Light & Wonder, Inc.

Hello and welcome to the Light and Wonder 2024 Third 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 would like to ask a question, please press star, fill it by one on your telephone keypad. I will now turn the call over to Nick Zangari, Senior Vice President of Investor Relations and Treasury.

Thank you, Operator, and welcome everyone to our Third Quarter 2024 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 Third Quarter results and 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 that are currently being discussed. 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 located in the Investor section of our website. 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 hello everyone. Thanks for joining us today. Before diving into the Third Quarter results, I'd like to congratulate the team for another strong showing of G2E, where we showcased Light and Wonder's strongest ever content roadmap earlier last month with over 80 unique game titles across our high performing cabins. We've gotten great feedback from our customers and across the industry that we've certainly come a long way since the transformation with games and offerings that are market tested with staying power. Importantly, the success you are seeing is attributed to the diligent recalibration of our R&D engine, identifying and aligning resources to the most impactful initiatives that drive game performance. Just recently, we launched our newest studio in Reno, which will support our sustained growth aspirations well past 2025. I'll be on my way to Light and Wonder's annual Best Games Workshop shortly, an event where we all gather our game designers in a collaborative environment to experiment and innovate new ideas for the future. This is the culture we are fostering, and the teams are excited to have the opportunity to engage with other game developers across the organisation to support the next chapter of our growth. Now turning to the quarter, we continue to see stability and resilience both industry-wide and within our operations. Our results for the Third Quarter can confirm our success as evidenced by our 12% increase in consolidated revenue year over year, representing our 14th consecutive quarter of consolidated revenue growth and 9th consecutive quarter of double-digit consolidated revenue growth. Our global scale and the breadth and depth of our diverse portfolio positions us as a true -to-end casino solutions provider, allowing us to capitalise on growth opportunities across land-based, social and eye-gaming channels. To that end, I'm also pleased to highlight that our growth has propelled us into the ASX 100 in Australia, as we continue to be one of the fastest growing companies with further prospects to grow from the horizon. And now on to our operational highlights. In gaming, we continue to see strong momentum in our flock business, executing to our commercial strategy. Our operator partners recognise the value in our diverse cabinet and franchise line-ups, along with our robust roadmaps, and that translated into results we have posted throughout this year. Our North American premium install base has grown to 17 consecutive quarters, and holding steady at approximately 50% of our total North American install base as of the end of the quarter. We were able to convert approximately 95% of the footprint associated with approximately 2200 Dragonplane units that were impacted by the preliminary injunction on the floor with games from our deep portfolio of Evergreen franchises. Additionally, we added 600 incremental units to the install base compared to the prior quarter. This is a testament to the value proposition our cabinets and games offer, and we will continue to work diligently to ensure the longevity and sustainability of our products. Revenue per day in North America remains strong at over $49, maintaining the step-up you have seen as our game performance trended positively over the last two years through continued investment and optimisation of our R&D engine. Game sales continue to fire on all cylinders, both domestically and internationally, on record global shipments of over 13,000 units. I would also like to note that Light and Wonder held the number one ship share in North America in the second quarter, a segment that Dragon Train is not commercialised in in any way. This performance is reflective of the power of our brand and portfolio, as well as our effective commercialisation strategy. As we continue to expand our presence in adjacent markets, we recently announced our entry into the Manitoba VLT market. We expect our momentum to continue as we further proliferate in the adjacent and international markets with the -to-sale product line-up that we have on offer. Our strategy is simple, and that is to build and extend our suite of brands and franchises with engaging game mechanics that players enjoy. Many of the legacy brands you see such as Dancing Drums, Ultimate Firelink, Betus and Planet Moolaar, Blazing 777, and Quick Hits are just some of the staples you see on the slot floors, and they continue to rank atop the performance chart. Most recently you saw us bring the number one core title, Huffin' Even More Puff, over to a leased model under the Money Manchurian, which is a new expansion extension, and initial performance is phenomenal, debuting as the number one top indexing new premium leased WAP game. With that, we're also introducing a Huffin' Puff Hard Hat Edition which we plan to offer on the highly successful Field Spring Cabinet. Additionally, the in-demand Cosmic Cabinet is also recognised as one of the most sought after in the industry, and we've followed up with a Cosmic Upright which will be supported by our array of player favourite franchises. Importantly, our continued improvement in R&D strategy has enhanced the hit rate of our games dramatically, and the robust product roadmap we have laid out ensures sustainability and optimal value with Light and Wonder's offerings. We