A month has gone by since the last earnings report for Scientific Games Corp . Shares have added about 11.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SGMS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
Scientific Games reported first-quarter 2018 loss of $2.24 per share, wider than the year-ago quarter’s loss of $1.14.
Revenues increased 11.9% from the year-ago quarter to $811.8 million and surpassed the Zacks Consensus Estimate of $778 million. The growth was driven by higher services (up 20.7%) and instant game sales (up 7.1%). Product sales increased marginally (0.6%).
Quarter Details
Gaming Segment (54.6% of total revenues) revenues increased 0.7% year over year to $443 million. Increase in replacement unit shipments of 30% in the first quarter was offset by lesser number of new casino openings in the global market. Gaming operations and Gaming Machine sales decreased 6.4% and 7.3%, respectively.
However, strong growth in Gaming Systems and Table Products of 22% and 24%, respectively, backed results. Table Products improved from a rise in installed base of proprietary table games, new shufflers sales and other table game products. Moreover, acquisition of Tech Art in January 2018 also drove results.
The year-over-year growth in Gaming Systems revenues was driven by increased system installation in casinos based in Alberta and Ontario as well as a rise in hardware sales backed by shipment of new iVIEW4 player-interface display units.
During the quarter, replacement unit shipments in the United States and Canada increased 30% on a year-over-year basis to 4,667 units, driven by high adoption of the TwinStar cabinets and Pro Wave cabinets. International shipments declined 25.3% to 2,201 units.
Gaming Operations revenues fell due to a decline in installed base of WAP and premium participation gaming machines. However, replacement of older cabinets with news ones such as Gamescape, TwinStar V75 and TwinStar iReels cabinets led to an increase in install base by 21 units, sequentially.
Lottery Segment (24.8% of total revenues) revenues were up 6.7% from the prior-year quarter to $201.7 million. Revenues from Instant Products and Lottery Systems increased 6% and 8.6% from the year-ago quarter, respectively. Instant games such as Willy Wonka Golden Ticket increased revenues in the United States by 8%. The rise in Lottery systems revenues was driven by an increase in revenues from multi-state games in the United States and rise in systems maintenance contracts in international markets.
The company has sub-divided the earlier Interactive business segment into Social and Digital. The results of recently acquired NYX are integrated in the Digital segment.
Social Segment (12% of total revenues) revenues increased 21% year over year to $97.4 million on the back of robust performance of Bingo Showdown apps along with Quick Hit Slots and 88 Fortunes. The relaunch of Jackpot Party Social Casino in the second half of the quarter also boosted revenues.
The company’s launch of a new MONOPOLY Slots themed social casino app in mid-April is expected to lend better support to the segment.
Digital Segment (8.6%) revenues grew to $69.7 million, of which $49.2 million is associated with the acquisition of NYX. The segment also benefited from organic revenue growth of 27%.
The company also added gaming content at five new client locations as well as signed three new customers in the quarter.
Operational Details
Attributable earnings before interest, taxes, depreciation and amortization (AEBITDA) increased 12% from the year-ago period to $320.1 million driven by higher revenues, inclusion of NYX and increasing operating efficiency. AEBITDA margin contracted 10 basis points (bps) to 39.4%.
Gaming AEBITDA increased 4% year over year to $218.1 million. Gaming AEBITDA margin expanded 150 bps to 49.2%.
Lottery AEBITDA increased 10.3% from the year-ago quarter to $94.1 million. Lottery AEBITDA margin expanded 160 bps to 46.7% driven by higher revenues and a profitable revenue mix.
Social AEBITDA surged 46.4% to $26.2 million and margin expanded 460 bps to 26.9%.
Digital AEBITDA surged 237.3% from the year-ago period to $17.2 million but margin declined 700 bps, owing to the inclusion of NYX.
Selling, general and administrative (SG&A) increased 22% year over year to $171.6 million in the reported quarter. Research & development (R&D) expenses rose almost 27% to $53.8 million. As a percentage of revenues, SG&A and R&D expenses expanded 170 bps and 80 bps, respectively.
As a result, the company reported operating income of $49.4 million, which declined 43.9% from the year-ago quarter. Operating margin contracted 600 bps to 6.1%.
Balance Sheet & Cash Flow
Scientific Games exited the quarter with cash and cash equivalents of $109.9 million compared with $788.8 million in the previous quarter. The company’s long-term debt was $8.8 billion compared with nearly $8.7 billion at the end of the previous quarter.
Cash flow from operations was $29.9 million, compared with $118.1 million in the previous quarter.
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.
VGM Scores
At this time, SGMS has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, SGMS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why is Scientific Games (SGMS) Up 11.6% Since Its Last Earnings Report?
