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

Cameron McKnight - Wells Fargo Steve Wieczynski - Stifel Mike Malouf - Craig-Hallum Capital Group Kevin Coyne - Goldman Sachs Chad Beynon - Macquarie Susan Berliner - JPMorgan James Kayler - Bank of America Merrill Lynch David Farber - Credit Suisse Dan Fuss - Morgan Stanley David Hargreaves - Sterne Agee.

Good day, ladies and gentlemen and welcome to the First Quarter 2015 Scientific Games Corporation Earnings Conference Call. My name is Denise and I will be the operator for today. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I will now turn the conference over to Mr. Bill Pfund, Vice President of Investor Relations. Please proceed, sir..

Thank you, Denise. Welcome, everyone and thank you for joining us. With me this afternoon are Gavin Isaacs, President and Chief Executive Officer and Scott Schweinfurth, Executive Vice President, Chief Financial Officer and Corporate Secretary.

During this call, we will discuss our first quarter results and operating progress, followed by a question-and-answer period. Our call will contain statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These statements involve 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 filed on March 17, 2015 and subsequent reports filed with the SEC.

We will also discuss certain non-GAAP financial measures. A description of each non-GAAP financial measure and a reconciliation of each non-GAAP financial measure to the most comparable GAAP financial measure can be found in our earnings press release.

As a reminder, a replay of the call will also be archived in the Investor Information section of our website. Now, let me turn the call over to Gavin..

Thank you, Bill. Good afternoon, everyone. Today, Scientific Games reported first quarter results, our first full quarter of combined operations. We have made significant progress in integrating Scientific Games and Bally and we continue to move forward with our integration. We are off to a very good start.

Revenue was $659 million, up $271 million due to the inclusion of Bally and growth of our interactive businesses partly offset by lower revenues from our legacy gaming business and lottery business. Importantly, the cost structure of the organization is beginning to reflect savings from the initial integration actions.

On the pro forma basis, attributable EBITDA was only down $7 million on a $76 million decline in revenues. By the end of the first quarter, our teams had implemented changes that are expected to yield approximately $90 million in annualized cost savings related to the Bally acquisition.

With the first year target of implementing actions to save approximately $188 million, we are already nearly 50% of where we expect to be by year end. Make no mistake, integration is tough, but we believe we now have the synergies and integration as it’s built into the framework of our business. Our focus is firmly on growing our business.

That is ultimately the key to our long-term success. Importantly, within each of our businesses, we see growth opportunities created by the integration and the convergence of our strengths in gaming and lottery research and technology, strengths that we expect will organically build our long-term business.

Our ability to offer the most comprehensive array of products and services coupled with our strategies to develop innovative and differentiated products is being well received by our customers.

Customers understand what our merger brings, the ability to provide one-stop shopping for the products and services and an ability to leverage size and scale to fund R&D spending to meet our customers’ needs for today and of course for tomorrow.

No one has the breadth and depth of brands, products and services like we do, supported by the scale needed to invest in the innovation and development to offer the customers the best value proposition. I think some of our recent announcements clearly illustrates why we are quickly becoming the supplier of choice.

For example, with one customer, we are providing not just the end-to-end gaming system, but a total end-to-end solution to the casino comprised of the gaming and player loyalty systems, new Bally and WMS-branded gaming machines, top earning participation games, table products, electronic tables, shufflers and all other utility products.

We are also partnering with them to build a full iGaming environment that will enable their players to be engaged not only during their stay, but also before arriving and after leaving the casinos.

Our teams collaborated across the breadth of Scientific Games to work with our customer to bring a new level of engagement and value to our customer bringing the best-of-breed across the full range of its need. In our lottery business, the first six episodes of the MONOPOLY MILLIONAIRES CLUB TV game have now aired.

It is off to an exciting start, including a $1 million winner generating excitement in both the lottery and game show industries. These shows air during the weekend on local TV station with a potential audience that reaches approximately 98% of the U.S. households with lottery access.

While the original draw base games did not meet initial sale expectations, our lottery team continued to focus on innovative ways to continue the TV game show. With the launch of a multi-state instant lottery ticket version of our MONOPOLY MILLIONAIRES CLUB, we now have produced 12 game show episodes with the expectation to produce 9 more episodes.

Each featuring contestants who have won an expense-paid trip to Las Vegas to be part of the TV game show audience by registering their instant game tickets online for a second chance drawing, bringing new incremental growth to support our lottery customers.

If you haven’t done it already, please watch this weekend to see an example of the excitement as someone else has a chance to win $1 million. Now, please let me turn the call over to Scott to review our financial results in more detail..

Thanks, Gavin and good afternoon everyone.

For the fourth quarter, total revenues increased to $659 million compared to $388 million a year ago, with the increase reflecting about $294 million from Bally, partially offset by a $24 million decline in legacy gaming product sales, $8 million in lottery product sales, partially offset by $9 million growth in our legacy interactive business.

The change in our consolidated revenues is inclusive of $8 million of unfavorable foreign currency translation. Attributable EBITDA increased $129 million to $252 million. Our results included several significant charges in the quarter, aggregating $29 million pre-tax, all of which were add-backs in calculating, attributable EBITDA.

The table on Page 2 of the press release and the descriptive review in the paragraph following the table provides a detail of these charges.

In addition, not included as an add-back to attributable EBITDA was a $7 million purchase accounting impact to deferred revenue and associated margins that otherwise would have been recognized in the first quarter.

To summarize, these pre-tax charges included an $11 million impact in cost of product sales from assigning fair value to finished goods inventory for the Bally purchase accounting, M&A cost and other charges of $6 million, employee termination and restructuring costs associated with integration initiatives of $8 million and long-term asset impairment and write-downs of $5 million.

