James Hurley - Senior Vice President of Investor Relations Marco Sala - Chief Executive Officer Alberto Fornaro - Executive Vice President and Chief Financial Officer.

Barry Jonas - Bank of America Merrill Lynch John Cardoso - Macquarie Capital, Inc. David Farber - Credit Suisse David Katz - Telsey Advisory Group Domenico Ghilotti - Equita SIM S.p.A. John DeCree - Union Gaming Research, LLC.

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

Thank you for joining us on IGT’s fourth quarter and full year 2016 conference call. Marco Sala, our CEO, will provide an overview of the year and comment on broader strategic initiatives; then Alberto Fornaro, our Chief Financial Officer, will provide operational and financial perspective on those results.

After our 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..

grow lottery worldwide, strengthen our global marketing positions in Gaming, expand our social interactive operations, protect our Italian leadership, and meet the financial goals I just mentioned. Let me provide some perspective on our progress.

It was a very good year for our global lottery operations, where revenues increased 7% in constant currency. This includes same-store revenue growth of nearly 10% in North America and 3% at our International segment. Total lottery wagers were up 6% in Italy.

The Lotto game surpassed €8 billion in wagers fueled by the continued success of 10eLotto, in addition to significant late number activity. We also secured the important new business and extensions, starting with new concession for the Italian Lotto, our largest single contract, which we won for another nine years.

In North America, we signed important new contracts in Florida, North Carolina, Virginia, and Wisconsin. And we extended the key contracts in Georgia, Texas and Michigan. As a result, the weighted average contract length of our top 20 North American contract of lotteries including extensions increased to 8.5 years.

Internationally, we had new contracts and extensions in Argentina, Colombia, Switzerland and New Zealand. We continue to work on the expansion of several additional lottery contracts around the world, while this requires incremental capital investment in the near-term, it ultimately provides improved visibility and better returns in the long run.

In addition, there are compelling opportunities for our International segment to pursue. Although the timing is harder to predict, we are also making important progress with our instant ticket printing business, where it’s fair to say, that are under penetrated - we are under penetrated when you consider our leadership position in lottery.

We are investing to expand our current instant ticket printing facility to house a new state-of-the-art press, raising our printing capacity by about 30%. Scheduled to be fully operational in early 2018, the new press provides us with greater production efficiency and flexibility.

Our second area of strategic focus was turning around our gaming operations and strengthening our global position in that business. We have successfully instilled a customer first philosophy in all that we do, and the player-centric approach to game development.

The field trial program we implemented last year ensures that only the best titles are released to sales. And we had integrated focus groups into the development of our premium games. We are pleased with the results of these efforts and with the subsequent improvement in our gaming KPIs.

For the participation business, we ended 2016 with an increase in our global installed, base reflecting significant international growth, up 11%. In North America, our goal for the year was to progressively size our installed base.

In fact, we experienced growth in the second half of the year at by new Casino openings and this function of our 3D game library, most notably the successful rollout of Wheel of Fortune 3D. While we are encouraged with our progress in the participation business, we’ll really be able to assess it more fully once we reach the middle of the year.

This is when the most of the new games and cabinets we presented at G2E last September at ICE in February, we’ll become available in the market. The highest profile games such as The Voice and Sphinx 4D will be launched in the second half.

In North America, we expect the short-term pressure on the installed base in the first half of the year, largely due to recent Casino consolidation. In contrast, we see opportunity to grow our international installed base fairly consistently in 2017 led by Eastern European and Africa and with the progressive rollout Greek VLTs.

As anticipated, gaming product sales trends improved in the second half of the year, as we introduce a comprehensive suite of for-sale Video Reel games with a field-test performance record. We have a lot of opportunity to grow our Video Reel sales, as we are currently under represented in that segment.

Golden Egypt and the Ocean Magic are just two examples of new Video Reel games that are already generating the above average productivity of strong legacy franchisees such as Lucky Larry Lobstermania and Cleopatra. We also strengthened our leadership position in the video poker and the staple categories supported by new games.

