Q2 2022 Light & Wonder Inc Earnings Call
Welcome to the light in one to 2022 second quarter Investor Conference call. At this time, all participants are in listen only mode.
Brief question and answer session will follow the formal presentation.
If you would like to ask a question. Please press star followed by one on your telephone keypad now.
Let me turn the call over to Jim Bond AC Senior Vice President of Investor Relations for life and Wanda.
Mr Bond Basi you may begin.
Thank you operator, good afternoon, everyone.
During today's call, we will discuss our second quarter 2022 results and operating performance followed by a question and answer period.
With me today are CEO , Barry Cottle, and CFO Connie James.
Our call today will contain statements that include forward looking statements under the private Securities Litigation Reform Act of 1995.
These statements 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 release issued earlier. This afternoon, the materials relating to the call posted on our website and our filings with the SEC.
We will also discuss certain non-GAAP financial measures.
<unk> of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release as well as in the investors section on our website.
On September 27, 2021, we announced that we had entered into a definitive agreement to sell our sports betting business to endeavor.
Subsequently on June 30 of this year, we entered into an amendment to the definitive purchase agreement.
During the second quarter, we completed the sale of our lottery business to Brookfield business partners.
Accordingly, we have reflected these businesses as discontinued operations in our consolidated statement of operations.
With the assets and liabilities of these businesses as held for sale now consolidated balance sheets for all periods presented.
We are reporting a result of continuing operations and three business segments gaming side play in that game.
The mouth and disclosures referring to combine include both our continuing and discontinued operations.
As a reminder, this conference call is being recorded.
A replay of this webcast and accompanying materials will be archived in the investors section on our website at <unk> Dot com.
Supplemental reference slides are available on our Investor Relations website to help facilitate your view of the Companys results, including an earnings presentation.
And now I will turn the call over to Barry.
Thank you for joining US today. This is a pivotal year for like Wonder and I'm excited to discuss the significant progress we have made transforming our company as well as the success. We are seeing as we execute on our roadmap and delivered strong operating performance this quarter.
When you look at what we've accomplished you'll see clear evidence of our ability to deliver on the promise of transforming our company and to drive significant value for our shareholders.
We completed the sale of the lottery business, enabling us to de lever and reconstitute our balance sheet.
And we proactively amended our sports betting sale agreement.
Increasing the speed and certainty by creating a simplified path to closing the transaction by the end of Q3 at a strong valuation, bringing in 800 million gross and approximately $700 million in net proceeds together. These two dispositions will generate approximately $5 6 billion.
After tax cash proceeds and they represent the final step in the process of streamlining our organization.
To that end, we are poised to further enhance shareholder value through our capital allocation priorities.
Debt paydown share repurchases and a disciplined approach to investing in growth.
With the proceeds from our lottery sale, we paid down our debt, enabling us to achieve a net leverage ratio of three six times at quarter end.
A seven turn reduction from our peak leverage just 18 months ago.
Additionally, since we announced our share repurchase program in March we have bought back 203 million or three 7 million shares approximately 27% of our $750 million authorization.
Over 4% of our market cap and just five months.
With our streamlined organization sharpened focus and strong balance sheet. This all creates a powerful foundation to build from as we execute on our vision of becoming the leading cross platform Global game company.
The opportunity here is enormous we are squarely pointed at the $70 billion Tam across all game markets.
No one else can match, our wealth of great franchises or our ability to deliver great games to players anywhere they want to play.
What is so exciting is that we have all of the pieces in place as we execute on this strategy and.
We have a tremendous opportunity to drive shareholder value underpinned by the long term targets, we laid out at our Investor day.
We have an enviable and sustainable growth profile, including double digit growth with a high mix of recurring and digital revenues.
Strong balance sheet with a targeted net debt leverage ratio range up to an app to three and a half times.
One 4 billion of targeted EBITDA by 2025, which translates into a targeted CAGR of 15%.
And a target of approximately $10 billion of capital to be generated by 2025.
Our strategic progress on our transformation and results this quarter give me great confidence that we can achieve these targets with a robust product roadmap and continued execution.
Now turning to quarterly results.
Overall, we delivered continued strong results with consolidated revenue growing 5% to $610 million and consolidated EBITDA of $212 million.
Prior year period consolidated revenue and a EBITDA benefited from the $38 million VAT recovery.
Excluding the VAT impact year over year consolidated revenue and consolidated EBITDA growth was 12 and 9% respectively.
