Light & Wonder, Inc. Reports Second Quarter 2022 Results

Reduced Principal Face Value of Debt Outstanding⁽¹⁾ to $4.0 Billion and Net Debt Leverage Ratio⁽²⁾ to 3.6x

Delivered Consolidated Revenue from Continuing Operations of $610 Million, Up 5% Year-Over-Year

Returned $203 Million of Capital to Shareholders Through Share Repurchases, Representing 27% of Total Program Authorization

Significant Opportunity for Value Creation Underpinned by Long-Term Targets Provided at 2022 Investor Day

Light & Wonder, Inc. (NASDAQ: LNW) (formerly known as Scientific Games Corporation) (“Light & Wonder,” “L&W,” or the “Company”) today reported results for the second quarter ended June 30, 2022.

Barry Cottle, President and Chief Executive Officer of Light & Wonder, said, “We made great strides in the second quarter as we continued to execute on our vision and the transformation of our Company. We closed on the sale of our Lottery business for $5.7 billion in gross cash proceeds, which we used to significantly de-lever our balance sheet as we continue to deliver on our promises. With the Lottery business sale and anticipated closing on the sale of our Sports Betting business by the end of the third quarter, we have achieved a significant milestone in the transformation of our organization.

“We now have all the pieces in place and are singularly focused on building great games fully cross-platform. We recently hosted our inaugural investor day and detailed a roadmap for taking market share and unlocking tremendous value in a $70 billion TAM. This quarter we made tangible progress against our strategies as we delivered strong operating momentum and topline growth in the quarter. The success we are seeing this quarter is the result of the fundamental changes we have made throughout the business. Adding it all up, we couldn’t be more excited about the progress we are making and our path forward as the leading cross-platform global game company.”

Connie James, Chief Financial Officer of Light & Wonder, added, “The pace and scale of the business and financial transformation over the past year has been incredible. This quarter was no exception as our teams successfully closed on the Lottery business sale and refinancing transactions. Collectively, these transactions have transformed our balance sheet, enabling us to end the quarter with a net debt leverage ratio⁽²⁾ of 3.6x, 7 turns lower than where we stood at the beginning of last year. With our reconstituted balance sheet, we have the financial flexibility to invest in our largest growth opportunities to drive the business forward.

“With our strong financial profile, including a high mix of recurring and digital revenues, sustainable double-digit growth, and a strong cash flow profile we will generate significant excess capital. We are actively executing on our capital allocation priorities as we paid down $4.9 billion of debt in the quarter and repurchased $203 million of our shares, or 27% of our total buyback authorization, in just five months. As we look forward, we will continue to drive operational excellence throughout our organization creating a strong foundation for growth.”

BUSINESS AND STRATEGY UPDATE

• Overall, the Company is making great progress as it executes on its strategy and roadmap presented at its 2022 Investor Day driving long-term value creation.
• Delivered strong topline growth, driven by strong growth in Gaming combined with growth at SciPlay. The prior year period was impacted by the VAT recovery benefit of $38 million.
• Continued expansion in high-growth digital markets, continued growth in SciPlay, while iGaming business grew 7% on a constant currency revenue⁽¹⁾⁽²⁾ basis year-over-year.
• Streamlined the organization with the completed Lottery business divestiture, which closed during the second quarter for $5.7 billion in gross cash proceeds, with the sale of the Sports Betting business expected to be completed by the end of the third quarter of 2022, subject to applicable regulatory approvals and other customary closing conditions. We amended the Sports Betting business purchase agreement with Endeavor, under which we expect to receive $750 million in cash and estimated $50 million in Class A common stock of Endeavor, or estimated total gross proceeds of $800 million. The amendment also increases the speed and certainty of closing by modifying certain closing conditions.
• Significantly de-levered and transformed the balance sheet, reduced the principal face value of debt outstanding⁽³⁾ by $4.9 billion as compared to Q1 2022, with net debt leverage ratio⁽¹⁾ declining to 3.6x from 6.1x at March 31, 2022. The Company continues to be on a clear path to reach its targeted net debt leverage ratio range⁽¹⁾ of 2.5x to 3.5x.
• Returned $203 million of capital to shareholders through the repurchase of approximately 3.7 million shares of common stock, or 27% of the total authorization, since initiation of the program on March 3, 2022.

