Scientific Games Corp. (
posted loss of 28 cents in contrast to the Zacks Consensus
Estimate of a profit of 6 cents per share. Moreover, the reported
loss was much wider than the loss of 9 cents in the year-ago
Revenues increased 4.3% year over year and 9.6% sequentially
to $249.2 million, much better than the Zacks Consensus Estimate
of $236.0 million. The top-line growth was primarily driven by
higher sales of lottery systems and terminals and
better-than-expected instant ticket revenues.
Instant ticket revenues increased 3.2% year over year and 1.5%
sequentially to $126.3 million, while sales of lottery systems
and terminals spiked 44.1% from the year-ago quarter and 57.7%
from the previous quarter to $32.2 million. Service revenues
decreased 3.9% year over year but increased 9.9% quarter over
quarter to $90.8 million.
Scientific Games' U.S. instant ticket retail sales increased
5.1% year over year in the quarter. U.S. lottery systems customer
retail sales jumped 10.9% year over year in the fourth quarter.
Instant ticket retail sales in Italy increased 3.9% during the
reported quarter. This strong growth fully offset a 14.9%
decrease in China instant ticket retail sales.
Segment-wise, Printed Products Group revenues increased 3.6%
year over year and 1.8% from the previous quarter to $129.6
million. The growth was primarily due to higher international
revenues, strong revenue contribution from provoloto and
increasing revenue contribution from US customers (including
Lottery Systems Group revenues increased 16.1% year over year
and 30.5% quarter over quarter to $80.7 million, reflecting
higher equipment and service system sales revenues. Service
revenues were essentially flat year over year.
Gaming revenues declined 12.3% year over year but climbed a
modest 1.7% from the previous quarter to $38.9 million. The
year-over-year decline was primarily due to the loss of the
William Hill contract and closing of the over-the-counter
business in 2011 and lower pub revenues in UK as well as outside
the U.K. This fully offset the revenue increase in U.K. gaming
business during the quarter.
Attributable earnings before interest, taxes, depreciation and
amortization (EBITDA) margin jumped 230 basis points ("bps") from
the year-ago quarter to 36.3%. Sequentially, EBITDA margin
remained flat in the last quarter.
Depreciation & Amortization (D&A) expense soared
110.2% year over year and 64.4% sequentially to $64.5 million in
the quarter. However, this was partially offset by lower selling,
general & administrative expense (SG&A), which decreased
2.5% year over year to $51.1 million. SG&A increased 15.1% on
a sequential basis.
Higher expenses dragged down profit in the quarter. Operating
loss was $6.3 million compared with a profit of $19.2 million in
the year-ago quarter and $13.2 million in the previous
Balance Sheet & Cash Flow
Scientific Games exited the quarter with $109.0 million in
cash and cash equivalents compared with $136.0 million in the
prior quarter. Total debt remained flat at $1.47 billion at the
end of the fourth quarter. Free cash flow improved to $17.5
million from an outflow of $5.1 million reported in the previous
We believe that the company's diversified product offerings,
international development activities, recurring revenue business
model, strong growth from 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 WMS acquisition ($46.0 million in the first
quarter) will hurt margins in the near term.
Currently, Scientific Games has a Zacks Rank #3 (Hold).
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