SciPlay IPO, loss reductions buoy spirits for Scientific Games

May 8, 2019 4:05 AM
  • Matthew Crowley, CDC Gaming Reports
May 8, 2019 4:05 AM
  • Matthew Crowley, CDC Gaming Reports

Loss-reducing cost management and the afterglow from the initial public offering for a minority stake in its SciPlay social gaming spinoff made for an upbeat first quarter for Scientific Games. The Las Vegas-based gaming equipment giant’s earnings per share and revenue both topped Wall Street forecasts.

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Scientific Games said it completed an IPO for a 17 percent stake in SciPlay on Tuesday, raising $301 million in proceeds, which the company will use to pay off debt. SciPlay trades on the Nasdaq under the SCPL ticker.

“This quarter, we paid down $145 million in debt and completed a major refinancing that lowered our borrowing costs and extended our debt maturities,” Scientific Games Chief Financial Officer Michael Quartieri said in a statement accompanying the results. “As a result of the SciPlay IPO, we expect to continue our deleveraging path and the efficient deployment of our resources to generate the returns needed to enhance our free cash flow.”

Scientific Games said it lost $24 million, or 26 cents per diluted share, for the three months ended March 31, compared with a loss of $202 million, or $2.24 per share, a year earlier. A $45 million reduction in restructuring costs and other expenses drastically reduced the first-quarter loss.

Also, a $93 million refinancing charge factored in the year-earlier loss and skewed the year-to-year comparison.

Adjusted for restructuring costs, Scientific Games had net income of 13 cents per share in the most recent quarter, topping the 6-cents-per-share loss analysts surveyed by Zacks Investment Research had forecast.

Revenue rose 3.1 percent to $837 million from $812 million. The latest result topped the $833.8 million estimate of Zacks-polled analysts.

Consolidated adjusted earnings before interest, taxes, depreciation and amortization, a cash flow measure that excludes one-time costs, rose 2.5 percent to $328 million from $320 million, reflecting revenue growth.

The results boosted Scientific Games shares after hours. The shares fell $1.83, or 8.84 percent, to close at $18.87 in regular trading on the Nasdaq, but recovered after the closing bell rising $1.13, or 5.99 percent, to reach $20 at 5 p.m. PDT.

SciPlay caught the attention of The Motley Fool, which noted that the new company will benefit Scientific Games. All of SciPlay’s B stock, which confers 10 times the voting rights as the Class A stock sold in the IPO, and 83 percent of the Class A shares will remain with Scientific Games.

License fees will also flow back to Scientific Games. SciPlay pays an annual fee to access license games themed on superspy James Bond and the “The Godfather,” the movie series including two Oscar winners.

SciPlay’s games are popular, the Motley Fool’s Eric Volkman wrote. In Apple’s app store, Monopoly Slots, for which Scientific Games holds an intellectual property license from Hasbro, has an average 4.9 (out of 5) rating from more than 51,000 reviews. Monopoly Slots also ranked 52nd in popularity on Apple’s long list of casino games, Volkman added.

“SciPlay has managed to carve out its own niche and those high ratings and thousands of downloads certainly help,” he wrote. “The company cites data showing it had a market share of just under 9 percent in its key mobile social casino segment in (the fourth quarter of) 2018, an encouraging figure given the vast size of this category.

“SciPlay is profitable, has experience behind it and a solid partner/ex-parent, and seems to be adept at making a buck in its early days,” Volkman added. “On that basis, its shares might prove to be a good investment.”

Beyond SciPlay, Scientific Games benefited from a 2.9 percent bump in gaming machine sales. Total new unit shipments in the United States and Canada increased to 4,801 from 4,667 a year earlier, helped by the opening of Encore Boston Harbor, a Wynn Resorts Ltd. property.

Lottery systems revenue rose $35 million year-to-year helped by equipment sales and new lottery contracts in Maryland and Kansas.

And, as CEO Barry Cottle said during a conference call, Scientific Games’ OpenBet platform has shined, processing nearly 240 million transactions glitch-free during the three-day Grand National Festival, April 4 through April 6 in Liverpool, England.

“Just for perspective here,” Cottle said, “our platform processed more transactions on the Saturday of this event than were processed by Amazon on Black Friday or Cyber Monday.”

Furthermore, Cottle said, “We’re taking the actions necessary to strengthen our balance sheet by providing innovative products across our businesses to grow future revenues.”

Follow Matthew Crowley on Twitter @copyjockey