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

Barry Jonas – Bank of America Chad Beynon – Macquarie David Katz – Telsey Group Domenico Ghilotti – Equita.

Good day, and welcome to the IGT 2017 Second Quarter Results Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Jim Hurley. Please go ahead, sir..

Thank you for joining us on IGT's second quarter 2017 conference call, hosted by Marco Sala, our Chief Executive Officer; and Alberto Fornaro, our Chief Financial Officer. After some prepared remarks, we'll open the call for your questions.

During today’s call, we will be making some forward-looking statements within the meaning of 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 filing. And now, I’ll turn the call over to Marco Sala, CEO of IGT..

Thank you, Jim, and welcome everyone. We're reporting a good second quarter result today. The $424 million in adjusted EBITDA achieved in the period was supported by strong underlining performance in our global lottery operation, and encouraging KPIs for our global gaming business.

Lottery same-store revenues outside Italy rose nearly 3% in the quarter, solid growth in both our international and North American segment. The performance of instants and draw-based games was even better, up 5% in the period.

Jackpot activity was lower as growth in international was more than offset by high North America jackpot comparisons in the quarter last year. In Italy, excluding Late Numbers, Lotto wages were up 1% on the continued growth of 10eLotto and Numero ORO.

The second quarter lottery performance is a clear demonstration of the steady growth we have achieved and continue to expect for the lottery business. For the second year in a row, we earned a substantial performance-based incentive from the New Jersey Lottery.

This was achieved through the expected management our business especially strategic game launches. Long-standing relationships are also a cornerstone of our lottery business. Recently we signed a three-year extension with the New York Lottery, a long-time and important partner, and the largest lottery in the United States.

We are excited to deploy some of our latest generation online terminals and Eastern Ticket Vending Machines as well as PlaySpot mobile technology during the extension period. We also won a new seven-year facilities management contract with the West Virginia Lottery, a valued customer since 2009.

In a separate agreement, we were selected as the exclusive printer of West Virginia's eastern ticket for the next several years. Turning to gaming, global revenues were in line with prior year when adjusted for the impact of DoubleDown. Revenue from sales of gaming machines rose 25% on higher replacement and the new and expansion unit.

We shipped nearly 8,900 gaming machines worldwide during the second quarter, a 9% increase from the prior year.

The AXXIS 23/23 and the Crystal Series cabinets were important drivers of the demand internationally and in North America, and collectively represented over half of the total units sold in the quarter, average in selling price were also up on growing demand for the new cabinets.

Customer confidence in IGT's core offering is improving, and thus resulted in strong gaming machine unit shipments in the quarter. In North America we maintain our leading position in video poker and mechanical real games. Through our test bank discipline we are making good progress in video real games.

This is where most of the market demand exists and where we believe we are currently underrepresented. Our new proven performer titles are doing well and there is a lot of interest in games and I anticipated that CrystalCurve cabinet which we began selling in the second quarter.

This is a compelling new addition to great successful S3000 2323 and the CrystalCurve cabinet. Global installed base of machine continue to grow in the second quarter both year-over-year in situation, this was led by international expansion of casino customers in EMEA region and Greece VLT program.

The total installed base in North America grows sequentially on higher VLTs and relatively stable casino resort which was led by the launch of the CrystalCurve cabinets during the quarter.

The installed base of 3D games continues to grow and advanced interest in the upcoming roster of new is running strong is included large format Wheel of Fortune, MegaTower, S3000XL, CrystalCurve Ultra cabinet that will be launched in the third quarter.

Several high profile titles like Fort Knox, SPHINX 4D and The Voice return to market in the fourth quarter. I should note the original timing of introductions has been pushed back a few months.

We have done these perfect and cabinet mechanics, thanks to some valuable feedbacks we received from both players and customers during the focus groups which are now our game development process. We expected these to well maximize the impact of games as growth to market. Importantly, this shift does not had material impact on our outlook for the year.

As I reflect on the first half actual expectation of the back half, I’m confident we can achieve our financial objectives for the year. We delivered on our commitment of improving profitability in the international division and KPIs for gaming and lottery are being in the right direction.

It’s support our expectation for a greater proportion of sales and profit in the second half.

We expected that improvement to be led by stronger result from our gaming business particularly in sales where our international and North American divisions, the pipeline of new products is there, now we must execute and we have the expectation that we will. Now I will turn the call over to Alberto..

