Bill Pfund – Vice President, Investor Relations Gavin Isaacs – President and Chief Executive Officer Scott Schweinfurth – Executive Vice President and Chief Financial Officer.

Cameron McKnight – Wells Fargo Steve Wieczynski – Stifel Mike Malouf – Craig Hallum Capital Group Todd Eilers – Eilers Research Howard Bryerman – PENN Capital Management.

Good day, ladies and gentlemen, and welcome to Third Quarter 2014 Scientific Games Corporation Earnings Conference Call. My name is Sheila and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct question-and-answer session towards the end of this conference. (Operator Instructions).

As a reminder, this call is being recorded for replay purposes. I'd like to turn the call over to Mr. Bill Pfund, Vice President of Investor Relations. Please proceed sir..

Thank you, Sheila. Welcome to everyone on the call and thank you for joining us today. During this call, we will discuss our third quarter results and operating progress followed by a question-and-answer period.

With me this afternoon are Gavin Isaacs, President and Chief Executive Officer; and Scott Schweinfurth, Executive Vice President and Chief Financial Officer. As a reminder, this call is also being webcast. Which may be accessed on the investor information section of our website at www.scientificgames.com.

A replay of the call will also be archived in the investor information section of our website. This conference call will contain that constitute forward-looking statement under the Private Securities Litigation Reform Act of 1995.

These statements, involve certain risks and uncertainties that could cause actual results to differ materially from those discussed.

For certain information regarding these risks and uncertainties, please refer to our earnings press release, issued today the materials relating to this call posted on our website and our filings with the SEC, including our most recent Annual Report on Form 10-K and our subsequent reports filed with the SEC.

During this conference call, we will discuss certain non-GAAP financial measures. A description of each non-GAAP financial measure and a reconciliation of the each non-GAAP financial measure to the most comparable GAAP financial measure can be found in our earnings press release. Now, I'll turn the call over to Gavin..

Thank you, Bill and good afternoon, everyone. Today Scientific Games reported financial results that demonstrate the progress we are beginning to realize in generating free cash flow, in our operating businesses and the substantial success we've to-date with all of our integration activities.

Whist we still have further work to do in order to build the high performing company, we believe is possible. I'm proud of the efforts underway and the progress we've made in the quarter.

Most importantly, I'm pleased by the progress the integration planning teams working on the pending mergers of Bally and Scientific Games are making, and in the collaboration and team work that I see being demonstrated. People from across both organizations are coming together to plan our future, a future that is very exciting.

This afternoon, I want to share with you some of the details of our operating results and integration planning as they go hand-in-hand toward our focus on driving free cash flow growth. Notable operating achievements include; at quarter-end on a quarterly sequential basis.

The footprint of our WAP and premium participation gaming machines increased 322 units and the average daily revenue increased 2% to nearly $72, which is also up 8% year-over-year and which we believe will once again be the highest daily average among the major gaming suppliers.

Shipments of replacement units for casino operators in the US and Canada increased nearly 18% on a year-over-year. Although, total global shipments decline principally as a result of fewer new casino opening domestically and they decline in international shipments.

As measured by the number of sales leads we track up more than 40% over last year's show. We believe, we had a better G2E than in recent years. Customer feedback was very positive, on our latest new games including our participation games that we expect to launch during the next nine months. Game performance on our Blade products continues to improve.

I would also add, that we continue to gain a favorable feedback from casino operators on the pending combination of Bally with Scientific Games. Let me reiterate our goal, we intend to leave the industry in innovation and to be the partner of choice of our customers. To help them engage their players and to help them grow their revenues.

As we believe, this is our best part to success. And as with our customers at G2E, we had a very favorable interaction and support from our North American lottery customers at NASPL. I'm looking forward to meeting with our international lottery customers this weekend at the World Lottery Association Meeting.

We gain generated strong revenue growth from our interactive gaming products and services. Revenues were up 19% on a quarterly sequential basis, largely due to the continued player appeal of our Jackpot Party Social Casino. The growth of our recently launched Gold Fish Social Slots app and greater revenue from real money gaming.

