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Scientific Games (SGMS) Up 8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for Scientific Games (SGMS). Shares have added about 8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Scientific Games due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Scientific Games Q2 Earnings Beat, Revenues Rise Y/Y

Scientific Games reported second-quarter 2021 earnings of $1.10 per share that beat the Zacks Consensus Estimate of 9 cents. The company had reported loss of $2.15 per share in the year-ago quarter

Revenues were $880 million, up 63.3% year over year, driven by strong growth in Gaming, Lottery and Digital businesses. The figure beat the consensus mark for revenues by 12.1%.

Services revenues surged 71.1% year over year to $551 million. Instant product revenues came in at $174 million, up 30.8% year over year. Product sales soared 84.5% year over year to $155 million.

Quarter Details

Gaming revenues (41.7% of revenues) surged 303.3% year over year to $367 million, driven by robust performance of Gaming operations and Gaming machine sales.

Lottery revenues (30.2% of revenues) increased 27.3% year over year to $266 million, driven by higher instant retail game sales. Scientific Games lottery division won the Pennsylvania instant games and lottery systems contract for the next 10 years.

Internationally, Scientific Games won new contracts and contract extensions totaling 13 years in Bosnia, Denmark, Georgia, Poland and Portugal.

Digital (10.6% of revenues) revenues increased 27.4% year over year to $93 million. The segment benefited from robust performance by iGaming and Sports Betting revenues.

SciPlay revenues (17.5% of revenues) declined 7.2% year over year to $154 million. The company achieved record payer metrics including payer conversion of 8.5% and Average Revenue Per Daily Active User of $0.72. Average Monthly Revenue Per Paying User was $96.29.

Consolidated adjusted EBITDA (AEBITDA) surged 216.5% year over year to $383 million. AEBITDA margin, as a percentage of revenues, were 43.5% compared with 22.4% reported in the year-ago quarter.

Gaming AEBITDA was $196 million against AEBITDA loss of $31 million. Lottery AEBITDA surged 42.3% from the year-ago quarter to $138 million. Digital AEBITDA soared 55% from the year-ago quarter to $31 million.

SciPlay AEBITDA decreased 20% to $48 million.

Selling, general and administrative expenses increased 35.8% year over year to $205 million. Research & development expenses surged 74.2% to $54 million.

Balance Sheet & Cash Flow

As of Jun 30, 2021 cash and cash equivalents were $983 million compared with $967 million as of Mar 31, 2021.

Total debt was $9 billion as of Jun 30, 2021 compared with $9.1 billion as of Mar 31, 2021.

As of Jun 30, the company had $1.44 billion in available liquidity, which included SciPlay’s revolving credit facility.

Net debt leverage ratio was 7.2 times as of Jun 30, 2021.

Cash from operating activities was $149 million compared with the prior quarter’s $123 million. Free cash flow was $133 million compared with $80 million in the previous quarter.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 38.79% due to these changes.

VGM Scores

Currently, Scientific Games has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Scientific Games has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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