Yahoo Finance Light & Wonder, Inc. (NASDAQ:LNW) Q1 2024 Earnings Call Transcript
Light & Wonder, Inc. (NASDAQ:LNW) Q1 2024 Earnings Call Transcript May 8, 2024
Light & Wonder, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the Light & Wonder 2024 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] And I would now turn the call over to Nick Zangari, Senior Vice President of Investor Relations.
Nick Zangari: Thank you, operator and welcome everyone, to our first quarter 2024 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 first quarter results and operating performance, followed by question-and-answer session. Today's call will contain forward-looking statements that may involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For information regarding these risks and uncertainties, please refer to our earnings materials relating to this call posted on our website at 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 located in the Investors' section of our website. 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.
Matthew Wilson: Thank you, Nick and thanks to everyone for joining us today. Our first quarter performance market. Great start to 2024 for Light & Wonder building on the momentum that we've created since we began our transformation journey and affirming our position as the leading cross-platform global gains company. During the first quarter, our team did an outstanding job executing our strategy and meeting our financial and operating objective, however, will provide more details in his financial comments. We are extremely proud to deliver our 12th consecutive quarter of year-over-year growth and our sixth consecutive quarter of double-digit revenue growth across all lines of business. The gaming industry has proven to be resilient in today's macroeconomic environment with healthy consumer demand fueling our impressive growth.
These strong results confirms that we are investing in all of our prices and in the right talent, providing innovative content, cutting edge technology that enhances the player's experience and build a loyal customer base. We will continue to execute diligently with a focus on driving sustainable long-term growth. For Light & Wonder, it's all about the game. Our aspirations beyond just one brand or franchise. We are fortunate to have a robust and diversified roadmap of engaging and dynamic game content for players to enjoy across all of their favorite channel. With that, let's turn to our operational highlights for each business. In Gaming, we continue to make significant progress on our journey and given the quality of products this year as an inflection point without scaling game of fleet in a meaningful way.
As many of you have heard, our Australian Bond hit franchise Dragon Train has arrived in the U.S. and we expect that to contribute gaming operations growth. In fact, Dragon Train debuted at the top new franchises with four of its titles in the top 10 indexing new premium leased gains on the [Indiscernible] report. Our commercial team is collaborating with our operator partners and being strategic replacement as we continue to optimize the floors for performance while preserving the longevity of active units. That said, our North American premium installed base has grown for 15 consecutive quarters and now represents 49% of the North American in-store base. Just recently, we also launched our new large screen jumbo cabinet Horizon, with Dancing Drums, ultimately explosion, and it's off to a strong start.
Our execution on licensed title is second to none as Monster-Frankenstein continued to perform well on the charts with more pricing from the floor. We are prudent with license spend for the disciplined focus on our ROI, and this gives me the confidence that we will capitalize on the upcoming launches such as Squid Game in the near future. Onto games sales, during the quarter, we shipped close to 9,700 units globally with broad-based strength across the board and achieved number one ship share in Australia for the first time ever in the company's history. We see opportunities outside of the traditional North American and Australian replacement market as we further deliver units into international opportunity and adjacencies, such as shipments to Asia, specifically, Macau, Philippines, and South Korea in the quarter.
Adjacent market, we are progressing well with the Oregon and Canadian VLT shipments with rolling thousand Georgia coin-operated amusement machine market, as well as various other video lottery Class 2, and historical horse racing market. We will continue working towards gaming share in the North American market on the back of our wide array of successful franchises such as Blazing 777, Huff N' Even More Puff, Big Hot Flaming Pots, [Indiscernible] Go Fish. On the systems and tables, our revamped strategy of enhanced collaboration driven by innovation is expected to provide sustainable momentum, further solidifying our leadership position with a focus on increasing recurring revenue stream by expanding system software and maintenance services and table products description as we continue to be the innovative thought leader in this space.
Overall, we have strong conviction in gaming's growth trajectory as we continue to build on our hardware, brand, and franchise extension. With recent data showing a hit game Huff N' Even More Puff indexing as the number one overall new core game and [Indiscernible] to occupy 12 out of the top 25 games from the new premium lease and wide area progressive chart. We're well-positioned to capture the opportunities ahead of us. Turning to SciPlay where our steady outperformance continues, as we delivered another record revenue quarter, up 11% year-over-year, driven by continued growth in our largest four games Jackpot Party, Quick Hit Slots, Gold Fish Casino, 88 Fortunes Slots. We continue to gain share in a stabilized and social casino market as we have for the last nine quarters, and are now at over 11% market share.
The investments we've made in our SciPlay engine and user acquisition are bearing fruit, and the results are reflected in the strength of our portfolio of games. Meanwhile, average monthly revenue per paying user and average revenue per daily active user once again reached new highs as we continue to execute on our prudent and sustainable monetization strategy, one that has proven to work very well as we navigate seasonality in the business with favorable results. The marketing campaigns launched in the quarter solidify our convictions of investing in opportunities, which are expected to generate attractive payback period to fuel sustainable long-term engagement and monetization. SciPlay is the best in the industry in terms of user acquisition execution, which we've demonstrated consistently in our performance.
