Light & Wonder Inc (LNW) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2015 Scientific Games Corporation earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Bill Pfund, Vice President, Investor Relations.

Thank you, Lauren.

Welcome, everyone.

During today's call, we will discuss our fourth-quarter results and operating progress followed by a question-and-answer period.

Our call will contain statements that constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These statements involve risks and uncertainties that could cause actual results to differ materially from those discussed.

For certain information regarding these risks and uncertainties, please refer to our earnings press release issued today, the materials relating to this call posted on our website, and our filings with the SEC, including our most recent Annual Report on Form 10-K filed on March 17, 2015, and our subsequent reports filed with the SEC.

We will discuss certain non-GAAP financial measures.

A description of each non-GAAP financial measure and a reconciliation of each non-GAAP financial measure to the most comparable GAAP financial measure can be found in our earnings press release.

As a reminder, this conference call is being recorded, and a replay of this webcast will be archived in the Investor Section of our website.

Now, let me turn the call over to Gavin.

Thank you, Bill.

Good afternoon, everyone.

Welcome to Scientific Games' fourth-quarter results presentation.

Joining me on our call is Mike Quartieri, who joins us after nine years at Las Vegas Sands, and will be assuming the role of Executive Vice President, Chief Financial Officer, and Corporate Secretary on February 29.

Also joining me is Scott Schweinfurth who currently holds that title.

And, who is moving on to his well-deserved retirement.

Scott, thank you for your many years of dedication and hard work.

Our strong 2015 fourth-quarter operating results marked the conclusion of a transformational year for Scientific Games.

We successfully activated our business strategy focusing on integration, innovation, and most importantly, our customers.

The heavy lifting of our integration work is now behind us.

And, our synergy efforts are paying off.

By year-end 2015, our teams implemented $231 million of aggregate annualized cost synergies from the Bally merger and second-year synergies from the WMS merger.

In total over the last 30 months including the Shuffle acquisition and first-year WMS synergies, more than $350 million of annualized integration synergies have been implemented.

Today, we are proud to be one Company with one mission and three strong, high margin and successful businesses, offering the broadest product portfolio in the industry.

Importantly, our strategy to achieve growth and deliver results has paid off.

For the fourth quarter, we are pleased to report our consolidated revenue totaled $737 million, an increase of 10% on a quarterly sequential basis.

And, up 4% over the year-ago period on a pro forma basis.

We achieved these strong results in spite of a $21.4 million unfavorable impact from foreign currency translation.

On a constant currency basis, revenue was up 7% year over year on a pro forma basis.

AEBITDA increased 11% sequentially and was up 38% compared to the pro forma results a year ago.

Our fourth-quarter revenue was driven by sequential improvements in all three segments.

Gaming up 9%, lottery up 9%, and interactive up 18%.

We improved our segment revenues and elevated our competitiveness by doing what we said we would do: focusing on innovation that empowers our customers; supporting our legacy brands; cross selling our products and services; replacing our competitors' systems and other products; winning new contracts in lottery; and galvanizing our interactive business.

Our innovation was showcased at G2E, NASPL, and most recently, at ICE.

We believe it has helped generate our improved fourth-quarter performance and is already driving our momentum into 2016.

Gaming generally performed well despite industry headwinds and unfavorable foreign currency impacts.

On top of record sales of our premium Bally Pro wave video cabinet, our new TwinStar jewel screen for sale video slot, which supports content from both Bally and WMS, just started making its way onto casino floors in the fourth quarter and is already showing encouraging performance.

TwinStar leverages our next-generation ArgOS operating system to combine the best technology and content from two of our strongest brands, giving casino operators an unprecedented degree of flexibility to adapt it for their players.

Our talented team turned this innovative cabinet around in record time.

By the end of December, we had approvals in more than 16 US jurisdictions and had shipped more than 200 units in the fourth quarter with a strong pipeline leading us into the first quarter of 2016.

We expect this new cabinet and content to drive success in 2016 and beyond.

On the lottery front, Q4 wins include: a new seven-year contract with Denmark's national lottery; a five-year contract with the Brandenburg German lottery; a ten-year extension of our Arkansas instant games contract; and a five-year contract for Arizona's lottery system.

Our close customer relationships and comprehensive solutions have helped us win long-term contracts around the globe.

Importantly, Scientific Games has won or tied on the technical element of the bid in seven of the last nine system procurement proposals, reflecting our unwavering commitment to innovation and the confidence our customers have in our teams.

And, at ICE, Scientific Games was honored to have been recognized as the lottery supplier of the year for the second year in a row by Gaming Intelligence.

Interactive is our fastest-growing division.

It was the star of the year and the quarter, achieving a double-digit percentage sequential increase in revenue and growing 28% year over year on a pro forma basis.

Based on the fourth-quarter results, interactive would generate an annual revenue run rate of more than $250 million.

Within our social casino product line in the fourth quarter, all of our core products enjoyed strong growth, with the business growing at 3 to 4 times the estimated industry average.

This growth was due in part to the relaunch of Jackpot Party social casino and the growing popularity of Hotshot casino slots which was named as one of Facebook's 2015 new games of the year.

Also, our B2B SG Universe suite for land-based casinos generated 36% quarter-over-quarter revenue growth and is now alive in more than 60 casino properties.

SG Universe excites me as it is our initial mobile platform that connects land-based and interactive gaming, empowering our customers and providing a key insight into the gaming environment of the future.

Our fourth-quarter financial results demonstrate that we are executing well in a challenging environment, but we have more work to do.

We have a big runway ahead of us with lots of opportunities, and we will strive to capitalize on those opportunities to generate increasing free cash flow.

We must celebrate our tremendously talented employees around the globe.

