Scientific Games Corp. (
posted loss of 15 cents in contrast to the Zacks Consensus
Estimate of a profit of 2 cents per share in first quarter of
2013. Scientific Games had reported earnings of 4 cents in the
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Revenues decreased 5.0% year over year and 11.9% sequentially to
$219.6 million, which missed the Zacks Consensus Estimate of
$228.0 million. The top-line decline was primarily attributed to
lower sales of lottery systems and terminals and
lower-than-expected instant ticket revenues.
Instant ticket revenues remained flat on a year-over-year basis
but declined 2.7% sequentially to $122.8 million. Sales of
lottery systems and terminals plunged 28.4% from the year-ago
quarter and 53.4% from the previous quarter to $15.0 million.
Service revenues decreased 5.9% year over year and 9.9% quarter
over quarter to $81.8 million.
Scientific Games' U.S. instant ticket retail sales decreased 2.0%
year over year in the quarter. U.S. lottery systems customer
retail sales plunged 14.9% year over year in the first quarter.
Instant ticket retail sales in Italy (in terms of €) decreased
2.8% from the year-ago quarter, while China instant ticket retail
sales (in terms of RMB) declined 12.5% during the same period.
Segment-wise, Printed Products Group revenues inched up 0.6% year
over year but declined 2.6% from the previous quarter to $126.3
million. The results were negatively impacted by lower US and
international revenues from price-per-thousand customers and a
decrease in sales to US customers who purchase tickets on a
percentage of sales basis.
Lottery Systems Group revenues decreased 9.8% year over year and
27.9% quarter over quarter to $58.2 million, reflecting lower
sales to international customers. Service revenues decreased $3.0
million year over year in the reported quarter.
Gaming revenues declined 14.9% year over year and 9.8% from the
previous quarter to $35.1 million. The year-over-year decline was
primarily due to lower service revenues and lower sales from
Barcrest's gaming terminals.
Attributable earnings before interest, taxes, depreciation and
amortization (EBITDA) margin jumped 220 basis points ("bps") from
the year-ago quarter to 35.8%. Sequentially, EBITDA margin
declined 50 bps in the previous quarter.
Depreciation & amortization (D&A) expense increased 15.1%
year over year but declined 49.2% sequentially to $32.8 million
in the quarter. Selling, general & administrative expense
(SG&A) increased 11.8% year over year to $50.6 million.
SG&A decreased 1.0% on a sequential basis.
Higher expenses dragged down profit in the quarter. Operating
margin was 5.1% compared with 10.8% in the year-ago quarter.
Scientific Games reported loss of 12.3 million compared with net
income of $3.9 million in the year-ago quarter.
Balance Sheet & Cash Flow
Scientific Games exited the quarter with $90.0 million in cash
and cash equivalents compared with $109.0 million in the prior
quarter. Total debt remained flat at $1.47 billion at the end of
the first quarter.
We believe that the company's diversified product offerings,
international development activities, recurring revenue business
model, strong growth of the Internet-based business and the
WMS Industries (
acquisition 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 they start contributing to overall results. Further, stiff
competition from the likes of
International Game Technology (
Bally Technologies Inc. (
is expected to hurt profitability going forward.
Moreover, increasing investments for product development is
expected to hurt profitability in the near term. Additionally a
significant increase in regulatory, professional fees and other
expenses related to the WMS acquisition will hurt margins in the
Currently, Scientific Games has a Zacks Rank #4 (Sell).