In addition to executing to our marketing blueprint, some of our other growth initiatives include testing and scaling of new games and taking learnings to drive success for next phase progression into ad tech. Most importantly, we've made meaningful progress on our direct-to-consumer platform in the last six months with approximately 6% of revenues generated from this channel in the first quarter. Our focus here is to proceed deliberately, ensuring a high-quality user experience to encourage player engagement. Overall, we see this as a great long-term opportunity as we continue to refine the platform and scale it across our game. With SciPlay's clear strategy and focus on roadmap execution, we are differentiating ourselves as one of the clear leaders in this space.
On to iGaming, where the robust industry growth we saw in North America propelled us to another record revenue quarter. Our OGS platform delivered record gross gaming revenue volumes in the U.S. and Canada as we saw year-over-year increases of 23% and 29%, respectively. This impressive growth was further accentuated with our content strategy and roadmap. In fact, we continue to see stellar performance from our third-party content with ultimate filing cash flows, reflecting solid performance, continuing the success we've seen with our proven land-based franchise. ELK Studios and Lighting Box continued to perform above expectations, a testament to our OGS platform providing valuable insights to their game data prior to Light & Wonder's acquisitions of these high-performing studios.
ELK Studios' GGR is up 34% compared to prior year, driven by strong performance across [Indiscernible]. Lighting Box had a record GGR for the quarter with sequential growth of 12%, supported by strong launches from the Thundering series. [Indiscernible] has also begun to scale with nine studios now live connected to 72 operators across 10 markets as we continue to build on the accessibility and scalability of our iGaming network. Live Casino continues to be an important part of our overall iGame portfolio as we continue to invest and optimize our offering. We continue to see progress and believe that our collaboration with operator customers will ultimately solidify long-term partnerships as we scale and expand into other regions in the future.
iGame is one of the fastest-growing segments in the gaming space as we continue to see within the U.S. market in the quarter. We will continue to expand our content portfolio and cross launch our proven land-based and digital native games, along with enhanced capabilities and new features added to our existing offerings, rounding out our robust iGaming portfolio to capitalize on legalization opportunities in the future. With our unmatched market position and cross-platform capabilities, Light & Wonder has created a compelling value proposition. Our results clearly demonstrate that we are delivering the iconic content the players want with the ability to choose where and when they want to play their favorite Light & Wonder game. Across our business units, our industry-leading talent and high-performance culture are the key to our past success and provide confidence for our future.
We will continue to enhance our talent and invest in our culture to drive innovation and promote the lasting impact our product offerings. Importantly, we will support our creative talent and strategic initiatives with disciplined R&D investments that drive long-term sustainable value. Above all, we have a focus on operational excellence as we continue to extend our market reach, and I want to thank the team for their dedication to this journey. I'm very excited about the momentum we are creating and look forward to the opportunities ahead for Light & Wonder through 2024. Best is yet to come. With that, I'll turn to Oliver to review our first quarter financial results.
Oliver Chow: Thank you, Matt. I'm pleased to share that we started the year with strong overall performance, marking our seventh consecutive quarter of double-digit consolidated revenue growth and six consecutive quarter of double-digit revenue growth across all three segments. Consolidated revenue increased 13% year-over-year to $756 million, driven by continued momentum across all businesses. Operating income was $165 million in the quarter, an increase of 62% over the prior year, primarily due to the higher revenue and healthy margins, along with lower depreciation and amortization and lower restructuring and other cost. Consolidated AEBITDA grew 13% to $281 million compared to the prior year period, resulting in a consolidated AEBITDA margin of 37% for the quarter and robust top line growth and our commitment to maintain strong margins across all of our businesses.
Adjusted NPATA increased 22% year-over-year to $105 million, primarily due to strong revenue growth across all of our businesses and healthy margins. I will note that we disclosed a reconciliation of adjusted NPATA in our earnings press release, along with other financial details and our quarterly Form 10-Q filed with the SEC. Our results reflect the collective and collaborative work of our business units. In Gaming, we continue to deliver strong financial and key performance metrics, a true testament that we remain focused on executing our robust product roadmap and commercial strategy. Revenue in the quarter grew 14% year-over-year to $476 million, led by another quarter of strong global gaming machine sales and gains across gaming operations and systems.
AEBITDA was up 13% to 232 million compared to the prior year, with profitability primarily driven by revenue uplift in the period. AEBITDA margin was 49%, in line with prior-year levels as we maintain healthy margins through our ongoing margin enhancement initiatives, while continuing to invest for future growth. Gaming operations revenue in the quarter increased 3% compared to prior year on continued growth in our North American installed base, primarily due to the successful launch of Dragon Train in North America late in the quarter, partially offset by declines in international markets related to the fleet optimization that we previously shared. Importantly, revenue per day grew 4% in North America year-over-year, approaching $49 on continued performance of our license and proprietary games backed by our popular cosmic, [Indiscernible] dual screen cabinets.
