James Hurley - Investor Relations Marco Sala - CEO Alberto Fornaro - CFO.

David Farber - Credit Suisse Barry Jonas - Bank of America Chris Jones - Union Gaming David Katz - Telsey Advisory Group Oriana Bastianelli - Kairos James Kayler - Bank of America Merrill Lynch.

Good day, and welcome to the IGT 2015 Third Quarter Results Ended September 30th, 2015 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to James Hurley. Please go ahead..

Thank you for joining us on IGT’s third quarter 2015 conference call.

Marco Sala, our Chief Executive Officer will provide an overview of the quarter and comment on broader strategic initiatives, then Alberto Fornaro, our Chief Financial Officer will provide operational and financial perspective on the third quarter, in addition to reviewing our revised outlook for 2015.

After the company’s prepared remarks, we will open the call for your questions. During today’s call, we will be making some forward-looking statements within the meaning of the Federal Securities Laws.

Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings.

And now, I’ll turn the call over to Marco Sala, CEO of IGT..

Thank you, Jim. Good morning or good afternoon to all of you. I’m pleased to welcome you to this call. Overall our third quarter performance matched our expectations in this year of transformation and integration for the new IGT. It reflects the diversity of our revenue streams which are mostly comprised of stable recurring revenues.

Product sales, which are a much smaller portion of our overall revenues are by their nature more valuable from one period to the next and as we had anticipated our global products sales did not match the level of the previous quarter, partially a function of industry seasonality.

When we take a closer look at gaming replacement units, excluding conversion, over the last two quarters we have a more stable picture. Reflecting the third quarter dynamics, I just talked about, our comparable revenues were 10% in the quarter and adjusted EBITDA declined 17%.

We reduced our SG&A and corporate overhead expenses in the period, even as we make further investment in R&D. And our absolute profit level was robust, adjusted EPS was $0.41 per share. Our financial condition is solid and we are particularly pleased with the strong free cash flow we generated in the quarter at $132 million.

In the year-to-date period, our global lottery operations have delivered nice same store revenues growth, our land based performance has been stable, and social gaming has done well.

We are delivering in the areas that are under our control, this is a direct result of our commitment to the constant innovation and to disciplined operational management. Our focus on innovation is an evidenced that in the sustained same store revenue growth of our lottery operations.

In North America, as well as in our international segment, same store revenues were up nicely, thanks to the continued momentum for instant tickets and draw games. In Italy, excluding late numbers, Lotto wages were up, supported by the sustained growth of 10eLotto and Numero ORO.

Success in lotteries about driving the business with innovative content and technology this is what has enabled us to grow a matured market like Italy over the years. We are constantly looking for ways not only to support our lottery clients, but also to enhance and to grow it.

One example is the introduction of exciting new mobile player applications in Rhode Island and Tennessee during. In October, at the NASPL lottery trade show, we introduced Aurora, the next generation of our leading central system and back office applications for lottery customers.

It is an open, flexible suite of services, designed with the first – the customer first mentality that is our hallmark. Aurora enables operators to rapidly integrate the new systems, games and applications, including capabilities for iGaming and iLottery, sports betting and mobile application, making it a perfect convergence platform.

The operators who tested Aurora at the show saw its potential to drive growth and profitability. It is a clear demonstration and our commitment to leading the global lottery space. We also showcased our instant ticket capability at the NASPL, emphasizing our product development and marketing expertise, as well as our printing capabilities.

Instant games are the fastest growing segment in the lottery market. It is another priority growth area for us. One where, we have a lot expertise from Italy and certain US jurisdictions to leverage elsewhere. We are investing in these opportunity in North America and in our international lottery operations.

We have the right leadership and strategic vision to move ahead and we have hired the new management to step the pace of our development. Turning to gaming, our performance was more mix this quarter. As I noted product sales were below the second quarter's high level, illustrating the quarter-to-quarter variability of shipping timing.

