LNW - NASDAQ

Good afternoon. Thank you for attending today's Light & Wonder Third Quarter 2023 Earnings Conference Call. My name is Alexis. I will be your moderator for today's call. [Operator Instructions] I would now like to pass the call over to Nick

Thank you, operator, and good afternoon everyone. Welcome to our third quarter 2023 earnings conference call. With me today are Matt Wilson, our President and CEO; and Oliver Chow, our Incoming Interim CFO. During today's call, we will discuss our third quarter 2023 results and operating performance, followed by a question-and-answer session. Today’s call will contain certain 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 for comparable prior periods. We are reporting our results of continuing operations in three business segments: Gaming, SciPlay and iGaming. Amounts and disclosures referring to combined include both our continuing and discontinued operations. As a reminder, this conference call is being recorded. A replay of this webcast and accompanying materials will be archived in the Investors section of our website. With that, I will now turn the call over to Matt.

Thank you, Nick. Good afternoon everyone, and good morning and evening for those on the call around the globe. Thanks for joining us on the heels of a very successful third quarter, both financially and operationally, as Light & Wonder continues to capitalize on a resilient gaming industry, once again, delivering double-digit growth across all three of our businesses. We've consolidated revenue growing 13% year-over-year to $731 million, bringing up to 10 consecutive quarters of year-over-year top line growth. I continue to be pleased with the performance that was consistently delivered since we announced the company's transformation strategies. This includes two new key milestones, which we achieved recently. First, as part of our secondary listing on the Australian Stock Exchange, or ASX, we have been targeting inclusion on the ASX 200 Index, and this has now come to fruition with our addition into the index on October 18th. As feedback from the Australian investor community continue to exceed our expectations, the index inclusion enables exposure to a broader base of investors, further solidifying our position in the Australian capital market. Our efforts have not gone unnoticed, and this achievement marks an important step towards gaining additional global exposure for the company. Second, we close the SciPlay transaction on October 23rd, finalizing a critical piece of our strategic roadmap, welcoming the SciPlay team back to the family, and fostering greater collaboration amongst the team to execute on our cross-platform strategy. As highlighted previously, our data-driven social first and AB testing approach enables us to leverage our studio network brands and expertise across the entire Light & Wonder platform to enhance operating efficiency and improve our hit rate. And we're not stopping here. We executed a number of strategic initiatives that continue to strengthen our focus on who we are as a company, a leader in games and platforms with a commitment to accelerating R&D investment to build great games and port them across our three channels. In addition to recalibrating and investing in our global game design studios, we are keeping our foot on the pedal as we acquire more industry talent. In fact, we recently announced the addition of industry recognized Studio Head, Kelsy Foster, to our team. Known for her wildly successful premium and wide area progressive game, she'll be leading a new US studio starting in 2024. The significant progress we are making strategically is fueling our operational execution and is reflected in our performance. At this point, I'd like to share some highlights from each of our businesses. First, in Gaming, where we continue to execute on our robust product roadmap, building great games, which led to share gain and momentum and adjacent market expansion. Gaming operations continues to be driven by our North American Premium installation, which grew for the 13th consecutive quarter. Looking at our progress in optimizing the global install base, we expect some of the plan removals to wind down in certain US markets, as well as the EMEA and LATAM markets over the coming months. Revenue per day in North America remains elevated as our WAP game such as Monsters, Frankenstein, Journey To Planet Moolah and Ultimate Fire Link franchise continue to top the chart on the back of our successful COSMIC and MURAL cabinets. In fact, the success we are seeing in our evergreen franchise extension gives us the confidence to further explore new licenses. In this respect, we are proud to be the first company in the industry to partner with Netflix on the popular Squid Game series and bring this groundbreaking show to life across multiple casino platforms. And we'll continue to invest in license titles as part of our strategy where we can point to our very successful Willy Wonka, Wizard of Oz and Monopoly game that have consistently demonstrated their longevity on casino floors. In game sales, we shipped over 8,600 units globally with strength again in North America in international sales as unit shipments grew by 5% and 41% year-over-year, respectively. We saw share gains in the North American market in the second quarter, excluding adjacencies and based on the latest Max Gaming report, we reached a record 26% share in Australia this quarter and 33% in September alone, with a benefit from the release of Dragon Train. The game is performing strongly with its four titles, making the top four spots in the New South Wales market in September. Earlier this year, we partnered with Oregon Lottery as we target expansions in adjacencies. This marks the first release of the Kascada dual screen, multi-game domestically. And post-trial, I'm happy to share that we will be deploying 1,175 of these VLTs statewide over the next 12 months. Through another valued partnership with Betsson, we'll be also entering the Georgia coin operated amusement machine or COAM market. We'll be offering our games on the Kascada cabinet in the first quarter of next year, of which the Kascada dual screen has been the top indexing multi-screen cabinet for over 12 months straight. We are pleased with the strong performance of our games and cabinets, giving us the confidence to capitalize on opportunities in the various Canadian VLT markets. Turning to systems. We have a strong showing at the Global Gaming Expo, or G2E, where we are bolstering and enhancing our core capabilities, such as