Scientific Games reports Q3 loss; execs wary of rising cases

Scientific Games Corp. executives hope the momentum in the third quarter continues through 2020, but rising COVID-19 cases across the country could dampen future results.

Revenue for the gaming technology company was $698 million in the third quarter, down 18 percent from the same period last year but higher than the $539 million reported in the second quarter. Free cash flow jumped 22 percent year over year to $62 million.

“We hate to see (rising cases impact casino operations), but obviously, if it goes that direction, we’ve got a playbook now coming out of Q2 … to get the cost structure where it needed to be,” Executive Vice President and Chief Financial Officer Michael Eklund said during a Wednesday call with investors. “Reluctantly, we’d just go back there again if we have to.”

In Nevada, COVID-19 cases have been trending upward since mid-September, with the test positivity rate climbing from 6.5 percent to 11 percent, according to the state. Across the country, the total confirmed coronavirus cases surpassed 9 million, and new daily infections are rising in 47 states. The pandemic has killed more than 231,000 people in the country to date.

Eklund added that the global gaming market’s recovery is looking “a lot more like a U-shape” than a V-shape, given the uncertainty of the pandemic, and Scientific Games will remain focused on cash flow.

The company saw major changes over the quarter. In September, Scientific Games’ largest shareholder sold off a 34.9 percent stake in the company at $28 a share, prompting a shake-up within the company’s board of directors.

According to President and CEO Barry Cottle, the refreshed board shares the company’s “commitment and disciplined approach to delevering.”

The company’s lottery, digital business and SciPlay division — a social game developer — grew in the third quarter, but gaming revenue was negatively impacted by casino companies’ reduced operations during the pandemic.

Cashless gaming seems to be a bright spot in the company’s future. Cottle said Scientific Games has a hardware-software solution that’s in preproduction, with two “large, corporate customers” in which the product should be deployed later this year. The technology’s revenue model is expected to include upfront hardware, software licensing and maintenance costs.

“For us we’re seeing both from a regulatory perspective as well as from an operator perspective an increased interest in moving (cashless gaming) forward,” Cottle said.

Net loss for the company was $111 million for the quarter, compared with a net income of $18 million last year. The company had roughly $1.2 billion in liquidity, as of Sept. 30.

Shares closed up 0.2 percent Wednesday to $35.26 on the Nasdaq.

Contact Bailey Schulz at bschulz@reviewjournal.com. Follow @bailey_schulz on Twitter.