Our installed base at casino worldwide has shown sign of stabilization in the recent quarters, what is an improved and new titles like Quartermania and Gong Xi are doing great, Sphinx and Ellen, as well as the Wheel of Fortune franchise continue to be among our best performing titles. Our gaming organization is now fully integrated.

We have combined not just sales forces, but also the marketing and the product development teams. In September we brought on board two industry leaders with substantial experience and proven track records. Ken Bossingham now leads our casino core product team, and Dallas Orchard is responsible for all aspects of our premium product portfolio.

We told you that securing talent is a key priority in our gaming strategy and it will remain a focus.

On the innovation and content side, which are the other key drivers of the gaming turnaround, we have completed a lot in a short period of time, at G2E in September, we presented the complete diversified offering, including new titles, new versions of existing titles and new system capabilities.

The benefits of the merger were tangible, the clearest example being the combination of our ground breaking TRUE 3D technology with a market leading content resulting in Wheel Of Fortune 3D. Plants vs. Zombies 3D was another show favorite that also builds on proven title, as was TMZ, with the highly innovative in play camera and social functionality.

The response from customers, including a growing contingent of international operator present at the shot is encouraging. I want to make a special mention on our casino system solution.

In late in September, we renewed and expanded our casino management system at Wynn in Las Vegas and we won the system business at their future Macau and Massachusetts casinos. This is a significant endorsement of our ability to support our customers as they optimize floor efficiency and drive player engagement.

Casino systems are a real priority and the real opportunity for us where we can truly leverage the complimentary strengths of the two legacy businesses. GTECH system integration skills and IGTs commercial gaming presence. At the G2E we presented our Spinferno tournament solution, which takes full advantage of our casino system and know how.

We also showcased our mobile, OnPremise offering, a solution that leverages the best-of-breed technologies of our legacy organizations, enabling an operator to extend sports betting and game play beyond the casino floor.

The cross platform content and distribution capability of OnPremise were recently recognized by Global Gaming Business Magazine as the best consumer service technology at G2E. Turning to Italy, our performance was resilient in most core activities. As you know Italy is a large important market for us.

The scope of our activities in the region is broad and deep, broad in the sense we have a highly diversified mix of businesses from a traditional draw base lottery to instant tickets and gaming machines, as well as interactive sports betting and commercial services.

Deep because in many instances we operate as a B2C provider, meaning we have complete oversight of the value chain. The scale and the scope of our Italy operations is a competitive advantage for us not only in the local market, but also as we develop a product and services for lottery and gaming customers around the world.

During the third quarter, we experienced a drop in Lotto wagers entirely due to the very low late number activity. This was a function of game dynamics rather than the sales, marketing and distribution strategies that we execute to drive the business.

We were also affected by a 6% point increase in sports betting payout, up from the unusually low level of the prior year.

Excluding the impact of the stability low, machine gaming revenues were stable, apart from these external factors it was a satisfactory quarter in Italy, underscoring our ability to continue performing at high level even in a developed matured markets. This resilience is also visible in our Italian profitability to gain this quarter.

Earlier this week the Italian Council of State provided its opinion to the lottery regulatory on the parameters for the upcoming lotto tender. This is an important progress, regulator is now able to prepare the documentation to issue the RFP.

We're on track to deliver the synergy we discussed since the announcement of the IGT transaction, as well as the asset disposal programs that we have highlighted. I am also pleased to announce that the manufacturing integration in North America has just being completed ahead of schedule.

We are now manufacturing all North American gaming and lottery machines at our Reno facility and we expect to complete the European consolidation by year end, which is also ahead of our regional plans. I want to offer a special thank you to the many teams that work diligently to make this milestone a reality.

A word on our outlook, which Alberto will detail later. While our third quarter revenue shows the impact of a natural variability in some of our businesses, the diversity of our operations and our financial and managerial discipline enabled us to deliver strong free cash flow and profitability inline with our plans.

On this basis, we are confident in ending the year towards the top half of the range of our EBITDA outlook. I will now turn the call over to Alberto..

