Light & Wonder, Inc.

Aloha and thank you for your patience. Today's call will begin in approximately two minutes time. Hello all and welcome to the Light and Wonder 2023 Fourth 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. If you'd like to ask a question please press star followed by 1 on your telephone keypad. I'll 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 the Fourth Quarter and Full Year 2023 Earnings Conference Call. With me today are Matt Wilson, our President and CEO, and Oliver Chow, our CFO. During today's call we will discuss our Fourth Quarter and Full Year 2023 results and operating performance, followed by a question and answer session. Today's call will contain certain 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 Investors section of 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 for comparable prior periods. We are reporting our results of continuing operations in three business segments, gaming, sci-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 material 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 everyone for joining today's call. Our fourth quarter performance capped off a banner year for Light and Wonder, as we continue to build upon our strong business and financial foundation. Notably, we have consistently delivered on our key performance objectives since we announced the company's transformation strategy. Our numbers reflect strong execution and contingent momentum, with consolidated revenue up 13% over the fourth quarter of last year, marking 11 consecutive quarters of -over-year growth. We once again delivered double-digit growth across the board, as evidenced by our results throughout the year, and have now achieved five consecutive quarters of double-digit revenue growth in all three businesses. As a result, we ended the year with a 16% increase in consolidated revenue, reaching a record $2.9 billion for 2023. Looking back, I would like to share with you what defined Light and Wonder and drove our success this past year. We have an exceptional team and experienced leadership with a winning mentality. I firmly believe that we have the best in-class talent, executing on a proven playbook, and I commend our entire team for an outstanding quarter and an outstanding year. Throughout 2023, we made strategic investments in the aspects of our business that we expect to drive long-term sustainable value, something we were not able to do before the transformation. Our improved financial position and disciplined capital allocation strategy support our ability to continue to invest in the future of Light and Wonder, with a commitment to accelerating R&D investments and enhancing our product offerings. We have a differentiated product strategy and demonstrated sound execution on our growth pillars, with refreshed hardware and content for both core and adjacent markets. We achieved impressive share gains in key markets, with the popular franchise, Drag and Train, continuing to drive our growth in Australia and creating notable operator engagement around our pending release in North America. We also made considerable progress in adjacencies, and we expect to be active in video lottery terminal markets, notably Oregon and Quebec, where we've recently announced deals, as well as the coin-operated amusement machine market and historical horse racing markets in 2024. Capitalising on franchise extensions has been another key differentiator in driving our success. We have shifted our focus from allocating the majority of our resources to new niche markets coming online, to now building on our evergreen franchises and game extensions, which can be leveraged across our entire ecosystem. In our digital businesses, Cyplay had another record quarter with continued market share momentum and higher revenue in the social casino space, which we will discuss in further detail. Our iGaming business segment continued to be a growth driver for Light and Wonder, with a strong quarter reflecting continued momentum in both the US and international markets. These results demonstrate the benefit of our robust R&D strategy, driving improved app performance with impressive returns on our investments. We continue to see iGaming as a compelling opportunity as this market continues to develop over the coming years. For Light and Wonder, it truly is all about the game. Throughout the past year, we executed on our product strategy to build exciting, industry-leading games that have continued to drive our impressive performance metrics. In addition, we are pleased with our continued progress on our cross-platform strategy, with development efficiencies being realised and content expansion across all channels driving digital revenue uplift. We are very pleased with our considerable progress across our business units as we continue to capitalise on the opportunities in a resilient gaming industry. I will now turn to our business unit operational highlight. Gaming continues to be a strong driver for Light and Wonder. Our investments are bearing fruit as we deliver on strong top-line growth, up 13% for the quarter and 16% for the full year. We saw continued momentum in gaming operations, ending the year with an increase of 590 units or 2% growth in our North American in-store base year over year. These results were largely driven by premium units, which continued to increase for 14 consecutive quarters. The performance of our games is on full display, with both North America and international revenue per day exceeding 2022 levels in the quarter and for the year. This is a testament to our strategy, focusing on fleet optimisation and ensuring the games we develop are casino floor mainstays, maximising the full value of each and every unit we deploy onto the casino floors. We will continue to build on our evergreen franchise extensions such as Ultimate Firelink, Puff and Puff, Dancing Drum and recently Dragon Train, which was the biggest Australian launch in the company's history. Our licensed titles such as Top Performing Monsters and Highly Anticipated Squid Game, featured on our highly successful Cosmic and new large screen Jumbo Horizon Cabinet, are expected to extend our momentum heading into 2024, providing immersive and seamless player experiences. In game sales, our strategy was validated by an outstanding performance with over 37,000 units shipped globally for the year, a company record, and an increase of 40% compared to the prior year. Our progress in both North America and Australia is evident as we continue to maintain over 20% market share in both markets, with exceptional growth in the replacement segment year over year. We expect continued growth with our Cascada Series cabinets, notably the Cascada Jewel Screen, which was named Top Performing New Premium Cabinet at Islay and the driver of our announced deals into Oregon and more recently Lotto, Quebec. Moving on to systems, highlights for 2023 included key contract wins driven by our product portfolio with enhanced capabilities such as loyalty features, giving operators access to greater insight on player preferences. Our recent systems deal announcement with Harry Reid International Airport and Mohican Inspire Entertainment Resort in Korea fully demonstrates why we are the preferred choice for operators, providing an intuitive, curated customer journey at every touch point, regardless of location, vertical or platform. Our engaged product continues to gain traction as we focus on software services in addition to our in-demand hardware. We're excited by the offerings that we highlighted at the Global Gaming Expo, such as Cashless, which is currently gaining traction, including in Australia, as we participate in trials in New South Wales for responsible gaming initiatives. We expect Light and Wonder to maintain its leadership position in this space through innovation and partnership with our operator customers to bring the most comprehensive portfolios to the market. On to tables, we continue to be an industry leader known for best in class products and an extensive library of IT. The recovery in the global markets help drive higher sales with table product revenue up 13%. Overall, we expect to expand on our recurring revenue stream and target long-term growth through product innovation and hardware investment, where we have a proven track record of success. To sum it up, I'm very pleased with our performance in gaming. Light and Wonder is still in the early innings of growth in this sector. Importantly, we are well positioned in