This momentum is the result of the fundamental changes we have made throughout the company and our top ranked product performance across gaming I gaming and Si play like Ultimate fire link with this extension Ultimate fire link explosion day billing as the number one Wap game on Eilers.
Coin combo or land base favorite achieving yet another record launch and I gaming with Hurricane horse and highly anticipated Carnival cow and terrific Tigers set to launch in the second half of the year.
And goldfish goldfish feeding time drove incremental Si play visitation and engagement metrics, which was a hugely successful cross platform launch.
We have built a leading and unique position in a market that's not only huge and converging, but it's also been historically resilient to the dynamic economic environment.
In fact current GTR levels remained strong just as they have during past economic cycles. However, we continue to closely monitor trends and remain proactive.
Taking steps that have positioned us well to successfully navigate this evolving environment.
Including proactively implementing measures to offset inflationary pressures.
Creating a global supply chain and driving operational efficiencies throughout our organization.
So we remain confident about our industry and our path forward.
Now, let's go deeper into each business unit.
Starting with gaming, where our new strategy and product roadmap are already delivering robust underlying growth.
As a reminder, here we had a VAT recovery benefit of $38 million on the top and bottom line in the prior year quarter and the gaming ops business.
Excluding this benefit each business line delivered double digit revenue growth year over year, we achieved tangible success across our three largest chance the north American premium gaming ops market.
North American for sale market and the Australian market.
We now have new competitive hardware and each critical segment.
Setting us up for growth as the market continues to recover and operators ramp their capital budgets.
For example, we recently launched the highly anticipated to Scott a dual screen cabinet globally, and we saw strong performance out of the gate in both the U S and Australia.
We also released the landmark 7000, a stunning mechanical reel machine for the installer six slot player.
This launch was another huge success with our blazing Seven's franchise titles, debuting at number one and number two in the Eilers Stepper segment.
It is also worthwhile to note that the last two cabinets. We launched are number one in their categories with the top ranked game in the latest Eilers report.
When it comes to gaming our Northstar remains building the best games and enabling platforms. That's why we've ramped our game roadmap and focused on leveraging our proven evergreen franchises created by some of the best game design talent in the industry.
Our strategy is working.
<unk> with game ops. This quarter, we saw continued gains with sequential growth in our total North America installed base growth was fueled by the eighth consecutive quarter of growth in our premium installed base, resulting in a record premium mix at 43% of our total North America installed base.
Highlight ultimate fire link explosion was recently ranked by Eilers as the number one Wap game.
Which we expect to drive growth in the second half of the year.
In fact since its initial launch in 2016, we released seven games under the ultimate filing franchise and performance is truly exceptional. It is a great example of how we're leveraging our evergreen franchises to grow market share.
Turning to domestic game sales, we saw significant gains as we shipped 4009 units up 19% sequentially.
And in a sign that the market continues to move towards recovery. We saw replacement units approaching 2019 quarterly run rate levels.
The newly released Hoffman more pumps, which launched on this cost got a dual screen debuted at number one on the eilers per sale list and.
And we saw additional success from goldfish speeding time, and Richard will pick these hog wild.
The successful extension of our proven evergreen franchises.
Meanwhile, in Australia, we grew market share on the back of Cassata dual screen cabinet and the performance of games like Dragon Unleashed and hop in more puffs, which ranked number one and number three in Queensland.
Turning to systems, we're continuing to invest in technology that makes us not just market leaders, but thought leaders.
Our IV for continues to drive cashless enablement, and we more than doubled shipments of that hardware sequentially, which is now deployed across two thirds of the slots in our systems business footprint.
Finally, and tables, we continue to leverage our wealth of experience in IP to maintain our market leading position.
Sequentially, we grew our shuffler install base, while adding more subscribers to our ball program, which now stands at over half of our North American customer base.
We're also continuing to invest and drive innovation to grow our atg business, which we see as a growth segment.
We continue to successfully execute on our playbook with growth across all four business lines enabled by a reinvigorated product roadmap focused on our largest profit pools backed by great design talent.
Let's now turn to I gaming, where our results demonstrate our ability to leverage our unrivaled position in the marketplace, including our original content unmatched I gaming platform and a leading pan to deliver best in class offerings to our partners and players.
U S revenues increased 47% year over year growth that was driven by <unk> scaling as well as continued market share gains.
Our original games underpinned our market share growth in the U S. If you look at the top 20 games on our I gaming platform, our original content fueled more than 70% of GTR.
A testament to the affinity players have for land based franchises and digital native games.
