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spk02: Welcome to the Light and Wonder 2022 Second Quarter Investor Conference Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question, please press star followed by one on your telephone keypad. Now let me turn the call over to Jim Bombasi, Senior Vice President of Investor Relations for Light and Wonder. Mr. Bombasi, you may begin.
spk04: Thank you, Operator. Good afternoon, everyone. During today's call, we will discuss our second quarter 2022 results in operating performance, followed by a question and answer period. With me today are CEO Barry Cottle 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 the 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 27th of 2021, we announced that we had entered into a definitive agreement to sell our sports betting business to Endeavor. And subsequently, on June 30th of this year, we entered into an amendment to the definitive purchase agreement. During the second quarter, we completed the sale of our lottery business to Brookfield Business Partners. Accordingly, 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 sheet 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 on our website at lmw.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 now I will turn the call over to Barry.
spk05: Thank you for joining us today. This is a pivotal year for Light & Wonder. And I'm excited to discuss the significant progress we have made transforming our company, as well as the success we are seeing as we execute on our roadmap and delivered strong operating performance this quarter. When you look at what we've accomplished, you see clear evidence of our ability to deliver on the promise of transforming our company and to drive significant value for our shareholders. We completed the sale of the lottery business, enabling us to deliver and reconstitute our balance sheet. And we proactively amended our sports betting sale agreement, increasing the speed and certainty by creating a simplified path to closing the transaction by the end of Q3 at a strong valuation, bringing in $800 million gross and approximately $700 million in net proceeds. Together, these two dispositions will generate approximately $5.6 billion in net after-tax cash proceeds. and they represent the final step in the process of streamlining our organization. To that end, we are poised to further enhance shareholder value through our capital allocation priorities, debt pay down, share repurchases, and a disciplined approach to investing and growth. With the proceeds from our lottery sale, we paid down our debt, enabling us to achieve a net leverage ratio of 3.6 times at quarter end, a seven-turn reduction from our peak leverage just 18 months ago. Additionally, since we announced our share repurchase program in March, we have bought back 203 million or 3.7 million shares, approximately 27% of our 750 million authorization or over 4% of our market cap in just five months. With our streamlined organization, sharpened focus and strong balance sheet, this all creates a powerful foundation to build from as we execute on our vision of becoming the leading cross-platform global game company. The opportunity here is enormous. We are squarely pointed at the $70 billion TAM across all game markets. No one else can match our wealth of great franchises or our ability to deliver great games to players anywhere they want to play. What is so exciting is that we have all the pieces in place as we execute on this strategy. And we have a tremendous opportunity to drive shareholder value underpinned by the long-term targets we laid out at our investor day. We have an enviable and sustainable growth profile, including double-digit growth with a high mix of recurring and digital revenues. A strong balance sheet with a targeted net debt leverage ratio range of 2.5 to 3.5 times. 1.4 billion of targeted A EBITDA by 2025. which translates into a targeted CAGR of 15%, and a target of approximately $10 billion of capital to be generated by 2025. Our strategic progress on our transformation and results this quarter give me great confidence that we can achieve these targets with our robust product roadmap and continued execution. Now, turning to quarterly results. Overall, we delivered continued strong results with consolidated revenue growing 5% to $610 million and consolidated A EBITDA of $212 million. Prior year period consolidated revenue and A EBITDA benefited from the $38 million VAT recovery. Excluding the VAT impact, year-over-year consolidated revenue and consolidated A EBITDA growth was 12% and 9% respectively. This momentum is the result of the fundamental changes we have made throughout the company and our top-ranked product performance across gaming, iGaming, and side play, like Ultimate Firelink, with its extension Ultimate Firelink Explosion debuting as the number one WAP game on Eilers. Coin Combo, a land-based favorite, achieving yet another record launch in iGaming with Hurricane Horse. and highly anticipated carnival cow and terrific tiger set to launch in the second half of the year. And goldfish, where goldfish feeding time drove incremental side play visitation and engagement metrics, which was a hugely successful cross-platform launch. We have built a leading and unique position in a market that's not only huge and converging, but it's also been historically resilient to the dynamic economic environment. In fact, current GGR levels remain strong, just as they have during past economic cycles. However, we continue to closely monitor trends and remain proactive, taking steps that have positioned us well to successfully navigate this evolving environment, including proactively implementing measures to offset inflationary