Bill Pfund - VP, IR Gavin Isaacs - Vice Chairman Mike Quartieri - EVP & CFO Kevin Sheehan - CEO & President.

Steve Wieczynski - Stifel Chad Beynon - Macquarie Dan Politzer - J.P. Morgan James Kayler - Bank of America Merrill Lynch Mike Malouf - Craig-Hallum Susan Berliner - JPMorgan Barry Jonas - Bank of America Merrill Lynch Daniel Fuss - Morgan Stanley.

Good day, ladies and gentlemen, and welcome to the Q2 2016 Scientific Games Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions]. As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Mr. Bill Pfund, Vice President of Investor Relations. Please go ahead..

Thank you, Catherine. Good morning everyone. During today's call, we will discuss our 2016 second quarter results and operating performance, followed by a question-and-answer period.

With me this morning are Gavin Isaacs, Vice Chairman; Mike Quartieri, Executive Vice Chairman -- excuse me Executive Vice President and CFO; and CEO and President, Kevin Sheehan. Our call today 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 being discussed.

For certain information regarding these risks and uncertainties, please refer to our earnings press release issued earlier 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 February 29, 2016, 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 and the accompanying materials will be archived in the Investors Section at scientificgames.com. Now let me turn the call over to Gavin..

Thanks, Bill. Good morning everyone. On behalf of the entire Scientific Games team across the globe, we are pleased to report with our second quarter performance, we have now generated three consecutive quarters of year-over-year growth in revenue, operating profit, AEBITDA, and free cash flow. I can't be more emphatic on these points.

We are building momentum from a position of real strength today, executing on business strategies, delivering improved results, and paying down our debt. Let me share a few of our financial operational milestones. Second quarter 2016 revenue rose 5% to $729 million. Operating income increased $59 million and our AEBITDA rose to $280 million.

Cash flow from operations more than doubled to $91 million and free cash flow increased $27 million over the prior year quarter. And we continue to deleverage during the quarter by reducing the principal face of our debt by $80 million, largely through the repurchase of $66 million of our subordinated notes at a discount.

Our improving performance demonstrates the ongoing success of our business, the strong positioning for the future, and the value that comes from our diverse revenue stream. Turning to our segment performance. Interactive was again our fastest growing division and a major driver of our overall Q2 revenue growth.

Total Interactive revenue was up 15% on a quarterly sequential basis and 62% year-over-year. The AEBITDA contribution increased 37% year-over-year. Interactive social revenue growth significantly outpaced the category growth.

Based upon Q2 reported results, Scientific Games Interactive became the second largest social slots games apps provider in North America surpassing IGC's DoubleDown consumers for the first time. Congratulations to Barry, Jordan, Sherman, Wilson, and all the crew a long way from San Antonio FX days.

Interactive is an important pillar of our strategic growth platform.

Our strategy is simple, maintain and refresh existing gaming apps through the introduction of new games, expand our geographic penetration, launch new apps that capitalize on our extensive and continually growing library of IP, such as the recent launch of Blazing 7 Hot Shot Slot social casino app, and their mobile, mobile, mobile.

Furthermore through our SG Universe B2B platform we are leveraging our game success with existing capabilities, keep our land base customers connected to their players in the mobile and online environment. Our lottery business generated exceptional results for the quarter, thanks to the hard work of Jim Kennedy and his fellows in lottery team.

Revenue increased $14 million and AEBITDA rose to $95 million. This quarter success was largely driven by the $15 million growth of our instant games business where we hold the number one position. Driving that leadership is the lottery teams' passionate commitment to innovation and focus on customer growth.

Our Cooperative Services Program or CSP is a significant sector that can drive retail sales for our customers.

Over the last several quarters, customers using our CSP analytics and capabilities have seen their retail sales grow at a rate of nearly 50% greater than most customers using a competitive offering or who do not use CSP that is customer performance driven by our competitive advantage. In the gaming division, revenue totaled $442 million, 2% decrease.

The increase in new gaming machine sales revenue was offset by lower gaming systems revenue. Scientific Games continues to be the leader in gaming systems. As I have said before, quarterly revenue is lumpy and dependent on the timing of installations go live.

Today, we have more than 460,000 gaming machines connected to our business across the globe and a 56% market share of the world's top 25 casinos.

