Light & Wonder, Inc. Reports Fourth Quarter and Full Year 2022 Results

Generated Double-Digit Consolidated Revenue Growth of 18% in the Quarter and 17% for the Full Year

Returned $413 Million⁽¹⁾ of Capital to Shareholders Through Share Repurchases

Light & Wonder, Inc. (NASDAQ: LNW) (“Light & Wonder,” “L&W” or the “Company”) today reported results for the fourth quarter and fiscal year ended December 31, 2022.

We completed our strategic transformation, resulting in a streamlined organization and deleveraged balance sheet, positioning the Company to strongly execute on its strategic plan and long-term financial targets.

For the full year, we delivered double-digit topline growth driven by continued momentum across our businesses and continuing expansion in high-return markets. Our full year consolidated revenue grew 17% driven by Gaming recovery approaching pre-pandemic levels and record revenues for SciPlay and iGaming with strong momentum in the fourth quarter:

• Gaming revenue increased to $438 million, up 18% compared to the prior year period, primarily driven by another quarter of robust Gaming machine sales growth of 41% and continued strong momentum in Gaming operations, systems and tables.
• SciPlay revenue rose to $182 million, a 18% increase from the prior year period, and highest quarterly revenue ever.
• iGaming revenue increased 15% and AEBITDA grew 27% from the prior year period reflecting continued growth momentum in the U.S. market.

Matt Wilson, President and Chief Executive Officer of Light & Wonder, said, “2022 was a pivotal year for Light & Wonder. We delivered on an ambitious and transformative plan while driving operational success and double-digit growth in our business.

"We are excited about our future and see strong momentum continuing in the business in the year to come. Our industry leading talent, games and technology put us in a strong position to deliver on our product roadmap, capitalize on the enormous opportunities ahead and lead in the convergence of gaming.”

Connie James, Chief Financial Officer of Light & Wonder, added, “We are proud of the tremendous and rapid progress we have made over the past 18 months. We delivered quality earnings, setting the foundation for sustainable growth going forward as we continue to focus on delivering shareholder value.

"We also returned significant capital to our shareholders, totaling $413 million⁽¹⁾ since our share repurchase program was announced a year ago. We now have a strong balance sheet and clear roadmap to advance with discipline on our balanced and opportunistic capital allocation strategy and elevate Light & Wonder’s value proposition.”

LEVERAGE AND CAPITAL RETURN UPDATE

• Maintained net debt leverage ratio⁽¹⁾ of 3.3x as of December 31, 2022, within our targeted net debt leverage ratio⁽¹⁾ range of 2.5x to 3.5x.
• Returned $413 million of capital to shareholders through the repurchase of approximately 7.2 million shares of L&W common stock since initiating the program on March 3, 2022, and through February 24, 2023, representing 55% of total program authorization.

SUMMARY RESULTS

We have reflected our former Lottery business (divested during the second quarter of 2022) and Sports Betting business (divested during the third quarter of 2022) (collectively referred to as the “Divestitures”) as discontinued operations for all periods presented. Unless otherwise noted, amounts, percentages and discussion included below reflect the results of operations and financial condition of the Company’s continuing operations, which include its Gaming, SciPlay and iGaming businesses.

Fourth Quarter 2022 Financial Highlights:

• Fourth quarter consolidated revenue was $682 million compared to $580 million, an 18% increase relative to the prior year period driven by double-digit growth across all lines of business, with Gaming maintaining strong momentum. Revenue also benefited from year-over-year growth at SciPlay, which reached another quarterly record, while iGaming revenue increased 15% or 22% on a constant currency revenue basis⁽¹⁾⁽²⁾.
• Net income was $21 million compared to $62 million in the prior year period, primarily due to an income tax benefit as a result of a reversal of our valuation allowance on deferred taxes benefiting the prior year period, which was partially offset by higher revenue and operating income, as well as lower interest expense and restructuring and other charges in the current year period.
• Consolidated AEBITDA, a non-GAAP financial measure defined below, was $265 million compared to $216 million, a 23% increase relative to the prior year period, primarily due to growth in our Gaming business.
• Combined net cash (used in) provided by operating activities was $(87) million compared to $226 million in the prior year period, which includes both continuing and discontinued operations. The current year period cash flows were impacted by $176 million in cash taxes paid related to the Divestitures coupled with the timing of payments associated with the strategic review and related transactions, partially offset by growth in earnings and lower interest payments.
• Combined free cash flow, a non-GAAP financial measure defined below, was $(148) million compared to $100 million in the prior year period. The current year period combined free cash flow was impacted by $176 million in cash taxes paid related to the Divestitures coupled with the timing of payments associated with the strategic review and related transactions, partially offset by growth in earnings and lower interest payments.

