Light & Wonder, Inc.

Hello, everyone, and welcome to the Light and Wonder 2023 Second 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. To register to ask a question, you'll need to press Start followed by 1 on your telephone keypad. I will now turn the call over to Nick Zangari, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to our second quarter 2023 earnings conference call. With me today are Matt Wilson, our president and CEO, Connie James, our CFO, and Oliver Chow, our incoming interim CFO, who will join us for a brief introduction. During today's call, we will discuss our second quarter 2023 results in operating performance, followed by a question and answer session. Today's call 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 and are consolidated statements of operations for comparable prior periods. We are reporting our results of continuing operations in three business segments, gaming, side play, and iGaming. Amounts and disclosures referring to combined include both our continuing and discontinued operations. As a reminder, this conference call is being recorded. A replay of this webcast and accompanying materials will be archived in the investor section of our website. With that, I will now turn the call over to Matt.

Thank you, Nick, and thanks to everyone for joining today's call. We continued our strong performance in the second quarter, closing out the first half of 2023 with outstanding results. I want to thank our talented teams across the globe for their tremendous focus and execution, which continues to fuel growth across all three lines of business. Our strategy and associated investments in the business are yielding results. As you can see, our performance in the second quarter validates the significant progress we are making. with consolidated revenue up 20% year-over-year to $731 million in the quarter, an amazing ninth consecutive quarter of year-over-year growth with each line of business growing double digits again this quarter. Gaming momentum continued with year-over-year growth across all four lines of business. SciPlay and iGaming both achieved record revenue in Avidar in the quarter, allowing us to close out the first half of the year with $1.4 billion of consolidated revenue and 18% growth rates compared to the prior period. In addition to the exceptional financial performance, I also want to mention a couple of other key milestones we achieved this quarter. I'm very excited to share that we successfully listed and began trading on the Australian Security Exchange, or ASX, in May. And we're also targeting ASX index inclusion as we expand our global exposure to attract more investors. Index inclusion has the same benefits as in the US markets, allowing broader placement of our company stock into investment portfolios. The interest from the investment community during our Australian management investor meetings in May far exceeded our expectations. In fact, there are probably some new Aussie investors on this call today, so welcome to the Light and Wonder family. We as a team wholeheartedly embrace the concept of continuous improvement, and our efforts on the CSR and ESG fronts are continuously evolving, both in terms of internal initiatives and external reporting. In this respect, I'm delighted that we recently published our inaugural CSR report, now available on our website. While I'm proud of our various awards, such as being named Employer of the Year in the SBC North American Awards, and taking home the Diverse and Inclusive Team of the Year Award in the Women in Gaming Diversity Award, our dedication to progress remains steadfast. Our commitment lies with the people we serve and the communities in which we operate, ensuring that responsible gaming remains one of the fundamental pillars of our business philosophy. I am also pleased to announce that we've entered into a definitive agreement to acquire the remaining 17% equity interest in Syplay that we do not currently own, with $22.95 per share in an all-cash transaction. Our combined balance sheets will provide us with the flexibility to optimise capital investments to develop and launch great games cross-channel, bringing our world-class teams together for seamless collaboration to innovate and grow as one, and ultimately fostering our winning culture as we deliver on our cross-platform strategy and enhance shareholder value. With a solid foundation and growing momentum, our business is performing remarkably. As we introduce a greater array of exceptional products to the market, I'm thrilled about the future and confident that our focus strategy will drive sustained success, a strategy which revolves around the release of great games across all three businesses. Now let's turn to the business highlights. We continue to build on our strong foundation in our gaming business, capitalising on new games and franchise extensions with new hardware and product capabilities. Our recent performance is a testament to our significant progress, with the COSMIC and Cascada slant cabinet launches driving momentum in the quarter. In gaming operations, we continue to grow our North American premium units for the 12th consecutive quarter, now representing a record 47% of our North American in-store base. The optimisation of our fleet and game performance is driving our increase in North American and international revenue per day as we solidify our position as a premium product supplier to our operator partners. We continue to see our games and franchises such as Ultimate Violent Cash Falls and Journey to Planet Moolah performing extremely well, and our new games are being met with great enthusiasm, including Monsters Frankenstein from Studio X, debuting as the number one wide-area progressive game on the ILS chart. Ted Harsey's Studio X is a great example of our R&D investments delivering success. To that extent, we'll see more great games and franchise extensions such as Double Dragon and Monsters Dracula coming out of Studio X, further bolstering our game-ups roadmap on the Cosmic. The Cosmic cabinet is scaling faster than two of our most popular cabinets, the J43 and Cascada Portrait combined, within the first two months of their initial launch. With respect to our dual screen and stepper slot offerings, both Cascada dual screen and Landmark 7000 held onto their number one spot on the iOS charts, backed up by top performing brands, Dufu Dukai and Blazing 7, with Lion Link and Quick Hit extensions expected to launch later this year. In game sales, where we continue to demonstrate strong product momentum, shipping over 9,100 units globally with quarterly revenue growth of 41% year on year, replacement sales was a highlight, with North American and international sales exceeding 2019 second quarter levels. In Australia, the breadth and depth of our portfolio enabled us to once again achieve over 20% market share for the second consecutive quarter, demonstrating our commitment to R&D investment, delivering sustainable growth in this important market, underpinned by key titles, Dragon Unleashed and Thunder Drums, as they continue to outperform. We're also very excited about the launch of Emma Charles Staff Studios first product, Dragon Train, later this month at AGE. Turning to systems, we continue to maintain our leadership position in the industry through innovation and enhanced capabilities. Recently, we've bolstered our cashless functionalities with partners, integrating our unified wallet as well as our table games cashless solution. With new regulatory developments and responsible gaming initiatives internationally, we are well positioned to capture these opportunities