pressures, creating a global supply chain, and driving operational efficiency throughout our organizations. So we remain competent about our industry and our path forward. Now let's go deeper into each business unit. Starting with gaming, where our new strategy and product roadmap are already delivering robust underlying growth. As a reminder here, we had a VAT recovery benefit of $38 million on the top and bottom line in the prior year quarter in the gaming ops business. Excluding this benefit, Each business line delivered double-digit revenue growth year over year. We achieved tangible success across our three largest TAMs, the North American Premium Gaming Ops Market, the North American For Sale Market, and the Australian Market. We now have new competitive hardware in each critical segment, setting us up for growth as the market continues to recover and operators ramp their capital budgets. For example, we recently launched the highly anticipated Cascada dual-screen cabinet globally, and we saw strong performance out of the gate in both the U.S. and Australia. We also released the Landmark 7000, a stunning mechanical reel machine for the nostalgic slot player. This launch was another huge success, with our Blazing Sevens franchise titles debuting at number one and number two in the Eiler Stepper segment. It is also worthwhile to note that the last two cabinets we launched are number one in their categories with the top ranked game in the latest Eilish report. When it comes to gaming, our North Star remains building the best games and enabling platforms. That's why we've ramped our game roadmap and focused on leveraging our proven evergreen franchises created by some of the best game design talent in the industry. Our strategy is working. Starting with GameOps, This quarter we saw continued gains with sequential growth in our total North America install base. Growth was fueled by the eighth consecutive quarter of growth in our premium install base, resulting in a record premium mix at 43% of our total North America install base. I want to highlight alternate Firelink explosion was recently ranked by Eilers as the number one WAP gain, which we expect to drive growth in the second half of the year. In fact, since its initial launch in 2016, we've released seven games under the Ultimate Firelink franchise, and performance is truly exceptional. It's a great example of how we're leveraging our Evergreen franchises to grow market share. Turning to domestic game sales, we saw significant gains as we shipped 4,009 units, up 19% sequentially. And in a sign that the market continues to move toward recovery, we saw replacement units approaching 2019 quarterly run rate levels. The newly released Hoppin' War Pulse, which launched on the Cascada dual screen, debuted at number one on the Eilers for Sale list. And we saw additional success from Goldfish Feeding Time and Rich Little Piggies Hog Wild, all successful extensions of our proven evergreen franchises. Meanwhile, in Australia, we grew market share on the back of Cascada dual screen cabinets and the performance of games like Dragon Unleashed and Hup and More Puff, which ranked number one and number three in Queensland. Turning to systems, we're continuing to invest in technology that makes us not just market leaders, but thought leaders. Our iView 4 continues to drive cashless enablement, and we more than doubled shipments of that hardware sequentially, which is now deployed across two-thirds of the slots in our systems business footprint. Finally, in tables, We continue to leverage our wealth of experience in IP to maintain our market-leading position. Sequentially, we grew our shuffler install base while adding more subscribers to our vault program, which now stands at over half of our North American customer base. We're also continuing to invest and drive innovation to grow our ETG business, which we see as a growth segment. We continue to successfully execute on our playbook with growth across all four business lines, enabled by a reinvigorated product roadmap focused on our largest profit pools backed by great design talent. Let's now turn to iGaming, where our results demonstrate our ability to leverage our unrivaled position in the marketplace, including our original content, unmatched iGaming platform, and leading PAM, to deliver best-in-class offerings to our partners and players. U.S. revenues increased 47% year-over-year, growth that was driven by GGR scaling, as well as continued market share gains. Our original games underpinned our market share growth in the U.S. If you look at the top 20 games on our iGaming platform, our original content fueled more than 70% of GGR, a testament to the affinity players have for our land-based franchises and digital native games. We also saw strong performance from our Lightning Box acquisitions. which remains the number one digital native studio on our iGaming platform in the U.S. Creating and leveraging great games continues to be the core of our strategy and our success. This quarter, we saw the record launch of Coin Combo Hurricane Horse, a top five title in the land base, as well as strong performance from games like 8-8 Fortunes, Gingy Bouncy, Dancing Drums Explosion, and Marvelous Mouth. And coming up next is the launch of Carnival Cow and Terrific Tiger, further extensions of our successful Coin Combo franchise. Turning to international, we saw a sequential rebound in the business thanks to gains from our evergreen franchises like Rainbow Rich's Rainbow Frenzy and Blazing Hot 7's Big Bonuses. And this quarter also saw us launch in Ontario, our largest ever single market launch. Finally, we continue to be excited about our PlayZito acquisition, where they have strong momentum, having completed over 