Importantly, we continue to invest in the development of additional new software tools and hardware enhancements such as the recent launch of our new iVIEW DM 4 and growing customer interest in our Big Data, Business Intelligence Software applications.

The strength and breadth of our hardware and game content portfolio drove 11% year-over-year increase in sales revenue from gaming machines. Sales of our high performing pro-series life platform continue to climb setting a new Q2 quarterly shipment record.

And this was achieved while generating an excellent balance of sales across our entire portfolio of differentiated cabinet platforms. Sales of the TwinStar cabinet grew 36% over the first quarter or the number of Dualos units shipped in Q2 doubled over the first quarter providing solid growth in Australia and Asia.

With the content library of games for these cabinets outstanding, we maintain optimism with continued growth of these new products. Overall, our gaming business continues to show the benefit of our successful integration process, as the AEBITDA margin improved by 110 basis points over a year ago level.

Our focus forward remains clearly centered on innovation, fiscal discipline, and our customers. The strength of our integrated portfolio and the diversity of our revenue streams provide tremendous talent that support the generation of our cash flow and sustainable long-term shareholder value.

It's great to see the team pulling together and our momentum building. We are now in our countdown to the Australian gaming Expo, G2E and National Tradeshows.

I'm very excited about the opportunity to connect with customers, investors, partners, and other stakeholders then we will again showcase our groundbreaking innovation and I look forward to seeing many of you at the show.

We have accomplished much in the past few years, we are now one company with three strong business units, gaming, lottery, and interactive. Our integration is behind us and our business strategies are delivering solid results. This is our third consecutive quarter of profitable growth. We are executing fiscal discipline and we are paying down debt.

With our momentum building, I'm now moving to a greater strategic role as Vice Chairman of the Board of Directors. I would like to introduce you to Kevin Sheehan our new CEO and President who brings with him decades of C-Suite experience and is charged with propelling the growth in developing Scientific Games.

He has prudent success in expanding markets, focusing on the complete customer experience, supporting innovative new products and services, and importantly delivering strong sales.

With extensive hospitality experience owned at the Norwegian Cruise line, Kevin served as CEO for seven years and led the development and expansion of the company, presiding over strong sales and EBITDA growth as well as the company's IPO, one of the most successful IPOs in 2013.

Lastly, I will serve as an advisor to Kevin, sharing my deep insights to the gaming industry and our company and serving as the liaison with our key customers. And now please let me introduce you to Kevin, our new CEO and President..

Thank you, Gavin, and good morning, everyone. I'd like to start by recognizing the great job that you've done in building Scientific Games into one great company. It is my responsibility to stay focused on our customers, engage with our 8,400 talented employees, create innovative products and services, and provide shareholder value.

I look forward to partnering with you as we continue our companies success. This is an exciting time to join Scientific Games as a worldwide leader in gaming, lottery, and Interactive innovation, I look forward to building on the momentum and driving continued success across the company.

I'm excited to leverage my sense of experience, financial acumen, and leadership, to propel Scientific Games to the next level. And now let me turn the call over to Mike to provide his review of the second quarter results..

Thanks, Kevin, and welcome aboard. Good morning, everyone. On an overall basis, both revenue and AEBITDA grew 5% over the prior year quarter. Although gaming segment revenue was lowered by $8 million, segment AEBITDA rose slightly to $201 million with an AEBITDA margin of 45.6%.

The improved margin results reflect the cost synergies and production consolidation associated with the integration action of last year, partially offset by slightly less profitable mix of revenue.

During the quarter, gaming SG&A benefited from $7.5 million of insurance proceeds from a prior legal matter, which is also partially reflected as an adjustment in the AEBITDA reconciliation for the gaming segment.

In gaming operations, we were optimistic that the installed base of WAP, premium, and daily fee participation units would begin to stabilize. And in Q2, the installed base of these units decreased by only 66 units on a quarter sequential basis.

We remain optimistic that we will show further improvement as we benefit from the launch of the innovative GameScape cabinet. Average daily revenue was essentially flat on a sequential basis and down $3.92 per unit year-over-year, largely reflecting the lower proportion of WAP units in the installed base.

The installed base of other participation and leased units was essentially flat on a sequential basis and increased by 2,625 units year-over-year. This year-over-year increase largely reflects additional leased international units and the double-digit growth in the installed base of electronic table systems.

