Q1 2023 Light & Wonder Inc Earnings Call

Good afternoon.

Welcome to the life and Wonder 2023 first quarter earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

I'll now like to turn the call over to Nick <unk> Senior Vice President of Investor Relations for lights, and Wonder Mr. Zhang Gary.

Say again.

Thank you operator, and good afternoon, everyone and welcome to our first quarter 2023 earnings Conference call with me today are our CEO , Matt Wilson CFO Tony James during.

During today's call, we will discuss our first quarter 2023 results and operating performance followed by a question and answer session.

Our call today will contain forward looking statements that may involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call.

For information regarding these risks and uncertainties. Please refer to our earnings materials relating to this call posted on our website and our filings with the SEC.

We will also discuss certain non-GAAP financial measures.

A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release as well as in the investors section on our website.

In 2022, we completed the sale of the lottery business to Brookfield business partners in the second quarter and the sale of the sports betting business to endeavor in the third quarter.

Accordingly, we have reflected these businesses as discontinued operations in our consolidated statements of operations.

We are reporting our results of continuing operations and three business segments.

Gaming Si play and I gave it.

Amounts and disclosures, referring to combined including 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 will now turn the call over to Matt.

Thank you Nick and thanks to everyone for joining today's call we're off to a fantastic start in 2023, continuing the momentum we established last year. We now passed the one remark is the need like Wanda and while we've accomplished a great deal. We believe the best is yet to come.

We have a talented team driving a powerful R&D engine that is fueling our portfolio across all three businesses and has enabled us to begin the year with entire pipeline of exciting products and guidance.

Our first quarter results demonstrate we are making continued progress towards the execution of our cross platform roadmap and long term goals and delivered on several key metrics, including double digit top and bottom line growth.

On a year on year basis, consolidated revenues, increasing by 17% and we achieved record quarterly revenues in both <unk> and <unk>.

I've been in the gaming industry long enough to know that compelling content drive success.

Continued streamlining of our R&D efforts will benefit that business unit and position us to win the long game.

Result was achieved enhanced collaboration in research increased development velocity and faster delivery to market of new and improved products and integrated solutions.

A demonstration of our unique cross platform approach without operated partner ACL team, who launched <unk> Grande in both land based gaming channels showcased the increased engagement driving significant results and player in thought.

This follows on from last year's monopoly lunar new year release, and we will continue to work with our partners on cross channel promotion and expect both out original land based content and digital from added content to be deployed more broadly.

These steps are accelerating the progress of our cross platform strategy. The expanded benefits that these initiatives are expected to be realized over the coming quarters as our integrated global R&D platform ramps up.

Executing on core business fundamentals, we are always looking at ways to expand our share of the total addressable market to continue creating shareholder value.

Offering a lot and wonder investment opportunity to a broader base of investors is yet another way.

Given the positive sentiment we've received from Australia investors, we're excited to pursue a secondary listing on the Australian stock exchange, which we believe will complement our existing shareholder base.

<unk> is a premium market with a long track record as a platform for global gaming companies and a deep and liquid pool of investors and market participants who understand the gaming business. We believe the secondary listing will stimulate demand for our shares by providing accessibility to institutional investors, who are unable to invest offshore as well.

Increasing analyst coverage and expanding retail ownership. This is an important market for us and a natural progression of that strategy.

In regards to timing, we expect ASX listing approval by the end of the second quarter.

With a healthy business fundamentals talented global crane, a cleaner product roadmap and execution against our strategy. We continue to build the right momentum as we progress towards the $1 4 billion 2025 consolidated EBITDA pocket.

Now, let's review our business segment highlights starting with gaming.

We've made considerable progress deploying proven content across key market.

Gaming operation, we grew north American premium units for the 11th consecutive quarter, achieving a record 46% of our North American installed base.

Recently these efforts have made acknowledged according to the most recent always report ultra Violet explosion remains at the top of the new premium leased games chart.

Likewise journey to planet <unk> debuted as the number one wide area progressive games in the category.

<unk> launched its first game Dragon gene lungs, inbound during the first quarter and while it's early days, we are already seeing exceptional performance we.

We have a robust product pipeline, which gives me great confidence in our ability to progressed significantly in the premium space.

The second quarter outlook is looking very promising as well as we roll that cosmic one of our newest cabinets.

We anticipated gains, including monsters, Frankenstein, and ultimate filing casuals are already performing well above our expectation.

Even though that just started rolling out the casino floor in the last few weeks.

Likewise, our roadmap of new game and franchise extension will continue to drive momentum gaming operation sleep.