Leverage the most extensive products and systems portfolio in the industry.

Support innovation that provides measurable value to our customers and shareholders.

Remove distractions and significantly improve our processes to generate top-line growth, margin improvement, and meaningful cash flow to reduce leverage.

Over the last 90 days with the hard work of the integration largely behind us, I have seen an infectious energy emerge at Scientific Games.

And, we will capitalize on that passion as we move forward focused on our mission, to empower our customers by creating the world's best gaming, lottery, and interactive experiences.

And now, I will turn this over to Mike, who will provide a more in-depth review of Q4 results.

Thanks, Gavin.

And, Scott, let me add my appreciation to you for making this a smooth transition.

Good afternoon, everyone.

First, I'd like to share a few highlights.

First-quarter revenue rose to $737 million, a 10% increase over the third quarter.

2015 revenue increased to $2.8 billion.

Fourth-quarter attributable EBITDA increased to $293 million, and fourth-quarter AEBITDA margin increased to 40%.

2015 AEBITDA increased to $1.075 billion.

Fourth-quarter net loss was $128 million, including the impact from $137 million of unusual pretax charges.

Full-year 2015 net loss was $1.39 billion, including the impact from $1.27 billion of unusual pretax charges which included $1 billion of non-cash goodwill impairment charges.

The impairment charges had no effect on consolidated revenues or cash flows of the Company.

2015 annual results benefited from $231 million of implemented annualized integration cost synergies.

As of December 31, 2015, the Company's cash and availability under the revolving credit facility totaled $583 million.

Fourth-quarter net cash provided by operating activities rose to $159 million compared to a use of cash of $30 million in the prior period.

2015 net cash provided by operating activities rose to $414 million compared to $204 million for 2014.

As Gavin noted, our Q4 revenue growth was driven by sequential growth in all three of our operating segments.

Gaming segment revenue grew sequentially and on a pro forma basis.

On a pro forma basis and exclusive of the $15 million unfavorable foreign currency impact, year-over-year revenue growth would have been up 11%.

This growth resulted primarily from revenue increases in new gaming machines and gaming systems.

Gaming operations revenue was down sequentially, largely due to typical seasonal declines in average daily revenue per unit.

Table products revenue was down sequentially due to a modest decline in product sales, which can be lumpy, while the installed base of table products has continued its constant and steady growth.

We continue to place emphasis on growing the installed base of shufflers, proprietary table games, electronic table games, and table progressive, all of which reached record levels of installed units at year end.

During the 2015 fourth quarter, we shipped 5,366 new gaming machines to US and Canadian customers.

And, 4,455 of these units were replacements including 884 Oregon VLT units.

As Gavin mentioned, a key step in our building future momentum was receiving regulatory approvals in December for the new TwinStar gaming machine.

We shipped more than 200 of these units to customers in the fourth quarter.

And, based on the strong performance in the early placements, we expect to build momentum throughout 2016.

We also shipped 562 units of the new Australian Dualos gaming machines.

This helped grow total shipments to international customers to 3,624 units.

Total global average selling price improved to $17,137.

Benefiting in the quarter from higher sales of our premium Bally Pro wave cabinets and a larger-than-typical number of convert-to-sale units, partially offset by the impact of the lower priced Oregon VLTs.

In gaming operation, the installed base of wide area progressive premium and daily fee participation units decreased 115 units sequentially, or about 0.5% compared to September 30, 2015 and included the impact from the convert-to-sale units.

The installed base at year end was down from a year ago, primarily due to sequential declines experienced throughout 2015.

In 2015, the total decline over the 12 months was 1,302 units which is about 50% of the decline of 2,591 units in the prior 12-month period.

The decline in installed footprint year over year was partially offset on a pro forma basis by a slight increase in the average daily revenue per unit.

However, as a result of this decline in 2015, we entered 2016 with a lower installed base of wide area progressive premium and daily fee participation units than a year ago.

As the year progresses, we expect to benefit from the anticipated momentum from launching an increased number of new games and the introduction of the new Gamescape premium participation cabinet which is expected to provide an increase in our installed base.

Our innovative Gamescape cabinet will be exclusive to the wide area progressive and premium participation category.

AEBITDA in the gaming division increased to $221 million with an AEBITDA margin of 47%.

That is a substantial increase over the 35% margin of a year ago.

The significant integration cost savings achieved through the successful combination of Bally and WMS during 2015, coupled with the revenue improvement, were the primary drivers behind the margin improvement.

Additionally as discussed in our earnings release, we identified an adjustment to the Company's preliminary $535 million goodwill impairment charge in our SG gaming unit in Q3 due to the inclusion of the Company's deferred taxes in the hypothetical purchase price allocation used in our step-two goodwill analysis.

After reflecting the adjustment, the implied fair value of goodwill decreased by $400 million, resulting in a revised total impairment charge of $935 million in Q3.

This adjustment had no effect on the previously reported consolidated revenues or cash flows of the Company and had no impact on our debt covenant compliance.

Lottery revenue increased sequentially by 9%.

This growth was driven by a 3% increase in instant games, largely reflecting some seasonal improvement, coupled with a 9% increase in lottery system services revenue and a nearly doubling of lottery product sales.

The significant growth in lottery product sales reflected a greater amount of international bidding activity for lottery hardware and software purchases, such as the previously announced sale of retail technology to the Philippines and some European lotteries.

Lottery revenue declined 6% year over year.

This included $6 million of unfavorable foreign currency translation and the impact of lower year-over-year bidding activity on international product sales that we experienced throughout the year.

Year-over-year services revenue was down $3 million, largely due to lower retail sales related to our validation contract with the China sports lottery and the exploration of a local China lottery contract.