Thank you, Marco, and hello to everyone on the call today.

A summary of our second quarter financial results is presented on Slide 8, the constant currency revenue decreased 5% from the second quarter of 2016, nearly half of the decline is attributable to the sale of DoubleDown on June 1, while the other half is the result of the new lot of concession dynamics.

Apart from that, we saw gaming machine product sales as well as our core lottery business despite tough jackpot and late number comparisons.

We also had the contribution from the New Jersey lottery incentive, adjusted EBITDA was down in line with revenues, adjusted EPS include higher distribution to minority partners and in accrual of tax litigation in Mexico.

Let’s now look at Tower operating segments, beginning with North American gaming and interactive on Slide 9, revenue was $310 million compared to $315 million the prior year. The majority of the decline 29 million reflects the sales of DoubleDown.

Excluding DoubleDown, gaming service revenue was down on a lower installed base, sequentially we saw relative stability with the launch of the new CrystalCurve cabinet during the quarter while it was down, we saw year-over-year improvement in what is for the second quarter in a row.

Gaming product revenue benefited from higher volumes and margins on terminal sales in the second quarter despite the comparison with the largest system sales to casinos in the prior year. We shipped 5293 units in the second quarter compared to 5,163 units a year ago.

Terminal revenue grew 60% on improved ASP and demand for our S3000 Crystal series cabinets and includes 862 units at line, sales of the new CrystalCurve cabinet also contributed in the quarter.

Operating income for North America gaming and interactive was lower largely due to DoubleDown excluding that profitability was relatively stable as improvements in operating expense is mostly offset the lower installed base.

Our North American lottery results on Slide 10, we achieved 2% same-store revenue growth in the quarter on top of challenging jackpot comparisons. Instant tickets and draw-based games grew nearly 6% the strong performance, the strongest performance in last year.

The decline in service revenue you see here was due to the exit of certain low margins contracts.

As Marco mentioned, we have a performance base incentive benefit from the New Jersey lottery for the second year in a row despite the large jackpot last year we were able to achieve the incentives through disciplined management and effective sales and marketing initiatives where regional is expected to recognize the incentive in the third quarter but most of this was recorded in the second quarter with the small portion left to be recognized in Q3.

Product revenue reflects the natural lumpiness of these businesses, which had large sales in California, in the second quarter of 2016. Operating income for North American lottery improved significantly reflected incentive contribution and same-store revenue growth partly offset by lower product sales.

International segment had a good quarter with positive trend across the board. On Slide 11, you can see that revenue improved 3% in constant currency. Product sales improved substantially in the second quarter driven by 39% increase in terminal revenues.

We shipped 3,591 gaming machine units in the period compared to 2,989 in the prior year led by casino replacement sales in Latin America. We also recognized the revenue some terminals that were shipped to Bahamas in the first quarter. Lottery same-store revenue grew nearly 4% on Latin America including double-digit growth in Jackpot sales.

Gaming services, gaming service revenue reflects some softness in Interactive segment while the gaming installed base continues to grow with contribution from Greece, South Africa, Argentina and Peru, revenue is relatively aligned with prior year due to mix.

As expected international profitability recovered in the second quarter confirming that the first quarter result reflect the combination of short lead impacts, improvement in the second quarter operating income came from higher gaming products sales and mix reduced SG&A expenses, lower bad debt and impairment.

International operating income for the first half is only modestly below the prior year constant currency and we continue to be international sales and profit for the full year will be higher than 2016 levels.

Our Italy results on Slide 12, revenue declined 8% in constant currency entirely from the expected impact of the new lot of concession and lower late numbers wagers, as a reminder the Lotto fee amortization is recognized against revenue at the rate of approximately $24 million per quarter, the $7 million rate impact you see on this slide refers to the change in the fee which is now 6% of wages compared to the fee structure of the previous comp.

Excluding late number activity which was significantly elevated last year, Lotto Wager increased 1% fuelled by the performance of 10eLotto which grew roughly 7% over the prior year period nice frequency of play, correction in wagers was stable on good performance of multiplayer tickets despite the fewer new ticket launches in 2017.

Machine gaming revenue was essentially flat during the second quarter has increased the vertical integration was offset by higher gaming machine taxes that went into effect at the end of April. Sports betting revenue was up on higher wages especially on live bets in the lower period.

