Scientific Games Corporation Message Board

Sportech in play for expansion of slots in Connecticut. SGMS owns 20% of SPO.L

Sentiment: Strong Buy

This train is going north All aboard First goal $10.00 then $ 15.00

Sentiment: Buy

As SGMS continues to lose money quarter after quarter, the book value of shareholders' equity on the balance sheet continues to fall. At the end of SGMS's fiscal 2009, the company had a book value of shareholders' equity of $620 M. In yesterday's SGMS press release, the balance sheet showed a book value of shareholders' equity of $316 M, meaning that $304 M in book equity had been wiped off the books because of quarterly losses in the past 13 quarters alone. Nearly 50% of SGMS's book equity has been blown away by the current management team that remains in place and will apparently now lead a combined SGMS/WMS entity that will have approximately $3 B in total LTD on the books when the deal is consummated. Wow!

Neither Lorne nor the CFO have ever mentioned this distressing fact in any quarterly cc. No wonder.

Yesterday's Q1 earnings release and conference call show perfectly why SGMS and its management are borrowing $1.5 B (at high cost) to acquire WMS. For the first time in many a quarter, SGMS did not have massive multi-million dollar asset write-offs or huge "one-time/non-recurring" expense charges. But despite this nice surprise, SGMS still lost a lot of money in Q1.

Why? Well the reason why is that the existing SGMS businesses do not (and will not) generate enough EBIT (Earnings Before Interest & Taxes) to cover the massive quarterly interest expense burden that the company's huge $1.6 B in LTD automatically bakes into the P&L every quarter. In Q1 SGMS had a positive EBIT of $11 M. However, after deducting $25 M in Interest expense (the "I") from the EBIT, the resulting EBT was a loss of $14 M. Even if Q1 Revenue had been $10 M higher (with a 40% margin), the EBT still would have been a loss of $10 M; not even close to break-even EBT. As a matter of fact, even if you take out the additional Q1 SG&A expense associated with the WMS acquisition and increase Q1 Revenue by $20 M (at 40% margin), the Company still would have had a net loss (EBT) for the quarter.

Lorne knows this ("Q1 financial performance was in line with our expectations") and he knows it is a trend he cannot reverse in the SGMS business. Luckily for him, interest rates today are low (relatively speaking), WMS has an un-levered balance sheet and WMS management & shareholders are apparently willing to take a cash buyout from SGMS, so Lorne gets to borrow another $1.5 B (primarily against the WMS cash-flow and debt-free balance sheet) and buy something that could "transform SGMS" (Lorne's words, not mine), even if the new debt burden will add another $100 M in annual interest expense to the combined P&L, wiping out 100% of the existing WMS EBIT in the process. Bigger? Yes. More profitable? Not anytime soon IMO.

ALW true to form, took his LSD tab and went before the Microphone.
Yes, very productive, except for the disconnect between external and internal expectations. Way to go guys!.
Keep up the good work.

Sentiment: Strong Sell

The results were not good at all. SGMS missed estimates of EPS and posted another set of losses. It was expected to post a near break even EPS of around $0.02 but lost $0.16 per share. Even the revenue of $219.60 million came in lower than the estimates of $227.59 million. On a YoY basis, the revenue was down 5%. It had posted earnings of 0.02 per share in Q1'12. Sequentially, the revenues declined by 12% from $249.24 million. The net loss in Q4'12 was, however, much higher at $0.29 per share. So though there has been some sequential decline in net loss, the picture remains grim. Consecutive losses have led to weakening of sentiment for the stock. In addition, the $1.5 billion acquisition of WMS Industries (WMS) was also at a significant premium to the market price of WMS. MGT Capital Investments has filed a lawsuit against WMS and other casino gaming companies for patent infringement. That lawsuit is up for Markman hearing later this year. The expected value of the lawsuit (all the defendants put together) is estimated by MGT to be between $300 million to $4.5 billion. This overhang obviously makes the price being paid by SGMS for WMS look even more expensive. WMS is still trading at a discount to the $26 acquisition price, and the shareholder approval for the merger will be sought by WMS in a few days from now. SGMS needs to ensure that WMS settles with MGT so that it is saved the risk of having to pay damages and royalty to MGT later. The cost of the lawsuit will itself be an unnecessary burden. But with such a short time left, some news from WMS has to come out soon. Meanwhile, even WMS missed analysts estimates of $0.25 per share significantly by reporting an EPS of $0.14 per share.

Big miss. Nothing good. However, ALW is excited. I lost count on the # 1/4's SGMS has missed.
Not miss. Lost money. They always lose every quarter. Id sell early before it goes to 6.

Sentiment: Strong Sell

SGMS management will creat a loss for that money too. Investyourbuck

More bonuses, More spending, More losses. Sounds like it is government run.
How many more quarters before we break even? Not with this greedy management!

I don't think WMS will get MGT to settle for less than $100M plus future royalties.

RG

$15.00 by Year end Consolidate and merge Grow to new heights together

Sentiment: Buy

100's of millions. When you are a thief, eventually you get caught. Admit guilt, or risk much greater punishment.

RG