We have been effective in accelerating our integration plans as we have learned through our prior integrations that moving quickly to implement plans benefits all parties. Approximately 650 job positions have been eliminated through integration redundancies and forms the majority of the savings achieved to-date.

Other major integration initiatives are also on track, such as the development of a single robust next-generation operating platform.

The consolidation and transition of the WMS gaming facility in Waukegan, Illinois is well underway and we will begin the transition of all production to our Las Vegas facility later this quarter and continue to expect that we will have fully transitioned before the end of summer.

By implementing best practices and significantly reducing overhead expense, we expect to meaningfully improve our production efficiency and our cost structure in the second half of 2015.

Recently, we have begun the consolidation of our European headquarters in the Barcelona, Spain following the grant of government incentives we received over the next several years as their incentives not originally contemplated in our plans. We look to build a strong relationship with Catalonia in Spain.

All in all, we are ahead of schedule in integrating Scientific Games and Bally. We remain on track in our plans to implement actions expected to generate 80% of the targeted $235 million of annualized savings by the end of 2015 and expect that the savings generated will lead to continued improvements in cash flow in subsequent quarters.

Cash flow from operating activities for the quarter was $78 million. However, it also included an $8 million cash impact of the charges I noted above, as well as a $30 million cash payment for previously accrued costs for litigation settlements that negatively impacted cash flow in the 2015 first quarter.

Favorable changes in working capital contributed $34 million to cash flow for the quarter, up from $25 million in the prior year period, despite building inventory for the rollout of VLTs in Greece and new gaming machines that were shipped at the beginning of April for the upcoming opening of Penn National’s new Plainridge property in Massachusetts.

I would note that while the shipment of VLTs to Greece began at the very end of the first quarter, actual placements and venues are beginning this quarter with the majority of the placements expected in the back half of 2015, which is when we would expect revenues to ramp up.

Given our lower capital spending in the first quarter and current outlook, we are lowering our expected CapEx range for 2015 by approximately $25 million and now expect to invest $300 million to $325 million in capital expenditures.

This includes approximately $15 million to $25 million of integration related capital expenditures, as well as planned investments for growth opportunities, such as the 5,000 VLTs in Greece and other gaming operations opportunities. We continue to maintain a highly disciplined improvement approach towards capital allocation.

In this regard, our partners in Turkey were diligently to obtain the financing to enable them to sign the concession to operate Turkish national lottery.

However, due to the sizable devaluation of the Turkish lira during the past year and challenging conditions from the debt market, our partners were not able to raise the desired financing by the deadline. And we chose not to provide additional capital to chase the potential revenue opportunity.

As a result, the Turkish government has turned to negotiate with the second highest bidder in the auction. During the quarter, our total debt decreased $18 million due to $5 million repaid on our revolving credit facility, $11 million in mandatory debt repayments, as well as capital lease reductions.

We have approximately $40 million in remaining mandatory debt payments in 2015. I would remind everyone that the prepayment of our debt remains our clear priority for the free cash flow expected to be generated in 2015.

The cash balance decreased $21 million to $151 million reflecting the payment of the $30 million in litigation settlement and the $17 million of debt reductions, as well as other items that impacted cash flow.

At March 31, 2015, our total liquidity, including cash and cash equivalents and available borrowing capacity under our expanded revolver net of outstanding letters of credit was $513 million. Now let me turn to the operating performance of our three segments.

I will begin with the gaming segment, which generated revenue of $426 million, that’s an increase of $262 million over the prior year, with the increase essentially all related to the Bally results, partially offset by lower new unit sales in our legacy gaming business.

In the earnings release, you can see the impact that results from the Bally acquisition on our actual reported results compared to our actual reported results in the year ago period.

In order to provide a better like-for-like perspective on the trends of our gaming business, I will focus my following comments on the additional information found in the table of key performance indicators and supplemental revenue metrics that are provided in the earnings release.

That data presents pro forma results as if Bally has been acquired effective January 1, 2014, which we believe may be more meaningful to investors to understand trends in our business. For the first quarter, revenue from gaming operations was $193 million was essentially flat on a pro forma basis from the prior year.

A 9% increase in the average daily revenue to $55.22 per unit largely offsets the 2,406 unit decline in the average installed footprint of WAP, premium and daily fee participation units. On a quarterly sequential basis, the removal of 477 participation games in our ending installed base was less than the rate for the year-over-year impact.

Notable contributors to the increase in average daily revenue are the high earnings performance of our latest Willy Wonka Pure Imagination and The Flintstones WAP games, along with the continued strong performance of the MONOPOLY Luxury Diamonds WAP game and our [indiscernible] game.

The decline of 1,701 units in the average installed base of other lease and participation products primarily reflected the previously reported loss of the Bedford contract for fixed odds betting terminals in the UK in the first quarter a year ago. On a quarterly sequential basis, the period and installed footprint increased 31 units.

Year-over-year, the average daily revenue increased nearly $1 or 6% to $16.34, which reflected improved cash box performance in our UK installed base, as well as an increase in the daily average revenue of Bally games, including the VLTs at New York casinos. Bally and WMS shipments to U.S.

and Canadian customers totaled 4,380 units representing the decline of 1,115 units from the prior year quarter, primarily reflecting 997 fewer Illinois VLT shipped and 608 fewer gaming machines for new casino openings and expansions, partially offset by a healthy 490 units or 13% increase in replacement units.