every product category with our framing offerings and a focused strategy to capitalise on new opportunities across this important segment. Now turning to SciPlay, we continue to be pleased with our performance in the social casino space. SciPlay is now a fully integrated part of our portfolio, executing beyond expectations in a breakout year. First, I'd like to share that the integration has gone well. We are executing on our cross-platform strategy through a more harmonised development process across all businesses. Last year, I highlighted our key growth objectives for SciPlay, outpacing the social casino market, scaling average revenue per daily active user, and investing in both our SciPlay engine and product roadmap. I'm very pleased that we have delivered on these objectives, reflecting both strong leadership and consistent execution. We outpaced the market again, now for eight consecutive quarters, and have consistently gained share over the course of the year. SciPlay grew revenue 12% in the quarter and 16% for the year, both record levels. Our four largest games, Jackpot Party, Quick Hits Lot, Goldfish Casino and ADH Fortune, posted quarterly record revenues, a testament to the success of our SciPlay engine as we continue to enhance our portfolio of games through our LiveOps strategy. Our recent Dancing Drum app launch was also a success as we continue to expand our land-based titles on our social platform. Average monthly revenue per paying user was approximately $114. An average revenue per daily active user increased 15% -over-year to $1, both record levels in the quarter. We will continue to invest in our capabilities and product roadmap to drive engagement and loyalty, while continuing to grow monetization sustainably and responsibly, particularly in our core franchises. Entering the new year, we are focused on developing our -to-consumer platform, which we expect will enhance player relationships and engagement, accelerate the potential to expand margins over the long term, and grow lifetime player value. Clearly, SciPlay continues to be a valuable growth driver for Light and Wonder and a big part of our overall strategy. Going forward, we look to extend our industry-leading social casino growth as we further differentiate our offerings from those of our peers. Now looking at iGame, our portfolio expansion enables us to be one of the largest content providers in the industry, and we continue to see tremendous demand from operators and from players. Quarterly revenue increased 13% -over-year to a record $70 million, with full year revenue also a record, reflecting the continued growth momentum in the US and international markets. The growth is a testament to our -in-class content aggregation platform and unmatched first-party content. The quarter was highlighted by record launches with Pyrox 2 and Ultimate File and Cashfall's China Street, further demonstrating our content development roadmap and our cross-platform approach. Of the top 20 games on the OGS across the US, our first-party content accounts for over two-thirds of the total, driven by LAN-based titles, table games and Lightning Box. In addition, Elk, Lightning Box and PlayZido all continue to scale with record GGR in the quarter. We are collaborating closely with operators on our live casino offering, which went live in the quarter in Michigan with Rush Street, Golden Nugget and Draft King. The initial feedback has been very positive, with teams working together on both sides as we continue to enhance our product with additional functionality. Importantly, other operators have taken note of our collaborative partnerships. I'm pleased to announce that we signed an agreement with Penn Entertainment for Michigan, which will include network and bespoke tables. While we are still in early stages, we are already in discussions with customers on expansion opportunities into other regions. Over the long term, we expect this to be a growth driver for our iGaming business. The US is a fast-growing market, and we will continue to drive our key initiatives, which are to execute on the launch of two epic LAN-based titles plus one digital native title monthly, expand jackpots, steppers and table games offerings with our IP and scale, and accelerate Elk Studios launches and game services such as marketing jackpots and multiplayer features, all while focusing on game placement and promotion. As we look to 2024, we expect to extend our momentum through our regionalised roadmaps and original content that have already brought us great success to date. As well as further expansion into new markets, we are encouraged by the legislative progress in Brazil, confirming our optimism for the future of iGaming legislation as a growth driver for Light and Wander. Our portfolio expansion and legalisation will drive future growth, and our impressive scale, robust product offering and well-established footprint globally positions us well to execute when opportunities arise. We are very proud of our accomplishments in 2023 as we executed on a number of key strategic initiatives. Our successful secondary listing on the Australian Securities Exchange, or ASX, further expanded our global presence in May. Subsequently, we were added to the ASX 200 Index last October. This inclusion enables Light and Wander's exposure to a broader base of investors, further solidifying our position in the Australian capital markets. Notably, feedback to date from the Australian investor community continues to exceed our expectations. As we previously mentioned, we closed the Cypli acquisition in October as well, with integration completed successfully and collaboration on our cross-platform opportunity accelerating. Finally, we continue to strategically increase our investment in the business and return capital to shareholders, all while improving our cash conversion and further reducing leverage. I'm also pleased to report that Light and Wander's strong performance did not go unnoticed as we garnered several distinguished industry awards this past year. As a testament to the success of our cross-platform strategy, we were named as the Multi-Channel Supplier of the Year at the International Gaming Awards. We were also named Full Service Platform Provider of the Year at the EGR North American Awards, fully demonstrating the power of our well-rounded portfolio. Our business unit leadership and teams all received accolades at the SBC Awards in North America. Notably, Cypli was named Social Casino Operator of the Year on the back of the banner year. Our momentum internationally was also recognised as we were named Casino Supplier of the Year at the Global Gaming Awards in Asia and most recently at ICE in London as well. Additionally, we were acknowledged for our CSR and ESG efforts by being named a diverse and inclusive team at the Women in Gaming Diversity Awards. As part of our recent transformation, we have also strengthened our commitment to be a positive influence on the industry, driving key social initiatives that are core to our values. Our primary focus on responsible gaming as an industry leader drives us to create products and services that can be enjoyed responsibly across the globe, as evidenced with our cashless collaboration with peers and regulatory organisations in Australia. Responsibility starts with us and we will continue to educate our employees on awareness of responsible gaming policies and practices. Our corporate and social responsibility programs as well as our environmental, social and governance efforts will continue to be a top priority for light and wonder. To sum it up, we expect continued execution of our strategy in 2024. The results we delivered in 2023, along with our ability to attract -in-class talent, established market positions and strong cross-platform capabilities, put us on a clear path to achieve our long-range targets. Our teams have done a tremendous job and light and wonder is shining brighter than ever. We are ready to deliver on the promise of sustainable growth as we continue to be the leading cross-platform global games company. As you know, in December of last year, Oliver Chow was officially named the company's Executive Vice President and CFO. I am delighted to officially welcome Oliver to our senior leadership team. He has already played a pivotal role in driving the success of the transformation and I'm confident that we'll benefit from his expertise and financial guidance as we continue to execute on our strategy. And with that, I'll turn it over

