Light & Wonder (NASDAQ: LNW) has reported robust growth in its first-quarter earnings, with consolidated revenue climbing 13% year-over-year to $756 million. This marks the company's 12th consecutive quarter of year-over-year growth and its sixth straight quarter of double-digit revenue growth across all business lines.
The gaming segment saw a 30% increase in global game sales revenue, contributing to a 22% rise in adjusted NPATA to $105 million. CEO Matthew Wilson highlighted the success in various markets and the company's strategy to continue its growth trajectory, focusing on product roadmap execution and commercial strategy.
CFO Oliver Chow emphasized the commitment to achieving a revenue target of $1.4 billion, enhancing margins, and maintaining a disciplined capital allocation strategy.
Key Takeaways
- Light & Wonder's consolidated revenue increased by 13% to $756 million.
- The gaming segment experienced a 30% rise in global game sales revenue.
- Adjusted NPATA grew by 22% to $105 million.
- The company aims to reach a revenue target of $1.4 billion.
- Expansion plans include the Illinois VGT market, Canadian VLT market, HHR expansion, and West Virginia VLTs.
- Light & Wonder is focused on leveraging cross-platform opportunities and margin enhancement initiatives.
Company Outlook
- Light & Wonder plans to invest in growth initiatives and explore M&A opportunities that align with its core business.
- The company is committed to achieving a net debt leverage ratio of 3.0 times and maintaining $1.2 billion of available liquidity.
Bearish Highlights
- Gaming operations revenue saw a slight increase of 3%, with growth in the North American market being offset by declines in international markets.
Bullish Highlights
- SciPlay (NASDAQ:SCPL) segment revenue rose by 11% to $206 million, driven by player engagement and monetization.
- iGaming segment revenue increased by 14% to a record $74 million, fueled by content launches and market expansion.
Misses
- There were no specific misses mentioned in the earnings call summary provided.
Q&A Highlights
- Executives discussed the solid footing of the industries they operate in and robust GGR levels in digital businesses.
- The company's capital allocation strategy may include share buybacks and potential dividend reinstatement.
- Light & Wonder is working on the Carbon platform for efficient game deployment across channels.
In conclusion, Light & Wonder's first-quarter earnings call painted a picture of a company on a solid growth path, with strong performance in its gaming and digital segments. The company's leadership expressed confidence in reaching significant revenue targets and expanding its market presence while maintaining a focus on margin enhancement and strategic investments.
InvestingPro Insights
Light & Wonder has been making notable strides in the market, and recent data from InvestingPro underscores the financial health and potential of the company. Here are some key metrics and InvestingPro Tips that investors should consider:
- The company's market capitalization stands at a robust $8.26 billion, reflecting investor confidence and the scale of its operations.
- Light & Wonder boasts a gross profit margin of 70.25% over the last twelve months as of Q1 2024, a testament to its impressive ability to control costs and maximize profitability.
- With a return on assets of 4.05% during the same period, the company demonstrates efficient use of its assets to generate earnings.
InvestingPro Tips highlight several aspects of Light & Wonder's financial posture:
1. The company's liquid assets exceed its short-term obligations, indicating strong liquidity and financial stability.
2. Analysts predict that Light & Wonder will be profitable this year, aligning with the company's own revenue target of $1.4 billion.
For investors seeking a deeper dive into Light & Wonder's financials and future prospects, InvestingPro offers additional insights. There are currently 6 more InvestingPro Tips available, which can be accessed at https://www.investing.com/pro/LNW. To enrich your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Light & Wonder Inc (LNW) Q1 2024:
Operator: Welcome to the Light & Wonder 2024 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] And I would now turn the call over to Nick Zangari, Senior Vice President of Investor Relations.
Nick Zangari: Thank you, operator and welcome everyone, to our first 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 first quarter results and operating performance, followed by question-and-answer session. Today's call will contain forward-looking statements that may involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For information regarding these risks and uncertainties, please refer to our earnings materials relating to this call posted on our website at 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 Investors' 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 Investors section of our website. With that, I will now turn the call over to Matt.