Italy operating income declined as expected entirely attributed to the two dynamics that affected their revenues, the new lotto concession and lower late numbers activity. On slide 13, you can see the net debt at $7 billion at the end of the second quarter. Nearly $600 million lower than at the end of 2016.

It is despite of the final lotto concession payment and nearly $300 million of negative effects impact and reflect discipline asset and financial metric. We recently completed a series of refinancing activity as part of the broader strategic capital structure initiative.

On slide 14 you can see that since May we have deployed DoubleDown proceeds to tender for our highest coupon notes and pay down the revolver facility. We also refinanced our term loan at sizing to €1.5 billion and amended the revolving credit facility, they using the aggregate commitments by about 30% to $2 billion.

By practically taken to advantage of favorable market condition we have lower our interest costs, reduce our all liquidity needs, extended our maturities and introduce more flexible financial and our financial cost.

This action along with the anticipated retirement of the February 2018 notes maturity that expected to reduce our cash interest cost by an estimated $60 million on an annualized basis. We continue to monitor market conditions for additional value exceeded opportunities.

Our first half cash flow dynamics on Slide 15, we generated nearly $550 million in cash from operation in the first half of 2017 and this is after roughly $246 million in cash interest expenses as well as DoubleDown transaction costs. We also made the final lotto upfront concession payment in the second quarter.

I already mentioned the significant reduction in debt in the period and we have ended the quarter with about $500 million in cash on the balance sheet.

Our outlook for the early summarizing like 60, we have reduced the CapEx expected for maintenance and growth by $50 million to the new range of $575 million to $625 million entirely due to timing, the outlook for EBITDA and Debt haven't changed.

I do want to point out to the while effect has been net neutral on our year-to-date results if the Euro dollar exchange rate remains at current levels we have a beneficial impact on our reported second half results.

Even the shifting timing of the New Jersey incentive payment from the third quarter to the second quarter, the mix of profits from the first and second half of the year is now more balanced than we originally described. We made a lot of good progress so many levels so far this year.

We are bringing important new process to the market and we're enhancing cash generation to discipline asset and financial management. We look forward to building on this progress in the second half of the year. At this point we would like to open the call for your question. Operator, could you please proceed..

Thank you. [Operator Instructions] We’ll take our first question from the line of Barry Jonas from Bank of America. Please go ahead..

Hey, good morning guys..

Good morning, Barry..

Hey.

So, just a couple of questions; first on the guidance, you know more than halfway through the year, maybe to talk about some of the main factors between the low and high-end of hitting EBITDA guidance?.

Barry, we have not been in the first half very lucky with the jackpot in these numbers this year. So, we need to see what happens in the second half. And certainly if it's different for the first half, it will help improve our results.

The other important factor as we mentioned from the beginning of the year that the product sales are normally for a seasonal reason skewed towards the fourth quarter rather than the third, and we have all these new product introduction in the third quarter, obviously simply timing of those sales could impact positively or negative with our results.

And as I mentioned on the -- reported basis they’re changed that they are very as impacting negatively the first of the six months and this more or less at an average of 110 for the first half right now it seems like could help the results on a reported basis..

Great. And then just you know I had a high level relative to gaming may be talk about the tone of your customers right now as you speak to them in North America and international maybe how do you see the cadence of market wide growth going forward that will be helpful..

Yes, Barry. I can answer this question. Let's start from the processes. We had overall happy with the customer reaction as well our new games and cabinets. That is the reason why we expect to sell overall right number of turn in the second half compared to the first in our business.

I think the reason for that is that because we are improving on the Crystal Duvet and Crystal land cabinets and this sense excess of a new titles, what are the customers are recognizing as is that we are improving and bringing to the market new cabinets but even more important thing bringing to the market contents of the performing better than the past.

I want just to mention also the recently launched CrystalCurve during the second quarter where we, that we launched our both for produce is as well as for the recurring part of the business that is doing well.

We're launching the product are based in the product sales to regional support this cabinet and we have a great line up over the additional games that are coming to the market in the balance of the year.

So, all in all, I think we are in a good momentum is clear that imagine we rely on the performance of the new things so, we will bring that to the market both in product sales as well as in the recurring part of the business, don’t forget that in the third quarter that we will launch to renew cabinet.