Turning to guidance out we return to significant growth shipping either 7600 units globally with 4000 units in North America, and 3600 units internationally.

The robust demand in game sales led to a $158 million of revenue for the third quarter translating to over 50% growth year over year, well above 2019 first quarter levels and even above the seasonally stronger fourth quarter, we reported in 2022.

We're encouraged that the industry is showing replacement growth as operators continue to invest in that for example in the North American replacement style market, we shipped over 3700 unit.

As we look forward, we're excited to expand our presence in adjacent markets such as video lottery terminals and historical Horseracing and further and create that share over time.

In Australia, our new focus allowed us to increase our market share to over 20% in the quarter. This was partly driven by the strong performance of Thunder drunk driving record Q1 ships, yet a testament to the talented team that we've assembled in our studios.

For US Australia is a bellwether for scaling successful games globally with proven game mechanics that can also be leveraging other market.

Given the significant gains we made in Australia. We also believe we can win a more substantial share of the north American market with the right focus and the right execution.

It's also worth noting that we recently achieved number one floor share with a new property opening in Asia, where we have a strong footprint and it's great to say that market opens back up.

Additionally, we are proud to report the cause SCADA joule screen and landmark 7000 remain the number one cabinet in their respective categories, but yet another quarter on island.

We see a solid sales pipeline for the cosmic cabinet and the cause Scotland, which is scheduled to launch in late night players should expect popular franchise extensions like dancing drums, powertrain and goldfish boost to launch on these cabinets soon as well.

To a great start and have significant confidence going into the second half of the year, especially when you consider the pipeline of new content.

On the systems, where our strategy calls for integrating enhanced capabilities on top of our existing platforms to solidify our leadership position.

Recent wins reflect the significant progress that we've made.

The announced installation per Pax shipping in Pennsylvania is a testament to our enhanced offering, allowing cashless play interactive promotions on the floor registration and account management via mobile App and Furthermore, Manhattan.

In another way, we were selected as a system provider and the skill of casino in Texas with this new partnership we were able to fully demonstrate that our product comprise an expansive portfolio of casino management system hardware and software that enable our customers to deliver best in class experiences for their players at all points of the business.

The value proposition, we are offering in the systems business is clearly gaining momentum as we saw continued strong interest from our operator partners.

Lastly in table, we continue to maintain our industry, leading position leveraging our proprietary table games and chocolate products, where we continue to focus on innovation in both hardware and software solutions.

Overall, we saw a great quarter underpinned by a robust product portfolio and momentum from 2022 that propelled us into the knee are growing franchise extension and new cosmic <unk> got a slant cabinets give me great confidence in our ability to execute as operators continue to invest in refreshed it rolls.

Let's turn to slide eight the momentum we established last year continued in the third quarter and the investments we made over the past 18 months I think validated the significant share gain.

So I play extended its winning streak in the social casino market once again exceeding market performance with 18% year over year growth.

On record revenue of $186 million.

This also marked the second consecutive quarter of record earnings the Jackpot Party casino and the quick hit slots, we continue to see high repeat player activity at slot by signifying the value players, saying that again.

Parkway has improved in game economic and monetization metrics by a LIBOR, resulting in record monthly paying users and a record opt out at 89% in the quarter. Additionally, the soft launch of our direct to consumer platform in the quarter is yet another step towards enhancing our ability to capture long term margin expansion.

<unk> competitive advantage.

<unk> has also been various engagement models into a platform, which can be scaled across the other game for example, applying in game events across one ecosystem.

The same with experience across multiple game.

We will continue to leverage our best in class efficiency of AD tech capabilities and improve returns on UA spend. Additionally, we will make prudent expansion into new games by our core social casino product roadmap further differentiating Barclays offering from its industry peers capitalizing on a cross platform strategy as we continue to work together.

Building and deploying the most engaging games enjoyed by players across all channels.

We are very encouraged by the trends and progress we are saying boy side. The team has done a great job capitalizing on the momentum we will continue investing in our game players and platform with industry best live ops to optimize player experiences and maximize monetization opportunities.

Moving on to our gaming, where we operate leading open gaming system platform connecting studios and operated to the best in class II gaming ecosystem, enabling brand of scale and access to games and customer.

10 years of experience in <unk>, and the leadership position and a significant advantage in deploying regionalized game content.

<unk> on our platform continued to grow in the U S driven by an increased volume of land based and digital native game and the continued scaling of lgs or with third Party studios.

This quarter speaks volume to the performance of that game titles as we maintained and grew our market share sequentially in all six U S sites that we are logging.

