Q2 2023 Light & Wonder Inc Earnings Call
Okay.
Good morning.
<unk>.
Uh huh.
[music].
Hello, everyone and welcome to delight in one day or 2023 second 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.
To register to ask a question you will need to press star followed by one on your telephone keypad.
I will now turn the call over to Nick Zangari Senior Vice President of Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone welcome to our second quarter 2023 earnings Conference call.
With me today are Bob Wilson, our President and CEO , Tony James Our CFO Oliver Chao, our incoming interim CFO , who will join us for a brief introduction.
During today's call, we will discuss our second quarter 2023 results and operating performance followed by a question and answer session.
Today's call will contain forward looking statements that may involve certain risks and uncertainties that could cause actual results to differ materially from those 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.
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 third quarter. Accordingly, we have reflected these businesses as discontinued operations in our consolidated statements of operations for comparable prior periods.
We are reporting our results to continuing operations and three business segments game.
Gaming side play and Ikea.
Amounts and disclosures referring to combined include both our continuing and discontinued operations.
As a reminder, this conference call is being recorded.
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 that joined the call.
We continued our strong performance in the second quarter closing out in the first half of 2023 with outstanding result, I want to thank our talented teams across the globe for their tremendous focus and execution, which continues to fuel growth across all three lines of business.
Our strategy and associated investments in the business are yielding results as you can see our performance in the second quarter validates the significant progress we are making with consolidated revenue up 20% year over year to $731 million in the quarter and amazing not consecutive quarter of year over year growth with each line of business.
It's growing double digits again this quarter.
Gaming momentum continued with year over year growth across all four lines of business.
<unk> and <unk> achieved record revenue and EBITDA in the quarter, allowing us to close out the first half of the year with $1 4 billion of consolidated revenue and 18% growth rate compared to the prior period.
In addition to the exceptional financial performance I also want to mention a couple of other key milestones we achieved this quarter.
Very excited to share that we successfully listed it began trading on the Australian Securities Exchange ASX in May and we're also targeting ASX index inclusion as we expand our global exposure to attract more investors index.
Index inclusion has the same benefits as in the U S market, allowing broader placement of our company stock into investment portfolios.
The interest from the investment community during Australian management is estimating by far exceeded our expectations. In fact, there are probably some new all the investors on this call today. So welcome to the lot and wanted to family.
We as a team wholeheartedly embraced the concept of continuous improvement and our efforts on the CSR front a continuously evolving.
In terms of internal initiatives and external reporting.
With respect I'm delighted that we recently published our inaugural CSR report now available on our website.
While I'm proud of our various awards such as being named employer of the SPC North American Awards, and taking time to diverse and inclusive team of the year Award and the women in gaming Diversity Award.
Dedication to progress remains steadfast.
<unk> with the people, we serve and the communities in which we operate ensuring that responsible gaming remains one of the fundamental pillars of our business philosophy.
I'm also pleased to announce that we've entered into a definitive agreement to acquire the remaining 17% equity interest in pipeline that we do not currently on the $22 95 per share in an all cash transaction.
Our combined balance sheet will provide us with the flexibility to optimize capital investments to develop and launch great games Cross channel, bringing our world class teams together, the seamless collaboration to innovate and grow as one and ultimately fostering a winning culture as we deliver on our cross platform strategy and enhance.
Shareholder value.
With a solid foundation and growing momentum App business is performing remarkably.
As we introduce a greater array of exceptional products to the market I'm thrilled about the future and confident that our focused strategy will drive sustained success, our strategy, which revolves around the release of great game across all three businesses.
Now, let's turn to the business highlights.
We continue to build on our strong foundation in our gaming business capitalizing on new games and franchise extension with new hardware and product capability.
Our recent performance is a testament to our significant progress with the cosmic and Coskata Slant cabinet launches driving momentum in the quarter.
And Danny operations, we continue to grow our North American premium unit for the 12 consecutive quarter now representing a record 47% of our North American installed base.
The optimization of our fleet and game performance is driving our increase in North American and international revenue per day, as we solidify our position as a premium product supply to our operator partners.
We continue to see our games and franchises such as ultimate violent casuals and journey to planet <unk> performing extremely well and our new games are being met with great enthusiasm, including Monster Frankenstein from studio X that viewing as the number one wide area progressive games on the iOS chart.
<unk> X is a great example of our R&D investment delivering success to that extent, we'll say more great games and franchise extension such as double Dragon.
Multiple dracula coming out of studio X further bolstering our game ops roadmap on the cosmic.
Cause me cabinet is scaling faster than two of our most popular cabinet. The <unk> 43, and <unk> got a portrait combined within the first two months of their initial launch.
With respect to our jewel screen and <unk> offerings, both Coskata Joule screen and landmark 7000 held onto the number one spot on the wireless jobs backed up by top performing brands <unk> and <unk> seven with line link and quick hit extension expected to launch later this year in <unk>, where we continue to demonstrate strong product moment.
Shipping out of the 9100 units globally with quarterly revenue growth of 41% year on knee replacement sales was a highlight with north American and international sales exceeding 2019 second quarter levels.
In Australia, the breadth and depth of that portfolio enabled us to once again achieve over 20% market share for the second consecutive quarter, demonstrating our commitment to R&D investment delivering sustainable growth in this important market underpinned by K titles Dragon ablation and Thunder dramas as they continue to outperform.
We're also very excited about the launch of M. A child studios the product Dragon try in light of this month of Iga.
