Bill Pfund - VP, IR Gavin Isaacs - President and CEO Mike Quartieri - President and Corporate Controller Scott Schweinfurth - CFO.

David Bain - Sterne Steve Wieczynski - Stifel Todd Eilers - Eilers & Krejcik Gaming Mike Malouf - Craig-Hallum Capital Group Chad Beynon - Macquarie Carlo Santarelli - Deutsche Bank Susan Berliner - JPMorgan Dennis Farrell - Wells Fargo Chris Jones - Union Gaming David Katz - Telsey Group Barry Jonas - Bank of America Kevin Coyne - Goldman Sachs Dan Fuss - Morgan Stanley.

Good day ladies and gentlemen and welcome to the Fourth Quarter 2015 Scientific Games Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Bill Pfund, Vice President, Investor Relations..

Thank you, Lauren. Welcome everyone. During today's call, we will discuss our fourth 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 our subsequent reports filed with the SEC.

We will 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, this conference call is being recorded and a replay of this webcast will be archived in the investor section of our website. Now let me turn the call over to Gavin..

Thank you, Bill. Good afternoon, everyone. Welcome to Scientific Games fourth quarter results presentation. Joining me on our call is Mike Quartieri, who joins us after 9 years of Las Vegas Sands, and will be assuming the role of Executive Vice President, Chief Financial Officer and Corporate Secretary on February 29.

Also joining me is Scott Schweinfurth, who currently holds that title and who is moving on to his well deserved retirement. Scott, thank you for your many years of dedication and hard work. Our strong 2015 fourth quarter operating results marked the conclusion of a transformational year for Scientific Games.

We successfully activated our business strategy focusing on integration, innovation and most importantly our customers. The heavy lifting of our integration work is now behind us and our synergy assets are paying off.

By year end 2015, our teams implemented 231 million of aggregate annualized cost synergies from the Bally merger and second-year synergies from the WMS merger. In total over the last 30 months, including the Shuffle acquisition and first-year WMS synergies, more than $350 million of annualized integration synergies have been implemented.

Today, we are proud to be one company with one mission and three strong high margin and successful businesses offering the broadest product portfolio in the industry. Importantly, our strategy to achieve growth and deliver results has paid off.

For the fourth quarter we are pleased to report our consolidated revenue totaled 737,000 million, an increase of 10% on a quarterly sequential basis and up 4% over the year ago period on a pro forma basis. We achieved these strong results in spite of a $21.4 million unfavorable impact from foreign currency translation.

On a constant currency basis, revenue was up 7% year-over-year on a pro forma basis. AEBITDA increased 11% sequentially and was up 38% compared to the pro forma results a year ago. Our fourth quarter revenue was driven by sequential improvement in all three segments. Gaming up 9%, lottery up 9% and interactive up 18%.

We improved our segment revenues and elevated our competitiveness by doing what we said what we do. Focusing on innovation that empowers our customers, supporting our legacy brands, cross-selling our products and services, replacing our competitive systems and other products, winning new contracts in lottery, and galvanizing our interactive business.

Our innovation was showcased at G2E, NASPL and most recently at ICE. We believe it has help to generate our improved fourth quarter performance and is already driving our momentum into 2016. Gaming generally performed well despite industry headwinds and unfavorable foreign currency impacts.

On top of record sales of our premium Bally Pro wave video cabinet, our new new TwinStar jewel screen for sale video slot, which supports content from both Bally and WMS just started making its way onto casino floors in the fourth quarter and is already showing encouraging performance.

TwinStar leverages our next generation ArgOS operating system to combine the best technology and content from two of our strongest brands giving casino operators an unprecedented degree of flexibility to adapt it for their players. Our talented team turned this innovative cabinet around in record time.

By the end of December, we had approvals in more than 16 U.S. jurisdictions and it shipped more than 200 units in the fourth quarter with a strong pipeline leading us into the first quarter of 2016. We expect this new cabinet and content to drive success in 2016 and beyond.

On the lottery front Q4 wins include a new 7 year contract with Denmark's national lottery, a 5 year contract with the Brandenburg German lottery, a 10 year extension of our Arkansas instant games contract and a 5 year contract to Arizona's lottery system.

At close customer relationships and comprehensive solutions have helped us win long term contracts around the globe. Importantly, Scientific Games has won or tied on the technical element of the bid in 7 of the last 9 system procurement proposals reflecting our unwavering commitment to innovation and the confidence in our customers have in our teams.

And at ICE, Scientific Games is honored to been recognized as the lottery supplier of the year for the second year in a row by Gaming Intelligence. Interactive is our fastest division. It was the start of the year and the quarter achieving a double digit percentage sequential increase in revenue and growing 28% year-over-year on a pro forma basis.

Based on the fourth quarter results, interactive would generate manual revenue run rate of more than $250 million. Within our social casino product line, in the fourth quarter all of that core products enjoyed strong growth, with the business growing at 3 to 4 times the estimated industry average.

This growth was due in part to the re-launch of Jackpot Party Social Casino and the growing popularity of Hotshot Casinos Swats which was named as one of Facebook's 2015 new games of the year. Also our B2B SG Universe suite for land based casinos generated 36% quarter-over-quarter revenue growth and is now live in more than 60 casino properties.

SG Universe suite to me as it is our initial mobile platform that connects land base and interactive gaming empowering our customers and providing a key inside into the gaming environment of the future. Our fourth quarter financial results demonstrate that we are executing well in a challenging environment but we have more work to do.

