Light & Wonder, Inc.

Thank you very much. Welcome and thank you all for joining us this afternoon.

With us today from Scientific Games are Lorne Weil, Chairman and CEO, Mike Chambrello, CEO, Asia Pacific Region and Jeff Lipkin, Senior Vice President and Chief Financial Officer.

During this call, we will discuss our third quarter results followed by a question-and-answer period. Please refer to our earnings press release for further details.

As a reminder, this call is being simultaneously webcast and is accompanied by a slide presentation, which are both available along with our press release in the Investor Information section of our website at www.scientificgames.com. A replay of the call and the accompanying slide presentation will be archived in the Investor Information section of our website.

This conference 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.

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

During this conference call, 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 and in the accompanying presentations on our website.

Now, I'll turn the call over to Lorne.

Thank you, Cindi. Good evening, everyone, and thank you for joining our third quarter 2012 earnings call.

We were pretty pleased with the results of our operations in the quarter. Our year-over-year revenue showed modest growth.

And more importantly, we feel very confident about the way the business is developing strategically.

Within our core business, we continue to see strong performance in the U.S. and the U.K.

and we are encouraged by the recent results in Italy, where we've seen improved trends in both September and October. In a few moments, Mike Chambrello will talk about what we are seeing in China.

The U.S. lottery industry remains extremely healthy.

Our customers' retail sales of instant tickets rose nearly 9% in the quarter and their sales of draw games grew 8.5%, which appears to be ahead of industry sales growth.

We are also pleased that we secured a number of our instant ticket contracts during the quarter. We've had continued success in Illinois, where the lotteries revenue grew 17% in the third quarter, driven by a nearly 20% increase in instant ticket retail sales.

We think the results in Illinois are a good indicator of how we can help lotteries maximize their performance through our industry-leading instant game and facilities management programs, as we have done in other states like Florida, Pennsylvania and Georgia.

In fact, we believe these value-added programs, such as game design, telemarketing, predictive ordering, warehousing and distribution and retail execution, are a key factor behind the instant ticket sales growth that U.S. lotteries have been realizing for some period of time.

During the third quarter, we began selling our new ULTRA multi-game video gaming terminal. While the ULTRA has been in the field for just a short time, we are very excited about the prospects for this new, innovative product that builds on years of experience developed in our lottery and Global Draw businesses.

This new terminal gives us access to the North American machine market to complement our successful central monitoring and control systems business. As importantly, video gaming was at last launched in Illinois in early October, with statewide monitoring and control provided by our central system.

Our Gaming business continued to perform very well. Revenue grew 14% driven by the acquisition of Barcrest and an increase in Global Draw's gross win.

Based on the latest quarterly results reported by Ladbrokes and William Hill, Ladbrokes' gross win per terminal per week is approximately £50 higher than William Hill's, a significant improvement compared to the period before we were the exclusive provider to Ladbrokes, when Ladbrokes' gross win was approximately £120 per week lower than William Hill's.

We are Pleased that Global Draw also recently extended its exclusive agreement with Coral through 2017. Coral will be the first customer to introduce Global Draw's new state-of the-art Infinity2 terminal.

As mentioned earlier, instant ticket retail sales in Italy remain soft in the third quarter. However, we are encouraged by some recent evidence of stabilization based on a number of weeks of improved performance in both September and October.

While it's too early to determine if this is a true turnaround, it is certainly an encouraging trend.

In other developments this quarter, the Kentucky Lottery became our seventh Properties Plus customer and we continue to realize increased revenue from this business. We also signed an agreement with Zynga, which gives us the ability to feature many of Zynga's most popular brands on lottery tickets and virtual games.

We see additional opportunities such as these in the pipeline and believe the Properties Plus program will help lead the way for states to begin providing internet-based offerings. We expect that our long track record as a trusted internet-based services vendor will provide a competitive advantage.

Looking ahead, other initiatives we are pursuing include a state-of-the-art system and content for electronic instant tickets, a play-for-money social network gaming platform, enhancements to our industry-leading player loyalty program and new content for our server-based gaming business. At the same time, we are investing in important business development activities in many parts of the world, including a range of lottery related opportunities in Asia and Latin America.

Sports betting is another opportunity on the horizon. In Delaware, where we are the only vendor supplying a sports betting platform for a lottery in the United States, betting through our system during the current NFL season increased by 37% through late October 2012, reinforcing the enthusiasm for this business that we have had for some time.

Indeed, with our many years of gaming expertise, combined with our recent acquisition of Parspro and its world-class state-of-the art sports betting solutions, we see the potential for this area to be one of the next waves of lottery development.

