Scientific Games earnings top forecast, send shares surging

A $19 million gain on remeasurement of euro-denominated debt helped Scientific Games post third-quarter income, reversing a year-earlier loss and top Wall Street forecasts. Revenue rose, boosted by gains across business segments, but missed forecasts.

In a statement Thursday, Scientific Games, a Las Vegas-based gaming equipment manufacturer, said net income was $18 million, or 15 cents per share, for the three months ended Sept. 30, reversing a year-earlier loss of $4 million, or $3.85 per share, a year earlier.

Scientific Games noted that the year-earlier result included $339 million in restructuring and other charges primarily related to the verdict in the Shuffle Tech case.

In December 2018, Scientific Games agreed to pay a $151.5 million to resolve a federal lawsuit after a Chicago jury ruled the gaming equipment supplier initiated sham litigation to keep a rival automatic card shuffler out of the market.

Scientific Games’ latest earnings-per-share result zoomed past the 2-cents-per-share consensus estimate of analysts surveyed by Zacks Investment Research and sent the stock surging Friday. Scientific Games shares rose $4.60, or 17.05 percent, to close at $31.58 on the Nasdaq.

Consolidated adjusted earnings before interest taxes, depreciation and amortization, a cash flow measure that excludes one-time costs, rose 5.5 percent to $344 million from $326 million, buoyed partly by an 11 percent revenue rise for its SciPlay unit.

Quarterly revenue rose 4.1 percent to $855 million from $821 million but missed the $872.1 million estimate by Zacks Investment Research.

“Each of our business segments is growing on both the top and bottom line, enabling us to continue on our path to 5.5x net debt leverage by the end of 2020,” Scientific Games CEO Barry Cottle said in a statement accompanying the earnings news.

In a conference call with analysts and journalists, Cottle went further, saying Scientific Games paid down $55 million in debt during the quarter and $354 million in debt year-to-date.

Breaking down business segments, Scientific Games posted rises in gaming revenue (up 1.3 percent from a year earlier to $454 million), digital revenue (up 6.6 percent to $65 million) and lottery revenue (up 6.3 percent to $220 million).

A string of deals during the quarter poised Scientific Games for future lottery success. The company was named exclusive supplier to the joint venture operating the Turkey National Lottery, as the exclusive terminal hardware partner to Sisal in Italy and as the primary instant games provider to the Florida Lottery. The Florida deal lasts through 2027.

Also in October, Scientific Games and International Game Technology were awarded the license to operate Brazil’s Lotex instant lottery. The two companies are expected to split $200 million annually through the contract, which covers the Brazilian instant lottery scratch card business.

When news of the Brazil deal emerged, Macquarie Securities gaming analyst Chad Beynon touted its benefits for both companies.

“We believe this news will be favorably received by investors as these companies have secured a significant growth opportunity while also providing greater clarity on the free cash flow picture, which we view as an important tenant of each companies’ investment thesis.”