Thank you, Marco. On slide eight, we are showing reported figures that represent IGT PLC in the third quarter of 2015, but only Legacy GTECH in the third quarter of 2014, according to US GAAP. As a result, the change between periods is quite significant, and the comparisons are not meaningful.

Similar to last quarter, most of my commentary today will focus on pro forma, adjusted figures which you can see on slide nine. As you can see from the charts, foreign exchange continued to have a significant impact in the third quarter.

This is primarily due to the translation into US dollar for those revenues and profits we generate in euros and to a lesser extent other currencies. The average euro, dollar exchange rate was 1.11 in third quarter of 2015 compared to 1.33 in the prior year period.

Foreign exchange will have a material impact in the four quarter two, but become less of a factor in 2016. As a reminder, the items we have adjusted for include purchase price accounting, transaction expenses and restructuring costs.

A reconciliation of the adjustment we have made to the reported GAAP figures is provided in the appendix to this slide show, and also in the press release.

Generally speaking, the drop you see in the chart is a function of the extremely good quarter legacy IGT had in the prior year as it was their fiscal year end and also to lower gaming product sales.

Importantly, we achieved the EBITDA we were expecting, as we described on the last call the $440 million of adjusted EBITDA in the third quarter is only modestly below the second quarter as synergies begin to materialize. We also achieved $0.41 in EPS on an adjusted basis.

Let's move to a high level overview of the operational driver of consolidate revenue and operating income during the quarter, which you can find on slide 10. Recurring lottery services revenue were up, supported by same store revenue growth in our North America and international segment. DoubleDown was also up retuning to growth.

Gaming service revenue was down on a decline in the store base related impacts related to 2015 stability low in Italy that was up by improved WAP yields IN North America and higher machine productivity in Italy.

Product sales reflected the comparison with a significant Oregon VLT program, a large conversion sales in Mexico in the prior year and in addition to the weaker casino opening calendar in North America. Operating income dynamics effectively followed the revenue trends.

There is a negative leverage impact on lower product sales volume, and IP flows straight through operating income. Embedded here is also a $5 million net impact from a revised termination agreement with Illinois lottery. You will also see positive contribution from lower SG&A due to synergy benefits and disciplined cost management.

Let's move to our four segments, beginning on slide 11 with North American Gaming & Interactive. Here we are pleased by the relative stability in gaming operation notwithstanding the lower installed base. DoubleDown was up, supported by a 14 point increase in mobile penetration and improved player conversion.

Higher WAP yields in the period, the strongest in 12 quarter marked a distinct change in trend and help to mitigate the contraction in the store base.

The casino installed base of more than 25,000 machine is been relatively stable since the beginning of the year it compare to 28,500 in the prior year reflecting closure in Atlantic city and Mississippi in addition to large Maryland lease conversions.

Product sales reflect a lower unit shipment compared to the prior year which had benefited from the sales of nearly 1900 Oregon VLT units and from higher new casino opening. Year-to-date, the total replacement units are up 4%.

We recorded strong demand for our newer cabinets during the quarter, which represented about half of the total casino unit’s sales. Average selling price were also higher than the prior year, mostly due to mix. Revenue was also impacted by lower IP licensing which was anticipated, we expect the IP comparison to moderate beginning in the four quarter.

Operating income for the North America Gaming & Interactive segments reflects revenue dynamics and overall mix impact, especially since IP 100% profit. It also includes further investment in R&D.

Moving on to North America Lottery segment on slide 12, same store revenue growth of 8% in the quarter represented an acceleration from the year-to-date trend. Instant ticket continue to post the strongest game, although we achieved a nice growth with draw games and multi stage jackpots too.

The results are even more impressive when we consider double-digit games in several large market, including California, North Carolina and Indiana. Wins in Colorado and Ontario also contributed to total revenue growth in the quarter.

Lottery management agreement revenue includes a $10 million impact related to the Illinois lottery termination agreement. Operating income for the North America lottery segment was up significantly on same store - strong same store revenue growth and disciplined operational management and despite the Illinois termination settlement.