Large format we look forward to, we have very proven total large format of as 3,000 and dealing the CrystalCurve ULTRA within new in game and then in the fourth quarter we will launch other stuff that will be very critical to assess our performance not for the time being I see that a commission of the effort that we have done so far..

Great and then just, just last one. You know we're right around the corner from G2E again this year and maybe just could you give us any initial thoughts around expectations for G2E this year and the product rollout just given so much good product that you showed G2E last year is only coming out now..

Yes, you are right but we have a pipeline of the product that will coming out next week and next year so I mean there's a lot will folks are G2E’s there that will be a G2E more based on the contents then the cabinets saying so we launched seven new cabinets or we are going to launch seven new cabinets at the yearend but we will have good line up of comparing contents to push our presence into that segment of the market..

Great, thank you so much guys..

Thank you, Barry..

Our next question comes from the line of Chad Beynon from Macquarie. Please go ahead..

Hi good morning. Thanks for taking my questions.

First off I wanted to start with capital allocation so, given the stronger than expected 2Q result the lower annual CapEx that you guided to and in the massive savings on the, on the debt refinance your deleveraging plans I'm guessing are slightly ahead of expectations just based on what we're seeing here so, could you update us just in terms of some, some near term goals with capital allocation.

Some leverage targets and then you know what to do beyond that thank you..

Chad, I don't think there's going to be a shorter in change we’re continue to managing obviously the capital structure them to balance sheet very actively and again as the goal is it to continue to leverage until the end of 2018.

Certainly what we have done it tell us and the favorable market condition is something in achieving that goal, but there is a lot going on in terms of the business in the next months. And obviously the business particular the gaming is an important contribution to our cash generation.

So for the moment, I say no change we will continue according what we have said which is the cash generation from the business will be dedicated to the maintenance CapEx and selected group CapEx initiatives. And then reducing the debt and liquidity we have..

Great thanks and then we’ve noticed during the last six months you've had some announcements on different partnerships in both your segments.

Can you just give us an update in terms of if you think this is the best way going forward to get a good return on your business or if there are if there would maybe be some opportunities for tuck-in acquisitions if that's a good use of your capital and driver return higher? Thanks..

Chad you’re referring to some initiatives specifically?.

I guess the announcement with economy was kind of the recent on the cross licensing agreement on the gaming side obviously Paradise last year.

And then I believe there were one or two and on the latter side as well?.

But I would say there is not a big change where in certain jurisdiction we believe that working together with the partner for example recently we announced the partnership in China retailing make a lot of sense we will always pursue because the goal obviously is to do in every jurisdiction to do our best and sometimes some of the partners bring a lot of local knowledge in this situation knowledge is critical for us to succeed..

China is a minor joint venture so far but with a great potential we decided to join with a strong local partner to pursue opportunities in China as a regulatory environment evolves.

The goal was really proactive position ourselves to be able to pursue those opportunities especially for VLTs and interactive games after many years we realized that the partner should been in that region is the best way to take advantage from further development.

The other things we recently did is a small acquisition of a multi-leading video bingo company that feel really in our product offering. It is a very minor acquisition that we recently communicated and that is just to fulfill all we have in our offering for some selected jurisdictions..

Okay thanks very helpful appreciate it..

Thanks Chad..

We will take our next question from the line of David Katz from the Telsey Group. Please go ahead..

Hi, good morning everyone..

Hi, David..

Alberto could you talk about within the quarter have you quantified for us how much specifically benefit you took New Jersey incentive provided.

And I think you also may have made – I'm sure you made the comment that the balance of earnings through the year is going to be a bit more balanced than the back end loaded commentary made previously which I think was in the neighborhood of around 55.45 through second half versus first half.

If you could a bit more specific on both of those items that would help please..

I’ll be very specific on New Jersey it’s $22 million that we were planning for Q3 and now we have anticipated in Q2. There is a remaining part that we will recognize once all the PDP will be regarding the reconciliation of the date with the lottery will be finalized and will happen in Q3.

Regarding I mentioned in the past some specifics splint between EBITDA in the first-half and second-half if we are still looking at the second half to be above 50% but with particularly for the New Jersey now the percentage is more balanced than what I mentioned in the first quarter earnings release..

Yes, so north of 50% but not as high as previously through the back half?.