As we continue to increase the number of online casinos, we served. At the quarter end, we launched the new $5 multi-state MONOPOLY MILLIONAIRES CLUB lottery draw game ticket sales began on October 19, in 23 states having a combined population of about 175 million people. With more states committed to launch the game during the coming months.

We believe this may prove to be one of the most exciting new opportunities in the lottery industry to help grow our customers revenues, and it's certainly one of the most exciting developments to Scientific Games to help grow our revenues in the mere future.

Let me congratulate and thank all the team members, who devoted endless hours and hard work to get this major new product successfully off the ground. Equally exciting as the production work already underway, the launch of companion, MONOPOLY MILLIONAIRES CLUB new TV game show early in 2015, please stay tuned. Turning now to our integration efforts.

Based on our success to-date, we are increasing the total expected annual cost synergies from the WMS acquisition by $15 million to $115 million by the end of 2015. Due to additional actions taken in October following the close of this quarter. We now expect to achieve $85 million of annual cost savings in Calendar 2014.

Furthermore, based on the incredible collaboration the common culture and the goodwill amongst our teams, we are tracking ahead of our initial timetable and expectations for the integration planning of Bally and Scientific Games.

As a result, we now expect to achieve an additional $15 million in total annual cost synergies above our original expectations that brings the total synergies to $235 million of which we expect to achieve about 80% in 2015.

The recent experience gain through WMS and SHFL integrations have provided us with invaluable knowledge and that experience is contributing greatly to our confidence in being able to swiftly and efficiently integrate Bally and Scientific Games after the closing of the acquisition.

Recently, there has been a lot of speculation among the investors and the press regarding our financial structure and ability to complete the Bally transaction. I want to clarify our position and end this confusion. Our deal remains on track, we expect to close the Bally acquisition in this quarter, and immediately implement our integration plans.

We have firm financing commitments in place, to fully fund the transaction. We remain very comfortable with our planning, our ability to achieve the anticipated synergies, and our ability to repay the debt. Our goal remains to achieve a leverage ratio in the fours within four years. Now that both, we and Bally have reported results.

We currently expect to market the remainder of our debt financing within the next two weeks. Finally, we have nearly obtained all of the required gaming regulatory approvals and as I said, we remain highly confident in closing the transaction this quarter.

We've also identified potential revenue synergies opportunities across our businesses, we have not yet fully quantified these opportunities, but we expect it areas such as systems, branding, marketing and product development. We will be able to substantially improve our products and services to enable future further growth.

We've already selected our leadership team. I'm truly fortunate to be able to draw from all of the talented people within Scientific Games, WMS, Bally and SHFL. I believe, we will have the best team in our industry. After all, great companies are made up of great people. Now let me turn the call over to Scott..

Thanks, Gavin and good afternoon, everyone for the third quarter total revenues increased to $416 million compared to $234 million a year ago. With the increase reflecting about $163 million from the WMS acquisition and a healthy 9% growth in our lottery business.

Attributable EBITDA increased $38 million to $128 million, and on the higher attributable EBITDA, we generated $65 million in free cash flow. As a result of the higher free cash flow, our net debt decreased $58 million from June 30, 2014.

The net loss for the third quarter was $70 million inclusive of a $20 million, non-cash impairment charge to write down the value of our minority equity investment in the Northstar Illinois joint venture.

$6 million for transaction related cost, primarily associated with the pending acquisition of Bally and $2 million of employee termination and restructuring expense. We also incurred $21 million of higher interest expense primarily attributable to the funding for the WMS acquisition.

Turning to review of our three business segments performance; I will now begin with our gaming segment, which generated revenue of $203 million, an increase of $164 million over the prior year, all of which related to the acquisition of WMS.

Service revenues from our WAP and premium participation gaming machines was $58 million, essentially flat with the 2014 second quarter and with the prior year result reported by WMS. The results reflect, an 8% year-over-year increase in the average revenue per day of our WAP and premium participation units to $71.95.

We continue to benefit from the player appeal and performance of our newest games, such as the three-reel mechanical Monopoly Luxury Diamonds game introduced in July, offset by a decline in the average installed base of WAP and premium participation units.