Turning to slide 13, you see that revenue from our international segment was mostly affected by machine unit sale and currency translation. We sold over 3000 gaming machine units during the quarter, keep in mind that in the third quarter of 2014 we had large Mexican conversion units and Asia Pacific sales.

Average selling price were higher, due to the mix impact of the conversion sales in the prior period. Gaming operations revenue was modestly below the prior year. We are pleased by the growing interest in the Crystal Dual and S3000 cabinets.

Lottery same store revenues rose 2% in the quarter, led by strong instant ticket growth across most jurisdiction. We also experienced continued jackpot growth in Eastern Europe which was partially offset by weaker trends in Latin America.

International operating income reflects the impact of lower machine sales, especially the high margin Mexican conversion sales of the prior year. Our results in Italy are found on slide 14, you see a substantial impact from currency translation here, but the resilience of the core business is not worthy.

In the third quarter we experienced relative stability in most of our core activities and did good job in controlling the controllable.

Although that is somewhat masked by three outside factor, the impact of the 2015 stability low for machine gaming, a 6 percentage point increase in sports betting payout and a significant decline in Lotto late numbers. These item affect both revenue and operating income in the period.

Total lotto wager were 4% below the prior year entirely due to late numbers, excluding late numbers Lotto wagers were up low single digit supported by continue strength for 10eLotto and Numero ORO. The successful introduction of new instant ticket products has improved year-to-date trends for scratch and win.

Machine gaming revenue was stable, and excluding stability low impact as higher productivity and mix offset a 12% reduction in AWP units. The revenue dynamics essentially flow through the operating income line.

As a reminder, we had an $18 million gain on the sale of our Italian sports and event ticket business in the third quarter of 2014 which also affects comparability across period. On slide 15, we have the income statement with reported figures.

Here, I would like to focus on interest expense where the increase is attributable to our higher debt, which you can see detailed by instruments to the right. Net debt was down from the second quarter level, about also which include proactive measure to reduce it with the remainder a function of natural cash generation.

At the end of the third quarter, our debt continues to be split approximately 50-50 between dollars and euro. Moving on 16, you can see that we generate a significant amount of cash with $471 million in cash from operation year-to-date.

This is after a third quarter with heavy concentration of cash outflows from interest and taxes paid together in excess of $300 million.

Year-to-date, cash from operation was also impacted by approximately $150 million in one time, transaction related expenses and it does not include the $83 million in cash from operation generated by Legacy GTECH in the March quarter, which preceded the acquisition.

Capital expenditures were $289 million in the first nine months of the year, which would mostly characterize as maintenance CapEx, free cash flow, which we define as cash from operation less CapEx was $182 million using reported figures which is also after the approximately $150 million in one time items and does not include $57 million in free cash flow from Legacy GTECH in the first quarter of 2015.

I will conclude now with our outlook for the balance of the year on slide 17. We have revised our outlook for 2015 pro forma, adjusted EBITDA to a range of $1.605 billion to $1.705 billion. For clarification, the new outlook adds $30 million to our prior range of $1.575 billion to $1.675 billion.

As we noted in this morning press release, we have harmonized the methodology use to calculate pro forma, adjusted EBITDA in the first calendar quarter of 2015 by adding back certain Legacy GTECH items that had not previously been included.

This changes better aligned with how we assess performance and based on the feedback we have received is also consistent with the way many of you in the investment community have adjusted our historical numbers. I repeat, that this is simply an inclusion of items not previously included.

Our EBITDA outlook includes an FX headwind of approximately $200 million, there is an additional approximately $30 million headwind related to US GAAP conversion.

Based on everything we have told you about the quarter and our performance since the beginning of the year, as well as our prospects until the end of December, we are confident that we can reach the top half of our revised 2015 adjusted EBITDA outlook. To be clear all with the new $1.605 billion to $1.705 billion.