Matthew Wilson: Thank you, Nick and thanks to everyone for joining us today. Our first quarter performance market. Great start to 2024 for Light & Wonder building on the momentum that we've created since we began our transformation journey and affirming our position as the leading cross-platform global gains company. During the first quarter, our team did an outstanding job executing our strategy and meeting our financial and operating objective, however, will provide more details in his financial comments. We are extremely proud to deliver our 12th consecutive quarter of year-over-year growth and our sixth consecutive quarter of double-digit revenue growth across all lines of business. The gaming industry has proven to be resilient in today's macroeconomic environment with healthy consumer demand fueling our impressive growth. These strong results confirms that we are investing in all of our prices and in the right talent, providing innovative content, cutting edge technology that enhances the player's experience and build a loyal customer base. We will continue to execute diligently with a focus on driving sustainable long-term growth. For Light & Wonder, it's all about the game. Our aspirations beyond just one brand or franchise. We are fortunate to have a robust and diversified roadmap of engaging and dynamic game content for players to enjoy across all of their favorite channel. With that, let's turn to our operational highlights for each business. In Gaming, we continue to make significant progress on our journey and given the quality of products this year as an inflection point without scaling game of fleet in a meaningful way. As many of you have heard, our Australian Bond hit franchise Dragon Train has arrived in the U.S. and we expect that to contribute gaming operations growth. In fact, Dragon Train debuted at the top new franchises with four of its titles in the top 10 indexing new premium leased gains on the [Indiscernible] report. Our commercial team is collaborating with our operator partners and being strategic replacement as we continue to optimize the floors for performance while preserving the longevity of active units. That said, our North American premium installed base has grown for 15 consecutive quarters and now represents 49% of the North American in-store base. Just recently, we also launched our new large screen jumbo cabinet Horizon, with Dancing Drums, ultimately explosion, and it's off to a strong start. Our execution on licensed title is second to none as Monster-Frankenstein continued to perform well on the charts with more pricing from the floor. We are prudent with license spend for the disciplined focus on our ROI, and this gives me the confidence that we will capitalize on the upcoming launches such as Squid Game in the near future. Onto games sales, during the quarter, we shipped close to 9,700 units globally with broad-based strength across the board and achieved number one ship share in Australia for the first time ever in the company's history. We see opportunities outside of the traditional North American and Australian replacement market as we further deliver units into international opportunity and adjacencies, such as shipments to Asia, specifically, Macau, Philippines, and South Korea in the quarter. Adjacent market, we are progressing well with the Oregon and Canadian VLT shipments with rolling thousand Georgia coin-operated amusement machine market, as well as various other video lottery Class 2, and historical horse racing market. We will continue working towards gaming share in the North American market on the back of our wide array of successful franchises such as Blazing 777, Huff N' Even More Puff, Big Hot Flaming Pots, [Indiscernible] Go Fish. On the systems and tables, our revamped strategy of enhanced collaboration driven by innovation is expected to provide sustainable momentum, further solidifying our leadership position with a focus on increasing recurring revenue stream by expanding system software and maintenance services and table products description as we continue to be the innovative thought leader in this space. Overall, we have strong conviction in gaming's growth trajectory as we continue to build on our hardware, brand, and franchise extension. With recent data showing a hit game Huff N' Even More Puff indexing as the number one overall new core game and [Indiscernible] to occupy 12 out of the top 25 games from the new premium lease and wide area progressive chart. We're well-positioned to capture the opportunities ahead of us. Turning to SciPlay where our steady outperformance continues, as we delivered another record revenue quarter, up 11% year-over-year, driven by continued growth in our largest four games Jackpot Party, Quick Hit Slots, Gold Fish Casino, 88 Fortunes Slots. We continue to gain share in a stabilized and social casino market as we have for the last nine quarters, and are now at over 11% market share. The investments we've made in our SciPlay engine and user acquisition are bearing fruit, and the results are reflected in the strength of our portfolio of games. Meanwhile, average monthly revenue per paying user and average revenue per daily active user once again reached new highs as we continue to execute on our prudent and sustainable monetization strategy, one that has proven to work very well as we navigate seasonality in the business with favorable results. The marketing campaigns launched in the quarter solidify our convictions of investing in opportunities, which are expected to generate attractive payback period to fuel sustainable long-term engagement and monetization. SciPlay is the best in the industry in terms of user acquisition execution, which we've demonstrated consistently in our performance. In addition to executing to our marketing blueprint, some of our other growth initiatives include testing and scaling of new games and taking learnings to drive success for next phase progression into ad tech. Most importantly, we've made meaningful progress on our direct-to-consumer platform in the last six months with approximately 6% of revenues generated from this channel in the first quarter. Our focus here is to proceed deliberately, ensuring a high-quality user experience to encourage player engagement. Overall, we see this as a great long-term opportunity as we continue to refine the platform and scale it across our game. With SciPlay's clear strategy and focus on roadmap execution, we are differentiating ourselves as one of the clear leaders in this space. On to iGaming, where the robust industry growth we saw in North America propelled us to another record revenue quarter. Our OGS platform delivered record gross gaming revenue volumes in the U.S. and Canada as we saw year-over-year increases of 23% and 29%, respectively. This impressive growth was further accentuated with our content strategy and roadmap. In fact, we continue to see stellar performance from our third-party content with ultimate filing cash flows, reflecting solid performance, continuing the success we've seen with our proven land-based franchise. ELK Studios and Lighting Box continued to perform above expectations, a testament to our OGS platform providing valuable insights to their game data prior to Light & Wonder's acquisitions of these high-performing studios. ELK Studios' GGR is up 34% compared to prior year, driven by strong performance across [Indiscernible]. Lighting Box had a record GGR for the quarter with sequential growth of 12%, supported by strong launches from the Thundering series. [Indiscernible] has also begun to scale with nine studios now live connected to 72 operators across 10 markets as we continue to build on the accessibility and scalability of our iGaming network. Live Casino continues to be an important part of our overall iGame portfolio as we continue to invest and optimize our offering. We continue to see progress and believe that our collaboration with operator customers will ultimately solidify long-term partnerships as we scale and expand into other regions in the future. iGame is one of the fastest-growing segments in the gaming space as we continue to see within the U.S. market in the quarter. We will continue to expand our content portfolio and cross launch our proven land-based and digital native games, along with enhanced capabilities and new features added to our existing offerings, rounding out our robust iGaming portfolio to capitalize on legalization opportunities in the future. With our unmatched market position and cross-platform capabilities, Light & Wonder has created a compelling value proposition. Our results clearly demonstrate that we are delivering the iconic content the players want with the ability to choose where and when they want to play their favorite Light & Wonder game. Across our business units, our industry-leading talent and high-performance culture are the key to our past success and provide confidence for our future. We will continue to enhance our talent and invest in our culture to drive innovation and promote the lasting impact our product offerings. Importantly, we will support our creative talent and strategic initiatives with disciplined R&D investments that drive long-term sustainable value. Above all, we have a focus on operational excellence as we continue to extend our market reach, and I want to thank the team for their dedication to this journey. I'm very excited about the momentum we are creating and look forward to the opportunities ahead for Light & Wonder through 2024. Best is yet to come. With that, I'll turn to Oliver to review our first quarter financial results.
