Light & Wonder - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered 4% revenue growth to $797M, consolidated AEBITDA of $315M (40% margin), and diluted EPS of $1.20; sequentially, revenue declined vs Q3 on lower Game Sales timing, but EPS and margins improved YoY with continued strength across Gaming, SciPlay, and iGaming.
• Management signaled Q1 2025 consolidated AEBITDA growth in the low double-digits YoY, and reaffirmed pursuit of the FY2025 $1.4B consolidated AEBITDA target; ASX listing enhancements under review (dual primary or sole listing).
• Strategic actions were notable: $243M buybacks in Q4 (2024 total $462M), amended revolver to $1.0B, settled a legacy antitrust matter for $72.5M, and agreed to acquire Grover Gaming’s charitable gaming business for $850M to expand recurring revenue and cross‑platform content distribution.
• Segment highlights: Gaming revenue +4% YoY to $515M with AEBITDA margin up 100 bps to 50%; iGaming revenue +11% to $78M; SciPlay flat revenue at $204M but AEBITDA +7% with DTC at 13% of revenue and stronger payer monetization.
• Near-term stock narrative catalysts: progress on Grover acquisition/recurring revenue, Q1 2025 AEBITDA growth setup, ASX listing strategy, live casino exit (resource reallocation), and continued installed base expansion and franchise momentum despite Dragon Train impacts.

What Went Well and What Went Wrong

• What Went Well

  • Gaming AEBITDA margin expanded to 50% (+100 bps YoY) on systems (+24%) and table products (+10%) growth and healthy gaming ops performance; North American installed base rose 9% YoY to 34,004 units.
  • SciPlay improved profitability (AEBITDA +7% YoY to $74M), with DTC rising to $27M (13% of revenue) and monetization metrics at record levels (ARPDAU $1.06, AMRPPU $117.15, payer conversion 10.9%).
  • Management quote: “We ended a strong 2024 with continued double-digit revenue and earnings growth… the Grover Gaming acquisition enhances our cross-platform strategy” — Matt Wilson (CEO).

• What Went Wrong

  • Sequential softness vs Q3 in Game Sales (Q4 Gaming revenue $515M vs Q3 $537M) reflecting timing, while gaming ops RPD faced Q4 impact from Dragon Train injunction (management expects normalization in 2025).
  • iGaming AEBITDA margin dipped YoY (32% vs 33%) and Live Casino is being discontinued/divested due to pricing dynamics and ROI prioritization, implying reduced addressable market in that subcategory.
  • Free cash flow was $74M (slightly above $70M YoY) but offset by higher capex ($70M) and working capital uses tied to large orders; ongoing tariff risks flagged as single-digit million headwind in supply chain Q&A.

Transcript

Operator (participant)

Welcome to Light & Wonder 2024 Fourth Quarter and Full Year 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. If you'd like to queue for a question, you can do so by pressing star one on your telephone keypad. I'll now turn the call over to Nick Zangari, Senior Vice President of Investor Relations and Treasury.

Nick Zangari (SVP of Investor Relations and Treasury)

Thank you, Operator, and welcome everyone to our Fourth Quarter and Full Year 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 Fourth Quarter and Full Year results and operating performance, followed by a question-and-answer session. Today's call will contain forward-looking statements that may involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For information regarding these risks and uncertainties, please refer to our earnings materials relating to this call posted on our website and our filings with the SEC. We 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 and earnings presentation located in the Investor section of our website. We will also discuss certain combined financial information calculated as the historical results of the company, plus the preliminary unaudited historical results of Grover Charitable Gaming for the period stated, as well as run rate financial information. This information is for informational purposes only and does not purport to represent what the company's financial position and results of operations would have been if the transactions had occurred at specified dates or may be in the future after giving effect to the acquisition. As a reminder, this conference call is being recorded. A replay of this webcast and accompanying materials will be archived in the Investor section of our website.

With that, I will now turn the call over to Matt.

Matt Wilson (President and CEO)

Thanks, Nick, and hello, everyone. Happy to have you on the call today. 2024 was another year of significant progress here at Light & Wonder, as we once again achieved double-digit consolidated revenue and EBITDA growth year over year, with record revenues and profitability across all three businesses, cementing our commitment to deliver sustainable growth underpinned by our differentiated strategy and product roadmap. In fact, our team and products are stronger and better than ever, as evidenced by our consistent execution and focus on operational excellence, highlighted by growth and share gains across the key segments of our business throughout the year. We will continue to focus on top and bottom line growth without compromising investments for future growth.

As we shared last week, we have reached a definitive agreement to acquire Grover Gaming's charitable gaming business for an upfront purchase price of $850 million, equating to a multiple of 7.7 times Grover Adjusted EBITDA for 2024 and a 7.1 times multiple based on Grover run rate Adjusted EBITDA, with the purchase multiple expected to only further be reduced if we achieve the up to $200 million earn-out provision in the agreement. Charitable gaming is a form of regulated gaming, where a portion of the proceeds are given to charity. This is a compelling market with high barriers to entry, providing a formidable competitive advantage while benefiting worthy causes. Grover is one of the leading suppliers in charitable gaming, with an attractive financial profile, strong customer relationships, and an appealing growth outlook.

We value the enviable economics of our installed base business and will continue to invest organically and inorganically to further expand the fleet. Grover has an attractive recurring revenue model with a loyal and sticky customer base that is core to our strategy. This will be the newest adjacency where we intend to deploy our robust R&D engine and, more broadly, distribute our variety of hit franchises and games, along with creating further expected synergies. Grover has over 10,000 installed base units deployed over 1,500 locations in five states. This presents a compelling opportunity to further enhance our cross-platform offering and, more broadly, diversify our operations with a quality complementary business that will allow us to distribute our proven content across wider customer and player segments, where we are currently not represented in North America.

With that, I'd like to turn our attention back to the operational highlights, noting that we executed and delivered on the year-on-year consolidated EBITDA growth guidance we provided last quarter. Gaming continues to deliver exceptional results, demonstrating strong growth from our broad array of franchises and well-rounded gaming portfolio. Throughout the year, we made significant progress in expanding our installed base footprint. During the quarter, we added more than 850 units in North America on a sequential basis, marking the 18th consecutive quarter of premium installed base growth, which continues to be north of 50% of the total North American installed base. Importantly, we demonstrated the ability to not only preserve the impact of Dragon Train fleet, but also put up strong numbers more broadly and in other segments outside of premium, such as Class II, among others.