We have also updated our CapEx plan which is now estimated at $400 million $450 million compared to our prior outlook $450 million to $500 million. A reason for the reduction is a shift in the timing of certain growth and maintenance CapEx earmarked for lottery and VLT, Greece in particular.

This year capital plan includes increased investments in gaming operation, as we support the new cabinet introductions. We remain on track to achieve $280 million in total synergy by 2018 with two third of $230 million in cost synergy to be secured on an annualized run rate basis by April 2016.

As of the end of the third quarter, which means six months after the merger, we are more than half of way towards our April 2016 target. Finally, a word on that, on the August call we mentioned we expected to finish 2015 with debt substantially inline with the second quarter level of $8.4 billion.

Since the Italian Lotto bid will not be concluded by the end of 2015, the €350 million first tranche of the concession payment due at the close of the bid will be postponed to 2016.

In addition, the better cash generation in Q3, coupled with lower CapEx, lower taxes paid and several initiatives in the pipeline to maximize cash will result in net debt falling below $8 billion by year end. We maintain our medium term leverage target of four times EBITDA.

To conclude, EBITDA we achieved this quarter reflects the resilience of our business model. We met our profit objective despite lower product sales and we are beginning to benefit from our synergy plan. Free cash flow generation was strong, results of disciplined operational management and lower than expected cash taxes and CapEx.

With this performance, we are confident in achieving the top half of our EBITDA outlook for the full year that reduced the net debt below $8 billion at year end. At this point, we like to open the call for your questions.

Operator, can you assist with that?.

Thank you. [Operator Instructions] We will now take the first question from David Farber from Credit Suisse. Please go ahead..

Hi, guys.

How are you?.

Good, thanks..

Good. I had a couple questions. First, just on the cost front, numbers were a touch better than we had expected. I guess, I was curious what you guys think you've achieved in the third quarter from the 230 goal on the cost side and then from the 50 of revenue synergy, what you think actually has been realized in 3Q. And then I had a couple follow-ups.

Thanks..

It is a very simple, our synergy program, plus other cost savings that we have planned are coming much better in terms of timing, and therefore it’s positively impacting our overall profitability.

And regarding your question – regarding your the second question, again, what we provided you, our goal is in terms of annualized cost savings by the anniversary of the merger and again the first six months we are more than 50% of it. so we are very confident to reach our goal for April next year..

Right. And did you discuss what's actually been realized versus what programs have been run out? I'm just curious what you think has been realized in this particular quarter as it relates to the number you provided? Thanks..

No, we prefer to talk about the goals we have done, because otherwise we were going through very detail every quarter on what we have done and what not.

But basically as Marco mentioned thus to give you some color, certainly the manufacturing, the consolidation of the manufacturing footprint is out, there were some cost, headcount and corporate costs taken out at the beginning right after the merger and these resulting our profitability..

Okay. Very good. And then just can you update us on the Italian contract, you talked about it a little bit in the prepared remarks. It looks like it's going to be a 2016 event. What's driving that, what's your best expectation now on timing there? And then a follow-up question to that is maybe just some very product expectations for '16.

No guidance but obviously the comps get a lot easier. So, update us please on the Italian contract, just for timing. And then maybe just some broad thoughts around '16. And then I had one last question. Thanks..

Look regarding the Lotto bid in Italy, I think there is good progress there because the State Council indicated that this week that the regulator is permitted to issue the RFP with a revised requirements.

And so the good news is there are not changes to the structure of the tender and therefore now is up to the regulators to issue the RFP, that this point in time we expect by the end of this year. Regarding the '16, we are not anticipating guidance..

And can you just confirm, you see net debt falling below $8 billion for the balance of the year and that's driven by the EPA as well as less CapEx, is that sort of what got you there, and that's it from me? Thanks..

What I said is we are targeting to be below $8 billion at year end and the reason is because there is some cash generation in the fourth quarter and overall for the full year this is driven by the fact that we are lowering the CapEx.