30 operator integrations since we closed on the deal. And we're seeing strong interest from operators as they look to launch more exclusive content. Overall, it was a great quarter. And looking forward, our investments in the first half of the year have set us up for continued growth in the second half as we launch more games. And in Q4, live dealers. Let's now turn to Sideplay, who turned in a solid second quarter outperforming the social casino market both year over year and sequentially, along with making good progress towards our expansion into casual. Growth was driven by our major games, with Quick Hit achieving its second consecutive quarterly revenue record, while Jackpot Party delivered one of their top quarters of all time. Further validating that Sideplay's scaled evergreen games and sticky cohort base puts them in a great position to achieve their full monetization potential. Looking ahead, we're seeing momentum in Sideplay's business build in the third quarter with the launch of a number of new features and tools and their largest gains. In fact, July was the second highest revenue month in our history for social casino, second only to our peak revenue month achieved during the height of the COVID pandemic. Our expansion to casual continued momentum with the successful integration of Elictus, a passionate and talented team that launched a number of new games in the quarter with solid engagement metrics. We see an opportunity to maximize this acquisition by leveraging our expertise and capabilities, such as adding new meta features to drive higher LTV. Additionally, our new casual games portfolio continue to make progress. The newest version of the Solitaire's Pets adventure is in soft launch, and we have some early positive data. Meanwhile, Spellspinner from our talented team in Finland remains on track for a soft launch in the fourth quarter. All in all, Sideplay is a durable, highly cash-generative business. And even as we have delivered significant gains with revenues growing 36% over the past three years, we think there's even more upside in the business going forward. Fueled by their evergreen franchises, sticky cohorts, and disciplined approach to investing and monetizing their players. One more thing I want to highlight. All the success we're seeing across all three business units is enabled by our high performance culture and top talent. As evidenced recently by bolstering the product and design talent in the Australian market, which was a key catalyst in our share gains this quarter. We're also pleased to welcome Victor Blanco as our Chief Technology Officer and Roxanne Lucas as our chief people capability officer, both of whom have deep games, technology, and digital experience as we continue to enhance our executive team. Additionally, we appointed Steve Morrow as our new director to our board, effective today. We are fortunate to have Steve, who draws from 35 years as a supplier, operator, and regulator in the gaming industry. To sum up, Following another quarter of transformational and operational performance, we have never been better positioned to deliver tremendous value to our shareholders. I've shared some highlights of our organizational and operational progress. And now, for more detail on our financial progress this quarter, let me turn it over to Connie.
spk03: Thanks, Barry. For the last 18 months, we've been moving with a sense of urgency to transform our balance sheets redefine our portfolio businesses, and sharpen our focus, all with the goal of becoming a sustainable growth company and driving shareholder value. Before I go into the results, let me take a moment to congratulate our teams on our significant accomplishments. First, we streamlined the organization with the completion of our lottery divestiture and paved the way to expedite the closing on the sale of our sports betting business. Second, we moved quickly to deliver using the $5.7 billion gross cash proceeds from lottery to pay down and refinance our debt, enabling us to achieve a net debt leverage ratio of 3.6 times. Third, we returned a significant amount of capital to shareholders, over 4% of our market cap. Fourth, When we laid out our strategy at Investor Day in May, we provided financial targets that underscore the tremendous opportunity ahead. And finally, we continue to drive operational excellence throughout our business, ensuring we drive strong margins. With our new streamlined organization, we have a strong financial profile with double digit growth and a radically transformed balance sheet that will serve as the foundation for our future. And I want to thank everyone at Light and Wonder for their contributions in making this happen. Let's turn to the quarter's financial highlights. Consolidated revenues of $610 million increased 5% year over year as prior year revenue benefited from the $38 million VAT recovery. Excluding this benefit, consolidated revenue grew 12%. Net loss from continuing operations of $150 million was primarily impacted by $147 million loss on financing transactions associated with the ACRL debt pay down. Importantly, the refinancing will enable us to achieve an estimated annual cash interest savings of over $225 million on a run rate basis, a 47% reduction. Consolidated AEPA debt was $212 million, A decline of 9% compared to the prior year period as the prior year benefited from the $38 million VAT recovery. Excluding this benefit, consolidated A EBITDA grew 9%. Our A EBITDA margin from continuing operations was 35%, reflecting a shift in product mix with increased game sales and a doubling of our systems hardware sales sequentially. Additionally, we made investments in key initiatives in iGaming and SidePlay to fuel long-term growth. I want to note that as