are still in the very early inning, and just starting to see the fruits of our investment over the past couple of years, and I'm excited for what's to come in the future. Our customer centric focus is also bringing significant commitments and reinvestment back into the system civil. This year, we've secured 10 deals with our most recent announcement highlighted by a suite of enhanced capabilities adopted by our Operator department to complement their existing CMS. These wins show an increased level of confidence in Light and Wonder as a provider, and our ability to deliver products that play a meaningful role for customers. As a matter of fact, you're seeing us bring the same approach to electronic table games, with continued innovation on our Obsidian products as we roll out auto roulette in the hybrid stadium format. We're also reinforcing our leadership positions in both shufflers and tables, with a focus on building our recurring revenue bulk program where customers can enjoy our portfolio of engaging table games IP. My personal favourite is the Double Down Mavis Blackjack, an exciting twist on the traditional game which was recently launched. To sum it up, I'm very excited with the progress and outlook in our gaming business, and the consistent execution on our diverse portfolio gives me confidence that it will drive sustainable growth over the long term. Turning to SciPlay, where we continue to be a growth leader in social casino, underpinned by our array of land-based franchises and cross-platform strategies. This quarter proves to be the same with our continued execution on our strategy, as we delivered record monetisation net kicks. Growth was evident again across our four largest games, with Quick Hits lost and 88 Fortune both once again achieving record revenue. Last quarter we highlighted opportunities for incremental marketing spend and we are now working on what we've seen with engagement from new players as we build out new cohorts. Our team is one of the best in the industry in deploying the right amount of user acquisition resources to optimise returns with a focus on engagement and monetisation to extend player lifetime value. In fact, you continue to see healthy -over-year growth across average revenue per daily active user and average monthly revenue per paying user, both key metrics driving the out-friar growth and the game feature and player management is essential and we've managed these aspects well, staying nimble to changes and trends. We are adaptable to user preferences with real-time updates focused on delivering the best gaming experience for players. Data analytics is our strength and we will continue to cross-pollinate across the side-play portfolio of games through our proprietary algorithms. With regards to direct consumer platform, I'm pleased to say that we continue to progress steadily in the direction we had planned for. As I mentioned, this is a phased release which will continuously assess the repeat player engagement with broader rollout expected over the long term. Overall, the confidence is high in our ability to optimise the side-play engine. In addition to executing to our core competencies, we will also look to introduce and scale new games that are creative and complementary to the portfolio for sustainable growth. Under iGaming, a segment we continue to cultivate with the expansion of our game content and services portfolio with the number one US slot GGR share in the quarter on the back of our franchises. While we expect future market opportunities, we understand that execution on our product roadmap is key and that is done by leveraging our vast library of land-based and digital native content as well as by scaling our aggregation platform to our advantage. I would note that comparisons were impacted by certain termination fees that benefited prior new quarter. Overall, industry growth was strong in North America and we capitalised on the opportunity with several key game launches including Thundering Blaze and RIP's Little Hand. We also launched World of Wonka Pure Imagination the second game in the series with Banjo by the PlayZero platform following outstanding performance on the initial Wonka release in the first quarter. Looking at the content spectrum broadly, our digital native studios continue to benefit from new game launches and the scale of our platform with Lightning Box GGR is a key factor in our success here. Elk Studio once again capitalised on the successful Pirates franchise with its best ever release Pirates 3 which led to 30% GGR growth compared to the prior year period. With the expansion of our portfolio and game services capabilities we aspire to be more than just a leading slot content provider in the AR gaming space. Additionally, we also introduced our first cross-platform marketing Jafos product Super Carnatite with Lotto Quebec. We are also working with our new marketing services to capitalise on this rapidly growing sector and we will continue to innovate to position ourselves to future success and growth. As we close out the year I would like to express my sincerest gratitude to our commercial team and operator partners for their unwavering support over the past few months. We are very fortunate to have a dedicated team focused on solving problems at hand and long lasting meaningful partnerships we have built with our customers over the past several years. We are proud and proud to be part of the team Looking forward the outlook remains promising our global presence and suite of products gives us confidence in our ability to navigate challenges while continuing to grow and innovate. Most importantly we are the right group of people to execute and the collective vision to grow the business sustainably one step at a time through our strategy and product road map. Above all we will continue to invest in talent to drive future growth. We are excited for what is to come. With that I will hand it over to Oliver to review the quarterly financials.