our system agnostic global platform Engage, which enables operators to leverage data to execute a cohesive, curated customer journey at every touch point, regardless of location, vertical, or platform. Lastly, in tables, where we continue to lead the trend in proprietary table games and shuffles, as well as invest in talent and our product offering, Dr. Mark Yoseloff, former Chairman and CEO of Shuffle Master is now on Board as a consultant at Light & Wonder, and will assist in the ideation of game, design across all platforms with a particular focus on felt based games, electronic table games, and cross-platform content. Turning to SciPlay. I'm thrilled with our performance and execution in the social casino space. The team has done an incredible job of growing the business with another record revenue of $196 million, once again, outpacing the market and taking share, which is now over 10%. We continue to leverage and deploy our SciPlay engine across our portfolio of games, which led to double-digit growth in our four largest games. Jackpot Party, Quick Hit Slots, Gold Fish Casino, and 88 Fortunes. The key to our success at SciPlay lie on the following: we adopt a player first approach with consistent delivery of new content, timely features and dynamic community engagement tailored for our players. We're also nimble and adaptive to the ever evolving landscape, managing the business with a rigorous financial focus on returns on investment. To that extent, we were able to achieve record monetization metrics in average monthly revenue per paying user and average revenue per daily active user, yet again on a steady base of daily active users with pay conversion approaching 11%. We will continue to invest in our platform, adding automation, standardization, development, and AI integration tools and process development to drive organizational efficiencies, effectiveness and scalability on a fully integrated global scale. Additionally, our direct-to-consumer platform will be another key focus in the next phase of execution, ensuring security and ease-of-use to enable a seamless customer onboarding experience. So far, the player feedback, KPIs and operability of DTC is encouraging, and we'll continue to take a measured approach to introducing and migrating players to the platform. This will be a multi-year build for us, but I'm excited about the potential margin list down the road from this initiative. Like many other companies, we have a global presence and for our SciPlay team, that means a presence in Israel. Let me first say our thoughts go out to those affected by the recent tragic events in the region. As always, our first priority is ensuring the safety of our colleagues and their families at this time. We have been in close contact with our team members and our operations have not been impacted today. We are continuing to closely monitor the situation and are committed to doing whatever is necessary to support our colleagues and their families. As mentioned previously, we've closed the SciPlay transaction, further fueling a seamless collaboration among the teams that will drive momentum to the company's already robust cross-platform strategy. I eager to see what we can further achieve under a more effective operating model, which enables further game development synergies under one unified strategy and culture. Under iGaming, where we maintained a record $70 million in revenue for the quarter. Our core markets revenue was up double-digits with total GGR up 16% and US GGR up 22% year-over-year, boosted by the launch of Rich Little Piggies Meal Ticket, which set records in the US and UK in the first 30 days, and the launch of two new games from the coin combo family Perfect Peacock and Mighty Monkey, once again validating our cross-platform approach, bringing the best land-based titles to the iGaming channel. Internationally, we saw record GGR volumes in Europe. In Canada, GGR grew for the eighth sequential quarter or 22% above the prior year period. Our content aggregation platform, OGS, and its ability to scale is second to none as we continue to see solid year-over-year growth from Lightning Box and Elk, with the ladder up and its founding 64% versus the prior period, driven by strong performance from year-to-date launches, including Pirots, Metropolis 4, Rabbit Royale and Tropicool 2. I'm also pleased to announce the recent launch of our live casino product in Michigan. This marks another important step in our cross-platform strategy, as we look to leverage our proven proprietary table games IP into the digital space, providing a differentiated experience to players online with games they're familiar with in bricks and mortar casinos. Overall, we are well-positioned in all parts of the iGaming value chain, underpinned by strong product portfolios and content roadmap with experienced leadership. We will continue to be a thought leader in the space through our strategy of leveraging new IP with our Wonka franchise launch in the UK, omni-channel offerings such as shared jackpot, as well as further expansion of our original content. Since we were last in front of you on an earnings call, we've been able to showcase the exceptional work our team has been doing at two large industry gatherings. The Australian Gaming Expo held in Sydney in August, more recently, G2E in Las Vegas last month, where I understand this year's attendance to past last year, another validating factor that more people than ever playing games and that the industry is on solid footing. LNW always has a large presence at G2E, and this year was no exception, as a customer-centric innovation and stellar player experience were highlighted by customers at the booth. As I previously mentioned, we announced our partnership with Netflix with this taboo of new Squid game slot machine come into life on our newest large screen cabinet horizon, which we view as the next evolution of our highly successful Jumbo cabinet after the V75. We also received great feedback on our wide range of cabinets and games on the floor. Additionally, we've also been intentional in aligning our portfolio strategy and commercial execution with market trends, focusing on product segmentation and understanding what customers want. As you can see, key investments in games and hardware are driving our success, and we have ample opportunities ahead of us given the growing demand for our games, which we're responding to with continued investment in our robust R&D engine. And with that, I'll hand it over to Oliver to provide more details on our financial performance.

