Light & Wonder, Inc.

Good afternoon, and thank you for attending today's Scientific Games first quarter 2022 earnings call. My name is Sam, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. At this time, I'd now like to turn the call over to our host, Jim Bombasi, Senior Vice President of Investor Relations. Jim.

Thank you, Operator. Good afternoon, everyone. During today's call, we will discuss our first quarter 2022 results in operating performance, followed by a question and answer period. With me today are CEO Barry Cotto and CFO Connie James. Our call today will contain statements that include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For information regarding these risks and uncertainties, please refer to our earnings release issued earlier this afternoon, the materials relating to this call posted on our website, and our filings with the SEC. We will also discuss certain non-GAAP financial measures. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release as well as in the investor section on our website. On September 27, 2021, we announced that we had entered into a definitive agreement to sell our sports betting business to Endeavor. On April 4, 2022, we completed the sale of the lottery business to Brookfield Business Partners LP, with the exception of certain lottery business subsidiaries, which are expected to close shortly. Beginning in the third quarter of 2021, we have reflected these businesses as discontinued operations in our consolidated statement of operations and reflected the assets and liabilities of these businesses as held for sale in our consolidated balance sheets for all periods presented. We are reporting our results of continuing operations in three business segments, gaming, side play, and iGaming. Amounts and disclosures referring to combined include both our continuing and discontinued operations. As a reminder, this conference call is being recorded. A replay of this webcast and accompanying materials will be archived in the investor section of our website at ellinw.com. Supplemental reference slides are available on our investor relations website to help facilitate your review of the company's results, including an earnings presentation and historical recast business segment information. And now I'll turn the call over to Barry.