Thanks Matt it is great to be with you all today. Our third quarter results reflect the collective hard work and dedication from our business units. Near the end of the third quarter our team was working diligently to ensure stability and continuity throughout the organisation and with external stakeholders to ensure minimum disruptions to the business and our key performance metrics reflect our efforts. As Matt mentioned we are galvanised and expect continued year over year growth going forward as we march towards our 2025 consolidated AUBITDA target. That said we continue to deliver on key financial performance metrics in the quarter with consolidated revenue of 12% year over year to $817 million dollars driven by performance across all three businesses. Operating income was $159 million dollars in the quarter and an increase of $12 million dollars over the prior year primarily due to higher revenue and strong margins. Net income attributed to L&W's per share was 71 cents compared to 81 cents in the prior year period on higher restructuring and other costs which included charges in the current year period related to certain legal matters. Consolidated AUBITDA increased from 12% to $319 million dollars compared to prior year resulting in consolidated AUBITDA margin of 39% for the quarter on sustained double digit top line growth and stable margin contributions across the business. Adjusted MPAD increase 23% year over year to $122 million dollars in the quarter primarily on revenue growth across our businesses. Adjusted MPAD per share increased from $123 million dollars to $123.34 compared to $1.08 in the prior year period. On to our business segments. We continue to make significant progress in the gaming business with deliberate execution on our commercial strategy and a diverse product roadmap. Revenue grew 15% year over year to $537 million dollars in the quarter once again led by global gaming machine sales growth of 38%. The AUBITDA was up 14% to $267 million dollars compared to the prior year driven by revenue growth in the period. Gaming AUBITDA margin was 50% in the quarter as we further optimized operations for margin opportunities which is partially offset by product sales mix including the impact from the Entain order that we previewed last quarter. This really highlights our optionality to take it to the bottom line. Gaming operations revenue increased 5% year over year as we continue to see growth in the North American install base up 7% to 33,151 units led by the continued expansion in our premium footprint. Despite the adverse preliminary injunction impact to the last week of September North American revenue per day increased 1% over the prior year period and a strong performance of our collective portfolio of games. We expect some impact to North American revenue per day and install base growth in our fourth quarter post drag and train game conversions. However, we do expect continued growth in the North American install base on top of the retained units impacted by the injunction. Global game sales was once again the standout performer as we continued to proliferate with a 38% primarily driven by growth in international sales as well as further expansions into the adjacencies partially offset by some new and expansion units we shifted to Asia in the prior year period. North American units were up 31% year over year approaching 6,100 units a record high in North America while international increased 72% primarily on the previously mentioned Entain deal which was a quarter year sales price in the quarter and has a long tail recurring revenue component making this an attractive deal for the company. Systems revenue was flat in the quarter primarily impacted by revenue timing which we expect to realize in the fourth quarter. In addition to the deals we signed the quality of our hardware is driving further upgrades which allows for enhanced all around systems capabilities maximizing our software's value proposition and our customers. Lastly, with respect to our cable products business revenue growth was impacted by elevated utility sales to an international customer in the prior year period. Turning to side play revenue increased 5% year over year to $206 million driven by the strong ongoing performance of our social casino games with record revenues from Quick Hit and 88Fortunes. This is the 11th consecutive quarter in the quarter that we outperformed the market as the team continues to execute the strategy. Further, our direct to consumer platform generated $25 million in revenue accounting for over 12% of side plays revenue in the quarter contributing to an 8% increase in AEPDA year over year to $66 million and driving AEPDA margin expansion. Side play margin was up 100 basis points versus prior year to 32%. With the lift from DTC partially offset by the increased marketing costs that we previewed on our last call. We continue to roll out our DTC offering in phases setting the stage for significant long term growth and sustainable market presence for this channel. We continue to achieve strong monetization metrics across the board maintaining record high average revenue per daily active users at $1.04 in the quarter up 8% year over year and the weekly revenue per paying user was approximately $113 a 6% increase over prior year period. Payor conversion rate continues to approach 11% as we consistently deliver the best gaming experiences to our players to the breadth and depth of content and the diversity of our portfolio. We will continue to reinvest in user acquisition to expand our player base with a focus on our engagement and