SUMMARY RESULTS

We have reflected our Lottery business (disposed during the second quarter of 2022) and Sports Betting business 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 includes its Gaming, SciPlay and iGaming businesses.

Second Quarter 2022 Financial Highlights:

• Second quarter consolidated revenue was $610 million compared to $581 million, up 5% compared to the prior year period. Prior year revenue benefited from $38 million VAT recovery, reducing the year-over-year revenue growth comparability by 7 percentage points. Our Gaming business demonstrated continued strong momentum including growth in all lines of business year-over-year (excluding impact of VAT recovery benefit on Gaming Operations in the prior year period) and robust sequential growth in Gaming Operations and Game Sales. Revenue also benefited from year-over-year growth at SciPlay, while iGaming businesses momentum continued despite 7% unfavorable impact of foreign currency translation.
• Net loss from continuing operations was $150 million compared to a net loss of $51 million in the prior year period. Net loss increased primarily as a result of $147 million in loss on financing transactions associated with the April 2022 debt pay down and refinancing transactions.
• Consolidated AEBITDA from continuing operations, a non-GAAP financial measure defined below, was $212 million, a decline of 9% compared to the prior year period. The prior year period Consolidated AEBITDA benefited from VAT recovery, reducing the year-over-year comparability by approximately 18 percentage points.
• Combined net cash (used in) provided by operating activities was $(37) million compared to $149 million in the prior year period, which includes the VAT recovery benefit described above. The current year cash flows were impacted by costs associated with the strategic review and related transactions and accelerated interest payments related to the debt pay down and refinancing transactions, coupled with investments to meet the growing demand from operators for our products.
• Combined free cash flow, a non-GAAP financial measure defined below, was $(95) million, which includes both continuing and discontinued operations. The current year combined free cash flow was impacted by approximately $114 million in costs supporting strategic review and related transactions (including the Lottery business closing expenses) and accelerated interest payments related to the debt pay down and refinancing transactions, coupled with investments to meet the growing demand from operators for our products. We expect free cash flow to continue to scale and normalize post the finalization of the divestitures.
• Net debt leverage ratio, a non-GAAP financial measure defined below, declined to 3.6x from 6.1x since March 31, 2022, following the sale of the Lottery business and the subsequent refinancing transaction in April of 2022.

Second Quarter 2022 Key Highlights

• Gaming revenue increased 6% to $390 million compared to the prior year period, primarily driven by strong growth in Gaming operations, which once again exceeded 2019 levels driven by record North America premium installed base units, and continued elevated average daily revenue per unit, coupled with robust growth in Game sales, Systems and Table games businesses. The prior year period Gaming revenue benefited from VAT recovery, reducing the year-over-year comparability by 13 percentage points. Gaming AEBITDA was $179 million, down 8% compared to the prior year period. AEBITDA growth was impacted by VAT recovery that benefited the prior year period, reducing the growth comparability by 23 percentage points.
• Gaming Operations revenue benefited from growth in our installed base and average daily revenue per unit, driven by strong content performance and the success of our Kascada and Mural cabinets. Our North American premium installed base grew for the 8th consecutive quarter, maintaining a record 43% of our total installed base mix. Additionally, we continue to see positive momentum with the launch of the Kascada Dual Screen, validating our continued investment in R&D to drive our long-term growth.
• SciPlay revenue grew 4% to $160 million compared to the prior year period. Growth benefited from the Alictus acquisition, while the core social casino business delivered strong payer metrics, outpaced the market and grew share. Payer conversion rates achieved an all-time high and AMRPPU remained at elevated levels due to continued strong engagement and monetization of our players.
• iGaming revenue was $60 million, driven by growth in the U.S. market coupled with continued strong performance of acquired businesses and partially offset by $4 million in unfavorable impact of foreign-currency translation due to strengthening U.S. Dollar, impacting revenue by 7%. The U.S market delivered 47% year-over-year revenue growth, driven in part by the strength of our original content and growth in GGR. AEBITDA increased 5% driven by the scaling of original content launches as well as our acquisitions, partially offset by higher costs associated with continued investments supporting ongoing growth, including our upcoming launch of live casino in the U.S. expected in the fourth quarter of 2022.
• Playzido was acquired in April 2022, a dynamic content creation platform provider and game supplier, which is expected to accelerate the pace at which we can partner with game studios and operators to expand our original iGaming content offering.

LIQUIDITY

• Significant debt reduction of $4.9 billion in the quarter to end second quarter with $4.0 billion of principal face value of debt outstanding due to sale of the Lottery business and the subsequent refinancing transaction in April. This is expected to result in approximately $225 million in annualized cash interest savings.
• Net debt leverage ratio, a non-GAAP financial measure defined below, declined to 3.6x from 6.1x since March 31, 2022 and is down approximately 7 turns from the peak level at the beginning of 2021.
• Combined net cash (used in) provided by operating activities was $(37) million compared to $149 million in the prior year period, which includes the VAT recovery benefit described above. The current year cash flows were impacted by costs associated with the strategic review and related transactions and accelerated interest payments related to the debt pay down and refinancing transactions, coupled with investments to meet the growing demand from operators for our products.
• Combined free cash flow, a non-GAAP financial measure defined below, was $(95) million, which includes both continuing and discontinued operations. The current year combined free cash flow was impacted by approximately $114 million in costs supporting strategic review and related transactions (including the Lottery business closing expenses) and accelerated interest payments related to the debt pay down and refinancing transactions, coupled with investments to meet the growing demand from operators for our products. We expect free cash flow to continue to scale and normalize post the finalization of the divestitures.
• Capital expenditures from continuing operations were $57 million in the second quarter of 2022.

Earnings Conference Call

As previously announced, Light & Wonder executive leadership will host a conference call on Tuesday, August 9, 2022, at 4:30 p.m. EDT to review the Company’s second quarter 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: 512562. 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) (“Light & Wonder” or “L&W”) is a global leader in cross-platform games and entertainment. The Company brings together over 5,600 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. © 2022 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 impact of the COVID-19 pandemic and any resulting unfavorable social, political, economic and financial conditions, including the temporary and potentially recurring closure of casinos and lottery operations on a jurisdiction-by-jurisdiction basis;
• risks relating to the intended sale of our Sports Betting business, which is expected to be completed in the third quarter of 2022, which is subject to applicable regulatory approvals, other customary closing conditions (“Pending Divestiture”), including lack of assurance regarding the timing of completion of the pending and proposed transaction and related risks associated with the ongoing operations and activities of the Sports Betting business, that certain deferred tax assets may not be realized relative to the anticipated tax gain from this divestiture, that the transaction will yield additional value or will not adversely impact our business, financial results, results of operations, cash flows or stock price;
• our inability to successfully execute our new strategy and impending rebranding initiative;
• our inability to further de-lever and position the Company for enhanced growth with net proceeds from the Pending Divestiture;
• 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, including the potential impact to our business resulting from the continuing uncertainty following the U.K.’s withdrawal from the European Union;
• 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;
• level of our indebtedness, higher interest rates, availability or adequacy of cash flows and liquidity to satisfy indebtedness, other obligations or future cash needs;
• the transition from LIBOR to SOFR, which may adversely affect interest rates;
• inability to 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 benefit from, and risks associated with, strategic equity investments and relationships;
• 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 and quarterly reports on Form 10-Q and its latest Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021 on March 1, 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.