it relates to FX, our comp space provides us with a natural hedge, so while we saw adverse movements in FX rates impacting reported revenue growth, albeit immaterial at a consolidated level, it did have a notable impact in iGaming revenues. However, we did not see a corresponding impact on AEBITDA. Now turning to our business segment results. In gaming, we delivered strong performance in the quarter. I want to note that last year gaming operations benefited from the $38 million VAT recovery, which impacted gaming's revenue and EBITDA growth rate by 13 and 23 percentage points respectively. My overview of the gaming business result will normalize for the benefits in terms of the year-over-year growth rate. With that, gaming revenue was up 19% year-over-year with double-digit growth in all four business lines. A EBITDA was up 15% year-over-year as we generated a healthy A EBITDA margin of 46% in the quarter, reflective of the product's mix as we saw a rise in operator demand for our cabinets and systems hardware. Gaming operations revenue was up 14% year-over-year, driven by momentum in our North American install base. Our North American premium install base grew for the eighth consecutive quarter, and revenue per day increased 6% sequentially to approximately $46, exceeding 2019 levels. Growth was driven by the success of our game performance on our mural and cascada cabinets, which now represent approximately 30% of our installed base. Further, game sales revenue grew 23% year-over-year and 19% sequentially, driven by global unit sales of 6,488. up 30% year-over-year and 23% sequentially. ASP was also robust at over $17,000, reinforcing the value we are creating with our reinvigorated product roadmap. Our systems business grew 15% year-over-year, as we saw rampant demand for our IB4 hardware and an increase in our recurring maintenance revenues. And in table games, we saw revenue increase 29% year-over-year to $44 million, driven by a rebound across all product categories. We couldn't be more pleased with the progress we are seeing across our gaming business, all which speaks to the success of our new products and the opportunity that lies ahead. Turning to iGaming, we saw continuing momentum in the U.S., and importantly, we made key investments to enable future growth. We generated revenues of $60 million and a EBITDA of $21 million in the quarter. On a constant currency basis, revenue increased 7% year-over-year as growth was primarily driven by record US GGR and share gains in a number of states. Internationally, while year-over-year results were impacted by regulatory changes, we delivered sequential growth as we benefited from our original content roadmap. We increased our iGaming AEP at the margin by approximately 2 percentage points year-over-year, while ramping investments in R&D and for the launch of live D-Lab. Overall, we feel great about our unique position in iGaming, with our robust original content offering, unrivaled platform, and differentiated scale. Now turning to side-sides. Revenue grew 4% year-over-year to $160 million and 1% sequentially, benefiting from the acquisition of a listed, while the core social casino business remains strong, outpacing the market this quarter. SidePlace's continued focus on engagement and monetization allowed them to deliver art sale growth of 3% year-over-year to 74 cents, while maintaining a steady DAU base. Additionally, payer conversion reached a record of 9.4%, while average monthly revenue per paying user remained elevated. SidePlay's A EBITDA of $41 million in the quarter was impacted by investments in key growth initiatives, including their SidePlay engine, direct-to-consumer platform, as well as their marketing innovation campaign to drive exposure and scale user acquisition, the costs of which span Q2 and Q3. We expect A EBITDA margins to scale in Q4 as we see the benefits from these investments and as we move past the marketing innovation campaigns. With its sticky player base, strong monetization, and low capital intensity, SidePlay continues to be highly cash-generative. With continuing momentum in the core business and as we invest to build upon our core capabilities, we are enhancing SidePlay's platform and ability to drive sustainable long-term growth. Moving to the balance sheet, cash flow, and capital allocation. With the $5.7 billion of gross cash proceeds from the lottery sale, we quickly reduced our debt by approximately $4.9 billion, enabling us to report net debt at $3 billion at June 30th, a 64% reduction compared to the $8.4 billion at March 31st. Our net debt leverage ratio declined from a peak of 10.5 times to 3.6 times at the end of the second quarter. a truly remarkable transformation from where we were just 18 months ago. Turning to free cash flow. Results in the second quarter were principally impacted by costs supporting our strategic review, including the divestitures of our lottery and sports betting businesses, which combined are expected to generate approximately $5.6 billion in net after-tax cash proceeds. Additionally, free cash flow was impacted by increases in working capital and CapEx to meet the growing demand for our products. Looking ahead, third quarter free cash flow will continue to be impacted by the strategic review and transaction costs related to the divestitures, including an approximately $500 million tax payment on the sale of lottery. In the fourth quarter, we anticipate tax payments of approximately $235 million related to lottery and sports betting divestitures. We believe free cash flow is one of the key drivers of shareholder value. And in 2023, as we move past the strategic initiative, free cash flow is expected to improve significantly, translating to substantial free cash flow