Scientific Games Corporation (LNW) CEO Barry Cottle on Q1 2022 Results – Earnings Call Transcript

Scientific Games Corporation (NASDAQ:LNW) Q1 2022 Earnings Conference Call May 10, 2022 4:00 PM ET

Company Participants

Jim Bombassei – Senior Vice President of Investor Relations

Barry Cottle – Chief Executive Officer

Connie James – Chief Financial Officer

Conference Call Participants

Barry Jonas – Truist

Ryan Sigdahl – Craig-Hallum

Jeff Stantial – Stifel

Chad Beynon – Macquarie

Zach Silverberg – Berenberg


Good afternoon and thanks for attending in the present day’s Scientific Games First Quarter 2022 Earnings Call. My title is Sam and I will probably be your moderator for in the present day’s name. All strains will probably be muted through the presentation portion of the decision, with a chance for questions and solutions on the finish. [Operator Instructions]

At this time, I’d now like to show the decision over to our host, Jim Bombassei Senior Vice President of Investor Relations. Jim?

Jim Bombassei

Thank you, operator. Good afternoon, everybody. During in the present day’s name, we’ll talk about our first quarter 2022 outcomes and working efficiency adopted by a query-and-reply interval. With me in the present day are CEO, Barry Cottle; and CFO, Connie James.

Our name in the present day will comprise statements that embody ahead-trying statements underneath the Private Securities Litigation Reform Act of 1995. These statements contain sure dangers and uncertainties that might trigger precise outcomes to vary materially from these mentioned through the name. For data relating to these dangers and uncertainties, please discuss with our earnings launch issued earlier this afternoon, the supplies referring to this name posted on our web site and our filings with the SEC.

We may also talk about sure non-GAAP monetary measures. An outline of every non-GAAP measure and a reconciliation of every non-GAAP measure to essentially the most immediately comparable GAAP measure could be present in our earnings launch, in addition to within the Investors part on our web site.

On September 27, 2021, we introduced that we had entered right into a definitive settlement to promote our sports activities betting enterprise to Endeavor. On April 4, 2022, we accomplished the sale of the lottery enterprise to Brookfield Business Partners L.P. except sure lottery enterprise subsidiaries, that are anticipated to shut shortly.

Beginning within the third quarter of 2021, we’ve got mirrored these companies as discontinued operations in our consolidated assertion of operations and mirrored the property and liabilities of those companies as held on the market in our consolidated steadiness sheets for all durations introduced.

We are reporting our outcomes of constant operations in three enterprise segments: Gaming SciPlay and that iGaming. Amounts and disclosures referring to mixed embody each our persevering with and discontinued operations.

As a reminder, this convention name is being recorded. A replay of this webcast and accompanying supplies will probably be archived within the Investors part of our web site at Supplemental reference slides can be found on our Investor Relations web site to assist facilitate your evaluation of the corporate’s outcomes, together with an earnings presentation and historic recast enterprise section data.

And now I’ll flip the decision over to Barry.

Barry Cottle

Thank you all for becoming a member of us. We are excited to be right here in the present day, given the nice progress we’re making executing on our imaginative and prescient and with the clear momentum we’re seeing throughout our companies. Today we’re a reworked firm with a transparent technique and a path to unlock worth because the main cross-platform world recreation firm.

The world video games market is a $60 billion-plus alternative and we’re uniquely positioned to capitalize with our main positions and our unmatched platforms and capabilities.

Our imaginative and prescient is centered on 5 key pillars: primary creating nice content material and franchises throughout land-based mostly, digital and cell, as we glance to extend share and drive our natural development; quantity two, increasing in excessive-development digital markets, rising our recurring revenues and fueling our excessive-high quality earnings and money technology; quantity three, enabling a seamless participant expertise by our main platforms in an more and more converging gaming business; quantity 4, delevering and maximizing money, to gasoline funding and shareholder returns; quantity 5, fostering a excessive-efficiency tradition, as we domesticate one of the best expertise within the enterprise. To fulfill that imaginative and prescient, we’re shortly delivering on the guarantees we made only a 12 months in the past.

In the primary quarter, we made great progress towards our transformation whereas additionally demonstrating sturdy momentum in our enterprise. We grew consolidated income by 26% and consolidated EBITDA by 42% 12 months-over-12 months. We proceed to develop our digital and recurring revenues, with iGaming and SciPlay rising each 12 months-over-12 months and sequentially with SciPlay, reaching its second-highest income quarter ever. And we achieved a significant milestone, closing on the sale of the lottery enterprise, which generated roughly $5.6 billion in gross money proceeds. With this new monetary power and suppleness, we have established our capital allocation priorities to boost shareholder worth, debt paydown, share repurchases and funding in development.