Full Year 2022 Financial Highlights:

• Consolidated revenue was $2,512 million compared to $2,153 million, a 17% increase relative to the prior year. Growth was primarily driven by double-digit revenue growth in Gaming, demonstrating robust recovery and continued momentum approaching pre-COVID levels. Revenue also benefited from growth at SciPlay with a strong core business exceeding market growth, while iGaming demonstrated strong performance enabled by U.S. gross gaming revenue growth and our original content offerings. Both SciPlay and iGaming achieved record revenues. Prior year consolidated revenue benefited from $44 million value-added tax (“VAT”) recovery, reducing the year-over-year revenue growth comparability by 2 percentage points.
• Net (loss) income was $(176) million compared to $24 million in the prior year due to higher revenue and operating income, including lower interest expense, which was offset by $147 million in loss on debt financing transactions in the current period. The prior year benefited from an income tax benefit as a result of a reversal of our valuation allowance on deferred taxes and gain on remeasurement of Euro denominated debt, which was redeemed as part of the April 2022 debt pay down and refinancing transactions.
• Consolidated AEBITDA, a non-GAAP financial measure defined below, was $913 million compared to $793 million, a 15% increase relative to the prior year, primarily due to double-digit revenue growth. The prior year consolidated AEBITDA benefited from VAT recovery, reducing the year-over-year consolidated AEBITDA growth comparability by 7 percentage points.
• Combined net cash (used in) provided by operating activities was $(381) million compared to $685 million in the prior year, which includes both continuing and discontinued operations. The current year cash flows were impacted by $641 million in cash taxes paid related to the Divestitures, timing of payments associated with the strategic review and related transactions and unfavorable working capital changes in inventory and receivables, which were partially offset by lower interest payments. The prior year included the VAT recovery benefit described above.
• Combined free cash flow, a non-GAAP financial measure defined below, was $(674) million compared to $443 million in the prior year, which includes both continuing and discontinued operations. The current year combined free cash flow was impacted by $641 million in cash taxes paid related to the Divestitures coupled with timing of payments associated with the strategic review and related transactions, which were partially offset by lower interest payments. The current year was also impacted by unfavorable working capital changes in inventory primarily due to higher inventory purchases in order to limit supply chain impacts and support future sale levels, while change in receivables was due to timing of collections and higher billings primarily associated with strong growth in Gaming business. The prior year included the VAT recovery benefit.
• Net debt leverage ratio, a non-GAAP financial measure defined below, declined 47% to 3.3x from 6.2x at the end of 2021, remaining in our targeted net debt leverage ratio⁽¹⁾ range of 2.5x to 3.5x. We paid down approximately $4.8 billion of debt during 2022, reducing debt outstanding by 55% to $3.9 billion at the end of 2022.

Fourth Quarter 2022 Key Highlights

• Gaming revenue increased to $438 million, up 18% compared to the prior year period, primarily driven by another quarter of robust Gaming machine sales growth of 41%. Gaming operations remained above 2019 levels with continued elevated average daily revenue per unit, while Gaming systems and Table products continued strong momentum. Gaming AEBITDA was $215 million, up 16% compared to the prior year period.
• Gaming operations revenue benefited from year-over-year growth in our North American installed base and elevated average daily revenue per unit, due to strong content performance and continued success of our KASCADA^® and MURAL^® cabinets. Our North American premium installed base has grown for the 10^th consecutive quarter, representing 45% of our total installed base mix. Additionally, we continue to see positive momentum with the Kascada Dual Screen and LANDMARK™ 7000 cabinets, validating our continued investment in our R&D engine to drive our long-term growth.
• SciPlay revenue was $182 million, a 18% increase from the prior year period, breaking another record by achieving the highest quarterly revenue ever. Growth was primarily driven by the core social casino business as well as the Alictus acquisition. SciPlay continued to drive strong engagement and monetization of players fueled by strategic investments, enabling SciPlay to deliver record payer metrics, and it once again outpaced the market and gained share. SciPlay achieved a record number of payers at 0.6 million and the 2^nd highest ever AMRPPU, enabling SciPlay to grow ARPDAU by 18% year-over-year to a record $0.87 and record payer conversion of 10.4%.
• iGaming revenue increased 15% and AEBITDA grew 27% from the prior year period with performance primarily reflected by continued growth momentum in the U.S. market. iGaming revenue growth was partially offset by $4 million in unfavorable impact of foreign-currency translation due to strengthening U.S. Dollar, impacting revenue growth by 7 percentage points. The U.S. market delivered 41% year-over-year revenue growth, driven in part by the strong launches of our land-based original content and scaling third party aggregation on our platform. Wagers processed through our iGaming platform have increased to $19.1 billion in the fourth quarter despite the adverse impact of foreign-currency translation. AEBITDA margin grew 3 percentage points due to the scaling of original content launches, as well as our acquisitions, which was partially offset by continued investments supporting ongoing growth, including our upcoming launch of live casino in the U.S.