monetization initiatives and further deployment on high return marketing spend in the fourth quarter. Side play's proven track record and exceptional execution give me full confidence in the team's ability to drive sustainable growth. By capitalizing on our strong portfolio of game franchises and strategically reinvesting in the business we are well positioned to maintain our leadership in this space. On to iGaming where we maintain record revenues of $74 million at a 6% year over year driven by continued growth in the North American and European markets and successful content launches. AYIPITA was $24 million in the quarter with AYIPITA margins at 32% reflecting continued investment in our studios to increase game volume and scale the business. As previously discussed revenue in AYIPITA in the prior year period benefited from $3 million in certain termination fees and AYIPITA growth by 4% and 12% respectively. Importantly TGR on our OGS aggregation platform continues to expand across the board with Canada up 29% against prior year and North America at record levels in the quarter. Wagers processed through our iGaming platform totaled $22.8 billion during the quarter another record high. We will continue to scale the iGaming business leveraging our cross platform strategy. With the extensive scale of our platform and the depth of our network as well as our growing portfolio of innovative offerings and market centric content roadmap we are uniquely positioned to capitalize on the opportunities ahead of us. As you look around the success stories in the gaming industry you will see that this is a culture and R&D centric business where sustainable growth is not achieved without the help of the We understand it is important for us to stay focused on our long term aspirations without compromising what is core to the strategy. Thus every decision we make here goes to a rigorous planning and decision process. Staying nimble and adaptive is a hallmark of our organization. As a matter of fact, we have navigated dynamic environments and consistently delivered strong financial performance as evidenced by the strong growth and larger outcomes that we achieve quarter after quarter. That said, we continue to identify and execute a margin enhancement initiative as part of our regular business review. Our key focus for us is optimizing operations by eliminating redundancies accelerating system migration for long term efficiencies and prioritizing key initiatives by right shoring and allocating resources to high value projects to fuel top and bottom line growth. One of our key advantages is our healthy balance sheet. At quarter end, we had approximately $1.1 billion of available liquidity including approximately $350 million of cash on hand enabling us to be strategic on multiple facets as we move forward. Consolidating the financial situation we have created operating cash flow with $119 million in the quarter and free cash flow with $83 million in the quarter primarily on changes in working capital including the timing of collections of receivables related to long term financing agreements such as the Entain deal. Overall, we expect annual cash inverses to trend positively over time as we continue to scale and optimize for efficiency. We move towards the lower end of our targeted from $1.5 to $3.5 times ending at 2.9 times in the quarter and we continue to preserve the options and flexibility to execute on our capital allocation blueprint. We remain opportunistic with share of purchases in addition to problematic buybacks we have previously implemented. During the quarter, we returned approximately $44 million of capital to shareholders through buybacks and we believe there is a tremendous amount of value in the capital that we have invested in and we continue to grow our earnings and free cash flow. Additionally, we will continue to reinvest into the business through R&D and CapEx enhancing our capabilities to drive sustainable growth and bolster our industry leadership positions. As for M&A, our position remains consistent. We will continue to look at options that are complementary to our core business with a disciplined approach to the extent that these opportunities are available to us and to our return thresholds. With some of the recent announcements and developments, I would like to provide some clarity as we are nearing the end of 2024. We expect growth in consolidated EBITDA to be above 10% for the full year even with the near-term impact of the Dragon Train injunction. Our mitigation efforts position us well for an expected return to our growth trajectory in 2025, remaining on track for our consolidated EBITDA target, underpinned by our high-performing games and robust roadmap, which continues to gain traction both domestically and internationally. Corporate costs will be impacted by timing legal developments and we do not anticipate any material changes from what we discussed last quarter. I'm also happy to introduce a target-adjusted MPAD-A range for 2025 of $565 million to $635 million to supplement our 2025 consolidated AEPA target of $1.4 billion for our diverse set of investors that are attuned to a range of financial and business performance metrics. The highly cash-generated nature of the business, combined with a healthy balance sheet and strategic capital allocation program, has proven to be a strong framework to drive shareholder value creation. I am encouraged to be working with the best in the business to remain highly confident in our journey as a compounder of growth over the long run. And now we'll turn it over to the operator for your questions.