In fact, we indexed 11 of the top 25 new premium leased and WAP games in Eilers most recent game performance report. As mentioned in our prior earnings call, North American revenue per day would be impacted in the fourth quarter. However, we are seeing strong performance out of the gate from Huff N' Even More Puff, Hard Hat, which was deployed on the Kascada Dual Screen cabinets and is now indexing well above the game it largely replaced on a same-store basis in many key markets. This reflects the team's dedication to build great franchise extensions, and we expect to do the same across all of our brands. I'm encouraged and expect gaming operations to return to normalized growth in 2025, underpinned by the robust roadmap we have in place.

Another key highlight for the year is the leaps and bounds progress we've made in game sales, with expansion into new adjacencies, including Oregon State and Canadian video lottery terminals, and continued momentum internationally. In North America, we held number one ship share in both the second and third quarters, continuing the momentum in the fourth quarter with year-over-year growth in North American replacement units. In fact, we continue to hold number one position in the fourth quarter, according to Eilers newly released U.S. and Canada cabinet sales and lease report. Similarly, we continue to maintain the traction we gained in Australia as the number one ship share supplier in 2024, our first year for Light & Wonder, as we continue to broaden our international presence for the wide range of upcoming opportunities.

As one of the leading end-to-end gaming solutions providers, we have an equally attractive systems and table products portfolio, which further enhance our offerings to operator partners to serve and optimize casino floors. In addition to our industry-leading casino management systems and hardware, we've also bolstered our software capabilities through innovation and partnerships, which led to over $300 million in systems revenue for the year, a 13% increase year over year. The ability to execute our gaming strategy continues to be a key driver of our success in share gains. In fact, the power of our franchises and global scale gives me confidence that we can continue to grow the business sustainably in the near future, given the many opportunities on the horizon. Onto SciPlay, where it was another record-breaking year on several fronts as the business surpassed $820 million in revenue, underpinned by healthy engagement and monetization.

The investment we made in SciPlay is bearing fruit, and the teams are collaborating cohesively on game development and data analytics, leading to several successful game launches across the organization. Our four largest games all delivered record revenues for the year, with Quick Hit and 88 Fortunes continuing that trend in the fourth quarter. Since Light & Wonder's buyout of SciPlay in late 2023, our social casino business has outpaced the broader market, extending its runaway performance over the past two years. During this stretch, we refined the SciPlay engine and enhanced the monetization blueprint diligently to align with our growth trajectory. Throughout the course of the year, we've also crafted a viable path to prudently grow our direct-to-consumer platform sustainably.

I'm happy to share that we grew DTC to over 13% of revenue in the quarter as we continue to roll out this offering in phases and eventually to the games that don't currently offer the DTC platform. Monetization continues to be a key focus, driving record levels of average revenue per daily active user and average monthly revenue per paying user for the quarter and the year. Our DAU is trending steadily over $1 as projected, reflecting our shift towards engaging higher-quality players. Importantly, we are committed to maintaining the momentum of our flywheel and continue to give the team the opportunity to engage in prudent incremental user acquisition spend, as you will likely see sequentially in the first quarter, where we typically see better returns versus higher acquisition costs around the holidays.

SciPlay continues to be a vital piece of our cross-platform strategy as we focus on the pollination of key learnings across the businesses. We are constantly evolving the engaging features our platform has to offer. Our team has done a great job of staying nimble and adapted to changing player dynamics. One of our biggest strengths lies with the real-time feedback that we get from our various live ops and meta game deployments to test the viability of these features, which has been a major contributor to our outperformance over the past two years. On rare occasions, the end result of these trials did not meet our internal expectations, as we experienced with Jackpot Party in the quarter. However, the valuable insight that we gained during the process enables us to share these findings across our games to optimize the portfolio.

Overall, I'm pleased with the execution of the team and expect to see healthy growth in 2025 as we execute on the different phases of our strategic initiatives. Turning to iGaming, where Light & Wonder's proven OGS content aggregator and the North American market continue to expand and grow to record GGR volumes in the quarter and 2024. Our strategy is simple yet effective, and that is to leverage our experience and aggregation platform to offer content studios and operator partners on our network the ability to scale meaningfully alongside our best-in-class first-party content. In fact, we executed a plan with several key launches and released over 1,000 games on the OGS, surpassing this milestone for the first time in 2024.

Most recently, we launched our chart-topping Huff N' More Puff game with FanDuel across North America, our best-ever game release, expanding the omnichannel releases of our proven franchises as the brand continues to gain momentum and exposure in both the land-based and digital markets. We plan on the continued proliferation of our R&D engine across the digital domain on our content-first strategy, with accelerating releases of first-party content in the future. Lightning Box continues its run with strong launches from the Thundering Series and Egg Link, with 35% year-over-year GGR growth in the quarter. We also launched Rainbow Riches Dream Pots, a wide-area progressive jackpot game, into the UK market as we continue to focus on driving further success of market-attuned game content development.

Additionally, we expanded our adjacent offering of the first cross-platform marketing jackpot product, Super Keno, which launched in Quebec with Wonder Drops, another new marketing jackpot offering which spans across 20 first-party content games with Penn in Michigan. Separately, following a thorough strategic review, we've made the decision to discontinue and divest our live casino business. This reflects our commitment to allocating resources to the most impactful parts of the business, where we have good line of sight to meaningful returns on our investment. While we're still in the relatively early days of investing in the business, we strive to stay nimble as an organization and are thus focusing on the risk-reward profile of our other businesses, which have better visibility to superior returns relative to live casino. You may have seen our recent announcement that we've appointed Simon Johnson to lead the iGaming business.