LIQUIDITY

• Combined net cash (used in) provided by operating activities was $(87) million compared to $226 million in the prior year period, which includes both continuing and discontinued operations. The current year period cash flows were impacted by $176 million in cash taxes paid related to the Divestitures coupled with the timing of payments associated with the strategic review and related transactions, partially offset by growth in earnings and lower interest payments.
• Combined free cash flow, a non-GAAP financial measure defined below, was $(148) million compared to $100 million in the prior year period. The current year combined free cash flow was impacted by $176 million in cash taxes paid related to the Divestitures coupled with the timing of payments associated with the strategic review and related transactions, partially offset by growth in earnings and lower interest payments.
• Net debt leverage ratio, a non-GAAP financial measure defined below, declined 47% to 3.3x from 6.2x at the end of 2021, remaining in our targeted net debt leverage ratio⁽¹⁾ range of 2.5x to 3.5x. We paid down approximately $4.8 billion of debt during 2022, reducing debt outstanding by 55% to $3.9 billion at the end of 2022.
• Capital expenditures from continuing operations were $58 million in the fourth quarter of 2022.

Earnings Conference Call

As previously announced, Light & Wonder executive leadership will host a conference call on Wednesday, March 1, 2023 at 4:30 p.m. EST to review the Company’s fourth quarter and full year 2022 results. To access the call live via a listen-only webcast and presentation, please visit explore.lnw.com/investors/ and click on the webcast link under the Events and Presentations section. To access the call by telephone, please dial: +1 (844) 200-6205 for U.S. or +1 (929) 526-1599 for International and ask to join the Light & Wonder call using conference ID: 245536. A replay of the webcast will be archived in the Investors section on www.lnw.com.

About Light & Wonder

Light & Wonder, Inc. (NASDAQ: LNW) (formerly known as Scientific Games Corporation) is a global leader in cross-platform games and entertainment. The Company brings together approximately 6,000 employees from six continents to connect content between land-based and digital channels with unmatched technology and distribution. Guided by a culture that values daring teamwork and creativity, the Company builds new worlds of play, developing game experiences loved by players around the globe. Its OPENGAMING™ platform powers the largest digital-gaming network in the industry. The Company is committed to the highest standards of integrity, from promoting player responsibility to implementing sustainable practices. To learn more, visit www.lnw.com.

You can access our filings with the SEC through the SEC website at www.sec.gov or through our website, and we strongly encourage you to do so. We routinely post information that may be important to investors on our website at explore.lnw.com/investors/, and we use our website as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC’s Regulation Fair Disclosure (Reg FD).

The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document, and shall not be deemed “filed” under the Securities Exchange Act of 1934, as amended.

All ® notices signify marks registered in the United States. © 2023 Light & Wonder, Inc. All Rights Reserved.