As a reminder, our instant games validation contract related to the China sports lottery expired in January 2016.

On the other hand, the lottery industry started the year with a benefit from the record $1.5 billion Powerball jackpot in January and a smaller $250 million-plus jackpot in February which is still growing.

Our lottery revenue is also expected to benefit later in the year from our winning the Arizona lottery systems contract.

Operating income in the lottery segment declined year over year and sequentially while AEBITDA improved, largely reflecting a higher contribution of EBITDA from our joint ventures and a more profitable mix of revenue.

During the fourth quarter, we incurred a pretax, non-cash impairment charge of $67.6 million to write off the goodwill associated with a US lottery systems acquisition of 13 years ago.

Additionally, despite consumer support for the Monopoly Millionaires Club, multi-state instant lottery game, and its companion TV game show, the Company was not able to finalize sufficient lottery commitments, quality stations, and appealing time slots to move forward with season three which would have been expected to begin airing in the fall of 2016.

As a result, the Company recorded a $35.5 million charge in the cost of instant games.

This charge related to other asset impairments and contract cancellation costs.

Additionally, there was an $11.9 million impairment charge for property and equipment recorded in depreciation and amortization expense.

Both of these charges were treated as add-backs to AEBITDA.

Turning to our interactive segment, revenue increased 18% on a quarterly sequential basis and was up 28% year over year on a pro forma basis.

Social casino revenue benefited from the launch of the enhanced 2.0 version of the original Jackpot Party social casino app and the resumption of a more normal level of marketing activities, coupled with ongoing growth in our other social apps.

In total, average daily users increased both year over year and sequentially to 2.3 million users, and the average revenue per daily active user was $0.22 which is up $0.02, or 10%, over the September quarter, as well as up $0.02 over the prior-year quarter on a pro forma basis.

As a result of the revenue growth, improved scale within the interactive business, and integration cost synergies, operating income increased $9.5 million and AEBITDA rose $4.9 million over the prior-year period.

In 2016, we expect our interactive business to maintain its strong and consistent revenue growth.

Now, turning to cash flow.

Since December 31, 2014, the Company made payments on its debt in the amount of $141.3 million, including $90 million of voluntary repayments under its revolving credit facility.

The remaining fully committed to reducing our leverage and during the fourth quarter, we repaid $20 million on our revolving credit facility.

At December 31, 2015, our total debt was a $8.2 billion as compared to $8.3 billion at December 31, 2014.

Both amounts reflect the new accounting standard of netting unamortized deferred financing costs, other than for the revolver, against total debt.

And therefore, both are net of debt's discounts.

At year end, our available liquidity was $583 million.

As we stated throughout 2015, given the accelerated integration we were able to achieve, we had expected to demonstrate significant improvement in cash flow from the first half of the year to the second half.

And, the team delivered.

In the second half, we generated approximately $557 million of AEBITDA, and we paid down $105 million of debt including $80 million of voluntary debt repayments on our revolver.

For all of 2015, we spent $324 million of CapEx of which $181 million was in the second half.

We continue to maintain a highly disciplined and prudent approach toward capital allocation and investment spending.

And, in 2016, we expect to spend a slightly lower amount, or a range of $290 million to $310 million.

We also made strategic investments in CapEx and R&D initiatives to drive innovation and lay a foundation for improved operating results.

In 2016, we expect to gain revenue momentum through the year, building on the foundation of new product launches and an increase ramp for our TwinStar and Dualos gaming cabinets driven by stronger and more effective content.

The outlook also reflects our belief that gaming operators, as they have in recent years, will proceed cautiously in allocating their CapEx targeted at slot-flow replacements early in the year.

Overall, our expectation is that the industry replacement shipments in 2016 on an annual basis will be roughly flat with 2015.

Industry demand is anticipated to increase in 2016 compared to 2015 due to new casino openings and expansions.

And, while remaining lumpy on a quarterly basis, the pipeline of installations for Bally gaming system software and hardware is robust, anchored during the next three years by the large Ontario and Alberta contracts.

Those systems will connect in total approximately 34,000 gaming machines.

In summary, we ended 2015 with improving momentum.

Our strategic priorities for the year ahead remain: operational excellence; fiscal discipline; and growing cash flow with our firm commitment toward using available cash flow to reduce debt and leverage.

We believe that the combined Company is beginning to reflect and will continue to benefit from the strength that comes from the diversity of our revenue streams and our focus on innovation that empowers customers by creating the world's best gaming, lottery, and interactive experiences.

With that, I will turn the call back to Gavin.

Thank you, Mike.

Before taking your questions, I want to share my passion and optimism about Scientific Games' future.

2015 was an integration year.

We said many times that the global gaming Expo was to be our key launching point, a critical element in driving home our message to customers and stakeholders that we are supporting our existing product brands and are leading the way with innovations for the future.

G2E, followed by NASPL and the ICE show, truly showed that we have the industry's broadest product portfolio and that we are operating as one unified Company, driven by innovation and focused on creating the world's best gaming, lottery, and interactive experiences.

With the heavy lifting of integration effectively behind us, our focus is on profitable growth and increasing cash flow.

In 2016, we will build on the momentum that started last fall as we seek to continue to increase profitability and reduce our debt.

I want to give a big thank you to all of our stakeholders, particularly Scientific Games employees around the world, who have worked hard every day and continue to do so helping to support our customers and grow our business.

And, thank you for your time today.

We appreciate your continued interest in Scientific Games.

Operator, we will now take the first question.

(Operator Instructions)

David Bain, Sterne Agee.

First, I try not to say this very much anymore, but nice quarter.

I know it is early, but can you give us any color on ArgOS and the TwinStar performance?