I would note that, despite the removal of 92 units including 66 WAP units related to the closure of four casino properties in Atlantic City during the quarter. We reversed the trend that we've experienced during the last three quarter of a declining footprint.

At September 30, 2014 our installed base was 9,054 units, an increase of 322 gaming machines over the 8,732 installed base at June 30, 2014.

At September 30, 2014 our footprint of 3,625 WAP units was essentially flat on both year-over-year and quarterly sequential basis and represented approximately 40% of WMS's installed base of WAP and premium participation games.

Our average installed base of other leased and participation units was essentially flat year-over-year, while the ending footprint decline 118 units reflecting the previously reported loss of the Bedford contract in the UK that was largely offset by the addition of 2,135 WMS leased units.

The average daily revenue for these units increased 15% year-over-year based on the addition of the higher yielding WMS leased units and a slight improvement in the UK. Services revenue from interactive products and services increased by $39 million year-over-year reflecting the inclusion of the WMS.

The WMS interactive revenue primarily reflected continued growth in social gaming, due to a 78% year-over-year increase in daily active users partially offset by 26% decline in average revenue per daily active user. On a quarterly sequential basis, interactive revenues increased 19%.

Daily active users increased 200,000 or 14% primarily driven by continued strength in our Jackpot Party Social Casino and progress of our second successfully social casino app, Gold Fish Social Slots.

The average revenue per daily active user decreased to $0.23 from $0.31 in the prior year quarter largely reflecting the broader user base from the expansion across mobile platforms, which tend to monetize at a lower average rate, while increasing slightly from $0.22 daily rate in the June, 2014 quarter.

Product sales revenues was $68 million, of which $64 million was from the sales of WMS products. Global shipments of WMS units declined 26% year-over-year which while down represented an improvement over the last two quarters results.

While replacement gaming machines to US and Canadian casino operators increased by 262 units or 18% on a year-over-year basis.

The improvement was more than offset by 557 fewer units shipped to new casino opening, 325 fewer Illinois VGT units, as the Illinois market matures, and a decline of 445 WMS international units, largely reflecting lower shipments to Latin America, including lower shipments to Argentina, due to import restrictions and a decline in unit shipped to Mexican customers reflecting challenges in that market.

Other product sales revenue increased reflecting higher subscription revenues related to the installed base of Blade video units, higher conversion kit sales and higher used unit sales. During the third quarter, the average selling price for WMS's gaming machines was $15,211 down 1% compared with $15,405 in the 2014, second quarter.

We incurred $1.5 million of employee termination and restructuring cost in the gaming business, mostly related to headcount reductions. Attributable EBITDA for the gaming segment in the quarter was $67 million. For our instant product segment, total revenue was $134 million about flat with the prior year.

The 13% growth in revenue from customers with participation contracts and 5% growth from customers with price per units contracts were mostly offset by the decline in licensing and player royalty revenues.

This primarily reflects the timing of certain licensed and promotional games and a challenging comparison with the prior year period that included the benefit from the launch of several new promotional and loyalty programs.

The growth in revenues from customers with participation contracts includes the benefit from a 7% increase in US lottery customers retail sales and our growth in sales of Instant games to our Northstar, New Jersey and Hellenic Lotteries joint ventures.

Operating income in the instant product segment increased approximately $1 million over the prior year, primarily reflecting the benefit of higher revenue. Attributable EBITDA for the segment increased about $2 million or 3% from the prior year period.

The decrease in earnings from equity investments to $15 million loss primarily reflects the $20 million non-cash impairment charge, we recorded to write down our Northstar Illinois equity investment.

Turning to our Lottery Systems segment, revenue of $79 million was up 27% or approximately $17 million year-over-year largely reflecting an increase in product sales, primarily due to higher sales of low margin, lottery hardware and software to international customers.

Service revenue was essentially flat on a year-over-year basis and down slightly on a quarterly sequential basis largely reflecting, the benefit of two large above $300 million Powerball jackpots in the prior year period.