Global game sales were robust in the quarter with revenue up 30% year-over-year. North American and international replacement unit shipments increased 14% and 68% respectively with North America, driven by our ramp in adjacent markets and international are driven by continued strength in Australia, new and expansion sales in the Philippines and South Korea, as well as replacement opportunities in Macau. Additionally, average selling prices increased 6%, reaching approximately $20,000 in the quarter as we continue to place premium products into both the North American and international markets. In Systems revenue increased 9% year-over-year, primarily on higher hardware sales into existing and new customers. And lastly, Table products revenue was relatively flat compared to prior year.
Our results demonstrated the strength of our product portfolio and continued execution to strategy, which gives me confidence in our ability to maintain the strong momentum through the year as we expand into international and adjacent markets in addition to further growth in the North American Class 3 market. Moving on to SciPlay, where we continue to outpace our peers with another record revenue quarter, once again, establishing ourselves as the industry leader in year-over-year growth in the social casino space. Revenue in the quarter was up 11% year-over-year to $206 million on growth, underpinned by robust player engagement and monetization, leveraging our dynamic live ops SciPlay engine across our portfolio of high performing games. I would like to mention that you may have seen a notable increase in our web in-app purchases and other revenue line with meaningful uplift in recent quarters.
Revenue from our direct-to-consumer platform, which has progressed nicely as reported in this line item. This subsequently impacts growth in the mobile line item that we and several other data platforms report externally. AEBITDA increased 15% to $62 million year-over-year, with AEBITDA margin of 100 basis points to 30%, driven by continued revenue growth, partially offset by higher targeted and planned marketing spend, which has proven to be an effective growth strategy for SciPlay. While there will be user acquisition costs are dynamic quarter-to-quarter, we will always take a prudent approach with a focus on long-term return and expect that margin will scale over time. Our monetization metrics continue to set new records with average revenue per daily active user, up 13% year-over-year to just over $1 on a steady base of 2.2 million daily active users.
Average monthly revenue per paying user was nearly $114, an increase of 17% compared to prior year, while maintaining payer conversion above 10%. We are pleased with the execution SciPlay where we continue to see outperformance relative to the market. These favorable growth trends continue to be driven by our focus on engagement, retention, monetization, and our cross-platform strategy. We are confident in our marketing blueprint were dollars further on high quality investment opportunities, generating meaningful returns to fuel sustainable long-term growth and profitability. Onto iGaming, where our offering and ecosystem continues to scale as the market continues to expand. Revenue in the quarter increased 14% year-over-year to a record $74 million, primarily driven by our strong content launches and U.S. and international market expansion.
AEBITDA grew 9% to $25 million, largely not top line growth with an AEBITDA margin remained healthy at 34%, trending in line with historical levels, while we continue to invest in content and product development with a focus on future margin expansion. Wagers process through our iGaming OGS platform increased 10% from our prior year period to a record $22.4 billion on healthy levels of engagement. Overall, we expect to extend our momentum through our original content and regionalized roadmap, underpinned by scale and a well-run portfolio with our business is firing on all cylinders. We will continue to evaluate processes for efficiencies, staying agile and nimble to adapt to changing environments to drive further operational excellence within the organization.
This strategy has been to be effective as reflected in our healthy margins we achieved in the quarter as we continue to invest organically in the business. Importantly, our teams will continue to maximize the efficiency of our business through enhancing processes and automation opportunities and committed to driving sustainable long-term profitability through value-enhancing initiatives. Onto balance sheet and cash flow. At the end of the quarter, we had approximately $1.2 billion of available liquidity, including $450 million of cash on hand. Notably, we received a one notch corporate family rating upgrade by Moody's in April on our strengthened balance sheet and meaningfully cash-generative business. Our consolidated operating cash flow was $171 million in the quarter, and free cash flow increased 26% compared to prior year to $93 million for reflective of a strong earnings, partially offset by less favorable changes in working capital and increases in capital expenditures.
With the strong performance in demand of our newly released games, we expect an increase in capital expenditures in the coming quarters as we continue to invest for sustainable growth. The highly cash-generative nature of our business and continuous efforts to improve conversion rates will allow us to further scale annual cash flows over time. We remain within our targeted net debt leverage ratio range at 3.0 times at the end of Q1 with enhanced optionality around capital allocation is our business continues to grow. During the quarter, we bought back $25 million of shares. In total, we have repurchased approximately $600 million or 80% of the $750 million authorized program. As we generate incremental free cash flow, we will be opportunistic as we see value dislocations in the market, while having a programmatic share repurchase plan now in place.
With a streamlined business, we will continue to invest organically into growth initiatives for the long-term. We will consider M&A opportunities that are complementary to our core business and above internal return hurdles. We further develop and deploy a robust R&D engine across platforms. We remain diligent in our efforts to prioritize shareholder value through capital returns and strategic investments. Our team has done a tremendous job at executing the strategy, elevating like one or two, one of the fastest growing companies in the industry, underpinned by a healthy balance sheet and strong cash flows. And importantly, we are doing so in an efficient way with a prudent approach to reinvesting back into the business without compromising top line growth and R&D, a key driver success here at Light & Wonder.
This quarter is just another proof point as we continue on our journey to scale the business. I am confident in our ability to deliver on our roadmap and achieve sustainable growth towards our target and beyond. With that, we will turn it over to the operator for your questions.
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