Or, any other measures versus the other platforms released by Bally or WMS in the past?

And then, in terms of content or number of skin deliverance on the new ArgOS platform, can you quantify that versus some of the past releases?

Hello, David.

ArgOS is obviously an operating system, and TwinStar is a cabinet, if you will.

During the quarter -- at the end of Q4, we launched it for the first time.

We put a couple of hundred units out there.

I think just over --or just under 200.

And, it's continued to perform very well.

Obviously, we continue to roll it out now.

But, very early in Q4 -- at the end of Q4 and very early numbers to compare it to other products.

I think what surprised me as much as anything was that the Bally Pro Wave continues to perform so well.

I think we had record shipments last quarter, which is excellent considering the age of that cabinet, but it really reflects the improvement and the power of the content coming through.

So, I anticipate TwinStar to have some really exciting content being released onto it in this quarter.

We will continue to grow our installs, but so far, so good.

Okay.

And then, how about a balance sheet question for Mike.

Your 10% senior debt -- it looks like it is trading at a fairly steep discount.

I think it's $0.70 to $1.

Would you ever look at buying back debt in the open market with free cash flow generation as an opportunity to more strategically delever with excess free cash flow?

I think one of the things -- one of our first primary focuses is to grow profitability of the business which is evidenced by the Q4 results.

So our plan was and always will remain to be integrate the businesses to improve margins and returns, and invest in the innovation of our business to support our growth, and then use the cash flows from that to provide meanings of reducing our leverage.

So, we look at that as a board.

We always look at the capital markets, and it's just one option.

Okay.

Lastly, obviously a big win quarter.

But, for game ops, the daily fee was up on a pro forma basis.

Obviously, nice to see.

The unit decline -- was that due to an industry trend in your view?

Or, product cycle versus competition, or any thoughts on building that line item going forward would be helpful?

Thank you.

So, the win per units obviously encouraging.

I think that partly reflects the reduction in the number of units in the market, but it also reflects the improvement in the content.

From an overall perspective, we have seen over the last few years a reduction in the total number of gaming operations premium units on casino floors.

And, I think it's fair to say there is also a little bit more increased competition.

Having said that, I don't believe that we are being adversely affected by the competition.

I just think that the reduced numbers reflect customers -- our customers taking them off their floors.

Thank you.

Thank you.

Steve Wieczynski, Stifel Nicolaus.

Good afternoon.

Gavin, the replacement number -- I think Mike said it was around 4,500 units in the quarter?

That was that was really strong relative to what we were looking for.

The question is was that was that pretty broad-based in terms of not only operator but also geography as well?

I am not sure if I know to be specific.

I think what it reflects -- do you have any -- I don't think I have those details.

There was no one big order, so I think it was fairly widespread.

But, I think it reflects leading up to the end of Q3, people were hearing rumors and lots of things out there that maybe we weren't going to support our past products.

And, obviously, that would have angered our customers, and I think G2E showed them a very clear message that we were supporting the existing product lines, but also innovating.

I think that the strength of the quarter reflected maybe some pleasure over the message that was received, and which we delivered, and was well received at G2E.

Second question.

Bigger picture question is, I know you don't give guidance.

But, is there a way for you to kind of go through each segment very broad-based and give an overview of how you're thinking about the business for this year.

I know you said on the gaming side of things you are expecting flattish shipments.

But, could you help us maybe walk us through the lottery segment and maybe the interactive as well?

It's very general, but obviously gaming, we don't anticipate a huge growth in the number of units this year from a market perspective.

We do anticipate our improvement.

There is obviously some growth from new openings and things like that.

This year where our focus from our business' perspective is to really continue to work on what we started last year, which was bringing the Companies together which we have now effectively done, at least in a lot of respects.

But, focusing on getting content out there, fine-tuning our processes, and all those things.

The systems business is -- continues to be the industry's leading systems business in gaming.

Last year, a huge grower for us was electronic tables, and we continue to see growth in that.

And, of course, our table products continue to do extremely well.

So we don't see much change in any of that.

Gaming ops is clearly a very competitive area, and we start the year at a lower base than we did the year before.

But we have some fantastic products coming through in that space.

I think we showed 18 different brands at G2E.

We are very excited about the products we've got coming through.

During the course of the year, obviously, the new sensory Gamescape cabinet.

Lottery is one of those markets.

It doesn't move that much, but clearly with the strength of the jackpots and things like that, we do anticipate to see some small growth during the course of the year in both systems, and obviously, in our ticket sales.

One point to note in the lottery business is one of our large contracts from China ended at the end of the year so we are looking at ways to replace that.

In relation to interactive, we've got three different businesses in interactive.

Social continues to do incredibly well for us.

Our teams are very focused on getting the content that we have in our libraries and putting it out there.

We continue to work very well as a group there in ensuring that we are delivering really cutting-edge experiences with some of the best content.

In the interactive side of the business, we saw great growth again.

But, it's again -- that's for our B2B customers, monetizing the content that we have available to them in the markets where it's legal to do so.

And, we continue to see opportunities for growth in those markets albeit mainly offshore, at this stage at least, and, a smaller size market.

SG Universe to me is the foundation of a mobile platform.

It is where you bring land-based and interactive together, and it's certainly a major focus for us as we look at opportunities for the future.

It is a small business, but it continues to grow.

I do believe there will be good growth in that.

So, across the board, I see some headwinds from some of the things that we have to face and that we have lost.

But, overall, I see opportunities across the board in all our businesses.

And, that's really, really general, but I don't know how I can be more specific.

You could give us the numbers.

(laughter) Thank you for the color, Gavin.

You don't want the numbers?

(laughter) Let's go to the next question.

Todd Eilers, Eilers Research.