as they materialize. In fact, we see solid demand for our cashless enablement iView hardware as we continue to enhance our value proposition to operators through expanded solutions. Another example is our loyalty offering Engage, which just went live with a partner operator in Atlantic City, and we have several Engage installations scheduled for the remainder of the year. Our systems business is gaining renewed interest from our operator partners. We will continue to solidify our leadership position with several innovative initiatives, providing operators with a data-driven system solution, which further enhances player experience as LAN-based and online gaming converges. Lastly, in tables, we delivered a solid quarter with outside sales of our market-leading table game utilities products. Our proprietary table games offering continues to demonstrate brand excellence with the growing table games progressing in store base and increased vault subscribers. In fact, a large Australian casino operator recently signed on as our latest partner, given our strong product offering. Overall, we are very pleased with the rollout of our new products and their initial performance. The progress we see in the adjacent BLT markets is evidence of these investments we've made in R&D and the best is yet to come. We expect our robust product portfolio to carry this strong momentum throughout the remainder of the year. Moving on to side play where we continue to set new records, taking share and outgrowing the market with yet another outstanding quarter of 19% year-over-year growth on record revenue over $190 million. Jackpot Party, Quick Hit Slots and Goldfish Casino all achieved quarterly revenue records and outpaced the market in the quarter. Once again, solidifying Sideplay's competitive lead in the industry with carefully planned market penetration strategies and engaging content driven by a robust Sideplay engine. With Light and Wonder's library of proven content and our Sideplay engine driving monetization, we achieved another record average revenue per daily active user of $0.93 in the quarter. demonstrating the true power of brand loyalty across all of our channels. Once again, validating that our businesses are complementary and better together. In fact, the SidePlay engine is now deployed across all of our social casino games, enabling us to further enhance and personalise player experiences. To drive sustainable growth going forward, we're also making continued investments in areas such as data and analytics, plot development, ad tech, marketing innovation, our direct-to-consumer platform, and new games. We are very pleased with the trends and progress we see at Sideplay. The team has done an exceptional job investing prudently and improving returns on user acquisition. We are just scratching the surface on our full potential and have more runway to optimise player experiences and maximise growth opportunities. The strong Sideplay results demonstrate the investment benefits we've made in the business, as well as the team's strong executions. This seamless collaboration with SciPlay over the years is truly reflected in this quarter's performance. Turning to iGaming, where our leadership position and experience in the industry propelled us to record top and bottom line performance in the quarter, with 17% year-over-year growth on record revenue of $70 million. Our industry-leading OGS platform saw record GGR in the quarter, with growth across all regions, led by the increased volume of our original LAN-based and digital-native games. US GGR and OGS was up 25% year-over-year, led by our evergreen Ultimate Firelink and 88 Fortune franchises, as well as expansion of our third-party network. Over 70% of the top 20 games in the US on the OGS are light and wonder proprietary content, as players continue to show their affection for our game. Internationally, Canada OGS GGR grew for the seventh consecutive quarter, as Ontario was up 84% year-over-year. In the EU and UK, OGS GGR was up 14% on the strong launch of Monopoly Money Grab and performances of Pirate, Metropolis 4 and Rabbit Royale. We also entered the Switzerland market in the quarter, another step in expanding the Light & Wonder global footprint. The scale of our content aggregation platform continues to drive record revenue at Elk Studios with growth of 86%, achieving its fifth sequential quarter of growth since our acquisition of the business. Lightning Box also grew 39% year over year and outpaced US market growth by approximately 1.7 times in the quarter. Additionally, we have exciting developments with PlayZero launching in Canada in the quarter and now provisionally licensed in Michigan. Our live casino offering is also entering soft launch stage in Michigan and we recently added a new operator partner in Sky Betting and Gaming in the UK with our first ever live game show. The recent legalisation of iGaming in Rhode Island is another important step for the industry. Light & Wonder is strategically positioned at the forefront of the market with a leading iGaming ecosystem and a full suite of product offerings ready to capitalise on opportunities as they arrive. We've talked about our three businesses and how they're performing. With our scale and investments in R&D, we'll be able to take advantage of new growth opportunities across platforms. unlocking the full power of our R&D through enhanced collaboration in research and increased game development efficiency through A-B testing. With our announced agreement with SciPlay, the teams will be working even more closely together, further fueling our cross-platform strategy, driving high hit rates for our games with our industry-leading expertise and platforms. The investments we're making follow a methodical approach to ensure that each dollar spent will contribute not only to enhanced performance but also to an engaging game experience for our players. Additionally, we've made significant progress in bringing our cross-platform vision to life, launching more content across our three businesses than ever before in the company's history. We're excited to showcase our innovative products and robust portfolio at the upcoming AGE and G2E Expos. One of the highly anticipated games is Dragon Train, which is prime for the Australian market, and we are already hearing great feedback from operators. We also have other surprises in store for the upcoming expos, and I'm looking forward to seeing many of you there. Light and Wonder is riding incredible momentum, driven by a clear roadmap and a harmonized strategy designed for sustainable growth. Our industry continues to demonstrate resilience based on operator sentiment. That said, we will always take a prudent approach to managing our business with a healthy balance sheet and a diverse portfolio backed by a robust R&D engine. Before I hand the call over to Connie to discuss our financial results, I'd like to thank her personally for her contributions to the company and for providing the leadership required to help us flawlessly execute our recent transformation. I've worked with Connie for a good part of my career, and I can tell you her dedication is second to none. She has been an important part of the success here at Light and Wonder, and I will truly miss her and what she brings to the table. At the same time, we're in capable hands with our interim CFO, Oliver Chow, backed by a strong finance leadership team, many of whom she's mentored over the years. This provides us stability and a seamless transition as we continue to march towards our 2025 1.4 billion AIDIBDAR target. Now I'll turn things over to Connie.