A month has gone by since the last earnings report for Scientific Games Corp . Shares have added about 11.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is SGMS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Recent Earnings
Scientific Games reported first-quarter 2018 loss of $2.24 per share, wider than the year-ago quarter’s loss of $1.14.
Revenues increased 11.9% from the year-ago quarter to $811.8 million and surpassed the Zacks Consensus Estimate of $778 million. The growth was driven by higher services (up 20.7%) and instant game sales (up 7.1%). Product sales increased marginally (0.6%).
Quarter Details
Gaming Segment (54.6% of total revenues) revenues increased 0.7% year over year to $443 million. Increase in replacement unit shipments of 30% in the first quarter was offset by lesser number of new casino openings in the global market. Gaming operations and Gaming Machine sales decreased 6.4% and 7.3%, respectively.
However, strong growth in Gaming Systems and Table Products of 22% and 24%, respectively, backed results. Table Products improved from a rise in installed base of proprietary table games, new shufflers sales and other table game products. Moreover, acquisition of Tech Art in January 2018 also drove results.
The year-over-year growth in Gaming Systems revenues was driven by increased system installation in casinos based in Alberta and Ontario as well as a rise in hardware sales backed by shipment of new iVIEW4 player-interface display units.
During the quarter, replacement unit shipments in the United States and Canada increased 30% on a year-over-year basis to 4,667 units, driven by high adoption of the TwinStar cabinets and Pro Wave cabinets. International shipments declined 25.3% to 2,201 units.
Gaming Operations revenues fell due to a decline in installed base of WAP and premium participation gaming machines. However, replacement of older cabinets with news ones such as Gamescape, TwinStar V75 and TwinStar iReels cabinets led to an increase in install base by 21 units, sequentially.
Lottery Segment (24.8% of total revenues) revenues were up 6.7% from the prior-year quarter to $201.7 million. Revenues from Instant Products and Lottery Systems increased 6% and 8.6% from the year-ago quarter, respectively. Instant games such as Willy Wonka Golden Ticket increased revenues in the United States by 8%. The rise in Lottery systems revenues was driven by an increase in revenues from multi-state games in the United States and rise in systems maintenance contracts in international markets.
The company has sub-divided the earlier Interactive business segment into Social and Digital. The results of recently acquired NYX are integrated in the Digital segment.
Social Segment (12% of total revenues) revenues increased 21% year over year to $97.4 million on the back of robust performance of Bingo Showdown apps along with Quick Hit Slots and 88 Fortunes. The relaunch of Jackpot Party Social Casino in the second half of the quarter also boosted revenues.
The company’s launch of a new MONOPOLY Slots themed social casino app in mid-April is expected to lend better support to the segment.
Digital Segment (8.6%) revenues grew to $69.7 million, of which $49.2 million is associated with the acquisition of NYX. The segment also benefited from organic revenue growth of 27%.
The company also added gaming content at five new client locations as well as signed three new customers in the quarter.
Operational Details
Attributable earnings before interest, taxes, depreciation and amortization (AEBITDA) increased 12% from the year-ago period to $320.1 million driven by higher revenues, inclusion of NYX and increasing operating efficiency. AEBITDA margin contracted 10 basis points (bps) to 39.4%.
Gaming AEBITDA increased 4% year over year to $218.1 million. Gaming AEBITDA margin expanded 150 bps to 49.2%.
Lottery AEBITDA increased 10.3% from the year-ago quarter to $94.1 million. Lottery AEBITDA margin expanded 160 bps to 46.7% driven by higher revenues and a profitable revenue mix.
Social AEBITDA surged 46.4% to $26.2 million and margin expanded 460 bps to 26.9%.
Digital AEBITDA surged 237.3% from the year-ago period to $17.2 million but margin declined 700 bps, owing to the inclusion of NYX.
Selling, general and administrative (SG&A) increased 22% year over year to $171.6 million in the reported quarter. Research & development (R&D) expenses rose almost 27% to $53.8 million. As a percentage of revenues, SG&A and R&D expenses expanded 170 bps and 80 bps, respectively.
As a result, the company reported operating income of $49.4 million, which declined 43.9% from the year-ago quarter. Operating margin contracted 600 bps to 6.1%.
Balance Sheet & Cash Flow
Scientific Games exited the quarter with cash and cash equivalents of $109.9 million compared with $788.8 million in the previous quarter. The company’s long-term debt was $8.8 billion compared with nearly $8.7 billion at the end of the previous quarter.
Cash flow from operations was $29.9 million, compared with $118.1 million in the previous quarter.
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.
Scientific Games Corp Price and Consensus
Scientific Games Corp Price and Consensus | Scientific Games Corp Quote
VGM Scores
At this time, SGMS has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, SGMS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.