Operating income decreased $7 million largely reflecting the unfavorable mix of lower margin international product sales compared with higher margin software sales in the prior year period, along with higher depreciation and amortization related to higher capitalized software cost.

Attributable EBITDA decreased $4 million primarily reflecting the less profitable revenue mix. Turning to cash flow for the third quarter, net cash provided by operating activities increased $101 million to $126 million largely benefiting from an $82 million favorable change in working capital.

For the nine months year-to-date, net cash provided by operating activities was $233 million, up from $96 million in the year ago period, largely reflecting a $51 million increase in the net earnings after adjustments for non-cash items and an $81 million favorable change in working capital.

Additionally, the distributed earnings and distributions of capital from our equity investees was $68 million in aggregate for the first nine months of 2014, up $20 million from 2013.

We invested $43 million in cash, in our joint ventures during the nine months of 2014, which principally reflects the previously disclosed capital contribution to ITL, during the first six months of 2014 for funding participation gaming machines in the UK.

This does reflect a decline of about $22 million from the prior year nine months period which had included approximately $43 million of our initial investment in the Hellenic Lotteries joint venture.

Capital expenditures were $62 million compared to $32 million a year ago, with the increased due to the addition of $37 million of capital expenditures from WMS partially offset by a decrease in other capital expenditures.

Reflecting the lower than anticipated capital expenditures year-to-date, we are lowering our 2015 estimate for CapEx to a range of $245 million to $255 million from the previously estimated range of $260 million to $270 million.

In summary, we believe that the combined company is, and will continue to benefit from the diversity of our revenue streams, and when coupled with the intense focus on integration synergies, free cash flow generation, and ultimately leverage reduction, we believe the foundation is in place for improving operating results in future quarters.

Particularly as we layer in the benefits from our pending acquisition of Bally and with that, let me turn the call back to Gavin..

Thank you, Scott. Before opening the call to your questions. I want to reiterate our key strategies; to develop great creative content that can be leveraged across our multiple distribution channels to help our gaming and lottery customers engage their players and increase their revenues.

We will seek to constantly refine our business processes with the goal of improving our operations to better utilize working capital, increase operating margins and generate more cash flow. We plan to leverage our increase scale and size following the pending Bally merger to deliver positive revenue synergies and grow our business.

We will maintain tight management on expenses and focus on the delivering the targeted cost synergies and asserting strict discipline in the deployment of capital. And as stated previously, we will drive free cash flow to pay down our debt. This as we previously noted, is a key priority of the senior management team and our Board of Directors.

Finally and near term, let me remind that with the launch of MONOPOLY MILLIONAIRES CLUB and our anticipated closing of the Bally merger, the fourth quarter will be an exciting quarter. Sheila, we will now take the first question..

Thank you. (Operator Instructions) your first question comes from the line of Cameron McKnight of Wells Fargo. Please proceed..

Hi, thanks very much. A question first to Gavin or Scott. You generated $65 million of free cash flow this quarter.

This was a pretty meaningful improvement on free cash flow from last quarter, should we say to this as a baseline going forward or things still bouncing around quarter-to-quarter?.

I think things are still bouncing around a little bit on a quarterly basis. We do have, additional synergies that we're expecting both in the December quarter and next year even without the impact of the Bally transaction that would presumably help grow, the amount of free cash flow..

Okay, thanks. And then just, replacement unit sales. Replacement units were up 18% year-on-year this quarter, so a pretty big increase in comp versus last quarter.

Have there been any one-offs or big orders that flow through either quarter and can you just comment generally on what drove the year-on-year increase in replacement sales, this quarter?.

I think, there are two things Cameron, firstly there were no extraordinary orders and I think, I told when I started last quarter, that I was very delighted to see that innovation was alive and well at WMS and that I felt that, we haven't been doing good job at selling the product.

I think that the new team sort of started to shift into gear towards the midway part of the third quarter and I think that, everyone is enthused by it, that's number one and number two, I think our product is getting better.

Last Friday, I spend the day in Southern California and the feedback from the customers was that our Blade video is continuing to improve in performance and furthermore the three-reel Monopoly..

Mechanical!.