In the EU and U K, we saw 7% and 10% JJ outgrowth, respectively on a year on year basis with performance, primarily driven by both Elk enlightened Buck and studios.

Across all regions as we continue to see impressive performance from our third party content with more upside expected from our two plus one roadmap featuring our most popular land by title and a 1% to 500 launches in the U K innovating on our products to engage players while keeping responsible gaming at heart.

Of the top 20 games in the U S went out rgs nearly 70% of those a lot more of this proprietary content emphasizing once again, the players gravitate towards getting to that familiar with across all channels.

Mining box reported a record quarter with <unk> growth of 62% in the U S, marking six consecutive quarters of sequential growth since joining a lot and one of the family.

<unk> also saw a record quarter with <unk> growth of 71%. This is the fifth sequential quarter of growth on the lot and Wanda driven by exceptional Q1 content launches pirate no truckload.

In tropical too.

Turning to lot casino is the fastest growing segment of the <unk> market.

<unk> announced that solidified our launch partner in the U S with Rostrate interacting and we're progressing towards final regulatory approval for a successful launch in Michigan. This year.

It's clearly the work that a lot and one that has a strategic advantage as the first mover in the <unk> space. We are seeing tremendous performance from Atlanta based original content and we've only scratched the surface of integrating these great game into a gaming offering.

In closing we continue building off our strong business momentum established in 2022 with content technology and talent fueling our cross platform strategy regarding talent, we are investing significantly in program to attract retain and develop the best in the industry.

Content, we are executing on a robust cross platform agenda without games, reaching all corners of the globe with.

With technology, it bears repeating that an integrated product roadmap and streamline game development process from a technology efficiency, reducing development time and cost and other resources.

This new approach is already producing results I take and things will be fully launched Tri channel throughout the year five digital native guys will be making their debut in the land based market and 38 land based titles will go into the digital ecosystem. This year. Please.

Significant milestone further validate the proven games are in demand and players want to play their favorite games across multiple platforms.

The integration of these market, leading asset and the insights we gain by having these three powerful businesses allow us to build the greatest franchises against possible.

At this point I'd like to turn things over to Tony to summarize the financials.

Thank you, Matt and thanks, everyone for joining us today, it's great to be here and share insights into the performance we saw in the quarter.

Let me begin by thanking our teams for their relentless efforts delivering quarter after quarter and breaking records along the way they continued to perform at high levels and achieve key milestones as we progress towards our long term targets.

The quality of our earnings underpinned by strong recurring revenue streams and scaling digital businesses reflects the significant progress we are making our strong financial profile is taking shape with EBITDA growing faster than revenue and cash flow growing faster than EBITDA.

First quarter consolidated revenue increased 17% to $670 million is all three businesses achieved double digit cloud a continuation of the trend we saw last quarter.

Operating income was $102 million, an increase of 155% year over year.

Consolidated EBIT grew 23% to $249 million driven by double digit topline growth across all businesses as well as improved margins.

Consolidated EBITDA margin was 37% compared to 35% in the prior year, an increase of 200 basis points delivering on our commitment to preserve profitability, while investing with a focus on sustainable growth.

Consolidated operating cash flow was $185 million compared to combined operating cash flow of $94 million last year.

Merrily drew to lower interest payments and favorable changes in working capital.

Prior year cash flow was impacted by costs associated with strategic transactions and timing of inventory purchases.

Now turning to the business units.

First in gaming, we continue to build on the significant momentum in our core segments.

Revenue in the quarter grew 18% year over year to $419 million led by robust gains sales growth of 53% over the prior year period.

EBITDA outpaced revenue growth of 20% to $206 million and EBITDA margin increase of 100 basis points to 49% compared to the prior year period, primarily driven by volume growth of our premium products.

We continue to deliver strong results in gaming operations growing our installed base and revenue per day year over year and sequentially.

North American premium installed base increased 8% compared to the prior year and now stands at a record 46% of total North American installed base.

Additionally, revenue per day remains elevated at about $45 underpinned by our gains in franchises delivering solid performance this quarter.

Mobile game sales was a key highlight in the quarter as revenue exceeded first quarter 2019 levels by 16% with North America replacement units up 18% over the same period.

As Matt mentioned, we saw significant share gains in Australia, ending the quarter with over 20% ship share a record for light and wonder.

The progress we've made in key for sale market is remarkable as they continued to be a premium product supplier generating average selling prices of over $18700 in the quarter.

Turning to systems, we achieved an 8% revenue increase year over year, driven by higher service and maintenance revenue.

Also we expanded our managed services offering which is expected to be an important part of our recurring revenue stream in the future.