We shipped only 147 Illinois VLT units and gaming machines for new casino openings and expansions from this year’s quarter compared with a total of 1,752 units for Illinois and new casino openings a year ago. Replacement units aggregated 4,233 compared with 3,743 units in the prior year quarter.

We believe our ship share on replacement units and corresponding wallet share of casino spending increased on a year-over-year basis despite a lower number of total units shipped, a primary element in our increased share of our customers’ spend or wallet share has been the success of the Bally games on the innovative Pro Wave cabinet.

The Pro Wave cabinet has been the leading contributor to the realization of higher average selling price since it was launched last year. We expect the units for new casino openings to improve in subsequent quarters. In early May, we shipped new gaming machines for the expected June opening of the new Penn Plainridge facility in Massachusetts.

Inclusive of participation games, we believe we will have 43% of the casino floor, including a strong presence of electronic table game seats, as well as end-to-end gaming systems.

Internationally, we shipped 2,352 units, a decline of 945 units, largely reflecting lower sales due to the continued import restrictions in Argentina and the softness in the Australian and Mexico markets. With the launch of new cabinet style throughout the year, we will have new product to offer the international markets.

On a year-over-year basis, the 2% decrease in average selling price of new units largely reflected the impact of convert to sale lease units, partially offset by the higher prices of premium priced Bally Pro Wave cabinet.

As expected, given the record high level of hardware installations in the year ago quarter, gaming systems revenue declined to $67 million, but was up $11 million from the December ‘14 quarter. Maintenance revenue was essentially flat.

While installations overall revenue remained lumpy on a quarterly basis, this business remains solid with the continued high win rate and an improved balance towards recurring revenue over the long-term. Today, approximately 50% of gaming systems revenue is from maintenance and service revenues compared to only 33% in 2008.

For the remainder of 2015, we continue to see an improved pipeline of system upgrades, expansions and installations.

Table products revenue declined $6 million, reflecting a decrease in the number of shufflers sold, partially offset by an increase in the recurring revenue from our installed base of shufflers, proprietary table games and other leased products.

Year-over-year, the installed base of shufflers increased 492 units or 6%, while the number of leased proprietary table games increased 128 games or 4%. Additionally, the number of table game progressive units, table side bets and other table add-ons reached a record total of 6,229 units, up 15% over the prior year.

Year-over-year, operating expenses increased primarily as a result of the Bally acquisition reflecting the higher revenue and the savings realized through the implementation of integration initiatives, including a portion from the WMS acquisition, attributable EBITDA increased by $138 million to $197 million.

In our lottery segment, revenue totaled $186 million, inclusive of an unfavorable $6 million foreign currency impact compared to $194 million in the prior year period. Service revenue declined $5 million, inclusive of $1 million on favorable currency impact.

Revenue was primarily impacted by the cessation of sales related to the previously announced loss of the Colorado lottery system contract effective October 1, 2014 and lower international revenue. This was partially offset by a favorable impact on U.S.

retail sales of draw-based games with a $564 million Powerball jackpot that hit midway through the quarter. Product sales revenue declined $6 million, inclusive of $2 million unfavorable currency impact, largely due to lower sales of hardware terminals to international lottery customers, primarily those in Europe.

These sales, similar to the installation of gaming systems hardware, are subject to timing and demand and therefore the quarterly revenue is often lumpy. Instant game revenue increased 2% over the prior year period to $129 million, inclusive of a $3 million or 2% unfavorable impact of foreign currency translation.

7% growth in instant game revenue from customers with participation contract was driven principally by higher retail sales to our U.S. customers, including higher sales to Northstar New Jersey, plus sales to Hellenic Lotteries, which began operations in May 2014 partially offset by slightly lower price premium of sale to other U.S.

and international customers. License and player loyalty revenue was essentially flat for the quarter. Despite the 4% revenue decline, operating income in the lottery segment increased 7% or $3 million year-over-year, benefiting from a more profitable mix of revenue and lower operating expenses.

Attributable EBITDA for the segment declined $2 million or 3% from the prior year to $78 million, largely reflecting the decrease in EBITDA at our joint venture, primarily LNS in Italy and the absence of our Sportech equity investment that we sold in the first quarter a year ago.

Turning to our Interactive segment, revenue on a pro forma basis increased $6 million or 14% year-over-year, reflecting growth in both social gaming and real money gaming. Social gaming continues to benefit from an increased base of users on both the Jackpot Party and Gold Fish casino social casino apps.

On a pro forma basis, our average daily users were up about 15%, while the ARPDAU was flat with the prior year quarter.

As a result of the higher revenue and improved scale within our legacy interactive business, lottery operating income increased $8 million, $12 million from the legacy interactive business partially offset by $4 million operating loss from Bally.

Attributable EBITDA tripled to $10 million, reflecting the benefit of higher revenue and the improved scale being achieved in the Interactive business. In summary, we believe that the combined company is beginning to reflect and will continue to benefit from the diversity of our revenue streams.

When coupled with our intense focus on achieving integration cost savings, we have a defined path to generate improving cash flow. And as we have previously noted, we intend to prioritize free cash flow to reduce leverage. We believe the foundation is in place for improved operating results in future quarters.

With continued progress in achieving our integration savings and improving organic growth, we believe we are largely on track to continue to expect our free cash flow will be meaningful better in the second half of the year with additional improvements of 2016 and beyond. And with that, let me turn the call back to Gavin..

Thanks, Scott. Before taking your questions, I want to be clear on one very important point. While financial savings are very important in driving our expected increases in free cash flow in coming months, our number one commitment is to empowering our customers.