We also saw strong performance from our Lightning box acquisition, which.
Which remains the number one digital native studio on our I gaming platform in the U S.
Creating and leveraging great gains continues to be the core of our strategy and our success.
This quarter, we saw the record launch of coin combo Hurricane horse.
Top five title in our land base.
As well as strong performance from games like 88 fortunes Shinji boundary dancing drums explosion and marvellous mouse.
And coming up next is the launch of Carnival, Cao and terrific Tiger further extension of our successful coin combo franchise.
Turning to international we saw sequential rebound in the business. Thanks to gains from our evergreen franchises like Rainbow riches, Rainbow frenzy, and blazing Hot Sevens Big bonuses.
And this quarter also saw us launch in Ontario, our largest ever single market launch.
Finally, we continue to be excited about our plays Ito acquisition, where they have strong momentum having completed over 30, operator integrations since we closed on the deal.
And we're seeing strong interest from operators as they look to launch more exclusive content.
Overall, it was a great quarter and looking forward our investments in the first half of the year have set us up for continued growth in the second half as we launch more games and in Q4 live dealer.
Let's now turn to side play who turned in a solid second quarter outperforming the social casino market, both year over year and sequentially.
Along with making good progress towards our expansion into casual.
Growth was driven by our major games with quick hit achieving a second consecutive quarterly revenue record.
Jackpot Party delivered one of their top quarters of all time.
Further validating that side played scaled evergreen games and sticky cohort base puts them in a great position to achieve their full monetization potential.
Looking ahead, we're seeing momentum inside place business build in the third quarter with the launch of a number of new features and tools in their largest gains.
In fact July was the second highest revenue month in our history for social casino.
Second only to our peak revenue month achieved during the height of the Covid pandemic.
Our expansion to casual continued momentum with the successful integration of Electus, a passionate and talented team that launched a number of new gains in the quarter with solid engagement metrics.
We see an opportunity to maximize this acquisition by leveraging our expertise and capabilities such as adding new meta features to drive higher LTV.
Additionally, our new casual games portfolio continued to make progress the newest version of the Solitaires pets adventure is in soft launch and we have some early positive data.
Meanwhile, spell spinner from our talented team in Finland remains on track for a soft launch in the fourth quarter.
All in all Si play is a durable highly cash generative business and even as we have delivered significant gains with revenues growing 36% over the past three years, we think there's even more upside in the business going forward.
Fueled by their evergreen franchises sticky cohorts and disciplined approach to investing and monetizing their players.
One more thing I want to highlight.
All of the success, we're seeing across all three business units.
Is enabled by our high performance culture and top talent.
As evidenced recently by bolstering the product and design talent in the Australian market.
Which was a key catalyst in our share gains this quarter.
We're also pleased to welcome Victor <unk>, as our Chief Technology Officer, and Roxanne Lucas as our chief people capability Officer.
Both of whom have deep games technology and digital experience as we continue to enhance our executive team.
Additionally, we appointed Steve Morro as our new director to our board effective today we.
We are fortunate to have Steve who draws from 35 years as a supplier operator and regulator in the gaming industry.
To sum up following another quarter of transformational and operational performance, we have never been better positioned to deliver tremendous value to our shareholders.
I've shared some highlights of our organizational and operational progress and now for more detail on our financial progress this quarter, let me turn it over to Connie.
Thanks Barry.
For the last 18 months, we've been moving with a sense of urgency to transform our balance sheet redefine our portfolio of businesses and sharpen our focus all with the goal of becoming a sustainable growth company and driving shareholder value.
Before I go into the results, let me take a moment to congratulate our team on our significant accomplishment.
First we streamlined the organization with the completion of our lottery divestiture and paved the way to expedite the closing on the sale of our sports betting business.
Second we moved quickly to the lab using the $5 $7 billion gross cash proceeds of lottery to pay down and refinance our debt, enabling us to achieve a net debt leverage ratio of three six times.
Third we returned a significant amount of capital to shareholders over 4% of our market cap.
Fourth when we laid out our strategy at Investor Day in May we provided financial targets that underscore the tremendous opportunity ahead.
Finally, we continue to drive operational excellence throughout our business, ensuring we drive strong margin.
With our new streamlined organization, we have a strong financial profile with double digit growth in a radically transformed balance sheet that will serve as the foundation for our future and I want to thank everyone at light and wonder for their contributions in making this happen.
Let's turn to the quarter's financial highlights.