His extensive experience as a seasoned gaming executive and most recently as the managing director of our international gaming business offers us a fresh perspective on our iGaming operations and strategy. Simon's familiarity with the fragmented yet growing global gaming market provides us with insights to help devise regionalized plans for both mature and emerging markets. This includes Brazil, where iGaming was recently legalized. As I reflect upon 2024, the R&D investments that we've made were vital to the success and share gains of our business. Importantly, we continue to build our talent pool, adding more designers and expanding our studios as we onboarded key hires in North America and Australia. Our bench strength is a key differentiator as we're able to fill key executive roles from within the company.

To that extent, I'd also like to congratulate Nathan Drane on his promotion to Chief Product Officer of Light & Wonder. Nathan is a tremendous asset to the company and a great leader for our critical R&D function. He has a clear and robust content roadmap and will ensure our continued success, positioning us for growth in the near and long term. Additionally, Rich Schneider will move into the role of Senior Advisor to the business. Rich was instrumental in orchestrating the product roadmap and R&D structure at Light & Wonder during the transformational years, and I'm very excited for us to continue on this growth journey together. Importantly, Nathan's appointment to manage the global product portfolio across all segments will further enhance our cross-platform strategy, enabling continuous integration of our content to drive efficiency and enhancement to the quality of our offerings.

Our R&D engine will be further amplified, driving sustainable growth through our businesses, including charitable gaming, generating outsized returns on our investments. In summary, our execution and performance last year gives me great confidence in achieving our targets. I want to thank our team, the board, and our shareholders for their unwavering support as we kick off 2025. We are fortunate to have a very supportive shareholder base that embraces our vision as a global games company. As we approach the second anniversary of our successful secondary listing on the ASX, with ongoing collaboration with our global shareholders, we are continuing to explore ways to refine our US and Australian capital structure. The company remains focused on enhancing the liquidity and market capitalization of its ASX listing, and as part of this, we'll be considering a dual primary or a sole listing on the ASX.

Accordingly, we've engaged advisors to evaluate potential strategies to achieve this objective and will be seeking feedback from key stakeholders to ensure an optimum outcome for Light & Wonder shareholders. With that, I'll turn it over to Oliver to go through the financials.

Oliver Chow (CFO)

Thanks, Matt. Glad to be here today with you all to share our fourth quarter and full year 2024 results. The performance we delivered reflects the sound financial and operational foundation that we have built and the execution prowess we pride ourselves on as we experienced a fourth straight year of double-digit consolidated AEBITDA growth. The fourth quarter also represented the 15th consecutive period of year-over-year consolidated revenue growth as we continue to execute on our key initiatives. Consolidated revenue for the year was $3.2 billion, a 10% increase from the prior year period, on strong performance across our business units.

Fourth quarter consolidated revenue was $797 million, up 4% year-over-year, driving outperformance to the consolidated Adjusted EBITDA guidance we previewed on the last earnings call. Full year operating income was $668 million, a 29% increase year-over-year, primarily on higher revenue. Fourth quarter operating income grew 8% to $168 million, translating into a diluted net income per share of $1.20 for the quarter, up from the $0.73 in the prior year period. Similarly, we saw strong growth in the full year period as diluted net income per share more than doubled from $1.75 in 2023 to $3.68 in 2024. Consolidated Adjusted EBITDA for 2024 was $1.24 billion, an 11% increase from 2023. Of this, $315 million came in the fourth quarter, a 4% increase compared to the prior period and above the low single-digit year-over-year growth previewed last quarter.

Adjusted NPATA for 2024 totaled $480 million, representing a full year growth rate of 24%. The fourth quarter contributed $127 million to this result as we track positively towards our 2025 targeted adjusted NPATA range. Operating cash flow for the full year was $632 million, with the quarter generating $202 million. The fourth quarter result was driven by an increase in earnings and favorable changes in working capital. As we close the chapter on another exceptional year for Light & Wonder, we are executing towards our consolidated Adjusted EBITDA target of $1.4 billion, with focus and planning centered around future financial and operational success as we continue to be a compounder of growth for years to come. Turning to the business units. In gaming, revenue in the quarter was $515 million, an increase of 4% year-over-year, primarily led by systems growth of 24%.

Table products and gaming operations also grew 10% and 4% respectively, highlighting the strength of our overall portfolio. Adjusted EBITDA was up 5% to $257 million on revenue growth and Adjusted EBITDA margin expansion, with margins up 100 basis points year-over-year to 50% in the quarter, as we continue to focus on business optimization initiatives while investing for future growth. Importantly, we delivered 12% year-on-year annual growth in both revenue and Adjusted EBITDA and expect this momentum to continue in the new year. We made significant strides in gaming operations given the quality of our product offering and ended the year with over 34,000 installed base units in North America, with approximately 2,800 units added throughout the year. Overall, North America revenue per day grew 2% for the year, with impact from the injunction largely confined to the fourth quarter as discussed, demonstrating the power and diversity of our global game franchises.

Global gaming machine sales were $195 million in the quarter on continued North America momentum, with unit shipments up 25% year-over-year in the quarter, as we further capitalized on the coveted number one ship share position in North America that we've held over the prior two quarters. For the year, we delivered $865 million in revenue on over 43,600 unit sales, an increase of 16% in units shipped globally compared to the prior year. Additionally, the quality of our offering remained strong as our cabinets continued to command a healthy average sales price of approximately $18,400 both in the quarter and for the year. Systems realized $88 million of revenue in the quarter, which contributed to the full year revenue of $302 million.

These are 24% and 13% increases compared to their respective prior year periods on healthy market demand for our hardware and software services, evidenced by a number of landmark contracts signed in the year. Separately, tables delivered a 10% revenue gain in the quarter to $57 million on timing of utility sales in North America and Asia. We continue to maintain our market-leading position in the business with $211 million in full year revenue as we progress on innovations with the enhanced product offerings in this segment.

Our gaming performance truly illustrates the breadth and depth of our product portfolio, an embodiment of the returns that we're seeing from continued investments in CapEx and R&D, as we expect to return to normalized above-market growth levels in 2025, where we expect meaningful game sales opportunities scaling throughout the year as compared to 2024, where we had concentrated new and expansion sales in the first quarter in Asia. Moving on to SciPlay, full year revenue grew 6% to $821 million, of which $204 million was realized in the fourth quarter, underpinned by a diverse portfolio supported by our advanced SciPlay engine. Adjusted EBITDA increased 7% year-over-year to a record $74 million, with margin increasing by 200 basis points to 36% in the quarter. This was largely driven by strategic user acquisition spend and the expansion of our direct-to-consumer platform.

