COVID-19 drains Scientific Games 2020 results

By | March 2, 2021

Scientific Games Corporation (SGC) has reported improved year-end group trading against continued COVID-19 headwinds, impacting the performance of its global commercial pipeline.   

The Nasdaq gambling technology group has reported consolidated revenues of US$762 million during Q4 2020 –  down 11.7% year-on-year but 8.4% higher than revenue of US$698 million recorded during Q3 trading.

A breakdown of business units sees  SciPlay, Digital and Lottery sectors all experienced growth when compared to corresponding Q4 2019 results. 

SciPlay’s revenue increased by 30% with a 41% increase in Consolidated Adjusted EBITDA (AEBITDA) whilst Digital Revenue expanded by 1% to $73 million and Lottery earnings increased by over $18 million.

Overall revenue for the fourth quarter of 2020 was $762 million, a drop from the previous year’s figure of $863 million. This coincided with a net loss of $84 million when compared to the 2019 loss of $37 million, primarily driven by a COVID related decline in the operator’s Gaming division, which was impacted by closures of land-based casinos in many countries. 

The temporary absence of these venues contributed to a decline in net cash flow generated by operating activities by $75 million to $471 million due to the revenue drop, although this was partially offset by improved working capital, lower capex and lower interest payments.

In addition to the effect of COVID-19 limitations, a $15 million Gaming segment charge relating to receivable credit allowances also disrupted operations. AEBITDA for the fourth quarter stood at $244 million, a drop when compared to the $328 million of the prior year, although SGC has acknowledged that this ‘improved sequentially’ due to Gaming improvements. 

Revenue from this sector increased from the prior quarter, whilst the total handle was up from 2019. The launch of several new titles on the Kascada gaming cabinet and consistent initial play levels have been named as the primary reason for these improvements.

However, the impact of the losses can be seen in the operator’s overall consolidated revenue for the full year, which amounted to $2.7 billion, whilst 2019 earnings stand at $3.4 billion. The decline was offset, however, by a 25% increase in SciPlay’s revenue, in addition to the aforementioned Digital and Lottery developments, which SGC has attributed to player monetisation.

Despite a drop in revenues and an increase in net losses, SGC’s total liquidity expanded significantly to $1,269 million, up $363 million from the final quarter of 2019.

General net cash flow also yielded positive results, despite the decline in operational cash flow, increasing by $20 million to $72 million, which the operator has attributed to ‘improvements in working capital and lower capex partially offset by lower revenue.’ For the full trading year, the total amount of free cash flow generated reached $186 million, which SGC states as being ‘driven by disciplined cost management and improvements to working capital activities.’

“While 2020 certainly had unforeseen challenges, I couldn’t be more proud of our team for successfully navigating through them. The strong execution coupled with the diversity of our business enabled positive cash flow,” said Barry Cottle, CEO and President of Scientific Games.

However, despite its improved results, the ‘Gaming’ division of Scientific Games continues to be hindered by ‘Covid disruptions’ impacting the performance of the firm’s largest business unit which has recorded as 36% year-on-year to $286 million.

The year was also marked by borrowing and subsequent repayments, with the firm borrowing $530 million under its revolving credit facility, and making payments of $190 million. This included a voluntary repayment of £100 million, and was repeated in February 2021 under the same facility.

Following its financing adjustments, the Nasdaq technology group  company maintains a balance sheet of $9.3 billion in long-term corporate debt, with an available cash access  liquidity of £1.26 billion.

Moving forward, the operator has identified a number of factors which could affect revenue and operations throughout 2021. The UK’s legislation regarding stakes on fixed odds betting terminals (FOBT) had been highlighted, in addition to continued potential impacts of the COVID-19 pandemic. 

Additional identified risks include the UK’s exit from the European Union, international economic and industry conditions and SGC’s own level of indebtedness as well as ‘higher interest rates, availability or adequacy of cash flows and liquidity to satisfy indebtedness.’

Cottle concluded: “As we start off the year, I am truly excited about the team, products, and game franchises that should enable share gains, deal wins, and opportunities to enter new genres. The executive team and our Board are working purposefully to transform our Company, capitalize on the evolving industry trends and deliver outsized returns to our Shareholders.”