So, if we were to summarize the condition of the business, we would say that for the reasons enumerated earlier, we feel very good about our business and how it is developing strategically. Nevertheless, our reported results in the third quarter did not fully reflect this, mainly due to a combination of weakness in Italy and China, unfavorable foreign exchange fluctuations and increased accounts receivable reserves.

As Jeff will discuss in a somewhat more detail in a few minutes, these factors reduced our attributable EBITDA by nearly $10 million this quarter. So, while these factors impacted our near-term results, we see a number of these trends improving strongly.

We remain focused on the longer range prospects of our business, which we view very favorably and this means investing in content, technology and geographic development activities for the long-term benefit of the business.

Now, I'll turn things over to mike to discuss China.

All right. Thanks, Lorne.

Well, we are encouraged by the positive trends in the lottery industry overall in China. Total market grew by 20% year-to-date in both draw and sports betting increased nearly 9% in the third quarter alone.

However, as Lorne mentioned, the China sports lotteries retail sales remained soft in the third quarter with sales down about 18% and this weakness has continued into the fourth quarter.

As I said before, and we've seen in the past, there is no linear path for retail sales growth in China as we face ongoing challenges and opportunities that really are unique to this area. We have had to adapt our strategy as the market has evolved.

For example, as we discussed last quarter, we've begun to customize our product offerings at the potential level in contrast to our previous one-size-fits-all national approach and we have been refreshing our inventory out in the field.

By the end of this year, we will have removed stale inventories from retailer locations and warehouses in all provinces. We plan to replenish this inventory with new, fresh games over the course of the next few months.

As we enter 2013, we've developed a game launch strategy that much more reflects worldwide industry best practices by launching 25 or 27 games in 2013 versus 41 games in 2012, which we believe led to excess game in tickets in the field over the last 12 months or so. More importantly, in the next state of this evolution, we are beginning to see the pendulum swing back to instant tickets as a category of renewed focus within the CSL's entire product portfolio.

The overall lottery industry has seen tremendous growth over the past few years, but consistent with the government strategy of balance, initial growth [of the] tickets was not sustainable, nor do we believe the current decline will be acceptable to government over time.

While sales have been softer than expected, we have made considerable progress on the one-retailer-one- device project launched earlier this year. By the end of the year, we'll have deployed an incremental 50,000 barcode readers across China.

While almost 40,000 are installed to-date, we are seeing an active usage rate of almost 90%, which really does compare very favorably to the usage rate of the IBT's in the field.

We've also made very good progress in our IBT usage. Of the 75,000 or so, actually a little bit more, IBTs currently deployed at our retail locations, active usage has increased to almost 80% of units deployed versus say, 60% a year or so ago.

It has been a difficult and disappointing year in China.

However, I believe that with the revised marketing strategy, gaming inventory optimization project, the launch of our first full service instant ticket services contract, the government's renewed focus on instant tickets as a product and the enhanced retail infrastructure, we will begin to see the retail sales trend stabilize. It will take some time for all of these actions to take effect, but we still believe in the long-term growth opportunity in CSL's instant ticket.

Finally, while we remain very focused on the instant ticket product, we have continued to work very hard over the past 18 months or so on developmental opportunities beyond instant tickets. We see very real opportunities in server based gaming, high frequency systems based games, content and mobile wagering.

While the timing of the conversion of these opportunities is really difficult to predict, we feel we are very well positioned into each of these areas and believe that any one of these opportunities, combined with our initiatives in the instant ticket business could have a positive near or intermediate term impact on the growth of our business in China.

With that, Jeff, I'll turn things over to you for financials.

Thanks, Mike. Hello, everyone, and thanks again for joining us this evening.

In the third quarter, we continued to see strength in our core business with higher instant ticket revenue in the U.S. and several international jurisdictions, increases in services revenue from U.S.

lottery systems and gaming and increases in product sales in lottery systems and gaming. This underlying strength was somewhat masked this quarter by lower revenue in Italy and China, and a $5 million negative impact to revenue from FX translation, primarily due to the euro, which was translated to U.S.

dollars at a rate of approximately 1.25 during the quarter.

Revenue grew 2% year-over-year reflecting growth in both our lottery systems and gaming segments. SG&A decreased $3.3 million year-over-year, primarily due to a $4.5 million decrease in the bonus accrual related to the Asia-Pacific incentive compensation plan due to lower growth in China, along with a $1 million reduction in acquisition and advisory fees.

This is partially offset by a $2.4 million increase in accounts receivable reserves related to our gaming businesses and $1.5 million of incremental overhead from the acquisition of Barcrest.