Our continued focus on a refined UA strategy and phased DTC deployment throughout the year enabled us to deliver $272 million in AEBITDA for the year, an increase of 12% compared to the prior period. The commitment to scaling the business in a measured manner has proven beneficial, as reflected in our various monetization metrics. Average revenue per daily active user grew 6% year-over-year to a record $1.06 in the quarter, and average monthly revenue per paying user scaled 3% to just over $117. Furthermore, payer conversion increased to 10.9% as we continue to focus on payer monetization. The quarter's trend mirrors the full year momentum of KPIs, where we grew average revenue per daily active user by 11% and average monthly revenue per paying user by 10% against 2023. SciPlay's outperformance can be largely attributed to the investments we've made in the business.

Whether it's a SciPlay engine, DTC, talent, or UA spend, our team continues to execute at a high level and to further enhance the monetization flywheel sustainably over time. This, along with our upcoming game rollouts, are expected to provide ample runway for growth and profitability, and expect SciPlay to further contribute and deliver considerable value to the cross-platform ecosystem that we have fostered here at Light & Wonder. Turning to iGaming, revenue grew 11% year-over-year to $78 million in the quarter, and AEBITDA increased 9% to $25 million compared to the prior year period on 32% AEBITDA margin. This was driven by continued momentum in North America and Europe, as well as strong content launches. Full year revenue was up 9% to $299 million, and AEBITDA was up 3% to $98 million.

Revenue and Adjusted EBITDA growth were impacted by 2% and 6% respectively, factoring the breakage fees that were recognized in the second through fourth quarters of 2023, which amounted to $6 million in total flowing through to the bottom line. Our growing presence in iGaming is reflected through another record quarter of OGS GGR volumes, with over $24 billion of wagers processed through our platform. More broadly, we saw the best-ever quarter of U.S. GGR growth of 30% against the prior year. Importantly, in the iGaming business, we are focusing on high-return initiatives with a strong growth trajectory across the industry and on our OGS. Our planned divestiture of Live Casino was a decision to allow for the reallocation of resources to other parts of the business, supported by strategic reviews that are conducted consistently across the enterprise to maximize our return on investments.

Given we were in the investment stage of this business, we expect to see modest uplift in Adjusted EBITDA due to the discontinuing of these operations. This decision reflects the rigor with which we make capital allocation decisions and the willingness of our team to be objective in our decision-making to create the best long-term outcome for our shareholders. As we focus the business on our content and aggregator offerings going forward, our scale, best-in-class first-party, and digital native content will be critical to our success. With Nathan leading our global product portfolio, we can further develop cohesive strategies and content roadmap to serve existing markets and new jurisdictions as they come online. For example, with the market opening in Brazil, we launched approximately 50 game titles with a range of operators, of which more than half are digital native offerings.

Overall, we are pleased with how iGaming has progressed through 2024 and see compelling value as we're excited to bring more first-party content to consumers, further ingraining the business in our cross-platform strategy, which is supported by strong market tailwinds and the expectation of a wide range of compelling global growth opportunities for many years to come. Our priorities remain the same as we continue on this growth journey that you've seen over the past two-plus years. Our strategy to optimize growth, competitiveness, and profitability to maximize the performance of our company remains intact. Through a focus on operational excellence, we have seen continuous improvement across the business and identified ways to refine operational processes through shared services and right-shoring of resources, which has improved productivity across the organization.

In fact, our philosophy to think and act like owners is widely adopted across the company as we extensively review processes, capabilities, and vendor contracts that are critical to the business and proactively optimize our supply chain through the changing market conditions. This culture of accountability has resonated across the organization and is deeply rooted in our planning processes, enabling us to stay nimble and retain flexibility to navigate dynamic environments driving positive outcomes. We will continue to reinvest back into the business, which, as a content-driven company, is all about the games that we develop, all while staying committed to margin preservation expansion, driving sustainable long-term profitability through value-enhancing initiatives. Our balance sheet is now one of the key assets Light & Wonder is equipped with to take the business to the next level.

With a net debt leverage ratio of three times to end of the year, we are staying nimble and within our targeted range of two and a half and three and a half times to capitalize on opportunities for further value creation. Additionally, our liquidity profile was further enhanced with a recent extension, repricing, and expansion of a revolver from $750 million to $1 billion, allowing further flexibility in capital allocation as we prepare for continued growth at Light & Wonder. As you will have seen in our release, we have settled and agreed to pay $72.5 million to resolve the TCSJOHNHUXLEY antitrust claims filed in 2019 related to our automatic card shuffler business, as we put this legacy litigation behind us and focus on delivering on our strategic priorities.

Free cash flow was $74 million in the quarter and $318 million for the year, reflective of our strong earnings, partially offset by changes in working capital and higher capital expenditures. We are in a very fortunate position where our products are in high demand, and our teams are diligent on balancing the long-term economics of the business with strong momentum, which requires upfront investments on high-return, success-based capital expenditures and leveraging working capital for compelling, sizable orders. Ultimately, we expect these uses of working capital and capital expenditures to drive growth and long-term free cash flow generation into the future. Overall, as we continue to focus on business optimization and operational excellence, we expect to generate incremental free cash flow to fuel our capital allocation priorities.

We will continue to invest in our core capabilities to support leadership positions across the business with a commitment to driving high ROI, which exceeds our return thresholds. A great example where our conviction is high is in the charitable gaming space. The Grover acquisition is highly complementary to our core businesses, and we expect this to be a high single-digit accretive acquisition on an adjusted EBITDA basis in the first full calendar year of L&W ownership in 2026, with synergies to be realized as we develop and integrate the business over time. We expect to move quickly and will look to close the Grover acquisition during the second quarter of 2025, subject to customary closing conditions. This transaction is expected to be funded primarily with debt, with pro forma net leverage expected to stay within our target range.