The longer term value accretion from the Bally merger will be our ability to leverage the innovative product development and technological capabilities across the company to provide our customers in the gaming, lottery and interactive industries with high-earning products and services, total solutions with the best-in-class value proposition.

Our customers understand this and are supportive of our strategy.

The combination of our comprehensive product and service offering, the innovation and differentiation enabled by our combined IP resources, the talented engineers and product development teams around the world to create solutions for our customers that will engage players and provide growth in their businesses.

These are the strengths that create the real excitement that we saw when we first discussed the potential of combining Scientific Games with Bally. Make no mistake while the revenue synergies are harder to quantify and generally take longer to materialize, they are no less real.

New revenue synergies come from building on our heritage of innovation and creating great content and systems across gaming lottery and interactive.

With our talented people, intellectual property, well-known brands, breadth and depth of product portfolios, technologies and scale, we are uniquely positioned to create new ways to engage players and to help our customers drive growth.

I would like to thank all our stakeholders, our board, our shareholders, our debt holders, and most importantly, my teammates in Scientific Games for all their hard work. Integrating and running a business at the same time is difficult, but we are off to a strong start and are excited about the opportunities for the future.

Operator, we will now take the first question..

[Operator Instructions] Our first question comes from Cameron McKnight with Wells Fargo. Please proceed..

Thanks very much.

A question for Scott, first of all, Scott, could you walk us through the impact of some of the one-offs on free cash flow in the quarter and guide us towards where underlying or recurring free cash flow likely came out in the quarter?.

Sure. I mentioned that there were sort of two one-offs in the cash flow from operating activities. One related to the cash impact of the charges that we booked during the quarter and that was $8 million and the other related to the payment of $30 million in cash for previously accrued litigation amount that were settled during the quarter.

So, those two are sort of the unusual items that sits in the quarter. So, if you take the number that was there and you add the $38 million to it, free cash flow is closer to sort of a $45 million number. And as I said, our expectation is that that number will go going forward..

Okay, got it. Thanks. And then a question perhaps for Gavin, could you talk to conditions and just the environment within gaming operations? Units were down sequentially and we have been hearing that things are getting a little more competitive on the participation front.

If you could give us an update there, that will be very helpful?.

Well, yes, I was delighted by our performance. I think we have strengthened in that part of the business. The unit numbers may have been down a little bit and that’s different customers were moving from units. But our win per unit was up quite strongly, but across the entire board. So, I don’t know about the competition per se.

I think we have had a very strong quarter. And I don’t know about the total market, but I think we are more than holding our own, if not growing in that space..

Okay, got it. Thanks very much guys..

No problems..

Our next question comes from Steve Wieczynski with Stifel. Please proceed..

Hey, good afternoon guys. So, Gavin, can you help me go through the ASP, I mean, the ASP was a little softer, I think than most were looking for and it was down a good bit quarter-over-quarter.

So, was that partly mixed or what drove that down? And can you talk about the pricing environment at this point?.

Yes, it’s very simple. It was one convert to sale for a customer that went off-lease on to purchase..

Okay.

Can you just give a little more color though in terms of what you are seeing out there in the pricing environment is it still pretty competitive at this point?.

Yes, the pricing has been fairly stable. I mean, we look back on it. It’s over the last four or so years is fairly stable. There is absolutely no reason to discount when the market is so small. There are some customers trying to – some competitors I should say, who bundle and try and give away free units if you buy a certain number.

But it just doesn’t make sense to us to do that. I think that ultimately, there is a price where the markets accept the units and there is no much reason to go below that. But at the end of the day, the customers aren’t going to buy them unless they work..

Okay, got it. And Scott, you just touched on this a little bit, but I guess when you look at the conversion into free cash flow was a little softer even if you add back the two things you mentioned. And this is a – for most investors at this point, it’s a leverage story.

And I guess, with only paying down $18 million in the quarter, what gives you the confidence over the next two or three quarters that we will see this free cash flow really start to accelerate again and the debt will – and the leverage will be reduced a little bit quicker?.

Well, I think there are some things from the seasonality impact that will improve revenues in the future quarters. The gaming business traditionally on the product sales side, the June quarter is traditionally the best quarter in terms of new unit sales.

The June and the September quarters are usually the best quarters in terms of revenue per day in the gaming operations business and as we said in the call, our pipeline for the systems business shows stronger performance in the second half of the year.

On the lottery side, the lottery business has a little bit of seasonality and the product sales side where the December quarter typically is the largest quarter.

I guess another thing I will point out is we lowered our expectation for CapEx spending by about $25 million and sort of where we are at for the first quarter and where we expect to be for the rest of the year.

And then probably, another very significant impact is the cost savings that we are implementing from our integration efforts will build throughout the year. I think Gavin talked about the fact that we are almost 50% through what we expect to implement for the current year.

And you will see benefits on the expense side, and therefore on the costs – on the cash side going forward..

And let me add to that, Steve. Quite obviously, putting together the companies of this size, there is a lot of people issues, there is a lot uncertainties and certainties. We are beginning to get more momentum now. And as the teams begin to settle in and work together, clearly they are going to operate the business more effectively.

So first quarter, as I said in my part and I think was very strong start..

Okay.

And can I ask one more question?.

Sure..

With the – I guess what kind of progress have you made, Gavin with going out to properties and casinos and selling that total package meaning going and be able to do slots, shufflers, systems, I mean are people pretty receptive to that or are they pretty cautious, they don’t want to give all of their business to one provider?.

No, I think they are very – and you can ask as many more questions like that as you want. I think that they are very receptive. We have been putting our press releases showing some of these.

The one the other day that we have put out where the customer genuinely took not only the system, they took games, they took recurring revenue tables, electronic tables, shufflers, I think they even took chippers.