We have a big runway ahead of it with lots of opportunities and we will strive to capitalize on those opportunities to generate increase in free cash flow.

We must celebrate our tremendously talented employees around the globe, leverage the most extensive product and systems portfolio in the industry, support innovation to provide measurable value to our customers and shareholders, remove distractions and significantly improve our processes to generate topline growth, margin improvement and meaningful cash flow to reduce leverage.

Over the last 90 days with the hard work of integration largely behind us, I have seen an infectious energy emerge at Scientific Games and we will capitalize on that passion as we move forward focused on our mission to empower our customers by creating the world's best gaming, lottery and interactive experiences.

And now I will turn this over to Mike, who will provide a more in-depth review of Q4 results..

Thanks Gavin. And Scott let me add my appreciation to you for making this a smooth transition. Good afternoon everyone, first I’d like to share a few highlights. First quarter revenue rose to 737 million, a 10% increase over the third quarter.

2015 revenue increased to 2.8 billion, fourth quarter attributable EBITDA increased to 293 million and fourth quarter AEBITDA margin increased to 40%. 2015 AEBITDA increased to 1.075 billion. Fourth quarter net loss was 128 million including the impact from 137 million of unusual pretax charges.

Full year 2015 net loss was 1.39 billion including the impact from 1.27 billion of unusual pretax charges which included 1 billion of non-cash goodwill impairment charges. The impairment charges had no effect on consolidated revenues or cash flows of the company.

2015 annual results benefited from 231 million of implemented annualized integration cost synergies. As of December 31, 2015 the company's cash and availability under the revolving credit facility totaled 583 million.

Fourth quarter net cash provided by operating activities rose to 159 million compared to a use of cash of 30 million in the prior period. 2015 net cash provided by operating activities rose to 414 million compared to 204 million for 2014. As Gavin noted our Q4 revenue growth was driven by sequential growth in all three of our operating segment.

Gaming segment revenue grew sequentially and on a pro forma basis. On a pro forma basis, and exclusive of the 15 million unfavorable foreign currency impact, year-over-year revenue growth would have been up 11%. This growth resulted primarily from revenue increases in new gaming machines and gaming systems.

Gaming operations revenue was down sequentially largely due to typical seasonal decline and average daily revenue per unit. Table products revenue was down sequentially due to a modest decline in product sales which can be lumpy while the installed base of table products has continued its constant and steady growth.

We continue to place emphasis on growing the installed base of shufflers, proprietary table games, electronic table games, and table progressive all of which reached record levels of installed units to year end. During the 2015 fourth quarter, we shipped 5366 new gaming machines to U.S.

and Canadian customers and 4455 of units were replacements including 884 Oregon VLT units. As Gavin mentioned, a key step in our building future momentum was receiving regulatory approvals in December for the new TwinStar gaming machine.

We shipped more than 200 of these units to customers in the fourth quarter and based on the strong performance in the early placements, we expect to build momentum throughout 2016. We also shipped 562 units of the new Australian Dualos gaming machines. This help to grow total shipments to international customers to 3624 units.

Total global average selling price improved to $17,137 benefitting in the quarter from higher sales of our premium Bally Pro wave cabinets and a larger than typical number of convert to sales units partially offset by the impact of the lower priced Oregon VLTs.

In gaming operation, the installed base of wide area progressive premium and daily fee participation units decreased 115 units sequentially or about 1.5 of 1% compared to September 30, 2015 and included the impact from the convert to sale units.

The installed base at year end was down from a year ago primarily due to sequential declines experienced throughout 2015. In 2015, the total decline over the 12 months was 1302 units, which is about half of the decline of 2591 units in the prior 12 month period.

The decline in install footprint year-over-year was partially offset on a pro forma basis by a slight increase in the average daily revenue per unit. However, as a result of this decline in 2015, we entered 2016 with a lower installed base of wide area progressive premium and daily fee participation units than a year ago.

As the year progresses we expect to benefit from the anticipated momentum from launching an increased number of new games and the introduction of the new Gamescape premium participation cabinet which is expected to provide an increase in our installed base.

Our innovative Gamescape cabinet will be exclusive to the wide area progressive and premium participation category. AEBITDA in the gaming division increased to 221 million with an AEBITDA margin of 47%. That is a substantial increase over the 35% margin of the year ago.

The significant integration cost savings achieved through the successful combination of Bally and WMS during 2015 coupled with the revenue improvement were the primary drivers behind the margin improvement.

Additionally as discussed in our earnings release, we indentified an adjustment to the company’s preliminary $535 million goodwill impairment charge in our SG Gaming unit in Q3 due to the inclusion of the company's differed taxes in the hypothetical purchase price allocation used in our step 2 goodwill analysis.

After reflecting the adjustment, the implied fair value of goodwill decreased by 400 million resulting in a revised total impairment charge of 935 million in Q3. This adjustment had no affect on the previously reported consolidated revenues or cash flow of the company and had no impact on our debt covenant compliance.

Lottery revenue increased sequentially by 9%. This growth was driven by a 3% increase in instant games, largely reflecting some seasonal improvement, coupled with a 9% increase in lottery system services revenue, and a nearly doubling of lottery product sales.

The significant growth in lottery product sales reflected a greater amount of international bidding activity for lottery hardware and software purchases, such as the previously announced sale of retail technology to the Philippines and some Europe lotteries. Lottery revenue declined 6% year-over-year.