to Oliver. Thanks, Matt. These are exciting times for the industry and the company and I'm honoured to be part of it as CFO of Light and Wonder. It is my mission to build on our solid financial foundation, leveraging our highly cash-inherited business with a continued focus on operational excellence. I appreciate the confidence that our global investor base has placed in us and I take my role as a steward of investor capital very seriously. That said, I look forward to working with all of you moving forward. Turning to our operating performance, we were able to capitalize on many of the opportunities presented to us in 2023 and delivered strong top and bottom line growth both in the quarter and for the full year. For the fourth quarter, consolidated revenue increased 13% -over-year to $770 million. Full year consolidated revenue was up 16% to $2.9 billion, a new record for Light and Wonder. Our results were again driven by double-dated growth across all of our businesses. Operating income was $155 million in the quarter, an increase of 57% over the prior year period primarily on strong top line growth, lower DNA and restructuring and other costs. Full year operating income was $518 million, a 90% increase compared to the prior year. Consolidated AEPDA grew 14% to $302 million in the fourth quarter compared to the prior year period, primarily driven by double-digit top line growth and maintained strong margins across all of our businesses. We grew 2023 consolidated AEPDA 22% to over $1.1 billion, a tremendous outcome reflecting the hard work of our talented team and the continued upward trajectory of our financial performance. Consolidated AEPDA margin was 39% for the quarter and the year. We saw a 300 basis point increase over 2022 margin levels for the year. With all three business units over 200 basis points higher, executing with a continued focus on operational efficiencies. Adjusted MPAD was $109 million for the quarter and $388 million for the year. As a reminder, this metric is not comparable to the prior year period due to the materially different debt and tax profile of the company. Prior to the completion of the divestitures. Consolidated operating cash flow was $167 million in the quarter. Comparability is not meaningful as the prior year period included $176 million of cash tax payments related to the divestitures. Full year consolidated operating cash flow was $590 million. Up compared to prior year primarily due to cash taxes paid related to the divestitures. Which were $32 million in the current year and $641 million in the prior year as well as lower interest payments. Turning to the business units. In gaming, we continue to execute against our KPIs. Delivering exceptional financial performance supported by our strong product portfolio and proven market strategy. Revenue in the quarter grew 13% year over year to $496 million and a EBITDA increased to $245 million. A 14% increase compared to the prior year period. This impressive revenue growth was led by robust North American and international game sales in the quarter. Which increased 31% year over year with profitability primarily driven by revenue growth in the period. Full year revenue grew by 16% to $1.85 billion and a EBITDA by 20% to $918 million. With solid growth across all business units. A EBITDA margin was 49% in the quarter and 50% for the year as we trend in line against historical levels. Which we expect to sustain given continued execution on our margin enhancement initiatives over the long run. Gaming operations revenue in the quarter increased 7% year over year. Primarily driven by growth in our North American install base and revenue per day. Our premium North American install base grew 7% year over year. Revenue per day in the quarter grew 6% in North America and 16% in international compared to the prior year. Driven by the performance of our premium games and as we continue to optimize our fleet. Global game sales were robust in the quarter. With revenues of 19% sequentially and 31% year over year. In addition to the continual momentum in the North American replacement market. We also had a large replacement sale of over 3,700 units into the UK. Which affected average selling price in the quarter. We expect this ASP dynamic to continue as we enter into the adjacent markets more meaningfully in 2024. On to systems where we continue to expand on recurring revenue stream and higher service and maintenance revenue in the quarter. To note there was a sizable hardware sale for a new property in Asia in the prior year which affected comparability. Lastly tables revenue was flat compared to the prior year. Primarily due to the timing of product sales which resulted in a stronger third quarter this year. Looking ahead over the next several years. We expect to expand on the higher margin and recurring revenue segments of the gaming business over time. We expect 2024 to be another year of robust sales underpinned by innovation and investment in our product portfolio. Turning to side play. We once again delivered record fourth quarter and full year performance. Outpacing the social casino market and gaining market share on solid execution against our ROI metrics. Revenue in the quarter was up 12% year over year to $204 million on higher monetization leveraging game content, dynamic live ops and effective marketing strategies. With quick hits, goldfish casino and 88 fortunes all delivering significant double digit gains on record revenue. AEPDA increased 17% to $69 million year over year. With AEPDA margins of 200 basis points to 34%. Full year revenue was $777 million up 16% and AEPDA was $243 million up 30%. Both for the highest in side play history. Side plays investment in talent and core capabilities has driven significant uplift across key monetization metrics. We saw record average revenue per daily active user increased 15% to $1.00. And record average monthly revenue per paying user increased 15% to over $113 compared to the prior year quarter. Our daily active users and monthly paying users both remain steady. And payer conversion rate continues to reach corbeling new heights to 10.7%. Prudent and diligent marketing and UA spend is reflective of side play and more broadly lighten wonders DNA. Every decision is carefully considered prior to execution. The margin expansion we saw over the past several quarters is a great example of the health of the side play business. Based on our marketing return analysis, we have identified a number of UA investment opportunities throughout 2024. Notably in the first half, such as the new Joel McHale campaign we launched in the current quarter. Along with expansion and innovation costs as we look to grow in nascent markets and develop new games. Our margins will fluctuate in the near term with these investments. All of which is expected to fuel long term sustainable growth. We applaud the success I play achieved this year and the incredible level of execution we're seeing across the portfolio. This gives us confidence in further development of greenfield opportunities. Value enhancing initiatives such as our direct consumer platform and the performance of our core social casino business. On to iGaming where our performance reflected growth momentum in the US and international markets. As well as continued strength in our land based original content launches and scaling third party aggregation on our platform. Revenue in the quarter increased 13% year over year to $70 million and APTA grew 21% to $23 million. Full year revenue increased by 15% to $275 million