Thanks Matt and hello, everyone. It's great to join you today on my first earnings call as Interim CFO of Light & Wonder, and to be able to report results that continue to reflect strength across all three businesses and our enviable financial profile. Throughout this quarter, our teams were able to deliver both strategically and operationally, illustrating the continuity and bench strength within the organization. Importantly, Light & Wonder boasts high recurring cash generative businesses with solid margins, underpinned by a healthy balance sheet, and we capitalize on these strengths this quarter with continued top line growth as consolidated revenue increased 13% to $731 million year-over-year. Operating income was $147 million in third quarter, an increase of 65% year-over-year, while consolidated AEBITDA grew 22% to $286 million for the quarter, once again, driven by double-digit top line growth across all businesses and margin expansion, demonstrating our commitment to growing AEBITDA faster than revenue. Consolidated AEBITDA margin during the quarter was 39% compared to 36% in the prior year, an increase of 300 basis points, again, evidence that we remain committed to driving sustainable growth and investment in the R&D engine, while also maintaining profitability through various margin enhancement initiatives. Last quarter, we introduced a new non-GAAP financial measure referred to as adjusted NPATA. This non-GAAP measure is provided as supplemental information and is fully described and reconciled in our earnings release. Adjusted NPATA was $99 million for the quarter, and please note that this metric is not comparable to the prior year period due to the materially different debt and tax profile of the company prior to the completion of the investitures. Consolidated operating cash flow was $204 million in the quarter, primarily due to the revenue and earnings growth, with prior year period cash flows largely impacted by $465 million in cash taxes paid related to the divestiture of the Lottery business. Turning to the business units. In Gaming, revenue grew 11% year-over-year to $465 million, led by another strong quarter of game sales revenue, which increased 23%. We continue to see growth across all four business lines year-over-year. A true testament to the investments we've made in developing great games and platforms. AEBITDA, once again, outpaced revenue growth, up 16% to $235 million and AEBITDA margin increased 300 basis points to 51% compared to the prior period, primarily driven by a favorable game sales mix in international as well as supply chain initiatives and our continued focus on operational efficiencies. Gaming operations revenue was up 3% year-over-year on growth in the North American install base and average daily revenue up 2% and 4%, respectively, as a result of strong content performance and the continued success and placements of MURAL and COSMIC cabinets. Global game sales momentum continues with North American and International replacement unit shipments increasing 23% and 20%, respectively year-over-year, validating our product roadmap strategy, with further share gains in Australia and elevated sales into Asia in the quarter. Turning to systems. Revenue increased slightly year-over-year, primarily as we saw higher iVIEW hardware sales in the quarter, coupled with managed services growth as we continue to expand our recurring revenue stream with the increase partially offset by elevated international sales in the prior year period. Lastly, in tables, revenue was up 17% year-over-year as we benefited from shuffler and utility sales, as well as elevated replacement opportunities in Macau and new sales into the Philippines. The strong product execution and operational prowess we are seeing enables us to optimize the investments we've made in this business and drive sustainable long-term growth. Onto SciPlay, where we reported another quarter of record performance, as revenue in the quarter grew 15% to $196 million, driven by strong year-over-year double-digit growth in the core social casino business. In fact, I want to provide some context on how well these games are performing with some impressive stats. Beginning with our largest game Jackpot Party, which grew 15% year-over-year and have seen five consecutive quarters of revenue growth, surpassing the $100 million mark this quarter. Quick Hit Slots, Gold Fish Casino and 88 Fortunes all grew by double-digits and achieved record revenues, fully optimizing the power of the SciPlay engine with our proven Evergreen game franchises. AEBITDA was up 42% to $61 million year-over-year, underpinned by strong revenue growth and lower UA spend compared to the prior year quarter, which was impacted by elevated marketing campaign spend. AEBITDA margin increased 600 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're seeing today. Given we've signaled opportunities to drive incremental high return UA investments on the last call, you can expect to see some of that take place in the fourth quarter. Our performance continues to reflect strong player engagement and monetization, leveraging engaging game content, dynamic live ops, and effective marketing strategies. Average revenue per daily active user grew 20% year-over-year to a record $0.96 and average monthly revenue per paying user grew 12% compared to the prior year, approaching a record of approximately $107. We continue to trend above 600,000 monthly paying users, with the payer conversion rates now approaching 11% With the SciPlay transaction complete, we expect duplicative public company cost synergies to be realized over the next 12 months. The access to cash on SciPlay's balance sheet allows for greater capital allocation opportunities and day-to-day working capital efficiencies. With the strong momentum we're seeing in the business, I'm thrilled that we'll all be working together as one team moving forward. Turning to iGaming. We held record revenue levels at $70 million, a 21% increase year-over-year, driven by continued momentum in the US market and strength of our original content launches. US revenue was up 25% year-over-year with growth across all states. Internationally, we saw revenue growth across all regions driven by original content launches in the UK, the ramp of Ontario and scaling of third-party content across Europe. Wagers processed through our open gaming system were $20.2 billion, an increase of 15% compared to the prior year period. AEBITDA increased 25% to a record $25 million in the quarter, primarily driven by our strong revenue growth in all regions, resulting in an AEBITDA margin, benefiting from scale, while also investing in content and our live casino product. As Matt mentioned earlier, we launched our live casino operations in Michigan, reaching a significant market expansion milestone for our iGaming business and expect that business to scale over time. We're in a great place to continue expanding our iGaming business with our leading position, best-in-class aggregation platform and ability to continue to scale with our robust product portfolio. Our performance this quarter across all three segments reflects the team's commitment to growing the business while maintaining profitability. Over the course of the year, we've implemented and executed several cost optimization initiatives, supporting the robust margins you see in the quarter. We are constantly evaluating areas to drive continuous improvement at the business scales. As an example, the supply chain and sourcing initiatives that we previously implemented continue to support the healthy margins you see in our gaming business. As we continue to refine our R&D engine, it will be guided by a strategic and prudent approach, ensuring optimized output with a rigorous assessment of product level ROI. At the corporate level, we strive to deliver further integration and efficiency within the organization. To update our prior commentary on the legacy litigation costs within corporate, we now expect a modest amount in the fourth quarter with approximately $10 million shifting into 2024. All things considered, we'll continue to stay laser focused on improving processes and driving sustainable long-term profitability through value enhancing projects. In addition to our operational focus, we have a healthy balance sheet and close the quarter with a strong liquidity profile with approximately $1.8 billion of total available liquidity, including roughly $900 million of cash on our balance sheet prior to closing the SciPlay transaction. Given the interest rate environment, we were able to refinance our $550 million 2025 8.625% note in August and replace them with a new offering of equal amount priced at 7.5% due 2031. We saw a strong over subscription reflecting our improved credit profile. Our fixed interest cost is expected to decrease by approximately $6 million annually, and the next significant maturity is now five years away in 2028. Onto free cash flow where we reported consolidated free cash flow of $123 million in the quarter, primarily due to strong business performance and timing of working capital. While a portion of the conversion strength in the quarter was attributable to favorable timing, we continue to see progress in several cash related initiatives, including reducing DSOs and expect to improve our annual free cash conversion rate over time. More importantly, you now see the flow through of our cash generation ability as we move past the strategic and into the execution chapter at Light & Wonder. Generating free cash flow remains one of our key priorities, and we will benefit from our strong growth profile, our solid balance sheet, and flow through of operational efficiency benefits. Turning to capital management. Our philosophy remains the same, as we continue to maintain a balanced and opportunistic framework in the context of a healthy balance sheet. We remain committed to our targeted net leverage range of 2.5 to 3.5 times, ending the quarter at 2.8 times. With the close of the SciPlay deal in October, leverage is expected to be impacted by approximately half a turn, still well within our range, providing us with flexibility to further advance our capital allocation initiatives. With the completion of the SciPlay transaction, we now have greater access to the cash generated by SciPlay, and we'll deploy this capital across the combined organization in the most value accretive way for our shareholders. We will continue to monitor the interest rate environment and look for opportunities to further optimize our capital structure. We've returned substantial capital to the shareholders with our three year, $750 million share repurchase authorization, and have executed approximately 73% of the stock repurchase program in just 17 months through Q3. Share repurchases were $112 million in a quarter as we continue to be opportunistic while weighing value dislocations in the market against other initiatives. Importantly, we will continue to invest diligently, leveraging our core capabilities to enhance long-term growth and bolster our leadership positions. As we invest, we are committed to driving high ROI to enhance shareholder value. We will remain disciplined and scale investments only to the extent they exceed our return thresholds. Light & Wonder is well-positioned with a solid financial profile and capital structure, enabling us to navigate through the current environment and our growth trajectory, providing us with flexibility to invest as we execute toward our strategic and financial goals. At this time, I would like to open the call to the Q&A session. Operator?

