New Deal for Scientific Games - Analyst Blog

Scientific Games Corporation (SGMS) announced that it has won a ten-year contract from the Louisiana Lottery Corporation in a competitive procurement process. Per the agreement, Scientific Games will supply instant ticket games and related services to the Louisiana Lottery Corporation.

Scientific Games will be the primary supplier of instant ticket games and the contract will extend up to October 2020. The company did not divulge any financial details of the deal. However, Scientific Games said that revenue will be based on a percentage of instant ticket retail sales.

The contract extends Scientific Games already existing six-year partnership with Louisiana Lottery Corporation.

Based in New York City, Scientific Games is a global IT systems and services company that provides instant ticket and online lottery products, systems and services to lottery authorities and gaming markets worldwide.

Scientific Games continues to grow through international development activities with the new contract further validating its expansion initiative. We believe that Scientific Games benefits from its strong and growing presence in the worldwide instant ticket and online lottery markets.

Last month, Scientific Games had been awarded a five-year contract by the Ontario Lottery and Gaming Corporation to supply instant lottery tickets and printing services. Scientific Games will be the exclusive supplier of instant ticket printing services to Ontario Lottery, thereby helping the company to expand in Canada.

Despite continuous efforts, Scientific Games’ profit of 12 cents per share for the recently completed third quarter of 2010 was down 25.0% from 16 cents reported in the prior-year quarter. The decline was primarily due to weak revenue growth in the quarter.

Revenues declined 7.5% year over year in the quarter adversely affected by foreign currency fluctuations and lower lottery sales. Lottery Systems Group revenues plunged 19.4% year over year to $52.8 million, reflecting lower hardware and software sales and online contract terminations.

Recently, Scientific Games lost contracts in New Hampshire, Vermont and South Dakota. Moreover, its U.S. lottery systems customers’ retail sales decreased 7.8% in the third quarter.

We believe that with the completion of the sale of the racing business and large contract re-pricings, Scientific Games will focus on developing its core business. We expect the company’s product offerings, recurring revenue business model and strong growth from the Internet based business to augur well over the long term.

Significant competition from International Game Technology (IGT) is a headwind for the stock. Further, intense pricing pressure his hurting margins, which fell to 23.0% from 29.5% in 2005. Currently, Scientific Games has a Zacks #4 Rank, which implies Hold rating on a short-term basis.

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