Separately, we continue to be opportunistic as we see value dislocations in the market with regards to share purchases. We bought back a total of $462 million of shares during 2024, with $243 million occurring in the fourth quarter as we saw a value creation opportunity with the program during the period. We are committed to returning capital to shareholders through our $1 billion program, continuing in an opportunistic manner and in the context of a healthy balance sheet. As we move into 2025, I anticipate a return to normalized growth underpinned by our execution on commercial strategy and robust product roadmap. Our team continues to deliver exciting, engaging new games, utilizing the latest technologies and creating exceptional customer experience.

Based on the timing dynamics of game sales and high-return investment opportunities in SciPlay's UA spend discussed earlier, we expect first quarter year-over-year consolidated Adjusted EBITDA growth to be in the low double digits, noting that our continued investments will drive enhanced organic growth as the year progresses. With that, we'll turn it over to the operator for your questions.

Operator (participant)

Great. If you'd like to queue for a question, you can do so by pressing Star 1 on your telephone keypad. If for any reason you'd like to remove your question, it's Star 2. But again, to join the question queue, please press Star 1. Our first question will be from Barry Jonas with Truist. Your line is now open.

Barry Jonas (Managing Director)

Hey, guys. Thanks for taking my question. As we enter the year where you've guided to hit $1.4 billion in AEBITDA, can you talk through how you see the cadence in getting there this year? Thank you.

Matt Wilson (President and CEO)

Yeah, thank you, Barry. I think really solid 2024 campaign, proud of what the team's achieved throughout 2024, and we've got good momentum leading into 2025. So I feel encouraged about that. Great product lineup coming across all three of our businesses, and potentially our fourth business if Grover closes later in the year. And we see clear line of sight to get to the $1.4 billion guide and confident we can deliver on what has been a long-standing guidance for $1.4 billion in AEBITDA by 2025. Oliver, do you want to just build on some of the building blocks?

Oliver Chow (CFO)

Yeah, just to expand on that, Matt, in gaming, we continue to see our North American installed base grow quarter over quarter. And given that RPDs are now normalizing back to year-over-year growth rates, we see plenty of runway from a gaming ops perspective to be growing for us here sustainably, not only in this year, but into 2026 and beyond. From a game sales perspective, we do see, as Matt mentioned, strong momentum from a 2024 perspective, number one ship share in North America in both Q2, Q3, and Q4, as well as Australia number one share for the entire year. And we'll see cadence growth throughout 2025 as we expect meaningful second-half replacements and new opening opportunities in markets where we have leadership positions in.

So that's in Europe, that's in Asia, as well as kind of healthy North American replacement trends as we continue to also proliferate into adjacent markets. I think from a SciPlay point of view, we expect to continue to leverage the SciPlay Engine, and we further scale not only our largest games, but also introducing and scaling organic new games in this space. And they've shown very promising KPIs thus far, and we're really excited about what that means for us from a long-term growth perspective. We'll also lean into UA and incremental UA here, especially in the first half, just high ROAS return on ad spend capabilities for us, as well as DTC expansion. That's going to contribute growth for us well beyond Q1. In terms of iGaming, we see continued expansion in global markets, particularly here in North America.

We see states that have been legalized for over a decade now still driving significant growth. So we see plenty of tailwinds from that point of view. But also the investments that we've made in this R&D engine really driving our 1PP content execution. That's going to be supported by the market tailwinds that we see. So as evidenced by Huff N' More Puff, which was one of our best, well, actually our best ever launch, we're going to continue to scale and build on that as we move forward. So across all of the BUs, including margin enhancement opportunities, we see a clear line of sight to the 1.4 to Matt's point, and then Grover will be accretive to the 1.4 day one at both the EBITDA and the cash flow perspective. So yeah, we feel pretty convicted on the 1.4.

Barry Jonas (Managing Director)

Perfect. Thank you so much, guys. Appreciate it.

Oliver Chow (CFO)

Thanks, Barry.

Barry Jonas (Managing Director)

Yeah, you're welcome.

Operator (participant)

Our next question is from Matt Ryan with Barrenjoey. Your line is now open.

Matt Ryan (Co-head of Research)

Thank you. Just had a question on gaming ops. We saw some really strong additions in Q4, and I think we're seeing some pretty good numbers from some of your newer releases, Monopoly Express and Hard Hat Edition. I'm just trying to think about how we think that installed base might change in Q1 in light of some of the conversions that you might be seeing on the Kascada Dual Screen and also that strength that's coming through from new product.

Matt Wilson (President and CEO)

Yeah, hey, Matt. Really proud of the gaming team's ability to maintain that ex-Dragon Train fleet in the fourth quarter and add so many additional gaming ops units. I think it was really one of the outstanding highlights of the quarter amidst that headwind and the drama that we had to manage through. They were able to put up a fantastic set of results. I think what you'll see as we get back into Q1 is you'll see the fee degradation that you saw in Q4 because of the Dragon Train impact really reverse itself. So you'll see that fee per day coming back strongly in the first quarter and throughout the year. I think this, again, is a real testament to the team's really mitigating the Dragon Train situation very effectively. The way I like to think about that situation now is we have 7,000 employees across the globe.

6,995 of them are thinking about the future, operating the business, building great games, and really servicing our customers. There's a handful of us that are thinking about this Dragon Train situation now, which is largely behind us and almost completely behind us from an operating perspective. So feeling good about that. I think the lineup leading into 2025 is completely stacked. We're just scaling a new cabinet in Cosmic Upright at the moment, going out in good volumes with all of our brands we're really leaning into. So a new Dancing Drums game, a new Invaders from the Planet Moolah game, more Huff N' Puff games. We've got a Wizard of Oz game coming back. So really strong lineup of games that players want to play and customers want to buy. So we're just leaning into the really obvious brand extension.

So I think you'll see good sequential momentum in gaming ops as we move throughout the year. Oliver, anything you'd add or subtract?

Oliver Chow (CFO)

No. I think that's exactly right. And to your point from an RPD perspective, I expect that to scale nicely here through the year, which will obviously give us tailwinds well beyond 2025 and help us sustain growth well past that. So yeah, we're excited to also share some updates in May at our investor event.

Matt Ryan (Co-head of Research)

Thanks, guys.

Operator (participant)

We have a question from Chad Beynon with Macquarie. Your line is now open.

Chad Beynon (Managing Director and Senior Analyst)

Good afternoon. Thanks for taking my question. Wanted to ask a two-parter on margin. So the first part on Q4 margin for the gaming segment, nice growth year over year. Wondering if you could talk about that in terms of if the growth came from mix or controllable that you made within the organization. And then the segue from that is for 2025, given some of the decisions that you made around live dealer and cost containment comments in the past, how are you thinking about margins overall for the company in 2025? Thanks.

Oliver Chow (CFO)

Yeah, thanks, Chad. Appreciate the question. I think from a gaming perspective, if you actually look at it broadly from a total business point of view, we've been scaling margins here quite nicely quarter after quarter over the last several years. We expected, even with some of the fee RPD impacts that Matt mentioned earlier from a gaming ops perspective, we're able, through margin enhancement initiatives, through just the great work that our manufacturing teams have done over the last couple of years, to put us in position to be able to scale margin through any type of headwinds that we face from a business perspective. Long term, I expect gaming to continue down this path, just given the work and the initiatives that we've put forth. Really across the board, we see from SciPlay, from iGaming, just multiple opportunities for us to continue to drive margin uplift.

So whether that's incremental UA spend offset by the DTC initiatives that we've put forward, that's going to provide margin tailwinds for us. You kind of touched on kind of live casino on the iGaming side. That's expected from an iGaming perspective to drive positively here over the year. But more importantly, I think outside of the modest uplift that you'll see from a live casino perspective, it's really supported by just the increasing volume and the 1PP content that we're bringing to the market here. And so that's going to be able to help us sustain, again, margin increases here over time. But Mike Lorelli and the team, they're still working through a plethora of opportunities for us. We've got years of runway here in terms of margin expansion. But I don't know, Matt, if there's anything else I might have missed.

Matt Wilson (President and CEO)

No, it's probably worth just touching on the Live Casino decision more directly. So after a thorough strategic review, we identified there's been some changes to kind of the operator and supply dynamics in that category, which has resulted in some degradation in pricing. So we made the decision to divest of that set of assets and kind of refocus the business to higher ROI investments. I think it's an example of these strategies aren't set and forget. We review them periodically and just make sure they're working for us. And we made the decision to divest and just focus on areas that we can see clearer line of sight to better returns.

Chad Beynon (Managing Director and Senior Analyst)

Thank you both. Appreciate it.

Operator (participant)

We have a question from Andre Frommer with UBS. Your line is now open.

Andre Fromyhr (Executive Director of Equity Research)

Thank you. Just a question or sort of a two-part question around the drivers of your iGaming growth and outlook. You talked about Huff and More Puff being your most successful launch into iGaming. I just wonder how you think about the game pipeline into that channel and how you trade that off against impacts it might be having on the land-based business as you grow those franchises. And then just wondering if you could comment on any new feedback you've got on potential legalization further in the US.

Matt Wilson (President and CEO)

Yeah, thanks for your question. Yeah, so Huff N' Puff just launched in January into the iGaming channel. It's really 10 years after we launched the first iteration of that game and probably five years after we launched kind of the latest incarnation of Huff N' Puff. And we've launched several beyond that. I think this really illustrated the sense that we can tighten up the cadence of releases across land-based and iGaming. This was kind of one of the catalysts for us to shift to a new operating model around R&D. So you see Nathan Drane now leading all content for all channels going forward. So he's stood up a content leadership team.

The content creators across iGaming, SciPlay, land-based, and eventually Grover will all be part of the same organization, which will really look to streamline the releases, the focus, leverage the data, and just be more efficient about the way we deploy our R&D resources. We expect a kind of a heightened cadence of releases across all of those channels as we go forward. We feel like we're set up for success this year. We're going to launch a range of Huff N' Puff games in iGaming. Content is king or queen, as we like to say around here in all these categories. The quality of our games will drive the success of iGaming over the long time horizon. I would say on the iGaming legalization path, we've learned over the years to control the controllables.

And legalization across states is a crystal ball type event, and we've all got different variations of a crystal ball. So we don't see legalization happening in 2025 in any U.S. states. Lots of discussion in certain markets about potential for new legalization of states in 2026 and beyond, but we're not really building anything into our plans from a legalization standpoint. Really, what we can control is the quality and the cadence of our releases and just to position ourselves for expansion when it comes, and we'll be ready for that.

Andre Fromyhr (Executive Director of Equity Research)

Great. Thank you.

Operator (participant)

We have a question from David Katz with Jefferies. Your line is now open.

David Katz (Equity Analyst)

Evening, everyone. Oliver, can you give us just a little bit of color around we got the EBITDA, right, but there's a lot of sort of moving parts within the business and expected acquisition. How are we thinking about growth in cash flow, either on an operating basis or free cash flow? How do you think about those rolling forward the next year or two in the model?

Oliver Chow (CFO)

Yeah. Thanks, David. How are you? Good to hear from you. Listen, free cash flow continues to be a key focus for Light & Wonder in terms of long-term value creation. Obviously, there's going to be some kind of seasonal factors that play into kind of the quarter-to-quarter movements that we've kind of talked about. But as of today, a couple of things that I just want to kind of reemphasize is really the investments that we're making in terms of CapEx. So SysX space, CapEx. We spent, just to give you context, over $52 million year over year in terms of incremental CapEx to fuel our gaming ops install base. We're going to continue to lean in that as we see that as a long-term free cash flow yield there for us over time. The other component is these long-term financing deals.

We will continue to look at opportunities, especially with our international customers, customers like Entain, PAGCOR, etc., that we called out here over the last couple of quarters. This not only gives us an opportunity to further build relationships with these quality customers that can then yield incremental business over time. So being able to leverage some of our working capital here in this space gives us, I believe, long-term benefit from a cash flow perspective. Now throw on Grover. And what we're really excited about is this is yet another business that has high margins, high cash flow.