and a Yipita was up 19% to $95 million. As a reminder, we benefited from termination fees in 2023 from certain operators as they pivoted on their digital strategy. Which we do not expect to reoccur in 2024. A Yipita margin improved 200 basis points to 33% in the quarter versus the prior year period driven by revenue growth. This results in an overall A Yipita margin of 35% for the year. As we continue to benefit from scale while also investing in our portfolio. We saw solid growth year over year in both our North America and international markets with record player numbers on our platform in the quarter. Wagers processed through our iGaming platform increased to $21.6 billion, also a record high. In fact, we saw record quarters in the US and Canada with GGR in each region of 23% year over year and with double digit sequential quarterly growth. The US market was driven by increased volume of land based content along with continued scaling of the OGS partner network. Ontario continues to ramp with increasing volume of first party content. GGR volumes in Europe also reached record highs. Marking our third sequential quarter of growth with 11% year over year improvement driven by performance across first party, elk and lightning box content. We are well positioned to continue expanding our iGaming business with best in class aggregation platform and a robust product portfolio. Going into 2024, we expect growth to be largely in line with overall market expansion. Excluding the termination fees we benefit from in 2023. Contributions from Life Casino is expected to be a modest drag on A Yipita and margins during the year as we continue to ramp up and invest in this business. I am confident in our ability to expand margins as we scale our offerings over time. Over the past year, we've diligently managed our cost base and drove margin expansion. Operational excellence remains a top priority as we further integrate our businesses and identify efficiencies. Importantly, with the results and healthy business that we saw this year, we will continue to reinvest back into all three platforms through R&D and CapEx to propel our growth pillars. We will maintain a strategic approach that ensures optimized output with a rigorous assessment of ROI. More importantly, we will continue to invest in our people and technology, the backbone of light and wonder that drove our success throughout this transformation and into the execution phase. As our business scales, we also expect associated corporate costs to increase proportionally, providing support for the business units through shared services and other functions. We are building out a lean management team to embed this methodology throughout the organization to drive efficiency and scale. We are challenging our teams to act like owners and arm them with tools and training to make a difference across the organization. As a reminder, in Q3, we called out elevated legal costs of approximately $10 million, which we expect will have an impact across the first and second quarters of 2024. That said, we will continue to stay laser focused on improving processes, staying committed to margin expansion and driving sustainable long-term profitability through value enhancing initiatives. Ensuring we have a prudent sourcing process to drive efficiency as we scale our gaming business and continuous improvement in developing our IT infrastructures. As I step into the CFO role, I'm fortunate to have inherited a business with a healthy balance sheet and a strong financial profile. After the SidePlay deal that we closed in October for approximately $500 million before fees and other expenses, we ended the year with a net debt leverage ratio of 3.1 times, a .2 turn improvement over the prior year and within our target of range of 2.5 to 3.5 times. Recently in January, we were able to further improve our transformed debt profile by repricing our term loan B, reducing our interest rate by 35 basis points, and driving approximately $8 million in annualized interest cost savings. With the refinance of our 858 senior unsecured notes that we completed in 2023, in total, we expect approximately $14 million in annualized interest expense savings. Our profile is further enhanced by gaining access to the cash on SidePlay's balance sheet and the cash flow generated from the business going forward. Providing flexibility and optionality for sustainable growth and value creation as we continue to optimize our cash balances. We reported consolidated free cash flow of $70 million in the quarter. The current year period was affected by $16 million primarily in cost supporting the strategic review and the related activities associated with the SidePlay merger, while prior year was affected by $176 million in cash taxes paid related to the divestitures. Full year consolidated free cash flow was $291 million, affected by $32 million in cash tax payments related to the divestitures, and $25 million primarily in cost supporting the strategic review and related activities. Our 2023 free cash flow conversion rate, excluding the aforementioned items, was 31%, a 1200 basis point increase from the prior year, as we stayed committed to translating each dollar to the bottom line. Looking ahead, we expect restructuring costs to wind down as transaction related costs roll off. Over the long term, cash interest savings will be at least partially offset by expected increases in capex, largely driven by gaming as we continue to invest in growing our premium install base. We'll have some puts and takes by quarter based on the seasonality of tax payments, working capital and other items, but our annual cash flow conversion rate is expected to increase over time on the flow through our highly cash-generated businesses, and as we continue to focus on capital decisions and returns. Free cash flow generation remains a key priority and a driver to enhancing shareholder value. In 2023, we continued what we set out to do, advancing our balance and opportunistic capital allocation framework. Debt reduction, which we've executed in evidence through our transform balance sheet, returning substantial capital to shareholders to share repurchases, and lastly, disciplined investment and key growth opportunities. We returned $25 million of capital to shareholders through share repurchases during the quarter, with a total of $170 million returned during 2023. Since the initiation of the program, we have returned $575 million of capital to shareholders, which is approximately 77% of total program authorization. We will continue to monitor the market for opportunities going forward. As I mentioned before, we will continue to invest in our people and core capabilities to support sustainable long term growth and bolster our leadership positions. With a commitment to driving high ROI, which exceeds our return thresholds. Our capital allocation priorities will always be in the context of a healthy balance sheet. That said, we remain flexible in evaluating all available options, and will only deploy excess capital in the most value creative ways to our shareholders. We have a great team here at Light and Wonder, and I'm extremely excited to be partnering with Matt and the executive team to take us to the next level. We continue to execute to our strategy that is core to our culture in a resilient and dynamic industry. What our teams have accomplished to date reflects strong momentum and best of all, high confidence in our growth journey continuing. With that, we will turn it over to the operator for your questions.