Absolutely. We'll now begin the question-and-answer session. [Operator Instructions] Our first line -- my apologies, our first question comes from the line of Chad Beynon with Macquarie. You may proceed.

Afternoon, Matt, Oliver. Thanks for all the comments. So looking on a trailing 12-month basis, you've now generated a little bit under $1.1 billion of EBITDA. So as we think about kind of the path or the milestones to get to the $1.4 billion in 2025, so that's about $300 million or about 30%. Can you talk about, if you're still on track for that, what is going ahead of expectations, behind expectations? And then more importantly, as we kind of look over the 12-month period, if the growth should be linear or if a lot of the extra growth will come in 2025. Thanks.

Hey, Chad. Yeah, thanks for being with us. From the outset any Light & Wonder creators listening on the line, congratulations on what is an exceptional quarter. Well done. Congratulations. Yeah. I think on the $1.4 billion target, it's really one quarter at a time. When we put those in May of 2022, we needed 15% CAGR to get us to the $1.4 billion. We've delivered 22% growth this quarter. We've delivered 26% growth year-to-date. So clearly we are trending above the target line. We needed 15%. I think from where we're at now, we need about 12% CAGR to get us to the $1.4 billion. So, feel very encouraged about the direction of travel. We've just refreshed our long range plan and we're still on track to deliver on that $1.4 billion target. We've also built a cost optimization program into our plan as a mitigant against any potential headwinds. But yeah, I think we are trending above the target line at the moment, and we're on a path to deliver the $1.4 billion and we feel highly convicted. But Oliver, anything you want to add to that?

Yeah. Matt, as you mentioned, we've got incredible momentum in the business right now. In fact, we just posted our fourth consecutive quarter of year-over-year revenue growth across all three business units, which gives us a lot of confidence. In gaming, for us to achieve our commitments, we really need three things. One modest share gains in our core class three business, so that's across both game sales and gaming operations. The second is proliferation and adjacency. So we've talked about markets like VLT, Georgia, COAM, MHHR, and class two. And then three is really continued investments in our R&D engine with a focus on talent, which should drive share gains for us over time. From a SciPlay play perspective, we continue to drive record revenues and gross share where we landed at over 10% share according to Eilers in Q3. And we'll also continue to scale [indiscernible] like we've done over the last couple of years. We also made significant UA investments, and we'll continue to do so efficiently and effectively, while also still seeing stability in our player base. And we continue to lead the market in player retention. From an iGaming perspective, expanding our content offering through our core business and then scaling our product portfolio over time will drive sustainable growth into the future. And on top of all that business execution that we just mentioned, to Matt's point, we continue to post healthy margins in the quarter and have opportunities to expand that over time as we continue to be laser focused on our margin enhancement initiative. So the long and short of it, our momentum and the performance in this quarter and really year-to-date that we've seen really gives us confidence in our ability to capture the opportunities we see ahead, but also deliver on the $1.4 billion commitment.

