LNW - NASDAQ

Hello all and welcome to the Light & Wonder 2023 Fourth Quarter Earnings Conference Call. [Operator Instructions]. I'll now turn the call over to Nick

Thank you, operator, and good afternoon, everyone. Welcome to the fourth-quarter and full-year 2023 earnings conference call. With me today are Matt Wilson, our President and CEO, and Oliver Chow, our CFO. During today's call, we will discuss our fourth-quarter and full-year 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 of 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 continuing operations in three business segments, gaming, SciPlay, and iGaming. Amounts in 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, and thanks, everyone, for joining today's call. Our fourth-quarter performance capped off a banner year for Light & Wonder as we continue to build upon our strong business and financial foundation. Notably, we have consistently delivered on our key performance objectives since we announced the company's transformation strategy. Our numbers reflect strong execution and continued momentum with consolidated revenue up 13% over the fourth quarter of last year, marking 11 consecutive quarters of year-over-year growth. We once again delivered double-digit growth across the board as evidenced by our results throughout the year and have now achieved five consecutive quarters of double-digit revenue growth in all three businesses. As a result, we ended the year with a 16% increase in consolidated revenue, reaching a record $2.9 billion for 2023. Looking back, I would like to share with you what defined Light & Wonder and drove our success this past year. We have an exceptional team and experienced leadership with a winning mentality. I firmly believe that we have the best-in-class talent executing on a proven playbook, and I commend our entire team for an outstanding quarter and outstanding year. Throughout 2023, we made strategic investments in the aspects of our business that we expect to drive long-term sustainable value, something we were not able to do before the transformation. Our improved financial position and disciplined capital allocation strategy support our ability to continue to invest in the future of Light & Wonder, with a commitment to accelerating R&D investments and enhancing our product offerings. We have a differentiated product strategy and demonstrated sound execution on our growth pillars with refreshed hardware and content for both core and adjacent markets. We achieved impressive share gains in key markets with the popular franchise, Dragon Train, continuing to drive that growth in Australia and creating notable operator engagements around our pending release in North America. We also made considerable progress in adjacencies, and we expect to be active in video lottery terminal markets, notably Oregon and Quebec, where we recently announced deals, as well as the coin-operated amusement machine market and historical horseracing markets in 2024. Capitalizing on franchise extension has been another key differentiator in driving our success. We have shifted our focus from allocating the majority of our resources to new niche markets coming online to now building on our evergreen franchises and game extensions, which can be leveraged across our entire ecosystem. In our digital businesses, software had another record quarter with continued market share momentum and higher revenue in the social casino space, which we will discuss in further detail. Our organic business segment continue to be a growth driver for Light & Wonder with a strong quarter, reflecting continued momentum in both the US and international market. These results demonstrate the benefit of our robust R&D strategy, driving improved performance with impressive returns on our investments. We continue to see iGaming as a compelling opportunity as this market continues to develop over the coming years. For Light & Wonder, it truly is all about the game. Throughout the past year, we executed on our product strategy to build exciting, industry-leading games that have continued to drive an impressive performance metrics. In addition, we are pleased with our continued progress on our cross-platform strategy, with development efficiencies being realized and content expansion across all channels, driving digital revenue uplift. We are very pleased with our considerable progress across our business units as we continue to capitalize on the opportunity in resilient gaming industry. I will now turn to our business unit operational highlights. Gaming continues to be a strong driver for Light & Wonder. Our investments are bearing fruit as we delivered on strong top-line growth, up 13% for the quarter and 16% for the full year. We saw continued momentum in gaming operations, ending the year with an increase of 590 units or 2% growth in our North American installed base year over year. These results were largely driven by premium units, which continued to increase for 14 consecutive quarters. The performance of our games is on full display with both North America and international revenue per day exceeding 2022 levels in the quarter and for the year. This is a testament to our strategy, focusing on fleet optimization and ensuring the games we develop are casino floor mainstays, maximizing the full value of each and every unit we deploy on the casino floors. We will continue to build on our evergreen franchise extension such as Ultimate Fire Link, Huff N' Puff, Dancing Drums, and recently Dragon Train, which was the biggest Australian launch in the company's history. Our licensed titles such as top-performing Monsters and highly anticipated Squid Game, featured on our highly successful cosmic and new large-screen jumbo HORI