This included 6 million of unfavorable foreign currency translation and the impact of lower year-over-year bidding activity on international product sales that we experienced throughout the year.

The year-over-year services revenue was down 3 million largely due to lower retail sales related to our validation contract with the China sport lottery and the exploration of a local China lottery contract. As a reminder, our instant games validation contract related to the China sports lottery expired in January of 2016.

On the other hand, the lottery industry started the year with a benefit from the record 1.5 billion power ball jackpot in January and a smaller 250 million plus jackpot in February which is still growing. Our lottery revenue is also expected to benefit later in the year from our winning the Arizona lottery systems contract.

Operating income in the lottery segment declined year-over-year and sequentially while AEBITDA improved largely reflecting a higher contribution of EBITDA from our joint ventures and a profitable mix of revenue. During the fourth quarter we incurred a pretax non-cash impairment charge of 67.6 million to write-off the goodwill associated with the U.S.

lottery system acquisition of 13 years ago.

Additionally, despite consumer support for the monopoly millionaires club, multi state instant lottery game and its companion TV game show, the company was not able to finalize sufficient lottery commitment, quality stations and appealing time slots to move forward with season 3 which would have been expected to begin airing in the fall of 2016.

As a result, the company recorded a 35.5 million charge in the cost of instant games. This charge related to other asset impairments and contract cancellation costs.

Additionally there was an $11.9 million impairment charge for property and equipment recorded in depreciation and amortization expense both of these charges were treated as add-backs to AEBITDA. Turning to our interactive segment, revenue increased 18% on a quarterly sequential basis and was up 28% year-over-year on a pro forma basis.

Social casino revenue benefitted from the launch of the enhanced 2.0 version of the original jackpot party social casino app, and the resumption of a more normal level of marketing activities, couple with ongoing growth in our other social apps.

In total, average daily users increased both year-over-year and sequentially to 2.3 million users and the average revenues per daily active user was $0.22 which is up $0.02 or 10% over the September quarter, as well as up $0.02 over the prior year quarter on a pro forma basis.

As a result of the revenue growth, improved scale within the interactive business and integration cost synergies, operating income increased 9.5 million and AEBITDA rose 4.9 million over the prior year period. In 2016 we expect our interactive business to maintain a strong and consistent revenue growth. Now turning to cash flow.

Since December 31, 2014 the company made payment on its debt in the amount of 141.3 million including 90 million of voluntary repayments under its revolving credit facility. The remaining fully committed to reducing our leverage and during the fourth quarter we repaid 20 million on our revolving credit facility.

At December 31, 2015 our total debt was 8.2 billion as compared to 8.3 billion at December 31, 2014. Both amounts reflect the new accounting standard of netting unamortized differed financing cost other than for the revolver against total debt and therefore both our net of debt discount. At year end our available liquidity was 583 million.

As we stated throughout 2015, given the accelerated integration we were able to achieve, we had expected to demonstrate significant improvement in cash flow from the first half of the year to the second half and the team delivered.

In the second half we generated approximately 557 million of AEBITDA and we paid down 105 million of debt including 80 million of voluntary debt repayments on our revolver. For all of 2015 we spent 324 million of CapEx of which 181 million was in the second half.

We continue to maintain a highly disciplined and prudent approach toward capital allocation and investment spending and in 2016 we expect to spend a slightly lower amount or a range of 290 million to 310 million. We also made strategic investments in CapEx and R&D initiatives to drive innovation and lay a foundation for improved operating results.

In 2016 we expect to gain revenue momentum through the year building on the foundation of new product launches and increase ramp for our TwinStar and Dualos gaming cabinets driven by stronger and more effective content.

The outlook also reflects our belief that gaming operators as they have in recent years will proceed cautiously and allocating their CapEx targeted at slot flow replacements earlier in the year. Overall, our expectation is that the industry replacement shipment in 2016 on an annual basis will be roughly flat with 2015.

Industry demand is anticipated to increase in 2016 compared to 2015 due to new casino openings and expansions and while remaining lumpy on a quarterly basis, the pipeline of installations for Bally gaming system software and hardware is robust anchored during the next three years by the large Ontario and Alberta contracts.

Those systems will connect in total approximately 34,000 gaming machines. In summary we ended 2015 with improving momentum. Our strategic priorities for the year ahead remain operational excellence, fiscal discipline and growing cash flow with our firm commitment toward using available cash flow to reduce debt and leverage.

We believe that the combined company is beginning to reflect and will continue to benefit from the strength that comes from the diversity of our revenue streams and our focus on innovation that empowers customers by creating the world’s best gaming lottery and interactive experiences. And with that, I will turn the call back to Gavin..

Thank you, Mike. Before taking your questions, I want to share my passion and optimism aobut Scientific Games' future. 2015 was an integration year.

We said many times that the global gaming expo was to be our key launching point, a critical element in driving home our message to customers and stakeholders that we are supporting our existing product brands and are leading the way with innovations for the future.

G2E followed by NASPL and the ICE show truly showed that we have the industry's broadest product portfolio and that we are operating as one unified company driven by innovation and focused on creating the world's best gaming lottery and interactive experiences.

With the heavy lifting of integration effectively behind us, our focus is on profitable growth and increasing cash flow. In 2016, we will build on the momentum that started last fall as we seek to continue to increase profitability and reduce our debt.

I want to give a big thank you to all of our stakeholders, particularly Scientific Games employees around the world who have worked hard every day, and continue to do so, helping to support our customers and grow our business. And thank you for your time today. We appreciate your continued interest in Scientific Games.

