Jim Hurley - Senior Vice President, Investor Relations Marco Sala - Chief Executive Officer Alberto Fornaro - Chief Financial Officer.

Barry Jonas - Bank of America Merrill Lynch David Katz - Telsey Advisory Group Steven Kent - Goldman Sachs David Farber - Credit Suisse John DeCree - Union Gaming Ralph Rogge - Rogge Global Partners.

Good day and welcome to the IGT 2016 First Quarter Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Jim Hurley, Senior Vice President of Investor Relations. Please go ahead, sir..

Thank you for joining us on IGT’s first quarter 2016 conference call, where Marco Sala, 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 period.

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.

With that, I will turn the call over to Marco Sala, CEO of IGT..

Thank you, Jim and welcome everyone. We are pleased to be reporting a solid start to the year. On a pro forma basis, constant currency revenues rose 4% in the first quarter, driven by strong lottery growth in North America and Italy.

It is important to note that the recurring service revenues represented nearly 90% of our total revenues during the first quarter. Our strong profit performance is primarily due to the steady high margin characteristics of these revenues.

Pro forma adjusted EBITDA of $460 million was up 12% in constant currency and represents the highest quarterly profit since the acquisition. All operating segments contributed to the profit growth in the period.

In addition to the increase in revenue, synergy savings and our overall cost of discipline helped us to achieve this significant growth in profits. Lottery performance was of particular note during the period. Global lottery same-store revenues, excluding Italy, increased 18%, while Italian lottery revenue was up an impressive 5%.

Our North America lottery operations, which benefited from January’s record 1.6 billion Powerball jackpot, achieved 23% same-store revenues growth. I would like to call attention to the fact that even without the multi-state jackpot activity, same-store revenues in North America grew in the high single-digits.

European lottery trend was also strong, fairly broad-based throughout the region and helped by a large jackpot in the United Kingdom. In Italy, Lotto wages rose 6% on the continued momentum of 10eLotto and Numero. Scratch & Win wages were also good, rising 2% on successful new product introductions.

Lottery is a stably growing business and we are by far the global leader in the space. This is a function of many factors, including our commitment to constant innovation and our ability to leverage our B2C know-how with our B2B clients on a global basis.

With these competitive advantages, we are able to partner with our customers to improve the quality and the scope of their offering. This is especially meaningful since lottery often funds important government programs that require ever increasing sources of revenue.

The most important piece of lottery news is the award of Italian Lotto concession to Lottoitalia, an IGT-led joint venture. The significance of this concession should not be underestimated. In fact, the initial lotto concession is how our company got started. Securing the lotto award for the next 9 years is an important element of our business plan.

And the strong wager growth we have achieved in the last 2 years is a clear demonstration of our commitment to the continued success of this business. Outside of Italy, during the quarter, we signed a new 7-year contract with Virginia lottery following a competitive procurement process.

The Virginia lottery is a longstanding customer, with whom we have enjoyed six consecutive years of growth. We are looking forward to building on that progress with continued product innovation and introduction of our new Aurora platform. We have also secured a multiyear extension with Saxony [ph] lottery in Germany.

We will continue providing them lottery technology and services in addition to implementing a central system upgrade. Let me now discuss our global gaming activities, where revenues, on a pro forma basis, were slightly below the prior year. This is largely due to the variable nature of product sales.

On a sequential basis, our global installed base were nearly unchanged as a dip in North America was mostly offset by international growth. Approximately 5,700 gaming machines were shipped in the quarter. We continue to experience good demand for our newer cabinets around the world.

Customer interest and acceptance is also building for the new AXXIS console, which we introduced at ICE in London and that will be available in international markets later this year. As you know, our focus is on reinvigorating our content and hardware development processes and to bring compelling new products to market.

That’s true for both participation and for sale offerings. We will be introducing games created with the new approach beginning this year, mostly in the second half. Some of our most high profile participation titles include House of Cards, which is being rolled out now and Wheel of Fortune 3D, which will hit the floor in late June.

Our wholesale lineup includes 60 new video titles. I firmly believe that the discipline we have put in place to support new gaming cabinet introductions will produce good results.

Given the standard nature of the product development cycle in addition to the regulatory approval processes, improvement isn’t going to take place overnight, but I expect the results and the G2E show in the fall will be a good showcase for it. We are also focused on developing other related opportunities.