Year-over-year, the installed base of our electronic table systems is up more than 650 units. The average daily revenue increased $0.57 per unit on a sequential basis, with the benefit from the electronic table systems more than offsetting the impact of lower yielding international units.

Gaming systems revenue was $60 million, was essentially flat on a quarterly sequential basis, while maintenance revenue increased 5% year-over-year, total systems revenue declined due to fewer large multisite installations than a year ago. Quarterly systems revenue is quite variable depending on the revenue recognition of larger installations.

Last year's results included significant revenue from a large multisite operator in Australia, while there was no similar size installation this year.

I would remind everyone that with no new large multisite installations scheduled for the remainder of 2016, we expect quarterly revenue in the back half to be consistent with the first half of the year. I would also remind everyone that we remain the leader in gaming systems and that our long-term pipeline of projects remain solid.

This was recently substantiated in New York, where two of the first new full-scale casinos under construction have already selected our gaming systems solutions. And in Canada, we are progressing nicely with both the Alberta and Ontario projects and would expect to begin recognizing revenue on them in 2017.

Table products revenue decreased due to quarterly fluctuation in product sales, which was only a small portion or -- sorry, which was only a partial offset by the ongoing growth in leased products. Product sales is a small portion of our business today can be somewhat lumpy on a quarterly basis.

Our strategic emphasis continues to be on growing the recurring revenue from an installed base and our installed base again set a new record level. We continue to be the number one provider of proprietary table games, table progressives, shufflers, and other table products. Turning to machine shipment.

During the second quarter, we shipped 7,668 new gaming machines globally. Of the total 4,678 units shipped to customers in the U.S. and Canada. We shipped 431 Oregon VLT units which completed that contract while replacement units for casinos totaled 3,037 units.

While the pro-series wave cabinet again remain the most popular cabinet in our offering, exceptional balance was demonstrated across the breadth of our portfolio. We shipped 740 Illinois VGT unit and another 470 units for new casino openings. Internationally, we shipped 2,990 new units, most of which were replacements.

Australia and Asia were up year-over-year, reflecting strong shipments in the Dualos cabinet. Our average sale price was $16,859 and as a result of our solid ASP and strong unit ship share, we believe Scientific Games continues to retain the leading market share on a dollar basis of gaming machine sales in the U.S. and Canada.

Lottery revenue increased by $14 million while operating income rose $9 million and AEBITDA increased $13 million. The increase in revenue, along with a more profitable mix of revenue and $7 million increase in EBITDA from our equity investments drove the higher AEBITDA and AEBITDA margin.

The revenue growth was primarily driven by an 11% increase in instant games, with U.S. instant games up 17%.

The revenue growth and improved margin contribution by instant games was due in part to higher year-over-year premium license games activity, combined with strong retail sales performance for those customers for which we are the primary provider of instant games and for which we also provide our CSP services.

Year-over-year services revenue was down about $2 million. The impact of the China contract was partially offset by U.S. service revenue, benefiting from higher retail sales of multistate jackpot. Of note, the Powerball Jackpot just recently rose to about $478 billion before it was won.

Regarding the Arizona Lottery systems contract, we are on track and expect to begin recognizing revenue next month. Our Interactive segment, as Gavin noted, had another great quarter. As a result of the revenue growth, operating income increased $6 million and AEBITDA rose $5 million over the prior year period.

I think it's important to understand that nearly 70% of the year-over-year increase in Interactive SG&A expense is related to marketing spend and player acquisition costs that directly contribute to the revenue growth we experienced.

This spend is performance-based and we have sophisticated analytics that enable us to spend our marketing dollars effectively.

Additionally just under 25% of the year-over-year increase in aggregate SG&A and R&D expense relates to the expansion of development studios and engineering staff to support the launch of several new game apps, including the very recent soft launch of the Blazing 7 Hot Shot Mechanical Real Slot game.

Additional projects are in the work that leverage our vast array of slot IP, which is expected to provide a wide runway for future growth through this year and into 2017.

From my background on the casino operator side, I would note that these expenses are similar in nature to the casino preopening and new development project expenses that are often called out by operators. Now turning to cash flow.

During the quarter, we repurchased $66 million of principal face value of notes at a discounted rate, resulting in $25 million gain on extinguishment of debt and has the benefit of reducing our future cash interest cost by approximately $4 million on an annual basis.