Thanks, Matt. These are exciting times for the industry and the company, and I'm honored to be part of it as CFO of Light & Wonder. It is my mission to build on our solid financial foundation, leveraging our highly cash-generative business with a continued focus on operational excellence. I appreciate the confidence that our global investor base has placed in us, and I take my role as a steward of investor capital very seriously. That said, I look forward to working with all of you moving forward. Turning to our operating performance. We were able to capitalize on many of the opportunities presented to us in 2023 and delivered strong top and bottom-line growth, both in the quarter and for the full year. For the fourth quarter, consolidated revenue increased 13% year over year to $770 million. Full-year consolidated revenue was up 16% to $2.9 billion, a new record for Light & Wonder. Our results for again driven by double-digit growth across all of our businesses. Operating income was $155 million in the quarter, an increase of 57% over the prior year period, primarily on strong top-line growth, lower D&A, and restructuring and other costs. Full-year operating income was $518 million, a 90% increase compared to the prior year. Consolidated AEBITDA grew 14% to $302 million in the fourth quarter compared to the prior year period, primarily driven by double-digit top-line growth and maintained strong margins across all of our businesses. We grew 2023 consolidated AEBITDA 22% to over $1.1 billion, a tremendous outcome reflecting the hard work of our talented team and a continued upward trajectory of our financial performance. Consolidated AEBITDA margin was 39% for the quarter and the year. We saw a 300 basis point increase over 2022 margin levels for the year, with all three business units over 200 basis points higher, executing with a continued focus on operational efficiencies. Adjusted NPATA was $109 million for the quarter and $388 million for the year. As a reminder, 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 divestitures. Consolidated operating cash flow was $167 million in the quarter. Comparability is not meaningful as the prior year period included $176 million of cash tax payments related to the divestitures. Full-year consolidated operating cash flow was $590 million, up compared to prior year, primarily due to cash taxes paid related to the divestitures, which were $32 million in the current year and $641 million in the prior year, as well as lower interest payments. Turning to the business units. In gaming, we continued to execute against our KPIs, delivering exceptional financial performance, supported by our strong product portfolio and proven market strategy. Revenue in the quarter grew 13% year over year to $496 million and AEBITDA increased to $245 million, a 14% increase compared to the prior year period. This impressive revenue growth was led by robust North American and international game sales in the quarter, which increased 31% year over year, with profitability primarily driven by revenue growth in the period. Full-year revenue grew by 16% to $1.85 billion and AEBITDA by 20% and $918 million with solid growth across all business units. Our AEBITDA margin was 49% in the quarter and 50% for the year as we trend in line against historical levels, which we expect to sustain given continued execution on our margin enhancement initiatives over the long run. Gaming operations revenue in the quarter increased 7% year over year, primarily driven by growth in our North American installed base and revenue per day. Our premium North American installed base grew 7% year over year. Revenue per day in the quarter grew 6% in North America, and 16% in international compared to the prior year, driven by the performance of our premium games and as we continue to optimize our fleet. Global game sales were robust in the quarter, with revenues up 19% sequentially and 31% year over year. In addition to the continued momentum in the North American replacement market, we also had a large replacement sale of over 37 hundred units into the UK, which affected average selling price in the quarter. We expect this ASP dynamics to continue as we enter into the adjacent markets more meaningfully in 2024. Onto systems where we continue to expand our recurring revenue stream and higher service and maintenance revenue in the quarter. To note, there was a sizable hardware sale for new property in Asia in the prior year, which affected comparability. Lastly, tables revenue was flat compared to the prior year, primarily due to the timing of product sales, which resulted in a stronger third quarter this year. Looking ahead over the next several years, we expect to expand on the higher margin and recurring revenue segments of the gaming business over time. I'll expect 2024 to be another year of robust sales underpinned by innovation and investment in our product portfolio. Turning to SciPlay. We once again delivered record fourth-quarter and full-year performance, outpacing the social casino market and gaining market share on solid execution against our ROI metrics. Revenue in the quarter was up 12% year over year to $204 million on higher monetization, leveraging game content, dynamic live ops, and effective marketing strategies, with Quick Hit, Gold Fish Casino, and 88 Fortunes all delivering significant double-digit gains on record revenue. AEBITDA increased 17% to $69 million year over year, with AEBITDA margins up 200 basis points to 34%. Full-year revenue was $777 million, up 16% and AEBITDA was $243 million, up 30%. Both were the highest in SciPlay history. SciPlay's investment in talent and core capabilities has driven significant uplift across key monetization metrics. We saw record average revenue per daily active user increased 15% to $1 and record average monthly revenue per paying user increased 15% to over $113 compared to the prior year quarter. Our daily active users and monthly paying users both remain steady and payer conversion rate continues to reach quarterly new heights at 10.7%. Prudent and diligent marketing and UA spend is reflective of SciPlay and more broadly, Light & Wonder's DNA. Every decision is carefully considered prior to execution. The margin expansion we saw over the past several quarters is a great example of the health of the SciPlay business. Based on our marketing return analysis, we have identified a number of UA investment opportunities throughout 2024, notably in the first half, such as the new Joel McHale campaign we launched in the current quarter along with expansion and innovation costs as we look to grow in nascent markets and develop new games. Our margins will fluctuate in the near term with these investments, all of which is expected to fuel long-term sustainable growth. We applaud the success SciPlay achieved this year and the incredible level of execution we're seeing across the portfolio. This gives us confidence in further development of greenfield opportunities, value-enhancing initiatives such as our direct-to-consumer platform, and the performance of our core social casino business. At iGaming, where our core performance reflected growth momentum in the US and international markets, as well as continued strength in our land-based original content launches and scaling third-party aggregation on our platform. Revenue in the quarter increased 13% year over year to $70 million and AEBITDA grew 21% to $23 million. Full-year revenue increased by 15% to $275 million and AEBITDA was up 19% at $95 