Our enhanced system solutions portfolio, a wide range of capabilities, enabling us to solidify our leadership position.

Lastly in table revenue was flat compared to the prior year period. The business continues to stabilize with further global market reopening.

We are implementing a number of strategic initiatives with a focus on sustainable growth, which includes expanding our recurring revenue commercial models signing up more customers through our proprietary table games subscription program.

The execution of our product roadmap and strong financial performance in the quarter. It gives me great confidence in the trajectory of our business.

We continue to see strong demand for our portfolio of products that the operator continue to refresh their floors and enhance their offering to customize.

Moving on to sideline.

We delivered another quarter of record performance outpacing the social casino market and growing share.

True Testament of Si play successful investments and execution of their strategy to enhance core capabilities.

Revenue in the quarter grew 18% to $186 million another record high once again led by our two biggest games jackpot Party and quick hit slots, both posting quarterly revenue record.

EBITDA grew 21% to $54 million year over year, driven by strong topline growth.

EBITDA margin was 29% in the quarter, an increase of 100 basis points from the prior year period.

We continue to see incredibly strong kpis across the board with average revenue per daily average user at 89 cents in the quarter, a record high and a 20% increase year over year building on the positive trends we've experienced over the last three years.

Average monthly revenue per paying user was at elevated levels of over $97 and the payer conversion rate at 10, 3%.

So I play continues to expand its current payer base and monetization with existing payer cohorts. In fact, we saw the highest number of monthly paying users setting another record for this quarter.

I am thrilled with the execution that pipeline as we delivered several records with revenue higher than we anticipated.

The investments, we began making 18 months ago are paying off as evidenced in the outperformance relative to the market.

We will continue to invest in the areas that generate high returns to drive long term growth profitability and market expansion.

Turning to I gaming are proven games and franchise extensions continue to drive the performance of the business as we accelerate launches are successful land based titles and execute on a regionalized content roadmap.

We achieved record revenue of $65 million, a 10% increase year over year, primarily led by continued growth in the U S market as well as strong land based original content launches and scaling of third party content on our aggregation platform.

Waitress processed through our open gaming system increased to an all time high record of 20 billion.

U S revenue grew 34% year on year outpacing U S GTR grows.

Internationally, we saw high single digit growth in the EU and U K year over year, and we will continue to capitalize on this trend with a mix of first and third party content to fuel our growth.

EBITDA also grew by 10% to a record $23 million, reflecting top line growth.

EBITDA margin was 35%.

We will continue to invest in the business throughout the year bolstering our product portfolio with content and our live casino offering to drive sustainable growth going forward.

With our leading <unk> platform proven content regionalized roadmap unexpected live casino lines, we are well positioned to capture growth and scale, our offering to enhance the bottom line.

This brings me to operational efficiency, which remains a top priority of mine.

Margin enhancement initiatives across the organization are underway a lot of ring up to a high performance culture with a focus on continuous improvement that is core to our DNA.

This has been a key initiative of mine since joining the company in 2020, and while we've made great strides we continue to move forward on additional initiatives to harmonize the organization into a well oiled machine.

As we grow and scale the business, we are investing and allocating resources thoughtfully, particularly in R&D, where we are leveraging our world class International development centers like those in India and Greece.

We're also advancing initiatives to improve our sourcing processes to enhance product margin for.

For example in supply chain and logistics, we are optimizing our distribution network.

At the same time, we are driving cost savings through value engineering, creating a more efficient and effective R&D platform.

And more broadly across SG&A, we are centralizing corporate functions through shared services across the business driving further integration and efficiency within the organization.

That said, we will see elevated corporate costs throughout the year related to legacy litigation and certain legal expenses at pipeline.

While the industry has proven to be resilient and we remain committed to executing on value enhancing projects as we stay laser focused on driving profitability, staying agile and nimble to changes in the macro environment.

Turning to the balance sheet and cash flow.

At quarter end, we had $1 $8 billion of available liquidity, including $931 million of cash on hand.

Strengthened balance sheet and highly cash generative businesses allow us to create a strong cast flywheel.

First quarter free cash flow was $74 million, resulting in approximately 30% of free cash flow conversion as we benefited from lower interest payments and favorable changes in working capital.

The range of two and a half to three and a half times.

As previously did Scott we are evaluating the appropriate use of proceeds from the sale of our sports betting business.

Oh, <unk> covered and require us to use the proceeds to invest in a business repay additional debt or a combination thereof. We look forward to hearing more about the determination of the best use of these proceeds.