Forward-Looking Statements

In this press release, Light & Wonder makes “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as “may,” “will,” “estimate,” “intend,” “plan,” “continue,” “believe,” “expect,” “anticipate,” “target,” “should,” “could,” “potential,” “opportunity,” “goal,” or similar terminology. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:

• the effects of the COVID-19 pandemic and any resulting unfavorable social, political, economic and financial conditions;
• our inability to successfully execute our strategy and rebranding initiative;
• slow growth of new gaming jurisdictions, slow addition of casinos in existing jurisdictions and declines in the replacement cycle of gaming machines;
• risks relating to foreign operations, including anti-corruption laws, fluctuations in currency rates, restrictions on the payment of dividends from earnings, restrictions on the import of products and financial instability;
• difficulty predicting what impact, if any, new tariffs imposed by and other trade actions taken by the U.S. and foreign jurisdictions could have on our business;
• U.S. and international economic and industry conditions, including increases in benchmark interest rates and the effects of inflation;
• public perception of our response to environmental, social and governance issues;
• changes in, or the elimination of, our share repurchase program;
• level of our indebtedness, higher interest rates, availability or adequacy of cash flows and liquidity to satisfy indebtedness, other obligations or future cash needs;
• inability to further reduce or refinance our indebtedness;
• restrictions and covenants in debt agreements, including those that could result in acceleration of the maturity of our indebtedness;
• competition;
• inability to win, retain or renew, or unfavorable revisions of, existing contracts, and the inability to enter into new contracts;
• the impact of U.K. legislation approving the reduction of fixed-odds betting terminals maximum stakes limit on LBO operators, including the related closure of certain LBO shops;
• inability to adapt to, and offer products that keep pace with, evolving technology, including any failure of our investment of significant resources in our R&D efforts;
• changes in demand for our products and services;
• inability to achieve some or all of the anticipated benefits of SciPlay being a standalone public company;
• dependence on suppliers and manufacturers;
• SciPlay’s dependence on certain key providers;
• ownership changes and consolidation in the gaming industry;
• fluctuations in our results due to seasonality and other factors;
• security and integrity of our products and systems, including the impact of any security breaches or cyber-attacks;
• protection of our intellectual property, inability to license third-party intellectual property and the intellectual property rights of others;
• reliance on or failures in information technology and other systems;
• litigation and other liabilities relating to our business, including litigation and liabilities relating to our contracts and licenses, our products and systems, our employees (including labor disputes), intellectual property, environmental laws and our strategic relationships;
• reliance on technological blocking systems;
• challenges or disruptions relating to the completion of the domestic migration to our enterprise resource planning system;
• laws and government regulations, both foreign and domestic, including those relating to gaming, data privacy and security, including with respect to the collection, storage, use, transmission and protection of personal information and other consumer data, and environmental laws, and those laws and regulations that affect companies conducting business on the internet, including online gambling;
• legislative interpretation and enforcement, regulatory perception and regulatory risks with respect to gaming, especially internet wagering, social gaming and sports wagering;
• changes in tax laws or tax rulings, or the examination of our tax positions;
• opposition to legalized gaming or the expansion thereof and potential restrictions on internet wagering;
• significant opposition in some jurisdictions to interactive social gaming, including social casino gaming and how such opposition could lead these jurisdictions to adopt legislation or impose a regulatory framework to govern interactive social gaming or social casino gaming specifically, and how this could result in a prohibition on interactive social gaming or social casino gaming altogether, restrict our ability to advertise our games, or substantially increase our costs to comply with these regulations;
• expectations of shift to regulated digital gaming or sports wagering;
• inability to develop successful products and services and capitalize on trends and changes in our industries, including the expansion of internet and other forms of digital gaming;
• the continuing evolution of the scope of data privacy and security regulations, and our belief that the adoption of increasingly restrictive regulations in this area is likely within the U.S. and other jurisdictions;
• incurrence of restructuring costs;
• goodwill impairment charges including changes in estimates or judgments related to our impairment analysis of goodwill or other intangible assets;
• stock price volatility;
• failure to maintain adequate internal control over financial reporting;
• dependence on key executives;
• natural events that disrupt our operations, or those of our customers, suppliers or regulators; and
• expectations of growth in total consumer spending on social casino gaming.

Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including the Company’s current reports on Form 8-K, quarterly reports on Form 10-Q and annual reports on Form 10-K, including the forthcoming report to be filed with the SEC for the year ended December 31, 2022 (including under the headings “Forward Looking Statements” and “Risk Factors”). Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

You should also note that this press release may contain references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to the accuracy of that information. In general, we believe there is less publicly available information concerning the international gaming, social and digital gaming industries than the same industries in the U.S.

Due to rounding, certain numbers presented herein may not precisely recalculate.