million. As a reminder, we benefited from termination fees in 2023 from certain operators as they pivoted on their digital strategy, which we do not expect to reoccur in 2024. AEBITDA margin improved 200 basis points to 33% in the quarter versus the prior year period, driven by revenue growth. This resulted in an overall AEBITDA margin of 35% for the year as we continued to benefit from scale while also investing in our portfolio. We saw solid growth year over year in both our North America and international markets with record player numbers on our platform in the quarter. Wagers processed through our iGaming platform increased to $21.6 billion, also a record high. In fact, we saw record quarters in the US and Canada with GGR in each region up 23% year over year and were double-digit sequential quarterly growth. The US market was driven by increased volume of land-based content, along with continued scaling of the OGS partner network. Ontario continues to ramp with increasing volume of first-party content. GGR volumes in Europe also reached record highs, marking our third sequential quarter of growth with 11% year-over-year improvement driven by performance across First Party, ELK, and Lightning Box content. We are well positioned to continue expanding our iGaming business with best-in-class aggregation platform, and a robust product portfolio. Going into 2024, we expect growth to be largely in line with overall market expansion, excluding termination fees we benefit from in 2023. Contributions from live casino is expected to be a modest drag on AEBITDA and margins during the year as we continue to ramp up and invest in this business. I am confident in our ability to expand margins as we scale our offerings over time. Over the past year, we've diligently managed our cost base and drove margin expansion. Operational excellence remains a top priority as we further integrate our businesses and identify efficiencies. Importantly, with the results and healthy business that we saw this year, we will continue to reinvest back into all three platforms through R&D and CapEx to propel our growth pillars. We will maintain a strategic approach that ensures optimized output with a rigorous assessment of ROI. More importantly, we will continue to invest in our people and technology, the backbone of Light & Wonder that drove our success throughout this transformation and into the execution phase. As our business scales, we also expect associated corporate costs to increase proportionately, providing support for the business units through shared services and other functions. We are building out a lean management team to embed this methodology throughout the organization to drive efficiency and scale. We're challenging our teams to act like owners and arming them with tools and training to make a difference across the organization. As a reminder, in Q3, we called out elevated legal costs of approximately $10 million, which we expect will have an impact across the first and second quarters of 2024. That said, we will continue to stay laser focused on improving processes, staying committed to margin expansion, and driving sustainable long-term profitability through value enhancing initiatives, ensuring we have a prudent sourcing process to drive efficiency as we scale our gaming business and continuous improvement in developing our IT infrastructures. As I step into the CFO role, I'm fortunate to have inherited a business with a healthy balance sheet and a strong financial profile. After the SciPlay deal that we closed in October for approximately $500 million before fees and other expenses, we ended the year with a net debt leverage ratio of 3.1 times, a 0.2 turn improvement over the prior year and within our targeted range of 2.5 times to 3.5 times. Recently, in January, we were able to further improve our transform debt profile by repricing our Term Loan B, reducing our interest rate by 35 basis points, and driving approximately $8 million in annualized interest cost savings. With the refinance of our senior unsecured notes that we completed in 2023, in total we expect approximately $40 million in annualized interest expense savings. Our profile is further enhanced by gaining access to the cash on SciPlay's balance sheet and the cash flow generated from the business going forward, providing flexibility and optionality for sustainable growth and value creations, we continue to optimize our cash balances. We reported consolidated free cash flow of $70 million in the quarter. The current year period was affected by $16 million, primarily in cost supporting the strategic review and the related activities associated with the SciPlay merger, while prior year was affected by $176 million in cash taxes paid related to the divestitures. Full-year consolidated free cash flow was $291 million, affected by $32 million in cash tax payments related to the divestitures and $25 million, primarily in costs supporting the strategic review and related activities. Our 2023 free cash flow conversion rate, excluding the aforementioned items, was 31%, a 1,200 basis point increase from the prior year as we stayed committed translating each dollar to the bottom line. Looking ahead, we expect restructuring costs to wind down as transaction-related costs roll off. Over the long term, cash interest savings will be at least partially offset by expected increases in CapEx, largely driven by gaming as we continue to invest in growing our premium install base. We'll have some puts and takes by quarter based on the seasonality of tax payments, working capital, and other items. But our annual cash flow conversion rate is expected to increase over time on the flow through our highly cash-generative businesses and as we continue to focus on capital decisions and returns. Free cash flow generation remains a key priority and a driver to enhancing shareholder value. In 2023, we continued what we set out to do, advancing our balanced and opportunistic capital allocation framework; debt reduction, which we've executed, evidenced through our transformed balance sheet; returning substantial capital to shareholders through share repurchases; and lastly, disciplined investment in key growth opportunities. We returned $25 million of capital to shareholders through share repurchases during the quarter for a total of $170 million returned during 2023. Since the initiation of the program, we have returned $575 million of capital to shareholders, which is approximately 77% of total program authorization. We'll continue to monitor the market for opportunities going forward. As I mentioned before, we will continue to invest in our people and core capabilities to support sustainable long-term growth and bolster our leadership positions with a commitment to driving high ROI, which exceeds our return thresholds. Our capital allocation priorities will always be in the context of a healthy balance sheet. That said, we remain flexible in evaluating all available options that will only deploy excess capital in the most value accretive ways to our shareholders. We have a great team here at Light & Wonder, and I'm extremely excited to be partnering with Matt and the executive team to take us to the next level. We'll continue to execute to our strategy that is core to our culture in a resilient and dynamic industry. What our teams have accomplished to date reflects strong momentum, and best of all, high confidence in our growth journey continuing. With that, we'll turn it over to the operator for your questions.