Consolidated revenues of $610 million increased 5% year over year as prior year revenue benefited from the $38 million of fabric halfway excluding this benefit consolidated revenue grew 12%.
Net loss from continuing operations of $150 million was primarily impacted by a $147 million loss on financing transactions associated with the April debt pay down.
Importantly, the refinancing will enable us to achieve an estimated annual cash interest savings of about $225 million on a run rate basis.
47% reduction.
Consolidated EBITDA was $212 million, a decline of 9% compared to the prior year period as the prior year benefited from the $38 million that recovery.
Excluding this benefit consolidated EBITDA grew 9%.
Our EBITDA margin from continuing operations of 35%, reflecting a shift in product mix with increased games and a doubling of our systems hardware sales sequentially.
Additionally, we made investments in key initiatives, I gaming and slightly to fuel long term growth.
I want to note that as it relates to EF and our cost base provides us with a natural hubs. So we'll be saw adverse movements in FX rates impacting reported revenue crowd, albeit immaterial at a consolidated level. It did have a notable impact in I gaming revenue. However, we did not see a corresponding impact on EBITDA.
Now turning to our business segment results.
Gaming, we delivered strong performance in the quarter.
Want to note that last year gaming operations benefited from the $38 million battery cap rate, which impacted gaming revenue and EBIT growth rate by 13% and 23 percentage points respectively.
My overview of the gaming business Rethought will normalize for the benefits in terms of the year over year close rate.
With that gaming revenue was up 19% year over year with double digit growth in all four business lines.
EBITDA was up 15% year over year as we generated a healthy EBITDA margin of 46% in the quarter reflective of the product mix as we saw rising the operator demand for our cabinets in systems hardware.
Gaming operations revenue was up 14% year over year, driven by momentum in our North American installed base.
Our North American premium installed base grew for the eighth consecutive quarter and revenue per day increased 6% sequentially to approximately $46 exceeding 2019 levels.
Growth was driven by the success of our game performance on our mineral interests got a cabinet, which now represent approximately 30% of our installed base.
Further game sales revenue grew 23% year over year, and 19% sequentially driven by global unit sales at 6488 up 30% year over year and 23% sequentially.
ASP was also robust at over $17000 reinforcing the value we are creating with our reinvigorated product road map.
Our systems business grew 15% year over year as we saw the ramp in demand for IV for hardware and an increase in our recurring maintenance revenue.
And then table games, we saw revenue increased 29% year over year to $44 million driven by a rebound across all product categories.
We couldn't be more pleased with the progress we are seeing across our gaming business all of which speak to the success of our new product and the opportunity that lies ahead.
Turning to I gaming, we saw continued momentum in the U S. And importantly, we made key investments to enable future growth, we generated revenues of $60 million and EBITDA of $21 million in the quarter.
On a constant currency basis revenue increased 7% year over year as growth was primarily driven by record U S. G. G R and share gains in a number of things.
Internationally, while year over year results were impacted by regulatory changes, we delivered sequential growth as we benefited from our original content Road map.
We increased our I gaming EBITDA margin by approximately two percentage points year over year, while ramping investments in R&D and for the launch of live dealer.
Overall, we feel great about our unique position in gaming with a robust original content offering unrivaled platform and differentiated scale.
Now turning to <unk> revenue grew 4% year over year to $160 million and 1% sequentially benefiting from the acquisition of electro while the core social casino business remained strong outpacing the market this quarter.
Sorry, Please continue focus on engagement and monetization allowed them to deliver <unk> growth of 3% year over year to 74, while maintaining a steady D. A debate.
Additionally, payer conversion reached a record of nine 4%, while average monthly revenue per paying user remained elevated.
So I placed a EBITDA of $41 million in the quarter was impacted by investments in key growth initiatives.
Including their cycling and then direct to consumer platform as well as the marketing innovation campaign to drive exposure and scale user acquisition, the cost of which span Q2 and Q3.
We expect EBITDA margins to scale in Q4, as we see the benefits from these investments and as we move past the marketing innovation campaign.
With its sticky player base strong monetization and low capital intensity. So I play continues to be highly cash generative.
With continuing momentum in the core business and as we invest to build upon our core capabilities, we are enhancing <unk> platform and ability to drive sustainable long term growth.
Moving to the balance sheet cash flow and capital allocation.
But the $5 7 billion gross cash proceeds from the lottery sale, we quickly reduced our debt by approximately $4 9 billion, enabling us to report net debt of $3 billion at June 30th a 64% reduction compared to the $8 4 billion at March 31.
Our net debt leverage ratio declined from a peak of 10 five times to three six times at the end of the second quarter, a truly remarkable transformation from where we were just 18 months ago.
Turning to free cash flow.
Also in the second quarter were principally impacted by cost supporting our strategic review, including the divestitures of our lottery and sports betting business, which.
Additionally, free cash flow was impacted by increases in working capital and Capex to meet the growing demand for our products.
Looking ahead third quarter free cash flow will continue to be impacted by the strategic review and transaction costs related to the divestiture, including an approximately $500 million tax payment on the sale of collateral.
In the fourth quarter, we anticipate tax payments of approximately $235 million related to lottery and sports betting divestitures.
We believe free cash flow is one of the key drivers of shareholder value and in 2023, as we move past the strategic initiatives free cash flow is expected to improve significantly translating to substantial free cash flow per share as we benefit from our strong growth profile that transformation of our balance sheet.
The flow through of the operational efficiency benefits and the active purchasing of our shares.
In terms of capital allocation, we continue to take a balanced and opportunistic approach to enhance shareholder value.
With our newfound balance sheet strength, one of our key priorities is returning capital to our shareholders and as Barry mentioned, we purchased $203 million or over 4% of our market cap and just five months since authorizing our program on March 1st.
And at current trading levels, we see purchasing of our shares is an enormous opportunity to create shareholder value.
Wrapping up I want to emphasize how the swift and transformative capital management steps, we have taken position us well to deliver on our strategy and succeed in different economic cycles.
Barry noted we operate in a resilient industry and today are seeing positive signs of continued elevated G. G. R. However, we also remain focused on proactively optimizing our cost base driving efficiencies across our portfolio.
This quarter demonstrated strong operating result, low leverage and significant capital return, all adding up to a compelling value proposition.
We feel great about what we've achieved and the opportunity we have to enhance shareholder value underscored by a long term financial targets.
With that we'll turn it over to the operator for your questions.
Thank you.
I would like to ask a question. Please press star followed by one on your telephone keypad.
Our first question today comes from the line of Barry Jonas from <unk>. Please go ahead. Your line is now open.
Great. Thank you for taking my questions can you maybe.
Talk about the kind of visibility you are seeing for over say the next six months or so.
For gaming and other parts of the business.
And I guess with that and everything going on are you seeing any hesitancy as you speak with customers. Thanks.
Hi, Barry Thanks for your question look I think there's great news here.
First the gaming and mobile game industries have historically been very resilient and we're seeing that today, we have we're seeing elevated <unk> levels with continued great momentum.
Actually reinforced by all of our conversations that we've had with numerous operators and so.
We're saying that we have a strong competence in the market and.
And quite frankly, as an even stronger confidence in our ability to take share given the success and momentum of the games and a robust product roadmap that we have so if I break it down to kind of go into each of the grid. So in gaming, we had a great quarter and we saw growth across all four gaming business lines, which is again a testament to the.
Strong market recovery and also our strong lineup and all the major categories. We now have cabinets and all four major slot segments, each with chart topping games, which speaks to the breadth and depth of our portfolio and we have a strong funnel in Q3, and Q4, which gives me even more confidence than ever.
We can continue to drive growth.
More broadly if you.
Look beyond gaming, we saw continued success in gaming with share growth in the U S, which was driven by original game launches and we have a really strong pipeline of games scheduled for the second half of the year, including nine land based titles that we're bringing to market.
And then if I play as we look into where we are today and then the second half where we're off to a great start July was actually the second highest revenue month ever in Si play, which.
And thats during the summer months, which is not typical and we had the highest number of payors in the history of the company. So again, if you look across the businesses and end of the market feeling very confident about.
What we see yeah, and I just build on to what Barry said that one of the beauties about our business as we get real time data in fact, I just looked at the coin and trends. This morning from gaming and they continue to be elevated across all markets, which I think is just a great sign that our business continues to have significant momentum in the backdrop.
With a strong macro environment in which we're operating at the moment to various points I play we get daily.
Daily visibility as well as and I gaming and both continue to have elevated and strong metrics. So we feel really confident about where the business is headed and our ability to deliver a strong second half.
That's great I appreciate all that color and then just for a follow up it may be early to ask this but it's been about three months or so since your analyst day I'm curious as you think about sort of the underlying assumptions on those targets you outlined if anything has changed from your perspective that could be composition.
In timing or maybe just the shape to to get to some of your targets. Thanks.
Absolutely Thanks Barry.
Look at Investor day, with the great momentum for us to share our strategy and also introduce folks to the people in our organization that are that are driving these initiatives.
And based off the performance of the business this quarter and.
The progress that we've made on our strategic initiatives.
Actually highly confident today in our ability to achieve the targets we set during the hour Investor day and.
We obviously can't predict predict the macro environment, but as I mentioned in the last.
As we just talked about the next six months, we know the game sector is resilient and and that the industry is showing great momentum today and.
We have an unmatched position, we have an amazing portfolio of assets with leading positions across all three markets gaming I gaming and social.
And our confidence in our people playbook and the product roadmap that we shared that day quite frankly has only gotten stronger as evidenced in this quarter.
And I might just add one additional thing here that you know, we're really pleased with the significant and Swift progress that we've made on executing the capital management priorities, we outlined at Investor day, which were debt reduction share repurchasing and investing for growth.
The quarter you would've seen that we are in relation to our debt reduction we made significant progress with our $5 $7 billion of proceeds we received in April paying down our debt refinancing, which resulted in those three six times that that leverage ratio and it puts us well on our way to achieving that 2.5.
<unk> to three five times range that we outlined Additionally, we've made significant progress on our share repurchase program, which is a key pillar of our capital management Barry mentioned in the prepared remarks that we've executed already 27% of that $750 million program in just five short months.
And you know as we continue to move forward past. These divestiture, we will have the opportunity to generate significant cash flow, which again, we see it as just a tremendous opportunity to drive shareholder value. So the operational momentum we see in the business and all of the competitive advantage plus the momentum that we've already driven in terms of <unk>.
<unk> management, we feel really good about our ability to achieve those targets.
Okay, great. Thanks, Connie Thanks, Barry.
I think absolutely thanks Barry.
Thank you.
Our next question today comes from the line of David Katz from Jefferies. Please go ahead. Your line is now open.
Afternoon, everyone. Thanks for taking my questions.
Number one I wanted to just talk about <unk> for a moment.
If you could just discuss for us I mean, it grew a little bit.
But just talk about what and.
Qualitative terms, what those might look like say the next 12 months 24 months.
As you build toward those targets right I mean, there is growth, but it was relatively small I assume that's going to accelerate over time and just you know me a little more detail would be helpful. Please.
Yes, absolutely David.
Thank you for your question so.
Stepping back if you look at Si play.
Si play is a.
Has it grown 36% over the last three years and as you alluded to there is obviously, some natural normalization post COVID-19 and in adapting to.
Some things in the environment, but we continue to outpace the market in the social casino space and there is actually tremendous upside in the $7 billion.
Pam business today and.
If I can pick I'm going to just pick out one piece of it just to kind of demonstrate that upside.
We see tremendous upside the monetize our players remember side played as a evergreen.
Our portfolio of evergreen games with sticky cohorts cohorts grow in value over time, and if you look at the over the last since 2019, we've grown opt out by a little over 50% since 2019 and breaking that down there is we call project <unk>.
I'll start that we implemented in our largest games and that has driven that are down a subset of these games and as we broaden that program across the entire portfolio. We have a high level of confidence that we can drive further monetization because it's important to note that Si play the monetization while it has grown.
And is incredibly healthy there's still roughly half its top peers. So there is tremendous upside inside play in this space to improve monetization and improved growth and drive market share.
Yeah.
Consistent with that so.
We continue to see payoffs from its investments investments in these growth initiatives leveraging the Si play engine centralizing the learnings from project all Star, which is going to just again continue to drive engagement and monetization of this evergreen base and so.
When you layer on that with the continued diversification of new games that we're launching in casual there is tremendous upside for Si play.
Very confident.
And our and our ability to grow that business.
Understood and my.
Follow up is really around the number of people you added some of whom you called out in your prepared remarks do you feel like you have.
All of the sort of human capital in place to do what you need to do or should we be thinking about more hiring more additions as you go.
Absolutely great question.
I'll start by saying is I think we've never been in a better position from a strategy talent and balance sheet perspective than we are today. So.
Kind of regardless of whatever capital you are that you referred to I think we're just an amazing place from a strategy perspective.
Our goal is to become a leading cross platform Global game company and I think we have all the major pieces in place to do that in and making great progress and as I mentioned I think a few times before at least around under the roof here that great people do great things and since I took this role my number one.
Priority has been to regroup recruit the best talent capital in the industry and create a high performance culture to when we introduce a lot of those folks at Investor Day, I think we've mentioned that figure.
Over 25.
Key folks being brought in just in the gaming space alone, but we've done this we've gathered the world's greatest gaming I gaming and social casino talent, along with an amazing team of game designers. We just recently announced the addition of Roxanne Lucas and Victor Bronco and.
I can say, we we've been extremely successful in putting great people in place in this business, but to answer the second part of your question I can also tell you that this will never stop being our number one priority.
You can never have enough great people never have enough great designers and so.
We will always lean in on that.
Because that's what makes us great.
Perfect. Thank you very much.
Great.
Thank you.
The next question today comes from the line of Ryan <unk> from Craig Hallum Capital Group. Please go ahead. Your line is now open.
Good afternoon, Barry Connie.
What a certain gaming so it.
It seems like you have a lot of good things building with the team the cabinets the content when we look at kind of market share relative to peers. I mean, you guys are growing kind of with the industry.
More or less I guess talk through kind of how this product everything is building internally and when maybe we can start to see some acceleration on the market share from a reported number standpoint.
Absolutely Ryan Great question.
Here's how I would describe it so I think yes in fact, I think we've made significant progress over the past few years. If you remember setting out our strategy our playbook to focus first on the largest profit pools in terms of prioritization and.
At the top of that list with North America premium segment, which was our biggest priority and we drove eight consecutive quarters of meaningful growth or 14% year over year. Just in this this past quarter, but we grew that if you remember, bringing on the team and the playbook and our roadmap.
Two years ago.
We've been building our portfolio and our roadmap while growing this business and so.
We have now we started out if you look at the last two years, you have euro and <unk> that were in.
Introduce early on and just recently the landmark 7000 anchor Scott a dual cabinet and I think.
All with chart topping hits the last three cabinets that we launch number one titles with them and so for the first time, we now have a complete portfolio and all four critical segments backed by chart topping hits and so while we are.
Extremely proud of the progress we made in.
In the market while building the road map, we now have.
Our full team the best design team we've ever had we've got the best portfolio, we've ever had and we have such an amazing roadmap as we look out over the next six to 24 months that we feel great about our ability to drive meaningful growth.
And the game ops footprint going forward.
Yeah, and I might just build I'm, Ryan and great to be with you on that which is now to various point I think we're seeing a lot of success in the replacement market with the products like neuro, but obviously launching to stepper here, which again that cabinet is just off to a phenomenal start I think we've seen some performance that we're performing up of four times.
With average which is just phenomenal.
And as we continue to penetrate the dual screen segment, we know that that's another catalyst for growth. Additionally, I'd say that you know as we look forward, we're going to start to expand into some of these ancillary markets, which we haven't had the opportunity to do just yet as Barry mentioned, we're continuing to expand the portfolio, but in the beginning it was really important that we win and.
The largest opportunities, which was kind of that core replacement and new openings and expansions. So we feel really good about where we're headed if you looked at the recent Eilers report you would have seen a number of our games popping straight to the top of the charts, which gives us a lot of confidence in our ability to continue to take share.
Great maybe one more quick one for you Connie just.
Can you clarify on the buyback if I look at what you reported last quarter in Q1 was $140 million $203 million implies kind of a deceleration there, but anything to be aware of I guess from a blackout period or anything in the quarter.
Given it sounds like you have a lot of confidence in where the stock is here to be buying stock as fast as you can.
Yeah.
Thanks, you know first I'd say, we're incredibly pleased with the progress that we've been making in terms of our share repurchasing program, we outlined a $750 million program, we've already executed about 27% of that you're absolutely right, where our share prices today, we see tremendous value that we can create by continuing.
During two and repurchase our shares and that'll be something that we continue to execute on and in terms of our ability and the pace in which we've been moving there was an element in the quarter given the change in these sports.
The deal that required us to pause for a moment because we were we.
We had some material nonpublic information, but what I can tell you is that we will be back into the market, we see again tremendous opportunity to drive shareholder value and at the patient pace in which we've already proceeded you know we're going to likely complete that three year program much quicker than originally outlined and I just say.
And in general that you know as we move forward, we know that our business is going to generate significant cash and we see free cash flow per share as a key metric and so the combination of the business that we've now created coupled with our share repurchase program, we just see tremendous opportunity again to create.
Shareholder value. Thank.
Thank you.
We'll take our last question operator.
The final question today comes from the line of Jeff Jeff until from Stifel. Please go ahead. Your line is now open.