Operator, we will now take the first question..

[Operator Instructions] Our first question comes from David Bain from Sterne..

Thank you. First I try not to say this very much anymore but nice quarter. I know it is early by can you give us any color on ArgOS in the TwinStar performance or any other measures versus the other platforms released by Bally or WMS in the past.

And in terms of content the number of skin deliverance on the artist platform can you quantify that versus some of the past releases..

Hello David. ArgOS is obviously an operating system and TwinStar is a cabinet if you will. During the quarter the end of Q4 we launched it for the first time we put a couple of hundred units out there just over just under 200. And it's continued to perform very well. You know obviously we continue to roll it out now.

But you know very early in Q4 at the end of Q4 and very early numbers compared to other products I think what surprised me is much as anything was that the Bally pro-life continues to perform so well and I think we had record shipments last quarter which is excellent considering the age of the cabinet but it really reflects the improvement and the power of the content coming through.

So I anticipate TwinStar to have some really exciting content being released onto it in this quarter we will continue to grow our installs that still so far so good..

Okay. And then how about a balance sheet question for Mike your 10% senior debt it looks like it is trading at a fairly steep discount like $0.70 on the dollar would you ever look at buying that in the open market with free cash flow generation as an opportunity to maybe more strategically delever with access free cash flow..

I think one of the things one of our first primary focus is to grow profitability of the business which is evidenced by the Q4 results so our plan was and always will remain to be integrate the businesses to improve margins and returns.

Invest in the innovation of our business to support our growth and then use the cash flows from that to provide means of reducing our leverage..

So we look at that as a board. We will always look at the capital markets in this- it’s just one option..

Okay. Lastly obviously a big win quarter but game ops the daily fee was up on a pro forma basis obviously nice to see the unit decline. Was that due to an industry trend in your view or product cycle versus competition or any thoughts on building that line item going forward would be helpful. Thank you..

So the win per units obviously encouraging, I think that partly reflects the reduction in the number of units in the market but it also reflects the improvement in the content. From an overall perspective we have seen over the last few years a reduction in the total number of gaming operations premium units on casino floors.

And I think it's fair to say there is also a little bit more increased competition having said that I don't believe that we are being adversely affected by the competition I just think that the reduced numbers reflect customers - our customers taking them off their floors..

Okay great. Thank you..

Next question comes from Steve Wieczynski from Stifel..

Good afternoon. Gavin the replacement number I think it was around 4500 units in the quarter that was that was really strong relative to what we were looking for. I guess the question is, was that was that pretty broad based in terms of not only operator but also geography as well..

I am not sure if I know to be specific I think what reflects do you have any I don't think I have this details there was no way one big order it was fairly widespread.

But I think it reflects leading up to the end of Q3 people were sort of hearing rumors and lots of things out there that maybe we were going to support our past products and obviously that would have angered our customers and I think G2E showed them a very clear message that we were supporting the existing product lines but also innovating and I think that the strength of the quarter reflected maybe some pleasure over the message that was received in which we delivered and was well received at G2E..

Second question bigger picture question is I know you guys don't give guidance but is there a way for you to kind of go through each you know each segment very broad-based and kind of give an overview of how your thinking about the business for you know this year I know you said on the gaming side of things you are expecting kind of flatter shipments but could you help us maybe walk us through the lottery segment and maybe the interactive as well..

It's very general but obviously gaming we don't anticipate a huge growth in the number of units this year from a market perspective we do anticipate our improvement. There is obviously some growth from new openings and things like that.

This year where our focus from our business perspective is to really continue to work on what we started last year which was bringing the companies together which we have now effectively done at least in a lot of respects but focusing on getting content out there and fine-tuning our processes and other things the systems business is can continues to be the industry's leading system business in gaming.

Last year a huge grower for us with electronic tables and we continue to see growth in that. And of course our table products continued to do extremely well. So we don't see much change in any of that.

Gaming Ops is clearly a very competitive area and we started the year at a lower base and we did the year before and we have some fantastic products coming through in that space and shown different brands at G2E you know we are very excited about the products coming through the course of the year obviously the new century sensory Gamescape cabinet.

Lottery, lottery is one of those markets it does not move that much but clearly with the strength of the jackpot and things like that we do anticipate to see some small growth during the course of the year in both systems and it obviously our ticket sales.

I guess one point the lottery business one of our large contracts from China ended at the end of the year so we are looking at ways to replace that.

In relation to interactive we've got three different businesses and interactive, social continues to do incredibly well for us, our team is very focused on getting the content that we had in our libraries and putting it out there and you know we continue to work very well as a group there and ensuring that we are delivering really cutting edge experiences with some of the best content.

In the interactive side of the business, we saw great growth again but it's again that's for our B2B customers monetizing the content that we have available to them in the markets where it's legal to do so. And we continue to see opportunities for growth in those markets albeit mainly offshore and at this stage at least and a smaller size market.

SG universe to me is the foundation for a mobile platform that is where you bring land base and interactive together and it certainly a major focus for us as we look at opportunities for the future it is a small business that it continues to grow and I do believe there will be good growth in that.

So across the board I see some headwinds you know from some of the things we have to face and that we have lost but overall I see opportunities across the board and all of our businesses. And that's really, really general but I don't know how I can be more specific..

You could give us the numbers. Thanks guys. Appreciate it. Thanks for the color Gavin.