[Operator Instructions]. Our first question comes from Barry Jonas of Truist Securities.

Hey, guys. Can you give us an update on the road to $1.4 billion? Maybe talk about how it's progressing. Thanks.

Yes. Hi, Barry. Matt Wilson. We anticipated that question. First of all, for the Light & Wonder employees on the line, congratulations. What a fantastic quarter and a fantastic year. I think when we started off on this journey May of '22, we put in our Investor Day targets out the $1.4 billion. It necessitated a 15% CAGR to get us there. We just closed the 2023 with a 22% growth rate of the AEBITDA line, which was very impressive from my vantage point. I think one of the equally impressive things was all three of our businesses grew double digit. So the portfolio of businesses we have really validates the strategic decisions that we made to focus the organization around content. I think we have in place the talent, the investments, and the product pipeline to continue this pathway to the $1.4 billion. We've just kind of recalibrated our strategic plan and feel very confident we can get to the $1.4 billion. I think this team is also doing a fantastic job just around cost optimization. I think they're equally as focused on sustainable growth as they are in efficient growth. So lots of pathways to get us there. And we feel like with the year we just had and the quarter we just had, great momentum leading into the remaining years of that strategic plan. But, Olivery, you may want to add some detail.

Yes. Thanks, Matt. And Hey, Barry, how are you? As Matt mentioned, we continue to have tremendous momentum across the business. We just posted our fifth consecutive quarter of double-digit year-over-year revenue growth across all three business units which obviously gives us a lot of confidence in our ability to continue to deliver on our growth plans. We know what we need to do to execute against our commitments and in gaming that's to achieve modest share gains in the core -- core Class III. So in game sales, we demonstrated game sales growth in 2023 across both North America and Australian markets, and we'll also continue to grow and expand the gaming operations premium install base. The key for us will be the proliferation into adjacencies, and we'll continue to deliver strong products into Oregon State Lottery. And we also recently announced our deal with Loto-Québec. We'll also be entering the Georgia COAM market here in the first half. From a cycling perspective, we continue to drive record revenue and grow share as we continue to leverage our best-in-class SciPlay engine across the portfolio. And we expect to continue to scale up there while seeing stability in our player base, and that's going to be critical for us here over the next couple of years. We've made strategic UA marketing investments, and we'll continue to do so effectively for long-term growth. And Josh and the team are just -- have just done an exceptional job in that space. In iGaming, we expect continued growth in global markets, particularly here in North America as we've seen over the past couple of years, but more importantly, being able to leverage our proven land-based titles cross platform as evidenced in some of the record game launches you saw across 2023. That's expected to drive sustainable growth for us into the future. And then lastly, as you know, Matt mentioned this earlier, our margin enhancement initiatives were a key contributor for us and it showed in our healthy margins. So not only in the quarter, but for the full year. And we just see opportunities to expand that over time as we continue to improve efficiencies throughout the business. So long short of it, in our momentum and the performance in this quarter and 2023 really does give us a lot of confidence in our ability to capture the opportunities we see ahead to not only deliver $1.4 billion, but to drive sustainable growth past 2025.

I guess that's a good point for my follow up. I think as the conviction on $1.4 billion grows, we're hearing some investors ask about what happens after that. Any chance you can give a little bit more color about how you see the next steps beyond $1.4 billion?

Yes. I think we put together this organization of businesses that is a growth engine and will continue to be a growth engine up beyond the 2025 time frame. We obviously haven't put a target out yet. We'll come back to investors probably in the next few quarters and restate where we go beyond 2025. At the moment, we're laser focused on getting to that number, which there wasn't a lot of conviction for in the market a couple of years ago. But there is growing sentiment that it's an achievable set of targets. So yes, not guiding to anything beyond 2025, but we'll reconvene with the investor base soon enough.

