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Lottery and social provide Q1 boost for Scientific Games


Scientific Games has reported a 3.1% year-on-year increase in first quarter revenue, while reduced costs and debt refinancing aided the supplier in slashing its net loss over the period. 

Revenue for the three month period ended March 31, 2019 came in at $837m. Growth in services revenue (up 4.8% to $459m) and product sales (up 6.3% to $238m) was offset in part by a 6.7% decline in instants revenue to $140m. 

Looking at revenue by division, Gaming accounted for the majority $422m of the group total, despite a 5% year-on-year decline. The segment saw a slight increase in operations revenue, while gaming machine sales were boosted by new unit shipments rising to 4,801 for the quarter. 

However gaming systems revenue was flat year-on-year, as a result of fewer major installations, though this was offset in part by strong maintenance revenue.

Lottery and social star performers
The quarter’s star performers were the Lottery and Social divisions, which reported growth of 12.4% (to $227m) and 21.6% (to $118m) respectively. Lottery’s strong performance was driven by growth in systems revenue, as a result of equipment hardware sales and new contracts signed in Maryland and Kansas in 2018. 

Social, meanwhile, was boosted by increased monetization of paying players, with average revenue per daily active user (ARPDAU) up 14%, and average DAUs growing to 2.7m. The division’s 21.6% growth was double the overall market rate, Scientific Games noted.

Digital revenue was flat year-on-year at $70m, though the supplier noted that its online casino platform processed nearly $9bn in total wagers over the quarter. Following the quarter end, Wynn Resorts signed up as a customer, with plans to roll out igaming and sports products in the US market.

Costs cut
Q1 saw Scientific Games reduce its costs, with total operating expenses falling 6.4% to $714m. It reported an 8.1% rise in selling, general and administrative costs (to $186m) and rise in marginal rise in cost of product sales (to $107m), while cost of services rose to $133m. 

During the quarter Scientific Games paid down $145m in debt, as well as completing a major refinancing that cut borrowing costs and extended debt maturities. As of March 31, 2019, the company’s net debt stood at $9.0bn.

This growth was offset by declines in instant product costs, research and development expenses, as well as a decline in depreciation, amortisation and impairment charges. Scientific Games also slashed restructuring costs, which fell from $52m in Q1 2018 to $7m. 

This left an operating profit of $123m, up 151.0% year-on-year. Once finance-related costs, such as interest expenses, and income taxes were stripped out, the company’s net loss reduced to $24m, down 88.1%.

“We are incredibly proud that we have continued to build on our momentum and are looking forward to the year ahead,” Scientific Games president and chief executive Barry Cottle said. “We are focused on effectively operating our businesses, reducing costs and building upon the strong foundation for profitable growth that we see today.”

Efforts to reduce net debt will be aided further by the initial public offering for a minority stake in its social gaming division SciPlay, which now trades on the Nasdaq Stock Exchange under the SCPL ticker. A total of 22m shares were put up for sale last week, priced at $16 per share. 

“Last week, we successfully took SciPlay public as a new company, which accelerates our ability to pay down debt,” Cottle said. “All of these actions support our steadfast commitment to smartly grow our business, drive free cash flow and create meaningful value for our stakeholders.”

Scientific Games chief financial officer Michael Quartieri added: “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.”