Oliver Chow: Thank you, Matt. I'm pleased to share that we started the year with strong overall performance, marking our seventh consecutive quarter of double-digit consolidated revenue growth and six consecutive quarter of double-digit revenue growth across all three segments. Consolidated revenue increased 13% year-over-year to $756 million, driven by continued momentum across all businesses. Operating income was $165 million in the quarter, an increase of 62% over the prior year, primarily due to the higher revenue and healthy margins, along with lower depreciation and amortization and lower restructuring and other cost. Consolidated AEBITDA grew 13% to $281 million compared to the prior year period, resulting in a consolidated AEBITDA margin of 37% for the quarter and robust top line growth and our commitment to maintain strong margins across all of our businesses. Adjusted NPATA increased 22% year-over-year to $105 million, primarily due to strong revenue growth across all of our businesses and healthy margins. I will note that we disclosed a reconciliation of adjusted NPATA in our earnings press release, along with other financial details and our quarterly Form 10-Q filed with the SEC. Our results reflect the collective and collaborative work of our business units. In Gaming, we continue to deliver strong financial and key performance metrics, a true testament that we remain focused on executing our robust product roadmap and commercial strategy. Revenue in the quarter grew 14% year-over-year to $476 million, led by another quarter of strong global gaming machine sales and gains across gaming operations and systems. AEBITDA was up 13% to 232 million compared to the prior year, with profitability primarily driven by revenue uplift in the period. AEBITDA margin was 49%, in line with prior-year levels as we maintain healthy margins through our ongoing margin enhancement initiatives, while continuing to invest for future growth. Gaming operations revenue in the quarter increased 3% compared to prior year on continued growth in our North American installed base, primarily due to the successful launch of Dragon Train in North America late in the quarter, partially offset by declines in international markets related to the fleet optimization that we previously shared. Importantly, revenue per day grew 4% in North America year-over-year, approaching $49 on continued performance of our license and proprietary games backed by our popular cosmic, [Indiscernible] dual screen cabinets. Global game sales were robust in the quarter with revenue up 30% year-over-year. North American and international replacement unit shipments increased 14% and 68% respectively with North America, driven by our ramp in adjacent markets and international are driven by continued strength in Australia, new and expansion sales in the Philippines and South Korea, as well as replacement opportunities in Macau. Additionally, average selling prices increased 6%, reaching approximately $20,000 in the quarter as we continue to place premium products into both the North American and international markets. In Systems revenue increased 9% year-over-year, primarily on higher hardware sales into existing and new customers. And lastly, Table products revenue was relatively flat compared to prior year. Our results demonstrated the strength of our product portfolio and continued execution to strategy, which gives me confidence in our ability to maintain the strong momentum through the year as we expand into international and adjacent markets in addition to further growth in the North American Class 3 market. Moving on to SciPlay, where we continue to outpace our peers with another record revenue quarter, once again, establishing ourselves as the industry leader in year-over-year growth in the social casino space. Revenue in the quarter was up 11% year-over-year to $206 million on growth, underpinned by robust player engagement and monetization, leveraging our dynamic live ops SciPlay engine across our portfolio of high performing games. I would like to mention that you may have seen a notable increase in our web in-app purchases and other revenue line with meaningful uplift in recent quarters. Revenue from our direct-to-consumer platform, which has progressed nicely as reported in this line item. This subsequently impacts growth in the mobile line item that we and several other data platforms report externally. AEBITDA increased 15% to $62 million year-over-year, with AEBITDA margin of 100 basis points to 30%, driven by continued revenue growth, partially offset by higher targeted and planned marketing spend, which has proven to be an effective growth strategy for SciPlay. While there will be user acquisition costs are dynamic quarter-to-quarter, we will always take a prudent approach with a focus on long-term return and expect that margin will scale over time. Our monetization metrics continue to set new records with average revenue per daily active user, up 13% year-over-year to just over $1 on a steady base of 2.2 million daily active users. Average monthly revenue per paying user was nearly $114, an increase of 17% compared to prior year, while maintaining payer conversion above 10%. We are pleased with the execution SciPlay where we continue to see outperformance relative to the market. These favorable growth trends continue to be driven by our focus on engagement, retention, monetization, and our cross-platform strategy. We are confident in our marketing blueprint were dollars further on high quality investment opportunities, generating meaningful returns to fuel sustainable long-term growth and profitability. Onto iGaming, where our offering and ecosystem continues to scale as the market continues to expand. Revenue in the quarter increased 14% year-over-year to a record $74 million, primarily driven by our strong content launches and U.S. and international market expansion. AEBITDA grew 9% to $25 million, largely not top line growth with an