Next question comes from Todd Eilers from Eilers & Krejcik Gaming..

I will take the numbers if you want to give them..

I was expecting that to be done next comment..

A couple of quick questions on game sales, can you say how many Illinois BGP sales were in the quarter and then you guys also mentioned a hard normal of lease to sale sales in the quarter can you maybe give us a sense for you know what that number was above what is considered normal..

Sure. The VLT stuff was pretty small I think it was around 200. I believe. And –.

Illinois was for Q4 was about 285, 286 units..

I don't think we give the number of the conversions from recurring revenue to sale but it was not it wasn't ridiculous it was not a very large number..

Okay. That is helpful.

And ASP is obviously really strong in the quarter I don't know if you can do it or not but if you were to strip out Oregon VLT in the quarter and I guess the lease to sale transaction even though it was not maybe that large can you safe to assume that ASP would've been higher I am assuming Oregon units were slightly lower price point just trying to get a sense for pro forma ASP I guess going forward..

I guess you are absolutely right you take out Oregon, you’re going to get a higher ISP but you also got some of those converts which are in there.

The biggest impact to our premium pricing not the premium pricing but against our competitors, the ISP is the fact that we again we shipped more waves than ever has been shipped in a quarter which I mean really I went back kicked and double checked in, triple check that number because why it has been such a strong performer over the last few years for Bally and it is a premium product, it does attract a higher price point.

And you know we continue to see strengthen in that product..

Gavin how does that the wave price relative to I guess the new TwinStar as TwinStar starts to become a higher you know portion of the mix is that another kind of catalyst for ASP growth or are they similar pricing how should we think about that..

Obviously not obviously but the wave is more expensive because the screen is more expensive. It is a curved LCD I can't remember the dimensions 32 inches curved. So it is a much more expensive piece of equipment. It's priced higher.

The wave is designed to really be at the price point of our competitive of the competitors products but we are in the business of providing the world's best gaming and experiences and part of that is innovative new cabinets so during the course of the year there will be other releases our 2727 is doing incredible well at the moment and our 32 has been a huge product for us.

So we do have products in different categories that continue to do well so we will continue to work on our mix and do the best thing we possibly can and have products addressing each of the price points..

Okay. Perfect. And then just last question in your gaming operations and the other category looks like you guys had a pretty nice gain in terms of units, looks like you added about 2500 units sequentially. Can you maybe speak to which markets that came from domestic or international any other color there would be helpful..

Those are quite a big sail in Porto Rico in that - big place in Porto Rico. So it's pretty low, low earnings, winnings per day, earnings per day for us. But both of the numbers were coming from international and those markets.

The other part of that where we put into there I think it's also important I mentioned it before is that those continued growth in our electronic tables business and we include that -- electronic tables for us was probably our star performer.

That in social if I looked at all the [babies] [ph] of that team, there are two star performance last year and ETS is in there..

Okay, great. Thanks guys, appreciate it..

Next question comes from Mike Malouf from Craig-Hallum Capital Group..

Great. Thanks guys for taking my questions. First question is on CapEx.

Can you talk a little bit about that came down a little bit from what I think what you are previously looking at and where the efficiency is coming from on that?.

Let me --.

I'll go ahead. CapEx for the year was $324 million. It's expected to come down next year between the $290 million to $310 million range. So I just want to make sure that was clarified..

Yes, that's what I was focused in.

And why the decrease and what's driving that?.

Well, I think, obviously it's an area. It's a large area of use of cash for us and that's something we are continuously focusing on and we are trying to get more efficient. Things like ArgOS one platform, one suitcase across your product line to help you to get more efficient.

We are obviously looking at engineering out cost and some of that things, because the logical portion of our CapEx does come from gaming operations. So it's a constant focus for us. And as we continue to get -- one of our guiding principle is continuous improvement. And across the Board, I can assure you the retained focus very carefully on cost.

And the cost of capital and the capital cost that we incur is a major focus. So we will continue to work on that number..

And then one other thing that as always driver of lottery and gambling that is sort of inverse related to gas prices.

I'm just wondering if you are seeing any impact there or at least any anecdotal evidence that the lower gas prices are having a positive tailwind effect for you guys?.

Addictively I hear from customers particularly in the regions where people drive their trucks to their properties. If you look at the gaming dollar, it's discretionary. And when you pay $10 with -- truck that $10 more in your pocket and in some markets where the average spend per player per visit is like $40. They may be seeing a little bit of uptick.

It certainly isn't -- it isn't hurting us is what I could say..

Yes. I can imagine.

And then can you comment a little bit on new jurisdictions and sort of give us an update on Greece and just what's going on worldwide with regards to new countries?.

Sort of -- being the size that we are, we are focused and we have people focused all around the world. I was just in London at the ice show and one of the gold's for our gaming group is to go into several new markets each year. And there are lots of opportunities that keep popping up there.

And of course being in the legalized side of the world, we have to be very careful and cautious. And make sure that they do get legalized and then we enter into them. So if you look at Europe first, Greece, our partner there continue to work with the government in Greece to get the route opened up. We have got unit sitting, waiting to go over there.

There are properties ready to open up. We are hoping that that happens shortly. We keep following that very carefully. That's such a good opportunity in the short term. The Italian market continues - I think it's a progress - and then we continue to look at different opportunities there. Our Cape business continues to grow and do well there.

So across Europe there is some good opportunities there. When we move, I guess to South America, Argentina at last reopens and that's positive for us. We like the opportunities there. It was a great market before we go to shop down and that reopening is good.

