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Scientific Games Q2 Loss Lower than Expected, Sales Lag - Analyst Blog

Zacks Equity Research
Updated

Scientific Games Corp. SGMS recently reported second-quarter 2015 adjusted loss of 79 cents in the quarter, which compared favorably with the Zacks Consensus Estimate of a loss of 91 cents.

 

Scientific Games Corporation - Earnings Surprise | FindTheBest

 

On a GAAP basis, the company reported a loss of $1.19 per share, which compared unfavorably with a loss of 86 cents reported in the prior-year quarter.

Quarterly Details

The company’s revenues of $691.5 million lagged the Zacks Consensus Estimate of $723 million. In the prior year quarter, the company had recorded revenues of $416.9 million.

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Gaming Segment – Revenues soared 154.2% year over year to $449.7 million due to significant revenue contribution by Bally Technologies ($310.3 million), which completely offset the decline in legacy gaming. Revenues from services jumped 150.2% year over year to $240.4 million, while product sales revenues increased 159% from the year-ago quarter to $209.3 million.

Lottery Systems Group – Revenues declined 8.5% year over year to $190.2 million.  Instant games revenues remained flat year over year while there was a decline in revenues from product sales (down 58.9%) and services (down 10%).

Interactive Group – Revenues increased 60.2% year over year to $51.6 million. This was primarily due to Bally Technologies (contributed $8.6 million to segment revenues) and new launches.

In the reported quarter, the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) were $266 million. EBITDA from gaming segment came in at $200 million. The same for Lottery Systems was $82.6 million while that for the Interactive segment was $13.3 million.

Balance Sheet & Cash Flow

Scientific Games exited the quarter with $129.1 million in cash and cash equivalents compared with $171.8 million as on Dec 31, 2014. The company’s long-term debt stood at $8.48 billion compared with $8.52 billion as of Dec 31, 2014.

Cash flow from operations was $36.6 million compared with $23.8 million in the prior-year quarter. Free cash outflow was $34.1 million in the reported quarter compared with $31.3 million in the previous quarter.

Our Take

Scientific Games holds a premium position in the gaming equipment space. Furthermore, the company has been witnessing improvement in its organic business and strength in the replacement market. This when combined with a robust product line and a recovering financial position are significant positives. Also, we are optimistic about the company’s ongoing cost cutting initiatives.

Bally Technologies and WMS Industries acquisitions are positives for the company as they diversify its product portfolio and expand its global footprint. The acquisition of Bally Technologies eliminates one of the nearest competitors and will thereby help it to expand market share. In the reported quarter, the company collaborated with Penn National Gaming Inc. PENN to launch a suit of systems and game solutions to drive casino revenues and operating efficiencies. Also, the Plainridge Park Casino that started operations in June is the first one in the country to implement a Bally play-management system.

However, this acquisition has put Scientific Games’ balance sheet under pressure as the company opted for debt financing for the buyout. This will continue to hurt profitability in the near term.

Further, Scientific Games’ legacy business continues to disappoint amid significant competition from the likes of Computer Sciences Corp. CSC and others.

Currently, Scientific Games has a Zacks Rank #4 (Sell). A better-ranked stocks in the same space is NCI, Inc. NCIT with a Zacks Rank #2 (Buy).

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SCIENTIFIC GAME (SGMS): Free Stock Analysis Report
 
COMP SCIENCE (CSC): Free Stock Analysis Report
 
NCI INC-CL A (NCIT): Free Stock Analysis Report
 
PENN NATL GAMNG (PENN): Free Stock Analysis Report
 
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