Thank you for the kind words, Matt. It has been an honor and pleasure to serve as the Chief Financial Officer of Light and Wonder. Working with this incredible team has been a defining moment in my career. I am proud to have been part of such a diverse and capable organization. as well as the many accomplishments during my three and a half year tenure. This includes creating a more focused business strategy and executing the necessary steps to transform Light and Wonder into the leading cross-platform global games company. Importantly, with the transformation over the past two years, the business is positioned for success. We are no longer burdened by an unfavorable capital structure after paying down a significant portion of our debt. In fact, Our principal face value of debt was approximately $3.9 billion, and our net debt leverage ratio was 2.9 times at the end of the quarter, the lowest level in the company's recent history and well within our target leverage range. Our healthy balance sheet puts us in a privileged position to pursue a proactive and balanced approach to grow all of our businesses, underpinned by a rigorous financial discipline that has become the new standard for this team. We have also returned significant capital to shareholders by executing approximately 58% of our $750 million share repurchase program at the end of the quarter. And most importantly, we did what we set out to do, invest in the business to drive sustainable future growth. These investments, along with our strategy and execution, have once again been validated by the strong performance we reported in the quarter. The strength of our financial profile is on full display. as reflected in our year-to-date 2023 results, with double-digit revenue growth across each of our businesses, an A EBITDA significantly outpacing revenue growth. Second quarter consolidated revenue increased 20% to $731 million, a continuation of the strong growth trend we saw last quarter, as year-to-date revenue grew 18% to $1.4 billion. Operating income was $113 million in the second quarter, an increase of 146% year-over-year. Consolidated A EBITDA growth 33% to $281 million for the quarter, once again driven by double-digit top-line growth across all businesses and margin expansion. Year-to-day operating income increased 150% to $250 million, and A EBITDA increased 28% to $529 million. Consolidated A EBITDA margin was 38% compared to 35% in the prior year, an increase of 300 basis points, both in the quarter and for the first half of the year, evidence that we remain committed to driving sustainable growth while also maintaining healthy margins through various cost reduction initiatives. Consolidated operating cash flow was $34 million in the quarter, primarily due to revenue and earnings growth coupled with lower interest payments partially offset by the final cash tax payment of $32 million related to the divestitures and $7 million of professional service fees associated with the ASX listing. Prior year cash flows impacted by costs associated with the strategic transactions and accelerated interest payments related to the debt pay down and refinancing. As Matt mentioned, we successfully listed on the ASX during the second quarter, and it was really well received. With our new listing, we provided a new non-GAAP financial measure, adjusted MPAT-A, for net profit after tax adjusted to exclude the amortization of acquired intangibles and other significant non-operating, non-core ongoing business items. This non-GAAP measure is provided as supplemental information and is fully described and reconciled in our earnings release on page 17. Adjusted MPAT-A for the first half of 2023 was $179 million. Now turning to the business unit. First, in gaming, we saw continued momentum with an uplift across all lines of business compared to the prior year. Revenue in the quarter grew 21% year over year to $471 million, led by another solid quarter of game sales growth of 41%, with systems and tables also growing 20% and 34% respectively over the prior period. A EBITDA once again outpaced revenue growth, up 30% to $233 million, and A EBITDA margin increased 300 basis points to 49% compared to the prior period. Results were primarily driven by favorable product sales mix of increased systems, hardware, and tables, as well as continued focus on operational efficiencies. In gaming operations, revenue grew 2% year-over-year as we continue to optimize our fleet by deploying high-performing games onto casino floors. with North American premium install base units having increased 6% compared to the prior year. Additionally, our North America revenue per day rose above $47, an increase of 4% year over year, a testament to the strength of our gains and the benefits realized through our R&D investments. Global game sales continue to be a key driver for the business. As revenue and units shipped, we're both well above 2019 and 22 second quarter levels, with North America replacements reaching 4,600 units, one of the best performing quarters since I joined the company. It's also worth noting that we again achieved over 20% in shares in Australia for the second quarter in a row, maintaining the strong momentum we saw earlier in the year. Turning to systems. We achieved a 20% revenue increase, driven by an uplift in our services revenue as we continue to expand our recurring revenue stream, coupled with strong hardware sales in the quarter. We continue to integrate our system solutions portfolio with enhanced capabilities, enabling us to solidify our leadership position in this space. Lastly, in tables, revenue was up 34%, primarily driven by the timing and pent-up demand for our utility product sales in the quarter. in addition to the strong recurring revenue stream of this business. We continue to be focused on executing strategic initiatives that will fuel sustainable growth. While we are still in the early innings of optimizing our product roadmap, we are already seeing strong financial performance, and I am encouraged by the business trajectory that we continue to innovate and commercialize best-in-class products to our operators and for their customers. On to side play. The momentum continues with another quarter of record performance, highlighted by growing share to over 10% on the back of the successful investments we made 18 months ago. Revenue in the quarter grew 19% to $190 million, driven in part by the quarterly revenue records from our three biggest gains, jackpot party, quick hit slots, and goldfish. AEBIT was up 44% to $59 million year over year, underpinned by strong revenue growth and lower UA spend. A EBITDA margin