Brazil, Brazil, Brazil; everyone talks about Brazil, but we have been talking about Brazil for 14 years. We'll see what happens. But clearly, that's an area that we are focused on and we've got people working carefully on both in the gaming side and the lottery side.

The instant ticket side there being possibly and even more real opportunity than gaming, but we'll see. Across the rest of South America, you have different opportunities for games and for lottery. In Asia, we are still working out whether or not the tempering of the high-end play is good to best market products.

We are certainly seeing best market electronic cables, lot's of growth in that. In markets like Vietnam and the Philippines and places like that our slots continue to do really well with 88 fortunes and those are still being one of the number one products in that region. So opportunities there and we continue to focus on that.

Australia, you know we fill behind with the old cabinet their the equinox we launched Dualos. We launched into our market against the very strong competitor. He has got a great product out there, but the cabinet is doing very well and we got whole range of content to launch into that this year.

In America, we continue to work and look at different opportunities of VLT for lottery for instant, for all the different product that come up. There is probably one other point that I'd like to make that in 2015 -- I think it's since 1993, the least number of openings of casino globally.

We did see, we start to see a few more and we start seeing states looking at different opportunities for that. So that's obviously an opportunity for us that we focus on.

So, we continue to try and get everything we can out of our existing businesses while at the same time laying track and seeing what synergies we can get for either new markets or new products and existing markets..

Great, thanks for all the color..

Thank you. And I left about China. I mean China is obviously a major area we're all looking at..

Thank you.

Next question comes from Chad Beynon from Macquarie..

Hi, thanks for taking my questions. Scott, best of luck and congrats on the retirement, and welcome Michael.

Just kind of want to start with -- if we go back to the gaming ops, Mike, you said in your prepared remarks, gave some color around Gamescape and said you expect to grow WAP units when that's rolled out, obviously that was a hot topic at G2E, a lot of demand for that.

Could you just kind of help us think about when that product will be rolled out in to most jurisdictions and then how you guys are thinking about deploying if you hold some back or kind of push everything out in terms of where the demand is? Thanks..

Chad, this is Gavin. Let me help out a little bit here. Firstly the WAP isn't growing by virtue of that product alone. We're continuing to see some really strong performance in some of that, Willy Wonka and monopoly silver jubilee or jubilee diamonds continues to be one of their top performers.

So, the Gamescape is designed to sort of supplement and take it to a new level. I think mid-year is about the earliest you're going to see any units in that category. In that cabinet I should say..

And then your strategy in terms of rolling it out, are you going to kind of sell every order that you get immediately or has kind of a longer term delivery process?.

Well, I think the world's changed a little bit, and I think the opportunities you got to make the most of in the way, as we saw in the lottery world recently, when you can create some kind of excitement with [indiscernible] it makes sense to have as many units out there as you possibly can, and that's subject to supply constraints obviously.

To sort of speak, I haven't really thought about this but my immediate reaction is want to get a nice launch platform out there..

Thanks.

And then just going back to Todd's point about the kind of change in mix from the Wave to the TwinStar in 2016, his question was around ASGU's but my question is more around, what will the impact be on gaming margins given that the margins in that segment are pretty strong and as you mentioned the ASP will be a little bit lower, how should we think about margins as TwinStar becomes bigger piece of that business?.

Well, it'll be lower priced but it'll be a slightly lower cost as well. I mean the margins is very important, we continue to focus on that as we build products and we design pricing around that. There's a lot of competition out there, so we're going to make sure that we continue to perform at a premium to attract good prices.

But when you introduce a new cabinet into a market you have opportunities over time to look at things, reengineer parts, do things like that, and traditionally the cost of a cabinet comes down after the first few years as well. Usually runs about 18 months before you really start seeing the cost phase come out of the manufacturing side.

So, I think we're fairly focused on running the Company effectively and efficiently, and margins are a very good judgment of that..

Okay. And then last one from me, there's another $7 million or so of restructuring and integration cash charges this quarter.

Are we pretty much through all of that and we won't be seeing anymore kind of add backs with respect to those line items going forward?.

Yes. I mean there's integration to go, we always said that we had a target and that included this year, [indiscernible] and get the processes refined, they're the two main areas of alignment left in integration. But from a major adjustment and major integration, that was pretty much done in the year.

It was pretty much done behind us in 2015, and we're reaping the benefits in 2016, but we still have some work to do in 2016 to get the program to believe it..

Okay. Thank you very much..

Next question comes from Carlo Santarelli from Deutsche Bank..

Thank you.

Gavin on the prior call you talked a little bit about kind of pruning the asset portfolio and potentially looking at some non- core things that you would consider selling for the right price, could you maybe provide a little bit of an update as to where you are in that process if it is going or any resolutions you may have come to?.

Sure Carlo, considering we look at everything all the time you know. We obviously have to keep an eye on what’s there and what’s not and I also made the point I think last time that we said we would look at it but it will have to be the appropriate return given our cost of capital.

It just happens that most of our business in fact all the businesses are performing very well now. And you know the areas which are non-core haven’t attracted any kind of offer that makes sense at this stage, so our very much focus now in each part of the business of really doing continuous improvement in growing revenues and margins in every area.

Clearly if something comes along we will look at it but at this stage the focus is to continue to grow the business profitably..

Great, thank you..

Next question comes from Susan Berliner from JPMorgan..

Hi thank you.

