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SG hails “better than expected” Q2 despite revenue decline


Scientific Games’ losses increased in Q2 as revenue fell 37.2% to $539m, but the business said its results were “better than expected” given the outbreak of the novel coronavirus (Covid-19).

Services made up the majority of revenue, but revenue from this vertical still fell 29.5% to $322m. Instant products were the most stable vertical under the effects of Covid-19, declining only 11.3% to $133m, while product sales collapsed by 64.7% to $84m.

Breaking revenue down by business segment, land-based casino division SG Gaming was hardest-hit by the virus, with revenue falling 79% to $91m.

Revenue from Scientific Games’ lottery division also declined, but by just 10% to $209m. 

SciPlay, the supplier’s social gaming division, saw revenue grow 41% to $166m, while igaming division SG Digital saw revenue grow 6% to $73m.

Operating expenses also declined, but exceeded revenue after a 17.3% fall to $717m.

Costs of products and services made up the largest part of these costs when combined, at $257m, down 20.0% year-on-year. Breaking these costs of sales down further, costs of services fell 6.7% to $126m, costs of product sales fell 37.9% to $69m and costs of instant product sales fell 17.3% to $62m.

Scientific Games’ next-largest expense was selling, general and administrative costs, which fell 13.3% to $151m. Research and development costs fell 33.3% to $31m while depreciation, amortisation and impairment costs declined 17.6% to $140m and the business paid a further $16m in restructuring costs, up 166.7%.

This resulted in an operating loss for the quarter of $56m, compared to a $128m profit in 2019.

Scientific Games paid a further $124m in interest costs, down 15.7%, while it made an additional $3m loss from equity investments, $12m loss on remeasurement of debt and $1m loss from other sources.

This meant Scientific Games’ pre-tax loss came to $196m for the quarter, 188.2% more than 2019’s loss. After a $2m tax expense, its net loss came to $198m, a 164% year-on-year increase from its losses a year prior.

After $5m profit were attributed to noncontrolling interests, a loss of $203m was attributed to Scientific Games Corp, compared to a $77m loss in 2019.

While revenue declined and the supplier swung to a loss, the company said the results proved to be “better than expected” given the effect of Covid-19 on the global gaming industry.

“I am very proud of how we are navigating the current environment, as evidenced by our strong cost containment and cash management, which allowed us to deliver better than expected cash flow for the quarter,” Scientific Games chief executive Barry Cottle said.

“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.

“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. 

“We have the right team coupled with the best products across both land-based and mobile gaming to position us for future growth.”

For the first half of 2020, Scientific Games made $1.26bn in revenue, down 24.9%.

Of the supplier’s revenue, $744m came from services, down 18.8% year-on-year. Instant products sales declined 7.6% to $268m, while product sales fell 47.1% to $252m.

Operating expenses declined by 5.5% to $1.35bn.

Breaking these expenses down, costs of products and services came to $551m, made up of $256m in costs of services, down 4.5%; $160m in costs of product sales, down 26.6%; and $135m in costs of instant products, down 4.9%.

Meanwhile, selling, general and administrative costs declined 3.1% to $349m, research and development costs fell 13.7% to $82m and depreciation, amortization and impairments fell 17.0% to $278m.

These costs led to Scientific Games reporting a loss of $88m for the half-year, compared to a $251m profit the prior year.

The supplier paid a further $248m in interest expenses, down 17.7%, but lost a combined $11m through various financial costs. As a result, its pre-tax loss came to $347m, almost four times 2019’s loss.

After paying $6m in taxes, Scientific Games’ loss came to $353m, 254.5% more than the losses it reported the previous year.

With $9m of profit attributable to noncontroling interests, a loss of $362m was attributable to Scientific Games Corp, compared to a $101m loss the year before.

Michael Eklund, the supplier’s chief financial officer, said the business would now focus on cutting costs in order to navigate its long-term recovery.

“Streamlining our cost structure and focusing on operating efficiencies to drive free cash flow generation and de-lever our balance sheet is our top priority,” Eklund said. “While I have only been here a short time I see tremendous opportunity in all facets of our business to drive future growth and free cash flows that will benefit our team members and stakeholders. 

“We are very pleased with how we have navigated the challenging current environment in the second quarter and are confident we have ample liquidity and the right road map to emerge from this crisis as a stronger and more efficient company.”

Cottle said in Q3 so far, sales have been strong for Scientific Games’ electronic table games segment and also pointed out the success of its new range of contactless gaming solutions, which he said “are creating significant revenue opportunities”.

In addition, Cottle said instant lottery sales in the US have bee “surging” while hinting at “another big partnership” that is yet to be announced for SG Digital.

Eklund added that Scientific Games still plans on launching Brazil’s national instant lottery games later this year.