Thank you. If you would like to ask a question, please press star followed by 1 on the telephone keypad. If you would like to remove your question, please press star followed by 2. When we're preparing to ask your question, please enter your phone as a muted locally. And the first question is to Barry Jonas of Truist. Barry, please go ahead.

Thank you. Hey, guys. I was wondering if you could talk more about how the DragonTrain mitigation efforts are going for both the domestic and international markets. Thank you.

Yeah, thanks, Barry. First of all, I'd like to thank the team. We had a big disruption happen late in the quarter, and I think the team pulled together and delivered another outstanding set of results, 12% revenue growth, 12% AEDR growth. I think it's a testament to the quality of the team and the culture that we're building. I think that there's two kind of universes that we should talk about when it comes to DragonTrain mitigation efforts. The first is the North American premium gaming office install base. We said we had about 2,200 units installed in the US. We've been able to convert 95% of those games to new titles, titles like Ultimate Firelink and Invaders. We're coming to support that base. So we've lost less than 100 units in the North American install base, which I think is a great outcome. I think it's a testament to the customers' support of Light and Wonder. They want a healthy, competitive environment. That's what we're providing. And so you want to publicly thank our customer base for supporting us through this. So, yeah, like I said, a good range of games coming into that install base to make sure we keep those in the field. We have a gaming submission called Huff and Puff Hard Hat Edition. That's an extension of our number one performing game, Huff and Puff. So that will go into the install base. So I'm confident we can maintain this install base goes forward and then we grow off the back of the new product introductions that we showed at G2E. The second kind of universe of mitigation efforts is really the Australian market, the sale market where DragonTrain has really dominated our pipeline. Happy to say we've shifted our focus in the pipeline to some new games. We launched a product at AGE earlier this year called Shenlong Unleashed. It got a lot of kudos from the market, was clearly a best in show type product. It's gone live in Australia right now and it's performing very well. Happy to say through the midpoint of November we're the number one ship share provider in the Australian market still and we haven't commercialised a single DragonTrain product down there. So lots of momentum still underway. I think it just speaks to the depth and breadth of the portfolio. DragonTrain was one game of 130 that we make every year, but we've got this diverse portfolio of designers building great games in lots of segments across the gaming cloud. So I feel confident about that.

Matt, just to build on that. Just to quickly add, just from a Q3 perspective, obviously we saw minimal impact there just based on the timing of when the injunction actually went in place in the last week of September. There were what they call modest conversion costs that will impact Q4. We will likely have a slight RPD impact just based on the timing of the conversions, but as Matt mentioned, we'll continue to monitor performance and collaborate with our customers here over the next three to six months to ensure that we retain the spots on the floor. In terms of legal expenses, corporate costs, well obviously the impact is just based on the timing of the developments on the legal front, but as I mentioned earlier, we don't anticipate any major material changes to the numbers that we guided to late last year. So I think overall we expect I think a low single-digit -over-year AUPEDAL growth rate in Q4, but that's going to be driving over 10% growth from a full-year point of view, and then we'll return back to kind of this normalized growth rate in 2025 just underpinned by all the great games that Matt mentioned earlier.

Perfect. Thank you so much. Thanks Barry. Thanks Barry.

Thank you. The next question goes to David Katz of Jeffries. David, please go ahead.

Hi. Afternoon everyone. I just wanted to follow on to that and talk about sort of the timing of new intros, particularly in the premium categories. Specifically, if we could get maybe some update on Huff and Puff, which is a game we've heard some stuff about out in the market.

Thanks. Yeah, happy to take that one. Thanks David. Yeah, so we were busy building a diverse portfolio beyond drag and train, like I said, one game in the portfolio. I think what you saw at G2E, and I know you were there as many of us were, on display on the Light and Wonder booth was really a manifestation of who we are as an organization. If you think about Light and Wonder, we came together through M&A, so really types of industries, companies like Bally's and WMS and Shufflemaster, and each one of these companies had a great set of franchises under the hood. I think you saw that on full display at G2E. So you saw a new version of Dancing Drums, you saw a new version of Ultimate Firelink, new versions of Invaders from Planet Moola, and importantly the one that you mentioned, Huff and Puff and what we've been able to do to kind of build that franchise is the original game. I think this is what our team does best, the best in the industry at it, taking Huff and Puff, which is a -year-old game, reinvigorating that into Huff and even more Puff, became the number one game in the for sale market in North America, making a new incarnation of that called Huff and Puff Money Mansions, which is now the number one performing game in the premium gaming ops in store base. You saw many more versions of that on the show floor at G2E. If we feel like this is the type of franchise that can be a contributor for a decade in the portfolio in lots of different ways, we actually have our Best Games workshop on at the moment down in Southern California where the team's getting together to think about how do they bring that brand to life in lots of different creative ways across all of our channels, not just land-based but also social casino and iGaming. So G2E for us was a selling show. A lot of what you saw on the floor is actually ready for commercialisation now. We launched a new cabinet at the show. So this is Cosmic Upright. It's an extension of the Cosmic Portrait. The Cosmic Portrait's been the number one cabinet in the marketplace for about the last year. So we're going to launch that late in Q4. We're going to build momentum on that into the first quarter of next year. So I think between the combination of holding onto the fleet that we have that was drag and train with new games and then really leveraging this new investment in Cosmic Upright and these brands that we showed at the G2E showing means we'll kind of continue that gaming ops in store-based growth throughout 2025. So really confident that the portfolio's well set up for success as we roll into 2025 here. Thank

you. Thank you. The next question goes to David Fabris of Macquarie. David, please go ahead.

Oh, hi Matt. Hi Oliver. Look, I was wanting to do comment on discussions with customers in the North American market at an industry level. Firstly, can you provide any insights on customer budgets? I guess I'm curious to understand whether volumes are sustainable at current levels. And then secondly to that, just within gaming ops, there's been a lot of debate whether premium gaming ops are fully penetrated at Casino. So your thoughts on whether this can increase or maybe it reduces as part of the floors going forward?