increased 500 basis points compared to the prior year to 31% in the quarter, a reflection of our disciplined and productive UA spend and the outcome of our strategic investments leading to the performance and growth you are seeing today. That said, we expect that there will be pockets of opportunity to drive incremental high return UA investments in the second half. And as a result, we'd expect to see a moderation of margins for the remainder of the year as we continue to focus on long-term growth. We continue to deliver strong monetization metrics across the board, with average revenue per daily average user of 93 cents in the quarter, another record high, and a 26% increase year over year, demonstrating our progress to close the gap with industry-leading peers. Average monthly revenue per paying user surpassed $102, a 12% increase year over year, and payer conversion rate reached an all-time high of 10.5%. Importantly, Sideplay's continued focus on its players is a key driver of success, and we continue to trend well above 600,000 monthly paying users. With Sideplay's track record and prowess to execute its strategy, we continue to make timely investments to drive market expansion and take market share. Turning to iGaming, our robust content roadmap and game launch strategy continues to drive the momentum we're seeing in the business. We achieved record revenue of $70 million, a 17% increase year-over-year, led by continued growth in the U.S. market, as well as strong land-based content launches and the scaling of third-party content on our aggregation platform. Wagers processed through our open game system were $20.7 billion, another record quarter. U.S. revenue grew over 32%, both in the quarter and year-to-date compared to prior periods, both outpacing U.S. GGR growth. Internationally, we saw upside in the quarter driven by the continued ramp of GGR in Ontario, Canada, new third-party integrations across operators, and successful original game launches in the EU and U.K., A EBITDA increased 14% to a record $24 million in the quarter, primarily driven by our strong revenue growth. A EBITDA margin was 34%, benefiting from scale while also investing in content and our live casino products. We are well positioned to capture growth and scale our product offering with the leading content aggregation platform and live casino launch, complemented by the breadth and depth of our GAINS content portfolio. Operational efficiency is ingrained in our DNA, and over the past few weeks, I've been collaborating actively with my colleagues to ensure a seamless transition. The work to integrate various facets of our business and eliminate redundancy continues, as we are constantly evaluating areas to drive continuous improvement as the business scales. As you saw in the quarter, the supply chain and sourcing initiatives that we previously implemented were vital to the margin expansion in our gaming business. Additionally, we are better optimizing our world-class international development setups with a clear focus on harmonizing the R&D engine of our business, guided by careful and strategic analysis. This allows us to stay nimble and responsive to evolving market conditions. We will continue to centralize functions across the business units and corporate level, driving further integration and efficiency within the organization. As I mentioned last quarter, we expect to see temporarily elevated corporate costs in the second half of the year related to legacy litigation. Our commitment to executing on value enhancing projects remains unchanged as we stay laser focused on improving processes and driving sustainable long term profitability. In addition to our operational focus, we have a transformed balance sheet and a strong liquidity profile with approximately $1.8 billion of total available liquidity, including over $900 million of cash. On to free cash flow, where we reported the first half consolidated free cash flow of $98 million. Second quarter free cash flow of $24 million was primarily impacted by the final cash tax payment of $32 million related to the divestiture of and $7 million at professional service fees associated with the ASX listing. Free cash flow remains a top priority as we continue to ensure that more of every dollar converts to cash. Overall, our strong financial profile and the flow through of operational efficiencies are expected to result in improved cash flow in the second half of the year and beyond. Turning to capital management, our balanced and opportunistic framework remains steadfast. First and foremost, we are committed to maintaining a healthy balance sheet and staying within our targeted net debt leverage ratio range of 2.5 to 3.5 times. With the continued strong performance of the business, we ended the quarter with leverage down to 2.9 times. With our announced agreement with SidePlay, we expect to remain well within the target leverage range. As a reminder, an added benefit of closing the side play deal is that the use of sports betting proceeds qualifies as an investment under our debt covenant, eliminating the requirement to pay down any additional debt by the end of the year, providing us with the flexibility to advance our capital allocation priorities. As we've done today, we will focus on organic investment, mainly R&D and CapEx, leveraging our core capabilities to enhance long-term sustainable growth. and bolster our industry leadership positions. Returning capital to shareholders remains an important pillar of value creation, and we continue to be opportunistic by capitalizing on dislocations in the market. We will continue to take a disciplined approach to M&A as we've done today, only deploying capital to the extent projects exceed our rigorous return threshold. We have been effective at driving a robust and accretive capital management strategy, and we will continue to deploy excess capital with an approach that maximizes value for our shareholders, all in the context of a healthy balance sheet. In closing, as I near the end of my tenure with the company, I leave light and wonder in a fantastic financial position with an abundance of talented individuals, an exceptional portfolio of assets, and a passion for global gaming. The team is well positioned for continued success, and I look forward to seeing all the great things that they will accomplish. I am proud of this team and know that upon my departure, our incoming interim CFO, Oliver Chow, with whom I have worked with for many years, will handle this transition seamlessly. And with that, I'd like to hand it over to him for a few introductory remarks before Matt and I go into Q&A.