System is one area in which we have made good progress over the last few months. We were recently selected as the casino management system provider for several casinos in Washington State and Montana, all of which involved the highly competitive selection processes.

System enhancements, such as our service window offering, has also gained momentum and the next generation of our award winning on-premise mobile betting solution was highlighted at G2E Asia, where the new multi-play baccarat functionality was introduced. Last week, we began our on-premise field trial for sports betting with MGM in Las Vegas.

The field trial for slot is scheduled later this year. The on-premise solution has the potential to leapfrog the competition and solidify our standing as the industry’s innovation leader. Electronic table games are another emerging opportunity.

A month ago, we announced an agreement with Paradise Entertainment that enables us to innovate on their groundbreaking intellectual property on a global scale. This will provide an exciting extension to our product portfolio in a new growing market segment. So, we have started 2016 with a solid showing.

We have benefited from the leading positions we had established in lottery and we are executing our turnaround in gaming according to plan. At this point, I will turn the call over to Alberto..

Thank you, Marco. The solid quarter Marco just described is tangible here on Slide 8, where you have the year-over-year change in our pro forma adjusted figures. Revenue rose 4% in constant currency on strong lottery performance.

Adjusted EBITDA increased 12% and adjusted operating income was up 35% reflecting favorable revenue mix as well as lower operating costs. We achieved EPS of $0.57 on an adjusted basis. Reported EPS included the non-cash FX impact associated with translating our euro-denominated debt into U.S. dollar for reporting purposes.

On Slide 9, we have an overview of the operational driver of pro forma revenues and operating income for the quarter. Lottery service revenue was up significantly mainly from strength in North America and continued global same-store revenues expansion in addition to strong Italy results.

Gaming services revenue was relatively stable as higher software revenue largely offset a lower installed base. Product sales primarily reflect tough international lottery comparison. Lower gaming machine unit sales were mostly offset by increased system sales in the period.

The sharp growth in pro forma adjusted operating income is due to the increased contribution of high margin service revenue, overall cost discipline and realization of the synergies. The comparison to the prior year also benefited from some large one-time expenses recorded in the first quarter of 2015.

Let’s turn to North American Gaming & Interactive on Slide 10. Though the environment for participation games remained challenging, we were able to maintain our gaming service revenue as the higher contribution from software offset to the lower installed base.

For the quarter, we shipped a total of 3,951 units in North America, which 902 were new and expansion and 3,049 were replacement units. If we look only at the casino replacement segment, leaving aside the VLT sales and the Maryland lease conversion of the first quarter of 2015, unit sales were up double-digit in the quarter.

Higher new and expansion sales reflect the gaming machine shipment to lottery regulatory markets. System sales were higher than the prior year supported by system enhancements, such as service wins. DoubleDown revenue was unchanged year-over-year.

Operating income was up significantly, a large part from favorable comparison with large bad debt expense in the prior year. Revenue mix and synergy also contributed to profitability.

Turning to North America Lottery on Slide 11, we achieved 23% same-store revenue growth in the quarter, driven in part by the record Powerball jackpot in January as well as by continued strength in instant ticket. It is worth noting that this strong growth came on top of the high jackpot activity in the prior-year period.

Our LMAs in Indiana and New Jersey also performed well. Operating income for North America Lottery segment rose 61%, revenue growth, operating leverage and overall cost control. Record profits were achieved even without the Powerball benefit.

Moving to International on Slide 12, gaming service revenue was up on interactive growth and higher installed base in South Africa. Lottery same-store revenues rose 2% in the quarter, supported by jackpot and instant growth in Europe that was partially offset by weaker trends in Latin America.

The termination of the Ireland lottery contract were partially offset by the new lottery business in South Africa. Lower product sales primarily reflect the difficult lottery compares with large New Zealand and Singapore sales in the prior year.

Gaming machine unit shipments were up 10% from the prior year to 1,744 machines, primarily due to a sharp increase in replacement units, particularly for the Crystal Dual and the S3000 cabinets.

As a result of the improved revenue mix and our ongoing cost management efforts, operating income from our international activity was up by more than 20% on a reported basis in the first quarter and over 40% in constant currency. Our Italy results are on Slide 13. During the quarter, we experienced underlying growth in most of our core activities.