per share as we benefit from our strong growth profile, the transformation of our balance sheet, the flow through of operational efficiency benefits, and the active purchasing of our shares. In terms of capital allocation, we continue to take a balanced and opportunistic approach to enhance shareholder value. With our newfound balance sheet strength, one of our key priorities is returning capital to our shareholders. And as Barry mentioned, we've purchased $203 million, or over 4% of our market cap, in just five months since authorizing our program on March 1st. And at current trading levels, we see purchasing of our shares as an enormous opportunity to create shareholder value. Wrapping up, I want to emphasize how the swift and transformative capital management steps we have taken position us well to deliver on our strategy and succeed in different economic cycles. As Barry noted, we operate in a resilient industry and today are seeing positive signs of continued elevated GGR. However, we also remain focused on proactively optimizing our cost-based driving efficiencies across our portfolio. This quarter demonstrated strong operating results low leverage, and significant capital returns, all adding up to a compelling value proposition. We feel great about what we've achieved and the opportunity we have to enhance shareholder value underscored by a long-term financial target. With that, we'll turn it over to the operator for your questions.
spk02: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. Our first question today comes from the line of Barry Jonas from Tuist. Please go ahead. Your line is now open.
spk06: Great. Thank you for taking my questions. Can you maybe talk about the kind of visibility you're seeing for over say the next six months or so for gaming and other parts of the business? And I guess with that and everything going on, are you seeing any hesitancy as you speak with customers? Thanks.
spk05: Hi, Barry. Thanks for your question. Look, I think there's great news here. First, the gaming and mobile game industries have historically been very resilient and we're seeing that today. We're seeing elevated GGR levels with continued great momentum and actually reinforced by all of our conversations that we've had with numerous operators. We have a strong competence in the market and, quite frankly, an even stronger competence in our ability to take share given the success and momentum of the games and the robust product roadmap that we have. If I break it down and go into each of the grids, in gaming, We had a great quarter, and we saw growth across all four gaming business lines, which is, again, a testament to the strong market recovery and also our strong lineup in all the major categories. We now have cabinets in all four major slot segments, each with chart-topping games, which speaks to the breadth and depth of our portfolio. And we have a strong funnel in Q3 and Q4, which gives me even more confidence than ever that we can continue to drive growth. More broadly, if you look beyond gaming, we saw continued success in iGaming with share growth in the US, which was driven by original game launches. And we have a really strong pipeline of games scheduled for the second half of the year, including nine land-based titles that we're bringing to market. And then at SidePlay, as we look into where we are today and then the second half, we're off to a great start. July was actually the second highest revenue month ever in SidePlay, which and that's during a summer month, which is not typical. And we had the highest number of payers in the history of the company. So again, if you look across the businesses and into the market, feeling very confident about what we see.
spk03: Yeah, and I just build on to what Barry said, that one of the beauties about our business is we get real-time data. In fact, I just looked at the coin and trends this morning from gaming, and they continue to be elevated across all markets, which I think is just a great sign that business continues to have significant momentum in the backdrop of a strong macro environment in which we're operating at the moment. To Barry's point, SidePlay, we get daily visibility as well as in iGaming, and both continue to have elevated and strong metrics. So we feel really confident about where the business is headed and our ability to deliver a strong second half.
spk06: That's great. I appreciate all that, Collar. And then just For a follow-up, it may be early to ask this, but look, it's been about three months or so since your analyst day. I'm curious, as you think about sort of the underlying assumptions and those targets you outlined, if anything's changed from your perspective. That could be composition, timing, or maybe just the shape to get to some of your targets. Thanks.
spk05: Absolutely. Thanks, Barry. Look, Investor Day was a great momentum for us to share our strategy and also introduce folks to the people in our organization that are driving these initiatives. And based off the performance of the business this quarter and the progress that we've made on our strategic initiatives, we're actually highly confident today in our ability to achieve the targets we set during our Investor Day. And we obviously can't predict the macro environment, but as I mentioned in the last, as we just talked about the next six months, we know the game sector is resilient and that the industry is showing great momentum today. And we have an unmatched position. We have an amazing portfolio of assets with leading positions across all three markets, gaming, iGaming, and social. Our competence and our people playbook and the product roadmap that we shared that day, quite frankly, has only gotten stronger as evidenced in this quarter.
