Strong Q3 trading sees Scientific Games return to black

Scientific Games Corporation (SGC) has reported that growth across all core business segments – including its sports betting vertical (SG digital division) but with the exception of gaming operations (sequential loss of $1m) – is growing on “both the top and bottom line”, which CEO Barry Cottle said puts the company on a “path to 5.5x net debt leverage by the end of 2020”.

The headline figures for the trading period (1 July to 30 September) saw revenues ahead by 4% to $855m, up from $821m year-on-year, with net income seeing a swing from $352m losses in Q3 2018 to an $18m gain. 

That income was driven, said Cottle, by growth in revenue and a $19m fillip on remeasurement of Euro-denominated debt versus a $4m loss in the prior-year period. 

The prior-year period had also included $339m in restructuring and other charges primarily related to the verdict in the Shuffle Tech legal matter. Consolidated adjusted EBITDA, meanwhile, increased 6% to $344m from $326m year-on-year, primarily driven by higher revenues and business improvements. 

Net cash provided by operating activities was impacted by a $48m change in the timing of interest payments and an increase in receivables driven by higher game sales and the timing of collections throughout Q3. That resulted in a $141m total compared to $223m in the corresponding period of 2018.

Turning to net debt, the firm has seen a decrease of $50m sequentially to $8.6bn at the quarter-end reducing leverage ratio to 6.4x and will target net debt leverage of approximately 5.5x by the end of 2020.

Gaming machine sales increased 10% due to continued strong demand for the Twinstar J43 and momentum in the Twinstar Wave XL cabinet. The US and Canadian replacements units increased 24% excluding units from a strategic long-term relationship entered into in Oklahoma in the prior year. Openings and expansion units increased by over 600 units driven by strong sales into Illinois and a new opening in California.

According to the firm, gaming systems revenue in the quarter was higher due to growth in maintenance and services revenue from existing systems. Table Products also continued to grow with revenue up $8m to $60m.

Lottery systems revenue came in at $5m higher in Q3, primarily related to hardware sales as part of the recent award of a 10-year sports betting contract in Turkey. Lottery instant products revenue also grew, with an $8m hike driven by strong performance domestically and overseas. 

SciPlay revenue increased 11% which, said SG, had exceeded the market rate of growth. The increase was attributed to increased monetization of paying players, with average revenue per daily active user (ARPDAU) up 9% to $0.47. Lastly, digital revenue increased 7% and adjusted EBITDA increased by 42%. 

Cottle said: “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.  We showcased our great games and products at G2E which demonstrated our industry-leading position as a one-stop solution across platforms and key content. This positioning will allow us to enhance partner operations, grow in existing markets and win in emerging markets.”

Michael Quartieri, CFO at Scientific Games, added: “Our products grew the top-line, and operating leverage was driven by business improvements. We believe there are a number of avenues for further growth driven by share gains and new market opportunities. We remain firmly committed to maximize cash flows and delever our balance sheet.”

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