Thank you all for joining us. We are excited to be here today given the great progress we are making executing on our vision and with the clear momentum we are seeing across our businesses. Today, we are a transformed company with a clear strategy and a path to unlock value as the leading cross-platform global game company. The global games market is a $60 billion plus opportunity, and we are uniquely positioned to capitalize with our leading positions and our unmatched platforms and capabilities. Our vision is centered on five key pillars number one creating great content and franchises across land based digital and mobile as we look to increase share and drive our organic growth. Number two expanding and high growth digital markets growing our recurring revenues and fueling our high quality earnings and cash generation. Number three. enabling a seamless player experience through our leading platforms in an increasingly converging gaming industry. Number four, delevering and maximizing cash to fuel investment and shareholder returns. Number five, fostering a high performance culture as we cultivate the best talent in the business. To fulfill that vision, we're quickly delivering on the promises we made just a year ago. In the first quarter, we made tremendous progress toward our transformation while also demonstrating strong momentum in our business. We grew consolidated revenue by 26% and consolidated a EBITDA by 42% year over year. We continue to grow our digital and recurring revenues with iGaming and SidePlay growing both year over year and sequentially, with SidePlay achieving its second highest revenue quarter ever. And we achieved a major milestone. closing on the sale of the lottery business, which generated approximately $5.6 billion in gross cash proceeds. With this new financial strength and flexibility, we've established our capital allocation priorities to enhance shareholder value, debt pay down, share repurchases, and investment in growth. We use the proceeds from the lottery sales to pay down debt, our number one priority, radically transforming our balance sheet. A little over a year ago, our net debt leverage ratio peaked at 10.5 times. And now, post the lottery sale and our refinancing transactions, our adjusted net debt leverage ratio sits at 3.7 times, a reduction of approximately seven turns. We are well on our way to achieving our target net debt leverage ratio range of 2.5 to 3.5 times. We expect to get there with the closing of the sale of our sports betting business which we anticipate will happen in the third quarter, subject to regulatory approvals. We also authorized a 750 million share buyback program in March and began immediately and actively repurchasing shares, executing on our second key priority, returning capital back to shareholders. Through last week, we've purchased approximately 140 million of our stock, or a total of 2.4 million shares. representing approximately 2.5% of our shares outstanding. We also closed on the latest in a series of targeted, capital-efficient acquisitions to fuel growth and expand our portfolio. SidePlay acquired Elictus, a leading casual game developer that accelerates their expansion into the $20 billion casual market. And we acquired Plazito, a small acquisition that we expect to have an outsized impact on our ability to accelerate our customized iGaming content offering on OGS. In addition to executing on our capital allocation plan, I also want to acknowledge the current dynamic macro situation that we're seeing and how we're addressing it. I'm proud to say that we've been planning proactively and have contingency plans in place to navigate the environment. One of the things we've done well before the pandemic was to actively assess and manage our cost base. Over the last two years, we've taken out nearly $100 million in our cost base, reinvested into R&D, and leveraged the other savings to maintain our healthy margin, a testament to how we drive efficiencies across the organization. Additionally, we were proactive and built up our supply chain talent, which has paid dividends, helping us to navigate the current environment. There will be challenges from time to time, and we know there's more to do, but we will continue to be proactive and execute on the things we can control as we've always done. And now I'll focus on the key highlights of our business unit performance. Let me begin with gaming. As we continue to see strong market recovery, we grew North American premium game ops for the seventh consecutive quarter. It now represents 43% of our North America install base. This outstanding result was driven by strong performance from Willy Wonka Dreamer of Dreams on the mural cabinet and continued momentum of our Cascada portrait cabinet with our proven coin combo and ultimate Firelink franchises. Revenue per day remains strong, especially in the North America premium segment, and Coin-In continues to outpace 2019 levels thanks to improved product performance. With the launch of our Cascada dual-screen cabinet and a rich portfolio of content such as Double Money Link and Goldfish, we are seeing strong numbers out of the gate and expect to see continued momentum with our proven Ultimate Firelink franchise scheduled to roll out shortly. Our highly anticipated Stepper cabinet, Landmark 7000, will debut in the second half of the year, giving us cabinets in every critical segment of the markets. And we continue to see great progress in game sales, systems, and tables, with year-over-year growth, momentum we expect to build on throughout the year. We're seeing a strong demand pipeline for our iView 4 hardware, which now penetrates more than 60% of our domestic connected systems units. And we're scaling resources to deliver on increased demand for system software and services off the back of these hardware upgrades. Meanwhile, our RouletteX ETG game is generating strong performance across the globe, outperforming traditional Roulette by more than two times, and our recently acquired Atom Cashless Tables product is continuing to roll out across the US market with over 650 units and strong trends on average transactions. Overall, we see continuing momentum into April as the gaming industry remains resilient in this macro environment, with strong player demand and GGR above 2019 levels. Turning to iGaming, the business continues to have strong momentum with revenue growing both year over year and sequentially. In the US, we were up 63% year over year and 21% sequentially with seven sequential quarters of GGR growth. The performance was fueled by the success of original content with our games generating 50% of the GGR on our iGaming platform, a record contribution. In fact, of the top-ranked games in the U.S. on our OGS platform, 16 of the top 20 were ours. In April, we launched in Ontario our largest-ever single-market launch, going live with eight operators on day one and with 20-plus in the pipeline. We've seen strong results from our content portfolio with games like 8-8 Fortunes, and we anticipate this market reaching up to an estimated total of 1.5 billion GGR a year by 2025. Our original content continues to deliver as key standouts such as Rainbow Riches, Monopoly, and 8-8 Fortunes consistently rank among the top performing games. We also continued our momentum with our studio acquisitions with Lightning Box achieving record GGR for the seventh consecutive month, and Elk Studio, building on its record success from fourth quarter 2021. Our distribution and scale fueled the performance of great games like Chicken Box, Lightning Horseman, and Book of Toro. This year, we'll be ramping up original content launches, including evergreen franchises such as Money Falls, Coin Combo, and Goldfish. And our launch of Live Dealer remains on track for the U.S. in Q4. Overall, with our depth of proven games and experienced teams, We are well positioned to capitalize on the global wave of legalization. Now moving to SidePlay. SidePlay turned in another strong performance, with revenue up 5% year-over-year and 2% sequentially. That revenue represents the second highest in the company history and an outperformance of the overall social casino market, reflecting the continued momentum they're achieving by investing and executing on their plans. SidePlay's Project All-Star enabled them to drive another record quarter for Goldfish and QuickHit as SidePlay continues to grow their core games. Player LTV and retention are at all-time highs, while monthly average users and average monthly paying users improve sequentially. And the Elictus integration is going smoothly, with two new game launches in the quarter and the addition of 28 million MAU, expanding our total MAU to over 30 million. Finally, we're very excited for the launch of Project X in the second half. Make sure not to miss a special sneak preview at the Investor Day next week. So there's great news all around, but there's also a new level of value emerging when it comes to our unique mix of assets and the opportunity to lead as land-based and digital gaming increasingly converge. We are already executing on our cross-platform roadmap, by launching Goldfish Feeding Time on SidePlay and in casinos with iGaming soon to follow. In the first week, 700,000 people played the game, even before we scaled it across land-based casinos. And the payer conversion on day one was almost double what we've seen in any other games. It's a great example of us taking one of our key evergreen franchises and scaling them to a broader audience through coordinated deployment across our platforms. and we'll share more on our cross-platform roadmap next week at our Investor Day. We're rapidly executing on our plan to transform our organization with a singular focus on launching games fully cross-platform. I want to thank each and every one of our creators for their incredible work this quarter. And now, for more on our financial results, let me turn it over to Connie.