We also made $11 million of scheduled term loan amortization payments and $3 million of capital lease payments. As a result of our repurchase activity, we did not make any voluntary payments on our revolving credit facility, so it remained flat at $80 million drawn at June 30, 2016.

For the first six months of 2016, we generated $57 million of free cash flow, which is a $69 million improvement over the first six months of last year. In aggregate, since the beginning of the year, we have reduced the total principal face value of our debt by a $108 million.

Going forward, our priority continues to be on generating growth, increasing free cash flow, and continuing to delever. As you look to the remainder of the 2016, even as we expect to build momentum, I will remind everyone that historically our third quarter results are seasonally lower than our second quarter on a sequential basis.

In addition, having achieved great success in accelerating integration activities last year, the benefit of those cost synergies are now behind us. And we are already reflected in the margin improvement achieved in the second half of 2015. And now, I would like to open up the call for questions.

Operator?.

Thank you. [Operator Instructions]. And our first question comes from Steve Wieczynski with Stifel. Your line is now open..

Hey. Good morning guys. So I guess the first question. Let me start with the management change. It's a little bit of a strange move I guess.

And I guess can you give us some details around that the timing, Gavin, I guess, why now? I know you talked about the integration being done at this point, but it's still a little bit of strange move in terms of timing?.

Thanks, Steve. You know, I think it's -- why now? I think it's because the integration and all that work has being done and we're now moving into a new phase.

I believe its common after to the successful completion of these integrations for CEOs to move to more strategic leadership roles and to bring in a new CEO to leads us to next phase growth and development. So that's in essence why now..

Okay. Got you. Then let me move to Kevin.

Hey, Kevin, given your background pretty diverse background of cruise lines and car rental companies, how do you think that transforms over into a gaming and lottery company?.

Yes, Steve, good question. And it's actually, its car rental guys its descendant, it's the Spanish language television creation, it's the Norwegian. It's really at this point, when you look at my background, this is a business, it's another complex business and that's really what gains my interest.

So the opportunity to come in and take a fresh look, Gavin has done a great job over the past number of years in building the business to where it is. So having the ability to come in fresh and look at the way everything is laid out from a revenue standpoint.

Are we hitting on all the opportunities from a cost standpoint? Are we executing effectively? Is it seamless? And then making sure the culture is set in a fashion like I had [indiscernible] back at Norwegian, and had everybody aligned toward our goal of driving on the same page to the outcome that I knew we would get to and just over quarter-after-quarter of delivering those results, everyone started to understand, hey, we were going to do this and we had to spray the opportunity and then getting everybody focused on that was an important step.

So it just seems like another opportunity to try to create that same sort of winning formula..

Okay. Got you. And let me ask -- can I ask two quick questions just on the quarter in general. In terms of the game ops, it's actually little better than we were looking for, but the yield continue to come down. I know you're talking about higher yield and WAP games being removed.

Can you give us an idea where you think that ultimately bottoms? Or is that just more a function of when your WAP placements continue to find a bottom as well?.

It's a magic one kind of question, Steve. We haven't seen a bottoming out now, the removals and things like that.

I think that during the quarter there is always some seasonality, which -- well, not seasonality, but there was some play that was in some jurisdiction lower and really some months were weaker than others, but the play op side are curious indication of what's actually going out there on our machine.

So I don't know if I can answer the question very specifically in any way..

Okay. Got you. And last question for me. The interactive segment continues to do very well. When we look at the average daily revenue per user, it was up pretty significantly from the first quarter.

What drove that? Were you guys doing stuff behind the scenes? Or it was just kind of an uptick in spending levels from your customer base?.

I think our business is just at the right momentum. We have incredible portfolio of IP from all the businesses that we can utilize in a social place. And players continue to be entertained and excited by the great games that we make. So many and some of that competitors have put all their good IP out there.

We still have barrels and barrels of games to come. So I think that this is a great opportunities for that business to continue to grow..

Thank you. Our next question comes from Chad Beynon with Macquarie. Your line is open..

Hi. Thanks for taking my question. Gavin, again, congrats to you on the integration and the recent success, and Kevin, best of luck; looking forward to working together. I wanted to start with lottery. Great result on the first half of the year and in the second quarter.

You highlighted some of the initiatives, the innovation, the CSP that has resulted in these results. Could you help us think about may be your outlook in this segment where capital per spend can go, consumption levels, may be just some anecdotes, and just kind of help us think about some of the growth rates that we're seeing in the space? Thanks..