Our next question is from Chad Beynon of Macquarie.

Afternoon, Matt, Oliver, team. Thanks for taking my question. I wanted to ask one specifically around gaming. Oliver, you just mentioned some of the adjacency opportunities like Oregon, Quebec, COAM, et cetera. But as we think about just the general replacement market, you're communicating with your partners in the US and Australia, how does it feel currently? And how does this compare to prior years where the industry may have had elevated industry orders? Thanks.

Yes, thanks, Chad. I think come the industry seems to be on solid footing. I think we're seeing healthy player trends across all of our end markets. I think we did see some isolated softness in January in the US land-based market in certain areas. I think that was really attributed to the weather. I think that's a one-time event that we cycled over. But aside from that really healthy end markets. I think one of the data points is uniquely interesting to us is the Eilers survey from Q4 and looking at specifically purchase intentions. So it does look like in that number forward-looking purchase intentions by casino operators in North America are up sequentially and year on year, which I think is very encouraging. But there was also a nice pickup in terms of their intentions to allocate this year to Light & Wonder. So I think the end markets are looking healthy. We stay focused on controlling the controllables, build great product, and deliver great service to our customers, and we'll win as a consequence of that.

Yes. And just to build on that, Matt, obviously, we haven't seen any major shifts just from an operator's purchasing behavior. So we do see a pretty solid funnel demand here in Q1 and starting the early stages of Q2 funnel. In addition, we also see solid data points from a content perspective, and those are trending well with our high-performing web titles. So So broadly speaking, we don't see anything today that would suggest any major shifts, but if we do, we're well positioned to move it and pull levers as we've executed on some really important critical operational enhancement initiatives. So overall, to Matt's point, healthy GGR levels, resilient gaming consumer, and we'll just be nimble if anything shifts.

Our next question is from David Katz of Jefferies.

Thank you. Afternoon, everyone. So I wanted to talk about product and some of the standout, what we've seen so far from Dragon Train, which is primarily if I'm correct, driving Australia and not fully loaded and approved here in the US, right? That's happening over the next couple of quarters. If you could just color in for us what we might expect to see from that and just help us understand what other product introductions we might be seeing in those coming months that drive us through the rest of this year, also. And then I have one quick follow up.

Yes, great. Thanks, David. Yes, this is the product we're really excited about. We debuted this at the AG show back in August, subsequently went to market in Australia. Very quickly went to number one, two, three, and four in the Australian market. It has really been dominating the New South Wales market. It was now in Queensland and Victoria. It's gone very well across all of those markets. So kudos to the team down there that's built this market-leading product. We're really excited about taking it to all of our markets, not just gaming, but taking it to SciPlay and also taking it to iGaming. The launch in the US is imminent. So it's this quarter, next quarter type rollout event. Pipeline is building nicely. But I think importantly, we've got a real diverse set of product that's driving interest from from operators. I think again, pointing back to the Eilers survey, we had a really nice release last week with a diverse set of games loading up the chart. So really encouraged by that and the teams across the globe, not just the Dragon Train team who we're really proud of, but the entire R&D organization. You can just really start to see the fruits of the labor that's gone into turning the product strategy around, showing up on the scoreboard in the Eilers result and that ultimately will sharpen the scoreboard from a financial perspective. So Yes, launch is imminent in the US and will go across all of our channels and ee're very excited about that product.

Understood. And just one quick follow up. I know, Oliver, you mentioned cash and adjusted cash conversion in your from your prepared remarks. Is there a notional target or normalized aspirational level, whatever other adjective we could put around it, for what cash conversion you could get to one day in the future?

Yes. Thanks for the question. Yes, listen, I think we look at free cash flow in a couple of other ways. One is we're going to look at it from an annualized basis, first and foremost. So we know there's a lot of noise within some of the quarters. In terms of guidance, we haven't really provided updated guidance there. But what I will say is that we see us optimizing our cash flow here. And ultimately, this is a great starting point for us, and we'll continue to sustainably drive that higher over the coming years. But it'll be some puts and takes here. But I think ultimately, we're going to scale from this point forward.

Our next question is from Rohan Gallagher of Jarden.

Yes, hey, Matt, Oliver, good afternoon. Good morning to people in here in Australia. Question in relation to game sales. Outright sales obviously was a key feature this quarter. Obviously, you've talked about adjacencies. You're a market leader in Illinois. You had some early success in Oregon and Canada. Can you talk through around the adjacencies, Matt, in particular sizing the market and the opportunity for like when you're going forward, please?