Yeah, great question. Obviously the macro is something we've been talking about on earnings goals for the last, I'd say, three years. I think we all look at it with a healthy level of paranoia to see how the macro is going to impact the gaming segment. I think what we see from our vantage point, the macro is largely supportive of a replacement market consistent with 2024 as we move into 2025. That's what we're hearing from customers. Obviously not all customers are made alike. There's corporate customers and tribal customers. I think what we've seen is that in the aggregate we feel like the 25 replacement market is set up nicely and our job really is to take maximum share from that market. Proud to say in the second quarter we were the number one supplier in the US from a ship share perspective. We'll see where everyone prints in Q3, but we feel like we might have maintained that in Q3 as well. I think importantly we've worked really hard as a team to diversify our business away from purely a class three replacement business. This is the adjacency that we've spoken about. Bringing new addressable markets online like Oregon State Lottery, Canadian VLTs, Georgia Coam, HHR, these are all discrete, unique addressable markets that we can get into and take share in. That really is part of what you're seeing in terms of the ship share improvements for our organisation is a laddering up of these opportunities. I think also importantly the diversification across geographies. You can see a really big order here for our UK business which is a unique thing for us. So making a big contribution to this quarter's game sales numbers. Also we've got a market leadership position in Asia, like I said, through the midpoint of November with the number one ship share provider in Australia. I think the US class three replacement market is really important for the health of the industry. We see that being positive for us into 25, but we've worked really hard, Siobhan and Nathan and the whole team, to diversify the business across geographies, across product lines, across adjacencies. I think that strategy is really coming to fruition at the moment. I think the second part of your question has been a curious one and we've had a lot of dialogue about this with investors, about what's driving the expansion in gaming ops in terms of the install base in North America. I think the logic that's really driving that expansion is I think operators realise that their best players want to play the best games. And it's kind of false economics to constrain the amount of the best titles on the floor to preserve costs when your best players want to play those games. And so I think you've seen operators expanding the footprint of their highest performing games and I think that's driving their business forward. So we see that maintaining at these levels will maybe even ticking up, but we think that's a net positive just for the economics in the sector.

That's appreciated. Thank you very much. You're

welcome. Thank you. The next question goes to Rohan Gallagher of Jardin. Rohan, please go ahead.

Matt, Oliver, good afternoon. Hello to all the listeners on the call. I was going to ask about CAPA allocation, but in the result just released you provided two new pieces of guidance, I suppose. Q4AE Bada guidance and the introduction of an NPAID guidance for FY25. Can you clarify and confirm the Q4 or unpack the P moving path associated with the Q4AE Bada guidance and the motivation behind the new NPAID guidance for FY25, please?

Yeah, thanks, Rohan. Appreciate the question. So, you know, as I mentioned earlier, we're kind of working through the mitigation and strategic reviews. We knew there would be some near term impacts from the Dragon Train injunction perspective and the team has just done, as Matt said, an incredible job. You know, working with our customers to show we ring-fence the majority of the impact to 2024 and then we could turn the page to not only execute our 2025 goals, but how do we continue to build a foundation for kind of to be a kind of a compounder of growth for years to come. If I think about the Q4 specific impacts that if you look at gaming, it's really in the North American gaming ops perspective where we hit some of the associated kind of conversion costs as well as some of the customer collaboration on commercial terms. From an international point of view, we had some game sales markets, especially in Australia, that we're working through as we continue to build that funnel as we head into 2025. I think outside of the gaming segment, and I think also with the social casino market, that remains, well, we say the market remains relatively flat, but I think we have the best team in the industry to continue to drive growth with the best of the class product that we have, the monetization flywheel we put into place as well as the GTC progress that we've made quarter after quarter. I mentioned on the call, this was our 11th and second quarter of growth and really outpacing the social casino segment. So we feel really good that Josh and the team will continue that progress as we head not only from a fourth quarter perspective, but into next year. And then finally, from my gaming point of view, we did have that flight headwind, you know, kind of sick and tired talking about the termination fee. But luckily, this is the last quarter that we'll talk about these term fees. So we had a million dollar termination fee last year. As we cycle through that to next year, it will be a cleaner comp. But if you look at the North American market, that continues to grow at a very sizable pace. And we're just really setting ourselves up for just to continue to execution in that space. So all these factors really contributed to what I would call modest kind of age of growth right here in G4. And then we'll kind of refocus ourselves and reinvigorate ourselves towards future growth. Then in terms of your second question, I think from an -PAT-A point of view, I figured you might appreciate that. But, you know, we have kind of looked to get both our reporting to include adjusted -PAT-A here over the last 12 or so months. This is really just simply a translation of the 1.4 AU per target. So this is a measure that's obviously widely used by our investor base, particularly in Australia. So we'll start to incorporate not only the overall financial reporting of -PAT-A, but obviously we'll work to kind of the guidance framework as we move forward. So over the next, I would say, five quarters, what we've done is we've made some reasonable kind of assumptions based on the current forecast the team's provided. And that's assumptions around floating interest rates, tax rates, investments in capex that obviously would drive some variability in DNA assumptions. So I think the range that we provide then gives us a bit more variability, flexibility, just given that this is a forecast. And this is what we'll start to kind of provide this translation as we move forward.