Thanks, Connie. First off, I just wanted to thank you again for all your support over the years. You've been an incredible leader and more importantly, a friend to all of us here at Night in Wonder. You will be missed and we wish you nothing but happiness and success in your next chapter. That said, I am humbled and honored to be side by side with such an incredible team across the organization as we work through this transition. We will work tirelessly to execute against our commitments and goals. As Matt and Connie both mentioned, we have great momentum across the business and we will continue to execute on our disciplined investment strategy focused on high returns, while also driving efficiencies across the organization. I'm excited about the journey ahead and look forward to our investor event at AGE in Sydney to meet some of you and highlight our strategy for sustained long-term growth. With that, I'll hand it back to Matt and Connie for Q&A.

Operator? Thank you.

Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone key. Our first question comes from Barry Jonas from Truist. Barry, your line is now open. Please proceed.

Thank you. First off, congrats, Connie. Just wanted to wish you best of luck in your new role. With that, Matt, maybe talk a little bit more about the SidePlay transaction, how you think about the benefits of owning 100%.

Yeah, thanks for the question, Barry. Yeah, exciting news to break. I'm sure there's a lot of SidePlayers and Light & Wonder team members on the line and just want to say to them, what a fantastic quarter. So thanks for everything. that you've done, we're excited to bring Syplay back into the house, into the family in totality. Obviously, we've laid out a clear strategy around being the leading cross-platform global games company. A big part of that is how we utilise Syplay in the portfolio to make sure we're making very disciplined R&D decisions. We've started at the surface AB testing games and surveying the Syplay consumers, but having them as a more integrated part of our portfolio really unlocks that unique benefit. There's not a lot of players in the industry that have the unique collection of assets that we have, the land-based business, the leading iGaming position, and then the fastest growing social casino company. So unlocking that full potential about building the world's greatest product was key to bringing Siteplay back into the family. There was also some limitations on how we deploy capital under the operating structure that we had in place prior to this deal getting closed, hopefully in the fourth quarter. in terms of how we could best utilize the cash on the side play balance sheet. We consider ourselves thoughtful capital allocators. We want to make sure we're putting our capital behind the highest return opportunities possible. And so bringing them back into the family, into the fold in totality, just gives us ultimate flexibility about how we deploy capital. So excited about the announcement. We're in a definitive agreement. We expected a closing in Q4, but this is really the last big milestone for us. in terms of kind of streamlining the platform. And now for us, it's really about getting on, executing, and continuing to put back-to-back quarters like the one we were announcing here today.

That's really helpful. And then I guess following the side plate transaction, how are you thinking about the leverage and leverage targets within capital allocation priorities?

Yes, for us, our range has been mandated by the board, so nothing really changes there. We have this range out there at $2.50. to three and a half times. I think the thing that I like most is if you think about sequentially over the quarters, if you think about Q4, 22, we were 3.3 times levered. Q1, we announced 3.1. Q2, 2.9. So you can just see the quality of the business assets coming through and the cash-generative nature of the portfolio we've put together. But Connie, do you want to just touch on how this kind of evolves over the coming quarters?

Yeah, I'm sure happy to do so, Matt, and great to be with you, Barry, and thanks for the kind words. I think just a couple builds on that. We also wanted to highlight that even upon the completion of the side play deal, we expect to be still well within our targeted leverage range of two and a half to three and a half that Matt mentioned. And also more broadly, I think the exciting thing that you're seeing today in our results is we just have this business that we know as it continues to scale, you're going to see more and more cash flow generated. which is just going to allow us to naturally deliver. So we're really excited about the momentum, the cash generation that's coming through, and importantly, seeing leverage come down over time naturally.

Great. Nice print-in. Congrats again, Connie.

Thank you.

Our next question comes from David Katz from Jefferies. David, your line is now open. Please go ahead.

afternoon everyone thanks for taking my questions uh all the best as well connie um i i wanted to ask about the um the strategy around the australian listing um you know how has that gone has it done what you expected to do and you know and in particular i think one of the points that comes up is its liquidity and and how we might expect to see that evolve over time yeah hey david thanks for being with um

I think it's gone beyond our wildest expectations, if I'm honest, not to be too hyperbolic, but we pursued this strategy with great consternation. We wanted to make sure it was the right thing for our shareholders, both domestically here in the US, but also for the new shareholders. In Australia, we did an NDR in May down in Sydney, and it was very, very well received. I mean, the amount of investors, potential investors that we met with, was outstanding. And I think you're seeing that show up in the number of CDIs that we have on the Australian exchange today. It's over a billion dollars in AUD of light and wonder stock traded on the ASX, which is far in advance of where we thought would be at this time. Liquidity is building nicely as the month passed. So we feel like where the levels are at today in terms of the market capitalization on the ASX and the liquidity that's building puts us in the range for ASX 300 inclusion. which we think will be another tailwind for us, makes us more relevant to more investors in Australia, provides a natural tailwind as we start to get into more investors' portfolios over time. So three months in, I think we're well ahead of our own expectations. Obviously, more to do. We're going to be in Sydney next week in front of the investors down there talking about the story. I mean, I think what's really interesting down there is investors in Australia really understand the segment. And so investors love nothing more than a category that they really understand. And clearly they're interested in the light and wonder story and that's showing up in the results.

I've had the same experience. I wanted to follow up, please, just on share purchases. I know, you know, Connie, that's been an important part of the capital allocation structure. And I'd love to just get a sense, Matt, if that's something that you expect to continue and any further color on timing, magnitude, philosophies, et cetera.

Yeah, I think Connie will touch on this in a minute, but our capital priorities stay intact. We still think share buybacks at these levels are interesting for us. We're very convicted about our strategic outlook, and we feel like as we continue to put sequential back-to-back quarters like the one we were announcing today in the market will realize that and the share price will trade higher. So where we're at trading at today, there's still significant ROI on a share buyback. But Connie, anything to add?