In fact, our North America casino replacement unit shipments were up low-single-digit for the year. Our focus on developing locally attune content that leverages our centralized investment in R&D, and manufacturing is helping our international gaming product sales. Australia is a good case in point, as it was a key market focused for us in 2016.

There is great opportunity for us there. But to unlock it we needed to empower the local management team to make the right decision for their market, and that approach is working. We achieved the double-digit increases in our Australian unit shipments, revenues and profits during the year. Australia is just one example.

The early feedback of the new AXXIS 23/23 and CrystalSlant cabinets has been good throughout Europe and Latin America. Systems is another important area of progress for us. We have developed innovative, flexible and scalable solutions that we can leverage across both lottery and gaming.

Our casino central managements systems were selected for some of the year’s most high profile new openings including MGM National Harbor in North America and Wynn Palace in Macau in addition to several other casinos in North America, Latin America and Asia. We are also responsible for the new VLT central systems in Greece and Sweden.

The deployment of our Service Window solution at Station Casinos was another significant milestone in the year. And we’ll have to deliver a significantly enhanced guest experience. Our PlaySpot and Cardless Connect systems offerings are transforming the industry by bringing gaming experiences to mobile devices.

This extends playtime for existing players and potentially attract new players providing a seamless user experience. Global customer interest in these open add-on system solutions is very encouraging, and they are important pillars of our interactive growth strategy for both lottery and gaming.

We had mixed results with our social and interactive operations. DoubleDown trends were disappointing in 2016. Daily active users declined with proliferation of competing ops that offered compelling social features and the mobile functionality.

We are actively working on improving DoubleDown’s performance, including investment in technology to offer a more engaging player experience, particularly on mobile devices. We will also launch a second standalone social gaming app that focus on our popular stepper games in the coming months. We had a better performance in Interactive.

We experienced progressive improvement at both our International and Italy segments throughout 2016. International achieved a double-digit growth driven by new customer demand for games from our premium content library, notably, Cleopatra and Wheel of Fortune.

Italy’s performance benefited from a stronger portfolio of games in addition to a number of organizational and technological improvements, resulting in a double-digit increase in monthly active accounts by the end of the year.

The last strategic objective we discussed was to protect our market position in every main product vertical in Italy, and we accomplished this growth. This was an important achievement in this large highly profitable market for us. We are far and away leader in lotteries.

Our gaming machines benefit from being in the best locations and from the improved product offer. And as I just mentioned, our interactive operations improved during the year. There is an interesting digital opportunity for us in Italy especially in lottery, as mobile enables us to market and deliver our products to a larger pool of players.

As you know, our business is global and spans the world’s gaming spectrum. IGT has a long history of driving growth through compelling innovation in content and technology. We see opportunities for growth across our segments and geographies.

Governments around the world are continually in search of new sources of funds and the regulating gaming is a natural way to generate new revenues. Lottery is an attractive and stable business supported by long-term contracts. It is expected to grow at a low to mid single digit rate over the next three to five years.

In Gaming, we have the right strategy to gain back share in North America and leverage our investment in games harbor [ph] and technology on a global footprint. Let me wrap up by saying that our focus remains on satisfying our customers need by exceeding their expectation of service and value.

We do this by being an integral partner in their success providing players with entertaining content and state-of-the-art technology. By remaining focus on customers and play engagement, something we are uniquely capable of doing having both B&B [ph] and B2C expertise. We will continue to grow our business and create value for our shareholders.

Now, I will turn the call over to Alberto..

first, the timing of product sales; second, some pressure at our North American Gaming & Interactive segment on the installed base and the DoubleDown. We expect improved trends in the installed base and the DoubleDown later in the year.