Attributable EBITDA grew 1% to $82.5 million from $81.7 million in the prior year. The deceleration in attributable EBITDA growth relative to revenue growth was in part the result of lower JV EBITDA of $3.5 million in the quarter.

The reduction in JV EBITDA primarily reflects lower operating results at our Italian joint venture inclusive of approximately $2 million related to the impact of FX on those results.

The aggregate impact on attributable EBITDA from our Italy and China based businesses negatively impacted attributable EBITDA by approximately $6.4 million in the quarter on a year-over-year basis, inclusive of the impact of FX.

With that high level overview, I'll now go through the quarter in greater detail.

Printed Products revenue declined approximately 2% in the quarter. This was driven most significantly by a $6.2 million decrease in our licensed properties business, largely due to timing of the launch of our Wheel of Fortune multi-state game in early 2011, compared to the launch of our 2012 multi-state game, the Las Vegas Game Show, which occurred later in the current year.

We also realized a decline in international revenue from customers who buy tickets based on a price per thousand tickets basis, including lower sales to Italy and a $1.4 million negative impact from FX.

We had an increase of $5.2 million in revenue from U.S. and international customers who compensate us based on percentage of retail sales, including cooperative services customers along with a $3.5 million increase in revenue from U.S.

customers who buy tickets on a price per thousand unit basis.

Printed Products operating income was $30.3 million, compared to $34.7 million last year, due impart to a lower and less profitable revenue mix along with an increase of $2.2 million in depreciation and amortization expense and $300,000 of employee termination restructuring cost related to our Australia plant closing. The $1.6 million decrease in SG&A reflected a reduction in contractual lottery marketing commitments and incentive compensation expense.

Lottery systems' revenue decreased 4% year-over-year, reflecting higher equipment and systems sales revenue in both the U.S. and international jurisdictions.

Service revenue was essentially flat compared to the prior year.

Strength in our U.S. business resulted in $2.7 million revenue increase, driven in part by a large Powerball jackpot and higher instant ticket validation revenue, which was in largely offset by $1.9 million of lower revenue from China.

We also had a $2.1 million negative impact from FX. Lottery systems' operating income increased to $8.9 million from $7.3 million last year, primarily reflecting these higher sales revenue.

Gaming revenue grew 14% year-over-year, due in large part to the acquisition of Barcrest, which added $6.7 million in revenue. Results also reflected a $1.7 million increase in service revenue from licensed betting shop customers in the U.K.

partially offset by the loss of revenue from the William Hill contract.

On a like-for-like basis, adjusting for the loss of terminals at William Hill, we experienced 8.1% growth in U.K. total gross wins this quarter.

The quarter's revenue was also impacted by the loss of $1.7 million in revenue from exiting the Austrian over-the-counter business in Q4 2011, and a $1.5 million negative FX impact.

Gaming operating loss was $7.7 million, compared to operating income of $3.2 million last year, primarily due to a $9 million increase in D&A, a $4.4 million increase in SG&A and a $500,000 increase in employee termination restructuring cost.

The increase in D&A reflected $6.7 million of accelerated appreciation for the gaming terminals and $1.6 million for the acquisition of Barcrest. The higher SG&A was principally due to $2.4 million of an increase in accounts receivable reserves and $1.5 million of incremental overhead from the acquisition of Barcrest.

The employee and termination restructuring expenses related to the previously announced reorganization of the gaming business.

Moving on to the balance sheet, we took advantage of the highly attractive high yield market in August to refinance our seven and seven eighths bonds with 6.25% bonds resulting in a charge of $15.5 million from the early extinguishment of bad debt, which is reflected in other income expense on or income statement this quarter.

From a balance sheet perspective, we're pleased that we refinanced our debt at very attractive rates and further extend our weighted average debt maturity to an excess of five years. Our debt less cash at quarter end was approximately $1.3 billion.

Our liquidity stood at $346 million, including $210 million of availability under our revolver and cash of $136 million.

Our debt less cash to the trailing 12-month attributable EBITDA was approximately 4x. In light of our recent stock price, we took the opportunity this quarter to continue to purchase our shares.

During Q3, we purchased 6.2 million shares at a total cost of $45.5 million, and as of November 2nd, we've repurchased total of 8.1 million shares for approximately $51 million during 2012.

Our free cash flow was negative $5.1 million for the quarter, compared to positive $30.8 million in Q3 last year, driven in large part by increased CapEx of $5.5 million and working capital needs of approximately $30 million, which was largely due to timing of receivables and payables and the overall growth of the business. Cash distributions from equity investments were $600,000 for the quarter.