Turning to systems, we continue to maintain our latest <unk> position in the industry through innovation and enhanced capabilities.
Recently, we bolstered our cashless functionalities with partners integrating a unified wallet as well as our table games cashless solution with new regulatory developments and responsible gaming initiatives internationally, we are well positioned to capture these opportunities as they materialize.
In fact, we see solid demand for our cashless enablement ICU hardware as we continue to enhance our value proposition to operators through expanded solutions. Another example is that loyalty offering engage which just went live with a partner operator in Atlantic City, and we have several engage installations scheduled for the remainder of the.
Our systems business is getting a renewed interest from our operator partners.
We will continue to solidify our leadership position with several innovative initiatives, providing operators with a data driven system solutions, which further enhances player experience as land based and online gaming budgets.
Lastly, entitled We delivered a solid quarter with outsized styles of our market, leading table game utilities products.
Our proprietary table games offering continues to demonstrate brand excellent with a growing table games progressing install base and increase volte subscribers.
In fact, our largest surrounding casino operator recently signed on as our latest partner given our strong product offering.
Overall, we are very pleased with the rollout of our new products and their initial performance. The progress we see in the adjacent VLT market is evidenced that these investments we've made in R&D and the best is yet to come we expect our robust product portfolio to carry this strong momentum throughout the remainder of the year.
Moving on to slide play, where we continue to set new record.
Sure and outgrowing the market with yet another outstanding quarter of not 8% year over year on record revenue of $190 million.
Jackpot Party quick hit slots and Gulf Fish Casino, all achieved quarterly revenue record and outpace the market in the quarter. Once again solidifying thoughts competitively in the industry with carefully planned market penetration strategy and engaging content driven by a robust start by engine.
With lots and one is library of proven content and our thoughts by engine driving monetization. We achieved another record average revenue per daily active user of <unk> 93 in the quarter demonstrating the true power of brand loyalty across all of that channel.
Once again validating that our businesses are complementary embedded together.
In fact, the <unk> engine is now deployed across all of our social casino games and.
Enabling us to further enhance and Personalised player experiences.
To drive sustainable growth going forward. We're also making continued investments in areas such as data and analytics.
While development AD Tech marketing innovation, our direct to consumer platform and new guidance.
We are very pleased with the trends and progress we say it's spotlight. The team has done an exceptional job investing prudently and improving returns on user acquisition. We are just scratching the surface on our full potential and have more runway to optimize player experiences and maximize growth opportunities.
The strong <unk> results demonstrate the investment benefits, we've made in the business as well as the team's strong execution.
Seamless collaboration with thoughtful over the truly reflected in this quarter's performance.
Turning to our games, where our leadership position and experience in the industry propelled us to record top and bottom line performance in the quarter to 17% year over year growth on record revenue of $70 million, our industry, leading <unk> platform still record <unk> in the quarter with growth across all regions led by the increased volume of our original.
Land based and digital night it yet.
U S. <unk> was up 25% year over year led by our evergreen ultimate filing and Adi Fortune franchise as well as expansion of our third party network.
70% of the top 20 gains in the U S on the IGF.
<unk> wanted to proprietary content as players continue to show their affection for our debt.
Internationally, Canada <unk> grew for the seventh consecutive quarter, as Ontario was up 84% year over year.
In the EU and UK <unk> was about 14% on the strong launch of monopoly money grab and performance as of Pirates truckload for and Robert rollout.
We also entered the Switzerland market in the quarter another step in expanding the lot and wanted to global footprint.
The scale of our content aggregation platform continues to drive record revenue at Elk Cdos with growth of 86% achieving its fifth sequential quarter of growth since our acquisition of the business.
Mining bus also grew 39% year over year and outpaced U S market growth by approximately one seven times in the Florida.
Additionally, we have exciting developments with <unk> launching in Canada in the quarter and now provisionally lots of Michigan a lot casino offering is also entering bus launch stage in Michigan and we recently added a new operator is sky betting and gaming in the U K with our first ever lot gunshot the.
The recent legalization of <unk> is another important step for the industry.
Ron Wonder if strategically positioned at the forefront of the market with a leading gaming ecosystem and a full suite of product offerings ready to capitalize on opportunities as they arise.
We've talked about our three businesses and how they're performing without scale and investments in R&D will be able to take advantage of new growth opportunities across platforms.
Unlocking the full power of our R&D through enhanced collaboration research and increased game development efficiency through IV testing.
With our announced agreement was thought play the teams will be working even more closely together further fueling our cross platform strategy driving high hit rates for our game with our industry, leading expertise and platforms.
The investments, we're making follow a methodical approach to ensure that each dollar spent will contribute not only to enhance performance, but also to engaging game experience for our players.
Additionally, we've made significant progress in bringing our cross platform vision to law launching more content across our <unk> businesses than ever before in the company's history.
We're excited to showcase our innovative products and robust portfolio at the upcoming AG a <unk> expert.
One of the highly anticipated guidance Dragon trial, which is prime for the Australian market and we are already hearing great feedback from operators. We also have other surprises in store for the upcoming exercise and I'm looking forward to seeing many of you there.
Modern wonder is riding incredible momentum driven by clear roadmap and harmonized strategy designed for sustainable growth our industry continues.
Continued to demonstrate resilience based on operate a sentiment.
That said, we will always take a prudent approach to managing our business with a healthy balance sheets and a diverse portfolio backed by a robust R&D engine.