Yeah, absolutely. And hi, David, great to be with you. I just echo really what Matt said that our share repurchase program, to your point, has been a real key tenant of our capital management strategy and it continues to be. We're about halfway through our three-year $750 million authorization and we've kind of brought back about 8% of the common stock since the initiation. And we know that based off that average price, we've just created tremendous shareholder value. So we're excited about it. As Matt mentioned, our capital management strategy remains intact. We know that with excess capital, we've got lots of ways to drive significant value through our share repurchase program, through organic growth, and continue down that ladder that we've outlined before.

Thanks very much. Nice work.

Thank you.

Our next question comes from Chad Manen from McGuire. Chad, your line is not open. Please proceed.

Afternoon. Thanks for taking my question. And Connie, best of luck and nice working with you. I wanted to start with just kind of where the numbers are for this year. Matt, I know you reiterated the $1.4 billion for 2025. Looking at this year, I know you're not giving guidance, but you've generated $530 in the first half of the year. I know normally the fourth quarter is pretty strong for you guys and for the industry. Outside of the one-time kind of corporate expense in the back of the year, Is there anything that would stop you from having a larger second half of the year versus first half, given the momentum, given everything that we're seeing in the market, and given the normal seasonality of the business? Thanks.

Yeah, this is how you give guidance without giving guidance. So we're not going to give any forward-looking statements on the second half. All I will say is looking in to the lead indicators, things are very positive in terms of the end markets in which we operate. We've got a great lineup of products across all three business units. So we back ourselves to continue to take share in markets. And to the extent that our customers and players remain buoyant, then we'll be the benefactor of that. But it certainly has been an amazing first half. And we're seeing some really solid underlying momentum across all three businesses. I mean, that's the quality of this result. It's all three businesses and it's all business lines. So we're firing on all cylinders at the moment and we expect that to continue into the second half.

Okay, thanks. Yeah, appreciate that. And then I wanted to ask about LiveDealer. This is something that we talk to clients a lot about, and I think people really believe in your IP, your approach. It's taken a little longer to get up and running, but do you guys still have the same optimism and expect for for the same demand once you can launch and kind of scale into other markets when you launch in the back half of 23?

Yeah, look, we're disappointed with how long it's taken, to be honest with you. Probably underestimated some of the pathway to regulatory compliance. We are in compliance now and we're in soft launch in Michigan. So, yeah, expected to be here a few quarters ago, but the long-term approach is still intact. You know, our thesis is still very solid. We have the same conversations with operators that you do. They're looking for competition in this category. We have all the tools required. So, yeah, expect us to come online here in Michigan this quarter and accelerate from there. We'll be thoughtful about it because it does take time to scale that. We want to do it efficiently in a way that kind of takes us on that pathway to the commitments we've made to investors around our 2025 targets. But yeah, the thesis is still intact, taking a little longer, but we're right on the doorstep of this thing coming online in Michigan.

Thanks, Matt. Great execution by you and the team this quarter. Appreciate it. Yeah, thank you very much.

Our next question comes from Ryan Sigdal from Craig Hellam. Ryan, your line's not open. Please go ahead.

good afternoon guys this is will on for ryan uh congrats to connie and thanks for taking our questions maybe just one for us so within gaming ops curious if you could provide an update on premium leased market share maybe some recent trends and with that do you think the share gain opportunity is bigger within the existing portfolio gaining more floor space or is it adding new products in new categories yeah great question i think um yeah when we joined

what was scientific games in 2020, we really identified premium gaming ops as being a significant growth driver for us over the long-term horizon. We'd been in sequential decline in that category for quite some time. I think the effort, the intensity, the investment that we put into the category, we've been able to grow for 12 consecutive quarters now, which was kind of unheard of when we first joined the business. I feel really convicted about what we've been able to do there and you know, the pathway to continue that is clear and apparent to me. We just launched the Cosmic Cabinet into the premium gaming operations fleet. We talked about this with investors in Australia. We've been talking about on these earnings calls about the investment we've made in Ted Harsey and Studio X. And lo and behold, his game went straight to number one. Frankenstein's the number one game in the WAP category, which is just really, really exciting. That's the most competitive segment in the gaming landscape. So to have, you know, Ted Harsey Ted's investment, his effort, his energy, his entire studio really working at the peak of their powers is very exciting. There's a lot more games coming from that studio and studios across the business. So we're just starting to build the momentum. We feel like the second half should show up in better net ads in Q3 and Q4 as more Cosmic go out into the fleet. So we're feeling really good about the deployment of that product and the investments we've made in incremental talent. So that's how I would think about it. I think that's underscored by the expansion in RPDs in the quarter. You can see 4% year-on-year growth in RPDs. That's a testament to better games, more games in the premium gaming ops install base really kind of driving that category for us. So we're just getting started. I know it's 12 consecutive quarters back-to-back, but we're in the early innings of us continuing to expand our gaming ops fleet.

Great. Thanks for the color.

You're welcome. Our next question comes from Rowan Gallagher from Chardon. Rowan, your line's not open. Please proceed.

Thank you. Firstly, Connie, congratulations on your time at Light and Wonder. I know it's an interim capacity, but what a great legacy to hand over the baton to the OC. So I wish you and your family all the very best. Now, Matthew, good afternoon to you, sir. For me, one of the key highlights is the margin expansion, not across just one, but across all three business units. Can you unpack that for us? I'm particularly interested in whether it's a function of product mix, or more importantly, around the US $100 million tailored cost savings you've got. Any updates on that would be greatly appreciated. Thank you.