Yes. Hi, Rohan, and everyone down under. Yes, the adjacencies opportunities a big theme of the gaming story here in terms of growth over the next few quarters and few years. I would say it's a share-taker strategy. These are markets that we've been delivering exactly 0% share in for the last five years. And so every incremental order we get in these adjacencies is naturally share gain. So Yes, like you said, our sales have been a great opportunity for us. We're a market leader in that space now. Our product that we've rolled out is the best performing in that region, which is exciting. Yes, and we should see subsequent orders coming off the back of that introductory. We announced the Loto-Québec opportunity. They've been a great partner of ours for years. So this is expanding that partnership into the VLT space. So that's a 2024 opportunity, which is exciting. I think Georgia COAM, we announced our partnership with Betsson. So we're starting to transact in that market. This is a multi-year journey with the Georgia COAM market. And then historical horse racing, we were an early adopter here in the HHR world, and it's proven to be a great tailwind for us. We were a market leader in that space. We command a leading share position. So as that market continues to expand, we naturally expand along that with great share in those markets. So yes, significant driver for the gaming business, which I think important like I said, these are discrete markets with unique opportunities. We've got the capability to build the product, and it's not as competitive as you see in the Class III replacement market. So we're expecting more modest share gains in the Class III space, but really a big driver of the plan as these adjacent categories.

And do you include Class II near adjacencies these days?

Yes. So we're active in Class II in many markets, so Yes, a significant opportunity for us. And I think that will be more in the late '24, '25 timeline -- timeframe as we start to expand beyond the tranche of adjacencies that I just mentioned.

And a cheeky follow up, if I may, Matt, and maybe directed at Oliver, ASP obviously was down materially, probably influenced by a significant order into the UK. Oliver, could you just talk through what would be a more normalized ASP, recognizing the lumpiness that occurs during quarters? Thank you.

Yes. Yes. Thanks, Rohan. Yes, as I mentioned in the prepared remarks, it was the UK order that had a mix effect on our ASP. We do expect that to be, I would say, somewhat leveled into '24 as we proliferate into these adjacent markets. We know that these adjacent markets have slightly lower ASPs than your typical Class II replacement market. So I would imagine that it will still be impacted from that perspective.

Our next question is from Ryan Sigdahl of Craig-Hallum.

Hey, Matt, Oliver. Good afternoon. Curious on live dealer. So nice to see that launch here, adding Penn, some good updates there, but curious how quickly you think you can really scale this product given enormous market opportunity with effectively one competitor out there. And then secondly, kind of along that, is the plan to lean in and expand more with DraftKings and Penn with bespoke and branded tables across different states or is the higher priority and kind of lower-hanging fruit is to try to get active with more operators? Thanks.

Yes, great question. We see live dealer is a multi-year opportunity. We believe in the outlook for iGaming, states to legalize naturally over the coming years. And so we just look into the future and say, this will be a large and active market. We have the Shuffle Master IP under the hood in terms of a portfolio of assets. So it's a natural extension of our end markets. So it's a market we're going to be in. We're going to position ourselves for the long term here. So really in the near term, it's about nailing and scaling. So nail Michigan, continue to expand partners there, get it to a point where we've ironed everything out and we're optimized. And at that point, we can naturally move into the other markets that are live at the moment. So we have no shortage of demand to take the product into other states that are legal at the moment. We want to make sure that we've got Michigan completely nailed down and then we'll scale over extended markets. But I would say the best way to think about live dealer for us is, yes, this market's going to be big, it's going to be vibrant over the coming coming years. And my responsibility is to position the business for success and perpetuity and liver dealer is a natural space for us to participate in.

Our next question is from Rohan Sundram of MST Marquee.

Thank you and good afternoon, Matt, Oliver, and team. Just one for me relating to the Australia business. Given the momentum, the success you've seen thus far, what's the strategy to sustain and maintain that?

Yes. Hey. Thanks for the question, Rohan. Yes, particularly exciting for me having started my career in Australia and moved to Asia. It's just really nice to see the team down there delivering such exceptional results. I think the international business broadly delivered 93% year-on-year growth in terms of our gaming sales, which is a huge growth number and really the consequence of two things. One is, Asia coming back online in a material way, but then also very impressive share gains in the Australian markets year on year, up from 14% to 24%. It's is a market we were 7% to 9% share player and pretty irrelevant, to be honest with you. So I think, Yes, this is becoming a great contributor to our success. Obviously, the products that are driving our success down there are going to go global, but also demonstrates just our ability to get into new markets, to make appropriate investments and deliver great returns. So Yes, just gives us a lot of confidence in other areas of the gaming market that we can get in and explore. So, Yes, incredibly exciting.

And just a quick add to that, I think for us, it's much broader than just Dragon Train. I mean, we'll continue to drive our evergreen franchises, what's really fueled the initial part of our growth here in Australia, and we'll have strong depth and breadth of product overall to be able to drive share gains over time.

Our next question is from Joe Stauff of SIG.

Thank you. Hi, Matt, Oliver. I wanted to ask about North American game ops and just kind of how to think about the right levels of growth in terms of the main inputs into installed base and revenue per unit. Is there a way to think about you just see installation of premium games throughout the year over the past four quarters in '23, meaning that increase monetization will be lumpy in terms of what quarterly improvement we see in '24? What what's the right way to think about that?