Sorry, I had a little too many words, too many M's – was in this quarter and it wasn't in last quarter and that's obviously having a big impact. So it's product and people..

Right, okay. Thanks very much and then just one final question, if I may? It will be helpful for equity investors, if you're able to map out the remaining steps in financing the Bally acquisition..

Sorry, can you explain. I missed the first part of that question..

Just helpful for equity investors, if you were able to way out the final steps that you guys need to take in the financing of the Bally acquisition..

Yes, I think as Gavin and his speech were expecting to launch the notes offering within the next two weeks, which is the final piece of the financing that we need to put in place. We've sort of accelerated the filing time for both our 10-Q's and Bally is also the same and now all that information is out.

We're better positioned to go to the market place..

Okay, perfect. Thanks very much..

Thank you and your next question comes from the line of Steve Wieczynski of Stifel. Please proceed..

Good afternoon, guys.

So Gavin, I guess first of all, with your synergies now and bumping that up on the Bally transaction, can you maybe just help us understand where that $15 million or the additional $15 million came from, is it one bucket or is it kind of across the board?.

Well, okay I'll get Scott to more specific, but you're talking about the $15 million in the Bally or in the WMS?.

The Bally..

Okay, so the way we did the integration was, when we were planning it.

We've done some previous work on a prior acquisition and we looked it over different areas, in which we operated and which there are potential synergies and potential overlaps and effectively that breaks up into 19 different groups and we allocated based on the numbers we had, amounts to those 19 groups and we came up with our $220 million.

As we've gone through that exercise, we found that in some areas, we were right and in some areas we were wrong, but overall where we were right, there was some further areas to improve, and hence, we found that we could stretch our fills and get that extra $15 million, so $235 million is the number, we're going public with and that we feel comfortable with..

The only thing, I would add is, I think we've also determined that some of initiatives we can accomplish on a more accelerate basis and by doing some of that, it creates the synergies over a longer time frame..

Okay, got you and then when we look at your products, WMS actually. Their ASP was down, year-over-year and we look actually the Bally results, Bally actually had a pretty nice upswing in their ASP.

So I guess, when you look out for the next 12 months or so, are you pretty comfortable that WMS side of things, their ASP will stabilize and you actually be able to start a get a little bit price back there on that product..

I think that, I feel very comfortable the more integration planning we do, the more the team start working together. There is a very positive feeling amongst the Group, as we are working and planning this thing.

I think, we feel that the message we are giving our customers, which is the way, we are going to support all product lines and that we're going to continue to invest in R&D and provide the best content across all the platforms, is resonating very well, so I do believe that as long as we continue to develop great games, and as I pointed out.

I'll leave to G2E, we are up 40% year-on-year. If we can get a similar clearance right to last year, that would be awesome. Bally, also tell us that they had a very good show. So, I feel pretty good about the gaming business and the environment, we are in..

Well, I maybe to second that point. I'll speak for Neil [ph] here. They have the WAVE product. Which is done very well in the marketplace and it just demonstrates that if you have a high performing product, you can command a higher price for it..

And the SHFL content, so all the different arms of the business, have got strength, so it's very positive..

Okay, great. Thanks, guys..

And your next question comes from the line of Mike Malouf of Craig Hallum Capital Group. Please proceed..

Hi, how are you, doing?.

Good..

Good, I've a question with regards to the synergies, can you talk a little bit about where some of these additional synergies are specifically coming from.

I mean, what's the, what have you guys uncovered?.

I guess, I would say that, the preponderance of the synergies are in the SG&A area, and we've identified additional both headcount and non-headcount related synergies as we've been going through the integration processes.

As Gavin said there is, 19 different teams that are working on the different functional areas and as time has gone here and we've looked in to the detailed cost structures of both the companies, we've been able to identify more there. In addition, I think on the manufacturing side of things.

We've also enable to achieve a bit more than what was anticipated at the time. We initially put together the synergy estimates..

When you look out longer term, how much standardization, do you think you'll be able to effect on the machine sort of behind the door and are those estimate in the numbers? I would imagine, it might take longer than one year to do that..