Continued resilience in sales and profit was supported by strong lottery performance. Lotto wagers rose 6% on top of the 16% increase in prior year, fueled by strong 10eLotto and Numero performance and increased late number activity.

Scratch & Win demonstrated improvement with a 2% increase in wagers, supported by several product introductions, including the new 20x and 50x multiplier tickets. Revenue from machine gaming were impacted by Stability Law taxes and a drop in the number of units installed.

Excluding Stability Law impact, gaming machine revenues were unchanged as the overall productivity and mix of machine improved compared to prior year. Sports betting revenues were up as lower payout more than offset a drop in wagers.

Italy first quarter pro forma operating profit was up 2%, with most of the growth driven by the strong performance in lottery and disciplined cost management, partially offset by the Stability Law impact on Machine Gaming. On Slide 14, we have provided a summary of terms of the new Lotto concession.

Most of this information has already been communicated. I would like to point out that the new concession will commence on November 29. And we have already made the first upfront free – upfront payment of €350 million. We expect the second €250 million installment to be made in the fourth quarter and the final €170 million payment in April 2017.

Additionally, we expect to spend $35 million on Lotto-related infrastructure upgrades by the end of 2016. It is possible this capital expenditure may be capturing working capital, depending on timing. We continued to make good progress on our debt and leverage profile, which you can see on Slide 15.

Excluding the negative foreign exchange translation impact, our net debt was down $167 million in the first quarter, reflecting strong cash flow despite significant interest payments in the period. On a reported basis, net debt was $7.7 billion at the end of the quarter, roughly unchanged from 2015 year end level.

Leverage was 4.41x last 12 months adjusted EBITDA at the end of the first quarter, an improvement from 4.52x three months earlier. Keep in mind that the upfront Lotto concession payments in the second quarter and fourth quarter will impact our net debt in the balance of the year.

Moving on Slide 16, we generated considerable free cash flow, $180 million during the period. CapEx was approximately $100 million in the first quarter, which mainly correspond to maintenance investments reflects a fairly normalized run rate.

We do expect higher than normal maintenance CapEx in 2016 mostly related to the important renewals in North America and Italy. As Marco said, we had a solid start to the year.

This morning press release, we reiterated the guidance we had provided on March earnings call, given the anticipated cadence of the new casino openings as well as our own new game releases schedule, we expect product sales to be more heavily weighted to the back half of the year. At this point, I would like to open the call for questions..

Thank you, sir. [Operator Instructions] Our first question comes from Barry Jonas from Bank of America Merrill Lynch. Please go ahead..

Hey guys.

Just a couple of questions, first for the Lotto consortium, can you share any details or maybe just give general guidelines around how IGT will get compensated for managing the lottery?.

Overall, the compensation as you know is basically 6% of the total wagers. And if your question is related to the relationship with the consortium, what we are going to do is provide services to the consortium at market price..

And by market price, just general what U.S.

lottery contracts are priced at or what’s the good way to think about market?.

Market price is basically for the same type of services what we provide internationally with the same level of pricing. So, it’s pretty standard across the globe. So that’s what we are going to do..

We will now take our next question from David Katz from Telsey Advisory Group. Please go ahead. Your line is open..

Hi, good morning all..

Hi..

So, while the first half of the year it seems as though the game sales are a little bit – that’s obviously the lower portion of it, when I try and split that apart and I think you did that in some of your commentary, how do you think about what your share of the opportunities has been, while obviously the casino opportunities come and go and the replacement opportunities come and go, obviously, what we are trying to get at is, how are your games selling relative to the past few quarters based on any new product adjustments that you maybe making or any new products that you maybe putting out in the first half of the year so far?.

Well, if I look at the product sales, I think over the next quarters we will progressively improve our performance. And overall, we intend to maintain our position during the year. That is what I can tell you..

Right. And if I look at the North American installed base, it looked as though the first quarter you lost a few more games than you had in the fourth quarter last year.

And there is certainly an improvement in the trend line, but how should we think about specifically that trend line looking out for the remainder of the year? Is there a point at which that installed base becomes flat?.

This is exactly the objective, but that is that we have to consider that we will continue having pressure on the installed base, that is a matter of fact. And we rely on the launch of our most anticipated titles over the next weeks in order to progressively stabilize our installed base. Of course, we rely on Wheel of Fortune 3D.

And all our programs are in line in terms of timing with our expectations. So going forward, our commitment remains to progressively stabilize. It’s clear that I cannot tell you by when it’s going to happen..