Yes. Obviously, there's two major drivers there. There's obviously the install-base growth and then what are we doing on the RPD side. So on the revenue per day, we've seen a nice sequential uptick in terms of the revenue per day. And that really is driven by better product and a more premiumization of the installed base. I think you'll see an inflection point in 2024 from my vantage point with the portfolio we have lined up kind of the complementary nature of the different cabinets we're launching and games we're launching. We've done a lot of heavy lifting in the install base to make sure that our legacy fleet has been addressed with the appropriate amount of CapEx. So I think you'll see RPDs in this range. And then the net benefit will be as we start to expand the installed base over time, that will be the tailwind that drives that revenue for that segment higher. But again, I feel like 2024 looks like an inflection point from where I'm standing in terms of the net adds you'll start to see quarter over quarter.

And, Matt, by that you mean essentially with your incremental new games, Dragon Train, Monsters, Squid Games, most of those at least in the earlier part of, say, the launch of this new games are largely going to affect game ops first before they trickle down into the other segments, is that fair?

Yes. I mean those titles you mentioned specifically are premium gaming ops titles, so they won't be sold. They won't be taken to those other markets. So it really is in the US, the premium gaming ops story. So those titles that you mentioned in the portfolio is designed specifically for that. So Yes, we're encouraged about the lineup and what it can produce for us in 2024 and beyond.

Our next question is from Jeff Stantial of Stifel.

Hey. Afternoon, Matt and Oliver. Thanks for taking my question. Another strong quarter here in SciPlay, I'll tell, up 15% year on year on an 18% comp. Matt, can you just spend a minute here on the forward outlook? More specifically, what inning would you say you're in with regards to harvesting returns on some of the investments that you've made into the centralization engine, and ad tech capabilities? And to add to that, can you just expand a bit more on the side of a DTC rollout? What's left in terms of execution on product development and what levers can you pull to encourage user adoption? And how should we think about the cadence of adoption maybe relative to peers out there with more mature DC offerings? That's all for me. Thanks.

Yes. No, great question. I think SciPlay is becoming quite metronomic about the way they just deliver outstanding results after outstanding results. Clearly, the fastest-growing social casino company in the industry and taking a wild amount of share. I think it all comes back to we got a best-in-class team with a really focused strategy. So we've made the right strategic investments about two years ago in the SciPlay engine, which just really gave us all the tools that we needed to make sure that we were driving each of our games efficiently. So again, nice uptick in [indiscernible], really holding onto our down across all the four major games. It was a collective effort across many games that drove this result. So in this business, the trend is your friend or your enemy. I mean, so for us now, we're kind of up into the right with SciPlay and we have been for the last few years. So nothing suggested that will stall anytime soon. Great momentum leading into Q1. Yes, a fantastic result for SciPlay in what is apparently a challenged market. Oliver, anything to add or subtract?

Yes, I think just a couple of points there. I think we are also focused on developing our DTC platform, which we expect will enhance player relationship engagement over time, and that should hopefully accelerate our the potential of our expanded margins and then grow player lifetime values. The other thing that we talk about a lot is really just the continued prudent and diligent spend across marketing UA. Josh and the team are the best in the business driving that high ROI over in this space. And so we'll continue to identify a number of these opportunities throughout 2024. As I mentioned earlier, we're doing concurrent marketing campaigns for Joel McHale and Jerry O'Connell. So the teams are looking to drive high-return UA spend here, and we'll continue to evaluate that over time.

Yes. And then maybe specifically to your question about which inning are we in, I'd say we're in kind of early middle innings in terms of the growth profile on the gains that we have. I think in relation to DTC, we haven't even sung the national anthem yet. Like if you look at our industry peers, they're putting 24% to 25% through DTC. We're less than 1%. So the optionality for us is all in front of us, and that's a great margin enhancement opportunity for us over the coming years.

Our next question is from Justin Barratt of CLSA.

Hi, Matt. Hi, Oliver. Thanks for your time today. Just noticing you've had some great success on your international unit shipments over the last 12 to 24 months, and you've made comments around UK and Australia, but just wondering if you could comment broadly on where you see your most significant international growth opportunities going forward, please?

Yes. Nice to be with you. I think probably twofold, continued success in Australia. It's a large vibrant market. It's been stable and resilient for decades, and we expect it to continue that way. So continuing to take share in that market. I think with Dragon Train and other products, we're very early in the cycle in terms of what looks like a multi-quarter, multi-year opportunity for us in Australia. And then I think in Asia, I was in back there in September of last year. I lived there for five years in a former life and just so fantastic to see that market back on solid footing. You see Macau coming back to life on the operator side and with the churn opportunity there. That's exciting for us over the next couple of years. But I think the really exciting opportunity is the Philippines. The chairman of Pagcor down there, the regulators has a mandate to grow GGR in a very big way. And so that comes off the back of investing in four product, in new IRs. And we are a market leader in Asia. So I think Asia is a very exciting opportunity for us, but specifically the Philippines. So Yes, we are looking forward to making the most of that opportunity over the coming years.

