Only the era of COVID-19 could a quarterly net loss be viewed as a positive.
Gaming equipment provider Scientific Games said the company’s second-quarter results were hurt by the coronavirus pandemic, which closed casinos nationwide between mid-March and through June.
CEO Barry Cottle credited “strong cost containment and cash management,” which helped the Las Vegas-based company keep cash flow on the positive side of the ledger for the quarter that ended June 30, despite a 36.2% decline in overall revenue.
“This is a testament to our team’s ability to effectively manage our business in the short term and maintain our strong customer relationships, so we are set up for success as the economy begins to reopen,” Cottle said in a statement.
Still, cash flow fell 63.9% to $121 million in the three-month period.
“We outperformed our cash flow expectations in the quarter,” Cottle said on a conference call with analysts. “We’re optimistic in our outlook for 2020 and beyond.”
During his prepared remarks, Cottle briefly addressed last week’s Securities and Exchange Commission filing by Ronald Perelman’s MacAndrews & Forbes Holding Co., in which the company’s largest shareholder and chairman said he was exploring a sale of his 39% stake.
According to the filing, Perelman has “not formulated any specific or definitive plan or proposal” and “there can be no assurance that any transaction will occur or as to the terms of any such transaction.”
Cottle said the sale consideration was at an early stage.
“There are very little details and this topic will not affect our planning or day-to-day management,” Cottle said.
In the quarter, Scientific Games’ revenue total as $539 million, compared to $845 million in the same quarter a year ago. The biggest loss as in gaming revenue, down 78.7% to $91 million, which includes slot machine sales and participation games where the company shares in the gaming revenues. Lottery revenue fell 9.5% to $209 million.
However, social gaming and digital revenue increased 27.8% to $239 million. The company said revenues from its SciPlay spin-off, which includes the social gaming business, grew 41% while cash flow increased by 80%. The company said new social game updates and features helped increase player engagement and the “stay at home” dynamic related to COVID-19.
Scientific Games owns almost 83% of SciPlay.
“The diversity of our businesses and our position on the forefront of digital gaming were critical to allow us to successfully navigate the worst of this environment,” Cottle said.
However, Credit Suisse gaming analyst Ben Chaiken said he didn’t believe iGaming and SciPlay “is not part of the core earnings story.”
Chaiken added, “Growth in any segment is positive, but we don’t think the growth in the market is reflective of the actual trajectory for the SGMS business. At the end of the day, iGaming as an industry is gaining momentum, but Scientific Gaming’s core business is still gaming, which faces material headwinds.”
The results were viewed positively by the investment community. Shares of Scientific Games closed down $1.12, or 6.86% on the Nasdaq at $15.18. In after-hours trading, following the earnings release, the company’s shares were up more than 10.5%.
Cottle highlighted Scientific Game’s liquidity, saying it stood at $943 million.
In March, Scientific Games furloughed an undisclosed number of employees, reduced pay and work hours for others, and sliced the salaries of executive leadership by 50%. Cottle gave up his entire salary. In April, the company said it had sliced costs by $100 million in the second quarter and drew down $480 million of its credit facilities, which was added to the $200 million in cash the company had on hand at the end of March. A new CFO was hired in May.
Scientific Games also made several key hires in the past year, including Matt Wilson as CEO of the gaming division. Recently, the company has been touting a line of cashless gaming products.
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