Thank you. Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. If you change your mind or your question has already been answered, you can withdraw your question by pressing star followed by the number two. Our first question comes from Barry Jonas of Turis Securities. Your line is open. Please go ahead.

Hey guys. Can you give us an update on the road to 1.4 billion, maybe talk about how it's progressing? Thanks.

Yeah, hey Barry. Matt Wilson. We anticipated that question. First of all, for the Light and Wonder employees on the line, congratulations. What a fantastic quarter and a fantastic year. I think when we started off on this journey, May of 22, we put our investor day targets out for 1.4 billion. It necessitated a 15% K to get us there. We just closed 2023 with a 22% growth rate of the Aeba Dal line, which was very impressive from my vantage point. I think one of the equally impressive things was all three of our businesses grew double digits. The portfolio of businesses we have really validates the strategic decisions that we made to focus the organisation around content. I think we have in place the talent, the investments and the product pipeline to continue this pathway to the 1.4 billion. We've just kind of recalibrated our strategic plan and feel very confident we can get to the 1.4 billion. I think this team is also doing a fantastic job just around cost optimisation. I think they're equally as focused on sustainable growth as they are in efficient growth. So lots of pathways to get us there and we feel like with the year we just had and the quarter we just had, great momentum leading into the remaining years of that strategic plan. But Oliver, you may want to add some detail.

Yeah, thanks

Matt. And hey Barry, how are

you? As Matt mentioned, we continue to have tremendous momentum across the business. We just posted our fifth consecutive quarter of double digit -over-year revenue growth across all three business units, which obviously gives us a lot of confidence in our ability to continue to deliver on our growth plans. We know what we need to do to execute against our commitments and in gaming, that's to achieve modest share gains in the core, core class three. So in game sales, we demonstrated game sales growth in 2023 across both North America and Australia markets. And we'll also continue to grow and expand the gaming operations premium install base. The key for us will be the proliferation into adjacencies and we'll continue to deliver strong products into Oregon State Lottery. And we also recently announced our deal with Lotto Quebec. We'll also be entering the Georgia Coa market here in the first half. From a sci-play perspective, we continue to drive record revenue and gross share as we continue to leverage our best in class sci-play engine across the portfolio. And we expect to continue to scale ARPDAL while seeing stability in our player base. And that's going to be critical for us here over the next couple of years. We've made strategic UA marketing investments and we'll continue to do so effectively for long-term growth. And Josh and the team are just have just done an exceptional job in that space. In iGaming, you know, we expect continued growth in global markets, particularly here in North America, as we've seen over the past couple of years. But more importantly, being able to leverage our proven land-based titles cross-platform as we as evidence in some of the record game launches you saw across 2023. That's expected to drive sustainable growth for us into the future. And then lastly, Matt mentioned this earlier, our margin enhancement initiatives were a key contributor for us and it showed in our healthy margins. So not only in the quarter, but for the full year. And we just see opportunities to expand that over time as we continue to improve efficiencies throughout the business. So long short of it, our momentum and the performance in this quarter and 2023 really does give us a lot of confidence in our ability to capture the opportunities we see ahead. And we're going to continue to not only deliver 1.4 billion, but to drive sustainable growth past 2025.

I guess that's a good point for my follow-up. You know, I think as the conviction of 1.4 grows, we're hearing some investors ask about what happens after that. Any chance you can give a little bit more color about how you see sort of the next steps beyond the 1.4?

Yeah, I think, you know, we've put together this organization of businesses that is a growth engine and will continue to be a growth engine beyond the 2025 timeframe. We obviously haven't put a target out yet. We'll kind of come back to investors probably in the next few quarters and kind of restate where we go beyond 2025. At the moment, we're laser focused on getting to that number, which there wasn't a lot of conviction for in the market a couple of years ago. But there is growing sentiment that it's an achievable set of targets. So, yeah, not guiding anything beyond 2025. We'll kind of reconvene with the investor base soon enough.

Awesome. Thanks so much.

Our next question comes from Chad Beynon of Macquarie. The line is open. Please go ahead.

Afternoon, Matt Oliver team. Thanks for taking my question. I wanted to ask one specifically around gaming. Oliver, you just mentioned some of the adjacency opportunities like Oregon, Quebec, Coam, etc. But as we think about just the general replacement market, you're communicating with your partners in the US and Australia. How does it feel currently and how does this compare to prior years where the industry may have had elevated industry orders?

Thanks. Yeah, thanks, Chad. I think the industry seems to be on solid footing. I think we're seeing healthy player trends across all of our end markets. I think we did see some isolated softness in January in the US land-based market in certain areas. I think that was really attributed to the weather. I think that's a kind of one-time event that we cycled over. But aside from that really healthy end markets, I think one of the data points that's uniquely interesting to us is the IELTS survey from Q4 and looking at specifically purchase intentions. So it does look like in that number forward-looking purchase intentions by casino operators in North America are up sequentially in year on year, which I think is very encouraging. There was also a nice tick-up in terms of their intentions to allocate their share to Light and Wonder. So I think the end markets are looking healthy. We stay focused on controlling the controllables, build great products, deliver great service to our customers and we'll win as a consequence of that.

Yeah, and just to build on that, Matt, obviously we haven't seen any major shifts just from an operator's purchasing behaviour. So we do see a pretty solid funnel demand here in Q1 and starting the early stages of Q2 funnel. In addition, we also see solid data points from a coin-in perspective and those are trending well with our high-performing WAP titles. So broadly speaking, we don't see anything in the data that would suggest any major shifts. But if we do, we're well positioned to move and pull levers as we've executed on some really important critical operational enhancement initiatives. So overall, to Matt's point, healthy GGR levels, resilient gaming consumer and we'll just be nimble with anything shifts.

It's great to hear it. Thank you very much. Appreciate it. Thank you. You're welcome.

The next question comes from David Katz of Jeffreys. Your line is open.

Thank you. Afternoon, everyone. So I wanted to talk about product and some of the standout, you know, what we've seen so far from Dragon Train, which is primarily, if I'm correct, driving Australia and not fully loaded and approved here in the US, right? That's happening over the next couple quarters. If you could just color in for us what we might expect to see from that and just help us understand what other product introductions we might be seeing in those coming months that sort of drive us through the rest of this year also. And then I have one quick follow up. Yeah, great.