Yes, they will and that's part of the strategy clearly is to have one OS and running all of these things, that's where you do get a lot of the benefits and where our customers see huge benefits.

We had one OS and to have multiple different hardware opportunities and all the different flavors of software, gives the customers great flexibility and that's what resonating with them, but that is clearly not in the year one. .

Okay and then with regards to revenue growth, I know you don't talk about synergies on the revenue side, that as you've been looking at the putting these companies together for, at least a few months now.

Are you more open to that opportunity with regards to revenue synergies or do you think that's still kind of off the table?.

No, I think that we definitely expect to achieve, I mentioned that in my talk, but you know I'm not prepared to quantify them at this stage..

Okay, alright. Thanks..

No, worries. Thank you..

Your next question comes from the line of Todd Eilers of Eilers Research. Please proceed..

Guys, thanks for taking my question. I wanted to ask on the gaming ops side, looks like, you had a nice tick up in non-WAP premium units and I know that the trend over the last year or so has been mix shift towards a more WAP of this quarter kind of reverse that trend.

How should we kind of think about that going forward? Are we kind of – do you expect the mix, I guess that we are at this quarter to remain the same or should we expect more WAP or more non-WAP going forward?.

Todd, I think if you've looked back over probably the last two years to three years of quarter. you'd see that, the WAP number has been somewhere in the sort of 35% to 40% range and it's sort of I don't, it sort of fluctuates depending on the performance of the products that are there.

Obviously, we just showed our customer base, all the new things that are going to be able to put on their floor over the next nine months to 12 months before the next G2E and there was, a good concentration of WAP and non-WAP product.

So I don't think you're going to see a significant movement, one way or the other with the WAP as an overall percentage of the product, but it's always been about game performance in the business and obviously, we're anxious to get the new products out and approved and get them on the floor..

Yes, I thought the highlight of our show from my perspective was the offerings in that area, we'd been a little bit constipated perhaps in getting product out to the floor, but certainly whatever pills they took, it seemed to have worked and unlike other companies that seem to get a lot of credo and credits to products that won't be out for a year or more.

We've products coming out every quarter now and I think, we have a very healthy product line. So I feel pretty comfortable with that. Actually, it was also a good growth for us..

And then just also, if I could just follow-up on the installed base question. So it looks, in total for the premium games was up and the period was up $322 million sequentially, but it looks like the average was down roughly $300 million implying a lot of installs were late in the quarter.

Should we expect that kind of in to period number to carry through into the next quarter, are there any other kind of moving parts, I know it's tough, but I'm just kind of want to get your sense at this point..

Well again, based upon the products set and what we have getting approved in the December quarter.

We are hopeful that while we get those new products out there, that it will result in some improvement in the overall installed base and relative to the average base for the quarter, we are certainly starting at the higher point, than we did at the end of the September quarter. So that certainly helped..

And most in the hands of the customers obviously..

Okay, perfect. Thanks guys..

Thanks, Todd..

Thank you and your next question comes from the line of Howard Bryerman of PENN Capital. Please proceed..

Yes, thank you for taking my question. I just wanted to follow-up on the financing question, just to clarify in my own mind, the mechanics behind the bridge loan. It's my understanding that based on what you're saying, that the transaction is fully financed yet in two weeks, you will be going out to market, this senior note piece.

So the way I understand it and I just hope this is correct, as if we would to stop right, the banks would turn around and they would fund the completion of this transaction. However in two weeks after the successful completion of a senior note deal, you would no longer need the banks.

Right, so it's either or it's not as if the senior note deal – that the transaction would be contingent on the senior note deal, would be either or?.

Perfectly correct..

Okay, just wanted to make sure I understood, that. thank you.. .

Thank you for pointing that out.

I would now like to turn the call over to Mr. Isaacs for closing remarks..

Well, thank you all. I have some closing remarks. So I think we will just end at there and say thank you for your support. I think the next quarter is going to be incredibly exciting.

We as a group kind of wait to get this deal close and get on with running, what's going to be, we hope one of the great companies in the future and we look forward to your support. Thank you..

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect, have a great day..