I guess my first question for you with regard to 16 are there any more synergies we should be expecting or how are you often thinking about additional cost savings in 16?.

At this point we are looking as we’ve disclosed before we have about 25 million of additional savings coming through or I should say synergies coming through in 16 related to the Bally’s acquisition. Everything from WMS has been achieved in anything related to Shuffle Master was achieved already at this point.

And so let me add that now that we can run the business as a business and really focus on that we continuously look to improve and we continuously look for better ways to do things and part of that is finding operational savings and that will be a focus of the whole business moving forward..

Great, and then my other question was on free cash flow. I know in the last quarterly report you put it right on the front cover and the flow you generated looks like positive you know free cash flow and I was wondering if you could go through the components.

I saw the Reno sale fell in there but it looks like a pretty big swing in working capitals, so I was wondering if you could talk about that?.

Just give us a second we will find the exact details for you but it’s again been a focus and it has been some improvements. .

Yes, I think in total for the quarter our free cash flow was roughly about 69 million..

And Mike can you give any sort of granularity besides the Reno sale or I guess to ask it a different way, should we be expecting because I know last year there was a huge working capital benefit as well on the fourth quarter and I know it gets lumpy but any help with this going forward on that?.

I think what happens with us in looking at the cash flow is you’ve got the higher interest payments in Q2 and Q4 and so we kind of build cash throughout Q1 and in Q3 to be able to support those payments and that we’re always effectively trying to manage our cash position in order to maintain a prudent balance sheet and be able to have well I’d say the dry powder per se to be able to execute on reinvestment back into the company and to also to help delever with the company on a timely basis..

Okay, great thank you..

Next question comes from the line of Dennis Farrell from Wells Fargo..

Great, thank you very much, in regards to your margin performance obviously this is a deep margin for you guys for this year, I was wondering do you believe that you could take margins to 40% net year, is that a possible target for you guys or do you feel like this is as high as you could possibly take it?.

Well I hope that’s not as high as we can possibly take it because we can look always to improve. I don’t think we have ever talked about what our highest possible margin would be but I think that the quarter was a good quarter and we will continue to build from that until we can do but yeah it’s certainly not a high watermark..

Okay. And then you mentioned the elevated competition within the participation gaming segment, I was just wondering if you could talk about that a little bit more given that’s a strong recurring revenue stream for you guys and especially into 2016..

Well I think you more people see the attractiveness of it and they are investing in the brands and they are investing in products trying to address it.

And so you know we do see some competition out there but frankly we’ve been investing very heavily in our own portfolio as well and we feel pretty comfortable that we will be in a position to maintain and ideally grow out portfolio and out share in that space..

Gavin, as you seeing the growth in tribal, corporate, international where are you seeing the most growth in that segment and weaknesses?.

Well, you know I think all public companies have this EBITDA pressure and anything in gaming operations comes in the EBIT side of it and anything you buy is in the DA but there is clearly a preference to corporate to buy and not participate.

But we do see a lot of properties across the board and want to invest in their floors doing it across the whole portfolio line. So some products you want to lease, some products you buy, you know we’re seeing improvements in their performance by virtue of their investments.

So it’s been hard to generalize you know, clearly you got the Las Vegas trip guys who’ve got multiple different channels of revenue date and time and whatever it might be but you know the general rule from the gaming perspective we’re seeing investments across all the different portfolios. In the past few years we’ve seen some right sizing..

Right, and then just kind of moving back to the balance sheet for a second, so far you focused your voluntary debt prepayments directed towards the revolver. I was wondering what your thoughts were about purchasing this kind of debt securities especially in 2016..

I think we’ve said before that the board really - will look at different options for our capital and that’s one of the things in the mix. .

Okay. And then lastly just kind of echoing one of the question earlier about divesting part of your current portfolio.

I’ve noticed that the shuffle business has performed very well and I wondered if that potentially would be a business segment that would attract a lot of interested value that potentially could be used to pin on a fair amount of debt..

It would go counter to our broad portfolio products in the industry approach, so I can’t see that being certainly one that I haven’t thought of but as I said we are always open to anything. We have to be..

Right, thank you very much..

Next question comes from Chris Jones from Union Gaming.

Great, thank you.

Just two quick questions, first just it has been a couple of pretty large jackpots in the lottery business here in last couple of months, could you possibly just talk about what the impact has been to the overall underlying business, what it will be to - or just overall and how we should think about that going forward 2016?.

Though it’s not material, what happens is that each year we budget on a couple of big jackpots and it doesn’t really move the needle that much, but this year’s big jackpot was a really big jackpot but again it’s not material and it happened earlier in the year, but we don’t like budget for that..

Fair enough and then just going back to just the debt question, just based on the commentary should one assume that even if you did have a free cash flow in the first half of the year you’d probably hold on to that until the back half of the year just to make sure that you have enough to cover throughout the year, is that a fair assessment?.

I don’t think so..

No, okay..

I think we need a management business, but that’s why we shouldn’t - worked with our board and look at a lot of different option.

We have three very profitable businesses that generate good earnings and we have to act responsibly in relation to what we do with that money on behalf of all our share holders and stake holders and each one of the things we look at every time we have a board meet..

Great thank you very much..

Next question comes from David Katz from Telsey Group..

Hi good evening. I think it’s relatively clear, you know what you are accomplishing on the product side across the board and I know some previous questionnaires have raised this topic, but as I try and look at your cash flow statement for the next year or two and get a sense for - how much cleaner it will be particularly over the next few quarters.