Well you're asking all the tough questions on my last day. That's another one of the crystal ball end. So we continue to see improvements by virtue of our analytical pools in lottery and CSP processes that we've got. And we continue to see them driving above market growth for the customer to utilize them.

So, again, going back to our portfolio question, we do have great game on our side. We have the broadest portfolio brand and games that we can utilize. And then, again, using the CSP tools and the analytics, we can much better position and drive the results for our customers, the lotteries.

So I think you're beginning to see the strength of that come true. And I think last quarter and the quarter before, we can -- we showed that the continued strength in that part of the business..

Excellent. Thanks..

Again that's your job..

Yes, sir. Excellent.

Were your competitors giving some medium-term outlook on the segment?.

We'll just use theirs..

Moving on to CapEx, the reduction in guidance that you announced here in the result; is this something that is the result of any one thing being pushed into 2017 or is this just kind of a new level of spending that you plan to incorporate in your outlook?.

Chad, its Mike here. There really hasn't been any substantial push-out CapEx into the following year. Some of the stuff that we've been looking at is just trying to be more disciplined around our, what I called, non-revenue generating CapEx spend. So one of the things that we're starting to wind down on right now is our Oracle implementation.

So that's a big piece of, what I call the back office type of CapEx. So we've gotten live on lottery now for the rest of the world, so that's up and running. Interactive will be quickly on Oracle light within the next six months. And then we're already half on gaming and the other half will come on probably throughout 2017.

So really I think it's just more about better financial discipline and trying to generate free cash flow to help de-lever the company..

I'll just add to that. There's been nothing that we pushed out or done anything on those basis. It was better controls and as we've got the business momentum going, we're continuously looking for improvements. This is an area where we've been making improvements..

Thank you. And our next question comes from Joe Greff with J.P. Morgan. Your line is open..

Hey guys, good morning. This is actually again Dan Politzer on for Joe. So a quick question on Gavin, this is more directed towards you.

Is the Vice Chairman position a full-time role and kind of can you walk us through what will your day-to-day responsibilities looks like? I guess we're just trying to figure out how better or better understand rather why now and kind of what was the impetus for this change?.

Yes, sure, Dan. So probably full-time until the end of the year and then I will be moving for more to a part time role going forward. Also there's an adviser obviously to Kevin and continue to work with our sales teams particularly in the gaming area and work with our global customers, in fact, even Sunday, I flight out to Australia for the AGE.

So I'm committed to seeing that our company continues to succeed. I'm very proud of the work that's being done so far. And I believe that we have great opportunities going forward, and I'm happy to be a part of that and work with Kevin and the rest of the team on that..

Okay, great. And then just one follow-up. More on the Interactive business, I understand that there is increased marketing cost and R&D and whatnot associated with the revenue increases but if how should we think about margin going forward.

I mean, should is this a EBITDA margin low 20 range kind of good way to think about it? And is there any potential over time to expand margins?.

We'd like to think so. I mean, as you grow the business, you obviously need to invest in it; we need to do some marketing pushes. But this is Interactive marketing is very different marketing say in the land-based world or in the lottery world because you can definitely see ROIs attributable to almost every dollar you spent.

And as the business continues to build momentum, I think you need to start the fire potentially a little bit less, so there are some opportunities for greater margin improvement..

Thank you. Our next question comes from James Kayler with Bank of America Merrill Lynch. Your line is open..

Hey guys, how are you doing?.

Good, James..

Good..

Good, I guess changing gears a little bit.

Can you just give us some commentary about what you're hearing from your casino customers about their CapEx budgets, their plans for machine purchases this year, I guess, as well as what they are doing to their gaming ops footprint as we look into the back half of 2016 but I guess importantly into 2017 also?.

I don't think the message has really changed from our casino customers. I think they still look for opportunities to improve their performance and where the appropriate products that are around them I mean, we're very excited for things like GameScape, which come out this month.

And I think they're going to be the kind of products that our customers look forward to try and improve performance on their floors. But I don't think I could say that people are changing their outlook very much in relation to the way they're running their business..

Okay. And I guess just on the -- my follow-up question would be on the Canadian systems, can you; you mentioned starting to recognize revenue in 2017.

