Scientific Games beats estimates

Operating Performance
Attributable EBITDA rose to us$ 81.7 million from us$ 75 million in the year-ago quarter. Joint venture EBITDA was us$ 22.8 million in the reported quarter compared with us$ 15 million in the prior-year period, primarily due to higher EBITDA generated by the company's Italian and Chinese joint ventures.

Operating income in the quarter was us$ 22.4 million (including stock-based compensation but excluding employee termination and restructuring costs) compared with us$ 24.5 million (including stock-based compensation but excluding employee termination and restructuring costs, write-down of assets held for sale) in the year-earlier quarter.

The slight decline in operating income was on the back of higher selling, general and administrative expense (SG&A), which increased 30.8% year over year to us$ 47.7 million in the quarter. The increase in SG&A expense was driven by headcount, consultant and incentive compensation expenses in the quarter.

Revenue
Total revenue (excluding racing business, which was divested in October 2010) increased 16.7% year over year to us$ 222.7 million, primarily driven by strong instant ticket sales and higher sales of lottery systems and terminals, which fully offset lower service revenues. Including racing business, total revenue inched up 0.7% year over year in the quarter.

Instant ticket revenues rose 9.2% year over year to us$ 126.7 million, while sales of lottery systems and terminals increased 18.7% year over year to us$ 14.6 million. However, service revenue decreased 12.3% year over year to us$ 81.4 million.

Scientific Games' U.S. instant ticket retail sales increased 5.6% year over year in the quarter. U.S. lottery systems customers' retail sales spiked 0.5% year over year in the third quarter. China Sports Lottery instant ticket retail sales surged 24.1% year over year, while instant ticket retail sales in Italy jumped 10.8% in the reported quarter.

Segment-wise, Printed Products Group revenues climbed 11.0% year over year to us$ 129.6 million primarily due to higher contribution from U.S. customers (us$ 7.3 million), higher sales to international customers (us$ 0.9 million), and favorable foreign exchange (us$ 2.5 million).

Lottery Systems Group revenues increased 12.9% year over year to us$ 59.6 million primarily due to higher sales of software and hardware to international customers (us$ 2 million), increased hardware sales in the us$ 0.7 million and favorable foreign currency translation us$ 0.8 million.

Diversified Gaming Group revenues (excluding racing business) surged 59.0% year over year, driven by a 42% year-over-year growth in global installed base of server-based gaming terminals. Incremental revenue from the Barcrest acquisition (us$ 2.8 million) and favorable foreign currency us$ 1.6 million also boosted growth during the quarter.

Balance Sheet
Scientific Games exited the quarter with us$ 86.9 million in cash and cash equivalents compared with us$ 127.3 million in the prior quarter. Total debt remained flat year over year at us$ 1.39 billion. Total capital expenditures in the third quarter were us$ 24.2 million. Free cash flow in the reported quarter was us$ 30.8 million versus us$ 26.6 million in the previous quarter.

During the quarter, Scientific Games acquired Barcrest for approximately us$ 48.4 million in cash. The acquisition will expand Scientific Games total installed base to over 35,000 server-based terminals worldwide.