We also face difficult to North American comparison with last year record Powerball Jackpot, which was a significant contributor to revenue and profit growth in the first quarter of 2016. Finally, the fee structure and the cost of the new Lotto concession. Turning to CapEx, we expect a total investment of about $625 million to $675 million.

This includes about $100 million for growth CapEx, and approximately $100 million related to delayed timing of the new Florida contract. It also includes the capital required for the recent Georgia and Texas early extension. Those contracts were originally expiring in 2018 and 2020, but have now been extended to 2025 and 2026 respectively.

Finally, the Italian Lotto concession will require growth capital outlay of about $320 million, $190 million related to the final upfront concession payments and $130 million for network and infrastructure upgrades. We are also responsible for $195 million of the gross amount, which the balance we’re counting from our minority partners.

Net debt is expected to be $7.6 billion to $7.8 billion at the end of 2017. As we have demonstrated over the last two years, our lottery and gaming operation generates strong operating cash flow that have enabled us to consistently improve our net debt and leverage profile.

Capital expenditure for the wins and extension for the several important North American lotteries and the final Italian Lotto concession payment are important to users of cash flow in 2017. Paying down debt remains a key priority.

There is some additional guidance provided here on cash taxes and purchase price amortization to help you forecast the adjusted figures we report. We operate a diverse portfolio business in growing global market segment.

We’re allocating capital to securing stable cash flow from long-term lottery contract, and to developing the content and technology necessary to strengthen our position in gaming. At this point, we’d like to open the call for your questions. Operator, could you please proceed..

Certainly. [Operator Instructions] We will now take the first question from Barry Jonas from BoA. Please go ahead..

Hi, guys. Just a couple of quick questions. So for gaming in North America, I completely understand the new products coming out in the second half and maybe some higher expectations for that.

But, I guess, just generally speaking, as you talk to your customer base, what are your thoughts about the replacement cycle this year in general?.

Hi, Barry. It’s Marco. We as always, we see that the performance for our customers are doing better. We do not know how much they will translate into additional investment in our slot machines, in the slot machines not in our - in the market.

Therefore, as we did last year we are planning a relative stable replacement rate, while we should expect lower contribution coming from the new openings..

Great. And then, just a question on Italy.

Can you give us maybe a regulatory update in terms of your expectations for any new taxes this year as well as the timing for the new sportsbook licenses?.

Look, regarding taxation, it’s totally unpredictable. There is now the Italian government that is looking at the maneuver for raising additional money for being compliant with the European Union request, but apparently, they are not touching gaming. But you never know till the very end, this is reality.

And we will see the discussion that will be done in fall, when they will approach the budget law. For the time being, unfortunately, I do not have any hints to share with you..

Okay. Great. And then, just lastly on Scratch & Win, I mean, clearly you guys are investing in the instant tickets business.

Do you think that when the Italian Scratch & Win contract comes up for renewal, would you expect to have a much bigger contribution in terms of the JV economics or else in terms of providing tickets to the joint venture in terms of your overall penetration?.

And I understand the question, but it’s too early to reply to this question, this discussion that will be raised later on..

Got it, okay. Thank you very much..

Thank you, Barry..

Thank you. We will now take the next question from Chad Beynon from Macquarie. Please go ahead..

Hi, guys. This is actually John for Chad. You mentioned earlier in the call you’ve had some nice system wins in the last few years.

Can you help us think about the backlog for this business? And generally, what customers like for your product these days?.

Sorry, John, you dropped out, which business are you referring to?.

Sorry, the systems business..

This is Alberto here, Chad. But the performance of the system business, particularly in this quarter has been particularly positive for us, because we had National Harbor obviously and we had another delivery at Palms in North America.

Also, we had good activity in the international regions with Genting in Malaysia and another installation in South America. So overall, it has been - and Marco was in his remarks also remembering what has happened during the year. So the business is going with Station for example.

So the system business has been quite positive in 2016 and for the future.

Marco?.

No, but I think - as we said since the very beginning, the system would have been an area of focus of our company. And we are seeing the PlaySpot application.