We will deploy access capital in the most value, creating way for our shareholders and everything we do will be in the context of a healthy balance sheet.

Regarding our investment priorities, we continue to align needs to the most significant growth opportunities at.

At the heart of this is organic investment in our core capabilities content platforms, and Adjacencies, which will fuel sustainable growth across the company for years.

To the extent, we consider M&A, we are committed to driving high R O y to enhance shareholder value and grow our leadership position.

Accordingly, we will remain disciplined ensuring investments exceed a rigorous financial hurdles.

On Capitol returned to shareholders, we've now repurchased $437 million or 7.6 million shares through may 4th this year fulfilling 58% of our authorization.

In the meantime, we remained focused on preserving optionality in the near term to capitalize on potential value creating opportunities in 2023.

In closing our first quarter results are clear evidence of our ability to build on last year's strong operational and financial results and we are encouraged by the progress, we're making executing on our strategy to achieve longterm target.

Finally, whether we're expanding global investor presence, we've bolstered our Investor Relations platform with the addition of mixing Gary as their senior Vice President of Investor Relations, we'd like to welcome next to the team.

With that will open up the call for your questions.

Thank you.

If you would like to ask a question.

Please press star followed by one or your telephone keypad.

Any reason you would like cream move that question. Please press star followed by two again to ask a question. Please press star one we will pause here briefly ask questions are registered.

Our first question comes from the line, but Barry Jonas with Truest. Please go ahead.

Thank you so much.

Welcome Eric I wanted to start.

Driving a little bit more into the office lifting.

Talk a little bit more about the logic and rationale and I, just how like wood and active do you envision.

You also your listing fee.

Yeah, great to have you with us berrien, great to have nuclear this as well said welcome to the <unk> to have you.

On board. So yeah Al Board has been evaluating a range of strategic alternatives to continue to to build shareholder value and I'll throw a thoughtful and.

Deliberate process, we've decided to move forward as I said when I was opening remarks, we think it will go a lot sometime in Q2 I personally think this is a natural extension of that strategy. The Aussie market. Obviously, given my accent is is important to me, but also important to the business up from an operating standpoint.

Have you heard of knows remarks, <unk> <unk> from <unk> single digits to 21% of the quota. We just took a 50% position in a new opening up in Asia, sorry, it's becoming strategically much more important from off from an operation standpoint, I think I'll start from an investor's standpoint, it's an investor buys does he has a data understanding of the gaming industry.

You know they've had a lot of success in investing in Australia companies over the years and all of the the last piece for us without a lot of inbound from investors in Australia, who have <unk> invest offshore I want to participate in the story. So I think the secondary listing provide that vehicle for them.

To spend a lot montessori thought into an exciting opportunity I think it underscores the fact that this board and management team <unk>.

Continues to look for ways to create shareholder value and and that's a thoughtful and deliberate set of actions call. You. Maybe you want to build on that from a liquidity standpoint, yeah, absolutely. Thanks man, thanks, very for being with US as Matt mention we're really excited about the strong investor sentiment in the opportunity to participate in the a F X, we know that liquidity and.

<unk> inclusion are too critical success factors for us.

A couple of pieces that I'll just add the eighth at 300 index inclusion cut off circa Australian $500 million and the <unk> 200 index inclusion cut off the circuit, Australia and $1.2 billion. That's about six to 15 per cent of our current market cap and with that we see index.

Inclusion as an achievable outcome and have a number of <unk> to pull to get there. We do expect some existing shareholders to transmute shares from the NASDAQ to the <unk> and then on day, one will have a <unk> a respectable number of shares with more to come and lastly, we're launching an active marketing campaign <unk>.

Along with the Investor Relations team will be ramping up some regular engagement with institutional investors. Some retail wealth management networks and also sell side analysts all of this gives us great confidence in our ability to build liquidity and I'll, just say that well. We're really excited about this is another step towards enhancing.

Value for all N. W. A shareholders were also equally focused on a U S lifting.

Thanks Barry.

That's really helpful color I guess this is a follow up.

Certainly heard a lot of charter operators of your competitors, but some of the macro uncertainty out there but from your perspective.

Talk a bit about visibility as we get into the second half of the year.

Yeah, I'll I'll take that often Tony maybe you want to build on it but I think we are very fortunate to working very resilient and market something sometimes up under appreciated by the market just how resilient gaming is and I think that's evidenced by elevated jgr numbers across both the gaming businesses globally in the <unk> I mean businesses I think you're saying <unk>.

Accretion and they so I play resolve an amazing set us up my results.

Honestly and that's.