AEBITDA margin remained healthy at 34%, trending in line with historical levels, while we continue to invest in content and product development with a focus on future margin expansion. Wagers process through our iGaming OGS platform increased 10% from our prior year period to a record $22.4 billion on healthy levels of engagement. Overall, we expect to extend our momentum through our original content and regionalized roadmap, underpinned by scale and a well-run portfolio with our business is firing on all cylinders. We will continue to evaluate processes for efficiencies, staying agile and nimble to adapt to changing environments to drive further operational excellence within the organization. This strategy has been to be effective as reflected in our healthy margins we achieved in the quarter as we continue to invest organically in the business. Importantly, our teams will continue to maximize the efficiency of our business through enhancing processes and automation opportunities and committed to driving sustainable long-term profitability through value-enhancing initiatives. Onto balance sheet and cash flow. At the end of the quarter, we had approximately $1.2 billion of available liquidity, including $450 million of cash on hand. Notably, we received a one notch corporate family rating upgrade by Moody's (NYSE:MCO) in April on our strengthened balance sheet and meaningfully cash-generative business. Our consolidated operating cash flow was $171 million in the quarter, and free cash flow increased 26% compared to prior year to $93 million for reflective of a strong earnings, partially offset by less favorable changes in working capital and increases in capital expenditures. With the strong performance in demand of our newly released games, we expect an increase in capital expenditures in the coming quarters as we continue to invest for sustainable growth. The highly cash-generative nature of our business and continuous efforts to improve conversion rates will allow us to further scale annual cash flows over time. We remain within our targeted net debt leverage ratio range at 3.0 times at the end of Q1 with enhanced optionality around capital allocation is our business continues to grow. During the quarter, we bought back $25 million of shares. In total, we have repurchased approximately $600 million or 80% of the $750 million authorized program. As we generate incremental free cash flow, we will be opportunistic as we see value dislocations in the market, while having a programmatic share repurchase plan now in place. With a streamlined business, we will continue to invest organically into growth initiatives for the long-term. We will consider M&A opportunities that are complementary to our core business and above internal return hurdles. We further develop and deploy a robust R&D engine across platforms. We remain diligent in our efforts to prioritize shareholder value through capital returns and strategic investments. Our team has done a tremendous job at executing the strategy, elevating like one or two, one of the fastest growing companies in the industry, underpinned by a healthy balance sheet and strong cash flows. And importantly, we are doing so in an efficient way with a prudent approach to reinvesting back into the business without compromising top line growth and R&D, a key driver success here at Light & Wonder. This quarter is just another proof point as we continue on our journey to scale the business. I am confident in our ability to deliver on our roadmap and achieve sustainable growth towards our target and beyond. With that, we will turn it over to the operator for your questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question is from the line of Barry Jonas with Truist. You may proceed.
Barry Jonas: Hey, guys. I wanted to ask about SciPlay. How are you thinking about the growth trajectory for here? And for DTC, you're at 6% now. How do you see that ramping and how high do you think you can get? Thanks.
Matthew Wilson: Yes, great question, Matt Wilson here, obviously. Really proud of the exceptional results SciPlay been able to orchestrate again, they just go quarter to quarter back-to-back have consistently taking share in the marketplace. Really the only provider in the space is doing that. One of the things are really liked about this specific result was this the domestic diverse vacation and the result. There was a contribution by all four of our big games Jackpot Party, Quick Hit Slots, Goldfish 88 Fortunes, all making meaningful contributions to the growth of this business in this last quarter. And I think that this gives us the confidence that we can take that playbook and expanded even further across more gains in our portfolio and other the teams working really hard to retool monopoly. That's another game we see contributing to our results in the future. So, it's very impressive. I think DTC is another great example of how this team tackles big hairy problem. As you know, we are we kind of view 2023 to pilot that DTC were about 1% of revenues in 2023. In Q1 this year, like you mentioned, 6% of revenues coming through that platform. We see industry peers as high as 24%, 25%. So that's really the goalpost that we need to get to over time. It will take some time. We'll see. We'll see it ramp up here in the second quarter and beyond that. We see a long runway there having a successful DTC revenue stream down the line.
Oliver Chow: Yes. And just to build on that, it will continue to invest and deploy the SciPlay engine across the portfolio of games. And we're actually going to leverage data analytics to enhance player engagement and monetization prudently over time. There's also going to be further opportunities for us to lean into you way as we did in Q1 with just a continued focus on improved returns. We saw strong returns on the ad spend that we did make in Q1. And so will further review that with the team and see if there's any other opportunities to drive LTVs over time.