Thank you both. Nice results. Appreciate it.

Yeah. You're welcome.

Thank you for your question. The next question comes from the line of Barry Jonas with Truist. You may proceed.

Hey, guys. I wanted to ask about gaming specifically visibility. We're starting to hear operators talk about macro softness. I'd say at least for parts of their player base. So with that, are you seeing any of this today in game ops or, as you hear about CapEx budgets for next year. Thanks.

Yeah. Thanks Barry. I think we live with a healthy level of paranoia as everyone in the industry does, and we look daily at the metrics the point to any macro softness. But from our vantage point, on balance, I think the industry's proven to be very resilient. We've got a number of different windows into consumer behaviors. I think if you look at RPDs in premium gaming ops as an example, they're up year-on-year. They're up sequentially. I think if you look at SciPlay's monetization, which is really kind of a manifestation of consumer's willingness to pay again up year-on-year, up sequentially. I think in iGaming domestically you're seeing kind of market growth in the mid-20% in a lot of these kind of newer markets. So yeah, we keep looking for the recession that's supposed to be coming. We've been waiting for two years for it. It hasn't arrived yet. We always say to use a gaming parlance, you play the hand that you dealt, not the hand that's in the shoe. And at the moment, we see very healthy signs of growth, and lots of things that are within our control. Building better games is the antidote to any macro softness. And that's where we put a lot of our effort and energy. I think, importantly, we've got good visibility into the pipeline. We see solid pipeline for Q4 and beyond. So again, I think prior with -- or consistent with the prior quarters, from our vantage point, the industry still looks very healthy on balance.

Yeah. Just one thing to build on your point Matt, is we do continue to see encouraging data points with our coin and trends. So that's really backed by our high performing titles such as Monsters Frankenstein, Journey To The Planet Moolah or even UFL franchises. So we are encouraged by the trends that we're seeing, not only in our performance, but to Matt's point, the healthy GGR levels and the resilient gaming consumer overall. So we'll continue to monitor this closely. While to Matt's point, what we do best, which is providing great products, services, and experiences to our customers.

That's great. Thank you so much.

Thank you.

Thank you for your question. The next question comes from the line of Ryan Sigdahl with Craig-Hallum. You may proceed.

Hey, good afternoon, Matt, Oliver. Hey, it's following up on that. Curious conversations, how they compare to G2E this year as people are thinking about current spend next year spend, but also in the context of Squid Games was big on veil. Curious how you think about that game. I guess historically there's been pretty quick turnover from fad type content. And so curious, what Ted and you guys see in this game specifically that has you excited and what you're hearing from potential buyers of the game and putting it on the floor.

Yeah. Great question. I think from the outset I'll say G2E was very well attended this year, which again, I think points to the resiliency of the industry. People are more interested in what's coming in terms of product than they've ever been. I think what we showed at G2E was a really focused portfolio, focused around brands and franchises that were -- are really targeted at growing that core player. So it's really about bringing these brands that we have in the portfolio back to life. Coupled with -- yeah, some interesting investments in IP like Squid Games. So yeah, I think that was a big unveil. It's something different, I think what consumers or customers told us about that specific brand, I think the thing that drew us to that brand was the gamification elements to the show itself. It just lends itself to building a great slot product. So yeah, I mean, Ted's has a history of bringing these types of brands to market. He'd built a product called The Walking Dead in a prior life, which was a GGB Game of the Year. Very successful game, has similar characteristics in terms of the type of brands. So yeah, I think what you're seeing from us is a portfolio of games that target, different players, different brands, different franchises, we want to be a player in all of those segments. I think one really positive sign for our showing it at G2E, Todd Eilers had a virtual round table the week after G2E and asked the panel of three, who was the best in show. And two out of the three panelists chose Light & Wonder as the best in show. And I think Meatloaf said it's two out of three aren’t bad. So we're pretty happy with that output. Really a reflection of operators seeing the momentum in Light & Wonder the things that we've building.

Great. Thanks guys. Nice job.

Thank you for your question. The next question comes from the line of Andrew Tam with Redburn Atlantic. You may proceed.

Hi, guys. Thanks for taking my question. So the question's mainly on SciPlay. I was just wondering, just given the internalization, can you talk through just in a bit of detail on some of the benefits that that internalization will have? I think you mentioned in just access to the cash capital allocation, but in terms of collaboration. And then is there anything material to call out from a cost synergies perspective, corporate cost savings that we should be aware of as well?

Yeah. Great question. I think you've teased out kind of the three critical areas that we should focus this question around. I'll say, first and foremost, the operating momentum in SciPlay has never been stronger. Another record for them, it's amazing. They're the fastest growing social casino business in the industry. And so to Josh and the whole SciPlay team, you should feel very encouraged about the performance this quarter. So yeah, our top four games in SciPlay also set records that's really been underpinned by the investments we've made in the SciPlay engine and kind of targeted UA. So yeah, the reintegration is going really well. It's gone as well as we could have expected. It feels like they never left. So yeah, it's gone very seamlessly. So thanks to the entire SciPlay team. Yeah, I think there are those three elements that you touched on. Oliver might dig into some of the details around the costs. But I think from the collaboration standpoint, this is one of the key drivers that really led us down this strategic initiative about reintegrating SciPlay in totality. It's unlocking the full potential of a B2C business in the broader context of R&D, allows us to be a lot more precise with AB testing, social surveying. So yeah, it's really about bringing them back in so we can fully unlock that. I guess one thing we can point to as a demonstration of that, we had our best games workshop this week in Florida where we had all of our designers from SciPlay, from iGaming, and from the land-based gaming team working together to dream up the next wave of great industry leading content. And I think, this business now is Light & Wonder kind of lives and breathes off the quality of the content that the entire ecosystem does better when we build better games. So yeah, really starting to see the collaboration coming to fruition.

Yeah. And just at a high level, over the next 12 months, we will realize some corporate cost synergies and it's going to be primarily around the duplicative public company costs. But more importantly, I think you hit it, is it gives us access to the cash on SciPlay's balance sheet, and couple that with just a highly cash generative business that they have, we'll be able to then fuel other strategic initiatives over time. So yeah, we feel great about SciPlay's ability to grow long term and we're going to continue to invest in our core capabilities and yeah, we're thrilled to have him back home with Light & Wonder.

Great. Thanks very much.

Thank you for your question. The next question comes from the line of Joe Stauff with Susquehanna. You may proceed.

Thanks. Hey, Matt, Oliver. I wanted to ask about kind of the status of the North American game ops turnaround. Matt, I think you had some commentary, saying that in terms of, say the mix, the switch out, whatever the right terminology is to kind of get the right balance of premium into the installed base is coming to an end that you'll be there in the near term. I guess what I wanted to ask is, what's the right way possibly to think about upside for the revenue per day unit? What can that get to it? It's kind of tough to estimate, but I was wondering like how much, say pricing power as -- again, as you sort of hit that inflection point and what it can mean for the revenue per day.

Yeah. Great question. There's a few things to unpack there. I think if you think about our gaming ops install base at the most macro level, there's the US business and then there's the international business. So then if you double click on the US business specifically, there's kind of two component parts to that. There's the premium gaming ops install base, which is the largest profit pool in the gaming industry anywhere in the world. And then you have these public markets, which is really the New York Lottery market, the Delaware Lottery market. So in the public markets, there has been a shift, there's been since the new entrance that entered that market. So we've naturally had some of the install base eroded. We knew about that. It was a moment in time when -- via RFP some allotment was awarded. So that's all factored into our long range plan. I guess the biggest thing we're most excited about is that premium gaming operations install base. We've grown it for 13 consecutive quarters in a row now. We've just had a nice little tick up in Q3 in terms of net ads. So I think the economics that drive that premium gaming operations business are two things. Adding more premium units into the install base in great locations and then driving RPDs through great locations, but also better gains. And I think, you're seeing sequentially those RPDs up, you're seeing it year-over-year, those RPDs are up. So yeah, we think, we can continue to add more and more games over the coming quarters and as we introduce better games, the yield should go up as well. So it's a powerful combination driving that business. I know it's in some ways distorted in the numbers because we kind of roll these things up collectively, but underlying that premium gaming ops install base and business at large is a lot of operating momentum. So we're feeling good about that.

Yeah. And we also can -- we continue to optimize our install base globally. So as we fine tune our legacy fleet, driving longevity on the floor for some of these units that will scale ROI for us in the long-term. So to your point, in North America, we do expect the public gaming removals to wind down here in the fourth quarter. And then internationally, we did have the removals in both Europe and Latin America. The LATAM removals relates to really one specific customer of approximately 2000 units, and we expect the European removals to also wind down here in the coming months. So moving forward, we do expect to grow share, and our RPDs in part due to just the continuous success of our great titles and content. So Frankenstein from Studio X as an example, but we're definitely not going to stop there and we're going to continue to capitalize just on the franchise extensions and new IP such as Squid game, as well as new cabinets like Horizon, which received really strong interest at G2E. So overall we've made some really great progress in optimizing our install base and we view our increased investment in R&D and talent as an opportunity for us to go really on the offensive from a gaming operations perspective.

Thanks a lot.

Thank you for your question. The next question comes from the line of Jeff Stantial with Stifel. You may proceed.

Hi. Great. Thanks. Good afternoon, guys. Thanks for taking our questions. Starting off here. I want to hit on free cash flow conversion. It looks like headline was about 43% during the quarter, closer to 37%. If you strip out the impact of working capital long-term targets for 2025, if I recall correctly were 45%. So you do seem to be approaching that target quite rapidly. And I guess my question is, has anything changed incrementally that impacts those prior free cash flow conversion targets, whether positively or negatively or should we continue to expect to see kind of low to mid 40% type levels from here on, out of 2025 approaches? Thanks.

Yeah. Thank you for that question. I mean, listen, we delivered incredible results in the quarter. To your point, you called out there, our Q3 free cash flow conversion rate was strong, very strong at 43% and that yielded $123 million in free cash flow. The team did a tremendous job in managing DSO in Gaming and iGaming businesses. In addition, we did have some timing benefits related to working capital more broadly. That said, this will continue to be a focus of ours going forward. Now that we've moved past our strategic transactions and we are executing here in Q4, we do expect the free cash flow conversion to trend over 30% here, and then we'll scale that over time. There is no doubt that generating free cash flow absolutely remains one of our key priorities. And listen, we're just firm believers that free cash flow is one of the key drivers of shareholder value. So we'll continue to benefit from our strong growth profile and then solid balance sheet, but also the flow through of any operational efficiency benefits that we see.

Yeah. I think you said that. Well, I won't miss a chance to give the team another plug. But if you look at these results, it's growth, it's margin expansion and you see it flowing through to free cash flow. So I mean, they were some of the highlights of this quarter, both the margins and the cash flow.

That's great. Thanks for the color guys. And then if I could just squeeze in one more question, for you Matt. So LIVE DEALER launch, now that you've gotten that off the ground, had a little bit of time to wrap your head around it, any kind of insights, anything that caught you by surprise, whether on the technology, or kind of otherwise as that product continues to ramp. And then, can you just kind of walk us through how you see the ramp progressing, bringing more customers in, kind of getting higher and higher GGR share for your games? Just any sort of thoughts on the phasing of the ramp, would help as well? Thanks.

Yeah. You're welcome. Yeah. I think it's a very exciting segment. Yeah. We know it's going to get to 30% of the iGaming TAM over time. So this is a multi-year opportunity for us. It's a segment that we belong in. If you think about the Shuffle Master IP, the things that we can bring to this sector, our -- yeah, our ability to execute in that space. So yeah, we're just in the very, very early innings, so we're excited about the future, but it'll take time to ramp. I think the thing that probably surprised us most, was the timeline to get compliant in this first state. I think when regulators look at anyone doing anything for the first time, it takes a little longer than you anticipate to get full approval. But we have that now. And so I think the fact that we're live in the US that gives us confidence that we can move into other states over time. We want to do it in a very capital efficient way. So we're not in a huge hurry to accelerate our plans. We want to get Michigan up and running at scale before we move into other markets. But yeah, like I said, it's a multi-year plan, but we're comfortable with where we're at and the opportunity that's in front of us.

Great. That's really helpful color. Thanks again, and nice quarter.

Yeah. Thanks.

Thank you for your question. The next question comes from the line of David Katz with Jefferies. You may proceed.

Hi, afternoon. Thanks for taking my questions. Hi, everyone. I wanted to just go back over capital allocation, and the different alternatives. Obviously, the buybacks are important. On an ongoing basis, there's been some tuck-in activity periodically. What can we expect and how do you think about the boundaries looking forward in terms of how you might allocate choices?

Yeah. I'll let Oliver kind of walk through the waterfall of priorities for us. I know coming out of the G2E show, there was a lot of industry discussion about potential consolidation. I just -- from the outset, I'll say M&A is interesting for us, but probably falls lower on the priority list. We've just done a huge amount of work to divest some pretty large scale assets to focus the platform to reduce complexity. So we wouldn't be in a huge hurry to do a big piece of M&A that would throw more complexity back into the platform. For us, it's really about executing against the vision now. So if we saw some tuck-in opportunities that helped accelerate our vision, help propel us towards this cross-platform vision that we have, then we'd absolutely do it. But I think M&A falls lower in our priority waterfall.

Hi, David. So, yeah, I mean, listen, our capital management strategy, broadly speaking, really remains intact. The SciPlay transaction was a significant milestone for us as a business, and we continue to see the benefit of our strong balance sheet. It really does position us well to take on value creative opportunities as they arise. In terms of leverage, we are comfortably within our targeted range of 2.5 and 3.5 times, even after an approximate half turn increase from funding the SciPlay transaction. We continued to be active in the share purchase program through Q3, and you saw us take advantage of what we think is an important value creation opportunity, and we were purchased $112 million worth of shares in the quarter. But given that uptick in leverage from a SciPlay from the SciPlay transaction, you may see us a bit more conservative in the near term with the share of purchase program. But make no mistake about it long term, we feel this is absolutely a significant value creation opportunity for us. So moving forward, we will continue to advance our other capital allocation priorities in a very disciplined manner. So you'll see as we see business continue to grow, this creates additional capacity for further investments in R&D, talent, CapEx, which we believe will provide excellent returns for us down the road. And then after investing in these organic opportunities, in the context of a healthy balance sheet, we will then deploy any excess capital that we have in the most value creating way for our shareholders. Whether that's the share purchase program I mentioned earlier, additional debt reduction or just discipline accretive M&A. So we have significant optionality just given where we are from a cash flow perspective and balance sheet point of view. So yeah, we are well-positioned to drive sustainable growth into the future.

Got it. Thank you very much.

Thanks David.

Thank you for your question. The next question comes from the line of Paul Mason with E&P.

Hey, guys. Great results. This is on Australia. I just wanted to ask a bit about like, the performance there. You've had a couple of quarters in a row where you're doing really, really well. And like -- just wanted to ask like, how much do you think is that attributable to sort of the actions you guys have taken versus competitive environment or specifically like Dragon Train, which obviously you've said has been doing really well out the gates. Like, how would you sort of decompose of performance there?

I'm glad you asked this question, Paul. Yeah. I think, like all markets Australia, the gaming market is very darwinistic. They buy -- operators buy the best games. And so over the last few quarters we've been able to put out some really credible titles in the Australian market. I think you know that the latest of which was Dragon Train. We showed you that at the AG show in August. And why we liked our chances with that product, given the caliber of talent that that was building it and the way the game was designed. You never really know until you get the players to vote with their dollars. And they are voting with their dollars in a pretty profound way. We have the top four games in New South Wales and the top four games in Queensland. The two markets that we've live in, we've just got approval in Victoria. So I think Dragon Train is in the very, very early innings of what could be a multi-year opportunity for us. So yeah, very excited about that. For those Australian team members on the line, it's been a long time coming. We've been a sub 10% player down there for a long time. We're now in the mid-20%. We shipped 33% in September. So it's just outstanding performance in the Australian market and we've come a long way, but like I always say, the best is yet to come.

Thank you for your question. [Operator Instructions] The next question comes from the line of Rohan Gallagher with Jarden. You may proceed.

Hey, Matt. Hey, Oliver. Good afternoon team LNW. I would like to focus on gaming, if I may. Outright sales, typically replacement demand. We're looking at about 80,000 units a year, 20 share, 16,000 units for you guys, that's 4,000 a quarter. First of all, Matt, is that sort of scalable and rateable? But second of all, adjacency opportunities. You've got the Canadian provinces, Oregon, Illinois, HHR. Can you sort of unpack what the potential opportunity that is for the next 12 months, please?

Yeah. Hey, Rohan. I think Siobhan Lane, our Gaming CEO, did a fantastic presentation in relation to the adjacencies at G2E, really kind of laying out what this opportunity looks like and it's significant for us. We are just going back into these markets that we haven't been in for a very long time. So by definition, every incremental unit that we sell in these adjacent markets is incremental share. So the biggest one that we've really kicked off with is OSL with a significant order there. But Oliver, you might want to just touch on kind of the makeup of those adjacent categories.

Yeah. To your point, we did sign that contract with OSL for just over 1100 units, and those units will be distributed over the next 12 months. In addition, we -- our recent announcement on the entrance in the Georgia COAM market through our distributor Betsson, we also expect to enter that market in 2024. So we'll have share expansion opportunities in other key adjacent markets such as Canada, VLT, HHR, and class two, class two markets. Lastly, what I would say is if you -- if you were at G2E, you would've seen a very targeted section in our booth dedicated to our adjacent markets, which was very well received by our customers. And we'll get a -- we're going to continue to invest R&D dollars to support this critical space. And the Gaming team has just done an incredible job of creating a strong product roadmap that will not only support the core class three growth, but then the proliferations into the adjacent markets.

Thanks guys. And just if you indulge on, I'm looking at your operating leverage on Gaming, you've had some nice margin expansion despite the fact that you've had a disproportionate increase in revenues in outright sales, which is typically lower margin. So clearly there's some good work being done behind the scenes around supply chain, operating efficiencies, et cetera. Oliver, can you sort of shed some light in terms of what we could see in terms of operating leverage, going forward, taking consideration, mix effects?

Yeah. Thank you, Rohan. Yeah. We delivered exceptional numbers, and we continue to post really healthy margins as we demonstrated here in the quarter. We did benefit from some revenue mix in the quarter, but we also do have opportunities to expand margins over time as we work through our margin enhancement initiatives across the business. Our performance this quarter across all three segments really reflects the team's commitment to growing the business while maintaining profitability. And over the course of the year, we have implemented and executed several cost optimization initiatives. And some examples there are supply chain, sourcing initiatives that were previously implemented, but then support the healthy margins you see in Gaming. But you also see the efficient management of UA expenses, marketing expenses from a SciPlay perspective. Even at the corporate level, we're going to be driving further integration and efficiency within the organization. So all things considered, we'll continue to improve process and systems while driving sustainable long-term profitability. And I said -- as I said earlier, we are incredibly pleased with the team's execution this quarter.

Yeah. I think, Anthony Firmani deserve some public recognition. I think the supply chain team in Gaming specifically as an industry were kind of the most hard press coming through the COVID years and to manage through that chaos and then come out the other side really driving some efficiency programs. It's showing up at the numbers, the margins in Gaming were exceptional this quarter.

Thanks guys. Congratulations.

Thanks Rohan.

Thank you. In conclusion, I'd like to express my gratitude to all employees for their unwavering commitment to making each day at Light & Wonder a resounding success. Our dedicated teams continue to work passionately expanding our game library, enhancing our technology, ensuring that our games deliver unparalleled performance and exceptional experiences. The SciPlay team and the strong social casino business are now fully in the fold, and we look forward to further amplifying our success together as one. iGaming is just hitting its stride as we continue to expand our content portfolio. We are uniquely positioned with our three complimentary businesses, integrated through our cross-platform approach, supported by a robust R&D engine, solid balance sheet, and increasing cash flow. As I reflect on what is now my 20th year in the industry, I'm filled with excitement for the promising future that lies ahead for Light & Wonder, and the entire gaming industry. We've achieved some very significant milestones, and through our team's desire to continuously improve and stretch the limits of innovation, Light & Wonder can reach new heights. Thank you to everyone who's joined us for the call today. Your support is greatly appreciated, and we extend our best wishes to all of you as we enter the holiday season.