Casino equipment and gaming solutions giant Scientific Games surprised analysts on Thursday by booking Q4 net profit of $206.8 million, reversing a net loss of $43.1 million for the corresponding period a year earlier. SG shares climbed almost 12 percent on the Nasdaq in early trading following the announcement.

Scientific Games

In December, slots giant Scientific Games managed to shave almost $160 million off a payment imposed by a federal antitrust suit ruling, which helped to send it back to black. (Image: Las Vegas Review-Journal)

SG was able to buck expectations thanks to higher revenue and greater operational efficiencies — operating income more than tripled to $312.2 million — but also by negotiating a settlement to a federal patent infringement lawsuit that had the company on the hook for a staggering $315 million.

SG had vowed to appeal the verdict but instead in December agreed to pay $151.5 million to settle the case.

In August last year, a federal judge ruled that SG had launched “frivolous lawsuits” to assert “sham patents” in a bid to monopolize the market in automatic card-shufflers.

Shuffle Tech Lawsuit

The case centered on the company’s subsidiary SHFL Entertainment — previously Shuffle Master — which SG acquired in 2014 when it bought Bally Technologies for $5.1 billion.

In 2012, SFHL Entertainment filed a patent infringement lawsuit against three companies that had collaborated on an automatic card-shuffler product for casinos — Shuffle Tech, Aces Up Gaming, and Poydras-Talrick Holdings.

The companies were forced to withdraw their product, but later filed against SG, claiming SHFL Entertainment knew its patents were invalid and unenforceable.

The court agreed and promptly tripled the $105 million figure the companies had been asking for in damages.

Nevertheless, SG said net loss for the whole of 2018 was $352.4 million, which was largely driven by $253.4 million in restructuring and other charges — primarily consisting of the $151.5 million payment to resolve the court case.

Readying for IPO

Now with unpleasant litigation in the rear-view mirror, SG is gearing up for a likely IPO for its social gaming business. The company said it had submitted a draft registration statement earlier this month to the Securities and Exchange Commission in preparation.

Capital raised by the flotation will be used to pay down part of its $8 billion debt, which still lingers from the Bally’s acquisition and other M&A activity.

“We are building momentum and continuing to grow our business while at the same time operating more efficiently,” Scientific Games CEO Barry Cottle said in an official statement “The entire organization is enthused about 2019 and focused on helping our customers win, which will drive our free cash flow and create meaningful value for our shareholders.”