We are seeing the Cardless Connect, that are getting traction in our customers and we are extensively discussion - sorry, extensively discussing with many of them in order to implement these add-on on their system. So we are positive about our ability to develop that segment over the next years..

Great. That’s good color. And then, switching gears a bit, some of the other social gaming companies have the strategy of having multiple brands, so that there’s less of a ceiling.

Do you guys consider this approach? Can you help us think about that outlook?.

That’s - it’s exactly what we are seeing in the market and we are working as one of the main pillar we have in our set of actions to revert the trend in DoubleDown.

And as anticipated that we are going to launch at the end of the second quarter, a new app totally dedicated to our stepper contents and we rely on it as part to allow our strategy to revert the trend in DoubleDown..

Great. That’s very helpful. That’s it for me guys. Thanks for taking my questions..

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

Good morning, guys.

How are you?.

Hi, David. We are good.

What about you?.

We are great. I had two quick questions. The first was just there were some local articles, the Circuit Court in Florida perhaps better lottery contract that was made invalid, we had a number of guys that asked us, and I would be curious to hear your thoughts you may teams timely.

What do you think is going to happen with respect to Florida? What you think cash flows will be, if there’s timing, just how do you guys think about some of the local news coming out of Florida with respect to the contract there and a follow-up. Thanks..

I think the answer would be shorter than the question, because it’s very intense political situation in Florida, and until the method is resolved, our previous contract in Florida, we remain in place, while the new one gets sorted out.

It is important to keep in mind that we competed than one, the new lottery contract in an open and well organized process. Further proceeds from lottery - from Florida lottery which amounted to $1 billion fund the education system in Florida the critical need, so in essence.

We are monitoring the situation as it develops, but we feel we are in good shape, because we have the current contract and we won a regular contract..

And David, let me add one thing that was in your question regarding the CapEx, as I mentioned, it is included in this year obviously if there is a delay. This is going to be the third year in a row that we include in the guidance and then it’s moved forward..

Okay. Thank you. And then maybe just a little bit more color on DoubleDown, maybe if you can just talk a little bit more about what’s driving some of the weakness there, and then somewhat related does it recent performance make you consider M&A perhaps like some of the other operators that are in the interactive space? That’s it for me. Thanks..

Look, one of the reason why DoubleDown is suffering is an increased competition - and increased competition it has been very often driven by new applications. And so the first answer regard to our willingness to launch our own application relying on one of the strongest segments of our gaming portfolio.

In addition to that, we are investing to upgrade our platform and improving our offering on Android devices. We were lagging behind accordingly to our technologies, and we have invested in order to reduce the gap.

We are supporting our loyalty program, which has been gaining traction after being launched and we will continue to promote it, and in addition to that we intend to improve and expand our content as always.

Recent Gamings introduction we recently introduced a new LN [ph] title, Lucky Larry’s Lobstermania 2 have been successful and improving the player engagement and retention. So we are working on these areas, and we are getting more and more confident that these actions will result in a return to growth.

Talking about the M&A activities, as you can imagine, there is a lot of activity the interest in the social casino space. As you would expect all major players are engaged. DoubleDown is a valuable asset, and we regularly receive the interest from potential buyers.

This market because the social casino market is attractive and a natural complement to our activities. So what I can say is that we believe we have the right strategies to grow DoubleDown organically as part of IGT..

Helpful. Thanks. That’s it for me..

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

Hi, good morning..

Hi, David..

So with respect to DoubleDown, and I apologize because we’re all piling on DoubleDown. However, when we look at that business and we see what - and I know other questions have asked about additional brands and apps, et cetera.

But weaving that into the systems business that you have, and using it in a different way rather than in a B2C way, but rather in a B2B way, and using it the way one of your competitors is integrating it along with its enterprise system business.

Is that or other similar strategy is something that you are or would like to consider?.