Matthew Wilson: Yes. Maybe one final call after the SciPlay team. Obviously, headquartered out of Cedar Falls, Iowa. They've got a big team in Austin, Texas. They will have a huge team in Tel Aviv in Israel. So, I had to put up this level of results over the last few quarters, given everything that that team has dealt with just couldn't be more proud from that same assist, a testament to the character, their teamwork and the contribution there making. So just fantastic to have them back in the portfolio and really proud of the results and everything the software team has done.
Barry Jonas: Perfect. Thanks so much, guys. Appreciate it.
Matthew Wilson: Welcome. Thanks Barry.
Operator: The next question is from the line of Chad Beynon with Macquarie. You may proceed.
Chad Beynon: Afternoon. Matt, Oliver, thanks for taking my question. I wanted to drill down into unit sales. So nice year-over-year growth that you've talked about. Some of these adjacencies over the past couple of meetings and earnings calls. Can you kind of flush that out just a little bit just in terms of where that opportunity stands with VLTs, [Indiscernible], et cetera, and kind of what's ahead in 2024? Thanks.
Matthew Wilson: Great question. This is an exciting part of the gaming portfolio. I'm calling 2024 the year of adjacencies within building towards this for a number of years, a lot of resources, what our R&D effort has gone into this and a really important part of our growth strategy for the Gaming business. There's a number of markets coming online in late 2023 and then throughout 2024, I think it's the continuation of the Illinois VGT market, which has been a great market for us for some time that's continuing to expand. We are excited about that. We see ourselves as a multi-quarter opportunity. We've shipped that, yes, a couple of quarters worth of gains as there's more to come with our -- so there's a few Canadian VLT market that we have signed up and we'll transact with throughout 2024. As you mentioned, [Indiscernible] come online. We got further expansion in HHR in 2024. We've got West Virginia VLTs. So it is really a layer cake of opportunities. I think we typically think about adjacencies in a large tranches of games in order to what we are actually seeing in our order book is these opportunities kind of layering on top of each other. I think if you look into the second quarter and third quarter, you'll start to see really strong contribution coming out, these adjacencies that coming through in a in a diversified way that really gives us a great pipeline. So I think it sets up nicely. I think [Indiscernible] and Nathan and the team has been working really hard to get us in this position and near 2024 the year where we get some significant upside in those adjacent categories.
Chad Beynon: Thank you very much.
Operator: Next question is from the line of Rohan Gallagher with Jarden. You may proceed.
Rohan Gallagher: Matt, Oliver, good afternoon. Congratulations on the results and gaming operations. Obviously, the most profitable segment within the gaming space, probably a little bit frustrated with the lack of installed growth up until the last two quarters was timing to see that move will sometimes like Dragon Train performing exceptionally well here in Australia. Can you unpack that in terms of realizing your targets for FY 2024, 2025 please?
Matthew Wilson: Great question. I think the deck is stacked for gaming in 2024 for us. As you mentioned, we're seeing solid pipeline of opportunity here. I think we've just kicked off the 15th consecutive quarter of install-base growth. I think we're now reporting 49% of our installed base in that premium category. That's the one we care most about. That's the most profitable segment with the most opportunity. As you know, the North American InfoBase is comprised of premium gaming, often those public markets. It's really that premium category we're looking to drive. And I see that happening. So, you can see that showing up in the RPDs are up 4% year on year in terms of RPD thanks to the premiumization of our install base. And I think we're very well-positioned for the remainder of the year. I'll give you two data points that support that; one Overnight Owls [ph] reported their quarterly [Indiscernible] survey. If you look at the most anticipated games on that list, number one was Dragon Train number two with Squid Game, number five was Huff N' Puff, Money Match. And so yes, three of the top five, most and dissipated gained in terms of what operators are looking for a whole. I think it was 52% of the total votes came from Light & Wonder product. So that just shows you the pipeline sets up really nicely for the remainder of the year. Another data point, I'll give you 12 of the top 25 new premium games on the recent [Indiscernible] survey were Light & Wonder games as well. So, you can see the gains that are performing in our installed base are doing really well and then the gains in the pipeline highly anticipated. So, I think the contribution across the breadth of product, including Dragon Train really sets us up for a great year in 2024. I think you can expect a material pickup in installed throughout the remainder of the year.
Oliver Chow: Yes, and just to build on that, Matt, as we continue to scale our install base, especially on the for the premium side around, we will expect capex to scale as that installed base growth. So with the excitement that we're hearing from our customers around the product portfolio that Matt just mentioned, will continue to invest capex to meet the demands of the market are probably speaking. So we're in a great position, and this is the inflection point. We've been waiting for some very exciting.
Rohan Gallagher: Thank you, gentlemen.
Operator: Your next question is from the line of Ryan Sigdahl with Craig-Hallum. You may proceed.
Ryan Sigdahl: Hey, Matt, Oliver. I want to focus on international here a little bit. So continued strength in game sales outside of your core U.S. and Australian markets. It seems like your global platform is increasingly a powerful competitive advantage there. But if there's anything you can share whether it be in South Korea, Macau, Philippines, et cetera, what games and products are resonating for you guys?