Can you just maybe recap the sort of scope of that business and what the financial impact could be in 2017 and 2018?.

We'll split that up. You've got Alberta and Ontario you've got two very large gaming provinces, particularly Ontario.

We've got a system rollout going out across those provinces and the way these things work, you need a go live letter, which is the term from which you can recognize revenue and so you work with your customers because we do support our customers and we try and work exactly with the best -- that is where our timetable is.

And when they are ready to go, we will have rollout schedules. We've got a lot of people involved in putting -- rolling out of systems. Software development, all of that, when it goes live, it kicks up and as I said we're anticipating both of those two major provinces to go live in 2017.

Mike, do you have?.

And just from a size perspective for Alberta, the system is stretching out over 28 different casinos and is touching about 14,000 games throughout the Alberta province. And from an Ontario's perspective, it's roughly about 24 casinos that it will also touch and that's about 20,000 machines that it will be connected to.

So they are not cookie-cutter out of the box, six month implementation. These things have been going on for a while. The teams are working hard, and we expect to be and start recognizing that revenue once the go live letters start getting signed, which would be in 2017.

Unfortunately, as we are doing the work, we're getting our bills paid so unfortunately, there is the fact that cash doesn't always match the revenue recognition from a GAAP accounting perspective..

And we don't give the actual number value, the monetary value of those yields..

Thank you. [Operator Instructions]. And our next question comes from Mike Malouf with Craig-Hallum. Your line is open..

Great. Thanks guys for taking my questions. I'm wondering if you could just talk a little bit on the Interactive side is there any strategic call it, unlock value there obviously doing very well in one of the bright spots certainly with regards to growth.

And I'm just wondering if Barrett in the value of Scientific Games could be quite a diamond with regards to valuation.

I'm wondering if there is any moves you can make on that front?.

I think we continually as the board look at that, we discussed every time we get together and clearly, given all the other transactions going on in this space, it's something that we are currently looking at and we will continue to look at.

Out of our objectives is to create value for our shareholders and that's an area that we should be -- we are focusing on at the moment..

Okay, great.

And then with regards to buying back some of the debt, is that sort of the -- I guess strategy going forward, may be this question is for Mike as far as buying the secondary market at a discount versus paying off some of the revolver and such?.

Yes, I think, it's important just to look at how we de-lever the company as quickly as possible but also being very keen on maintaining our covenant compliance and funding the growth of the company.

So it was a good opportunity for us to be able to make a strategic purchase in the open market and if opportunities are like that and available, we will always be looking at them just as we would look at any other opportunities to spend our cash to create the greatest value and return for the company..

Okay. And then finally, you would I know you had laid out obviously some very detailed integration savings a couple of years ago. And now those are behind us. But throughout that period, you had always said that there is always potential for further cost savings but you would sort of address those after you've achieved what you set out to achieve.

So I'm wondering as you stand now and those things are behind us, do you see further cost savings ahead of you? Or is there more integration now that you've gotten a lot more visibility on putting the companies together?.

I think that when you operate a company and you start to continue to operate it, you get momentum going, there are lots of opportunities where you can improve. And one of our core values is to continuously improve and out of that improvement, you are going to find savings.

And I think now that Kevin is taking over, you will obviously look at everything through fresh eyes and may be additional opportunities through that. So I feel comfortable in saying that there will be other opportunities for further improvement. But they come when you start operating the business sort of a natural flow on..

Thank you. And our next question comes from Susan Berliner with JPMorgan. Your line is open..

So Gavin and Kevin, I guess I just wanted to start with you just going back to the change. I guess I was curious, Kevin, I'm not sure when you started. And Gavin, I know you've been talking about cross marketing a lot, and you definitely been part of this as very keen to that and with your customers.

And I was wondering over the next six months, what will the priority be with regards to introducing Kevin to all the top clients?.

It will be that number one priority. It's a great question. Kevin started about seven minutes ago or 27 minutes ago, I should say. So this is his first day on the job. And one of my objectives is to make sure that we continue to delight our customers and we continue to empower them and I will stay on as a key liaison and adviser to Kevin.

And one of the things I've spoken about is making sure that he has the appropriate introductions and face time with all our key customers. It's a good time for that because you have G2E coming up in like six weeks. So he's going to get to meet a hell lot of them there and then you've got NASCAR the week after.