Then they took our, what we would call our SG Universe products where you actually take the play outside the casino and you can communicate with your customers there. We are genuine – I think the customers are very receptive. They understand what we are doing. They understand the rationale.

They really are looking for people to lead the way into the future with new R&D and new concepts and products. We have been sharing that with them, and the reception has been very positive. Clearly, our systems business is getting – going from strength to strength again, which is a great start, system-based gaming and everything else like that.

So I think – I am spending more time now that we got through the funding and the integration. I am spending more time getting out in the road and try to meet with customers and as are my senior team. So very customer focused as I have always been. The team is very customer focused.

Customers are responding well and I think that all goes well for the future..

Thanks guys. I appreciate it..

Thank you..

Our next question comes from Mike Malouf with Craig-Hallum Capital Group. Please proceed..

Great. Thanks for taking my question. With regards to the CapEx, could you just – was that related to the Turkey bid or was there some other reason why you lowered the CapEx I missed that? Thanks..

Yes. There is a piece of it that is Turkey related, because we are going to have to put some CapEx into the system infrastructure there. But we also saw on both corporate basis and on the lottery basis plus spending and what was anticipated in the first quarter and some of that will continue into the rest of the year..

Okay, great. And then you were actually really helpful with regards to the free cash flow calculations, but on the EBITDA side, when you take a look at that write-up associated with the acquisition of $11 million, that’s not included in the EBITDA, correct.

So that’s – I mean, you could almost say that EBITDA was $263 million?.

No, it’s in the $252 million..

And the write up is?.

Correct. What I said was not in the $252 million was the impact of eliminating the deferred revenue at the time of the acquisition and purchase accounting for $6 million that would have hit this quarter had we not eliminated in purchase accounting..

Okay, great. Thank you..

Thank you..

Our next question comes from Kevin Coyne of Goldman Sachs. Please proceed..

Hi, good afternoon. Thank you for taking the question.

I just want to follow-up on a previous question, just to understand the process a little bit more from the customer perspective, I am used to seeing in telecom and tech where service providers put out RFPs and will ask for multiple bids, are they doing that as well for Greenfield projects like Baha Mar and are they asking for end-to-end solutions in those RFPs, is that kind of how it works or is it a little different?.

Yes. I mean in gaming – lotteries are RFPs always, the government contracts and your responding to RFPs. Gaming, they are not going to just – some customers are very loyal and they just go straight to their incumbent system provider, for example.

But effectively, when the customer wants to buy a system for Greenfield property and if it’s not linked to anything else, they will see what the market’s got out there. Again, when you look at our systems business, clearly it is the category leader and so we do bid.

We often are more expensive than our competitors, but obviously the quality that the customers see and if they are prepared to – it depends on what they want from the system, but if the price isn’t a major determinant, we often win. So yes, you bid on everything. Games, I mean it’s really performance based.

There are a lot of game providers out there, if your games perform well, that will be bought. The other aspect of that is to buy a game just because it’s performing well today.

You have got to have confidence that in 5 years time, the company you are buying it from will have more games to support that game will be quality games and not just a small one hit, one to shop. And that’s why a lot of the – a lot of companies with that size and scale seem to plateau.

They are fairly seen in every – one or two banks [ph] on the floor. So I mean there are lots of factors and that’s the way gaming works. As I said, lottery is all – sorry, government lottery is all RFP based. Interactive is, again I mean we have content. We hook out servers in remote gaming server business up to B2C operators and the players go online.

And if they want to play our games, they click on them. And if they want to play with someone else's, they click that..

But just as a follow-up, so you could submit a bid on an end-to-end solution and they could piecemeal except your bid for certain product and take other people’s offer for those solutions?.

To an extent, I mean it’s going to be compatible and it’s got to talk, but yes. In theory, yes, you could do that..

Okay. Just a question on the 8-K that was filed a few days back regarding competitor’s allegations regarding the technology, and again, I think the 8-K gave your stance.

But I was just curious how your customers are reacting to it and do you have any sense of timing of when it’s going to be wrapped up? And perhaps, is there a precedent, let’s say, issue that the industry dealt with in the past and maybe you could give us how it was resolved?.

Well, I haven’t heard one piece from the customer.

I can’t – seriously, you want me to answer that?.

Well, it was worthy of an 8-K..

Come on, come on we should bury that. I mean, we have to put it in 8-K..

Right. We generally don’t comment on litigations on these calls..

Okay.

Just one final question and then I know during the roadshow, you had talked about opportunities with various state lottery contracts that were coming up for renewal, can you give us an update in terms of is that going to be more of a back half of the year when we may start hearing on some of those?.

Well, we have submitted a couple of bids right now that are in the process of being evaluated. And there is not a set timeframe for when the lotteries will make their decision on that.

There is a couple more that we are expecting to receive RFPs sometime this year that we will respond to, but the decision likely wouldn’t be made until maybe end of this year or beginning of next year..

Great. Good luck. Thanks..

Thank you..

Our next question comes from Chad Beynon with Macquarie. Please proceed..

Hi, thanks for taking my questions. Gavin, you mentioned a few minutes ago, you kind of touched on SG Universe.

And I wanted to dive into that a little bit, because one of the things that was shown to us a few years ago was the real money, I guess, property wagering on mobile devices, iPads, iPhones, could you talk about the importance of this feature? I know you are the only company currently doing it.

What the reception is from your operators? I know you have a few announcements here.

And more importantly, do your operators, particularly those in destination markets have the WiFi capabilities to run this system? Just wondering if you could touch on that?.