We used the proceeds from the lottery gross sales to pay down debt, our primary precedence, radically remodeling our steadiness sheet. A bit of over a 12 months in the past, our internet debt leverage ratio peaked at 10.5 instances. And now submit the lottery gross sales and our refinancing transactions, our adjusted internet debt leverage ratio sits at 3.7 instances, a discount of roughly seven turns. We are effectively on our solution to reaching our goal internet debt leverage ratio vary of two.5 to three.5 instances. We anticipate to get there with the closing of the sale of our sports activities betting enterprise, which we anticipate will occur within the third quarter, topic to regulatory approvals.

We additionally licensed a $750 million share buyback program in March and started instantly and actively repurchasing shares, executing on our second key precedence: returning capital again to shareholders. Through final week, we bought roughly $140 million of our inventory, for a complete of two.4 million shares representing roughly 2.5% of our shares excellent. We additionally closed on the most recent in a collection of focused, capital-environment friendly acquisitions, to gasoline development and broaden our portfolio.

SciPlay acquired Alictus, a number one informal recreation developer that accelerates their enlargement into the $20 billion informal market. And we acquired Playzido, a small acquisition that we anticipate to have an outsized affect on our capability to speed up our personalized iGaming content material providing on OGS. In addition, to executing on our capital allocation plan, I additionally wish to acknowledge the present dynamic macro scenario that we’re seeing, and the way we’re addressing it. I’m proud to say, that we have been planning proactively and have contingency plans in place to navigate the setting.

One of the issues, we have carried out effectively earlier than the pandemic, was to actively assess and handle our value base. Over the final two years, we have taken out almost $100 million in our value base reinvested into R&D and leveraged the opposite financial savings to take care of our wholesome margin, a testomony to how we drive efficiencies throughout the group. Additionally, we had been proactive and constructed up our provide chain expertise, which has paid dividends serving to us to navigate the present setting. There will probably be challenges once in a while and we all know there’s extra to do, however we’ll proceed to be proactive and execute on the issues we are able to management as we have all the time carried out.

And now I’ll focus on the important thing highlights of our enterprise unit efficiency. Let me start with Gaming. As we proceed to see sturdy market restoration, we grew North American premium recreation ops for the seventh consecutive quarter. It now represents 43% of our North America put in base. This excellent consequence was pushed by sturdy efficiency from Willy Wonka Dreamer of Dreams on the Mural cupboard and continued momentum of our Kascada Portrait cupboard with our confirmed Coin Combo and Ultimate Fire Link franchises.

Revenue per day remained sturdy, particularly within the North America premium section and coin-in continues to outpace 2019 ranges because of improved product efficiency.

With the launch of our Kascada Dual Screen cupboard and a wealthy portfolio of content material comparable to Double Money Link and Gold Fish, we’re seeing sturdy numbers out of the gate and anticipate to see continued momentum with our confirmed Ultimate Fire Link franchise scheduled to roll out shortly.

Our extremely anticipated stepper cupboard Landmark 7000 will debut within the second half of the 12 months giving us cupboards in each essential section of the market. And we proceed to see nice progress in recreation gross sales, techniques, and tables with 12 months-over-12 months development momentum we anticipate to construct on all year long. We’re seeing a robust demand pipeline for our iVIEW 4 {hardware} which now penetrates greater than 60% of our home-linked techniques models. And we’re scaling assets to ship on elevated demand for system software program and providers off the again of those {hardware} upgrades.

Meanwhile our Roulette X-ETG recreation is producing sturdy efficiency throughout the globe, outperforming conventional roulette by greater than two instances. And our lately acquired Adam Cashless tables product is continuous to roll out throughout the US market with over 650 models and powerful traits on common transactions.

Overall, we see continued momentum into April because the gaming business stays resilient on this macro setting with sturdy participant demand and GGR above 2019 ranges.

Turning to iGaming, the enterprise continues to have sturdy momentum with income rising each 12 months-over-12 months and sequentially. In the US, we had been up 63% 12 months-over-12 months and 21% sequentially with seven sequential quarters of GGR development. The efficiency was fueled by the success of authentic content material with our video games producing 50% of the GGR on our iGaming platform, a document contribution. In truth of the highest lease video games within the US on our OGS platform, 16 of the highest 20 had been ours.