So you got to meet all your lottery customers there, so it's actually is a good time of the year to do that. And I will be available to not only Kevin but also the rest of that team and I expect to continue to go out there and support them driving the business with our customers..

Yes, and just to jump in a little bit of that. We've got a great leadership team here, have a great sales organizations, so being able to piggyback off of all of their skills and relationships will be helpful as well as, of course, Gavin has got deep, deep rooted relationships with everyone.

So I'm going to take advantage of everything I can as I move forward here. I'm very excited about it, by the way. Thank you..

And then I just want to follow-up and my congrats on the debt repurchases.

But I guess, Kevin, from your perspective, having worked at other somewhat levered companies in the past, what kind of a priority do you put on continued further deleveraging outside game?.

Yes, it's that's the opportunity, one of the big opportunity; obviously we have to build, continue to build a great business, continue to build the culture, have a winning environment for all of our team members.

But the history that I have is you look at the mathematics behind the income statement and the balance sheet and I've always worked with high leverage and I saw that when you believe in your business and when you have alignment with your team and believe in the direction that we're going, you'd rather have a little bit more leverage than not have leverage.

And we talked about paying down revolver over which is what 3% or 4% versus the opportunities to do things to create value.

And when I walked into Norwegian, we were 16:1 net debt-to-EBITDA, not something I would ever want to do again but and we walked right into the economic downturn, I came in at the very end of 2007 and as you know, 2008 was a terrible environment and then fuel prices went skyrocketing. So it was a load of things and it worked our way through that.

Same thing on spending, so I always have the conversation with Henry Silverman, and we always, M&A gets back and forth of that, the leverage a great level that we wanted to operate at, and we saw that when you -- as you believe in the business is we've got great businesses here. We've got great opportunities.

We're going to make sure we're optimizing across the globe. We're going to make sure we're optimizing all of the suite of services across each segment.

And when you're in that environment and you're thoughtful about your capital allocation and making sure you're investing in the business but I think the comment earlier that making sure we're seamless when you have a lot of acquisitions like we've had in this business over the last number of years.

It's always a good opportunity for a fresh look at things to make sure we're executing and everybody's working together there's no silos across the organization and that we can take advantage of all of the skills that are residing in different businesses. This is just a great chess game for me and I'm excited about it..

Great. And I have one other question just with regards to, I guess, growth potential. I was curious your guys commentary on electronic tables and I was wondering if you can talk a little bit about the opportunity there. And then I know in the past you kind of mentioned other opportunities down the road.

Any update on Greece or Turkey or Brazil would be helpful?.

Let's start with Greece, Turkey and Brazil. Obviously, Turkey is an interesting one. We continue to look at that. We continue to look at Greece. There was a change, I believe, made recently to the regulator in Greece we are anxiously awaiting hopefully to go live, and we haven't had that yet. In relation to China, what was the other one Brazil? Brazil.

I guess we had to have to wait for at least the next two weeks to get over and done within Brazil before we know what's going on. But I can assure you that we are monitoring all opportunities globally from a market perspective.

Those kinds of markets whilst may be a little bit riskier than say in North American state markets provide great rewards and opportunities and it's a way that we grow our business but we have teams of people looking at all those opportunities and I will continue to help Kevin with those as best I can.

Not just in the lottery space but also in the gaming space there's lots of opportunities. Electronic tables are a real passion of mine because I think, they are phenomenal platform. We are one of the, if not the leaders, globally in those games.

So we're invented to the Australian market where live dealers weren't available, weren't allowed and we dominate that market. We brought out our products under shuffle into Australia -- into America for many years, but we just started to get all the right products and the right combinations out there.

And we continue to see some great performance across the board. And frankly, for the last few years it's been our biggest growing segment and honestly I see some great opportunities for us. We're starting to see stadiums that all are popping up everywhere. And, again, out of period content really does help to strive good performance in that sector..

Great. Thank you..

You want to see it --.

Yes. Sorry..

If you also want to see it, go down Aqueduct or Yonkers you'll see hundreds and hundreds of these things live..

Thank you. And our next question comes from Barry Jonas with Bank of America Merrill Lynch. Your line is open..

Kevin, do you own a sense in your timing for getting up the speed? And should we expect to see any significant changes once we're there?.

I would say either just look at the leadership on the board as one point of view and having also have that type of experience with my last job at Norwegian with the Apollo guys, and before that with Henry Silverman and before that with Paul Steinberg. But I would just say that every one of those individuals was we need to get this going immediately.