Before I hand, the call over to Tony to discuss our financial results I'd like to thank you personally for her contributions to the company and for providing the leadership required to help us flawlessly execute our transformation.
With Tony for a good part of my career and I can tell you. The dedication is second to none she has been an important part of our success here at Wanda and I will truly Miss and what she brings to the table at the same time, we are in capable hands with our interim CFO all of the Chow backed by a strong finance leadership team many of whom she had mental rather the.
This provides us stability and a seamless transition as we continue to March towards that 2025, $1 4 billion EBITDA target.
Now I'll turn things over to Tom.
Thank you for the kind words snap and it's been an honor and pleasure to serve as the Chief financial officer of light and lender.
Working with its incredible team has been a defining moment in my career.
I am proud to have been part of such a diverse and capable organization as well as the many accomplishments during my three and a half year tenure.
Creating a more focused business strategy and executing the necessary steps to trains from light and wander into the leading cross platform Global game company.
Importantly, with the transformation over the past few years. The business is positioned for success, we are no longer burdened unfavorable capital structure after paying down a significant portion of our debt in fact, our principal face value of debt was approximately $3 9 billion and our net debt leverage ratio was two nine.
At the end of the quarter.
First level and the Companys recent history, and well within our target leverage range.
Our healthy balance sheet put us in a privileged position to pursue a proactive and balanced approach to grow all of our businesses.
Their opinion by our rigorous financial discipline that has become the new standard for this team.
We have also returned significant capital to shareholders by executing approximately 58% to over $750 million share repurchase program at the end of the quarter and most importantly, we did what we set out to do invest in the business to drive sustainable future growth.
These investments along with our strategy and execution have once again been validated by the strong performance we reported in the quarter.
The strength of our financial profile is on those.
Display as reflected in our year to date 2023 without the double digit revenue growth across each of our businesses and EBIT are significantly outpacing revenue growth.
Second quarter consolidated revenue increased 20% to $731 million a continuation of the strong growth trend, we saw last quarter as year to date revenue grew 18% to $1 $4 billion.
Operating income was $113 million in the second quarter, an increase of 146% year over year.
Consolidated EBIT grew 33% to $281 million for the quarter once again, driven by double digit top line growth across all businesses and margin expansion.
Year to date operating income increased 150% to $250 million and EBIT increased 28% to $529 million.
Consolidated EBITDA margin was 38% compared to 35% in the prior year, an increase of 300 basis points, both in the quarter and for the first half of the year evidence that we remain committed to driving sustainable growth, while also maintaining healthy margins through various cost reduction.
Yes.
Consolidated operating cash flow was $34 million in the quarter, primarily due to revenue and earnings growth coupled with lower interest payments, partially offset by the final cash tax payment of $32 million related to the divestitures and $7 million of professional service fees associated with the ASX listing.
Prior year cash flows impacted by costs associated with the strategic transactions and accelerated interest payments related to the debt Paydown and refinancing.
As Matt mentioned, we successfully listed on the ASX during the second quarter and it was really well received.
With our new lifting we provided a new non-GAAP financial measure adjusted and Pate for net profit after tax adjusted to exclude the amortization of acquired intangibles and other significant nonoperating noncore ongoing business items.
This non-GAAP measure is provided as supplemental information and is fully described and reconciled in our earnings release on page 17.
Adjusted <unk> for the first half of 2023 with a $179 million.
Now turning to the business unit.
First in gaming, we saw continued momentum with an uplift across all lines of business compared to the prior year.
Revenue in the quarter grew 21% year over year to $471 million led by another solid quarter again sales growth of 41% for systems and tables also growing 20% and 34% respectively over the prior period.
EBIT once again outpaced revenue growth up 30% to $233 million and EBIT margin increased 300 basis points to 49% compared to the prior period.
So primarily driven by favorable product sales mix of increased systems hardware in tables as well as continued focus on operational efficiencies.
In gaming operations revenue grew 2% year over year as we continue to optimize our fleet by deploying high performing games on the casino floor.
With North American premium installed base, having increased 6% compared to the prior year.
Additionally, our North America revenue per day rose about $47, an increase of 4% year over year.
Testament to the strength of our games and the benefits realized to our R&D investment.
Global Gainesville continues to be a key driver for the business.
As revenue and units shipped were both well above 2019, and 20 to second quarter levels, but North America replacement, reaching 4600 unit one of the best performing quarters since they joined the company.
It's also worth noting that we again achieved over 20% and shares in Australia for the second quarter in a row, maintaining the strong momentum we saw earlier in the year.
Turning to systems, we achieved a 20% revenue increase driven by an uplift in our services revenue as we continued to expand our recurring revenue stream coupled with strong hardware sales in the quarter.
We continue to integrate our system solutions portfolio with enhanced capabilities and.
Labeling to solidify our leadership position in this space.
Lastly in table revenue was up 34%, primarily driven by the timing and pent up demand for our utility product sales in the quarter.
In addition to the strong recurring revenue stream of this business.
We continue to be focused on executing strategic initiatives that will fuel sustainable growth.
While we are still in the early innings of optimizing our product roadmap. We are already seeing strong financial performance and I'm encouraged by the business trajectory that we continue to innovate and commercialize best in class products to our operating and for their customers.
Onto cycling the momentum continues with another quarter of record performance highlighted by growing share to over 10% on the back of the successful investments we made 18 months ago.
Revenue in the quarter grew 19% to $190 million driven in part by the quarterly revenue record from our three biggest game Jackpot Party quick hit slots and goldfish.
EBITDA was up 44% to $59 million year over year underpinned by strong revenue growth and lower UA spend.
EBIT margin increased 500 basis points compared to the prior year to 31% in the quarter, a reflection of our disciplined and productive UA spend and the outcome of our strategic investments leading to the performance and growth you are seeing today.
That said, we expect that there will be pockets of opportunity to drive incremental high return UA investments in the second half and as a result would expect to see a moderation of margin for the remainder of the year as they continue to focus on long term growth.
We continued to deliver strong monetization metrics across the board with average revenue per daily average user 93 cents in the quarter another record high and a 26% increase year over year, demonstrating our progress to close the gap with industry leading peers.
Average monthly revenue per paying user surpass $102, a 12% increase year over year and payer conversion rate reached an all time high at 10, 5%.
Importantly, frankly is continued focus on its players is a key driver of success and we continue to trend well above 600000 monthly paying users.
Police track record and prowess to execute its strategy. We can continue to make timely investments to drive market expansion can take market share.
Turning to I gaming, our robust content road map and game launch strategy continues to drive the momentum we're seeing in the business.
We achieved record revenue of $70 million, a 17% increase year over year led by continued growth in the U S market as well as strong land based content launches and the scaling of third party content on our aggregation platform.
We just process through our open game system or $20 7 billion another record quarter.
U S revenue grew over 32% both in the quarter and year to date compared to prior periods, both outpacing U S GTR growth.
Internationally, we saw upside in the quarter driven by the continued ramp of GTR in Ontario, Canada, New third party integrations across operators and successful original game launches in the EU and U K.
EBITDA increased 14% to a record $24 million in the quarter, primarily driven by our strong revenue growth and EBITDA margin was 34% benefiting from scale, while also investing in content and our live casino product.
We are well positioned to capture growth and scalar product offering with a leading content aggregation platform and live casino launch complemented by the breadth and depth of our games content portfolio.
Operational efficiency is ingrained in our DNA and over the past few weeks I've been collaborating actively with my colleagues to ensure a seamless transition.
The work to integrate various facets of our business and eliminate redundancy continues as we are constantly evaluating areas to drive continuous improvement as the business scales.
You saw in the quarter, the supply chain and sourcing initiatives that we previously implemented were vital to the margin expansion in our gaming business.
Additionally, we are better optimizing our world class International development centers with a clear focus on harmonizing the R&D engine of our business.
By careful and strategic analysis.
This allows us to stay nimble and responsive to evolving market conditions.
We will continue to centralized functions across the business units and corporate level driving further integration and efficiency within the organization.
As I mentioned last quarter, we expect to see temporarily elevated corporate costs in the second half of the year related to legacy litigation.
Our commitment to executing on value enhancing projects remains unchanged as we stay laser focused on improving processes and driving sustainable long term profitability.
In addition to our operational focus we have a transformed balance sheet and a strong liquidity profile with approximately $1 8 billion of total available liquidity, including over $900 million of cash.
Onto free cash flow when we reported the first half consolidated free cash flow of $98 million.
Second quarter free cash flow of $24 million was primarily impacted by the final cash tax payment of $32 million related to the divestitures and $7 million at professional service fees associated with the ASX listing.
Free cash flow remains a top priority and we continue to ensure that more of every dollar converts to cash.
Overall, our strong financial profile and the flow through of operational efficiencies are expected to result in interest cash flow in the second half of the year and beyond.
Turning to capital management are balanced and opportunistic framework remains steadfast.
First and foremost we are committed to maintaining a healthy balance sheet and staying within our targeted net debt leverage ratio range of two and a half to three five times.
With the continued strong performance of the business, we ended the quarter with leverage down to two nine times with our announced agreement with Si play, we expect to remain well within the target leverage range.
As a reminder, an added benefit of closing the <unk> deal is that they use a sports betting proceeds qualifies as an investment under our debt covenants, eliminating the requirement to pay down any additional debt by the end of the year, providing us with the flexibility to advance our capital allocation priorities.
As we've done today, we will focus on organic investments, mainly R&D and capex, leveraging our core capabilities to enhance the long term sustainable growth and bolster our industry leadership positions.
Returning capital to shareholders remains an important pillar of our value creation, and we continue to be opportunistic by capitalizing on dislocations in the market.
We will continue to take a disciplined approach to M&A as we've done to date only deploying capital to the extent projects exceed our rigorous return thresholds.
We have been effective in driving a robust and accretive capital management strategy and we will continue to deploy excess capital with an approach that maximizes value for our shareholders. All in the context of a healthy balance sheet.
In closing as we near the end of my tenure with the company I leave lightened Wonder and a fantastic financial position with an abundance of talented individuals an exceptional portfolio of assets and a passion for global gaming.
The team is well positioned for continued success and I look forward to seeing all the great things that they will accomplish.
I am proud of the team and note upon my departure, our incoming interim CFO , Oliver Chow with whom I've worked with for many years will handle this transition seamlessly.
With that I'd like to hand, it over to him for a few introductory remarks before Matt and I go into Q&A.
Thanks Connie.
First off I just wanted to thank you again for all your support over the years you have been an incredible leader and more importantly, a friend to all of us here at might wonder.
He will be missed and we wish you nothing but happiness and success in your next chapter.
That said I am humbled and honored to be side by side with such an incredible team across the organization as we work through this transition.
We will work tirelessly to execute against our commitments and goals.
As Matt and Connie both mentioned, we have great momentum across the business and we will continue to execute on our disciplined investment strategy focused on high returns, while also driving efficiencies across the organization.
I am excited about the journey ahead and look forward to our investor event at <unk> in Sydney to meet some of you and highlight our strategy for sustained long term growth.
With that I'll hand, it back to Matt Kearney for Q&A operator.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Star followed by one on your telephone.
Yeah.
Our first question comes from Barry Jonas from Truest Barry Your line is now open. Please proceed.
Thank you for first off congrats.
Congrats Connie just wanted to wish you best of luck in your new role.
There was also some limitations on how we deploy capital under the operating structure that we had in place prior to this deal getting close hopefully in the fourth quarter.
In terms of how we could best utilize the cash on the <unk> balance sheet, we consider ourselves thoughtful capital allocators, we want to make sure were putting our capital behind the highest return.
Opportunities possible and so bringing them back into the family into the fold in totality just gives us ultimate flexibility about how we deploy capital. So excited about the announcement we are in a definitive agreement we expect it to closing in Q4, but this is really the last big milestone for us in terms of kind of streamlining the platform now.
For us, it's really about getting on executing and continuing to put back to back quarters like the one we're announcing here today.
That's really helpful. And then I guess following the <unk> transaction, how are you thinking about the leverage and leverage targets within capital allocation priority.
Yes for us.
As they mandated by the board so nothing really changes there we have this range out there too.
Three and a half times I think the thing that I like most as you think about sequentially over the quarters. If you think about Q4 'twenty. Two we were three three times Levered Q1, we announced three one Q2 two nine so you can just say the quality of the business assets coming through and the cash generative nature of the portfolio. We've put together the kind of do you want to just touch.
You have this kind of evolves over the coming quarters, Yeah sure happy to do so Matt and great to be with you Barry and thanks for the kind words I think just a couple of builds on that we also wanted to highlight that even upon the completion of the Si play deal, we expect expect to be still well within our targeted leverage range of two and a half to three and a half that Matt mentioned.
And also more broadly I think the exciting thing that you're seeing today in our results is we just have this business that we know as it continues to scale youre going to see more and more cash flow generated which is just going to allow us to naturally delever. So we're really excited about the momentum the cash generation that's coming through in <unk>.
<unk> seeing leverage come down over time naturally.
Great nice print and congrats again Tony.
Thank you.
Our next question comes from David Katz from Jefferies. David Your line is now open. Please go ahead.
Afternoon, everyone. Thanks for taking my questions all the best as well.
I wanted to ask about.
The strategy around the Australia question.
How has that gone is it done what you expected to do in <unk> and in particular I think one of the points that comes up is its liquidity.
And how we might expect to see you got evolve over time.
Hey, David Thanks for the Amos.
I think it's going beyond our wildest expectations, if I'm honest not to be too hyperbolic but.
We pursued this strategy with great consternation, we wanted to make sure. It was the right thing for our shareholders. Both domestically here in the U S. But also for the new shareholders in Australia, we did in India.
In may down in Sydney, and it was very very well received in the amount of investors potential investors that we.
We met with.
It was outstanding and I think you're seeing that show up in the number of <unk> that we have on the Australian exchange today, it's over $1 billion in <unk>.
A lot and when the stock traded on the on the ASX, which is far in advance of where we thought we'd be at this time liquidity is building nicely.
As the month Pos so we feel like where the levels are at today in terms of the market capitalization on the ASX and the liquidity of this building puts us in a range for ASX 300, inclusion, which we think will be another tailwind for us makes us more relevant to more investors in Australia provides a natural tailwind as we start to get into more investors portfolio.
<unk>.
Time, so three three months in I think we're well ahead of our own expectations, obviously more to do we're going to be in city next week in front of the investors down there.
Looking about the story I think that's really interesting down there is investors in Australia really understand the segment.
So investors love nothing more than a category that they really understand and.
And clearly they're interested in a lot and one of the story and that's showing up in the results.
Yeah.
If I had the same experience, but I wanted to follow up just on share repurchases.
I know.
That's been an important part of the.
Capital allocation structure.
Love to just get a sense about if that's something that you expect it to continue and any further color on.
Timing magnitude philosophies et cetera.
Yes, Tony will touch on this in a minute, but our capital priority stay intact, we still think share buybacks. At these levels are interesting for us we're very convicted about our strategic outlook and we feel like as we continue to put sequential back to back quarters like the one we're announcing today.
The market will realize that in the share price will trade hottest highest where we're trading at today. There is still significant ROI on a share buyback, but Connie I think that yes, absolutely and hi.
Hi, David Great to be with you.
I would just echo really what Matt said that our share repurchase program to your point has been a real key tenant of our capital management strategy and it continues to be we're about halfway through our three year $750 million authorization.
And we've kind of brought back about 8% of the common stock since the initiation and we know that based off that average price. We have just tremendous created tremendous shareholder value. So we're excited about it as Matt mentioned in our capital management strategy remains intact, we know that with excess capital.
We've got lots of ways to drive significant value through our share repurchase program through organic growth and continue down that later that we've outlined before.
Thanks very much.
Well thank you.
Our next question comes from Chad Beynon from Mcguire Chad. Your line is now open. Please proceed.
Good afternoon, Thanks for taking my question.
Tony.
Best of luck and nice working with you.
Wanted to start with.
Just kind of where the numbers are for this year, Matt I know you reiterated the $1 4 billion for 2025 looking at this year I know youre, not giving guidance, but you've generated $5 30 in the first half of the year I know normally the fourth quarter's pretty strong for you guys and for the industry.
Outside of the onetime kind of corporate expense in the back of the year is there anything that would stop you from having a larger second half of the year versus first half given the momentum given everything that we're seeing in the market and given the normal seasonality of the business. Thanks.
Yes. This is how you give guidance without giving guidance I would've been ill kind of give any forward looking statements on the second half all I will say is looking in to the lead indicators.
If things are very positive in terms of the end markets in which we operate we've got a great lineup of products across all three business units.
We back ourselves to continue to take share in markets.
And to the extent that our customers and players remain.
Then we will be the benefactor of that but its certainly has been an amazing first half and we're seeing some really solid underlying momentum across all three businesses I mean, that's the the.
The quality of this result.
It's all three businesses and it'll all business lines.
We're firing on all cylinders at the moment and we.
We expect that to continue into the second half.
Yeah.
Okay. Thanks, I appreciate that.
And then wanted to ask about live dealer. This is something that we talk to clients a lot about it and I think people really believe in your IP. Your approach, it's taken a little longer to get up and running but do you guys still have the same optimism and expect for for the same demand once you can launch in.
And kind of scale and to enter other markets. When you launch in the back half of 'twenty three.
Yes look we're disappointed with how long it has taken to be honest with you.
Probably underestimated some of the the pathway to regulatory compliance we are in compliance now and we are in soft launch in Michigan. So I expect it to be here a few quarters ago about the long term approach is still intact.
<unk> is still very solid and we have the same conversations with operators that you do theyre looking for competition in this category, we have all the tools required.
So, yes expect us to come online here in Michigan this quarter.
And accelerate from there we will be thoughtful about it because it does take time to scale that we wanted to do it efficiently.
Why is it kind of takes us on that pathway to the commitments, we've made to investors around that 2025 targets.
The thesis is still intact taken a little longer but we brought on the doorstep of this thing coming online in Michigan.
Thanks, Matt great execution by.
By you and the team this quarter appreciate it.
Thank you very much.
Our next question comes from Ryan <unk> from Craig Hallum, Brian . Your line is now open. Please go ahead.
Good afternoon, guys. This is will on for Ryan Congrats to Connie and thanks for taking our questions. Maybe just one for us so within gaming ops curious if you could provide an update on premium leased market share maybe some recent trends and with that do you think the share gain opportunity is bigger.
Within the existing portfolio, gaining more floor space or is it adding new products and new categories.
Yes, great question I think.
When we joined what was scientific games in 2020, we really identified premium gaming ops as being a significant growth driver for us over the long term horizon, we'd been in.
Sequential decline in that category for quite some time I think the effort the intensity the investment that we put into the category, we've been able to grow for 12 consecutive quarters, now, which was kind of unheard of when we when we first joined the business I feel really.
Convicted about what we've been able to do that and the pathway to continue that is clear and apparent to me. We just launched the cosmic cabinet into the premium gaming operations slate, we talked about this with investors in Australia, we have been talking about on these earnings calls about the investment we've made in <unk> and <unk> and Lo and Behold. These game went to.
The number one frankenstein's the number one game in the Wap category, which is just really really exciting that is the most.
Competitive segment in the gaming landscape, so to have Ted Ted investment <unk> Energy's entice Judy I really well.
Working at the peak of the houses very exciting there's a lot more games coming from that studio and studios across across the business. So we're just starting to build the momentum we feel like the second half should show up in better net adds in Q3 and Q4 is more cosmic go out into the fleet. So we're feeling really good about the deployment of that product in.
The investments we've made in incremental talent.
That's how I would think about it I think that's underscored by the expansion in <unk> days in the quarter, you can say, 4% year on year growth in ARPA days, that's a testament to better.
Better games more games in the premium gaming ops installed base really kind of driving that category for us. So we're just getting started and now its 12 consecutive quarters back to back, but where we are in the early innings of us continue to expand at annual slate.
Great. Thanks for the color.
You're welcome.
Our next question comes from Rowland Gallagher from charging Rohan your.
Your line is now open. Please proceed.
Thank you firstly colony congratulations on your time Linda.
It's an interim capacity, but what a great legacy to handover the button.
So I wish you and your family all the very best Yes.
Matthew Good afternoon cheese.
<unk>.
So one of the key highlights is the margin expansion not across just one but across all three business units.
Can you unpack that for us, particularly interested whether it's a function of product mix or more importantly.
Around the U S $100 million.
Sorry, the cost savings you've got any updates on that would be greatly appreciated. Thank you.
Yes, Hi, Rohan nice to here in Australia, and actually on the call I'm sure. There's a lot of Australia investors, who are joining us for the first time. So welcome to the Lawson Winder family, we're going to do great things together over the coming years.
I think the margin expansion was a highlight of the result, saying that topline growth.
It was impressive as saying that kind of flow through to EBITDA and the margins that we're getting across the business is impressive I think it's a combination of the <unk> expansion in gaming ops. We are doing a lot of things on cost optimization just to make sure that we're taking all the opportunities that we have in the base. There I thought the margin in <unk> was very impressive in that.
Really a function of the <unk> team being very frugal with their investments in.
In UA, making sure that the UI that they spend is really going to drive a return. So I think that was an impressive positive result, with Tony any anything I've missed yeah, I think just echo a little bit of what you said, it's great to see all of the effort we've put into operational efficiency over the last few years really paying off with you actually pack that gaming business in <unk>.
Go line by line product by product Youre seeing margins that I haven't seen in a really long time, which is just great because that means it's sustainable going forward and Si play again to your point. They continue to remain disciplined about how they think about UA and more broadly their business is growing and we know these digital businesses are naturally scale and <unk>.
Very profitably as they continue to focus on growth. So an amazing result, I think we're really excited also just as you move forward to deliver healthy margins, we know margin expansion and sustainable profitability is a key focus and I know that'll be a drumbeat that continues.
Fantastic. Thank you a follow up if I may Matt.
We've seen replacement demand super strong across.
The industry at the moment.
What are you hearing from Yo casino customers in terms of how sustainable is that replacement demand.
Yeah.
Yes, we get the benefit of going after them largely when it comes to our earnings report. So we are able to hear from operators about the health of their business I think particularly in the U S.
Their business is holding up very very nicely.
In the face of the macro conditions I think this is.
A function of them being part of the experienced economy. If you look at airlines you look at hotels and look at restaurants and people are out and consuming.
And a big Ryan I think that flow through into the gaming industry. So I think the end markets really healthy I think also you may have heard me say this before but we are coming off the back of about two and a half years, a pretty chronic under investment in capex.
What machine replacements. So 2020, there was very little Capex spend for all the obvious reasons 21 was about 50% of normalized levels and then it was really the back half of 'twenty two when we start to see things get back to what was nearly normalized levels I think 2023.
It looks like it's above 2019 levels in terms of the replacement market and I don't see a need for that to change I think our conversations with operators.
Their steadfast around continuing to invest in what is the engine room of their business players go to casinos to play games and so they want to have the best the freshest product on the floor. So I think.
The combination of a really healthy end market for operators and a few years of Underinvestment I think sets up really nicely for the supply side of the market.
Fantastic Thanks, Matt.
You're welcome.
Our next question comes from Jeff <unk> from Stifel.
Your line is now open. Please go ahead.
Hey, good afternoon, everyone.
I'll start off by echoing some of my peers and best of luck Johnny on your next endeavor here.
Maybe just starting off on.
On the ongoing surge not the front run anything you bought Mac could you just expand on what the board is targeting <unk>.
Oh candidate that they conduct the ongoing search process.
Yes.
Absolutely. So it's been a pretty amazing three years at scientific games last slot and Wanda I kind of put it into four chapters of the first chapter was really about a.
Change in ownership and the change at the board level, where Jamie academies as the chairman of the new set of investors that was the first chapter. The second chapter was really about kind of lining up our strategic priorities and figuring out which pieces of the portfolio fit together.
Selling off some noncore assets in lottery and sports as you know how that was the second chapter. The third one was really about getting those divestitures over the line. There was a lot of hard work from the corporate teams.
Kind of reconstituting, the operating model and get us getting the platform set up for success, which leads us to the fourth chapter, which now really is about getting on and executing against the strategy. That's really what we're looking for someone who can pay my two I say.
And driving and operationalize. This strategy. So that's what we're looking for all of US obviously, a cane candidate he's done a lot of that in his history here he's known to us and he is with her at a risk scrap for five and a half years and knows the gaming space really well.
But we owe it to investors out there to get the best candidate and so thats, what the search will entail.
Cotton without leading.
Search firm so we'll run the process in the meantime, it's business as usual so Connie leaves behind a very very capable set of leaders in the finance team.
We have a core value here of winning as a team and none of this happens with one person. So it is really a group of people that have been behind the scenes driving kind of the finance organization and theyre intact its colonies off.
Off to do other things and we wish you all the best you laid the friend of the family, but we've got a great team intact, and we will take our time to find the right candidate with Oliver and obvious consideration.
Great.
Really helpful. And then just for my follow up year on year growth in the gaming segment accelerated quite nicely can you just expand on this acceleration a bit more you provided some disclosures on market level growth earlier on but.
Looking at it a bit differently I guess, how much of this is being driven by market growth how much is market share gain and how much is expansion into new markets. If you could just sort of unpack it.
In rank order some of the key drivers that way that would be that'd be really helpful. Thanks.
Yes, yes, I think it starts with a very healthy market. So we saw sequentially North America, expanding I think Ontario was a highlight in the portfolio. So we have seen some great kind of resilience in the end market and expansion over time.
There is some rising tide there in terms of that flowing through to our P&L, but also I think you're starting to see our strategy really hit its stride and so this is the idea of taking more land based content into the digital channel.
We're very well positioned as really the only supplier with great land based content that has years decades of our franchises applies are familiar with.
With the combination of great digital native content, as well with Elk and lightning box really producing some of the best digital native content in the market. So this combination of.
Raising land base legacy content flowing through into the <unk> channel and these acquisitions that we've made in <unk> box, a really powerful and where we're getting that scale now youll see more games in the second half. So I think that will underscore share guidance in the back half, but we feel.
Really fortunate that we made the investments in this category.
Many many years ago, we bought <unk> back in 16, 17 timeframe and with that came out just a wealth of knowledge attain that knows how to get gains out at scale.
Understand the category better than anyone so.
We're the benefactor of that in there.
A very important part of that time.
Great, Thanks, very much and nice quarter.
Thank you very much.
Our next question comes from Joe Stauff from Susquehanna. Your line is now open. Please go ahead.
Yeah.
Alright.
Thanks, Good afternoon, Matt Connie.
I wanted to follow up maybe it's a question on your North American game ops in particular.
Im.
Trying to understand I know you have been trying to kind of switch out some of the.
Lower yielding machines out of the installed base and just wanted to ask about where you are in that process.
When do you think.
Youll kind of finish out likely switching out some of these lower yielding boxes out of there and then I have one follow up please.
Yes, I think we consider.
Three major drivers of our investment organic investment in the business, it's really R&D to make great games.
UA in the social casino business to acquire great players with a high return on investment and the third thing is capex and a big component of that does go into gaming ops additional units and fleet optimization.
If you look back in time.
Sorry games pre 2019 wasn't in a great position from a capital structure perspective, and so the Capex was very limited in terms of what we could invest into the gaming up slate.
Fortunately for all the right reasons and the decisions that we've made now we're in a much healthier position. So we're able to inject new capex into the into the fleet and we've been doing that over the last two and a half to three years to really solidify that legacy base.
We've been doing a lot of that training our own installed base and you can say that kind of coming through in higher op Hay days I'd say, we're a long way through that now, which I think in the second half what Youll say with the success of the cosmic cabinet Youll see that showing up in more net adds over time I think.
In summary, I think a lot of the heavy lifting around addressing the legacy installed base is now complete and the new products that we bring to market will result in better net adds in the second half and beyond.
Makes sense and then maybe secondarily, yes.
Yes, I know.
Hard to comment specifically on does Chicago, legalized CGT or just North Carolina, but I'm wondering.
Let's say North Carolina lineup is looking a little bit more likely.
And if that were to occur I guess the question is would you be able to handle that.
Key source of demand or would you have to would it require additional investment in terms of manufacturing process and lead times and so forth.
No I mean, we are really excited about the prospects of legalization of these <unk> in North Carolina and potential expansion in Chicago.
We feel like North Carolina is probably more likely than than Illinois, and a short timeframe. We think both of them have great prospects over a longer longer time horizon. You're question about increased investments. This is what we do we build slot machines. This is what we've been doing it for 40 years.
We know it well we will have the capacity to to make sure. We're in the market and able to take up every order that we get we're later in the <unk> space, where 50% share player in Illinois.
It will be a very similar style of product we've already got the teams on the ground looking at the player base looking to what those modifications montney debate and make sure. We're a market later, but at.
North Carolina pundits say it could be a 30000 unit market, if we get half of that or a third of that.
Choose your number in terms of what share it's a very very material opportunity for us over the long term, Illinois is probably not as big a magnitude in terms of the size of the market, but still a great opportunity for us.
None of these things were factored into our commitments, we made to the long range plan at the Investor Day in 2022. So this is all incremental opportunity and something we're very very excited about and very focused on.
Thanks, a lot for the color Matt.
Yeah.
Yes.
Our next question comes from Paul Mason from E&P. Paul Your line is now open. Please go ahead.
Hey, Thanks for the question.
Just one for me on the <unk> acquisition and the associated strategy I was wondering if you could sort of walk us through any of the major task you've gotta do to aligning R&D team with you or others.
Through platforms, so that they can sort of work as a one one R&D unit.
So the strategy and approach.
And then maybe sort of as a follow up if we could ask a little bit about like the AB testing benefits and.
And sort of how fast you can may be transported some of those benefits.
Benefits from the social casino to the other parts of the business.
Yeah, Great question and Great report that you put out it was very detailed.
Yes. This is exciting for us we've been at this for about a year in terms of bringing these teams more closely together.
So the good news is we're already coordinating roadmaps, we have been for the last year I think we're at the early innings of starting to really unpack the opportunity that is AB testing and social surveying. So we're doing.
A limited number of that right now.
Doing social testing <unk> testing live on the platform today and Thats really informing.
<unk>.
Requirement decisions.
And we're also doing the survey testing, where we're going out to a cohort of Si play consumers that we now apply and casinos and we're asking them questions to inform.
Decisiveness and the way that we build out our products going forward. So we're just starting to unlock that.
And the good news is the teams are naturally coming together, we I always.
These three businesses are very unique like satellite is not exactly the same as the land based business and the land based business is not exactly the same as <unk>, but they are very complementary they're all built off the back of world class content and so we have games, making great gains as our obsession and we have these three channels.
To inform how we best utilize our R&D dollars. So we're in the early innings of that and I think this acquisition unlock that in totality and we've got teams on either side very eager to work more closely together so.
Yeah, that's all opportunity for us down the road.
Yeah.
Okay. Thank you.
We currently have no further questions. So I would like to hand over back to Matt Wilson for closing remarks. Thank you.
Yeah.
As I.
Wrap up I'd like to once again, thank our talented employees for their continued hard work and passion I'm also thrilled to welcome <unk> back to the light and wanted to family as we continue to execute and deliver on our strategy together, creating an even stronger and more efficient platform for growth people love gains and the experiences that come with them. So I'm excited to be in a position where we continue to innovate.
And provide great guidance to the marketplace solid financials, our growing product pipeline and expanding demand for entertainment provide an excellent backdrop for lot and wanted to moving forward I look forward to seeing some of you next week at the Australian Gaming Expo Thanks, everyone for participating in the call.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines. Thank you.
You may now disconnect your lines.
<unk>.