I will take the numbers if you want to give them.

I was expecting that to be in the next comment.

(laughter)

A couple of quick questions.

On game sales, can you say how many Illinois VGT sales were in the quarter?

And then, you also mentioned a higher normal of lease-to-sale sales in the quarter.

Can you maybe give us a sense for what that number was above what is considered normal?

Sure.

The VLT stuff was pretty small.

I think it was around 200.

I believe.

And, Illinois was for Q4 about 285, 286 units.

There you go.

I don't think we give the number of the conversions from recurring revenue to sale, but it was not -- it wasn't ridiculous.

It was not a very large number.

(multiple speakers)

Okay.

That is helpful.

And then, ASP is obviously really strong in the quarter.

I don't know if you can do it or not, but if you were to strip out Oregon VLTs in the quarter and the lease-to-sale transaction even though it was not maybe that large.

Can you -- safe to assume that ASPs would have been higher?

I am assuming the Oregon units were a slightly lower price point?

Just trying to get a sense for pro forma ASPs going forward?

You are absolutely right.

You take out Oregon, you're going to get a higher ASP.

But, you've also got some of those converts which are in there.

The biggest impact to our premium pricing -- not the premium pricing, but against our competitors -- the ASP.

Is the fact that we again sold -- we shipped more waves than ever has been shipped in a quarter, which I went back and kicked and double-checked and triple-checked that number, because wave has been such a strong performer over the last few years for Bally.

And, it is a premium product.

It does attract a higher price point.

And, we continue to see strength in that product.

Gavin, how does that the wave price relative to the new TwinStar, as TwinStar starts to become a higher portion of the mix, is that another catalyst for ASP growth?

Or, are they similar pricing?

Or, how should we think about that?

Obviously -- not obviously, but the wave is more expensive because the screen is more expensive.

It is a curved LCD of 20 -- I can't even remember the dimensions.

It's probably 32 inches curved.

So, it is a much more expensive piece of equipment.

It's priced higher.

The wave is designed to really be at the price point of our competitive -- of the competitors' products.

But, we're in the business of providing the world's best gaming experiences, and part of that is innovative new cabinets.

So during the course of the year there will be other releases.

Our 2727 is doing incredibly well at the moment, and our S32 has been a huge product for us.

So, we do have products in different categories that continue to do well so we will continue to work on our mix and do the best thing we possibly can and have products addressing each of the price points, Todd.

Okay.

Perfect.

Last question in your gaming operations in the other category, it looked like you had a pretty nice gain in terms of units.

Looks like you added about 2,500 units sequentially.

Can you maybe speak to which markets that came from -- domestic or international?

Any other color there would be helpful?

It was quite a big sale in Puerto Rico, and there was a big placement in Puerto Rico.

So, it is pretty low winnings per day, earnings per day for us.

Both of the numbers were coming from international in those markets.

The other part of that where we put into there, I think it is also important, I mentioned it before, is that there was continued growth in our electronic tables business, and we include that there.

Electronic tables for us was probably our star performer.

That and social if I looked at all the babies in our team.

They were our two star performers last year, and ETS is in there.

Great.

Thank you.

Mike Malouf, Craig-Hallum.

Thank you for taking my questions.

First question is on CapEx.

Can you talk a little bit about -- that came down a little bit from what I think you were previously looking at?

And, where the efficiency is coming from on that?

CapEx for the year was $324 million.

It is expected to come down next year between the $290 million to $310 million range.

I just wanted to make sure that was clarified.

Yes, that's what I was focusing on.

Why the decrease, and what is driving it?

Obviously, it is an area -- it's a large area of use of cash for us, and it is something we are continuously focusing on.

We are trying to get more efficient.

Things like ArgOS and one platform, one suitcase across your product lines help you to get more efficient.

We are obviously looking at engineering out costs in some of that things because a large proportion of our CapEx does come from gaming operations.

So, it is a constant focus for us, and as we continue to get -- one of our guiding principles is continuous improvement.

Across-the-board, I can assure you there are teams focused very carefully on costs, and the costs of capital and the capital costs that we incur is a major focus.

So, we will continue to work on that number.

Okay, and one of the things that was always a driver of lottery and gambling is inverse related to gas prices, and I am just wondering if you are seeing any impact there?

Or, at least any anecdotal evidence that the lower gas price is having a positive tailwind effect for you?

Anecdotally, I hear from customers particularly in the regions where people drive their trucks to the properties that if you look at the gaming dollar, it is discretionary.

And, when you pay $10 less to fill up your truck that is $10 more in your pocket.

And, in some markets where the average spend per player per visit is $40, they may be seeing a little bit of uptick.

It certainly is not hurting us, is what I could say.

I can imagine.

And then, can you comment a little bit on new jurisdictions and give us an update on Greece and just what is going on worldwide with regards to new countries?

There's lots -- being the size that we are, we are focused and we have people focused all around the world.

I was just in London at the ICE show, and one of the goals for our gaming group is to go into several new markets each year.

And, there are lots of opportunities that keep popping up there.

And, of course, being in the legalized side of the world, we have to be very careful and cautious and make sure that they do get legalized and then we enter into them.

So, if you look at Europe first, Greece -- OPAP, our partner there continue to work with the government in Greece to get the route opened up.

We've got units sitting waiting to go over there.

There are properties ready to open up.

We are hoping that that happens shortly.

We keep following that very carefully.

That's such a good opportunity in the short term.

The Italian market continues, I think -- it surprises me the size of it.

And, that we would continue to look at different opportunities there.

Our UK business continues to grow and do well there.

So, across Europe, there is some good opportunities there.

When we move to South America, Argentina at last reopens, and that is positive for us.