David, I would say that our focus for DoubleDown right now is on the B2C side, because it’s a valuable business. There has been some and then these business changes happen quickly. So for example, on the multi-app, so we have devised a strategy that is still B2C focused in order to recover what we have lost in the second half of this year.

Marco has told you about the games and told you about the multi-apps, but we have recently launched, for example, a customer loyalty program there and most importantly, at the end of the second quarter of the sector. So this is what we are focused on and this is the B2C side..

Got it. And one more question if I may.

If you could update us, Alberto, just looking through the balance sheet, and if there may be any opportunities forthcoming to refinance or lower your interest costs in any areas as we have seen some others with much higher cost of capital take advantage of? Are there any of those opportunities for you in the near term?.

We have, first of all, a maturity of the bonds in 2018 in February, that is a legacy GTECH bond for €500 million that is very close. At the moment, we have the credit facility that has ample liquidity which it’s obviously for us a sort of insurance in case the capital market have problems. But right now, the liquidity is good and so on.

So we will evaluate during the year what is the best way to go to refinance our debt. Taking also into consideration, what is going to happen during the year in terms of growth opportunity. Marco has mentioned some extension.

So I think that in the remaining part of the year definitely we will decide what is the right way to deal with this maturity that we have in 2018..

And one last one if I may, in terms of new slot product, either in there for sale or recurring revenue business, are you getting any results that you can share from the testing phase of any of your new products or any updates on products that we should expect to start rolling out that you mentioned later in the year?.

I think I can provide you on some titles for sales. We developed some titles that went out quite well from the tests and are already performing also on the floor. I’m talking about Golden Egypt, Ocean Magic, Big 5 Safari and that’s just to give you some examples.

And we are positive on it, because we are realizing that the customers are relying on the performance of those games much more than they did with the launches in the past, with new launches in the past, because they see the performance of the games in the field. And so we are rather positive on it.

And then you appreciated that in the second half of the year when it comes to the installed base, we were relying very much on Wheel of Fortune 3D. And as a matter of fact, it performed quite well and was one of the drivers of the performance we had on our installed base in the fourth quarter.

So we expect that also the new cabinets and the new cabinets and the new contents that will come in during the year will contribute to our performance in installed base as well..

Got it. Thank you very much. Thanks for taking my questions..

Thank you. [Operator Instructions] We will now take the next question from Domenico Ghilotti from Equita. Please go ahead..

Good afternoon. A few questions, the first is a follow-up on DoubleDown. In the previous calls you mentioned that one of the potential drivers could have been also the expansion to new market.

Is it something that you are still considering or do you want to focus, first of all, on the - so the turnaround in the domestic market? Then on your guidance for 2017, you have been providing some color on the main drivers.

Can you maybe elaborate a little bit more for example in terms of underlying trends in the North America, International, Italian lotteries, what do you see the evolution net of the tough comps, so net of the one-off late number and Powerball and Mega Jackpot?.

Okay. For the first question, Domenico, regarding the first question, we delayed in International expansion. We are much more focused on the actions I have just described in order to turnaround business mainly - in the geographies where we are currently present and we are very much focused on North America.

Regarding the guidance, reality is that our guidance for 2017 are assuming a solid EBITDA growth for our underlying business, because as you can recall, we benefit from the record Powerball in 2016, Jackpot in the first quarter and we also as you were remembering at a strong late number in Italy beginning in quarter two.

And these in total are benefits that we estimated, as Alberto said, in about $65 million that we have and you have to take into consideration when you look at the starting point for our 2017 forecast.

You also need to appreciate that we are anticipating approximately $35 million of headwinds in 2017 that are related today new Lotto performance - sorry, concession. So I think you can appreciate the growth of the underlying business implied in our guidance.

Now, where this growth is coming? Lottery is expected to continue to grow between 3% and 5% as we are always planning net of all the comparison with the previous year - the benefits, let me put it this way, we enjoyed in the previous years. But the most part of the growth will come from the Gaming business.