And really, that's going to enable us to not only stay within the targeted two and a half, three and a half range that we have from a capital allocation perspective, but really start to drive incremental cash flow for us to then put that back into the business as we see fit or obviously do other capital allocation strategies that we have. So really, the optionality remains here for us even post this acquisition and really puts us in a great position as we look towards the next couple of years.

David Katz (Equity Analyst)

That's all I need. Thanks.

Oliver Chow (CFO)

Thanks, David.

Operator (participant)

Our next question is from Rohan Gallagher with Jarden. Your line is now open.

Rohan Gallagher (Managing Director)

Thank you. Matt, Oliver, good afternoon. Hello, everyone. With respect to iGaming in FY24, you've obviously had payments that you had to make to third parties in terms of exits. And then also, you've been investing in live casino. If you were normalizing that to sort of set up a base for growth in FY25, what sort of impact would that be? And associated with that, with the decision to exit live casino, what sort of addressable market reduction do you see as a result of that strategic decision, please?

Oliver Chow (CFO)

Yeah. So thanks, Rohan. Good to hear from you. I think the breakage fees that you kind of mentioned, I'm happy that this will be the last quarter that we have to kind of speak about those kind of year-over-year compares. I think if you kind of normalize that out, we would have been double digits or close to double digits on both top and bottom line from an iGaming perspective. And so I think as we move forward from there to be a clean compare overall. In terms of just broader impacts to kind of addressable market, I don't see that being impactful really at the end of the day. So I don't know if that's Matt has said that.

Matt Wilson (President and CEO)

Yeah. I mean, so exiting live casino obviously shuts down a portion of the addressable market for iGaming. Based on our assumptions leading in, it's a smaller percentage of the market than we had originally anticipated, and the pricing dynamics in that category have declined since the investment that we've made. So we're really focusing the business around 1PP content, great aggregation, the tools that we can provide to operators to better monetize their game. So really focusing the business around kind of our wheelhouse and our core competencies is where we're focusing the iGaming business go forward.

Rohan Gallagher (Managing Director)

I appreciate that. And if I'm just a bit cheeky to ask a follow-up question, obviously the supply chain and Anthony Simone's done a fantastic job. Here in Australia, the only certainty is uncertainty around tariffs and steel, etc. What are your early indications around supply chain potential challenges, not just for the industry, but for your good self? Thank you.

Matt Wilson (President and CEO)

Yeah. Thanks, Rohan. Yeah. So this will absolutely be a very fluid and dynamic kind of situation here over the coming potentially days, weeks, months, etc. I think we've done. Anthony and the team have done just an incredible job here over the last couple of years of really diversifying our supply chain and putting us in position to be able to mitigate any potential headwinds that we see here. Obviously, with some of the recent news coming out of the current administration, we have started kind of implementing efforts, and we actually started that last year as we knew that some of this would come into play here.

And we think, if you think about China, Mexico, Canada from a tariff perspective, we think about that as probably a single-digit million impact for us or headwind that we're going to look to obviously work through here between now and the end of the year. But we'll continue to kind of work with our customers in terms of just communications around any kind of pricing impacts. But at this point, that's why, by the way, margin enhancement becomes a very critical component and has been. We can either take that to the bottom line, as we've done in certain respects over the last couple of years, gives us optionality to reinvest, but also as a mitigation factor for us when we see headwinds in the marketplace.

Rohan Gallagher (Managing Director)

Thanks, Oliver. Thanks, Matt. Congratulations on the result.

Matt Wilson (President and CEO)

Thanks, Rohan.

Operator (participant)

We have a question from Ryan Sigdahl with Craig-Hallum. Your line is now open.

Ryan Sigdahl (Senior Research Analyst)

Hey, good afternoon, guys. I want to move down to Brazil. So, launch at the start of this year. I know it's quite early there, but I guess anything you're seeing, anything you'd like to specifically call out. And then, specifically, curious if there's more interest, kind of where you're seeing better traction if it's on the technology side, platform side, or if it's the iGaming content side. Thanks.

Matt Wilson (President and CEO)

Yeah. Hey, Ryan. Yeah, excited to have Brazil come online. It was a gray market for many years, so pretty well established from a content perspective. Slightly different configuration of content that resonates with that local population than is traditional for our portfolio. So nice to see some operating momentum there for suppliers. We need to do a lot of work to tailor our offerings to that market to make sure that our 1PP content is going to resonate with that local player base. So we're doing that work now. It was always going to be interesting to see how the dynamics structure themselves as the market opened. And now we have a lot of data points that we can leverage to optimize our portfolio going forward. We're an aggregator in the space too.

So we have a lot of insight into what's working, what's not working, and we can optimize as we go forward. This typically happens as new markets open, whether it's their land-based markets or digital markets. You have one view of the world when they open, and then you have to optimize go forward. So we'll make sure we do that. We want to be a big participator in that market going forward and hope to see more markets come online over the future. I would say on the technology side, we launched Marketing Jackpots in the quarter. So that was an exciting new technology that we've built for operators. So we've seen that go live across 10. We're going to look to deploy that more broadly across the sector.

This is really thinking about how do you overlay technology on top of content to really drive engagement with players and drive better outcomes from a 1PP and 3PP content perspective. Making the appropriate investments in that technology, we're going to scale it across a broader array of operators over time.

Ryan Sigdahl (Senior Research Analyst)

Thanks, Matt. Good luck.

Matt Wilson (President and CEO)

Thank you.

Thanks.

Operator (participant)

Our next question is from Rohan Sundram with MST Marquee. Your line is now open.

Rohan Sundram (Senior Gaming and Contractors Analyst)

Thank you. Hi, Matt and Oliver. Just one from me. Matt, how would you describe the slots demand environment at present? And would your gaming result suggest any potential softness in that Q4 is what your major competitor called out?

Matt Wilson (President and CEO)

I think we have the benefit of going after our major operators have launched their earnings. I think broadly you can see resiliency in the operator base. We've seen that with the major corporates. We're still holding on to GGR levels well above where they were pre-pandemic. I think the sector dynamics still set up solidly. Obviously, we had a few headwinds in the fourth quarter that I'm sure you're fully aware of. Although I would say we're proud to highlight the fact that we were a number one Ship Share provider in the fourth quarter according to Eilers. Very encouraging. Kudos to the team. That's an exceptional result. We also finished the year in Australia as number one Ship Share provider. Lots of strength there and things to be excited about.

So I would say more broadly, if just looking at the operator dynamics, we see resiliency in the customer base.

Rohan Sundram (Senior Gaming and Contractors Analyst)

Excuse me. Thank you.

Operator (participant)

We have a question from Jeff Stantial with Stifel. Your line is now open.

Jeff Stantial (Managing Director of Gaming and Leisure)

Hey, good afternoon, Matt, Oliver. Thanks for taking our question. You both touched on some of the idiosyncratic tailwinds to ARPDAU growth in SciPlay, which grew again in a flat market during Q4. As you think about the puts and takes for growth here looking out to '25 and beyond, I'm curious just how you think about sort of competitive intensity in the sector. And that's both from the legacy providers as well as some of the newer tangential verticals such as sweepstakes that are growing rapidly in absence of regulation. And just as a corollary to that, are sweepstakes a vertical that you would consider entering given the similarities to call it core social in that freemium model? Just any color there would be great. Thanks.

Matt Wilson (President and CEO)

Yeah, great question. I think we had a great 2024 campaign. All four of our games delivered record revenue. So thrilled with that. And congratulations to the SciPlay team. Most of that growth is driven by live ops in our existing customer base. So really layering in reward mechanisms into these games to make them engaging and make them monetize better. From time to time, when you layer in incremental live ops, you can attract headwinds. One we saw in Jackpot Party Social Casino, if we're honest, and you can see that through the third-party data, is we had an economy issue in the second half in Jackpot Party. We've resolved that now early in 2025. So I think you'll see that game, our biggest game, get back to growth throughout 2025. And we're excited to see that.

But in full transparency, we had a little monetization issue in the second half with Jackpot Party Social Casino. And we'll see that reaccelerating into 2025. I would say on sweeps, we are pro-regulated and taxable gaming in all its formats. Charitable gaming is a great example of that. Highly regulated, another vertical we can get into. We see sweeps at the moment as being unregulated and so against our vision and strategy. If they were to regulate at some point down the path and tax it in the same accordance as our other markets, then we'd be willing to explore that. But we don't see a pathway to that happening anytime soon. In fact, we see regulation actually going the other way. And many AGs in different states are putting cease and desist out against sweepstakes operators. So at the moment, we're watching it closely.

Obviously, it's a fast-growing category, but it doesn't face the same regulations and taxes that our operator partners do across the U.S. market.

Jeff Stantial (Managing Director of Gaming and Leisure)

Great. Thanks very much.

Operator (participant)

Our next question is from Adrian Lemme with Citigroup. Your line is now open.

Adrian Lemme (Director of Retail and Gaming Research)

Hi, Matt and Oliver. Look, I just had a question on the North American lease market. My understanding is it grew by about 8,500 units last year or about 5%. Can you give us some thoughts on how you're thinking that it will grow this year considering the outlook for casino openings as well as how you think customers are thinking about the mix of leased versus owned banks?

Matt Wilson (President and CEO)

Yeah, we're very encouraged by this. And we think the dynamics come from operators being aware that putting a limitation on the amount of the best games that you have on your floor is a bit of a false economy. Your best players want to play your best game. So giving them access seems to be the logical path to growing earnings. And so I think that's what's really been driving the expansion in the lease footprint. I think it's more of a same-store basis for growth in 2024, not as much about new kind of expansions coming online, but actually operators adding more recurring revenue units. So we don't see that trend normalizing back to where it was. In fact, we see that probably being a continuation of 2024.

We think that the dynamics are set up for favorable continued expansion and really off the back of us releasing our best games in that category and our competitors doing the same.

Adrian Lemme (Director of Retail and Gaming Research)

Thanks. That's helpful, Matt.

Operator (participant)

We have a question from Justin Barratt with CLSA. Your line is now open.

Justin Barratt (Equity Analyst)

Thanks for your time, guys. The question that I just wanted to ask you: you made a couple of opening comments, Matt, around your potential decision around where you're listed and potentially doing a more formal dual listing or even a solo listing on the ASX. Just wanted to understand your considerations in making that decision and roughly when you think you might have a final decision on that by.

Matt Wilson (President and CEO)

Yeah, great question. It is a strategic opportunity we've been considering internally. The genesis for this was investors asking us potentially about looking for a dual primary listing on the ASX. I think maybe that stems from a lot of the US-listed peers have been taken private or in the process of being taken private, whether that's IGT, Everi, or AGS, kind of leaves us without a US-listed peer. And so the inbound that we've had from both kind of sell side and also investors and potential investors is there more that we can be doing to accelerate the adoption of our listing in Australia. We're currently at 30% of our market cap listed on the ASX. And so we just want to open up the opportunity to have a dialogue about that, what that could look like for investors and potential investors.

To be clear, no decisions have been made, but this is really exploratory and in consultation with investors. We've engaged capital markets advisors to look at this very closely. And I think you can just consider this another way of us looking to optimize shareholder value. We won't stop. It's a key focus of the board and the management team is to continue to look for creative ways to optimize shareholder value. And then from a timing perspective, I think it would be, sorry, just in the next few months, we'll engage with investors and consider that feedback and make a formal decision. But no decisions made at this time.

Justin Barratt (Equity Analyst)

Thank you.

Operator (participant)

We have no further questions in the queue, so I'll pass it back to Matt for any closing remarks.

Matt Wilson (President and CEO)

Before we wrap up today's call, I'd like to share some closing thoughts. First, I wish to extend my gratitude to our key shareholders and stakeholders who continue to support Light & Wonder. We have a dedicated team and are always seeking new talent to add to our workplace. Operators can expect top-quality gaming machines and technology while players enjoy exceptional digital experiences. Investors should anticipate continued efforts to sustainably increase shareholder value. Finally, I'm happy to share that we'll be hosting an Investor Day in New York on May 20th, during which we'll share some of Light & Wonder's growth initiatives and future plans. We hope to see many of you there. Thank you for participating in today's call, and I hope you have a great day.

Operator (participant)

That concludes today's call. Thank you all for your participation. You may now disconnect your line.