spk03: And I might just add one additional thing here that, you know, we're really pleased with the significant and swift progress that we've made on executing the capital management priorities. We outlined it in Investor Day, which were debt reduction, share repurchasing, and investing for growth. You know, in the quarter, you would have seen that in relation to our debt reduction, we made significant progress with the $5.7 billion of proceeds we received in April, paying down our debt, refinancing, which resulted in this 3.6 times net debt leverage ratio. And it puts us well on our way to achieving the 2.5 times to 3.5 times range that we outlined. Additionally, we've made significant progress on our share repurchase program, which is a key pillar of our capital management. Barry mentioned in the prepared remarks that we've executed already 27% of that $750 million program in just five short months. And as we continue to move forward past these divestiture, we will have the opportunity to generate significant cash flow, which again we see as just a tremendous opportunity to drive shareholder value. So the operational momentum we see in the business and all of the competitive advantage plus the momentum that we've already seen driven in terms of capital management, we feel really good about our ability to achieve those targets.
spk06: Okay, great. Thanks, Connie. Thanks, Barry.
spk05: Thanks, Barry. Absolutely. Thanks, Barry.
spk02: Thank you. The next question today comes from the line of David Katz from Jefferies. Please go ahead. Your line is now open.
spk01: Afternoon, everyone. Thanks for taking my questions. number one, I wanted to just talk about side play for a moment. And if you could just discuss for us, I mean, it grew a little bit, but just talk about what in qualitative terms, what this might look like, say the next 12 months, 24 months. And as you build toward those targets, right? I mean, there is growth, but it was relatively small. I assume that's going to accelerate over time and just, you know, a little more detail would be helpful, please.
spk05: Yeah, absolutely, David. And thank you for your question. So, you know, stepping back, if you look at side play, you know, side play is a has grown 36% over the last three years. And as you alluded to, there's obviously some natural normalization post COVID and adapting to, you know, some things in the environment, but we continue to outpace the market in the social casino space. And there's actually tremendous upside in the $7 billion TAM business today. And I'm going to just pick out one piece of it just to kind of demonstrate that upside. We see tremendous upside to monetize our players. Remember, SidePlay is a portfolio of evergreen games with sticky cohorts where the cohorts grow in value over time. And if you look at over the last, since 2019, we've grown ARPDAU by a little over 50% since 2019. And breaking that down, there's what we call Project All Star that we implemented in our largest games that has driven that ARPDAU in a subset of these games. And as we broaden that program across the entire portfolio, we have a high level of confidence that we can drive further monetization. Because it's important to note that SidePlay's monetization, while it has grown and is incredibly healthy, is still roughly half its top peers. So there's tremendous upside in SidePlay in this space to improve monetization and improve growth and drive market share consistent with that. So we continue to see payoffs from its investments in these growth initiatives, leveraging the SidePlay engine, centralizing the learnings from Project All-Star, which is going to just, again, continue to drive the engagement and monetization of this evergreen base. And so when you layer on that with the continued diversification and new games that we're launching in casual, there's tremendous upside for SidePlay. We're very confident in our ability to grow that business.
spk01: Understood. And my follow-up is – really around the number of people you added, some of whom you called out in your prepared remarks, do you feel like you have all of the sort of human capital in place to do what you need to do? Or should we be thinking about, you know, more hiring and, you know, more additions as you go?
spk05: Absolutely. Great question. Yeah, I'll start by saying is I think we've, never been in a better position from a strategy, talent and balancing perspective than we are today. So kind of regardless of whatever capital you're, you know, that you refer to, I think we're just an amazing place, you know, from a strategy perspective, I, you know, our goal is to become the leading cross platform global game company. And I think we, we have all the major pieces in place to do that and, and making great progress. And, you know, as I've mentioned, I think a few times before, at least around under the roof here, that great people do great things. And since I took this role, my number one priority has been to recruit the best talent capital in the industry and create a high-performance culture to win. We introduced a lot of those folks at Investor Day. I think we've mentioned the figure of over 25 key folks being brought in just in the gaming space alone. But We've done this. We've gathered the world's greatest gaming, iGaming, and social casino talent along with an amazing team of game designers. We just recently announced the addition of Roxanne Lucas and Victor Blanco. So I can say we've been extremely successful in putting great people in place in this business. But to answer the second part of your question, I can also tell you that this will never stop being our number one priority. You can never have enough great people, never have enough great designers, and so we will always lean in on that because that's what makes us great.
