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SG sees igaming and lottery growth offset by gaming declines in Q3


Scientific Games reported an 18.4% year-on-year decline in revenue for the third quarter of 2020, after growth in its lottery, digital and social gaming arm SciPlay was offset by steep declines in its gaming division. 

Revenue for the three months ended 30 September fell to $698m (£535.8m/€594.1m), though this represented a 29.5% rise from the second quarter, in which the supplier was hit hard by the novel coronavirus (Covid-19) pandemic. 

The year-on-year decline was down to its land-based content business, SG Gaming, for which revenue declined 49.1% to $231m. 

Scientific Games noted that the bulk of revenue came from regional and tribal properties across the US. While these customers were still subject to Covid-19 restrictions, such as limits on the number of gaming spots on the casino floor, they were recovering quicker than destination markets such as Las Vegas, it said. 

Gaming’s decline meant that SG Lottery’s revenue of $241m, up 9.5%, was the main source of revenue during the quarter. With retail products usually sold in retailers that remained open throughout Covid-19 lockdowns, the division was largely unaffected by the pandemic, with sales in Italy and Turkey particularly strong. 

Its social gaming arm SciPlay, meanwhile, saw revenue rise 30.2% to $151m, with average monthly actives standing at 7.3m, and daily actives 2.6m, during the quarter. SciPlay’s free-to-play offering was bolstered further by the acquisition of Come2Play, announced in June, which saw it expand into the rapidly growing causal gaming sector. 

Finally SG Digital revenue was up 15.4% at $75m, in a period that saw the division’s igaming revenue from New Jersey double year-on-year. The quarter saw the division sign up a number of high profile clients, including Hard Rock and Betsson, as well as extending ongoing partnerships with Flutter Entertainment and Wynn Resorts.

It also expanded its product offering through deals with the likes of NetEnt, Big Time Gaming, and SportCaller. 

“The team did a great job driving cash flow improvements this quarter, and we will continue to diligently evaluate additional opportunities to increase cash flow and de-lever,” Scientific Games executive vice president and chief financial officer Michael Eklund commented.

Chief executive Barry Cottle added: “As a result of our team’s focus on our strategy, our diverse portfolio and our commitment to cost management, we delivered strong cash flow in the third quarter. I really am excited around all the great games, products and solutions we have to help our partners navigate the current environment and provide innovative solutions for the future.”

Operating costs for the quarter were reduced by 8.7% to $650m, and if depreciation and amortisation charges, plus some restructuring costs, were factored back in, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) was down 31.7% at $235m.

Operating profit for the quarter, meanwhile, was down 66.4% at $48m. However, non-operating expenses increased to $154m, thanks to a $24m gain on the remeasurement of debt, which coupled with lower returns from equity investments, offset a reduction in interest expenses. This resulted in a $106m loss before tax, compared to a $15m profit in Q3 2019. 

After $5m in income taxes, plus a $6m charge related to non-controlling interests, Scientific Games posted a $117m net loss for the quarter, having generated a $14m profit in Q3 2019. 

The quarter also saw Scientific Games’ majority shareholder Ron Perelman sell his 34.9% stake in the business held by his investment fund MacAndrews & Forbes. This has prompted a reshaping of the supplier’s board, including the appointment of former Barclays Bank CEO Tim Throsby as a non-executive director. 

The Q3 results revealed that Hamish McLennan, chair of a number of Australian Securities Exchange listed businesses including digital advertising giant REA Group and media and entertainment broadcaster HT&E, as a new independent director. An experienced media and marketing executive who also chairs Rugby Australia, McLennan previously served as an executive vice president of News Corporation. 

“I’d […] like to welcome the proven industry leaders to our board who will augment our focus on de-levering our balance sheet and will help the company prudently and thoughtfully shape our corporate strategy,” Cottle said. 

For the nine months to 30 September, Scientific Games’ revenue is down 22.7% year-on-year at $1.96bn, with its net loss for the period expanding to $479m.