To wrap up, the quarter's results reflect the continued strength of our operations in most parts of the world led by strong performance of our U.S. and U.K.

businesses. This was partially masked by the weakness in Italy and China, negative FX impacts and reserves for potential exposure to bad debt, which together negatively impacted attributable EBITDA by approximately $10 million.

We are encouraged that some of these challenges may be diminishing based on the stabilization in results we saw in Italy in September and October and the initial steps we have taken in revitalizing our China business as Mike has explained.

We are also pleased with the strengthening of our balance sheet during the quarter and the progress we have made integrating our recent acquisitions and securing key customer contracts. Importantly, we continue to focus on developing our business for the long-term and are pleased with the progress we are making in this regard.

With that, I'll turn the call back to Lorne.

Thanks, Jeff. I don't really have much more to add, and I know people are probably anxious to get out of the office and go and vote, so I'll turn the program over to Q&A and we'll take it from there.

Thanks, operator.

I want to start off on Italy. You guys mentioned that you are starting to see some stabilization of that market.

I was wondering if you could elaborate a little bit. I mean, are we talking about kind of smaller declines or are you starting to see some actual positive year-over-year comps over the last month or so, and just anything that the operator there, I guess, Lottomatica is doing to help boost results from that business going forward?

Yes. Sure, Todd, so as we ended September and went into October, we did see a slowing of the declines and actually saw several weeks where there were year-over-year increases, so we feel that, while about seven weeks of that trend, if you will, is not necessarily indicative of a turnaround, but we do feel that there seems to be some stabilization that's happening in that market.

In terms of the activities that we are collectively doing with our partner, there is a long list of proactive measures including new games and enhanced distribution that are in part resulting in the sort of stabilization that we are seeing in the results.

Okay. Great.

Then, I had a question on the gaming segment, on the gross margins. I saw a nice increase there just over 50%.

Can you maybe talk about what drove that increase and is that sustainable going forward?

I don't know anything specific, but I think it had to do -- this was in gross margin into all of your question?

I believe that that was just a service.

Yes. So, service, I think it had to do with the strong performance we had in the incremental margin that we get out of increasing cash box.

As we said on a like-for-like basis it was over 8% this quarter. So, both cost reduction measures that we've been putting in place during the year plus sort of strong cash box I think has resulted in stronger margin.

Okay. Then on the flip side, it looks like instant ticket margins, at least for the instant ticket business, were a little light in the quarter.

Anything that drove that and kind of what to read?

There's very specific, 2 specific items. The biggest item by far is what I mentioned in my commentary, which was we mentioned the Wheel of Fortune multi-state game, which the way the game is booked from an accounting perspective, when you sell the game you book the license revenue upfront.

The license revenue is very high margin and then the game plays off and then you satisfy the winners with merchandise or prizes. So that was about $6.2 million of decrease in revenue.

It's really mostly timing related, because there's a multi-state game that we are running in 2012, but it got started later in the year. We expect to see some of that impact in the fourth quarter and the first quarter of 2013, but that's the biggest impact.

The second large impact would be some of the decline in international PPK and in particular some of the Italy sales, which generally are at higher margins.

I want to also ask about the recent decision in Indiana to award the, I am not sure what the exact term of the contract is, but either the private management or a PMA contract to a competitor. Can you maybe walk us through the implications for your existing contracts, instant ticket and online systems, and what you guys are -- or I guess saw that you challenged that -- just any sort of update on that activity as well.

Yes. Todd, unfortunately there's not much that we can say at this point.

We'll provide an update when it's appropriate. We obviously are working hard to protect our contracts and believe that we have option to do so.

So, at this point, that's unfortunately all I can say.

Okay. That's fair.

Then just last question on the internet lottery sales opportunity. Any additional state kind of moving forward that you can highlight for us and then I guess specifically in Delaware, I know that you guys are well positioned there with I guess this sports betting contract online system and instant ticket contracts.

Can you maybe give us an update on what the state is looking to do in terms of I guess is there any RFP out there for the online portion and just how do you kind of see that playing out over the next couple of quarters?

Todd, it's Lorne. They are still working through the details of this in Delaware, and we have some sense of what we think the alternatives are, but until the state makes an announcement regarding their intentions with the internet, again there really isn't much I am comfortable saying.

We are having active dialogue with a lot of our customers about both iLottery and Interactive in general, but just like it's one of those initiatives that until we get going, it's hard to say much.

I wondered if you could talk a little bit about maybe further outsourcing contracts whether it's here in the U.S. or abroad and see if are there any progression or any changes in that environment or opportunities.