spk01: Perfect. Thank you very much.
spk02: Thank you. The next question today comes from the line of Ryan Sigdahl from Craig Hallam Capital Group. Please go ahead. Your line is now open.
spk08: Good afternoon, Barry, Connie. I want to start in gaming. It seems like you have a lot of good things building with the team, the cabinets, the content. When we look at market share relative to peers, you guys are growing with the industry more or less. Talk through how this product, everything is building internally and when maybe we can start to see some acceleration on the market share from a reported number standpoint?
spk05: Absolutely, Ryan, great question. You know, here's how I would describe it. So I think, yes, in fact, I think we've made significant progress over the past few years. If you remember, setting out our strategy or playbook to focus first on the largest profit pools in terms of prioritization. you know, at the top of that list of North America premium segment, which was our biggest priority. And we drove eight consecutive quarters of meaningful growth or, you know, 14% year over year, just, you know, in this, this past quarter. But we grew that if you remember bringing on the team and the playbook and our roadmap, you know, two years ago, we've been building our portfolio and our roadmap while growing this business. And so, um, You know, we have now, we started out, if you look at the last two years, you have Mural and Cascada that were, you know, introduced early on. And just recently, Landmark 7000 and Cascada dual cabinet. And I think, you know, all with chart-topping hits, the last three, you know, cabinets that we launched, number one titles with them. And so, for the first time, we now have a complete portfolio in all four critical segments. backed by chart-topping hits. And so while we're, you know, extremely proud of the progress we made in the market while building the roadmap, we now have a full team, the best design team we've ever had. We've got the best portfolio we've ever had, and we have such an amazing roadmap as we look out over the next, you know, six to, you know, 24 months that, you know, we feel great about our ability to drive meaningful growth you know, in the game ops footprint going forward.
spk03: Yeah, and I might just build, Ryan, great to be with you on that, which is, you know, to Barry's point, I think we're seeing a lot of success in the replacement market with the products like Mural, but as we launch into Stepper here, which again, that cabinet is just off to a phenomenal start. I think we've seen some performance that we're performing over four times house average, which is just phenomenal. And as we continue to penetrate the dual screen segment, we know that that's another catalyst for growth. Additionally, I'd say that, you know, as we look forward, we're going to start to expand into some of these ancillary markets, which we haven't had the opportunity to do just yet. As Barry mentioned, we're continuing to expand the portfolio. But in the beginning, it was really important that we win in the largest opportunities, which was kind of that core replacement and new openings and expansion. So we feel really good about where we're headed. If you looked at the recent Eilers report, you would have seen a number of our games popping straight to the top of the charts, which gives us a lot of confidence in our ability to continue to take share.
spk08: Great. Maybe one more quick one for you, Connie. Can you clarify on the buybacks? I look at what you reported last quarter in Q1 as $140 million, $203 million now, so it implies kind of a deceleration there. But anything to be aware of, I guess, from a blackout period or anything in the quarter? It sounds like you have a lot of confidence in where the stock is here to be buying stock as fast as you can. Thanks.
spk03: Yeah, great. Thanks. First, I'd say we're incredibly pleased with the progress that we've been making in terms of our share repurchasing program. We outlined a $750 million program. We've already executed about 27% of that. You're absolutely right. Where our share price is today, we see tremendous value that we can create by continuing to repurchase our shares, and that'll be something that we continue to execute on And in terms of our ability and the pace in which we've been moving, there was an element in the quarter given the change in the sports deal that required us to pause for a moment because we had some material nonpublic information. But what I can tell you is that we will be back into the market. We see again tremendous opportunity to drive shareholder value. And at the pace in which we've already proceeded, we're going to likely complete that three-year program much quicker than originally outlined. And I just say in general that as we move forward, we know that our business is going to generate significant cash, and we see free cash flow per share as a key metric. And so the combination of the business that we've now created coupled with our share of repurchase program, we just see tremendous opportunity again to create shareholder value. Thank you.
spk04: Thank you. We'll take our last question, operator.
spk02: Perfect. The final question today comes from the line of Jeff Stantil from Stiefel. Please go ahead. Your line is now open.
spk07: Hey, great. Thanks. Afternoon, everyone. Thanks for squeezing me in here. I wanted to start On the core land-based business, just curious what you're hearing from your customers regarding capital budgets for table games and systems, you know, starting to pick back up, accelerate into the back half of the year. You know, just given that the slot replacement cycle has been approaching 2019 levels for the past couple quarters or so, are you starting to see signs of an accelerated recovery in systems and in tables? Or just how should we think about the lag for those two businesses relative to the momentum we've been seeing in slots? Thanks a lot.
spk05: Yeah, great question. And again, I think the great news here is we saw strong growth in both businesses, in fact, the entire portfolio. And, you know, as you alluded to, those two segments, you know, were the slowest to recover post-COVID. And with the momentum we've now realized, and as you said, you know, the conversations that we've been having with operators and And we've seen an experience that increase in CapEx. By the way, you saw it in game sales, too, with sequential 19% quarter on quarter. You see it here on the table side of the business with the increase in shufflers, increase in our 50% over now, over 50% subscription on vault. And you're seeing the system business with we've had a real increase in demand on the IV4. it speaks, I think, to the confidence in the momentum in the GGR, then the player demand and the operator's confidence in the market going forward. And so where it came early in game ops and then to game sales, we're now seeing that confidence in that across all four of our business lines in gaming. So as you know, we have a leadership position in both of those. And so you know, we benefit, you know, even more so in this category. And so, you know, we have, we're very, you know, very happy with it. We have amazing strength and position in both segments, and we're excited to see this momentum. And, you know, from the conversations we have, we, you know, we believe they'll continue.
spk03: Yeah.
spk07: That's very helpful. Sorry, go for it, Connie.
spk03: No, I was just going to say, just building on what Barry said, you know, the exciting news, I think what you're hearing perhaps is just a broader threat is And we've been really bullish on seeing a full market recovery by 2023. And we've got a lot of momentum in the business. And I think that as you're thinking about systems and tables, those kind of go into this camp in terms of an overall gaming recovery. So again, we're optimistic that that market recovery continues to kind of fully rebound by 2023.
spk07: Great. That's very helpful, Keller. Thank you. And then for my follow-up, moving to the margin side of the equation, just curious what you're seeing more recently on the supply chain front. Are you seeing any relief in logistics costs given we're tracking and improving freight spot rates? And just how are your lead times trending more recently relative to earlier this year, call it Q1, and kind of how is that relative to your average in 2019? Thanks.
spk03: Sure, absolutely. I'd start with first that I think we're navigating the supply chain environment incredibly well. I think that's evidenced just by the performance we've had through the first half of the year and in particular our ability just to fulfill the growing demand. It's great to see both the market recovery and our ability again to fulfill that. You know, we've been really proactive in supply chain. You've probably heard me a couple of times say that one of the operational efficiencies that we first stood up in the business was actually creating a global supply chain. And that's allowed us to do a couple of things. One is I'd say we've got better visibility than we've ever had into the depth of supply chain in terms of tier two and tier three suppliers. And we really leaned into a dual sourcing strategy. That's provided two benefits. One, it's obviously given us a level of diversification in terms of suppliers, but it's also allowed us to put some price competitiveness in terms of those various suppliers, which allowed us to drive significant savings, which to your point has helped us to offset increasing freight as well as some of those costs associated with spot buys. So all in all, we're seeing margins from a product perspective. very, very healthy given those proactive steps that we took. You would have seen, I would call out, you know, a little bit of softness in the margin in gaming, but that was really more driven by a mixed issue than anything else in terms of the hardware sales coming through from the games business as well as the iView 4. So, you know, overall, I'd say product margins remain very healthy over time as supply chains normalize it. we should really start to see some of those benefits in terms of operational efficiency drop into the bottom line.
spk04: Thanks for the question. Appreciate it. Now I'll turn it over to Barry for some final comments.
spk05: Thanks, Jim. This has been a pivotal year for our company, and we had tremendous success this quarter. We believe that there's no better time to be in this industry, and nobody is better positioned to take advantage of the $70 billion TAM games market opportunity. We are uniquely positioned to capitalize on the opportunities ahead with unmatched assets and market leadership, a clear vision and roadmap and unparalleled competitive advantages to take market share, drive cash flow, and ultimately generate significant long-term value. We couldn't be more excited about the future and the path we are on to generate significant returns for our shareholders. Thank you.
spk04: We want to thank everyone for joining our earnings call. Now I'll turn it back over to the operator.
spk02: Thank you. That concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.
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