Matthew Wilson: Yes, another great question. I think the international gaming category was a hero category for us. I think it's just one way where we are a significantly differentiated supplier in the space, given our global footprint, our product diversity, geographic diversity, we're not like many of the competitors in the space. We have a very diversified business. This category was up from a unit sales perspective, 45% year-on-year, 45%. So just an amazing growth of that business. So hats off to Simon Johnson, who runs our international business. I think really two parts story that's driving this number. The first one is the ANZ market, which I think is a fascinating case study in the art of the possible. As a business, we have been a sub-10% player in that market for decades. We've been at this for nearly 40 years in all of the incarnations of this company, whether it's Bally or Shuffle Master or Star games or scientific games. And just really proud of that team declaring on this earnings call first time in company history, we're number one in the Australian market. So just don't get tired of talking about that level of success. So anyone that's listening on the line that played a role in that -- I take it off to you, it's just exceptional. And we see many quarters and many years of runway to continue that growth trajectory. I think probably the second element to that is the Asian market, as you mentioned. So I think really, the Philippines expansion is in full force at the moment. You saw some of that in Q1, but a lot more to come through the remaining quarters of this year. And then the other big driver is Macau. So we're going to see a regulatory churn to take place here in the next 12 to 24 months. And we're a 50% share player in that market, too. So I think it sets up really nicely, and I think you can continue to expect the international gaming segment to contribute in a meaningful way.
Ryan Sigdahl: Great job, guys. Good luck.
Matthew Wilson: Thank you.
Operator: The next question is from the line of Rohan Sundram with MST Marquee. You may proceed.
Rohan Sundram: Thank you, and good afternoon, Matt, Oliver and team and well done. Just one for me in terms of how would you describe slot demand globally across the key markets from your customers? And how would you rate your forward order visibility in these key markets as well?
Matthew Wilson: Yeah. Thanks, Rohan. Looking forward to seeing your next question. Yeah. I think from a macro perspective, and if you're just looking specifically at GGR in North America, I think we observed like many did in the industry, a little bit of softness in January weather related. And I think the remaining month of the quarter, we saw a bounce back in GGR. And the industry posted a really solid number. It's well up on pre-covered levels. So I think that puts the industry on really solid footing. We're from our vantage point, not seeing any changes in customer purchase behavior, and the order book looks really solid. And I think there's -- two things driving that order book for us. One is improving games. So again, back to the aisles report, we have the number one game in the core space in Hudson (NYSE:HUD) even more path and a variety of games from a variety of studios really driving that improvement in product quality. So that kind of underpins the order book that we can see looking forward. And then the other one is this adjacent story we just spoke about. These are discrete opportunities that are kind of well capitalized both from a government perspective and from a new market perspective. So a lot less volatile in terms of the pipeline, I would say, around those adjacencies. So the combination of all those things gives us good confidence in the remainder of the year. I think the other international markets are in different places. I think you're seeing Asia rebound off the lows in the last few years and really coming back to full strength. I think Australia is a consistent churn market that we're participating in there. So I don't expect any radical changes there. But I think -- on balance, industries on solid footing, we watch the consumer and the macro very closely, but nothing in the end markets at the moment suggesting that there's anything to worry about that.
Oliver Chow: Yes. And just a quick couple of very quick adds. Obviously, we do see solid data points from our coin and trending pretty well here in the quarter. And so to Matt's point, we see that, we see the GGR levels even in our digital businesses as well being pretty robust here in the quarter. So to Matt's point, I think we don't see anything in the data points here that would suggest anything different, but that's why it's important for us as we start to think about margin enhancement and other initiatives that we're working through to be able to give us some flexibility over the balance of the year.
Rohan Sundram: Thank you. That's helpful.
Operator: The next question is from the line of David Katz with Jefferies. You may proceed.
David Katz: Hi. Afternoon, everyone. Nice quarter. Can we just talk about two things. One is not a will you or Welch question, but we have this $1.4 billion number out for next year. Can we just go back over the sort of building blocks to getting to $1.4 billion and allow us to decide where those building blocks and how they stack up as we get into next year. And the second part of the question is really around cash flow conversion. And Oliver, how you see that evolving as we get toward that $1.4 billion-ish number for next year? And even longer term, where can the cash flow conversion slide up? Thank you.
Matthew Wilson: Yes, I can't have an earnings call without that question, David, the first in the $1.4 billion expected Barry to lead off with that. But yes, still very, very convicted. Obviously, we've been out telling the Street every earnings call, 1.4 as a number. If you speak to people here at Light & Wonder, it is our mantra. It is our north star, the thing we're all chasing collectively. And we feel very confident we can get there. And I think this last quarter is another demonstration of operating momentum that puts us squarely on the trajectory to get to that $1.4 billion. You won't see any hockey stick in 2025. We see a nice kind of linear approach to getting to that 25 number. But a number of different pathways across all of these different businesses. I'll let Oliver pectoris is very well versed on the pathways.