Yeah. Hi, Rowan. Nice to hear an Australian accent on the call. I'm sure there's a lot of Australian investors who are joining us for the first time, so welcome to the Light and Wonder family, we're going to do great things together over the coming years. I think the margin expansion was a highlight of the result. You know, seeing that top-line growth was impressive, but seeing that kind of flow through to Avidar and the margins that we're getting across the business is impressive. I think it's a combination of, you know, that RPD expansion in gaming ops. You know, we are doing a lot of things on cost optimization just to make sure that we're taking all the opportunities that we have I thought the margin in SciPlay was very impressive, and that's really a function of the SciPlay team being very frugal with their investments in UA, making sure that the UA that they spend is really going to drive a return. So I think that was an impressive part of the result. But, Connie, anything I've missed?

Yeah, I think just to echo a little bit of what you've said, you know, it's great to see all of the effort we've put into operational efficiency over the last few years really paying off. If you actually unpack that gaming business and you go line by line, product by product, you're seeing margins that I haven't seen in a really long time, which is just great because that means it's sustainable going forward. InsidePlay, again, to your point, They continue to remain disciplined about how they think about UA. And more broadly, their business is growing. And we know these digital businesses naturally scale very profitably as they continue to focus on growth. So an amazing result. I think we're really excited also just as you move forward to deliver healthy margins. We know margin expansion and sustainable profitability is a key focus. And I know that'll be a drumbeat that continues.

Fantastic. Thank you. A follow-up, if I may, Matt. We've seen replacement demand super strong across all the industry at the moment. What are you hearing from your casino customers in terms of how sustainable is that replacement demand?

Yeah, we get the benefit of going after them largely when it comes to our earnings report. So we're able to hear from operators about the health of their business. I think particularly in the U.S., their business is holding up very, very nicely in the face of the macro conditions. I think this is a function of them being part of the experience economy. If you look at airlines, you look at hotels, you look at restaurants, people are out and consuming in a big way. And I think that flows through into the gaming industry. So I think the end market's really healthy. I think also, you may have heard me say this before, but we are coming off the back of about two and a half years of pretty chronic underinvestment. in capex slot machine replacement. So 2020, there was very little capex spent for all the obvious reasons. 21 was about 50% of normalized levels. And then it was really the back half of 22 when we started to see things get back to what was nearly normalized levels. I think 2023, it looks like it's above 2019 levels in terms of the replacement market. And I don't see a need for that to change. I think our conversations with operators, they're steadfast around continuing to invest in what is the engine room of their business. Players go to casinos to play games. And so they want to have the best, the freshest product on the floor. So I think, you know, the combination of a really healthy end market for operators and a few years of underinvestment, I think sets up really nicely for the supplier side of the market.

Fantastic. Thanks, Matt.

You're welcome.

Our next question comes from Jeff Stantil from Stifle. Jeff, your line is now open. Please go ahead.

Hey, good afternoon, everyone. I'll start off here by echoing some of my peers and say best of luck, Connie, on your next endeavor here. Thank you. Maybe just starting off on the ongoing search, not the front-run anything here, but Matt, could you just expand on what the board is targeting in CFO candidates as they conduct the ongoing search process?

Yeah, absolutely. So it's been a pretty amazing three years at Scientific Games slash Light and Wonder. I kind of put it into four chapters. The first chapter was really about a change in ownership and a change at the board level where Jamie came in as the chairman of the new set of investors. That was the first chapter. The second chapter was really about kind of lining up our strategic priorities and figuring out which pieces of the portfolio fit together. selling off some non-core assets in lottery and sports, as you know. That was the second chapter. The third one was really about getting those divestitures over the line. There was a lot of hard work from the corporate teams, you know, kind of reconstituting the operating model and just getting the platform set up for success, which leads us to the fourth chapter, which now really is about getting on and executing against the strategy. That's really what we're looking for, someone who can be, you know, my two IC in driving and operationalizing the strategy. So, That's what we're looking for. Oliver's obviously a keen candidate. He's done a lot of that in his history here. He's known to us. He's at Aristocrat for five and a half years, so knows the gaming space really well. But we owe it to investors out there to get the best candidate, and so that's what the search will entail. We've partnered with a leading search firm, so we'll run the process. In the meantime, it's business as usual. So Connie leads behind a very, very capable set of leaders in the finance team. We have a core value here of winning as a team, and none of this happens with one person. So it is really a group of people that have been behind the scenes driving kind of the finance organization, and they're intact. Connie's off to do other things, and we wish her all the best. She leaves a friend of the family. But we've got a great team intact, and we'll take our time to find the right candidate with an obvious consideration.

Great. That's really helpful. And then just for my follow-up, You're on your growth in the iGaming segment accelerated quite nicely. Can you just expand on this acceleration a bit more? You provided some disclosures on market-level growth earlier on, but looking at it a bit differently, I guess how much of this is being driven by market growth? How much is market share gains? How much is expansion of new markets? If you could just sort of unpack it and rank or some of the key drivers that way, that would be really helpful. Thanks.

Yeah, I think it starts with a very healthy market. So we saw sequentially North America expanding. I think Ontario was a highlight in the portfolio. So we have seen some great kind of resilience in the end market and expansion over time. So there's some rising tides there in terms of that flowing through to our P&L. But also I think you're starting to see our strategy really hit its stride. And so this is the idea of taking more land-based content into the digital channel. We're We're very well positioned as really the only supplier with great land-based content that has years, decades of franchises that players are familiar with, with the combination of great digital native content as well with Elk and Lightning Box really producing some of the best digital native content in the market. So this combination of amazing land-based legacy content flowing through into the iGaming channel and these acquisitions that we've made in Elk and Lightning Box are really powerful and we're You know, we're getting that to scale now. You'll see more games in the second half. So I think that will underscore share gains in the backup. But we feel, you know, really fortunate that we made the investment in this category, you know, many, many years ago. We bought NYX back in 16, 17 timeframe. And with that came just a wealth of knowledge, a team that knows how to get games out at scale. They understand the category better than anyone. So, you know, we're the benefactor of that. And they're a very important part of our team.