Saw on that consumers are willing to pay I think you think continued reinvestment in gaming falls from operators, though I think I, yet again, the industry proving even tons and tons of macro uncertainty that I'm incredibly resilient and we say great momentum into <unk>, Yeah, I, just add Matt talks a lot about our R&D engine everywhere.

Really excited about the product portfolio, that's coming out in the second half we've got cosmic coming out a really exciting pipeline building for that we're excited with life casino and the opportunities there as well and there was no doubt about it sigh plays got great momentum. So we remain cautiously optimistic as usual, but as Matt said, the macros playing out.

In our favor at the moment.

Perfect. Thanks, so much and not congrats on a nice results.

Okay.

Thank you.

Our next question comes from the line of David Cats with Jeffrey. Please go ahead.

Hi, Afternooner one thanks for taking my question.

I wanted to just get some updated thoughts on the ramp 2 billion for for 2025 I know it's.

Quite talked about how you feel with respect to your progress there with it what we should look for the rest of this year to give us confidence you've got there and the follow up.

That is just an update on the building blocks, particularly within digital.

Sort of where we spoke today and what the trajectory <unk>. Thank you.

Yeah, and thanks for being on the line and <unk>, David particularly.

The cost of 1.4 billion started with a great delivery of the of the 22 number. So that was great momentum lost you that's carried over into <unk>.

Really not.

Gross numbers top or bottom line across all three businesses.

It's about sequential operating momentum I think as we move into Q2 were saying.

April fond of momentum in the businesses and I think it would be kind of breakdown the businesses. One by one if you look at the social casino numbers, we clearly the fastest growing social because they in our company in the industry. There's just no doubt about that taking shepherd from competitive and we feel we say continued opportunity as we as we move ahead into the subsequent quotas are they give you a look.

Or gaming perspective, we expanded our share of the U S market by a percentage point quarter on quarter. So that shows kind of organically, we can grow sure by excusing that business with <unk> when everybody's content.

In terms of large casino, we announced last week after its launch partner with Rostrate interactive.

Thrilled to announce today on the coldest droppings of all so fond on as well as Golden Nugget. So we have three willing supportive partners at a kind of help US go out in Michigan. So I think that's that's a large part of the organic market, 30% of the addressable market there and we're going to have a huge business in that market at the time, So I think.

Obvious opportunity for us to expand Sharon those two markets and then I think if you turn to the gaming business. It's clear in the in the international markets, We've expanded share Australia, essentially doubling sure the last <unk>.

A year or so and then I use your again is that Mark It comes back on line, 50% Sharon and are you opening so I think the big opportunity for us in gaming is to grow share in the in the big North American markets and I think I.

I was reported that we had the number one joule screening the market again this quarter as well as a number one mechanic a real product that's exciting but they round the relative sizes smaller segments. The biggest segment an opportunity for US is the portrait cabinet segment in North America, and we would do for a refreshing that category with just launched cosmic. So that's just go online.

In April .

<unk> calls, making these numbers, that's all a future opportunity for us. So I think over the next few quarters, you'll see it you know a really rapidly growing south pipeline of that cosmic habits, which will help us type Sharon and these K North American markets, but Connie and then you'll Miss me I just add that in the great News here too is we've got a diverse portfolio and.

And that allows us to find a number of ways to get to the 1.4. We've really also then focus on a number of operational efficiencies just to ensure that we're driving real profitable growth and is not mentioned and we've got a number of proof points are really shiny three quarter after quarter, we're gonna continue that momentum and that gives.

There's a lot of confidence ticket to the 1.4.

And then your second question, David I'll, just need to talk to them about I'm sorry, yes. Please.

We're crossing so I'll just touch on your <unk> question very quickly I think.

<unk>, we have a crystal ball around the expansion of markets and everyone has their own version of that Crystal Bowl. So.

It's hard to predict exactly when those markets will expand but we know that it will it's inevitable over time, it's the digitization of every market has happened at a rapid pace and we say gaming following a similar path, although it's hard to predict exactly when it will happen, but what we do have complete control over is expanding our share in the market that we operate in and so that's about taking those great.

Lambastes titles and infusing them into the gaming channel and we just kind of scratching the surface of that and then capturing as much share. This this lock assign a segment as possible. So that's what we're gonna do in the meantime, and regulatory expansion happens, it's our job to be there and ready to capture the lion's share when those mark has come on line and that's what we have.

<unk>.

Got it. Thank you [laughter]. Thank you for taking my question.

You're welcome.

Thank you.

Our next question comes from the line of Chad <unk> with Mccoy. Please go ahead.

[noise] afternoon, Thanks for taking my question and welcome Nick.

First just wanted to start with cashless gaming you talked about a couple of opportunities. Some that you just launched I believe you said parks in Pennsylvania can you talk about any further acceptance for your product or just a product in general that could kind of get the ball rolling where this could be just a more accepted and.

Normal piece of the gaming experience in the industry. Thanks.

Yeah. Thanks for the question. So obviously, we appointed a new laid Alaska in John Wolf is a great technologist understands the operator side of the equation and he's kind of investing in this portfolio of bringing cash the solutions to Mark we had two K wins that we announced this quarter with the scalar unpark. So again, that's under score and the fact that way off the Mark.

Hit later in <unk>.

Continue to capitalize on the strength of that incumbency that that we have the IV full rollout that we say across the installed base positions off to be ready for cashless enablement. So those are the four that are going into the fleet make sure that when they operate is ready to turn cashless on that we are ready to to supply that and we're saying a large wrap in terms of that technology.

Driven into the installed base the Canadian Yeah, I'd say I think we're seeing good momentum we've nearly doubled the amount of cashless enablement technology, we have out in the marketplace since last year and is not that our job is to make sure that we're ready to go once people decide to flip that switch and we couldn't be more pleased with the <unk>.

Aggressive having John Wilson, a business and continue to ensure that we're in the market leader, Yeah, and I think there is like an air of inevitability about this like the digitalization of of gaming, but also the digitisation of payments across the board consumers expect this you know I think it's just a matter of time before we say this scale across the casino market.

[noise] great. Thank you and then follow up Connie just on on free Cashflow, you're talking about a couple of options with the money that that that you brought in after the the sports sale can you hit on any other important Idaho items for us to think about other free cashflow conversion are kind of the bridge to get the free cash flow.

In 2023, thank you.

Yeah, absolutely Yeah first let me just start by saying, we're really pleased with the cash conversion that we had in the quarter. It's a real testament to the progress that we're making more broadly and what I'm excited about is it really just highlights the natural financial profile of this business being highly cash generative a couple of things.

To know as we move into Q2, we do have the remaining divestiture tax payment of $32 million as well as his semi annual interest in some of the recurring income tax payments. It's nice to know that we all for the first time in a long time, we're going to continue to have positive net income.

The result of that is that we will be a full time in cash taxpayer, we expect that effective tax rate to be in the low twenties, but again I think the core here is that we've got a really amazing financial profile with strong top line growth 80, but a grown at a rate faster then revenue and importantly free cash.

Cash flow scaling at a rate faster than <unk>, and we know that free cash flow is a key driver of shareholder value as a business skills as you start to see that operational efficiency dropped to the bottom line. There was a clear path to thing continued momentum and free cashless scaling.

[noise]. Thank you very much Coney, thanks, Matt nice corner.

Yeah, you're welcome.

Thank you.

Our next question comes from the line of Brian .

<unk> with Craig Hallum. Please go ahead.

Good afternoon, Mac County, I want to start with life casino so.

Timeline kind of <unk>, what kind of late in the year early next and that got delayed a little bit and then it was kind of Q1 <unk>.

Conditional license from Michigan.

Second half of the year could you just talk to you I guess the timeline for launching in Michigan with those first couple operators and then potentially kind of the kittens. Shortly thereafter in other states.

Yeah, I think a great question and <unk> I think lessons learned along the way these things take a little longer than you do anticipate but this is a long game. You know we were investing for come a multi year payback I think getting those three operators signed up and supportive Ah deals ankle and locked in.

With a K milestone for us I would say, we're kind of 95% of the way through regulatory compliance and so we see approval of that happening in Q3 and up in the business largely operating in that timeframe as well so more to come over the coming weeks cause we get final regulatory approval, but we intend to scale that.

In Q3, and then the successful come over multiple quarters and used to come.

And then for my follow up just curious on capital allocation, maybe I'm reading too much into slide for but preserving optionality in the near term to capitalize on potential value, creating opportunities in 2023, that's new verbiage curious from reading too much into that or if there's something more to and if you can.

Right on that and then secondly, kind of how that relates to your share repurchase program and if there's a change in kind of thought and strategy around aggressiveness. There. Thanks. Good luck guys.

Okay. Thank Brian I'm happy to take that long ago, and I think it's it's important just to against step back and think about R. Capital allocation program more broadly we were really specific about creating an umbrella in which we take a balanced and opportunistic approach and that.