Oliver Chow: On the pathways of the $1.4 billion. Yes. Yes. Listen, I think to Matt's point, nothing's really changed in terms of the building blocks, too. So just very quickly from a gaming perspective, we've already talked about kind of the share gains we have in the core kind of Class III markets, but the adjacent markets will be the critical component for us in gaming, and we're making really great strides here to Matt's point earlier in the call. SciPlay, we continue to see strong retention engagement, and that's really driven by that SciPlay engine and the UA initiatives that we've consistently kind of put forth, and we've really consistently outpaced our peers in these segments. So prudent monetization will always be kind of the key for us in strategy and DTC will also provide us some tailwinds here as we head into -- and I think from an iGaming perspective, we expect continued growth in the global markets, particularly here in the US, as you've seen really over the past few years, our strategy remains pretty consistent there, which is just keep on deploying proven content, cross-platform content and then really executing a very robust regionalized road map. So all of that, coupled with the margin enhancement initiatives and the operational excellence that we're focusing as an organization will help propel us to the $1.4 billion.
David Katz: Yeah. That's one call out that I'd like to make is this combination of the team focused on growth, but doing it efficiently. So building a big pipeline of margin enhancement opportunity. This team does a fantastic job of optimizing cost, and that just gives us some buffer in the top line if we need it, not that we see it, but then also potential incrementality if that doesn't materialize. So excited about the pathways and it's clear and obvious to us...
Matthew Wilson: And then David, to your free cash flow question, yes, listen, that continues to be a key focus for us as a leadership team and as an organization. And we will see kind of conversion levels, especially here in free cash flow levels within the quarter's kind of ebb and flow. There's some seasonality, obviously, related to timing of tax and interest payments especially here in Q2 as well as timing of working capital and CapEx investments. But overall, we do expect our annual conversion rate to continue to trend favorably here over the coming years. We are not going to compromise long-term growth to achieve a specific conversion rate. But as we scale, we will continue to invest in CapEx, like I mentioned earlier, or R&D to really be key drivers for us as we move forward. But our free cash flow increased 26% this past quarter versus prior year. And that is really reflective of just the strong earnings and the highly cash-generative businesses that we have, and we'll continue to benefit from that over the coming years. So yes, we're confident in being able to scale that over time.
David Katz: Thank you.
Matthew Wilson: Thanks, David.
Operator: The next question is from the line of Jeff Stantial with Stifel. You may proceed.
Jeff Stantial: Hey, good morning, Matt, Oliver, thanks for taking our question. Just one strategic question from us, Matt, I'm curious to get your updated views on the M&A landscape really across all three of your segments. Are you seeing interesting acquisition opportunities out there? And if so, how have asking prices trended over the last year or so as we start to contemplate higher interest rates for longer? Thanks.
Matthew Wilson: Yeah, another great question. And obviously, one that comes into the frame when you get the balance sheet under control like we have. I would say two words characterize this management team Board over the last two years. It's really focused and disciplined. And I think that's really what this business transformation has all been underpinned by. I think if you look at things that we've done in the space over the last say, 2.5 years, things like the acquisition of ELK and Lightning Box, the iGaming studios. That's squarely in line with our vision. I think another thing, if you look at the organic expansion of the R&D studios, I think it's bringing Kelsy Foster online and building a campus around here in Reno. That's another great example of what we're about and what we're interested in, really looking at opportunities that are close to our core. We have a clear north star on who we are and importantly, who we're not. I mean Scientific Games (NASDAQ:LNW) was this wildly diverse portfolio of assets across lottery and sports and content and land-based and digital. We've chosen clearly a content strategy. We want to be the leading cross-platform global games company. And we'll look and evaluate every M&A target that supports that mission and vision, but we're not in a hurry to go and put a huge amount of complexity back into the portfolio. I think there's a number of people in the industry dealing with complexity as it relates to M&A. We've been through that with a live experience for the team here that comes with a level of chaos. So we've done a lot of work to clean up. It's kind of the operating businesses and get this squarely focused at our vision. So we'll look at assets that help us project that further on, but not in a huge hurry to do a flashy piece of M&A.
Jeff Stantial: Great. That's helpful. Thanks, Matt. Congrats on a nice quarter.
Matthew Wilson: Thank you.
Operator: The next question is from the line of Justin Barratt with CLSA. You may proceed.
Justin Barratt: Hi, guys. Thanks very much for your time today. Matt, you just sort of touched on the balance sheet, but I was just wondering if you could expand. So look, your balance sheet should sort of continue to fill downwards as you generate that improved free cash flow and then also maintain a level of buybacks. But how should we think about, I guess, the potential further buybacks beyond this sort of $750 million program? And then is there any chance that any form of dividend is reinstated near term?
Matthew Wilson: Yes. I'll kick that off and then hand it to Oliver. I think the answer to that is yes to both of those things. I think the organization is on a growth trajectory. We want to continue that, look for ways to invest behind that, both organically and inorganically to continue that growth profile in perpetuity. We know that's what investors are looking for. We also think when there's dislocations in the share price, then it's prudent for us as capital allocators to think about share buybacks. We intend to continue to execute through the remaining portion of the $750 million. We'll come back to the market and explain where do we go to from here. But buybacks at these levels still seem very opportunistic to us. But Oliver, anything to add?