Sure, sure. So, let me talk – I mean, I don’t want to give too much to our competitors who are listening and we say hi to all of them. But clearly, SG Universe benefits from a very strong systems background in business. We looked at what Bally had. We looked at Scientific Games were doing with SciPlay.

We looked at what WMS were doing with their solutions. And we put together what’s really rapidly become something we are very excited and it’s like a best-of-breed. The WiFi capabilities are very, very cheap. We had beacon technologies out there and it’s not rocket science.

You are building a new property, you build it in and retrofitting of property is not that expensive. So, that’s quite easy.

It’s really – I mean, there is many different aspects to it and there are many different stages to it, but we have a fairly well-advanced development plan for many of those stages in the whole concept about staying connected to your player and being able to communicate with a player on and off the property, being able to market them more effectively, both on and off the property, being able to offer them different solutions, both for gaming and for play on and off the property.

That’s what it’s all about it. And how important is it, clearly with mobile devices that everyone is carrying and with marketing, it becomes very effective and an important tool. Is it the [indiscernible], I mean, we think it’s a great start, just one of our solutions that we are working on to the future..

Okay, thanks. That’s helpful..

I could give you a demo on one of our tradeshows..

Alright. I am looking forward to it. And then on market share, you noted that you believe that you gained market share. I am guessing that was referring to the domestic market.

Wondering if you could touch on how you believe you are positioned internationally, particularly ahead of the flurry of openings in Asia over the next 12 to 18 months?.

So, what was that again, sorry?.

What its commentary on international positioning in advance of the properties..

Sure, sure. Well, I mean, just like here and the international customers, many of them are major, sort of like understand which one to achieve and what we are going to achieve with all our solutions and the unification of the operating system things like that.

Clearly, the systems business actually penetrated the Australian market really for the first time, which is very exciting and offers a great opportunity. So, it’s sort of like more of the same. And there are certain markets internationally that it’s driving a little bit.

Argentina, we all know it’s very difficult to import and export, but there has been a little bit of business there and certainly around Mexico, things like that. What’s happening in the cow? I look at it as a reset.

I think ultimately probably worked in favor of mass market, which is our kind of solution, but the rest of Asia seems to be bubbling along and we continue to do well. And then I would say that Europe is another major flat purchase market, but we are starting to see some traction and of course the VLTs in Greece is a great opportunity..

And one last one if I may, Scott, last quarter, you talked about a leverage goal of 4 times by the end of four years, I know that’s a ways out, but that kind of stuck in my head.

Given the puts and takes and some adjustments to cash flow and CapEx, could you just give us an update there or just confirm that that’s still the goal?.

Yes, our goal is still to be less than a 5 multiple in a 4-year period and we remain committed to that goal. We are pleased with what we have been able to accomplish on an integration basis. I want to clarify one point on the $90 million of integration cost savings that have been implemented.

That is a run-rate for the year versus what was realized during the quarter. So, there is a difference between implemented and realized just to make that clear. So, I do think that we are on track for achieving the leveraging and getting to the goal that we set out at the start..

Okay, thank you both..

Thank you..

Our next question comes from Susan Berliner with JPMorgan. Please proceed..

Hi, thank you. Good afternoon. Scott, I wanted to start with you, if I could.

Can you just tell us I guess what the actual synergies in the first quarter that were achieved?.

Yes, the preponderance of the synergies related to position eliminations as I reported we have – since the closing of the transaction, we have eliminated 650 positions within the company and are a bit ahead of where we expected to be at this point in time.

And in addition all of the sort of public company costs that were duplicated between the two out of these has been eliminated and we have made progress on, let’s say, using the scale of our combined operations in renegotiating terms with vendors and getting lower costs for that.

We also have made pretty decent progress on closing and combining facilities on a global basis. I mentioned in my remarks that we – in the quarter, we made the decision to locate our European headquarters in Barcelona. And so we are making progress on getting that accomplished..

So, the actual number for implemented synergies be around $25 million?.

No, the implemented synergies, is the $90 million that I talked about. So, through the closing in November through March 31, 2015, we have implemented $90 million of the $188 million that we expect to have implemented by the end of calendar 2015..

Okay. I was just trying to get what was flowing through for 1Q, but I can circle back with you on that..

Yes..

I guess, and one of the questions I keep getting is what a true apples-to-apple EBITDA is and I know you did a really – the cash flow – walking us through the cash flow and the add back was really helpful, I was wondering if you could do that with EBITDA?.

Well, there is a table in the press release, right, that sort of highlights the things that were unusual in the quarter and the total amount was $29.4 million. And then if you there is – we also provided a table near the end of the press release that on a pro forma basis shows the pro forma income statement results.

And there is a reconciliation from the net loss to attributable EBITDA on a pro forma basis for what the March ‘14 quarter to March ‘15 quarter, and we also put in there the sequential quarter, the December ‘14 quarter so that if people wanted to look at sequential improvement, what that looks like..

Okay, that’s helpful. Thanks. And then I just had a couple of others.

With your, I guess shipment to Plainridge, the Greece VLTs, Baha Mar, I know you guys don’t like to give guidance, but I think a bunch of us missed on the sales number this quarter, so I was wondering if you could help us how we should think about the shipments over the next few quarters?.

Well, the – as I have said, the June quarter is traditionally the strongest quarter of the year in terms of unit shipments. And you can perhaps go back and look at historical data to get a perspective on that. The September quarter at the opposite end of the spectrum is usually the slowest quarter in terms of new unit shipments for the year.

And December will be an improvement over September or that’s what we would expect, but certainly less than what the June quarter will be..

