Scientific Games (SGMS) Q2 Loss Widens Y/Y, Revenues Flat

Scientific Games Corporation (NASDAQ:SGMS) reported second-quarter 2019 loss of 83 cents per share, much wider than the year-ago quarter’s loss of 6 cents.

The wider loss was primarily attributed to higher debt refinancing expenses and remeasurement of debt.

Revenues were $845 million, flat year over year. Growth in Lottery, SciPlay and Digital segments was fully offset by lower Gaming revenues.

Services revenues increased 4.3% to $457 million. Product sales declined 7.4% to $238 million. Instant products revenues were flat year over year.

The Zacks Consensus Estimate for revenues and earnings was pegged at $860 million and 2 cents, respectively.

Scientific Games shares decreased almost 1.1% to close at $20.55 on Aug 2, following dismal second-quarter 2019 results. However, shares rebounded 2.8% to close at $21.13 on Aug 5.

Shares have returned 18.2% year to date compared with the industry’s growth of 20.2%.

Year-to-date Performance

Quarter Details

Gaming revenues (50.5% of revenues) declined 9% year over year to $427 million. The year-over-year decline was primarily attributed to fewer casino openings and system launches. Lower replacement sales also hurt top-line growth.

During the quarter, the company launched Twinstar Wave XL cabinet on a for-sale model with six themes and the entire library of content from Twinstar J43.

Lottery revenues (27.3% of revenues) were up 24% year over year to $231 million. The top line benefited from equipment sales as part of a recent 10-year sports betting contract in Turkey.

SciPlay revenues (14% of revenues) increased 18% year over year to $118 million. The segment benefited from increased monetization of paying players, with ARPDAU up 14% to 48 cents.

Digital (8.2% of revenues) revenues increased 3% year over year to $69 million. Notably, the digital casino platform processed more than $9 billion in total wagers in the reported quarter.

Operational Details

Consolidated adjusted EBITDA (AEBITDA) decreased 1.5% year over year to $335 million primarily due to lower Gaming revenues. AEBITDA margin stayed flat at 40%.

Gaming AEBITDA decreased 9% year over year to $215 million. However, Gaming AEBITDA margin was unchanged at 50%.

Lottery AEBITDA increased 12% from the year-ago quarter to $103 million. However, Lottery AEBITDA margin contracted 300 basis points (bps) to 45%.

SciPlay AEBITDA jumped 44% to $33 million. Moreover, AEBITDA margin expanded 500 bps to 28%.

However, Digital AEBITDA declined 8% from the year-ago quarter to $12 million. Digital AEBITDA margins contracted 200 bps on a year-over-year basis to 17%.

Selling, general and administrative expenses were unchanged at $174 million on a year-over-year basis. However, research & development expenses declined 6.1% to $46 million.

Balance Sheet & Cash Flow

As of Jun 30, 2019, cash and cash equivalents were $369 million compared with $1.21 billion as on Mar 31, 2019.

Net debt was $8.6 billion ($9 billion in face value of debt outstanding less $369 million of cash and cash equivalents) at the end of the second quarter. The company reduced debt by $155 million in the reported quarter.

Net debt leverage ratio decreased 0.5 times on a year-over-year basis to 6.5 times. Scientific Games targets net debt leverage of approximately 5.5 times by the end of 2020.

Cash from operating activities was $95 million compared with $167 million in the previous quarter. Free cash flow was $38 million compared with $96 million in the first quarter.

Zacks Rank & Stocks to Consider

Scientific Games currently has a Zacks Rank #5 (Strong Sell).

Amtech Systems (NASDAQ:ASYS) , CACI International (NYSE:CACI) and Cisco Systems (NASDAQ:CSCO) are some better-ranked stocks in the broader computer and technology sector. All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Amtech is set to release quarterly results on Aug 8, both CACI International and Cisco Systems are scheduled to report on Aug 14.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>