That is where we are expecting to grow, because we can build on the stability we achieved in 2016 and build the programs, so we were discussing it about, are the main growth driver we expect to achieve the guidance and we have just described..

Okay.

So should we expect that can - in terms of installed base, we will start to see really an increase in the installed base in your North American Gaming business?.

We can say that we expect overall considering the North America and International part of the business a growth in the overall installed base, yes..

Okay. And last question, so just the additional clarification on the trends.

How do you see the Italian market, still as a stable market net of the, say, the late numbers or more struggling or maybe slightly more positive? How do you see the consumption trend?.

Now, look, I’m talking with everybody, I’m always saying that Italian market is almost a stable market then.

I’m always - sometimes I’m surprised by our performance, because last year we grew in all categories of the Italian market, but if I look Italy overall and I look at Italian market I see it as a stable market where you can have some innovation that works very well, as it happened with the Lotto in the last couple of years.

But the market overall, if I look at the per capita consumption, if I look at the weight of this sector on the Italian GDP, I think it’s one of the most developed market in the Europe..

Okay. Thank you..

Thank you. We will now take the next question from John DeCree from Union Gaming. Please go ahead..

Hey, everyone. Thank you..

Hi, John..

Marco, I think you just covered most of my questions about the EBITDA guidance for the year. But did want to ask, thinking about - you guys did a good job of kind of telling us some of the headwinds in the year.

When we think about something like Greece coming online in OPAP, wanted to get your thoughts on that timing, and then if there is anything else kind of new businesses that you expect to kind of come online whether on the lottery side or the gaming side as the year progresses, as we kind of think about the cadence of guidance throughout the year..

I think that talking about Greece, we started the deployment of our machines, you know that we deployed first of all the simpler [ph] system for the entire operation and we started deploying the machines. So we do not expect, I would say, any surprise, but I mean I do not expect anything that should slowdown the deployment of the machines in Greece.

And I’m not sure that I got the rest of the question to be honest with you.

What you were referring to?.

Are there other potential contracts or major shipments in any jurisdiction that might be coming online later this year?.

There is Colombia that is something we are looking carefully. They are discussing on a VLT program in that country and that would be a good opportunity to have, because it will be a program that accordingly to what we understand could be similar to the Italian program. And therefore, that would represent an opportunity as long as it will materialize..

And one follow-up if I could, maybe, Alberto, for you, when we think about CapEx, some of the timing is a little bit hard to pan especially with Florida and so on, but is there any color you can give us on kind of the cadence of CapEx spend if it’s heavily weighted to the back-half or the front-half, even any color you could give us there?.

No, it should be - the CapEx is basically the results of the several wins that we had very recently. Now, as it happens for Florida there could be delays. So usually, what we do is we stick to the contract when we give you the guidance. And then, normally, there are some delays and therefore we have changed the CapEx guidance often during the year.

We changed the CapEx guidance often during the year, I was saying because we quantify the delays and therefore we’ll give you an update. And therefore, respect to the - depending on the development of Florida we will give you an update regarding that.

Let me however remind you that there is an important - in terms of CapEx, outside the normal maintenance there is an important maturity that is the Lotto in the second quarter as I mentioned in my speech, where we will have a large planned investment for the remaining upfront fee and during the entire year for the deployment of the new technology..

Okay. Thanks for all the color, everyone..

Thank you..

Thank you. As there are no further questions in the queue, I would now like to turn the call back to Mr. Marco Sala, CEO for any additional or closing remarks..

Thank you all for your questions and for your interest in IGT. We achieved a lot in 2016. I’m very grateful to everyone throughout the organization for their hard work and contribution to our accomplishments. There is much more for us to do.

But I’m confident that we are pursuing the right strategy, that we are developing the right products and solutions, and that we have the right teams around the world to meet our objective. With that, I wish you all a good day..

That will conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect..