Q4 2022 Light & Wonder Inc Earnings Call
Welcome to the light and want to maintain to fourth quarter and full year earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If you'd like to ask a question joined representation you may do so by pressing star one on tackling keypad.
Now, let me turn the call over to Steve <unk> director of Investor Relations for <unk>.
Mr. Wang you may begin thank you operator, and good afternoon, everyone.
During today's call, we will discuss our fourth quarter and full year 2022, adults and operating performance followed by Q&A session.
With me today are CEO , Matt Wolfgang.
And CFO Connie Jacobs.
Our call today will contain forward looking statements and may involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call for.
For information regarding these risks and uncertainties. Please refer to our earnings materials relating to this call posted on our website and our SEC filings.
We will also discuss certain non-GAAP financial measures a description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release as well as in the investors section on our website.
In 2022, we completed the sale of our lottery business to Brookfield business partners in the second quarter.
And the sale of the sports betting business to endeavor in the third quarter.
Accordingly, we have reflected these businesses as discontinued operation in our consolidated statements of operations for all periods presented.
We are reporting our results of continuing operations and three business segments.
Name Si play and.
Now I'll turn disclose just referring to combine 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 of our website.
With that I'm pleased to turn the call over to Matt.
Thank you, Steve and thanks to everyone for joining today's call.
2022 was the pivotal used a lot in bond.
Our inaugural Investor Day last night, our team laid out a clear strategic plan and long term targets to enhance shareholder value.
We continued to deliver on that ambitious transformation plan with speed and urgency, but positioning ourselves to win when it comes to performance and the successful execution of our business operations. In fact, we delivered double digit top and bottom line growth year over year.
Fourth quarter consolidated revenue increased 18% with significant growth across all line of businesses.
Full year consolidated revenue grew 17%, which is even more impressive when you normalize for the $44 million the I T benefit in 2020 one.
We transformed ourselves into a streamlined integrated organization with a reconstituted balance sheet and a clear focus on our core mission of becoming the leading cross platform Global guidance company.
We now have significant momentum in 2023, which sets us up for continued success towards our 1.4 billion targeted consolidated EBITDA by 2025.
Let's start with some highlights.
Wanda is saying continued strength in gross gaming revenue further proof of the resilience of our industry and the simple fact that at the heart of that business people loved to play yet.
In this quarter, our games and platforms drove record success across all three of our business units.
<unk> saw a record 10th consecutive quarter of North American premium installed base growth you know a record 45% of that North American install base is now premium representing an enormously valuable profit center for us.
I play generated record revenue record pay conversion and record opt out as our investments continue to drive engagement and monetization.
And I gaming so record G. G are on a content aggregation platform, Oh, Gee, I mean record performance by our original content.
The scalability of our platform has led to record quarters for a new I gaming studio edition, Elk and Lightning box, the latter of which experienced its fifth sequential quarter of growth under our management.
Fundamentals remain healthy and we expect them to continue to drive results.
In addition to continued jgr strength, we continue to see elevated revenue per day levels. Many of our operating partners have announced solid earnings and we've also seen healthy play a spend and engagement for athletes like yet.
All of these factors, let her up to one key takeaway, we're executing successfully on our strategic vision underline the long range targets.
Let's look at how we achieved that in Q4.
As we discussed at Investor Day last night, the key growth drivers for gaming or thoughts on the ongoing market recovery include a robust product roadmap and share gains in gaming operations and games out.
In Q4, the cabinets and games, we've already launched enabled us to deliver impressive results in our largest and most profitable segment. Meanwhile, revenue per day continues to remain well above 2019 levels, a clear reflection of the industry's resilience and the performance of VAT games.
A great example of this is the great ultimate filing franchise, which continues to be a key catalyst for growth for our miro install base.
You know a guy in South segment more than 5000 units were shipped in North America, something we haven't done since 2019 and more than 7700 units globally.
In fact, we saw 31% more cars got a dual screen cabinets in its first year of launch compared to the cost got a portrait shattering the record that historical best Jive forty-three cabinet and the landmark 7000 remain the number one stepper cabinets and the January Eilers report.
Coincidently because Scott a dual screen just wanted the best Cabinet Award.
Landmark 7000 walked away with the best Mechanical Reel game Award at the fifth annual EKG slot Award shut all of these successes underpinned by chart topping games like huffing more Pos reached little Piggies dancing drums through their E and blazing Triple Sevens, all of which are extensions of evergreen franchises.
Kelly with further progress into the V. L T market on our recent partnership with the Oregon Lottery, continuing our commitment of expanding into Adjacencies.
Turning to Australia, we continue to take share ending 2022 around 500 basis points higher than 2019 levels in the full sale market a popular guy and dragging unleashed reached 2000 games in stone and Thunder drums is now among the top four games in Queensland I'm also pleased to share that we achieved number.
One share in new South Wales clubs in January our first here a lot and Wanda in a market, where we've made significant progress just every year a clear demonstration of our ability to take share in our priority markets.
Our success in Q4 also extended to our systems business, Jon Wolff has made an enormous impact in this space both through his leadership and with the complementary technology bought in from House advantage. For example, we expanded our base of loyalty installs in the quarter and saw further momentum in cashless doubling the number.
With machines, featuring cashless enablement compared to last year.
Meanwhile, in tables, we continue to have the leading product and I pay in the space, we saw growth across our entire portfolio and now revolutionary shuffle, what products are providing critical data analytics promoting efficiency for operators and with most of the Carrabba's 12 volt program, we continue to add to our recurring revenue streams.
So we entered 2023 with fantastic momentum and notably with a full pipeline of products and games that will continue to fuel our growth.
G D O X led by our award winning Gander as honest Getafe Who's delivered some of the biggest hits the industry has ever seen well soon be launching two great game Dragon gene launching Bal and monsters Frankenstein.
Were also eagerly anticipating the launch of our new cosmic cabinet in Q2 with proven franchises like monopoly and ultimate filing cash falls hitting the floors.
What's more this will be the very first year in which we have a premium product in every key category and every key segment and I'm trace it and an opportunity to further advance our vision as we launched more extension of our evergreen franchises like dancing drums and goldfish.
Our recent systems wins solidified, our leading position and improved our value proposition as we can now offer enhanced capabilities through seamless integration.
Our enterprise systems, offering our exceptional providing longevity and stopped the go to market time, and theyre ready to be deployed for both new and existing customers.
Looking forward in our tables business, we will continue to roll out enhancements on our hybrid E. T. G platform to increase tournament functionality, allowing operators to attract more players as we continue to provide leading type of products that offer value to casinos.
Our results in Q4 as well as throughout the year demonstrate that we are delivering on our commitments.
We anticipate that operators will continue to invest in their floors, and then our leading talent and product portfolio will put us in a position to take additional share that means even greater groceries on the horizon.
Let's turn our attention to slide five.
At Investor Day, we talked about our key growth drivers outpacing the social casino market scaling opt out and closing the gap without peace and investing in both as I play engine and their product roadmap and in Q4, we executed successfully across all of these areas.
In fact, according to Eilers Si play was the standout performer among the top social casino operators in Q4 and was crowned number one social casino operator at the 8-K J Slaughter was just last week.
So I play continued to increase market share and posted a record revenue quarter up 18% year over year to $192 million.
Two of our largest game jackpot party and quick hit slots set revenue records of their own it for.
For the year, we delivered record revenue of $671 million up 11%.
These records validate the investments we've made to enhance <unk> core capabilities and product roadmap.
Engagement also group and we set records in monetization Kpis, a landmark achievement and a major step towards scaling our opt out.
So I play continued to evolve its data driven approach propelling AD tech capabilities significantly ahead of the industry.
Several notable advancements that boosted AD tech by combining <unk> with multiple data sources predictive analytics and valuable in game advertising processes and strategies from our newly acquired elite.
Additionally, thoughts I use testing is direct to consumer platform, which will enhance player relationship management and increase its global reach accelerating the potential to expand margins over the long time and it has to play a lifetime values.
Entering 2023, we'll be accelerating strategies to continue our industry, leading social casino growths and take additional market share.
We will continue to invest in our best in class efficiency of AD tech capabilities and improve returns on U S fed.
Additionally, we will make prudent expansion into new game, sorry, a KOL social casino product roadmap.
In short, we're going to keep doing what we know works investing in our capabilities and product roadmap to drive player engagement and loyalty, while continuing to grow and monetization, particularly at our core franchises further differentiating our offering some noise about piece. This is the power of our cross platform strategy.
For all the records we set in Q4, we are only just getting started.
Let's turn to our gaming, where we are uniquely positioned to succeed as the industry continues to expand.
Q4 underlying the value of our leadership position in the industry as U S. G. G. Our experience is not consecutive quarter of growth up 12% sequentially.
We also saw significant growth in Canada, where G. G out was up for the fifth consecutive quarter.
And in both the EU and the U K, we saw our third consecutive quarter of G. G. I grew up with the EU up 17% and the U K up 27% over that period.
We are the leader in this space because of that best in class content aggregation platform and because of our unmatched first party content and <unk>.
Q4, we saw strong third party launches, including terrific Tiger the fourth in the coin combo series.
Looking at the top 20 games in the U S. On Arrow G. S. Roughly 75% of those are proprietary content underlining once again that players love to play games across multiple platforms.
In Q4, we also expanded our portfolio internationally with a regionalized approach leading to launches such as Rainbow riches Pal pitch and crops are cash fashion grabbed friendly and rising Ron I'm Aarti wise.
We are also plays without recent cross platform launch of one of our most recognized guide to food to tie grant as our operator partners revealed that it's one of the best performing launches ever on their platform and we continue to see strong performance across all three channels. These launches illustrate the power of our organic content development roadmap.
And our cross platform approach.
Going forward, we are doubling down on this successful strategy and accelerating our cross platform approach to content development. You can now expect to about top performing land based titles being launched digitally each month and additional guidance coming from the studios we've acquired.
Meanwhile, our Lodz casino studio in Michigan, with Provisional licensing approval and we're ready to bring out offering to market. This segment is a key driver to organic long term growth representing as much as 30% of the time and we're ready to compete and win with a full suite of table games offerings.
Looking internationally 2023 will be a year of continued strength through the regionalized roadmaps that have already brought us such success as well as further expansion into new markets.
We know that the digitalization of gaming is only going to continue with new jurisdictions poised to come online in 2023 and beyond.
Wanda is strategically positioned to capitalize on those growth opportunities that come with it.
When we reflect on the tremendous progress the last year, it's easy to see why we're so excited about what's next.
<unk> continues to execute on our product roadmap designed to capture share.
So I play continues to outpace the market thanks to enhancement to its core capabilities and a growing pipeline of great Guy and I got I mean continues its leadership position with the original content in a rapidly expanding marketplace.
Entering 2023 with incredible momentum thanks to a successful fourth quarter and with a clear strategy in place for future growth.
All the major pieces are in place.
And unparalleled suite of assets and intellectual property.
Cross platform strategic approach that is already bearing fruit with proven franchises that performed well across gaming. So I play and I guarantee we expect H T game themes to launch across all three platforms throughout 2023.
Our revitalized R&D program, which is focused on developing and deploying the next generation of industry defining content.
The investments we've made in this program and the work we've done to integrate its focus in operations are fueling sustainable growth across our businesses.
The industry's best talent, whose fingerprints are all over the guidance, we will be launching this year.
And most of all a clear vision and strategic path that unifies and motivating our entire team like never before becoming the leading cross platform Global games company.
One more thing I'd like to add we always say the great guidance are made by great people a lot and one that we put a focus on culture, but because it's the caito, attracting and retaining the very best people in the industry.
Our focus on culture also feels that if it's around environmental social and corporate governance. We're now aligned to 12 of the 17 categories of the United Nations Sustainable development goals.
And we're also partnered with 20 responsible gaming organizations and campaigns globally.
Further we were proud to take on the D and I wanted to eat at the women in gaming diversity Award and lot and Wanda ranked among the top four gaming companies globally are the all in diversity D Index.
In closing.
We kicked off 2023, with new energy and excitement within our organization and with good reason.
As the fantastic results from Q4 illustrate we entered this year with significant strength, putting us on a clear path to delivering on our long range targets that we laid out last night.
I am so proud of what this team has achieved and so grateful to every single employee that made this success possible I think I speak for everyone. When I say the best is yet to come.
The future of lot and Wanda is broader than ever we are ready to deliver on the promise of sustainable growth as we lead the industry forward.
Thank you now, let's turn things over to Tony.
Thank you, Matt and good afternoon, everyone.
Let me begin by saying how pleased I am with our result, we delivered exceptional fourth quarter and full year performance.
Clear demonstration of the strength of our strategy and ability to execute on our roadmap.
Fourth quarter consolidated revenue increased 18% to $682 million the double digit growth across all three businesses.
Operating income was $99 million and consolidated EBIT grew 23% $265 million.
And then by both higher revenue and significant margin improvement inside play and I gaming.
For the full year consolidated revenue increased 17% to $2 5 billion dollar opt.
Operating income was $273 million and consolidated EBITDA rose, 15% to $913 million.
Adjusted for the V. A T benefit in 2021 consolidated revenue was up 19% and consolidated EBIT increased 22% year over year.
This is a real testament to our continued focus to drive margin enhancement across the business.
For the quarter consolidated EBITDA margin from continuing operations was 39% versus 37% in the prior year period. We also saw a significant sequential margin growth at Si play is record performance validated the investments we've made in key growth initiatives.
FX continues to have an impact on the comparative reported revenues.
Helane I gaming and to a lesser extent the gaming business segment on a consolidated basis FX impacts are immaterial to our results.
Turning to the business units, we saw impressive performance across every area of our business.
Beginning with gaming we saw substantial progress.
<unk> the foundation for long term growth and share gains.
Ended the year incredibly strong across all key metrics with higher revenue per day, and average selling prices, resulting in healthy margins.
Revenue in the quarter grew 18% year over year to $438 million and EBITDA increased $215 million, a 16% growth versus the prior period. This growth was driven by robust product sales in the quarter and double digit growth in both systems and table.
EBITDA margin in the quarter remained healthy at 49% for.
For the year revenue grew by 21% and EBITDA by 16% with significant gains across all business lines.
We saw continued operational momentum in North American gaming operations as a premium installed base grew 8% year over year exceeding 2019 level.
Football game sales continued to deliver solid growth in the quarter with revenue up 11% sequentially and 41% year over year.
This was driven by increased demand for our cabinets, which yielded higher average selling prices an increase of 4% year over year.
In systems, we achieved a 26% quarterly revenue increase year over year on higher domestic hardware sales volumes and installed.
And it's important to note our systems maintenance is a significant recurring revenue stream and is expected to be further enhanced with new loyalty functionality is being added to our existing capabilities.
Lastly, and tables, we see the market continuing to recover with revenues up 11% year over year in the quarter driven by growth in both vault subscriptions and higher sales volumes.
Overall, we anticipate solid demand and excellent performance extending into 2023 and beyond as we continue to expand our portfolio and meaningfully grow our gaming business.
Turning to <unk>.
We delivered record fourth quarter and full year performance once again outpacing the social casino market and growing market share clear evidence of the power of its enhanced core capabilities to generate results.
The business achieved strong top line growth up 18% year over year on a quarter to a $182 million.
Up 7% sequentially led by two of our biggest game Jackpot Party and quick hit slots for.
For the year, we delivered record revenue of $671 million up 11%.
We grew fourth quarter EBIT of 24% to $59 million in full year EBITDA was $187 million is Si play continues to invest in talent and core capabilities and we're pleased to see the marketing and UA investments, we've made starting to pay off.
<unk> core business is demonstrating substantial progress with record key metrics across the board.
Including payer conversion hitting an all time high of 10, 4% in the quarter average monthly revenue per paying user approaching $100 and record quarterly Arps out 87 cents, an 18% increase year over year.
So I play had a record number of Payors in 2022 we saw a 13% increase over the prior period and now so I play has more players than ever before in its history. This performance led the social casino market in 2022 of course I play grew market share.
The financial results are a testament of Si play a successful execution of their strategy and we expect to continue this momentum into 2023.
Turning to I gaming, which has tremendous momentum.
Revenue in the quarter grew 15% year over year to $62 million and EBITDA increased 27% to $19 million.
On a constant currency basis revenue grew 22% in the quarter with steady growth both in the U S and internationally.
For the full year revenue increased by 6% on a constant currency basis revenue increased 13% in the year driven by market expansion that led to record G. G are in the U S as well as solid performance from our original content launches.
EBITDA margin improved 300 basis points to 31% in the quarter versus the prior period driven by revenue growth, resulting in an overall EBITDA margin of 33% for the year.
U S. I gaming revenue increased by 41% in the fourth quarter year over year internationally, we had our third consecutive quarter of sequential rebound with elevated G. D are across the U K and Europe on our open gaming platform.
Year over year, the U K and Europe were up 27, and 12% respectively, driven by successful regionalized content launches.
Looking forward as we continue to expand our portfolio, we will take share through our content aggregation platform, leading pan and upcoming live casino offering.
Moving to capital management.
A year ago, we outlined our balanced and opportunistic capital allocation priorities in three categories.
Number one to pay down debt and create a healthy balance sheet and put us in a two and a half to three five times net debt leverage ratio range.
Two to repurchase shares and lastly to continue making disciplined investments to drive sustainable and profitable growth.
And then 2022 we delivered on every one of these commitments.
First we divested our lottery and sports betting business is at peak valuation totaling approximately $6 $5 billion in gross proceeds and then immediately deployed a significant amount of those proceeds to reconstitute our balance sheet in the second quarter.
Our net debt leverage ratio of three three times today puts us squarely within our targeted range and we now have one $8 billion of available liquidity and more than $900 million of cash on hand significantly boosting our financial profile and flexibility.
For the first time in many years, our balance sheet is a strategic advantage for us.
Second we authorized a three year $750 million share repurchase program in the first quarter of last year and immediately executed on our commitment to return capital to shareholders.
We repurchased seven 2 million shares to date or $413 million fulfilling 55% of our authorization in year one.
Third we aligned our investment priorities with our greatest growth opportunities to drive long term value, we invested prudently and organically in our core capabilities content and platforms as well as in complimentary businesses and Adjacencies.
I'm confident that these investments will fuel sustainable growth across the business for years to come.
Turning to cash flow.
Cash flow in the quarter was primarily impacted by approximately $176 million in tax payments related to the divestiture.
In total our year to date cash flow was affected by approximately $818 million and costs associated with our strategic review and divestitures, including tax payments.
Looking ahead to 2023 continued operational efficiency remains a top priority as we further integrate our businesses.
We are continually assessing opportunities to further optimize R&D spend by leveraging our world class offshore development centers and deploying content cross platform.
This enables us to scale more efficiently and maximize every dollar of R&D.
In 2023 as expected cash flow will be impacted by costs to drive incremental efficiencies as well as remaining tax payments of $33 million related to the divestiture.
Additionally, we will continue to evaluate the appropriate use of proceeds from the sale of our sports betting business.
Obligations under our debt covenants require that we use the proceeds to either invest in the business or repay additional debt by the end of 2023.
We look forward to sharing more about our determination that the best use of these proceeds in future quarters.
Overall, we expect free cash flow to scale in the second half of the year.
Moving to our capital allocation framework.
In 2022, we made significant progress deleveraging and front loading our three year share repurchase program, all with a lens to increase shareholder value.
As we have done to date, we will continue to maintain a balanced and opportunistic capital allocation framework importantly.
Importantly, we will continue to invest smartly, leveraging our core capabilities in order to enhance long term growth and bolster our leadership positions.
R&D and capital expenditures are key ways for us to achieve that.
As we invest we are committed to driving high ROI to enhance shareholder value, we will remain disciplined and scale investments only to the extent they exceed our return thresholds.
Well our business is resilient, we recognize that markets are dynamic and we are focused on maintaining a capital structure that is well positioned against potential economic uncertainty.
We will continue to optimize our cash balances to preserve optionality in the near term in order to maintain a flexible financial profile for sustainable growth and value creation.
In closing I'm truly proud of what the team has accomplished so far with our reconstituted and healthy balance sheet, our enviable financial profile, our high margins and strong cash generative businesses.
With our focus on operational excellence.
And wonder is poised to drive significant shareholder value.
The fourth quarter was a proof point of our strong momentum and gives us confidence in achieving our $1 4 billion dollar target a consolidated EBITDA by 2025.
With that we'll turn it over to the operator for your questions.
Thank you.
Yeah.
Yeah.
Thank you.
Our first question comes from Barry Jonas from choice Barry Your line is now open.
Thank you so much I wanted to start diving into the EBITDA target the $1 4 billion.
Has anything changed in terms of the building blocks the composition and maybe the cadence over the next three years to get there from here.
I would just note that some of your competitors are guiding this year showing some conservatism around the macro so curious to get your thoughts here.
Yeah, Hi, Barry Matt Wilson, so thanks for joining the call I'll start off and then hand, it to the county I think the path to 2025 results starts with a great Q4, and that's what we're announcing here today growth across all key segments gaming, our gaming and social casino had a fantastic quarter. So the good news is we'll be back here in front of this audience and just over 60 days.
To talk about Q1, and I will tell you that positive momentum really translating from Q4 into Q1. So we're feeling fantastic about the momentum in the business and we'll share more with you very shortly I think that really speaks to the health of the key markets that that we operate in so saying a lot of optimism and buoyancy in those markets to spot some of the macro headwinds.
That was saying I think in the result in Q4 and 'twenty two as well you can say off demonstrating our ability to take share in priority market. So I think you can say that in the Australian market and gaming. We grew 500 basis points a year over year. We were number one in the new South Wales market, which is a huge bellwether market for these giant Australia.
Restriction I think you can see us taking share in mechanical reel, we want the best.
Mechanical real product that the auto show last week, you can see us getting into Adjacencies.
Adjacencies through the or selling out so that you might've seen hit the was recently I think there's more to come you know we're launching two new cabinets that you would've seen at G. TUI show cosmic and the slack cabinet, there and pray solid demand and building great funnels and then another kind of key highlight that underpins the momentum going forward as studio X Ted Hoff size and award winning games is on it.
His first games are coming to market there both in pre salt the Miami Dragon and Frankenstein. So we have all the pieces in place and we've got great momentum exiting 'twenty two into 'twenty, three but Kona you might want to add to some of the building blocks of how do we get to that number.
Yeah, I'm happy to do that and thinks about and great to be with you Barry today. The building blocks are fundamentally the same as what we had outlined at Investor day, and as Matt said, we have even more confidence in our ability to achieve that given the momentum we're seeing in the business fundamentally we're gonna grow every single one.
Our tea business is the majority of the growth is going to continue to come from gaming, where we know there was a clear path to continue to drive global game sales with some of the Adjacencies in that product that Matt had mentioned and also and global gaming operations more broadly in the premium segment, where we recorded a tank.
Consecutive quarters of growth, which we're really excited about and Si play you would see we had another arps out record. We know that there was a clear path to continue to lift that over time and that's exactly what we're focused on doing and from a margin enhancement perspective were soft launching D. T C. At the moment. So that's another catalyst.
And I gaming, we're going to continue to do what we've done to date, which is all about making great content in particular first party content and we're excited to launch live casino here very quickly, which I'm sure Matt will talk about here in the future. So all that to say, we've got great momentum in the business. It gives us a whole lot of confidence.
And our ability to achieve the $1 4 billion a year, but we outlined in 2025, Yeah. I think just speaking directly to kind of the macro conditions that you referenced.
I'll provide as reported last week, there's optimism in there in that set of results across our key markets, we're saying kind of a dashboard lid up grain in terms of like the key kpis.
The end markets that we operate in another mine look really healthy and I went off delusional you can speak to 10 different economists and they'll give you 10 different versions of is there a recession coming in how they might be and now we have scenario planned for all 10 of those scenarios and many more and we neither levers to pull should the macro conditions hit the sectors that we operate in but at the moment yeah.
We have proven to be very resilient in terms of an industry.
Okay.
Great. That's all incredibly helpful. I appreciate that and just as a quick follow up.
Some other land base.
Competitors, including your former employer or did you mean more focused now.
And I gaming just curious to get your thoughts how you see that impacting your positioning and strategy if at all thank you.
Yes, that's a fair question I think my personal view on this is as is unchanged that competition is is healthy for markets that pushes everyone to be better to do it better I know it'll push us to build a better and better products and I think it drives great outcomes for everyone for players for operators for the industry at large we've got a range of competitors in the market.
Place today, and we've got a healthy level of respect for all of them and we think there'll be many more to come because they really say, what we see which is just an amazing opportunity for growth we.
We feel great about our market position. This team on the deal and finally, the latest ship has been at this for well over a decade, we made the acquisition of F. N Y X number of years ago with that time talent technology and know how and that team has been doing this for a very long time building industry, leading products in the category. So we love our position coupled that with.
The law casino opportunity that way.
Entering into now we think we're positioned well for the.
The opportunity set that's in front of us and really that's the heart of our cross platform strategy, that's unique to us build games deploy them on slot machines in land based casinos take him into the origami universe tie them again in the social casino.
Yes, again, we are we respect the competition, but we we locked away with physician.
Great. Thanks, so much Bob Thanks Connie.
You Gotta and Kim.
Thank you Barry.
Our next question comes from David Katz from Jefferies. David Your line is now open.
Yeah.
Hi, good morning, or good evening, everyone I Connie I wanted to go back to some of the discussion about capital allocation.
In particular, there is a lot to do and I just wonder if you.
Debt reduction maybe has started to drift higher up the priorities after investing internally.
In particular, how are you thinking about the order of those choices today versus a quarter or two quarters ago.
Great and thanks, David good to be with you.
Fundamentally I'd say, if we just step back I think it's important just to understand where we are today because last year was so transformative for us. If you think about what we've now achieved for the first time in a long time, we have a really healthy balance sheet, which puts us in a great position. In fact, we had not left bridge recorded at three three times for the quarter.
And our range of two and a half to three and a half times. We also made significant progress on our share repurchase program. In fact, we frontloaded that executing about 55% in our first year and importantly, we had the ability to continue to invest for growth to your point as we look forward, we're going to continue to.
Take a real balanced and opportunistic approach to capital management, just as we've always done we know that the at the core of our growth is really or panic and Bachmann and we're going to continue to focus on that where we have excess capital, we'll look to deploy that whether that is our share repurchase program that reduction.
Or potential M&A.
M&A, where we can see that it's accretive that being said I think it's just important to now also in the prepared remarks, I mentioned that with the sports betting proceeds we do have an obligation to either invest that in the business or pay down debt. We're continuing to look at the best use of those proceeds we'll keep you posted on.
That but fundamentally our whole program that's focused on ensuring we have the optionality of the balance sheet flexibility in order to drive shareholder growth.
Thank you and I wanted to just.
Just to go back to I gaming and go a little bit deeper.
You know because we've started to see some states talk about legalizing I guess, mainly mine, but do you need any legalization to occur in order to hit your targets for for 2025.
Yes, we watch the same level of enthusiasm your home state that Oh I gave me is a huge opportunity for us like I just mentioned, it's hard to exactly predict when states will legalize, but we are seeing a lot of positive activity across a number of different styles. In our view is the digitalization of gaming is inevitable does it come from.
There's just too many tier wins for it not to happen. The success. It was saying in the states that are already live are a testament to that I'm.
So you really are our opportunities to position ourselves to continue to take share in the market that are live right now so taking.
Increased share of first party content and then exploring this lodge casino opportunity that's in that's in front of us.
To the question specifically, David we've taken a really prudent approach in how we think about the $1 4 billion target. We've had a couple of medium sized states towards the end of 'twenty four and 'twenty. Five however, they are immaterial in the big scheme of things as Matt said, we see clear growth from focusing on our content unimportant.
<unk> live dealer, Yeah, and this is a natural business for us the iron it's about content, we build content for the land based business report that enter into our gaming. So our job is to position ourselves to maximize our share as they as these markets come online. So that's what we're investing for again, it's inevitable hard to predict exactly when it's going to happen but.
We believe in the coming years, the digitalization of gaming is a it's going to happen in a big way.
Yeah.
Thank you you too.
[laughter].
Yeah.
Thank you David.
Our next question comes from Ryan signal from Craig Hallum. Ryan Your line is now open.
Hey, Matt Ekati and good afternoon.
I think sort of free cash flow. So the chart in the slide deck I think it's helpful to really breakdown a lot of the one time cost or cash outflows you had this year, but.
A little bit of that sounds like it's gonna carry into the first half of this year, but how do you think about kind of the back half of this year is it achievable to get to your 45% free cash flow conversion targets.
Kind of talk to your second half this year and then into 2024.
Sure and.
Great to be with you Ryan first let me start with you know we're excited that we operate in businesses, which naturally just have a high cash flow generation profile Youre right. I mean, we've seen this year a number of impacts associated with the divestitures you know on a full year basis that was about 800.
And $18 million, albeit put in the context of the $6 5 billion of gross proceeds and we're pleased with that outcome.
We look forward into 2020 three there will still be a bit of noise in the number in the first half primarily the tax payment we have in the second quarter of $33 million beyond that I think you'll start to see cash flow scale as we get into 'twenty four and 'twenty five we're going to really have the benefit of.
Revenue growth in addition to a number of the operational efficiency programs that we have in place starting to drop to the bottom line, which will allow us to continue to scale margins. I mean, we're still confident and kind of clicking into that plus 40% free cash flow range as we get into 2020.
Five.
And then just for my follow up want to switch over to Si play and I'll ask Josh Tomorrow, but I'd be curious for you guys as point of view, but they are significantly outperforming the industry. So kudos to everyone on that but curious how important you think Leighton wonders cross platform strategy is contributing to that or if its other.
Kind of company specific factors. Thanks.
Yeah I'm glad you asked the question I think Josh and the team should take the victory lap on on what is an outstanding quarter and and kind of back to back outstanding quarters. There's a lot of ambition in that same a lot of humility as well so that theyre not done they've got they got to work to do in front of them to continue to grow that that business. If you look at the numbers. It was record across the board revenue opt out Paragon.
Version and I think there's a lot to be proud of I think really this comes back to the investments that we made there about monetization and about making sure that we can close the gap on opt out between often and some of our peers and we still see a lot of headroom between yeah with the satellite opt outfits and with some of the competitors are outside more growth to come from from that business.
You know I think I'm going to your question specifically about cross platform. This is the decision that we made for the strategic review like the company that we wanted to pay was an organization that had games and technology at the center of its universe, we divested lottery and sports, which looked like parts of the portfolio that didn't ultimately fit with the rest of the <unk>.
But if you look at land buys the majority of what they do is building great slot content, putting it on cabinets you are deploying that in land based casinos, taking that again in the I gaming you're sweating those assets leveraging those franchises and then if you look at the content that's driving a lot of the success and so that's why it's the evergreen franchises coming out.
The land based business, so there isn't a businesses that fit like hand in glove.
Along together, so I think its the.
The combination of the investments that we made in that in that business around monetization, but also now the fact that we're able to take these incredible franchises from the land based business and and deploy them into social casino, Josh Who'll give you a lot more about that but yeah, Josh in that entire attainment salt life had a fantastic quarter and should be acknowledged and thanks for that so I think it.
[laughter].
Thanks, Matt Ekati, Congrats and good luck guys. Thank you.
Thank you.
Thank you Ryan.
With our next question comes from Jeff Stan show from Stifle, Jeff. Your line is now open.
Great. Good afternoon, Matt got it thanks for taking our questions.
Starting off I was hoping to get an update on where you stand from a supply chain and just the broader cost inflation standpoint, where are you seeing relief more recently, where their pressure points still and the world looks today, how should we think about the timing for some of the stuff flow through to EBITDA margins.
Yeah, absolutely and great to be with you first I'd say that as an organization, we've navigated incredibly well over the last few years and that's just a huge testament to the team as we sit here today things are much better than they've been in a really long time.
It's interesting when we step back and look at this you know there was perhaps a bit of a silver lining that we've seen this and the disruptions that occurred over the last few years really forced us to think about how do we ensure that we optimize as an organization and I'd say that had accelerated some of our plans from globally.
<unk> some of our product offering to allow for a commonality amongst parts. It deepened our reach into the supply chain really partnering better with a few of our tier two and tier three suppliers. It forced us to think about value engineering and importantly, also about how we leverage our geographical network to me.
Managed risk and importantly improve costs all of that to say that you know we're excited actually about some of the operational efficiencies that we've now driven through the business, which we expect to benefit for years to come at.
All of that I'd say you know we're in a great position today, we had an amazing Q4, we didn't have any hiccups from a supply chain perspective, I think we're in a good place to continue to meet ongoing demand yeah, I mean I could go to.
Anthony for Mani, who leads that effort for us I'll tell you a three week. However, there was some flavors knott's around supply chain for let's say it was around the guy in the industry I think.
By and large those issues are behind US now so that they understand them is a much better footing in terms of the supply chain. So I wrote on the ethylene until that time.
Great. That's helpful. Thank you both and then for my follow up moving over to the game ops business, obviously, a ton of heavy lifting here over the last couple of years can you just.
Dig a bit deeper into how youre thinking about the roadmap here to 2023 and kind of specifically how do you think about the timing for some of these retooling efforts to really start to flow through to installations that yields to wait two or three progresses. Thanks.
Yeah. This is a business that's a very close to my heart. It's an organization. We're proud of the organization that was you know one of the key strategic tenants. When we we took over the business Chevron lines now running the gaming business and doing a fantastic job and this is a part of the organization that continues to be a major focus we've put a lot of effort energy and investment.
Behind the gaming off the organization with just clicked off the 10th consecutive quarter of gaming off the installed base growth. This is a business that was in systemic decline prior to the pandemic so not to say that continuation of the momentum coming through it comes back to launching the rot hardware and so we'll just on the verge of launching the cosmic cabinet you might have seen that.
At the G to Asia, we have a sales pipeline building at some pre sell at the moment to have Ted Hafez guidance will launch on that so we've got the right talent. We've got the right hardware, we've got the right momentum and there's more investments coming to.
To support that all the time, but you've also got rich Schneider, who I think as a whole if I'm C. P O pulling a lot of the strength to make sure that we've got the right investments in the right areas. So good momentum in that business and I think things like cosmic and Ted Hearthside. His team alongside all the studios that we will have will just help turbocharge that all the time.
Maybe just building also off of what Matt said, we're excited to see as he mentioned that 10 consecutive quarters of premium gaming operations grows and we do intend to continue to grow that business part of what you've seen right. Now is just a turbocharging of some of the investment not only from an R&D perspective, but also as a capex.
Perspective, we had a really aging install base I think we're finally, starting to get to that point, where youre going to start to see further growth as we kind of true it up that the underlying position and the games are getting better and better and for the first time, we have a full really dynamic suite in terms of our portfolio to play an ever.
TS segment within gaming operations. So we're excited about the growth prospects ahead.
Great. That's helpful. Thank you both I'll pass it on.
Yeah. Thanks for the question Tim.
Thank you Jeff.
With our last question comes from Chad Beynon from Macquarie Chad. Your line is now open.
Good evening, Mark on a nice execution and thanks for taking my question.
Matt just wanted to start with one of the goals that you laid out at the Investor Day, you talked about game sales market share in North America and also in an NSAID and in your earlier comments, you talked about Australia up 500 basis points and some nice wins, there already executing and probably pretty far along in that market share goal.
But as it pertains to North America.
So you mentioned some launches in some of the things Youre working with but how should we think about you know when the school should potentially be met and then I think also at the Investor Day, you talked about a 2023 sales number wondering if that's still kind of in your scope effects.
Yeah, Great question, but like I said, yeah, some signs of growth in K N K segments, but more to come. So I think this is really about making sure two things. We've got the right hardware launched and nature of the case segments, and so I think cosmic and the joule screen flat that we launched in the first half of this year, we're kind of really round out the portfolio and make sure we have.
But they often will complete across all the magic case segments and then it's really about optimizing.
Optimizing this R&D program that rich Schneider and the team are leading with managed.
To raise that levels of investment in R&D pretty dramatically either kind of 2019 levels and we've done that while maintaining margin. So we've given rich and the team all of the the dollars that they need to go out there and and to make sure that all the studios that we have a fully funded we on boarded.
<unk> so it's been about putting the investment in place and just making sure. We have all of the right tools in place to drive that level of product quality.
The time and I think the the infusion of Ted Hoff size Guy is just adding to that so again dragon in Frankenstein are in pre sell at the moment more to come in the back half of the year. So yeah like I said, there's there's pockets of of share growth across the business, but we're really laser focused on making sure that way we drive the share outcomes that we've committed to.
Claiming that great I, just say that there were really two fundamental key pillars. As we were looking at the share or should I say the for sale segment. The first one was we expected to see a market recovery into 2023, I think the back half of 'twenty, two and what we're seeing in our funnel today is a really positive.
Find that that's happening and the second one was to Matt's point is to ensure that we had product and all of the right categories. Importantly, also with a number of Jason CS which are coming online soon and so we feel good that those two key tenants of the commitment are in really good shape.
Yeah, and I think that's what you saw in the Q4 numbers are pretty dramatic uptick in terms of the guidance number.
Like I said, we're expanding into the Oregon State Lottery, we have just a handful of units out right now and that we say that is a big market opportunity for US and then we've got big ambitions in Vale day and beyond So I think it's the culmination of the core replacement market and then these adjacencies that where we're entering out of a time feeling convicted about the direction of travel there.
It's great to see thank you and then my follow up I don't want to leave systems out of this call 30% growth in the back half you talked about you know house advantage and in the businesses is almost back to 2019 levels wondering if this should be viewed as you know maybe some deferred capex from your from your operators that.
Our spending here or if you know the growth the offering kind of what you guys are doing on the cashless side.
Could provide some pretty strong growth maybe not at those levels, but that that could continue in the near term and that's all for me. Thank you yeah.
Yeah, Thanks for going deep into the portfolio that that's an area that we were pretty proud of you know we made the acquisition of house advantage. We brought in a later like Jon Wolff, who is exceptional and that is the operators pain points knows how to run technology times. He's been spending a good amount of his time over in India kind of working without best in class systems development team so far.
A lot of momentum there we've been to two shows with him now we went to <unk> and then also to US and we're talking about kind of his vision to take systems to the next level. So it was a great close to Q4, when we say good momentum heading into the into Q1. So yeah. It's a business that we felt like it was a bit underinvested and they needed. Some retooling. There then you later to take us.
And that's what we've got with John and he's really reinvigorated things feeling feeling really good about the system direction.
Thanks I appreciate it.
Youre welcome.
Thank you Chad.
We have no further questions from the line I will now hand back to Matt loosen seal off lately.
And Linda Matt.
Yeah. Thank you all for your time and support we've delivered on an ambitious and transformative plan, while driving operational success and double digit growth in a business setting us up to achieve the long range targets. We've laid out last night our teams around the world are energized and enthusiastic about our opportunities I'll just close by saying that behind these great numbers are.
Right group of people, who have never been more dedicated to achieving great things a real testament to the culture. We're trying to build here a lot and Wanda we're excited about our future and we see strong momentum continuing in the business and the year to come our industry, leading talent games and technology put us in a strong position to deliver on our product roadmap capitalize on the enormous opportunities ahead and.
Lead the industry in convergence on behalf of everyone. Here. Thank you for your time and have a great rest of your debt.
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