We like the opportunities there.

It was a great market before it got shut down.

And, that reopening is good.

Brazil, Brazil, Brazil -- everyone talks about Brazil, but we have been talking about Brazil for 14 years.

We will see what happens, but clearly that is an area that we are focused on and we've got people working carefully on.

Both in the gaming side and the lottery side.

The instant ticket side there being possibly an even more real opportunity than gaming, but we will see.

Across the rest of South America, you have different opportunities for games and for lottery.

In Asia, we're still working out whether or not the tempering at the high-end play is good for mass-market products.

We are certainly seeing mass-market electronic tables.

Lots growth in that.

In markets like Vietnam and the Philippines and places like that, our slots continue to do really well with 88 Fortunes and Duo Fu Duo Cai still being one of the number one products in that region.

So, opportunities there, and we continue to focus on that.

Australia -- we fell behind with an old cabinet there -- the Equinox.

We launched Dualos.

We launched into a market against a very strong competitor who has got a great product out there, but the cabinet is doing very well.

We've got a whole range of content to launch into that this year.

And, in America, we continue to work and look at different opportunities for VLT, for lottery, for instant, for all the different products that come up.

There is probably one other point that I'd like to make.

That in 2015 -- I think it's since 1993, the least number of openings of casinos globally.

This year, we start to see a few more, and we start seeing states looking at different opportunities for that, so that's obviously an opportunity for us that we focus on.

We continue to try and get everything we can out of our existing businesses whilst at the same time laying track and seeing what synergies we can get for either new markets or new products in existing markets.

Thanks.

Thanks for all the color.

Thank you.

I left out China.

China is obviously a major area we are all looking at.

Thanks, Mike.

Thank you.

Chad Beynon, Macquarie Research Equities.

Thank you for taking my questions.

Scott, best of luck and congratulations on the retirement.

And, welcome, Michael.

Just want to start with -- go back to the gaming ops.

Mike, you said in your prepared remarks -- gave some color around Gamescape and said you expect to grow WAP units when that is rolled out.

Obviously, that was a hot topic at G2E.

A lot of demand for that.

Could you just help us think about when that product will be rolled out into most jurisdictions?

And then, how you are thinking about deploying it?

If you will hold some back?

Or, push everything out in terms of where the demand is?

Thanks.

Chad, this is Gavin.

Let me help out a little bit here.

Firstly, you have the WAP isn't growing by virtue of that product alone.

We are continuing to see some really strong performance in some of our Willy Wonka and our Wizard of Oz and Monopoly Silver Jubilee or Jubilee Diamonds continues to be one of our top performers.

So, the Gamescape is designed to supplement and take it to a new level.

I think midyear is about the earliest you're going to see any units in that category.

In that cabinet, I should say.

And then, your strategy in terms of rolling it out?

Are you going to fulfill every order that you get immediately?

Or, have a longer term delivery process?

Well, I think the world has changed a little bit, and I think the opportunities you've got to make the most of in the way.

As we saw in the lottery world recently, when you can create some kind of excitement with very fast-moving meters, it makes sense to have as many units out there as you can possibly can subject is supply constraints, obviously.

I haven't really thought about this, but my immediate reaction is I'd want to get a nice launch platform out there.

Thanks.

Just going back to Todd's point about the change in mix from the wave to the TwinStar in 2016.

His question was around ASPs, but my question is more around what would the impact beyond gaming margins, given that the margins in that segment are pretty strong?

And, as you mentioned, the ASP will be a little bit lower?

How should we think about margins as TwinStar becomes a bigger piece of that business?

It will be a lower price, but it will be a slightly lower cost, as well.

So, the margin is very important.

We continue to focus on that as we build products, and we design pricing around that.

There is a lot of competition out there so we have got to make sure that we continue to perform at a premium to attract good prices.

But, when you introduce a new cabinet into a market, you have opportunities over time to look at things, re-engineer parts, do things like that.

And, traditionally, the cost of the cabinet comes down after the first few years as well.

It usually runs about 18 months before you really start seeing the cost saves come out of the manufacturing side.

So, I think we're fairly focused on running the Company effectively and efficiently, and margin is a very good judgment of that.

Okay, last one for me.

There was another $7 million or so of restructuring and integration cash charges this quarter.

Are we pretty much through all of that?

And, we won't be seeing any more add-backs with respect to those line items going forward?

Yes.

We hope so.

(laughter) There is integration to go.

We always said that we had a target and that included this year.

We still have to roll out the ERPs and get the processes refined.

They're the two main areas of alignment left in the integration, but from a major adjustment and major integration that was pretty much done in the year.

It was pretty much done behind us in 2015, and we're reaping the benefits in 2016.

But, we still have some work to do in 2016 to get the program completed.

Correct.

Okay.

Thank you very much.

Thanks, Chad from Macquarie.

Carlo Santarelli, Deutsche Bank.

Thank you.

Gavin, on the prior call, you had talked a little bit about pruning the asset portfolio and potentially looking at some non-core things that you would consider selling for the right price.

Could you maybe provide a little bit of an update as to where you are in that process?

If it is ongoing, or any resolutions you may have come to?

Sure, Carlo.

Considering -- we look at everything all the time.

You obviously have to keep an eye on what is there and what is not, and I also made the point I think last time that we said if we would look at it it would have to be the appropriate return given our cost of capital.

It just happens that most of our business, if not all of the businesses, are performing very well now.

The areas, which are non-core, have not attracted any kind of offers that make sense at this stage.

So, we're very much focused now on each part of the business of really doing continuous improvement and growing revenues and margins in every area.

Clearly, if something comes along, we will look at it.

But, at this stage, the focus is to continue to grow the business profitably.

Thank you, Gavin.