Thanks, David. Yeah, this is a product we're really excited about. We debuted this at the AG show back in August. Subsequently, it went to market in Australia. Very quickly went to numbers one, two, three and four in the Australian market. Has really been dominating the New South Wales market. It was now in Queensland and Victoria. It's done very well across all of those markets. So kudos to the team down there that's built this market leading product. We're really excited about taking it to all of our markets, not just gaming, but taking it to sci-play and also taking it to iGaming. Yeah, the launch in the US is imminent. So it's a this quarter, next quarter type rollout event. Pipeline's building nicely. But I think importantly, we've got a real diverse set of product that's driving interest from operators. I think, again, pointing back to the ILS survey, we had a really nice release last week with a diverse set of games kind of lighting up the charts. So really encouraged by that and the teams across the globe, not just the Dragon Train team, who we're really proud of, but the entire R&D organization. You can just really start to see the fruits of the labor that's gone into kind of turning the product strategy around, showing up on the scoreboard in the ILS results. And that ultimately will show up on the scoreboard from a financial perspective. So yeah, launch is imminent in the US and it'll go across all of our channels. And we're very excited about that product.

Understood. And just one quick follow up. I know, Oliver, you mentioned cash can be adjusted cash conversion in your prayer remarks. Is there a sort of notional target or, you know, normalized aspirational level, whatever other adjective we could put around it for what cash conversion, you know, you could get to one day in the future?

Yeah, thanks. Thanks for the question. Yeah, listen, I think we look at free cash flow in a couple of different ways. One is, you know, we're going to look at it from an annualized basis, first and foremost. So we know there's a lot of noise within some of the quarters. In terms of kind of guidance, we haven't really provided updated guidance there. So what I will say is that, you know, we see, we see us optimizing our cash flow here. And ultimately, this is a great starting point for us and we'll continue to sustainably drive that higher over the coming years. But, you know, it'll be some puts and takes here. But I think ultimately we're going to scale from from this point forward.

Thank

you. Our next question comes from Rowan Gallagher of Jarden. Please go ahead.

Yeah, hey Matt, Oliver. Good afternoon and good morning to people in here in Australia. Question in relation to game sales. Outright sales obviously was a key feature this quarter. Obviously, you've talked about adjacencies. You're the market leader in Illinois. You've had some early success in Oregon, Canada. Can you talk through around the adjacencies, Matt, in particular sizing the market and the opportunity for Light and Wonder going forward,

please? Yeah, hey Rowan and everyone down under. Yeah, the adjacencies opportunity is a big theme of the gaming story here in terms of growth over the next few quarters and few years, I would say. It's a share taker strategy. These are markets that we've been delivering exactly 0% share in for the last five years. And so every incremental order we get in these adjacencies is naturally, you know, share gain. So, yeah, like you said, OSL has been a great opportunity for us. We're a market leader in that space now. Our product that we've rolled out is the best performing in that region, which is exciting. You know, we should see subsequent orders coming off the back of that OSL introductory. We announced the Lotto Quebec opportunity. They've been a great partner of ours for years. So this is expanding that partnership into the VLT space. So that's a 2024 opportunity, which is exciting. I think Georgia Coam, we announced our partnership with Betson. So we're starting to transact in that market. This is a kind of a multi-year journey with the Georgia Coam market. And then historical horse racing. We were an early adopter here in the HHR world and it's proven to be a great tailwind for us. We're a market leader in that space. We command a leading share position. So as that market continues to expand, we naturally expand along that with great share in those markets. So, yeah, significant driver for the gaming business, which I think is important. Like I said, these are discrete markets with unique opportunities. We've got the capability to build the product. And it's not, you know, as competitive as you see in the class three replacement market. So we're kind of expecting more modest share gains in the class three space, but really a big driver of the plan is these adjacent categories.

And do you include class two in your adjacencies these days?

Yeah, so we're active in class two in many markets. So, yeah, significant opportunity for us. And I think that'll be more in the kind of late 24, 25 time frame as we start to expand beyond the tranche of adjacencies that I just mentioned.

And the cheeky follow up, if I may, Matt, and maybe directed at Oliver. ASP obviously was down materially, probably influenced by a significant order into the UK. Oliver, could you just talk through what would be a more normalised ASP, recognising the lumpiness that occurs during quarters? Thank you.

Yeah, yeah, thanks, Rowan. Yeah, as I mentioned in the prepared marks, it was the UK order that had a mixed effect on our ASP. We do expect that to be, I would say, somewhat leveled into 24 as we proliferate into these adjacent markets. We know that these adjacent markets have slightly lower ASPs than your typical class three replacement market. So I would imagine that it will still be impacted from that perspective.

All right. Thank you, gentlemen. You're

welcome. The next question comes from Ryan Sigdahl of Craig Hallam. Your line is open.

Hey, Matt, Oliver. Good afternoon. I'm curious on LiveDealer. So nice to see that launch here, adding Penn, some good updates there. But curious how quickly you think you can really scale this product, given the enormous market opportunity with effectively one competitor out there. And then secondly, kind of along that, is the plan to lean in and expand more with DraftKings and Penn, with bespoke and branded tables across different states, or is the higher priority and kind of lower hanging fruit is to try and get active with more operators? Thanks.

Yeah, great question. Yeah, we see LiveDealer as a multi-year opportunity. We believe in the outlook for iGaming. States will legalise naturally over the coming years. And so we just look into the future and say, this will be a large and active market. We have the shuffle master IP under the hood in terms of a portfolio of assets. So it's a natural extension of our own market. So it's a market we're going to be in. We're going to position ourselves for the long term here. So really in the near term, it's about nailing and scaling. So nail Michigan, continue to expand partners there, get it to a point where we've ironed everything out and we're optimised. And at that point, we can naturally move into the other markets that are live at the moment. So we have no shortage of demand to take the product into other states that are legal at the moment. We want to make sure that we've got Michigan completely nailed down and then we'll scale over extended markets. But I would say the best way to think about LiveDealer for us is this market is going to be big. It's going to be vibrant over the coming years. And my responsibility is to position the business for success in perpetuity. And LiveDealer is a natural space for us to participate in.