Great. Thanks very much, and nice quarter.

Thank you very much.

Our next question comes from Joey Stauff from CISKEANA. Joey, your line is now open. Please go ahead.

All right. Thanks. Good afternoon, Matt, Connie. I wanted to follow up maybe with a question on your North American game ops in particular. Trying to understand, I know you have been trying to kind of switch out some of the lower yielding machines out of the install base and just wanted to ask about where you are in that process and, you know, when do you think, you know, you'll kind of finish out likely, you know, switching out some of these lower yielding boxes out of there? And then I have one follow-up, please.

Yeah, I think we consider kind of three major drivers of our investment, organic investment in the business. It's really R&D to make great games. It's UA in the social casino business to acquire great players with a high return on investment. And the third thing is CapEx, and a big component of that does go into gaming ops, additional units and fleet optimization. If you look back in time, Cygames pre-2019 wasn't in a great position from a capital structure perspective and so CapEx was very limited in terms of what we could invest in the gaming ops fleet. Fortunately for all the right reasons and the decisions that we've made now we're in a much healthier position so we're able to inject new CapEx into the fleet and we've been doing that over the last two and a half to three years to really solidify that legacy base. So we've been doing a lot of that churning our own install base and you can see that kind of coming through in higher RPDs. I'd say we're A long way through that now, which I think in the second half, what you'll see with the success of the Cosmic Cabinet, you'll see that showing up in more net ads over time. I think, you know, in summary, I think a lot of the heavy lifting around addressing the legacy install base is now complete. And the new products that we bring to market will result in better net ads in the second half and beyond.

Makes sense. And then maybe secondarily... Yeah, I know it's hard to comment specifically on does Chicago legalize VGT or does North Carolina, but wondering, let's say North Carolina is looking a little bit more likely, and if that were to occur, I guess the question is, would you be able to handle that, say, chunky source of demand, or would it require additional investment in terms of manufacturing process and lead times and so forth?

No, I mean, we're really excited about the prospects of legalization of these VGTs in North Carolina and potential expansion in Chicago. You know, we feel like North Carolina is probably more likely than Illinois in a short time frame. We think both of them have great prospects over a longer time horizon. Your question about increased investment, this is what we do. We build slot machines. This is what we've been doing for 40 years. So We know it well, we'll have the capacity to make sure we're in the market and able to take up every order that we get. We're a leader in the VGT space. We're 50% share player in Illinois. So it'll be a very similar style of product. We've already got the teams on the ground looking at the player base, looking to, you know, what those modifications might need to be to make sure we're a market leader. But, you know, North Carolina pundits say it could be a 30,000 unit market. If we get half of that or a third of that, choose your number in terms of what share, it's a very, very material opportunity for us over the long term. Illinois is probably not as big a magnitude in terms of the size of the market, but still a great opportunity for us. And none of these things were factored into our commitments we made to the long-range plan at the Invest Today in 2022. So this is all incremental opportunity and something we're very, very excited about and very focused on.

Thanks a lot for your color, Matt.

Our next question comes from Paul Mason from E&P. Paul, your line is now open. Please go ahead.

Hey, thanks for the question. Just a quick one for me on SciFly acquisition and the associated strategy. I was wondering if you could sort of walk us through any of the major tasks you've got to do to align the R&D team with your other two platforms so that they can sort of work as a one R&D unit sort of strategy and approach. And then maybe sort of as a follow-up, we could ask a little bit about like the AB testing benefits and sort of how fast you can maybe transpose some of those benefits from the social casino to the other parts of your business.

Yeah, great question and great report that you put out. It was very detailed. Yeah, this is exciting for us. We've been at this for about a year in terms of bringing these teams more closely together. So the good news is we're already coordinating roadmaps. We have been for the last year. I think we're at the early innings of starting to really unpack the opportunity that is A-B testing and social surveying. So we're doing a limited number of that right now. So we are doing social testing, A-B testing, live on the platform today, and that's really informing product requirement decisions. And we're also doing this survey testing where we're going out to a cohort of SciPlay consumers that we know play in casinos, and we're asking them questions to inform a better decisiveness in the way that we build our products going forward. So we're just starting to unlock that. And the good news is the teams are naturally coming together. I always say that these three businesses are very unique. like SitePlay is not exactly the same as the land-based business, and the land-based business is not exactly the same as iGaming, but they're very complementary. They're all built off the back of world-class slot content. And so we have games, making great games is our obsession, and we have these three channels that are able to inform how we best utilize our R&D dollars. So we're in the early innings of that, and I think this acquisition unlocks that in totality. And we've got teams on either side very eager to work more closely together. That's all opportunity for us down the road.

Thank you.

We currently have no further questions, so I would like to hand over back to Matt Wilson for closing remarks. Thank you.

As I wrap up, I'd like to once again thank our talented employees for their continued hard work and passion. I'm also thrilled to welcome SciPlay back to the Light & Wonder family as we continue to execute and deliver on our strategy together, creating an even stronger and more efficient platform for growth. People love games and the experiences that come with them, so I'm excited to be in a position where we continue to innovate and provide great games to the marketplace. Solid financials, a growing product pipeline and expanding demand for entertainment provide an excellent backdrop for Light & Wonder moving forward. I look forward to seeing some of you next week at the Australian Gaming Expo. Thanks, everyone, for participating in the call.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.