Great. And then my last....

And I am sorry, one other thing if I could add. You mentioned the Greek shipment, the Greek opportunity is not a unit sale opportunity. It’s a gaming operations opportunity. So that will be earning revenue over a 10-year period of recurring revenue for that..

Okay, great.

And then just one question on any hedging strategy to deal with the FX movement?.

We actually had a discussion of that with our Board and have concluded at this point in time relative to the cash flow that comes internationally, that we would not do any additional hedging on foreign currencies..

Great. Thank you very much..

Thank you..

Our next question comes from [indiscernible] with Bank of America Merrill Lynch. Please proceed..

Hi, guys. It’s James Kayler.

How are you doing?.

I thought you were still feeling..

Just to maybe dig into the unit sales a little bit more, I think there was something in the release, but there was a lot of data in here, can you just give us a little color on what happened with replacement sales versus new opening sales in the quarter.

And I guess, it would also be helpful, I know you don’t want to give sort of granular guidance, but maybe just to give your outlook for the North American replacement market for the rest of the year?.

Okay. So relative to the unit sales for the quarter, in the U.S. and Canada we shipped 4,380 units, and embedded in that was 147 Illinois VLT units and 4,233 replacement units. And that 4,233 was up from 3,743 on a pro forma basis in the prior period, so it was up 13%. And I believe there were no new units shipped to new casino openings or expansions..

Very good.

And what does the comp look like for the rest of the year, like in terms of new openings last year?.

I don’t have that data in front of me, James. But as an example, we obviously shipped in April, the Penn Plainridge units, which I talked about in the discussion.

I think our overall expectation is that new unit shipments in this year will be probably a little bit lower than what they were last year and last year wasn’t particularly strong for new unit shipments to begin with.

We are going to continue to have the same tough comparison with Illinois VLT units because that market is maturing and the number of new locations that are being authorized is slowing.

I just answered Susan that we do expect on an overall basis units to be up and be the highest of the year in the June quarter, be the lowest of the year in the September quarter and then up in the December quarter from the – I am sorry the December quarter from the September quarter..

Okay, very good. And then on the gaming apps business, obviously there was a sequential change, it’s my understanding if there is one particularly large distressed gaming operator that has taken a pretty dramatic new approach to their gaming apps.

But again, from a – on a sequential basis, how do you think about the wide area progression in premium game installs for the rest of the year?.

Well, to be quite frankly, it’s likely to be dependent upon the performance of the games on the floor because if you are performing well, you will generally get more placements on the floor. We are encouraged by....

We seem to be performing well..

Right. The last couple of quarters, we have had pretty nice quarter-over-quarter improvement – quarter over the prior year quarter improvement in the revenue per day, which I think will be helpful. And the thing that we can’t predict is if there are other operators that decide that they want to reduce or right size their participation footprint..

Okay, very good. And I guess just the last sort of outlook question would be on systems.

I know it was a very tough systems comp in the fourth quarter as well as in this first quarter, how do the comps look for the systems business for the rest of the year in terms of large installs last year?.

Alright. So I think that the September quarter and the December quarter were – in ‘14 were relatively lower than the first two quarters for that year.

So I would say the comps will be easier in the last half of the year, especially given the backlog of the business and the new install that Gavin talked about in Australia, that we will be putting in over that timeframe..

Okay.

Just one last housekeeping question, all the data and the pro forma data you gave in the release was very helpful, is there any chance that you are going to provide that for like a full of rolling four or eight quarters for modeling purposes?.

Well, I guess next quarter we would have in the June ‘14 quarter and you are only missing the September ‘14 quarter and you can probably get to that by taking the December – I am sorry, the year end ‘14 and backing out the first – the quarters. So, we will see. If it’s helpful, we can certainly put it in the next release..

Okay, very good. Thank you, guys..

Thank you..

Our next question comes from [indiscernible], Independent Credit Research. Please proceed..

Good afternoon. Thank you for taking my questions.

First, I was wondering if you can tell us, have you noticed any changes in the decision-making process of your gaming customers in regards to buy versus sell fees of your machines?.

Not really..

And what – on average, if you take [indiscernible] as a volume, what is the percent machines that you are leasing versus selling?.

No, it doesn’t quite work that way. There is different categories on the floor. It depends on the customer. I think on average customer, if you took America as an average, they may lease about 20% of their floor, but it really depends..

But in regards to new opening casinos, are they more inclined to buy or to lease?.

I think it depends upon the casino operator and what their particular strategy is because some have a richer mix of participation and some have a leaner mix of participation. I think on an overall basis, participation is usually sort of 8%, 9% of a total casino floor..

And if it goes up to you, would you rather sell all of your machines or to lease them?.

We would rather lease rather than sell..

We are focused on our customers. And if our customer – there are certain properties that we have leased to us so that we could only lease. There are others where we offer the option and where we offer the option, it’s entirely up to the customer..

Okay, that’s helpful.

And then the next question is I was wondering if you would be willing to start breaking down your sales and maybe a number of units installed, your segment internationally versus in North America, is there any plan to do this?.

No, I don’t think so. I mean, we break out the units that we sell between U.S. and Canada and international, but we have not traditionally broken out the gaming apps and installed footprint..

For the entire units..

Okay.

And then would you tell us a little bit more about the compensation? How does the compensation work for your salespeople in lottery segment and in the gaming segment? Do they make base salary plus commissions? And where is this condensation reflected in the income statement, only in cost of goods sold or SG&A?.

Yes, sure, right. In both businesses and even in our interactive business, the salespeople have a base salary and they earn a commission based upon what products they actually sell. And those costs, both the salary and the commission are included in our SG&A costs..