Thank you.

Susan Berliner, JPMorgan.

Thank you.

Mike, the first question for you.

With regards to 2016, are there any more synergies we should be expecting?

Or, how are you also thinking about additional cost savings in 2016?

At this point, we are looking -- as we have disclosed before we have about $25 million of additional savings coming through.

Or, I should say synergies coming through in 2016 related to the Bally's acquisition.

Everything from WMS has been achieved, and anything related to shuffle master was achieved already at this point.

Let me add that now that we can run the business as a business and really focus on that, we continuously look to improve.

We continuously look to better ways to do things, and part of that is finding operational savings.

And, that will be a focus of the whole business moving forward.

Great.

My other question was on free cash flow.

I know in the last quarterly report, you put it right on the front cover.

And, clearly, you generated -- it looks like positive free cash flow.

I was wondering if you go through the components?

I saw the Reno sale in there, but it looks like a pretty big swing in working capital.

So I was wondering if you can talk about that?

Just give us a second.

We'll find the exact details for you.

But, it has again been a focus, and it has been some improvement.

I think in total for the quarter, our free cash flow was roughly about $69 million.

Mike, can you give any granularity besides the Reno sale.

To ask it differently, should we be expecting -- because I know last year there was a huge working capital benefit as well in the fourth quarter.

I know it gets lumpy, but any help with us going forward on that?

I think what happens with us in looking at the cash flow is we've got the higher interest payments in Q2 and Q4.

And so, we build cash throughout Q1 and in Q3 to be able to support those payments.

And, that we're always effectively trying to manage our cash position in order to maintain a prudent balance sheet and be able to have -- well, I'll say the dry powder per se to be able to execute on reinvestment back into the Company and to also to help delever with the Company on a timely basis.

Okay, great.

Thank you.

You're welcome.

Dennis Farrell, Wells Fargo Securities.

Thank you very much.

In regards to your margin performance, obviously this is a peak margin for you for this year.

I was wondering, do you believe that you could take margins to 40% next year?

Is that a possible target for you?

Or, do you feel like this is as high as you could possibly take it?

I hope it is not as high as we can possibly take it, because we can look always to improve.

I don't think we have ever talked about what a highest possible margin would be, but I think that the quarter was a good quarter and we will continue to build from that and see what we can do.

But, it is certainly not a high water mark.

Okay.

You mentioned the elevated competition within the participation gaming segment.

I was just wondering if you could just talk about that a little bit more, given that is a strong recurring revenue stream for you, especially into 2016?

Well, I think more people see the attractiveness of it, and they are investing in brands and they are investing in products to try and address it.

And so, know we do see some competition out there.

But, frankly, we have been investing very heavily in our own portfolio as well, and we feel pretty comfortable that we will be in a position to maintain and ideally grow our portfolio and our share in that space.

Gavin, are you seeing the growth in tribal corporates international?

Where are you seeing the most growth within that segment -- and weaknesses?

I think all public companies have this EBITDA pressure, and anything in gaming operations comes in the EBIT side of it.

And, anything you buy is in the DA.

So, there is clearly a preference for corporates to buy and not participate.

We do see a lot of properties across the board who want to invest in their floors doing it across the whole portfolio line.

So, some products you want to lease.

Some products you buy.

We are seeing improvements in their performance by virtue of their investments.

It's a bit hard to generalize.

Clearly, you've got the Las Vegas strip guys who have got multiple different channels of revenue, be it entertainment -- whatever it might be.

But, as a general rule from the gaming perspective, we are seeing investment across all of the different portfolios.

In the past few years, we have seen some right-sizing.

And then, moving back to the balance sheet for a second.

So far, you focused your voluntary debt prepayments directed toward the revolver.

I was wondering what your thoughts were about purchasing discounted debt securities, especially in 2016?

I think we said before that the Board -- we always look at different options for our capital, and that's one of the things in the mix.

Okay, lastly just echoing one of the questions earlier about divesting part of your current portfolio.

I've noticed that the shuffle business has performed very well, and I wondered if that potentially would be a business segment that would attract a lot of interest and value that could potentially be used to pay down a fair amount of debt?

It would go counter to our broad portfolio products in the industry approach, so I can't see that being certainly one that I haven't thought of.

But, as I said, we are always open to anything.

We have to be.

Right.

Thank you very much.

Thank you.

Chris Jones, Union Gaming.

Just two quick questions.

First, there has been a couple of pretty large jackpots in the lottery business here in the last couple of months.

Can you just possibly talk about what the impact has been to the overall underlying business?

Whether it be to the instant ticket, or just overall?

And, how we should think about that going forward for 2016?

It is not material.

What happens is that each year we budget on a couple of big jackpots, and it does not really move the needle that much.

But, this year's big jackpot was a really big jackpot, but again it is not material and it happened earlier in the year.

But, we always budget for that.

Just going back to the debt question.

Just based on the commentary, should one assume that even if you did have excess free cash flow in the first half of the year, you would probably hold on to that until the back half of the year to make sure that you have enough to cover throughout the year?

Is that a fair assessment?

I don't think so.

No?

You need to manage the business the best way we should and work with our Board and look at all of our different options.

We have three very profitable businesses that generate good earnings, and we have to act responsibly in relation to what we do with that money on behalf of all of our shareholders and stakeholders.

It is one of the things we look at every time we have a Board meeting.

Thank you.

David Katz, Telsey Advisory Group.

Good evening.

I think it's relatively clear what you are accomplishing on the product side.

Across-the-board.

And, I know some previous questioners have raised this topic.

But, as I try and look at your cash flow statement for the next year to two and get a sense for what -- how much cleaner it will be particularly over the next few quarters.