Thanks, Matt. Good luck, guys. Thank you.

Next up we have Rowan Sundrum from MST Marquis. Please go ahead.

Thank you and good afternoon, Matt Oliver and team. Just the one for me relating to the Australia business, given the momentum, the success you've seen so far, what's the strategy to sustain and maintain that?

Yeah, thanks for the question, Rowan. Yeah, particularly exciting for me having started my career in Australia and moved to Asia. It's just really nice to see the team down there delivering such exceptional results. I think the international business broadly delivered 93% -on-year growth in terms of gaming sales, which is a huge growth number. And really the consequence of two things. One is Asia coming back online in a material way. But then also very impressive share gains in the Australian market, -on-year up from 14% to 24%. This is a market where we were at 7% to 9% share player and pretty irrelevant, to be honest with you. So I think this is becoming a great contributor to our success. Obviously the products that are driving our success down there are going to go global. But also demonstrates just our ability to get into new markets, to make appropriate investments and deliver great returns. So yeah, it just gives us a lot of confidence in other areas of the gaming market that we can get in and explore. So incredibly exciting. And just a quick

add to that, I think for us it's much broader than just drag and train. I mean, we'll continue to drive our evergreen franchises, which really fuel the initial part of our growth here in Australia. And we'll have strong depth and breadth of product overall to be able to drive share gains over time.

Thanks, guys. The next question is from Joe South of SIG. Your line is open. Please go ahead.

Thank you. Hi, Matt, Oliver. I wanted to ask about North American GameOps and just kind of how to think about the right levels of growth in terms of the main inputs and install base and revenue per unit. Is there a way to think about just the installation of premium games throughout the year over the past four quarters in 23? Meaning that increased monetization will be lumpy in terms of what sort of quarterly improvement we see in 24. What's a great way to think about that?

Yeah, obviously there's kind of two major drivers there. There's obviously in-store based growth. And then what are we doing on the RPD side? So on the revenue per day, we've seen a nice sequential uptick in terms of the revenue per day. And that really is driven by better product and a more premiumization of the in-store base. I think you'll see an inflection point in 2024 from my vantage point with the portfolio we have lined up, kind of the complementary nature of the different cabinets we're launching and games we're launching. We've done a lot of heavy lifting in the in-store base to make sure that our legacy fleet has been addressed with the appropriate amount of capex. So I think you'll see RPDs kind of in this range. And then kind of the net benefit will be as we start to expand the in-store base over time, that'll be the tailwind that drives that revenue for that segment higher. But again, I feel like 2024 looks like an inflection point from where I'm standing in terms of the net ads you'll start to see quarter over quarter.

And Matt, by that you mean essentially with your incremental new games, Dragon Train, Monster, Squid Games, most of those, at least in the earlier part of say the launch of those new games, are largely going to affect GameOps first before they trickle down into the other segments. Is that fair?

Yeah, those titles you mentioned specifically are premium GamingOps titles, so they won't be sold. They won't be taken to those other markets. So it really is in the US a premium GamingOps story for those titles that you mentioned. And the portfolio is designed specifically for that. So we're encouraged about the lineup and what it can produce for us in 2024 and beyond.

Gotcha. Thanks a lot.

The next question comes from Jeff Stanchel of Stiefel. Please go ahead.

Hey, afternoon. Matt Oliver. Thanks for taking my question. Another strong quarter here in Sideplay, Arbdell, up 15% year on year on an 18% comp. Matt, can you just spend a minute here on the forward outlook? More specifically, what inning would you say you're in with regards to harvesting returns on some of the investments that you've made into the centralization engine and ad tech capabilities? And to add to that, can you just expand a bit more on the DTC rollout? What's left in terms of execution on product development? What levers can you pull to encourage user adoption? And how should we think about the cadence of adoption maybe relative to peers out there with more mature DTC offerings? That's all for me. Thanks.

Yeah, great question. I think Sideplay is becoming quite metronomic about the way they just deliver outstanding result after outstanding result. It's clearly the fastest growing social casino company in the industry and taking a wild amount of share. I think it all comes back to we've got a best in class team with a really focused strategy. So we've made the right strategic investments about two years ago in the Sideplay engine, which just really gave us all the tools that we needed to make sure that we were driving each of our games efficiently. So again, nice uptick in Arbdell, really holding on to our Dow across all the four major games. It was a collective effort across many games that drove this result. So in this business, the trend is your friend or your enemy. So for us, we're kind of up and to the right with Sideplay and we have been for the last few years. So nothing suggested that'll stall anytime soon. Great momentum leading into Q1. Yeah, but a fantastic result for Sideplay. And what is apparently a challenge market? Oliver, anything to add or subtract? Yeah,

I think just a couple of adds there. I think we are also focused on developing our DTC platform, which we expect will enhance player relationship engagement over time. And that should hopefully accelerate the potential of our expanded margins and then grow player lifetime values. The other thing that we talk about a lot is really just the continued prudent and diligent spend across marketing. Josh and the team are the best in the business driving high ROI over in this space. And so we'll continue to identify a number of these opportunities throughout 2024. You know, as I mentioned earlier, we're doing concurrent marketing campaigns for Joel McHale and Jerry O'Connell. So the teams are looking to drive high return UA spend here and we'll continue to kind of evaluate that over time.

Yeah, and that may be specifically to your question about which inning are we in. I'd say we're in kind of early middle innings in terms of the growth profile on the games that we have. I think in relation to DTC, we haven't even sung the national anthem yet. Like if you look at our industry peers, they're putting 24 to 25 percent through DTC. We're less than one percent. So the optionality for us is all in front of us. And that's a great margin enhancement opportunity for us over the coming years.

Great. Very helpful. Thank you both.

The next question comes from Justin Barrett of the LSA. Hi, please go ahead.