We are touch better in terms of taxes to be paid and also we are evaluating and planning some activities in order to particularly in the treasury area in order to reduce the debt..

Very good. Thanks..

Thanks you, Dave..

Thank you. We will now take the next question from Barry Jonas from Bank of America. Please go ahead..

Hi, guys. Just a follow-up on the synergies. I noticed R&D was a little bit higher in North America. I think your original synergy targets talked about a $20 million reduction.

So is anything compositionally changed in that synergy guidance?.

[Technical Difficulty] for the next question..

Operator:.

Hi. Yes, this is Barry Jonas again. Sorry must be some technical issues.

Could you hear me now?.

We can, yes..

Great. So I just had a follow-up question on the synergies. R&D is higher now in North America. So I'm just wondering, relative to your original synergy guidance, which had a $20 million reduction in R&D, if anything compositionally has changed..

No, Barry. We're saying that there is no change. We still target to achieve the $20 million and obviously the R&D you can imagine in scenario where we are very careful and therefore, particularly in a moment in which we are doing a lot evaluation related to the integration of cabinet and to evaluation of the content.

So I wouldn’t draw any conclusion based on the results of this quarter and naturally I will tell you very confirmed the fact that we would achieve the $20 million in R&D synergy..

Okay. Great.

And then just shifting over to Italy, is there any update on the litigation to reverse the Stability Law?.

No. We are still waiting for that the merit of discussion. So the judge rejected the suspension of the payment, but they didn’t discuss the merit yet..

Great. And then just in terms of North American product sales, you've got one large competitor who's reported so far.

Do you have a sense if your market share has stabilized at this point?.

Look let me answer in this way, I think there is a natural variability to our results in any given quarter, due to the timing of orders, industry seasonality and other factors. So as we didn’t overly emphasize our results in Q2, I am not overly focused on our results in Q3.

If you look at the results of the last six months, that we have been managing IGT, our replacement sales are actually up slightly, as compared to the same timeframe in prior year. So at the end of the day if I combine the two thins in the sequential improvement we have seen, we should talk about stability..

Great. Okay. Thank you very much guys..

Thank you. [Operator Instructions] We will now take the next question from Chris Jones from Union Gaming. Please go ahead..

Great. Thank you. A couple quick questions here. First, talking about your gaming ops, obviously the best performance you've seen in 12 quarters.

Can you talk about when you think you're going to see some stability in the installed base there? And my next question is, we've seen a lot of discussion here in the United States about fantasy sports coming from a lottery casino operator.

Any thoughts about how you think that could be something that you guys could somehow get involved with? There would be my next question and then two follow ups? Thank you..

Okay. Talking about gaming operation, we are pleased to report that in the North America part of the business the casino installed base is only down 1%. This is due to the improved performance in the legacy IGT titles. I mean, Quartermania, Gong XI and the continued expansion of TRUE 3D games.

In addition to that, looking forward I think this is a content driven business. So we are creating a portfolio of high performing games that we will launch over time. But on the other hand, some customers might challenge this segment with their EBITDA target.

So we have to consider the two things at the same time in order to draw a conclusion on that and we will see over time. But so far, we are pleased about the performance we are having in our installed base in the North American business.

Having said that, if you tell me about the daily fantasy sport, I mean, we are not a company that will enter that segment as a B2C operator. That is not in our strategy. We might support customers that according to the local regulation might think to enter in that space.

In that case, it's clear that we can support some of our technology and some of our know-how in the sports betting..

Great. Thank you. And just two quick follow-ups to some previous questions. First, is there any reason, outside of the Italian lottery, to think your CapEx would change materially in 2016 versus 2015? And then, secondly, you mentioned briefly about an increased focus on systems. Maybe you could just expand on that.

It's not something we hear IGT talking a lot about relative to some of its competitors? And that's all from me. Thank you..

Okay. Regarding the maintenance CapEx, I would say at the moment and again this is I am not guide in 2016, because we have not done all the analysis yet. But I would say that normally what we are targeting for this year in terms of maintenance CapEx the number, the guidance we are giving to you include the growth CapEx.