That's excellent. Thanks, Matt. Thanks, Alana. Yeah, thanks, Ralph.

Thank you. The next question goes to Ryan Sigdahl of Craig Hallam. Ryan, please go ahead.

Good afternoon. This is Will on for Ryan. Thanks for taking our question. Just wanted to circle back to Drag and Train quick. When should we expect the second iteration of that? And how do you feel about the pipeline going into 2025?

Yeah, I'll start with the pipeline broadly. Like I said, we're a diverse organisation with lots of games, lots of franchises. Drag and Train was one of 130 that we made annually. We've made over a thousand games in the last seven or eight years. So that's what we do. And what you're investing in when you invest in Light and Wonder is a platform, an R&D organisation that can continue to build great games quarter after quarter across a diverse set of markets and a diverse set of franchises. You know, Drag and Train, the original was clearly a game that players wanted to play and customers wanted to buy. And that's what we're about building. And, you know, what was contested in Drag and Train was a very narrow part of the game. So we're actively working on building a number of different variations of Drag and Train for the portfolio. We won't tip our hand exactly to when we're going to launch those games here publicly. We know many of our competitors dial into these calls, so we'll keep our cards close to our chest on that. But it is a franchise that will be in the market that competitors will have to compete with going forward. We see this as being the type of franchise like dancing drums, like huff and puff, like quick hits, that'll be a sustainable contributor to our organisation over the long term. So, yeah, you'll see it back in the portfolio in short order here. And we're excited about that. But, yeah, I just want to underscore the fact that we're more than just Drag and Train. We are an organisation that's decades old with lots of firepower when it comes to franchises and a strong line-up of games as we roll into 2025. And we chased down that $1.4 billion guide that we've given the marketplace so many times over the last three years. So thanks for your question.

Thanks, Matt.

Thank you. The next question goes to Justin Barrett of CLSA. Justin, please go ahead.

Hi, guys. Thanks very much for your time today. I just wanted to ask about margins and specific to your FY25 target. How important is margin expansion to that target? And then look, I just feel like I need to ask a question just around Drag and Train and the progress on the litigation in Australia. Is there at all any risk that you will need to, I guess, remove the Drag and Trains that have already sold in Australia from the floors as a result of that litigation progress?

Yep. Hey, Justin, thanks for the question. Yeah, I think from a margin perspective, if you look at the nature of our businesses across all three segments, it really does lend itself to having really robust margin performance -in-quarter. I don't think we've proven that and shown that over the last several quarters. And this is for us an absolutely key element for us in terms of creating value. And really, if we look at the stability of those margins, I think we can keep those current levels and really scale that over the next several years. You know, we expect from a gaming perspective, as we head into next year, we expect gaming to trend in line. And that's obviously barring any significant product mix-shifts. But, you know, we're going to continue to optimize the business for efficiencies while we continue to invest for the future growth of this business. And we've done that over the last several quarters, and we're going to continue to do that as we move forward. So over the long term, especially as we start to scale our gaming operations install base, over the long term, we expect that margin to expand. I think from a side-play point of view, we mentioned or talked about kind of UA spend and a guide in the second half. And we've partially realized that in the quarter, and we expect, you know, us to continue to kind of lean into UA where it makes sense to see high returns. But I wouldn't necessarily expect any major shifts in kind of margin going forward. But as we head into next year and DTC continues to scale, there's no doubt that's going to be a margin tailwind for us for many years to come. And then I think lastly, from an iGaming point of view, you know, I would expect that to kind of stay relatively consistent here as we invest and continue to invest in kind of the growth of this business. And this business will scale, you know, over the next several years. And I did mention kind of this impact of determination fees. Once we kind of cycle over that for next year, I think it'll be a much cleaner compare for us. So I think all of that coupled with margin enhancement really gives us, you know, an ability to drive really significant margin growth here over the next several years.