Oliver Chow: Yes. No. I think largely speaking, we're going to continue to execute to the blueprint from a capital allocation perspective. And there's really not a whole lot of, I would say, structural changes that we'll make at this point. In Q1, we're now back at the midpoint of our targeted net leverage range, so between 2.5 times and 3.5 times. And to Matt's point, share buyback will absolutely be a key focus for us as we now put a programmatic plan in place, and that's including the potential of tools such as 10b5-1 and just more systematic repurchases. Matt also mentioned organic investments. That is certainly areas of our highest returns that we see, and we absolutely see opportunities to continue to invest in talent and in the core business. But yes, I mean, from a dividend point of view, we constantly engage and evaluate with the board and really the best use of capital and uses of our funds to enhance shareholder value. Currently, we have no plans to deviate from our capital allocation blueprint. But over the next several years, sure, dividends can be something that we consider at some point down the line.
Justin Barratt: Thanks for that.
Operator: The next question is from the line of Paul Mason with Evans and Partners. You may proceed.
Paul Mason: Hi, team. Just wanted to ask about cross platform a bit. Your land-based business has got this great content that's been coming out in DRAGON TRAIN and FRANKENSTEIN. It looks like some hot games on the horizon as well. Could you maybe talk a bit about like the timing of when we might see some of these social casino or gaming as well? Yes, thanks.
Matthew Wilson: Yes. I think this is really our company at its best. Like I said earlier, we chose the strategy of being a content company and then having three businesses in the portfolio that all set off that same idea of building great franchises and taking it across these three channels. DRAGON TRAIN is a fantastic example. Started in Australia. It's moved to premium gaming offs in the U.S. You'll see it in the social casino space in June, and you'll see it shortly after that in the iGaming space. So really trying to cut down the lag time between building the game the first time and then deploying it across these three channels. We have our CTO, Victor Blanco, who is working on a platform, a GDK platform called Carbon, which will allow us to build a game one time and take that game very efficiently and effectively across all three channels. That's an investment that we're making. It's been worked on at the moment. It's not all the way to production. But when we get it there, we'll update the investment community. But yes, this is the key to our thesis that we build great games. We take them across these franchises. We also have for the first time some games coming back the other way. They're coming from the social casino space onto a land-based gaming floor, which is very exciting. And then also, we have the data going all different ways across the ecosystem. So AB testing games, rapid asset testing. So yes, we're really starting to mature in the way we're leaning into those cross-platform opportunities. And you'll start to see a shorter and shorter lag time between a game being built in one channel and being deployed in another.
Paul Mason: Great. Thank you.
Operator: The next question is from the line of Allan Franklin with Canaccord Genuity. You may proceed.
Allan Franklin: Yes. Hi, guys. Afternoon, good morning depending where you're at. But just wanted to touch on the margin dynamics, please. Appreciate there's some steady performance in that quarter for each of the business groups. And also, you are just noting that first quarter can be seasonally low, just how to think about the margin progress over the course of the year, please?
Oliver Chow: Allan, great to hear from you. Yes, I was very pleased with the results here in Q1. We continue to post very healthy margins, benefiting from our continued focus on efficiencies and the team could really -- continues to execute really well here. In gaming, our supply chain and cost initiatives have really helped maintain our strong margins. And going forward, as we further scale our gaming operations installed base, we should continue to see margin scale with that over time. At SciPlay, there will be UA opportunities that will be available to us as we continue to take a prudent approach as we have this quarter through the campaigns that you all may have seen. But we are laser-focused on long-term sustainable top and bottom line growth. And as we mentioned earlier, DTC will be a key factor for us in margin expansion within SciPlay. And then in terms of iGaming, margins, we expect them to be fairly steady as we continue to expand on original content, while we continue to invest in live casino. Over time, we do expect margins to expand in that business as we scale with more jurisdictions coming online. So we'll have a multitude of opportunities to expand margins over time. And we're staying laser-focused on our margin enhancement initiatives and lead management rollout. We're now just under test robotic automation processes here in shared services, and it really is starting to scale our offerings overall. So yes, we continue to see opportunities to grow margins while still investing back into the business.
Allan Franklin: Helpful. Thanks.
Matthew Wilson: Okay.
Operator: There are no additional questions waiting at this time. I would now like to pass the conference over to Matt for concluding remarks.
Matthew Wilson: Great. Thank you. About two years ago, we transformed from a constrained company as Scientific Games into Light & Wonder with a bold new vision and differentiated strategy. As we approach the one-year anniversary of our secondary listing on the ASX, we are getting recognized as one of the fastest-growing companies in our industry, backed by a world-class people-first culture. To each and every one of you who happen to be a part of this journey, I want to thank you for your dedication as we continue to build upon the solid foundation we have here. I'm incredibly proud to be part of this process, and I look forward to further accomplish this with all of you along the way. Thank you again for joining us.
Operator: That concludes the Light & Wonder 2024 first quarter earnings conference call. Thank you for your participation, and enjoy the rest of your day.
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