Hi, Matt. Hi, Oliver. Thanks for your time today. Just noticing you've had some great success on your international unit shipments over the last sort of 12 to 24 months. And you've sort of made comments around UK and Australia. But I'm just wondering if you could comment broadly on where you see a most significant international growth opportunities going forward, please.

Yeah, nice to be with you. I think probably twofold. Continued success in Australia. It's a large, vibrant market. It's been stable and resilient for decades. And we expect it to continue that way. So continuing to take share in that market, I think, with Dragon Train and other products, we're very early in the cycle in terms of what looks like a multi-quarter, multi-year opportunity for us in Australia. And then I think in Asia, I was back there in September of last year. I lived there for five years in a former life. And just so fantastic to see that market back on solid footing. You know, you see Macau coming back to life on the operator side and, you know, with the churn opportunity there, that's exciting for us over the next couple of years. But I think the really exciting opportunity is the Philippines. You know, the chairman of PAGCOR down there, the regulators, has a mandate to grow GGR in a very big way. So that comes off the back of investing in small product and new IRs. And, you know, we are a market leader in Asia. So I think Asia is a very exciting opportunity for us, but specifically the Philippines. So, yeah, looking forward to making the most of that opportunity over the coming years.

Thanks very much.

The next question comes from Alan Franklin of Canacor Genuity. Please go ahead.

Yeah, good morning, guys. Thank you for your time. Hope you're well. Yeah, a fair few of my questions have been answered, but just one quick one, please. Just around post-disciple acquisition and just looking at the current leverage in the business, it does feel like this will also trickle down over the course of time. But how do you think about your capital allocations plans going forward, please, in the current situation with the buyback program?

Yeah, thank you. Thank you for the question. Yeah, our capital management strategy stays largely consistent with what we previously shared. You know, we continue to see the benefit of our strong balance sheet positioning us really well to take on value creative opportunities as they arise. Specifically, your question around leverage, we are comfortably within our targeted range of two and a half and three and a half times, and we ended the year at 3.1 times levered. And that's following the completion of that of the SidePlay transaction. We believed back in Q3 that the SidePlay transaction was about a half a turn increase, but we were able to deliver and capitalize on our highly cash generative businesses. Now that the SidePlay transaction has been completed and our leverage remains well within our target range, we will continue to be opportunistic with the share purchase program. In fact, we we've just created a more structured program, which we're now currently implementing. So long term, we continue to see this as a significant value creation opportunity for us. We were active throughout 2023 and Q4, we purchased about $25 million with the shares. And from a full year, 23 point of view, we spent $170 million to buy back shares. So looking ahead, we'll continue to execute on our capital allocation priorities in a very disciplined manner, whether that's further investments in R&D and CapEx or other uses of funds. So we'll continue to evaluate that. But we're in a great place, just given where we are from a balance sheet perspective.

Yeah, maybe just one additional build there. We did a lot of heavy lifting through the divestitures and the strategic review to clean up the complexity in the portfolio. And what we have now is a very focused organization with a very clear mission about being the leading cross platform global games company. We want to stay true to that. I think that that strategy has been validated, like I said earlier, all three of our businesses growing double digits. So what you can expect from us is a management team that's very focused on being efficient around costs, but also with capital allocation, making sure we have a very high bar for anything M&A related and staying really focused on keeping the leverage where we've said it would be. And buying back our stock.

Thanks.

And our final question comes from Carlo Santarelli of Deutsche Bank. Please go ahead.

Thanks, guys. Just a couple, if I may. One of them is going to be really quick. So, Oliver, the termination fees within iGaming, is $6 million the right number that you guys need to kind of comp for next year? That's correct, yes. Okay. And then moving on, if you guys, and this might be a little bit more complicated, but if you guys were to just kind of take your install base and the constituents of it between Premium and everything else, as of the start of this year, and kind of think about the win per day, Premium, that that will provide you as a base level of growth in an all things equal kind of domestic scenario in terms of slot EGR and whatnot. On a percentage basis, what would you kind of calculate that as before the additions, obviously?

Yeah, that is a pretty complex question. But I guess my initial reaction to that is we have seen a shift away from our public markets in store base towards the Premium category. So there is a tailwind there in terms of RPDs, because the RPDs in the Premium category are obviously higher than the public. We do expect through 2024 for that to continue in terms of the ads that come into the in-store base to be Premium units. So that'll be kind of incremental to RPDs over time. That's the way to kind of think about kind of the construct of our in-store base in relation to Premium gaming up. So I'd say there's some upside here from an RPD perspective, given the mixed shift, and then we expect our in-store base to grow over time.

Okay, that's helpful. And then just lastly, Oliver, you talked about R&D and CAPEX investments and obviously some investments on the social side and whatnot. Could you kind of just try and quantify perhaps like the level of magnitude of these investments?

Yeah, no, thank you. Yeah, listen, we know that R&D and CAPEX are called organic investments, a critical component to our growth as we move forward. So, you know, we do see a combined R&D and CAPEX target of about 17% at the total level. And obviously that's at the gross level between, I would say, a 10% and a 7% R&D to CAPEX level. So that's at the gross level. And ultimately, as our revenues continue to scale over time, that will just give us further ammunition to reinvest back into our core and drive sustainable growth over time. So this is absolutely an area of focus for us and we'll continue to invest organically, as we believe that's one of the highest returns of ROI for us.

Okay, so the numbers go up, but the tethering to revenue stays broadly in that 17% range, is that what you're saying?

Yes,

that's correct.

And we'll continue to evaluate those levels as

we move forward. Great. Thank you guys very much. You're welcome.

We have no further questions in the queue, so I'll turn the call back over to Matt Wilson for any closing remarks.

Thank you, operator. In closing, I would like to acknowledge our Light and Wonder employees whose commitment and dedication made the past year a success and provide us with great confidence for the future. Our global team continues to do inspiring work every day, delivering exciting new content for industry-leading games, utilizing the latest technologies and creating an exceptional customer experience. We're excited about the opportunities ahead in 2024 as we continue to execute our strategy in this dynamic environment. Thank you for being with us today and thank you for your support.

This concludes today's call. Thank you for joining. You may now disconnect your line.