Yeah, I'll address the litigation question. As a policy, we don't talk publicly about litigation. But what I will say specifically about your question to address it is that those gains are under the ownership of our customers. This injunction is against light and wonder, not against any customer globally. So we don't see a scenario where those gains that are owned by our customers are impacted. But that's what we'll say publicly about that.

Thanks guys. Appreciate your responses.

Thank you. The next question goes to Rohan Sandram of MST. Rohan, please go ahead.

Good afternoon, Matt and Oliver and team. Thanks for the opportunity. Just the one from me. And it's around the medium term growth outlook. Matt, you might have touched on it earlier, but appreciate you for reiterated the $1.4 billion AED that our guidance again. But after that, once you've achieved that, how would you describe the growth runway ahead across your businesses beyond that? Thank you.

Yes, it's a key question. One we get asked quite often. What's the future beyond 2025? There's no invisible finish line at 2025. We're here for a transformation journey that extends well beyond 2025. Obviously, annually we build a strategic plan that takes our business out another three to five years. And so we have visibility to the growth engine in perpetuity. I would say I'm excited about the future of light and wonder beyond 2025. We think there's a significant amount of growth drivers in play. We think there's more share to be had in all of our global markets. There's some adjacency that we're just getting into in its infancy at the moment. So we see a continuation of that. Importantly, we'll likely come back to the investor base sometime next year and kind of reframe how to think about light and wonder beyond 2025. It will be a growth story. There's no doubt about that. And we're excited to come back and share more details about the specifics of this business beyond 2025. And at the moment, all eyes are focused on delivering on that guide and then setting this business up to success beyond that. But more to come.

Thank

you.

And the final question goes to Paul Mason of Evans and Partners. Paul, please go ahead.

Hey, thanks, Tim. I just wanted to ask about sort of medium term international outright sales opportunities. There's regulatory stuff that's happening in Macau and I think in the Philippines. And I believe there's like a big expansion opportunity in the UAE coming up in a couple of years. But could you give us a bit of a color on sort of like the magnitude and timing of those sort of things and any other big events internationally that might be sort of helpful catalysts?

Yeah, I can address that certainly. So I think, you know, the Philippines we've spoken about pretty extensively. That's a near term opportunity. It's been active last year. It's active again in 24, be active again in 25. There's some big ambitious plans for that market in terms of GGR and then competing kind of on a global scale as a casino operation. So we're a big participant of that. We're the number one player in the Philippines. The Macau regulatory churn is going to happen over a number of years. So that'll be a good opportunity for us. Again, it's pretty much a two horse race that market these days. I live there actually for five years. So I know that market well and I'm very fond of it. It's really a risk-crabbing enough that they're going to, you know, participate in that regulatory churn. And then beyond that, there's some really exciting kind of new geographies expanding. So the UAE is a very interesting one. Obviously, WINS license there now. We're in the process of getting regulatory compliance. These new markets are quite interesting. They're like a bit of a Rubik's Cube trying to figure out, you know, which market the players are going to be pulled from. Is it going to be a European player, an Asian player? And I think that really lends itself to global operators like Light and Wonder who can bring to bear an amazing set of content from, you know, We can bring to bear that portfolio to help operators like WINS and the others that are ultimately licensed in that market be successful. So we're excited about trying to figure out that Rubik's Cube and helping them along the way to be successful. But we see that as a kind of a multi-site expansion opportunity probably over the kind of 27, 28 timeframe is when we see that really coming to life. You've also got Thailand, you know, in the process of dealing with their expansion opportunities. You've got Japan on the horizon. So, yeah, really unique set of opportunities coming online in the international market. I think we're very well positioned as a team. We've got some great leadership in that market, in the international markets to help propel us forward and get us set up to success. So all of that to come back to, I'd say Macau and the Philippines, more of a near term opportunity. And then if you think about Thailand, Japan, UAE, probably more like, you know, 27 and beyond. So, yeah, I think some, you know, meaningful catalysts on the horizon for the gaming business.

Thanks a lot.

Thank you. We have no further questions. I'll hand back to Matt for any closing comments.

Thank you, operator. Before we wrap up, I'd like to take a moment to reflect on the incredible feedback we received at G2E this year regarding our new products and initiatives. It was truly affirming to see the positive reception from both customers and industry leaders further reinforcing our belief that we're on the right path towards innovation and growth. We were made on track to achieve our 2025 consolidated 80-bit target despite some challenges along the way. Our ability to stay focused, execute and adapt is a testament to the strength and resiliency of the Light and Wonder team. Thank you again for your continued support. On behalf of the entire Light and Wonder team, we're excited about the journey ahead and the milestones yet to come as we continue creating value for all of our stakeholders. Have a great day.

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