But normally what we are targeting for this year will be more or less the same, in the next year we have already one important contract next year which is Florida, which is quite important in terms of size for the rebid. But we will – we have a lower number of other contacts.

So overall my answer would be yes, and it’s very directional but we will provide you the full answer when we prepare the outlook for '16/.

Regarding systems, since the completion of the acquisition we anticipated that central system would have been a focus for the new IGT and just saying that we will continue investing. We are very pleased about the winning, and we will move forward investing and trying to satisfy our customer’s needs in that area that we consider strategic..

Great. Thank you..

Okay. Thank you..

Thank you. We will now take the next question from David Katz from Telsey Advisory Group. Please go ahead..

Hi. Good morning. My question is really around the guidance. And if I'm looking at it correctly, it does imply a sequentially stronger fourth quarter. If you could just talk about some of the underlying assumptions that are driving that, that would be helpful. And then I have one other question..

It doesn't necessarily imply a stronger fourth quarter. Certainly it's a qualitative improvement because we are telling you that on the new range we will be in the higher up, which given the fact that we are nine months into - actually 10 months into the year, we were willing to clarify.

And the second question, sorry, on - you asked, David?.

So in other words, we're not implying a sequentially stronger fourth quarter than what we reported today?.

Not necessarily….

That was really the….

Not necessarily. It's implied, but you do the math..

Okay. We can perhaps go through it. I wanted to ask about the North American installed base, which the number of units appear to be going down but the commentary is certainly confident.

Can you paint us a qualitative little longer-term picture of what you expect out of that installed base and the yield generation and how you expect to drive that and when those units might actually stop going down?.

Talking about the beginning of operations, I mean, as I was saying before, here is a – is a matter of contents, we are relying in order to stabilize our business going forward on our ability to bring new contents. And new innovation in this segment.

As the by the way, we did that G2E because if you look at the offer we brought to the show was much let me say, much more comprehensive than in the previous year.

I think that the combination of our 3D technology and Wheel of Fortune we'll be very much important in our ability to improve our performance in this segment, but also the new licensed product, such as the extension of other all the launch of our products will help us very much in continuing these journey.

By the way, if now we are stabilizing our position in that segment of the market is because of the product we have recently launched. So we have to continue in this direction. On the other hand, as I was commenting before we must be aware that some operators are looking at this part of the business to improve their EBITDA.

So we have to balance those two forces and making an assessment going forward. But from our side we will continue investing in it..

Okay. One more question, if I may.

Just thinking about free cash generation for next year, irrespective of any that may be allocated for the Italian lottery, should it occur, and operating improvement, should that occur, are there any other factors or items we should be contemplating as we model out free cash flow for 2016 that we can identify?.

Not at the moment. I spoke about the CapEx, so I think there is nothing to add at the moment..

Okay. Thanks very much..

Thank you. We will now take the next question from Oriana Bastianelli from Kairos. Please go ahead..

Hi. Good afternoon to everybody. Thank you for taking my question. The first one is related to synergies. If my understanding is correct, you said before that you have put in place already 50% of the measures in terms of in order to realize the cost synergies.

Can you currently clarify how much of your 2015 EBITDA guidance is included in terms of synergies? Second question is related to the underlying trends of profitability of the business. Probably Q4 implied in your guidance is talking about underlying EBITDA flat versus Q4 last year which is more or less in line with the second-quarter trends.

Can you offer some qualitative comment on the state-of-the-art of the fixing of the underlying profitability of your business excluding synergies, 2016 expected versus 2015? And last question from my side is related to the new proposal for tax slot machining in Italy. My understanding is that this is not a final proposal yet.

If you can offer your comment on the potential impact on your business and then on the potential reshape of the markets that these kind of measures can imply for the Italian market? Thank you very much..

Okay. Regarding the synergy, let me recap what we have said, we are not going to give quarter by quarter synergies, so focusing on the most important target, that for us is complete the action by the first quarter of 2016.