And, specifically, has there been any movement with movement with Greece?

Yes. I'll start on that.

I mean, the probably most near-term opportunity based on calendar and schedules that have been communicated would be Greece. I believe the indications and final bids will be due within the next, say, 30 days or so.

I think that's probably the most near-term opportunity. As you know, we have a consortium that is qualified in that procurement.

Beyond that I think the next ones that rise to the near-term would probably be New Jersey, Pennsylvania and maybe Ontario to a certain degree. We are seeing a lot of interest in privatization or outsource management and we continue to actively have discussions with our customers about it.

And, what's the feedback with regards to Northstar with the other states or maybe other jurisdictions? Are they looking at Illinois and really seeing that it's a positive impact of Illinois, because obviously there is a lot of press out there that has taken a spin that obviously that it was a little bit late starting and looks like it was behind plan.

Yes. As we think about Illinois and the growth in the first fiscal year, in particular the instant ticket growth, which was in the high 20% and 28%, 29% or something like that, we think that's a huge success and we are very proud of the results.

There's many factors that as you know when we bid that contract assumptions, we were told to make and that affects ultimately how we exceed or whatever shortfall there might be to our targets and that's the process that we are going through right now with the state and the third-party arbitrator around whether or not there should be adjustments and there has been some preliminary discussion about those and the process is continuing. We are hopeful that there will be some resolution to it in the near-term.

And then a quick question, you mentioned bad debt a couple of times and I thought that that was an issue in the second quarter. Did that continue in the third quarter and can you just add a little color on it?

I'm sorry, Mike, what was it? Bad debt.

Yes, sure. So, we have across our business, we have our lottery customers and we have our gaming customers, and we are very carefully looking at all the positions that we have across our portfolio of customers and in particular on the gaming side, where they are commercial operators as opposed to government sponsored entities, which is traditional who our counterpart is on the lottery side.

And historically we have not had much exposure in that regard, so the bad debt provisions that we took in Q2 and Q3 relate specifically to customers in our gaming business where we think it's the right thing to do to provide a provision at this time, some of which quite honestly came through acquisition, some of which were customers of ours.

I was wondering if you could kind of elaborate on some of the obviously the domestic contract wins and maybe what's coming up with respect to instant tickets just in terms of, A, the pricing and/or the nature of those discussions with some of the lottery agencies in the bids and as well as kind of maybe remind us what's coming due over the next 18 months or so that you guys will be out there RFPing for of any significance, if there is much. Thanks a bunch.

Yes. I think, Carlo, there were several contracts that were up in 2012.

I would say most of them at this point have been secured. As you know, we somewhat actively put out releases on these contracts.

I am trying to looking at the list. There's nothing really of any significance that I see on this list that remains for 2012.

And, as I look off into 2013, there's a Maine contract, which is a combined instant and draw contract which we are in the middle of procurement on, which I can't speak about.

There is California, which will come up, we believe, in RFP in middle of 2013. Looking through the list, there are some smaller states in there.

I don't know if there's any other ones. Ohio, I guess is scheduled for mid-2013 on the instant side.

California's instant, Ohio's instant. As I mentioned, Maine is in draw.

New Jersey is sort of related to the PMA, but contracts have been extended there. We don't have actually tremendous exposure in New Jersey at this point, but contracts were already extended to the end of '13.

I think those are the main ones. Most of them as I said at the outset have really have been locked down.

Of those that obviously got done more recently, I mean, is there anything that we should be thinking about on a go-forward basis i.e. any headwinds from kind of pricing reductions or anything of that nature as it pertains as we start to move into 2013, and the new terms start to come in?

I don't think there is any pronounced change at all in sort of the competitive dynamics around these contracts. They are very attractive contracts, so they are often bid competitively amongst us, but I don't think that there is anything that's changed in that environment.

I have been four years and in the four years that I have been here, in fact, one could argue maybe it's become a little bit more rational perhaps, but certainly I don't think it's gotten any worse. So I think it's sort of status quo.

Yes. So, I think as we are looking at how 2013 is coming together, to whatever extent the contract here or there might have been extended or renewed marginally less favorable pricing, we are more than confident that, that will be at least, if not probably more than made up for by the consistent cost reduction that we're as committed to in our instant ticket business if anything else.

So, obviously if your question about pricing is really about margins, I don't think right now we see any reason to be concerned at all about what happens to our instant ticket margins in 2013 or years beyond that.

Okay. Well, there are no further questions.

Everybody, please get out there and vote if you haven't already. And win, lose or draw, we will look forward to speaking with you at the end of the fiscal year.

Thank you.