Correct..

Okay. And my second question is around the installed base improvements that we’re seeing primarily in North America, but elsewhere as well. But certainly within North America VLTs and North America LPs the unit placements are showing some improvement the yield is still coming in a bit below what we are modeling.

Can you give us some commentary around when you expect that to start to go up and flip is that something that we might see expect to see in the back half of the year or is that something that’s longer sermon and what leverage are you working on pulling beyond just placing some of your new premium products out?.

Yes, I mean talking about yield there are two different stories between the North America and south of the business and international part of the business. The trend is in North America was consistent with what we have seen in the several last quarters.

I can elaborate by saying that Vop yields was up but was more than a set by the balance of the portfolio, where in some occasion due to the performance and personally you to target the pricing action that we have taken earlier is creating moderate decline.

Clear that we rely very much on the new product that will bring to the market to stabilize not only the installed base but also the yield.

For the international part of the business is more a matter of mix because in the last quarters’ we have done stronger placement in South Africa and in Greece that are lower yielding machines and so that comparison is unfavorable.

And so going forward as long as the mix will be more than say favorable from the perspective we should enjoy more attractive yield..

Okay perfect thank you very much..

Thank you, David..

[Operator Instructions] We will take our final question in the queue for Domenico Ghilotti from Equita. Please go ahead..

Good afternoon from my side, I have question on the level of profitability that is flowing really from the EBITDA to the bottom line. So the amount of profits lying is quite low and particular so that minorities and tax rate was very high in the quarter.

If you can elaborate on this you have also mentioned in some litigation in Mexico I’m trying to check is this was contributing to the high level of taxation?.

Domenico, this is Alberto; below operating income you find first of all the negative impact coming from currency because as half of our debt is basically euro and the strengthening of the euro is generated in quarter..

Yes all right I was talking on the adjusted numbers so just in order to focus your answer on the adjusted numbers?.

Okay now I’m getting – there..

Okay..

So the tax has been impacted by three major factors there is a call for a litigation that I have just mentioned there is normal impact coming from the fact that we have purchase price adjustment netted from a tax point of view is nondeductible.

And there is also the fact that obviously we have the gain on the sales DoubleDown it is impacting negative. So the tax is very a negative for this quarter.

Regarding the minority there are two components one we’ll talk about the component related to the new Lotto concession that has – we have a partner now which has entered last year but also its materializing in the second quarter also the component of the minority related to New Jersey that last year was in the third quarter.

So there is a combination of items impacting tax and minority interest from the quarter that are unfavorable..

Okay and just a clarification when you’re referring to the gain on DoubleDown, so is this affecting in some way the adjusted numbers both in terms of….

No, I was talking about the impact on the taxes, which are quite high..

Okay. And second question is on the savings that you are mentioning in terms of financial charges due to the refinancing.

First of all, I would like to check if there is any recent transaction in some way, also say, affecting some one-off costs, so what is the cost incurred with this refinancing? And second, if we should expect to see these savings, one-year savings, yearly savings are really flowing starting from the second half of this year, or how much to say?.

Okay, I'll answer the second question first. Regarding the savings for this year, other things being equal, we are talking about one-third of the total amount to happen in 2017. Regarding the overall cost, we are -- in terms of fees for the entire refinancing is probably north of 20 million.

And the 60 million that I was mentioning, basically coming from utilization of the DoubleDown proceeds that we have repaid with those, the revolving credit facility due to addition of the revolving credit facility for around 450 million and the remaining we have utilized the two, tender the 7.5% dollar bond that we did a few weeks ago.

The other two important component or the factor that we have less fess on a go-forward basis on the revolving credit facility, because we reduced by 30% amount, and finally, the replacement of the bond that will be repaid in February 2018 for €500 million with the term loan to ensure us a little bit more than 4% savings at current market rates.

We also have negotiated with the banks to delay the roll down by year-end. So it means that we have significantly reduced the recurring cost related to it, because there'll be between the drawing of the money and the repayment of the bond only, little bit more than a month..

Okay. Thank you..

That will conclude today's question-and-answer session. I would now like to turn the call back to Mr. Marco Sala for any additional or closing remarks..

I will have very brief remarks. Thank you for your interest in IGT, and I look forward to seeing you over the next several weeks. Thank you very much, and have a good day..

Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect..