Light & Wonder, Inc.

Welcome to the Light and Wonder 2023 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. I will now like to turn the call over to Nick Zangieri, Senior Vice President of Investor Relations for Light and Wonder. Mr. Zangieri, you may begin.

Thank you operator and good afternoon everyone and welcome to our first quarter 2023 earnings conference call. With me today are our CEO Matt Wilson and CFO Connie James. During today's call we will discuss our first quarter 2023 results and operating performance followed by a question and answer session. Our call today will contain forward-looking statements that may 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 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. In 2022, we completed the sale of the lottery business to Brookfield Business Partners in the second quarter and the sale of the sports betting business to Endeavor in the third quarter. Accordingly, we have reflected these businesses as discontinued operations in our consolidated statements of operations. 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 Investors section of our website. With that, I will now turn the call over to Matt.

Thank you, Nick, and thanks to everyone for joining today's call. We're off to a fantastic start in 2023, continuing the momentum we established last year. We're now past the one-year mark as the new light and wonder, and while we've accomplished a great deal, we believe the best is yet to come. We have a talented team driving a powerful R&D engine that is fueling our portfolio across all three businesses and has enabled us to begin the year with an entire pipeline of exciting products and games. As our first quarter results demonstrate, we are making continued progress towards the execution of our cross-platform roadmap and long-term goals, and have delivered on several key metrics including double-digit top and bottom line growth on a year-on-year basis, consolidated revenues increasing by 17%, and we achieved record quarterly revenues in both SyPlay and iGaming. I've been in the gaming industry long enough to know that compelling content drives success. Continued streamlining of our R&D efforts will better serve our business units and position us to win the long game. As a result, we've achieved enhanced collaboration in research, increased development velocity, and faster delivery to market of new and improved products and integrated solutions. A demonstration of our unique cross-platform approach is with our operator partner, ECLC, who launched a Fudukai Grand in both LAN-based and iGaming channels, showcasing increased engagement, driving significant results and player insight. This follows on from last year's Monopoly Lunar New Year release, and we will continue to work with our partners on cross-channel promotion and expect both our original LAN-based content and digital native content to be deployed more broadly. These steps are accelerating the progress of our cross-platform strategy. The expanded benefits of these initiatives are expected to be realized over the coming quarters as our integrated global R&D platform ramps up. While executing on core business fundamentals, we are always looking at ways to expand our share of the total addressable market to continue creating shareholder value. Offering the light and wonder investment opportunity to a broader base of investors is yet another way. Given the positive sentiment we've received from Australian investors, we're excited to pursue a secondary listing on the Australian Stock Exchange, which we believe will complement our existing shareholder base. The ASX is a premium market with a long track record as a platform for global gaming companies and a deep and liquid pool of investors and market participants who understand the gaming business. We believe this secondary listing will stimulate demand for our shares by providing accessibility to institutional investors who are unable to invest offshore, as well as increasing analyst coverage and expanding retail ownership. This is an important market for us and a natural progression of our strategy. In regards to timing, we expect ASX listing approval by the end of the second quarter. With our healthy business fundamentals, talented global team, a clear product roadmap, and execution against our strategy, we continue to build the right momentum as we progress towards the $1.4 billion 2025 consolidated Aebitda target. Now let's review our business segment highlights, starting with gaming. We've made considerable progress deploying proven content across key markets. In gaming operations, we grew North American premium units for the 11th consecutive quarter, achieving a record 46% of our North American install base. Recently, these efforts have been acknowledged. According to the most recent IWAS report, Ultimate Firelink Explosion remains at the top of the new premium release games chart. Likewise, Journey to Planet Moolah debuted as the number one wide-area progressive games in the category. Ted Harsey's Studio X launched its first game, Dragons' Jin Long Jin Bao, during the first quarter, and while it's early days, we're already seeing exceptional performance. We have a robust product pipeline, which gives me great confidence in our ability to progress significantly in the premium space. The second quarter outlook is looking very promising as well as we roll out Cosmic, one of our newest cabinets. Highly anticipated games, including Monsters, Frankenstein, and Ultimate Final in Cash Falls are already performing well above our expectations, even though they've just started rolling out the casino floors in the last few weeks. Likewise, our roadmap of new games and franchise extensions will continue to drive momentum in our gaming operations fleet. Turning to game sales, we returned to significant growth, shipping over 7,600 units globally, with 4,000 units in North America and 3,600 units internationally. The robust demand in game sales led to $158 million in revenue for the first quarter, translating to over 50% growth year over year, well above 2019 first quarter levels and even above the seasonally stronger fourth quarter we reported in 2022. We're encouraged that the industry is showing replacement growth as operators continue to invest in their floors. For example, in the North American replacement sale market, we shipped over 3,700 units. As we look forward, we're excited to expand our presence in adjacent markets, such as video lottery terminals and historical horse racing, and further increase our share over time. In Australia, our renewed focus allowed us to increase our market share to over 20% in the quarter. This was partly driven by the strong performance of Thunder Drums driving record Q1 ship share, a testament to the talented teams that we've assembled in our studios. For us, Australia is a bellwether for scaling successful games globally, with proven game mechanics that can also be leveraged in other markets. Given the significant gains we've made in Australia, we also believe we can win a more substantial share of the North American market with the right focus and the right execution. It's also worth noting that we recently achieved number one floor share with a new property opening in Asia, where we have a strong footprint, and it's great to see that market open back up. Additionally, we are proud to report that Cascada Jewel Screen and Landmark 7000 remain the number one cabinets in their respective categories for yet another quarter on island. We see a solid sales pipeline for the Cosmic Cabinet and the Cascada Slant, which is scheduled to launch in late May. players should expect popular franchise extensions like Dancing Drums, Power Trio, and Goldfish Boost to launch on these cabinets as well. We're off to a great start and have significant confidence going into the second half of the year, especially when we consider the pipeline of new content. On to systems, where our strategy calls for integrating enhanced capabilities on top of our existing platforms to solidify our leadership position. Recent wins reflect the significant progress that we've made. The announced installation for Park Shippingburg in Pennsylvania is a testament to our enhanced offering, allowing cashless play, interactive promotions on the floor, registration and account management via a mobile app, and further modern enhancements. In another win, we were selected as assistance provider for Naskilla Casino in Texas. With this new partnership, we were able to fully demonstrate that our products comprise an expansive portfolio of casino management systems, hardware, and software that enable our customers to deliver best-in-class experiences for their players at all points of business. The value proposition we are offering in the systems business is clearly gaining momentum, as we saw continued strong interest from our operator partners. Lastly, in tables, we continue to maintain our industry-leading position, leveraging our proprietary table games and shuffleboard products, where we continue to focus on innovations in both hardware and software solutions. Overall, we saw a great quarter underpinned by a robust product portfolio and momentum from 2022 that propelled us into the new year. Our growing franchise extensions and new Cosmic and Cascada slant cabinets give me great confidence in our ability to execute as operators continue to invest and refresh their floors. Let's turn to site play. The momentum we established last year continued in the first quarter and the investments we made over the past 18 months are being validated with significant share gains. SidePlay extended its winning streak in the social casino market, once again exceeding market performance, with 18% year-over-year growth on record revenue of $186 million. This also marked the second consecutive quarter of record earnings for Jackpot Party Casino and the fifth for Quick Hit Slots. We continue to see high repeat player activity at SidePlay, signifying the value players see in our game. SidePlay has improved in-game economics and monetisation metrics via LiveOps. resulting in record monthly paying users and a record upsell at 89 cents in the quarter. Additionally, the soft launch of our direct-to-consumer platform in the quarter is yet another step towards enhancing our ability to capture long-term margin expansion and gain competitive advantage. SciPlay has also built various engagement models into its platform, which can be scaled across other games. For example, applying in-game events across one ecosystem gives players a seamless experience across multiple games. We will continue to leverage our best-in-class efficiency of ad tech capabilities and improve returns on UA spend. Additionally, we'll make prudent expansions into new games via our core social casino product roadmap, further differentiating Sideplay's offerings from its industry peers, capitalising on our cross-platform strategy as we continue to work together, building and deploying the most engaging games enjoyed by players across all channels. We are very encouraged by the trends and progress we are seeing at SciPlay. The team has done a great job capitalizing on the momentum. We'll continue investing in our game, players, and platform with industry-best live ops to optimize player experiences and maximize monetization opportunities. Moving on to iGaming, where we operate the leading open gaming system platform, connecting studios and operators to the best-in-class iGaming ecosystem, enabling grander scale and access to games and customers. 10 years of experience in iGaming has earned us a leadership position and a significant advantage in deploying regionalised game content. GGR on our platform continues to grow in the US, driven by an increased volume of LAN-based and digital native games, and the continued scaling of OGS through third-party studios. This quarter speaks volumes to the performance of our game titles as we maintained and grew our market share sequentially in all six US states that we are live in. In the EU and UK, we saw 7%, and 10% GGR growth, respectively, on a year-on-year basis, with performance primarily driven by both Elk and Lightning Box Game Studios. Across all regions, we continue to see impressive performance from our first-party content, with more upside expected from our 2-plus-1 roadmap featuring our most popular LAN-based titles and our 1-to-500 launches in the UK, innovating on our products to engage players while keeping responsible gaming at heart. Of the top 20 games in the US on our OGF, nearly 70% of those are Light & Wonder's proprietary content, emphasizing once again that players gravitate towards games that they are familiar with across all channels. Lightning Box reported a record quarter with GGR growth of 62% in the US, marking six consecutive quarters of sequential growth since joining the Light & Wonder family. Elk also saw a record quarter with GGR growth of 71%. This was the fifth sequential quarter of growth under Light & Wonder, driven by exceptional Q1 content launches, Pirates, Metropolis 4, and Tropical 2. Turning to Live Casino, the fastest-growing segment of the iGaming market. We're excited to announce we've solidified our launch partner in the US with Rush Street Interactive, and we're progressing towards final regulatory approval for a successful launch in Michigan this year. It's clear to us that Live and Wonder has a strategic advantage as the first mover in the iGaming space. We are seeing tremendous performance from our LAN-based original content and we've only scratched the surface of integrating these great games into our iGaming offering. In closing, we continue building off our strong business momentum established in 2022 with content, technology, and talent fueling our cross-platform strategy. Regarding talent, we are investing significantly in programs to attract, retain, and develop the best in the industry. In content, we are executing on a robust cross-platform agenda with our games reaching all corners of the globe. With technology, it bears repeating that an integrated product roadmap and streamlined game development process promote technology efficiency, reducing development time, cost, and other resources. This new approach is already producing results. Eight key game themes will be fully launched tri-channel throughout the year. Five digital native games will be making their debut in the land-based market, and 38 land-based titles will go into the digital ecosystem this year. These significant milestones further validate that proven games are in demand and players want to play their favorite games across multiple platforms. The integration of these market-leading assets and the insights we gain by having these three powerful businesses allow us to build the greatest franchises and games possible. At this point, I'd like to turn things over to Connie to summarize the financials.

Thank you, Matt, and thanks, everyone, for joining us today. It's great to be here and share insights into the performance we saw in the quarter. Let me begin by thanking our teams for their relentless efforts, delivering quarter after quarter and breaking records along the way. They continue to perform at high levels and achieve key milestones as we progress towards our long-term targets. The quality of our earnings, underpinned by strong recurring revenue streams and scaling digital businesses, reflects the significant progress we are making. Our strong financial profile is taking shape, with A EBITDA growing faster than revenue and cash flow growing faster than A EBITDA. First quarter consolidated revenue increased 17% to $670 million as all three businesses achieved double digit growth, a continuation of the trend we saw last quarter. Operating income was $102 million, an increase of 155% year over year, And consolidated A EBITDA grew 23% to $249 million, driven by double-digit top-line growth across all businesses, as well as improved margins. Consolidated A EBITDA margin was 37% compared to 35% in the prior year, an increase of 200 basis points, delivering on our commitment to preserve profitability while investing with a focus on sustainable growth. Consolidated operating cash flow was $185 million compared to combined operating cash flow of $94 million last year, primarily due to lower interest payments and favorable changes in working capital. Prior year cash flow was impacted by costs associated with strategic transactions and timing of inventory purchases. Now turning to the business unit. First, in gaming, we continue to build on the significant momentum in our core segments. Revenue in the quarter grew 18% year-over-year to $419 million, led by robust game sales growth of 53% over the prior year period. A EBITDA outpaced revenue growth of 20% to $206 million, An 8 EBITDA margin increased 100 basis points to 49% compared to the prior year period, primarily driven by volume growth of our premium products. We continue to deliver strong results in gaming operations, growing our install base and revenue per day year-over-year and sequentially. North American premium install base increased 8% compared to the prior year. and now stands at a record 46% of total North American installed base. Additionally, revenue per day remains elevated above $45, underpinned by our games and franchises delivering solid performance this quarter. Global game sales was a key highlight in the quarter, as revenue exceeded first quarter 2019 levels by 16%, with North America replacement units up 18% over the same period. As Matt mentioned, we saw significant share gains in Australia, ending the quarter with over 20% ship share, a record for light and wonder. The progress we've made in key for sale markets is remarkable as we continue to be a premium product supplier, generating average selling prices of over $18,700 in the quarter. Turning to systems, we achieved an 8% revenue increase year over year. driven by higher service and maintenance revenue. We also expanded our managed services offering, which is expected to be an important part of our recurring revenue stream in the future. Our enhanced system solutions portfolio boasts a wide range of capabilities, enabling us to solidify our leadership position. Lastly, in tables, revenue was flat compared to the prior year period. The business continues to stabilize with further global market reopenings, We are implementing a number of strategic initiatives with a focus on sustainable growth, which includes expanding our recurring revenue commercial models, signing up more customers to our proprietary table game subscription vault program. The execution of our product roadmap and strong financial performance in the quarter gives me great confidence in the trajectory of our business. We continue to see strong demand for our portfolio of products as operators continue to refresh their floors and enhance their offerings to customers. Moving on to SciPlay. We delivered another quarter of record performance, outpacing the social casino market and growing share, a true testament of SciPlay's successful investments and execution of their strategy to enhance core capabilities. Revenue in the quarter grew 18% to $186 million, another record high, once again led by our two biggest gains, jackpot party and quick hit swap, both posting quarterly revenue records. A EBITDA grew 21% to $54 million year over year, driven by strong top line growth. A EBITDA margin was 29% in the quarter, an increase of 100 basis points from the prior year period. We continue to see incredibly strong KPIs across the board, with average revenue per daily average user at 89 cents in the quarter, a record high, and a 20% increase year over year, building on the positive trends we've experienced over the last three years. Average monthly revenue per paying user was at elevated levels of over $97, and the payer conversion rate at 10.3%. SIPLAY continues to expand its current payer base and monetization with existing payer cohorts. In fact, we saw the highest number of monthly paying users setting another record for this quarter. I am thrilled with the execution at SIPLAY as we delivered several records with revenue higher than we anticipated. The investments we began making 18 months ago are paying off as evidenced in the outperformance relative to the market. We will continue to invest in the areas that generate high returns to drive long-term growth, profitability, and market expansion. Turning to iGaming, our proven games and franchise extensions continue to drive the performance of the business as we accelerate launches of successful land-based titles and execute on a regionalized content roadmap. We achieved record revenue of $65 million, a 10% increase year-over-year, primarily led by continued growth in the U.S. market, as well as strong land-based original content launches and scaling of third-party content on our aggregation platform. Wagers processed through our open gaming system increased to an all-time high record of $20 billion. U.S. revenue grew 34% year-on-year, outpacing U.S. GGR growth. Internationally, we saw high single-digit growth in the EU and UK year over year, and we will continue to capitalize on this trend with a mix of first- and third-party content to fuel our growth. A EBITDA also grew by 10% to a record $23 million, reflecting top-line growth. A EBITDA margin was 35%. We will continue to invest in the business throughout the year, bolstering our product portfolio with content, and our live casino offering to drive sustainable growth going forward. With our leading OGS platform, proven content, regionalized roadmap, and expected live casino launch, we are well positioned to capture growth and scale our offering to enhance the bottom line. This brings me to operational efficiency, which remains a top priority of mine. Margin enhancement initiatives across the organization are underway, laddering up to a high-performance culture with a focus on continuous improvement that is core to our DNA. This has been a key initiative of mine since joining the company in 2020, and while we've made great strides, we continue to move forward on additional initiatives to harmonize the organization into a well-oiled machine. As we grow and scale the business, we are investing in allocating resources thoughtfully, particularly in R&D, where we are leveraging our world-class international development centers like those in India and Greece. We're also advancing initiatives to improve our sourcing processes to enhance product margin. For example, in supply chain and logistics, we are optimizing our distribution network. At the same time, we are driving cost savings through value engineering, creating a more efficient and effective R&D platform. And more broadly across SG&A, we are centralizing corporate functions through shared services across the business, driving further integration and efficiency within the organization. That said, we will see elevated corporate costs throughout the year related to legacy litigation and certain legal expenses at SidePlay. While the industry has proven to be resilient, We remain committed to executing on value-enhancing projects as we stay laser-focused on driving profitability, staying agile, and nimble to changes in the macro environment. Turning to the balance sheet and cash flow. At quarter end, we had $1.8 billion of available liquidity, including $931 million of cash on hand. Our strength in balance sheet and highly cash-generative businesses allow us to create a strong cash flywheel. First quarter free cash flow was $74 million, resulting in approximately 30% of free cash flow conversion, as we benefited from lower interest payments and favorable changes in working capital. We are firm believers that free cash flow is one of the key drivers to shareholder value And it remains a top priority to ensure more of every dollar that we generate drops to the bottom line and converts to cash. Finally, as we mentioned on our last call, the second quarter will be impacted by the last divestiture tax payment of $32 million, as well as the timing of interest and regular income tax payments. Overall, our strong growth profile along with a transformation of our balance sheet and the flow through of operational efficiency benefits gives me confidence in our ability to generate strong cash flow as the business scales. Turning to capital management, our philosophy remains the same as we continue to maintain a balanced and opportunistic framework. Our significant debt reduction efforts in 2022 and growing consolidated A EBITDA led to our reported 3.1 times net debt leverage ratio at quarter end, an improvement from 3.3 times in the fourth quarter. We remain committed to staying within our targeted range of 2.5 to 3.5 times. As previously discussed, we are evaluating the appropriate use of proceeds from the sale of our sports betting business. Our debt covenants require us to use the proceeds to invest in the business, repay additional debt, or a combination thereof. We look forward to sharing more about the determination of the best use of these proceeds. We will deploy excess capital in the most value-creating way for our shareholders, and everything we do will be in the context of a healthy balance sheet. Regarding our investment priorities, we continue to align these to the most significant growth opportunities At the heart of this is organic investment in our core capabilities, content, platforms, and adjacencies, which will fuel sustainable growth across the company for years. To the extent we consider M&A, we are committed to driving high ROI to enhance shareholder value and grow our leadership positions. Accordingly, we will remain disciplined, ensuring investments exceed our rigorous financial hurdles. On capital return to shareholders, we've now repurchased $437 million or 7.6 million shares through May 4th this year, fulfilling 58% of our authorization. In the meantime, we remain focused on preserving optionality in the near term to capitalize on potential value creating opportunities in 2023. In closing, Our first quarter results are clear evidence of our ability to build on last year's strong operational and financial results, and we are encouraged by the progress we are making, executing on our strategy to achieve long-term targets. Finally, with our expanding global investor presence, we've bolstered our investor relations platform with the addition of Nick Sangheri as our Senior Vice President of Investor Relations. We'd like to welcome Nick to the team. With that, we'll open up the call for your questions.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. We'll pause here briefly as questions are registered. Our first question comes from the line of Barry Jonas with Truist. Please go ahead.

Hey, thank you so much. And welcome, Nick. I wanted to start maybe diving a little bit more into the Aussie listing. Can you maybe talk a little bit more about the logic and rationale? And I guess how liquid and active do you envision the Aussie listing being?

Yeah, great to have you with us, Barry, and great to have Nick with us as well. So welcome to the team, Nick. Thrilled to have you on board. So yeah, our board has been evaluating a range of strategic alternatives to continue to build shareholder value. And after a thoughtful and deliberate process, we've decided to move forward. As I said in those opening remarks, we think it'll go live sometime in Q2. I personally think this is a natural extension of our strategy. The Aussie market is obviously given my accent, is important to me, but also important to the business from an operating standpoint. As you heard in those remarks, we've risen our share from kind of single digits to 21% in the quarter. We just took a 50% position and a new opening up in Asia. So it's becoming strategically much more important from us from an operations standpoint. I think also from an investor standpoint, it's an investor base that has a deep understanding of the gaming industry. They've had a lot of success in investing in Australian companies. Over the years and over the last few years for us, we've had a lot of inbound from investors in Australia who have Aussie mandates that can't invest offshore. They want to participate in the story. So I think this secondary listing provides that vehicle for them to participate in the light and wonder story. So I think it's an exciting opportunity. I think it underscores the fact that this board and management team continues to look for ways to create shareholder value and value. And that's a thoughtful and deliberate set of actions. But Connie, maybe you want to build on that from a liquidity standpoint.

Yeah, absolutely. Thanks, Matt. And thanks, Barry, for being with us. As Matt mentioned, we're really excited about the strong investor sentiment and the opportunity to participate in the ASX. We know that liquidity and index inclusion are two critical success factors for us. A couple of pieces that I'll just add. The ASX 300 index inclusion cutoff is circa Australian $500 million, and the ASX 200 index inclusion cutoff is circa Australian $1.2 billion. That's about 6% to 15% of our current market cap. And with that, we see index inclusion as an achievable outcome and have a number of levers to pull to get there. We do expect some existing shareholders to transmute shares from the NASDAQ to the ASX. And then on day one, we'll have a respectable number of shares with more to come. And lastly, we're launching an active marketing campaign. Matt and I, along with the investor relations team, will be ramping up some regular engagement with institutional investors, some retail wealth management networks, and also sell site analysts. All of this gives us great confidence in our ability to build liquidity and And I'll just say that what we're really excited about this is another step towards enhancing value for all L&W shareholders. We're also equally focused on our U.S. listing. Thanks, Barry.

Great. That's really helpful, Culler. I guess just as a follow-up, you know, we've certainly heard a lot of talk from operators and competitors about some of the macro uncertainty out there. But from your perspective, maybe can you talk a bit about visibility as we get into the second half of the year?

Yeah, I'll kick that off. And, Connie, maybe you want to build on it. But I think we are very fortunate to work in very resilient end markets. I think sometimes that's underappreciated by the market, just how resilient gaming is. And I think that's evidenced by elevated GGR numbers across both the gaming businesses globally and the iGaming businesses. I think you're seeing up our accretion in these side play results, an amazing set of side play results, honestly. And that's a sign that consumers are willing to pay. I think you're seeing continued reinvestment in gaming floors from operators. So I think, yet again, the industry's proving, even in times of macro uncertainty, that it's incredibly resilient. And we see great momentum in the Q2. But Connie, do you want to build on that?

Yeah, I'd just add Matt talks a lot about our R&D engine, and we're really excited about the product portfolio that's coming out in the second half. We've got COSMIC coming out, a really exciting pipeline building for that. We're excited with live casino and the opportunities there as well, and there's no doubt about it, SidePlay's got great momentum. So we remain cautiously optimistic as usual, but as Matt said, the macro's playing out in our favor at the moment.

Perfect. Thanks so much, and congrats on nice results.

Thanks. Thank you. Thank you. Our next question comes from the line of David Katz. With Jeffries, please go ahead.

Hi, afternoon, everyone. Thanks for taking my question. I wanted to just get some updated thoughts on the ramp to a billion four for 2025. I know it's, you know, quite talked about. And sort of how you feel with respect to your progress there, what we should look for the rest of this year to give us confidence you can get there. And the follow-up, you know, to that is, Just an update on the building blocks, particularly within digital and sort of where we sit today and what that trajectory ramp should look like.

Thank you. Yeah, and thanks for being on the line. I know it's a busy season for you, David, particularly. So yeah, the path to $1.4 billion started with a great delivery of the 22 number. So that was great momentum last year. That's carried over into Q1. We've seen really nice growth numbers top and bottom line across all three businesses. So It's about sequential operating momentum. I think as we move into Q2, we're seeing equal signs of momentum in the businesses. And I think if you kind of break down the businesses one by one, if you look at the social casino numbers, we're clearly the fastest growing social casino company in the industry. There's just no doubt about that, taking share from competitors. And we see continued opportunity as we move ahead into the subsequent quarters. I think if you look from an iGaming perspective, we expanded our share of the US market by a percentage point quarter on quarter. So that shows kind of organically we can grow share by infusing that business with great land-based content. In terms of live casino, we announced last week our first launch partner with Rush Street Interactive. Thrilled to announce today on the call that DraftKings have also signed on as well as Golden Nugget. So we have three... willing supportive partners that are going to help us go live in Michigan. So I think that's a large part of the iGaming market, 30% of the addressable market there and we're going to have a huge business in that market over time. So I think obvious opportunity for us to expand share in those two markets. And then I think if you turn to the gaming business, it's clear in the international markets we've expanded share. Australia essentially doubling share over the last year or so. And then in Asia again, as that market comes back online, 50% share in a new opening. So I think the big opportunity for us in gaming is to grow share in the big North American markets. And I think Isla's reported that we have the number one dual screen in the market again this quarter, as well as the number one mechanical reel product. That's exciting, but they are on a relative basis smaller segments. The biggest segment and opportunity for us is the portrait cabinet segment in North America. And we were due for a refresh in that category. We've just launched CapCosmic. So that's just gone live in April. So there's no cosmic in these numbers. That's all a future opportunity for us. So I think over the next few quarters, you'll see a really rapidly growing sales pipeline of that cosmic cabbage, which will help us take share in these key North American markets. But Connie, anything I've missed?

Yeah, I'd just add that the great news here too is we've got a diverse portfolio of and that allows us to find a number of ways to get to the 1.4. We've really also been focused on a number of operational efficiencies just to ensure that we're driving real profitable growth. And as Matt mentioned, we've got a number of proof points that are really shining through quarter after quarter. We're going to continue that momentum, and that gives us a lot of confidence to get to the 1.4.

And then your second question, David. I'll just touch on that for a second. Yeah, no worries. We're crossing swords there. I'll just touch on your iGaming question very quickly. I think obviously we have a crystal ball around the expansion of markets and everyone has their own version of that crystal ball. So it's hard to predict exactly when those markets will expand, but we know that it will. It's inevitable over time. It's the digitization of every market has happened at a rapid pace and we see gaming following a similar path, although it's hard to predict exactly when it will happen. But what we do have complete control over is expanding our share in the markets that we operate in. And so that's about taking those great land-based titles and infusing them into the iGaming channel. And we're just kind of scratching the surface of that and then capturing as much share of this live casino segment as possible. So that's what we're going to do in the meantime. And as regulatory expansion happens, it's our job to be there and ready to capture the lion's share when those markets come online. And that's what we intend to do.

Got it. Thank you. Thank you for taking my question. You're welcome.

Thank you. Our next question comes from the line of Chad Beynon with McCrory. Please go ahead.

Afternoon. Thanks for taking my question. And welcome, Nick. First, just want to start with cashless gaming. You talked about a couple opportunities, some that you just launched. I believe you said Parks in Pennsylvania. Can you talk about any further acceptance for your product or just the product in general that could kind of get the ball rolling where this could be just a more accepted and normal piece of the gaming experience in the industry? Thanks.

Yeah, thanks for the question. So obviously we appointed a new leader last year in John Wolfe, who's a great technologist, understands the operator side of the equation, and he's kind of investing in this portfolio of bringing cashless solutions We had two key wins that we announced this quarter with Naskilla and Park. So again, that's underscoring the fact that we are seen as the market leader and continue to capitalize on the strength of that incumbency that we have. The IV4 rollout that we're seeing across the install base positions us to be ready for cashless enablement. So those IV4s that are going into the fleet, make sure that when the operator's ready to turn cashless on, that we're ready to supply that. And we're seeing a large ramp in terms of that technology development driven into the install base. Connie, anything you want to say?

Yeah, I'd say I think we're seeing good momentum. We've nearly doubled the amount of cashless enablement technology we have out in the marketplace since last year. And as Matt said, our job is to make sure that we're ready to go once people decide to flip that switch. And we couldn't be more pleased with the progress of having John Wolfe in the business and continue to ensure that we're the market leader.

Yeah, and I think there is like an air of inevitability about this, like the digitization of

gaming but also the digitization of payments across the board consumers expect this so you know I think it's just a matter of time before we see this scale across the casino markets great thank you and then follow up Connie just on on free cash flow you talked about a couple options with the money that that that you brought in after the the sports sale can you hit on any other important items for us to think about, either free cash flow conversion or kind of the bridge to get to free cash flow in 2023. Thank you.

Yeah, absolutely. First, let me just start by saying we're really pleased with the cash conversion that we had in the quarter. It's a real testament to the progress that we're making more broadly. And what I'm excited about is it really just highlights the natural financial profile of this business being highly cash generative. A couple things to note as we move into Q2, we do have the remaining divestiture tax payment of circa $32 million, as well as the semi-annual interest in some of the recurring income tax payments. It's nice to know that, you know, for the first time in a long time, we're going to continue to have positive net income. The result of that is that we will be a full-time cash taxpayer. We expect that effective tax rate to be in the low 20s. But again, I think the core here is that we've got a really amazing financial profile with strong top-line growth, a EBITDA growing at a rate faster than revenue, and importantly, free cash flow scaling at a rate faster than a EBITDA. And we know that free cash flow is a key driver of shareholder value. As the business scales, as you start to see that operational efficiency drop to the bottom line, there's a clear path to seeing continued momentum in free cash flow scaling.

Thank you very much, Connie. Thanks, Matt. Nice quarter. Yeah, you're welcome.

Thank you. Our next question comes from the line of Ryan Siddall with Craig Hallam. Please go ahead.

Good afternoon, Matt, Connie. I want to start with Life Casino. Timeline, kind of G2E, it was talked about kind of late in the year, early next, and That got delayed a little bit, and then it was kind of Q1, you had a conditional license for Michigan. I guess now you're talking second half of the year. Can you just talk through, I guess, the timeline for launching in Michigan with those first couple operators, and then potentially kind of the cadence shortly thereafter in other states?

Yeah, I think great question and fair call out. I think lessons learned along the way, these things take a little longer than you do anticipate, but this is a long game. We're investing for kind of a multi-year payback, I think getting those three operators signed up and supportive deals inked and locked in was a key milestone for us. I would say we're kind of 95% of the way through regulatory compliance. And so we see approval of that happening in Q3 and the business largely operating in that timeframe as well. So more to come over the coming weeks as we get final regulatory approval, but we intend to scale that in Q3 And then the success will come over multiple quarters and years to come.

And then for my follow-up, just curious on capital allocation. Maybe I'm reading too much into slide four, but preserving optionality in the near term to capitalize on potential value, creating opportunities in 2023. That's new verbiage. Curious if I'm reading too much into that or if there's something more to it, if you can elaborate on that. and then secondly, kind of how that relates to your share repurchase program and if there's a change in kind of thought and strategy around aggressiveness there. Thanks. Good luck, guys.

Okay. Thanks, Ryan. I'm happy to take that one. Sure. I think it's important just to, again, step back and think about our capital allocation program more broadly. We were really specific about creating an umbrella in which we – take a balanced and opportunistic approach, and that continues to be our philosophy. At the core of that was ensuring that we paid down debt and created a healthy balance sheet. I'm really pleased that our leverage that we reported in the quarter was at 3.1 times squarely within our 2.5 to 3.5 times range. We've also been executing on our share repurchase program. Circa 60% of that has been complete since we initiated that about 15 months ago. We see that as a long-term value creation opportunity for us. Everything we do will continue to be in the context of a healthy balance sheet, and this is where the sports proceeds play a little bit into that. We know that we have an obligation to either repay down debt or invest in the business by the end of the year, and so creating optionality on those proceeds continues to be important. Rest assured, though, that we are laser-focused and using our capital in order to drive long-term shareholder value just as we've done today.

Great. Thanks for your question. Thank you.

Our next question. It's from the line of David Bain with B. Riley. Please go ahead.

Great. Thank you. I guess first, Matt, I would love to, just based on your experience and just views to date, if there is a small downturn in the macro, how do you view the resiliency of, say, social versus online, RMG versus land-based gaming? Obviously, we have more of a track record to look to with land-based, but I'd just love to get your thoughts.

Yeah, I think it's a great question. I think the last time we had a large macro pullback, the social casino business was really in its infancy. So it's a market that hasn't gone through a large scale pullback like we saw in the global financial crisis. Not that I'm foreshadowing anything happening like that. I think the narrative in the markets is potentially a soft landing. I think where we're at from a strategic standpoint is we have a social casino business that has an up-down of essentially half of the peer leaders. So we have the ability to ask more of players over time to monetize them more effectively. So I think we're in a good position in terms of like we have this natural hedge around Updow that we're able to kind of build business momentum off the back of. I think the gaming business has proven to be resilient through ups and downs in the macro economic cycle. And I think people who have been around the business a long time, like yourself, David, appreciate that and appreciate what that does for the economics of the industry. So we feel... really comfortable that you know if in some sort of shallow recession we're able to power through this I do think you know we had a couple of years there of pretty chronic underinvestment in gaming floors as operators navigated their way through the COVID pandemic crisis so you know I think what what the pandemic showed us was players love to play games and they love to play new games and it's it's the reason they go to these casino floors so I think you know it's critical to the operations of a casino to continue to invest in in their floors I think iGaming, it's been through a few cycles in the Europe and UK. It's a mature business and I think it's proven to be an affordable luxury. The players see this as part of their everyday life. So I think all three businesses are well positioned to navigate through any macro softness. I mean, we're not oblivious to the fact that a huge macro pullback would affect consumers and that affects all boats and industries. But I think If it's a relatively shallow recession that we're able to power right through that is my observation. But Connie, do you have anything to add or subtract?

I think that this concept that players love to play games has held the test of time. I'd also say, though, that we continue to think about various scenarios and so that in the event that things were to change, we're really well positioned.

The health of our balance sheet also just is, we believe, a competitive advantage in as we think about the long term.

Yeah, no, I would agree with you both, and I think it's a resilient industry across the board. But I guess, you know, one more if I could. Connie, the elevated legal expenses, how will that hit the corporate line? Is that something you're going to call out over the next few quarters? And can you give us any sort of numbers to play with just for modeling purposes?

Yeah. Absolutely. What I can tell you kind of in terms of modeling and from a financial perspective, that in 23, we're expecting circa, you know, a $20 million increase year over year in legal fees, which will be included in corporate costs related to the legacy antitrust case. In side play, where we've seen some newly filed arbitrations and lawsuits, We expect about a $5 million incremental cost year over year. Those are likely to be weighted towards the back half. What I'll say is that we strongly disagree with the allegations and we're going to continue to defend our rights pretty vigorously.

Great. Okay. Thanks so much, guys.

Thank you.

Thank you. That concludes the question and answer session. I would like to pass the conference back to Matt Williams for any closing remarks.

As we conclude the call, I'd like to leave you with some key points. Light and Wonder entered 2023 with incredible momentum and a clear strategy in place for future growth. First quarter results confirm we are headed down the right path. A healthy balance sheet, a diverse portfolio, along with an industry that is demonstrating resiliency, puts us in a great position operationally and financially to remain at the forefront. Looking at all the relevant metrics and industry indicators going into Q2, I have great confidence and conviction in the path towards our long-term targets. Our teams are highly motivated and we continue to sense great excitement within our organization. This is our time to shine and we are ready to fire on all cylinders. This concludes our call for today. Thank you for joining us.

That concludes today's conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.