He used to be our philosophy at the core of that wasn't ensuring that we pay down dad and created a healthy balance sheet I'm really pleased that in our leverage that we reported in the quarter was at 3.1 times squarely with an R. Two and a half to three and a half times range. We've also been executing on our share repurchase program circuits, 60%.

<unk> of that has been complete since we initiated that about 15 months ago, we see that as a long term value creation opportunity for us.

Everything we do will continue to be in the context of about a healthy balance sheet and this is where the sports proceeds play a little bit into that we know that we have an obligation to either repay down dad or invest in the business by the end of the year and so creating optionality on those proceeds continues to be important.

Rest assured, though that we are laser focused and using our capital in order to drive longterm shareholder value just as we've done today.

Great. Thanks, Thanks for your question you.

Our next question.

It's from the line of David Bang with be Riley. Please go ahead.

Great. Thank you I guess first you know man I would love to just based on your experience and just use today. If there is a small downturn in the macro how do you view the resiliency of say social versus online RMG versus land based gaming obviously, we have more.

Track record to look to a land base, but I just wanted to get your thoughts.

Yeah, I think it's a great question I think the last time, we had a large macro pullback the social casino business was really <unk>.

Fancy so it's a mark of it hasn't it hasn't gone through a large scale pullback what we saw in the global financial crosses not that for shattering anything happening like that you know what I think the the narrative and the market is potentially a soft landing I think we're we're out from a strategic standpoint is we have a it's a social casino business that has an opt out essentially half of the.

Pilatus so we have the ability to ask more of players other time to to monetize them more effectively so I think we're in a good position.

Like we have this natural hedge around opt out that we were able to kind of build.

Business momentum off of tobacco.

I think the gaming business has proven to be resilient through through ups and downs and the macro economic cycle and I think people who've been around the business a long time like yourself, David appreciate that and I appreciate what that does for the economics of the industry. So we feel really comfortable that you know if.

<unk> in some sort of shallow recession, we're able to power through this I I do think we had a couple of use their of pretty chronic underinvestment in gaming floors as operators.

Navigated their way through the Covid pandemic crosses so.

Well.

<unk> showed off those players loved to play games and they love to play New games and it's it's the reason they go to the casino floor. So I think it's critical to the operation of the casino to continue to invest in their fluids I think gaming.

Through a few cycles and and the the European UK, it's immature business and I think it's proven to be I.

And affordable luxury the players yesterday. This is part of the their everyday life. So I think I think all three businesses are well positioned to navigate through any macro softness I mean, we're not oblivious to the fact that at the huge macro pullback would affect consumers and that affects.

All boats and industries, but I think if it's a if.

If it's a relatively shallow recession that we are able to power right through that is my observation, but calling do you have any thing to add or subtract I think that in this concept that players love to play games is held the test of time I'd also say, though that we continue to think about various scenarios and so then.

In the event that things were to change were really well positioned the health of our balance sheet also just if we believe a competitive advantage as we think about the long term.

Yeah, No I I would agree with you both and I think it's a resilient industry across the board but.

Yes.

One more if I could connie the elevated legal expenses, how how old are hit the corporate line is that something you're gonna call out over the next few quarters and can you give us any sort of.

Numbers to play with so that we're just for modeling purposes.

Yeah absolutely.

What I can tell you kind of in terms of Ah modeling and from a financial perspective that in twenty-three we're expecting circa.

20 million dollar increase year over year in legal fees, which will be included in corporate crossed related to the legacy anti trust case, and thigh play where we've seen some newly filed arbitrations and lawsuits. We expect about a 5 million dollar incremental costs year over year those are likely to be.

Weighted towards the back half what I'll say is that we strongly disagree with the allegations and we're gonna continue to defend our rights pretty vigorously.

Great. Okay. Thanks, so much guys.

Thank him.

Thank you.

That concludes the question and answer session I would like to pass the conference that Matt Williams for any closing remarks.

As we conclude the call I'd like to leave you with some key points.

<unk> wanted to enter 2023 with incredible momentum and a clear strategy in place for future growth first quarter results confirm we are headed down the right path a healthy balance sheet a diverse portfolio along with an industry that is demonstrating resiliency puts us in a great position operationally and financially to remain at the forefront.

Looking at all the relevant metrics in in the industry indicators going into Q2, I have great confidence and conviction and the path towards that long term targets or teams are highly motivated and we continue to sense great excitement within our organization. This is al Tom Bichon, and we are ready to fire on all cylinders. This concludes that call for today. Thank you for joining us.

That concludes today's conference call I Hope you all enjoy the rest of your day you may now disconnect your line.

Oh, Oh, you will enjoy the rest of your day you may now disconnect.