Right.

And just last question as we look at the back half of the year, where we are expecting some improvement, should we be thinking about a more of a ramp, how much of an event is really G2E? And are we talking about a fourth quarter loaded year or are we talking about more of a progressive ramp from where we stand today?.

No, I think that we should consider a progressive ramp. Because more than G2E, I am thinking about the pace of the introduction of new titles, new games, including G2E, but we plan progressively to do that.

The most part of our new titles in the core products are in the second half of the year, but of course, we will do that progressively and progressively, we should see the improvement of our performance..

And I am sorry I am going to ask one last one. With respect to the DoubleDown business and the social casino business, how mature do you think that business is? I mean, I believe it was flat year-over-year.

Is there still growth in that business or what would you consider the opportunity with that?.

No, I think you are right, it has been flat year-over-year. But we have a set of programs that which progressively again, we expect to improve our performance, again, nothing surprising. We are going to launch a new set of titles.

LM is the DoubleDown’s most important new game introduction this year and we just launched the first out of three games we will launch over the year. We are going to launch in the second quarter by the end of the second quarter quite comprehensive loyalty program for our players.

And we expect that the incentive advertising could represent over time an incremental revenue stream. Those are the main actions we believe that should contribute over time to grow the business progressively again..

Very good. Thanks very much..

Thank you, David..

We will now take a follow-on question from Barry Jonas from Bank of America Merrill Lynch. Please go ahead, sir. Your line is now open..

Thank you. Yes. I just had one more follow-up question. In terms of synergies, I believe last quarter, you guys achieved your $160 million run-rate for the cost synergies.

Just wondering if you have made any progress since then and if you can quantify it?.

Barry, the synergy plan is progressing as expected. And actually, we are anticipating some of the action as well as the benefits. So, you should – we will provide the final number at the end of the year, but you should factor that obviously the impact in the first and the second quarter will be higher than the second part of the year.

Overall, we are on track and actually doing faster..

Great.

And then just remind me again, in terms of the revenue side of synergies, is that something we should start to think about in the second half of this year?.

No. I mean, there are some programs that have already been launched. For example, we are using our footprint in SPIELO in Europe and we are selling to some of our customer the content of IGT. So, some of them have been launched.

Others, for example, specifically, the IGT VLT in Italy, require some time in order to have the product compliant with Italian regulation. Some of the benefits, we are starting to collect..

Great. Alright, well thank you very much, guys..

Thank you, Barry..

Our next question is from Steven Kent from Goldman Sachs. Please go ahead. Your line is now open, sir..

Hi, good morning. Just two questions. First, North American machine sales came in a little bit lower than we were expecting, but the ASPs were higher, which is a good thing.

Can you just talk about the pricing environment as well as which games are being able to drive better prices? And literally, is it less discounting or better pricing combination of both? I am intrigued by that.

And then international revenues, could you just give us a little bit more of a breakout on the geography and what you are seeing – where you are seeing the most impact and how each country area impacted revenues? It’s hard for us to understand it because of the FX, so that’s what we are trying to get to..

Okay. In relation to the breakdown of the revenues, let me say that on the international region, we had very – it was basically very positive contribution in Europe and it’s particularly in the UK, where the jackpot helped us.

The first quarter in Latin America was relatively weak and the compares was mostly related to last year, where in certain jurisdiction we had a good jackpot. So overall, I think the dynamic in Latin America, we have already seen in the second quarter a certain improvement.

When we go to pricing, let me say, most of the impact on pricing is coming from new products. The new product, Stepper and the CrystalDual have reached in the quarter almost 50% of our sales. They carry a higher price. And therefore, this mix is impacting positively the average price..

Okay, thank you for that help..

We take our next question from David Farber from Credit Suisse. Please go ahead. Your line is open..

Good morning, guys.

How are you?.

Very good.

What about you?.

Doing great. Had a couple of questions. First, I was hoping maybe you guys could talk about the Powerball contribution in the quarter? And then I had a couple of follow-ups. Thanks..

The Powerball contribution in the quarter was $21 million in terms of EBITDA..

Great. Thanks.

And then on the presentation, you provided some incremental color on the new Lotto concessions, I just wanted to spend a minute on this, it seem like there was $130 million to upgrade the infrastructure, I was hoping maybe you could spend just a minute talking about, do you expect any incremental EBITDA from this or is this more maintenance in nature? And then I had one follow-up from there.