Our next question comes from David Farber with Credit Suisse. Please proceed..

Hey, guys. Just one real quick question.

I am not sure if you guys have this at hand, but have you guys – or do you know how much actually has been realized with regards to the cost savings to-date? I know you guys talked about having what kind of running through the P&L today or in the first quarter?.

I think we are only talking about what got implemented in the quarter rather than what got realized in the quarter and that’s the disclosure that we have opted to make. You can imagine though if we have implemented $90 million by the end of March that we are going to get most of that realized during the 2015 period..

Right. Yes, I know that makes sense. And then just in terms of and you might not touch on this either, but just in terms of current apples-to-apples LTM number relative to kind of what you guys showed in offering documents with the high-yield deal? I think you guys have like $1.3 billion or so.

Do you guys have a number that’s comparable to that kind of rolled forward for today?.

I don’t have that number in front of me. But again, I believe that we are – if anything, we are ahead of where we expected to be on the synergies at this point in time, because we were able to accelerate some of the position eliminations that have been planned..

Ahead of that, will that includes the $235 million, but are you saying that number might be higher or you are just saying in terms of timing?.

I am just saying in terms of timing. At this point, we are ahead of where we expected to be in position elimination..

Yes, that’s the spirit..

Yes, the $235 million was what was in the offering document..

Right. That’s what I am saying. I am saying is there – so like in that document you have attributable EBITDA of $1 billion essentially.

Essentially, I am looking for that number, LTM for today I think some other guys were touching on that as well?.

I think we are saying we are totally on track..

Got it. Okay, it’s relatively close 1.2% to 1.3%..

Yes..

Okay, thank you..

Thank you..

Our next question comes from Dan Fuss with Morgan Stanley. Please proceed..

Hey, guys.

I will make it quick as most of my questions have been answered, but is there any other FX impact outside of the lottery impact that we should be mindful of whether be in tables, systems, interactive or on the international unit side?.

Yes, there is a little bit in gaming and a little bit in interactive. In our gaming business, for the preponderance of our revenues, they are in dollars, but we do have the fixed odds betting terminals in the UK. So, there tends to be a little bit of currency there.

And then on the interactive business, we also have – for our real money gaming business, we are doing that in local currency. And there is a fairly fragile portion of that, that’s either euro or pound based.

But my recollection for the quarter is that there was $8 million total FX impact on revenue, $6 million of that was in the lottery business and the balance was split between gaming and interactive..

Great, thank you very much..

Thank you..

Our next question comes from David Hargreaves with Sterne Agee. Please proceed..

Hey, great job on the integration process and thank you for bearing with us since we get to know the company better.

I was wondering if you could give us some color on when we think about the replacement market and the average age of machines, what should we be looking to in terms of indicator – forward indicators, budgets and customer attitudes? I mean, how important is it to start to see some sort of casino top line revenue growth? And what else should we be looking at and thinking about?.

I guess it’s a combination of things. And I guess, I mean your dead friends explaining how this will work. So, when I started in the business, it was probably like a 5-year life cycle for a game. Then we brought software into the games and that extended the life of the cabinet. The cabinet is still a computer.

And a lot of these things are getting older and older and clearly, the newer ones are performing better. [Technical Difficulty] very proactive in their equipment, particularly native American casinos, even Canadian casinos, so you often see refreshment rates there higher than maybe some of the more cash-strapped corporate casinos.

Again, it depends on the region as well. In a competitive regional environment, the local environment, I get more replacements than you will in, say, a tourist environment. So, there is no one easy answer.

It seems to me that we have got to a stage that those who have been investing in the floors continue to improve, even good growth rates in some of the regional markets. Not the ones that are publicly recorded, but in the private native American markets and things like that. And again they constantly are improving their floors.

So that’s the story that we try and tell our customers. We try and show them the evidence, but sometimes they just feel that there are better uses for their capital. Clearly, growth will drive a lot more replacement, we would hope. There is no such thing as a market – I mean every market is a little bit different..

Okay.

And in terms of new jurisdictions are there any particular states that are on your radar screen right now?.

Well, unfortunately lots of them, but obviously Massachusetts and Maryland expansions there. Talk about Alabama is great. And we will take any that comes Macau, there are five or six properties opening over the next 2 years there. There are some openings in Asia, which is always good.

New York, five properties opening here, four defined and one to be defined at least..

And then those that haven’t been approved already?.

We look for everything. I mean, Alabama will be one that would be that just topped this week. But yes, we are constantly out there looking, but I don’t know if anything that’s going to surprise everybody..

Are there any important lottery contracts in the next 12 months that we should be watching that might have some lumpy impact on the numbers?.

Yes. It’s sort of like the secret sauce. We do have lots we often – we are constantly – we put out releases when we do extensions that has been approved. We bid on things and whoever wins puts that bid out. Some things we don’t bid on. And really is....

And you can look in our 10-K, we had a table that disclosed the largest lottery contracts and what the expiration date of those contracts were and whether there were any extensions to extend beyond those expiration dates..

Okay. Thank you very much team..

Thank you..

Thank you..

We have no further questions. I will now turn the call back over to management for any closing remarks..

Well, thank you for joining us this afternoon. We are trying to and as you can see, that we understand and we respect that we have a lot of equity investors who are probably a lot more familiar with our business than our debt investors. We are going to try and continue to educate and provide you with updates on our progress.

And obviously, next one will be our second quarter results at the end of next quarter. Again, thank you for your interest and your support. And we look forward to seeing you soon..

This concludes today’s conference. You may now disconnect. Have a great day everyone..