I thought I would take just one more run at the issue and see what help you can offer us about some of the noise going away and what a clean cash flow statement can look like. Because I think we can all -- we know sort of where your headed product was and where your strengths are et cetera, and what those lead to on the profitability side.

I think it's the cash flow side where it's a little harder..

I don't know what more color I can put, we can give you now, but certainly it's an area that we can refocus on throughout. Next time we're out in the road or anything to try and give some further color, but certainly 2015 was the year we put all these companies together, a lot of heavy lifting, lots of moving pieces.

I think we're starting to see hopefully now much more stable position, you'll get a lot clear, a lot cleaner view of the business as we move forward. Mike, do you want to..

I would say in general the primary focus of the Company is to drive operations. Operations drives free cash flow, free cash flow drives the de-levering of the Company, and as we get some of the de-levering done obviously you get the cash interest [indiscernible] exponentially starts to deleveraging process.

So, doesn't really help you, does it?.

It helps a little bit. Thanks for everything, Scott, and good luck Gavin, and best of luck to everyone. Thank you..

Next question comes from Barry Jonas from Bank of America..

Hi, guys. When you closed the Bally transaction, I think of the time you talked about a leveraged target of less than 5x within four years.

Just curious of your thoughts on that now if it's still achievable?.

It's difficult but it's certainly, we haven't given up on that target. Clearly things have changed since then a little bit, maybe even before they may change a little bit, the performance the businesses but as we continue to rebuild, we're going to continue to generate free cash and we're going to generate -- continue to focus on that.

So, maybe if the momentum starts to build we can get back on track, but it's certainly a goal and we haven't thrown it away..

Got it. And then just a housekeeping question.

Can you give the split between WAP units and daily feed participation units?.

So, we've been looking at this for the last couple of days and I think we give more information than any of our competitors and we've decided that's one piece of information we're not going to give..

Got it, understood. All right, thanks a lot guys..

Next question comes from Kevin Coyne from Goldman Sachs..

Hi, thanks for taking the questions.

First, I was wondering, you've expressed a full commitment to reducing leverage, and I was wondering if you could help us frame what type of debt reduction we can expect in 2016, should we expect something similar to the $141 million of net repayments in 2015, or should we expect it higher since we're actually seeing reduction in CapEx and you'll be getting the full run rate of the synergies?.

I think let talk generally to that. 2015, was the year when you're putting together these massive companies and you have lots of moving pieces. Most of that heavy lifting last year and this is the year of continuous improvement.

We have some headwinds in some of the areas of the business, we don't get the benefit of the Chinese instant ticket contracts that we had for processing the tickets. We don't have a huge -- we don't have this high starting pace of gaming ops, but having said that we continuously look for improvements in our operations and better ways of doing things.

So, we're certainly continuously looking for ways to improve our generation of free cash..

Okay.

But just a follow, using $141 million would be reasonable just keeping at the same as last year?.

It's not that reasonable..

Okay. Mike, maybe a quick question for you since you just came from the operators side, and certainly you have experience on the other side of the table, and what the Vegas properties have run to your watch, certainly they have seen declines in slot counts, it's more to a lot of other places.

But if I could ask you to put your operator hat back on, when you think of, let's say, Sci games or the manufacturing sector overall, what do you think both need to do differently to accelerate spending or the replacement, and are there any catalyst we as ambassadors can look for out of the operators which could be a leading indicator for that acceleration?.

I think kind of what will be an expansion of what Gavin said earlier. I think there's two types of gaming customers that we serve so I'd say as an operator there's really two types of operators.

Here in Vegas there's been somewhat of a de-emphasis on the traditional gambler that would come out say from the primary feeder market of Los Angeles out to Vegas.

They're being replaced by millennial who are here I'd say for the weekend party, you see that at the day clubs, you see the proliferation of night club activity, large amounts spent more on food and beverage than you have typically in the past, while you have the more native American Indian casinos especially I'd say run the LA area has been here in Vegas, you see them picking up what the traditional weekend Vegas gambler was, and that's where you see the large profitability that they're having in relation to the slot performance and the true gaming that you get.

That's the biggest key that I see as far as the difference goes. It's really eye opening, being a Vegas centric person to see what the real results are outside of Vegas and at the native American Casinos..

And that's just one example. Obviously there are other regional native American that have similar..

I think we have time for one more question..

Thank you..

Lauren we just have time for one last question..

And that question comes from Dan Fuss from Morgan Stanley..

Hey, thanks for the question.

Just out of curiosity, on the synergies number it seems that you've accomplished that a bit faster than expected, if you take a step back, have you found anything over the last year that would suggest that there could be upside to that number or have you identified anything else that would suggest that you could take a bit more cost out of business..

When I said before that now we're in this mode of running the business we're going to continuously look for improvements. So, whether you call it a synergy from an acquisition or you call it an ongoing operational improvement, we'll continue to find them and we'll continue to execute on them..

Great, and just with regards to the China lottery contract, they went away last year and when you discussed replacing it with regards to other opportunities in China or was there anything in particular there?.

There are lots of other opportunities, we're working on the China to more than replace that. So, we're working on those very heavily now..

Okay, great. Thank you..

Well, thank you. And thank you everyone for joining us this afternoon. Obviously we appreciate your continued interest in Scientific Games. We look forward to providing you with an update on our first quarter results and operating results at the end of this quarter. Have a great evening. Thank you again..

Ladies and gentlemen, thank you so much for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day..