with $100.4 million in the prior
quarter. Total debt was $1.37 billion compared with $1.39 billion
at the end of previous quarter.
During the quarter, Scientific Games acquired three companies
including Parspro, Provoloto and ADS/Technology and Gaming. The
acquisitions are expected to boost its topline going forward.
We believe that the company's diversified product offerings,
international development activities, recurring revenue business
model and strong growth from the Internet-based business will drive
the stock over the long term.
Further, the domestic lottery industry is undergoing a
transition, which involves increasing involvement of private
vendors in state lottery management, higher prize payouts and
introduction of tiered pricing for national jackpot games, to add
impetus to the sagging U.S. lottery industry. We believe that
Scientific Games is well positioned to benefit from these
transitions going forward.
However, we believe that these measures will take some time
before it starts to boost the overall results. Moreover, increasing
investments for product development is expected to hurt
profitability in the near term.
Thus, we prefer to remain on the sidelines. We maintain our
Neutral recommendation on Scientific Games over the long term (6-12
months). Currently, Scientific Games has a Zacks #3 Rank, which
implies a short-term Hold rating.
SCIENTIFIC GAME (SGMS): Free Stock Analysis
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