Okay.
Hey, great. Thanks, Good afternoon, everyone. Thanks for squeezing me in here.
I wanted to start on the core land based business just curious what youre hearing from your customers regarding capital budgets for table games and systems, starting to pick back up accelerate into the back half of the year, just given that the slot replacement cycles and approaching 2019 levels for the past couple of quarters or so but are you starting to see.
Signs of an accelerating recovery in systems and in tables or just how should we think about the lag for those two businesses relative to the moment that we've been seeing in slots.
Yes, great great Great question, and again I think the I think the great News here is we saw strong growth in both businesses in fact, the entire portfolio and you know.
As you alluded to those two segments.
What are the slowest to recover post COVID-19 and with the momentum we've now.
We've now realized and as you said the conversations that we've been having with operators and we've seen and experienced that increase in capex you by the way you saw it in game sales too with sequential 19% quarter on quarter.
You see it here on the table side of the business with the increase in Shufflers increase.
The increase in our 50%.
Over now over 50% subscription on board and Youre, saying the system business with we've had a real increase in demand on the IV for and so.
It speaks I think to the confidence in the momentum in the <unk> than the player demand and the operator's competence in the market going forward and so where it came early in.
In game Ops, and then to game sales.
We're now seeing that confidence in that.
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All four of our business lines and gaming so.
We have a leadership position in both of those and so.
We benefit.
Even more so in this category and so you know we have we're very very happy with it we have amazing strength and position in both segments and we're excited to see this momentum and from the conversations we have we will.
Believe they'll continue.
Great that's very helpful.
Sorry, I forgot it.
No I was just going to say just building on what Barry said, you know that the exciting news I think what youre hearing, perhaps there's just a broader threat is and we've been.
Really bullish on saying a full market recovery and by 2023, and we've got a lot of momentum in that business and I think that as youre thinking about systems and tables that was kind of go into this camp in terms of an overall gaming recovery. So again, we are.
Optimistic that that market recovery continues to kind of fully rebounds by 2023.
Great.
Very helpful color. Thank you and then for my follow up moving to the margin side of the equation just curious what youre seeing more recently on the supply chain front are you seeing any relief in logistics costs, given where contract we've been improving freight spot rates and just how are your lead times trending more recently realm.
Relative to earlier this year call. It Q1, and kind of how is that relative to.
Your average in 2019.
Sure absolutely.
I'd start with first but I think we are navigating the supply chain environment incredibly well I think that's.
Evidenced by the performance we've had through the first half of the year and in particular, our ability just to fulfill the growing demand, it's great to see both to market recovery and.
And our ability again to fulfill that yeah, we've been really proactive in supply chain, you've probably heard me a couple of times say that one of the operational efficiencies that we first stood up and the business was actually creating a global supply chain and that's allowed us to do a couple of things. One is I'd say, we've got better visibility than we have.
Ever had into the depth of supply chain in terms of tier two and tier three suppliers and we really leaned into a dual sourcing strategy. That's provided two benefits one it's obviously given us a level of diversification in terms of suppliers, but it's also allowed us to put some price competitiveness in terms.
Of those various suppliers, which allowed us to drive significant savings, which to your point has helped us to offset increasing freight.
And as well as some of those costs associated with spot buys. So all in all we're seeing margins from a products perspective, a very very healthy given those proactive steps that we took.
Would have seen I would call out you know a little bit of softness in the margin in gaming, but that was really more driven by a mix issue than anything else in terms of the hardware sales coming through from the games business as well as the IV for so overall.
Overall, I'd say product margins remained very healthy over time as supply chain normalizes, we should really start to see some of those benefits in terms of operational efficiency dropping to the bottom line.
Thanks for taking my question I.
I appreciate it and now I'll turn it over to Barry for some final comments.
Thanks, Tim.
It has been a pivotal year for our company and we had tremendous success. This quarter. We believe that there is no better time to be in this industry and nobody is better positioned to take advantage of the $70 billion Tam games market opportunity.
We are uniquely positioned to capitalize on the opportunities ahead with unmatched assets and market leadership, a clear vision and roadmap and unparalleled competitive advantages to take market share drive cash flow and ultimately generate significant long term value we.
We couldnt be more excited about the future and the path we are on to generate significant returns for our shareholders. Thank you.
Thank everyone for joining our earnings call now I'll turn it back over to the operator.
Thank you that concludes today's conference call. Thank you all for your participation you may now disconnect your lines.
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