I thought I would take just one more run at the issue and see what help you can offer us about some of the noise going away?

And, what a clean cash flow statement can look like?

Because I think we can all -- we know where you are headed product-wise and where your strengths are, et cetera.

And, what those lead to on the profitability side.

I think it is the cash flow side where it's a little harder?

I don't know what more color I can -- we can give you now, but certainly it is an area that we can refocus on for our next time we are out on the road or anything to try and give some further color.

But, certainly, 2015 was the year we put all of these Companies together.

A lot of heavy lifting.

There are lots of moving pieces.

I think we are starting to see hopefully now much more stable positioning.

You will get a lot clearer, a lot cleaner view of the business as we move forward.

Mike, do you want to -- ?

In general, the primary focus of the Company is to drive operations.

Operations drives free cash flow.

Free cash flow drives the delevering of the Company, and as we get some of the delevering done, obviously, you get the cash interest savings and it exponentially starts the deleveraging the process.

It doesn't really help you does it?

It helps a little bit.

Thank you for everything, Scott, and good luck.

Best of luck to everyone.

Thank you.

Thanks, Dave.

Barry Jonas, BofA Merrill Lynch.

When you closed the Bally transaction, I think at the time you talked about a leverage target of less than five times within four years.

Just curious of your thoughts on that now, if it's still achievable?

It is difficult, but certainly we haven't given up on our targets.

Clearly, things have changed since then a little bit.

Maybe even before then, they changed a little bit with the performance of some of the businesses, but as we continue to rebuild, we are going to continue to generate free cash.

And, we are going to continue to focus on that.

So, maybe if the momentum starts to build we can get back on track, but it's certainly a goal, and we haven't thrown it away.

And, just a housekeeping question.

Can you give the split between WAP units and premium daily-fee participation units?

We have been looking at this for the last couple of days, and I think we give more information than any of our competitors.

We've decided that is one piece of information we are not going to give.

Understood.

Thank you.

Thanks.

I don't want to make it too easy for our competition.

Kevin Coyne, Goldman Sachs

Hello.

Thank you for taking the questions.

First, I was wondering -- you have expressed a full commitment to reducing leverage.

I was wondering if you could help us frame what type of debt reduction we can expect in 2016?

Should we expect something similar to the $141 million of net repayments in 2015?

Or, should we expect it higher since we are actually seeing a reduction in CapEx, and you will be getting the full run rate of the synergies?

Let me talk generally to that.

2015 was the year when you're putting together these massive Companies, and you have lots of moving pieces.

Most of that heavy lifting was done last year, and this is the year of continuous improvement.

We have some headwinds in some of the areas of the business.

We don't get the benefit of the Chinese instant ticket contract that we had for processing the tickets.

We don't have a huge -- we don't have this high starting base of gaming ops.

But, having said that, we continuously look for improvements in our operations and better ways of doing things, so we certainly are continuously looking for ways to improve our generation of free cash.

Okay, to follow up -- using $141 million would be reasonable?

Just keeping it the same as last year.

It is not unreasonable.

Okay.

Mike, maybe a quick question for you since you just came from the operators' side, and certainly you have experience on the other side of the table.

And, with the Vegas properties that were under your watch, certainly they have seen declines in slot counts similar to a lot of other places.

If I could ask you to put your operator hat had back on, when you think of side games or the manufacturing sector overall, what do you think both need to do differently to accelerate spending or the replacement?

And, are there any catalysts we as investors can look for out of the operators, which could be a leading indicator to that acceleration?

I think it will be an expansion of what Gavin said earlier.

I think there's two types of gaming customers that we serve.

So I would say as an operator there is really two types of operators.

Here in Vegas, there has been somewhat of a deemphasis on the traditional gambler that would come out, say, from the primary feeder market of Los Angeles out to Vegas.

They are being replaced by millennials who are here, I'd say, for the weekend party.

You see that at the day clubs.

You see the proliferation of night club activity.

Large amounts spent more on food and beverage than you have typically in the past.

While you have the more Native American Indian casinos, especially I'd say around the LA area, because my base is being here in Vegas.

You see them picking up what the traditional weekend Vegas gambler was, and that's where you see the large profitability that they're having in relation to the slot performance and the true gaming that you get.

That's the biggest key that I see as far as the difference goes.

It's really eye-opening being a Vegas-centric person to see what the real results are outside of Vegas at the Native American casinos.

That is just one example.

Obviously, there are other regionals that are not Native American that have similar -- . I think we have time for one more question.

You are welcome.

Lauren, we just have time for one last question.

Dan Fuss, Morgan Stanley.

Thank you for the question.

Just out of curiosity on the synergies numbers, it seems that you've accomplished that a bit faster than expected.

If you take a step back, have you found anything over the last year that would suggest that there could be upside to that number?

Or, have you identified anything else that would suggest that you can take a bit more cost out of the business?

I said before that now we're in this mode of running the business, we are going to continuously look for improvement.

So, whether you call it a synergy from an acquisition, or you call it an ongoing operational improvement, we will continue to find them and we will continue to execute on them.

Just with regards to the China lottery contract that went away last year, and when you discussed replacing it was that with regards to other opportunities in China?

Or, was there anything in particular there?

There are lots of other opportunities we are working on in China to more than replace that.

So, we are working on those very heavily now.

Great, thank you.

Thank you, and thank you, everyone, for joining us this afternoon.

Obviously, we appreciate your continued interest in Scientific Games.

We look forward to providing you with an update on our first-quarter results and operating progress at the end of this quarter.

Have a great evening.

Thank you again.

Ladies and gentlemen, we thank you so much for your participation in today's conference.

This concludes the presentation, and you may now disconnect.

Have a great day.