Our next question is from Allan Franklin of Canaccord Genuity.

Yes, good morning, guys. Thank you for your time. Hope you're well. Yes, essentially all my questions have been answered, but just one quick one, please. Just around post the post the SciPlay acquisition and just looking at the current leverage in the business. It does feel like this will also trickle down over the course of time. But how do you think about your capital allocations plans going forward plays in the current situation with the buyback program?

Yes. Thank you. Thank you for the question. Yes, our capital management strategy stays largely consistent with what we previously shared. We continue to see the benefit of our strong balance sheet, positioning us really well to take on value-accretive opportunities as they arise. So specifically to your question around leverage, we are comfortably within our targeted range of 2.5 times and 3.5 times, and we ended the year at 3.1 times levered, and that's following the completion of that -- of the SciPlay transaction. We believed back in Q3 that the SciPlay transaction was about a half a turn increase, but we were able to delever and capitalize on our highly cash-generative businesses. Now that the SciPlay transaction has been completed and our leverage remains well within our targeted range, we will continue to be opportunistic with the share repurchase program. In fact, we've just created a more structured program which we're now currently implementing. So long term, we continue to see this as a significant value creation opportunity for us. We were active throughout 2023 and in Q4 we repurchased about 25 million worth of shares. And from a full-year '23 point of view, we spent $170 million to buy back shares. So looking ahead, we'll continue to execute on our capital allocation priorities in a very disciplined manner, whether that's further investments in R&D and CapEx, or other uses of funds. So we'll continue to evaluate that. But we're in a great place just given where we are from a balance sheet perspective.

Yes. Maybe just one additional build there. We did a lot of heavy lifting through the divestitures and the strategic review to clean up the complexity in the portfolio. And what we have now is a very focused organization with a very clear mission about being the leading cross-platform global games company. We want to stay true to that. I think that strategy has been validated, like I said earlier, all three of our businesses growing double digits. So what you can expect from us is a management team that's very focused on being efficient around cost, but also with capital allocation making sure we have a very high bar for anything M&A related and staying really focused on keeping the leverage where we've said it would be and buying back our stock.

Our next question is from Carlo Santarelli of Deutsche Bank.

Thanks, guys. Just a couple if I may. One of them is going to be really quick. Oliver, the termination fees within iGaming, is $6 million the right number that you guys need to kind of comp for next year?

That's correct. Yes.

Okay. And then moving on. If you guys -- and this might be a little bit more complicated, but if you guys were to just take your install base and the constituents of that between premium and everything else, as of the start of this year and think about the win per day premium that that will provide you as a base level of growth in all things equal domestic scenario in terms of slot GGR and whatnot, on a percentage basis, what would you calculate that as before the the additions obviously?

Yes, that is a pretty complex question, but I guess my initial reaction to that is we have seen a shift away from our public markets install base towards the premium category. So there is a tailwind there in terms of RPDs because the RPDs in the premium category are obviously higher than the public. We do expect through '24 for that to continue in terms of the ads that come into the installed base to be premium units. So that will be incremental to RPDs over time. That's the way to think about the construct of our install base and in relation to premium gaming up. So I'd say there's some upside here from an RPD perspective, given the mix shift and then we would expect our install base to grow over time.

Okay. That's helpful. And then just lastly, Oliver, you talked about R&D and CapEx investments and obviously investments on the social side and whatnot. Could you just try and quantify perhaps like the level of magnitude of these investments?

Yes. No. Thank you. Yes, listen, we know that R&D and CapEx are called the organic investments are a critical component to our growth as we move forward. So we do see a combined R&D and CapEx target of about 17% at the total level. And obviously, that's at the gross level between, I would say, a 10% and 7% R&D to CapEx level. So that's at the gross level. And ultimately, as our revenues continue to scale over time, that will just give us further ammunition to reinvest back into our core and drive sustainable growth over time. So this is absolutely an area of focus for us, and we'll continue to invest organically as we believe that's the highest -- one of the highest returns of ROI for us.

Okay. So the numbers go up but the tethering to revenue stays broadly in that 17% range, that's what you're saying?

Yes, that's correct. And we'll continue to evaluate those levels as we move forward.

We no further questions in the queue, so I'll turn the call back over to Matt Wilson for any closing remarks.

Thank you, operator. In closing, I would like to acknowledge our Light & Wonder employees whose commitment and dedication made the past year a success and provide us with great confidence for the future. Our global team continues to do inspiring work every day, delivering exciting new content to industry-leading games, utilizing the latest technologies, and create an exceptional customer experience. We're excited about the opportunities ahead in 2024 as we continue to execute in our strategy in this dynamic environment. Thank you for being with us today and thank you for your support.