Two third of the $230 million savings is more or less $156 million in terms of an annualized rate by the end of one year from the merger. That is the target it means that from there we will see the benefits of this two third that partly will be already reflected before.

We said also today to give a sense that are progressing towards that goal, that more than half of it has already been on an annualized basis the reach of the end of the third quarter. So it means that more than $78 million on an annualized base has already been reached. And this is what we are communicating to the market.

The second question Oriana frankly speaking, can you please reformulate a little bit….

Yes, sure.

Basically excluding the synergies kicking in 2016 versus 2015, are you confident that you have now stabilized the underlying profitability of the business, excluding synergies?.

But again, you are asking a question regarding the outlook on next year, what we know for sure is that we are going to achieve the synergies because we are very confident. Regarding the outlook, I mean, there is a component as you know that is quietly volatile related to the gaming market and needs to be fully assessed.

When we will provide a guidance for the year we will obviously give you what is internal synergy and what we think about the stabilization of the gaming market..

Okay. Thank you..

Oriana I will take the question on the stability, low in Italy as you know that is not a final decision. As last year based on discussing, based on a proposal the proposal is as you know of an increase in taxation.

We will see over the next weeks the final decision regarding that its clear that in the current state this increase would be – will be a challenge for the industry, but margins are already quite narrow and many of the smaller concession operator will lack scale or diversity in the scope of their business, might choose to exit the market.

This move might accelerate the consolidation in the industry and create additional opportunity for larger players. But it is really too soon to say there might be a silver lining.

I guess that we have to work providing our contribution to our natural account path to add them in defining a good stability low for next year and after that we will comment at the end of the process.

But I want to elaborate also on your request, if in this moment the law should be approved as it stays, we will have an incremental $30 million, $30 million, $35 million impact on the Italian P&L because that is increased in the taxation of VLTs.

But having said that, I would suggest to wait till the end of the year and before taking the conclusions..

Okay. Thank you..

Thank you. We will now take the last question from James Kayler from Bank of America Merrill Lynch. Please go ahead..

Hi, how are you doing?.

Good..

Good. I guess, just one, I know you're not giving guidance for next year, but more broadly, when you're talking to your casino customers, particularly in North America, what is your sense for what slot budgets are going to shape up to be like next year? I'm trying to get a sense for what you think about replacement sales in 2016..

I can tell you immediately, I mean, apart from I mean, the debate some of them are more optimistic regarded the future, but they have capital constrains. So all in all, I tell you as I am factoring the replacement for next year being flat, at this point in time that is in my view the best way to approach the '16 planning.

We have some expectations in terms of new end expansions, but very likely will be slightly better than this year, so driving an overall better outlook for the market. But when it comes to the replacement rate, I am not guiding my team to plan a stable replacement rate..

Okay. Very good. And then just following up, I think the Wheel of Fortune 3D was probably one of the most talked about machines at G2E.

Can you give us a better sense for when that actually might be ready to ship? Is that a first half of '16 or second half of '16 event?.

First half of '16..

Okay. Very good. Thank you, guys..

Thank you. That will conclude today's Q&A session. I would now like to turn the call back to Mr. Sala for any closing remarks. Thank you..

Thank you very much for your questions and for you interest in IGT. Before closing, I'd like to share with you some takeaways from our participation.

This past quarter in the two most important trade shows in our industry, G2E Gaming and NASPL lottery, which I mention in my introduction, this has given all of us the opportunity to measure with clients and other industry participants the progress we have made in establishing our new group in a such short time.

We have tangible evidence that we rolled out a brand that is relevant across all channels, that our name is associated with the industry leadership in both the segment and that our commitment to innovation, as well as our focus on the customer is recognized and appreciated.

We still have a lot of work in front of us, but we can do it from a position of strength and with a unique industry experience and appreciation. I wish you a good day and we will look forward to talking to you again soon. Bye-bye..

That will conclude this conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..