Thanks..

No, I mean the RFP for this contract required a change in technology. And by the way, from one side it was a requirement, on the other side we are upgrading substantially the capabilities of the machines. By the way, they need to be in place for 9 years.

So I would consider that as maintenance giving obviously the updating technology will give us additional feature that potentially we can use in the future..

Very good.

And then just last for me, I guess following up on an earlier question, just trying to understand, at the JV level in the Italian concession, maybe are you expecting sort of a cost plus type of contract given you will be responsible for the infrastructure and the technology and servicing and if so sort of maybe just help us understand what you think a reasonable expectation is it cost plus 15, cost plus 10, just some maybe some goalposts on how to understand how that contract works? And then that’s it for me.

Thanks..

No. We are not working on a cost plus basis. Again, there are ample evidences of what is the pricing for this service in the international market. And by the way, one of the participant is also our customer in other jurisdictions, so it’s pretty much known. But it’s not cost plus, it’s based on market price.

So it’s very similar to all the other contracts that we have..

Okay, thank you..

[Operator Instructions] We will take our next question from John DeCree from Union Gaming. Please go ahead. Your line is open..

Hi everyone. Thanks for the question. Just wanted to switch gears quickly and talk about the Scratch & Win wagers, look like 1Q in Italy, they have turned positive for the first time in a couple of quarters on a year-over-year basis.

I was wondering if you could provide some color as to kind of what you are seeing in that business and if that trend is something that we expect to continue?.

Look, I will reply on this question. As we were commenting during last quarters, we felt that our product offering had to be announced. And we worked hard in order to launch new products in the market as we are used to doing Scratch & Win in Italy. So the first quarter results are really the results of this new product introduction.

And I think that we can continue maintaining a favorable trend over the next quarters..

If I could kind of present the same question to North America, I think in your prepared remarks, Marco you suggested that ex-Powerball North America, the lottery sales would have been up high single-digits, I was wondering if you could comment a little bit about on what you see kind of driving that stronger growth in North America, is that also kind of product innovation or a mix between that and maybe just better consumer trends?.

No. I think it’s always in this business a matter of product innovation. This business is driven very much by the quality and the quantity of the offer. There are not changes in the, let me say players behavior.

It is the fact that all the jurisdictions are the more reactive to our proposal in terms of innovation and they are willing to launch new initiatives. And this is very well reflected in the instant ticket trend. That is really doing very well. And we believe that it can continue over the next quarters..

Great.

And one last question, switching gears to the Paradise IP that you procured in the quarter, I was wondering if you could talk a little bit about what your initial plans might be for the electronic table game segment, maybe by geography or if that product needs a little R&D before you start to ramp up, any color you could provide on your plans there would be helpful?.

Alberto here, look this is a good opportunity because basically we have adjusted this agreement but not fully present in this segment. Immediately, what we see is an opportunity. Europe, it’s certain that in the long-term is the North American casino that can offer growth opportunities..

Great. Thanks guys..

We will now take our next question from Ralph Rogge from Rogge Global Partners. Please go ahead..

Hi there. Thank you.

Could you tell us what’s happening to your market share versus Scientific Games [indiscernible] and what are your growth estimates for the casino installed base?.

Listen, I mean again, we look at the market share on a yearly basis. So last year, in 2015, all the evidence is that basically they were stable. We will see one quarter, we don’t have all the information now for the first quarter, but we will say later on how it is going. We don’t have any reason to believe that could be different for the time being.

But having said that, for the installed base in general, what we see is in overall market, it is either stable or slightly up..

Thank you..

[Operator Instructions] As there are no further questions in the queue, I would now like to turn the conference back to Mr. Marco Sala for any additional or closing remarks..

Thank you for joining us on today’s call. As many of you know, we will be hosting an Investor Day in Rome on June 21 and June 22. It’s a great opportunity to become more familiar with the scope of our Italian operations and to do a deep dive into each of our operating segments. It is also an opportunity for you to meet the broader management team.

We look forward to seeing you then. As always, we appreciate your interest in the company. I wish you a pleasant day and look forward to seeing you next month..

Thank you, sir. Ladies and gentlemen, this now concludes today’s conference call. Thank you for your participation. You may now disconnect..