And so I would say I'm going to very quickly hopefully get up to speed, meet with all of the business leaders, meet with all of our customers, dig into the numbers, understand the drivers and run with it. So whether its three months or less, it's -- definitely we'll have a lot to talk about on the next quarter call..

Great.

And Gavin, can you give us some general commentary on how TwinStar is progressing right now?.

Well, again, it's still new for us. We would like to think that all our platforms are doing well and obviously the WAVE seems to hit records for us, which I guess when you're a customer you got to spend a certain amount of your capital with it. We believe we're getting the greater, the biggest share of that spend.

And while it's going towards the WAVE obviously TwinStar isn't getting the same attention that is enabling us build a strong portfolio of game, it does stand out, I don't give many instances of it not performing very well and we're about to launch a great portfolio of games for which we'll see in G2E.

So we do believe it and the eyeglass platform on which it runs are part of the future for us. So it's -- we're out of one tree pony, we've just a lot of stuff coming out, G2E is going to be very, very exciting for us..

Great. And then just if I can ask one more. I noticed that there was a nice step-up in attributable EBITDA and the lottery segment. I think it was up more than 50%. Meanwhile, Italian ticket sales were down about 1%.

So just curious what drove that increase?.

In Q2 we received a rebate for value-add taxes related to the Italian joint venture, which was a pickup of about $4.50 million for the quarter. So that's primarily, the driver of that increase in the AEBITDA coming through there..

Thank you. And our next question goes to Daniel Fuss with Morgan Stanley. Your line is open..

Hey. Thanks for the questions. Just wondering, since the end of the second quarter, have you made any more open market repurchases of debt.

And could you provide an update as to where our junior debt repurchase capacity stands?.

What was the last part of that question?.

Could you provide an update as to what your current junior debt repurchase capacity is?.

Capacity is, we don't comment on available capacity for the repurchase of that debt. I will say between now we just filed Q2 this morning and there was no purchases in the period because we've had been in the blackout period. But any opportunities we have to repurchase debt will be done on an opportunistic basis..

Great. Thanks. And just with regards switching gears to the Interactive side of the business. Could you just give -- I think the growth is a lot stronger than any of us has anticipated there and it's not just you see that there's are as well.

Could you just give kind of high level thought just to the market going forward for the remainder of the year? Can we expect these growth rates to be sustained? And in particular, are there any drivers, is it market share driven from what we see over an IGT mobile, or new games, just any additional color there would be helpful?.

So I think part of the success of that portfolio of products is in fact that's a bit land-based content seems to resonate very well with the online mobile player as well. And so with the portfolios and product coming out of the WMS, the Bally, the Shuffle, the Barcrest trend, we do have a lot of products that are coming out.

We have Jackpot Party, we have Gold Fish, we have Hot Shot Casino. Another new big app that we just launched, which is focusing on our some of our more classical kind of spot just the Blazing 7s have.

So we think that that's another impetus for growth for us and we think that's another area which we can continue to steal market share away and continue to delight players with. So I think there is good opportunities for us going forward in the near future. And as I said, well, we're blessed to have that huge portfolio of intellectual property.

And we continue to build game, so we continue to add to that portfolio..

Great. And just one last one on that.

I mean is there an area where you see yourself deploying more capital and making M&A? Are there any -- when you look at the landscape, are there any interesting assets our there?.

We look at every opportunity. And obviously, where there is growth that's an area in which we would focus on more. We would -- that's part of the job, of the management team. And now sending it up to the board, where they see opportunities that make sense. Sometimes it's better to buy rather than bill, expedite yield growth.

In other areas there's lots of different reasons to billing it, but that's what we do as a business. We look at it and we will continue to do so..

Okay. Thanks everybody for joining us this morning. I'm very excited to be here and look forward to meeting all of you. It's a great time to be beginning my journey here at Scientific Games. Our second quarter results demonstrate we are executing well. I believe we have a wide runway of opportunities ahead of us.

The months ahead are going to be exciting and fast paced. We will remain focused on executing our strategies, continuous improvement in our overriding mission to empower our customers by creating the world's best gaming and lottery experiences. Thanks and talk next quarter. And I'll see some of you at some of the shows. Thank you..

Ladies and gentlemen thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day..