In April, we launched in Ontario our largest-ever single market launch going reside with eight operators on day one and with 20-plus within the pipeline. We’ve seen sturdy outcomes from our content material portfolio with video games like 88 Fortunes and we anticipate this market reaching as much as an estimated whole of $1.5 billion GGR a 12 months by 2025.

Our authentic content material continues to ship as key standouts comparable to Rainbow Riches, MONOPOLY, and 88 Fortunes constantly ranked among the many prime-performing video games. We additionally continued our momentum with our studio acquisitions with Lightning Box reaching document GGR for the seventh consecutive month and Elk Studio constructing on its document success from fourth quarter 2021.

Our distribution and scale fueled the efficiency of nice video games like Chicken Box, Lightning Horseman, and Book of Toro. This 12 months we’ll be ramping up authentic content material launches together with evergreen franchises comparable to Money Falls, Coin Combo, and Gold Fish. And our launch of Live Dealer stays on observe for the US in This fall. Overall, with our depth of confirmed video games and skilled groups, we’re effectively-positioned to capitalize on the worldwide wave of legalization.

Now shifting to SciPlay. SciPlay turned in one other sturdy efficiency, with income up 5% 12 months-over-12 months and a pair of% sequentially. That income represents the second highest within the firm historical past and an outperformance of the general social on line casino market, reflecting the continued momentum they’re reaching by investing and executing on their plan. SciPlay’s Project All-Star enabled them to drive one other document quarter for Gold Fish and Quick Hit, as SciPlay continues to develop their core video games. Player LTV and retention are in any respect-time highs, whereas month-to-month common customers and common month-to-month paying customers improved sequentially. And the Alictus integration goes easily with two new recreation launches within the quarter and the addition of 28 million MAU, increasing our whole MAU to over 30 million.

Finally, we’re very excited for the launch of Project X within the second half. Make positive to not miss a particular sneak preview on the Investor Day subsequent week. So there’s nice information throughout, however there’s additionally a brand new stage of worth rising in relation to our distinctive mixture of property and the chance to guide as land-based mostly and digital gaming more and more converge. We are already executing on our cross-platform highway map by launching Gold Fish Feeding Time on SciPlay and in casinos with iGaming quickly to observe.

In the primary week, 700,000 individuals performed the sport, even earlier than we scaled it throughout land-based mostly casinos and the payer conversion on day one was nearly double what we have seen in some other video games. It’s an ideal instance of us taking one in all our key evergreen franchises and scaling them to a broader viewers by coordinated deployment throughout our platforms and we’ll share extra on our cross-platform highway map subsequent week at our Investor Day. We’re quickly executing on our plan to remodel our group with a singular focus on launching video games totally cross-platform. I wish to thank each one in all our creators for his or her unimaginable work this quarter.

And now, for extra on our monetary outcomes let me flip it over to Connie.

Connie James

Thanks, Barry. Before we go into the outcomes, I wish to congratulate the staff on the profitable closing of the sale of our lottery enterprise. The tempo and scale of the enterprise and monetary transformation we have achieved is unimaginable. In simply 15 quick months, we’ve got materially reworked our firm. First, we refocused and streamlined our group with the sale of our lottery enterprise and the pending sale of our sports activities betting enterprise. Second with these actions we’ve got enhanced our monetary profile with clear line of sight to sustainable double-digit development on each the highest and backside line.

Third, we have outlined our capital allocation priorities to boost shareholder worth and we have already made important progress. Fourth we’ve got reworked our steadiness sheet and credit score profile paying down and refinancing our debt on the again of our lottery gross sales. And lastly we’ve got already begun to return important capital to shareholders following our authorization on March 1 of a $750 million share repurchase program. Importantly, even with all of those strategic initiatives that the groups have completed we have continued to take care of our focus on operational excellence and executing on our day-to-day enterprise. Let me contact on just a few monetary highlights within the quarter. Consolidated income elevated 26% 12 months-over-12 months to $572 million with development throughout all of our companies.

Net loss from persevering with operations decreased to $67 million because of our larger working earnings, primarily pushed by our double-digit income development. Consolidated AEBITDA grew 42%, primarily pushed by double-digit development in gaming as we proceed to see sturdy positive aspects with market restoration. Our consolidated AEBITDA margin for persevering with operations was up 400 foundation factors versus the prior 12 months to 35%.

From a steadiness sheet perspective, we made great progress since our final earnings name. Following our closing of the lottery sale on April 4th, we took benefit of a window within the capital markets and moved shortly to pay down our debt and efficiently accomplished a collection of debt refinancing transactions delivering on our promise to remodel our steadiness sheet.

We diminished the principal quantity of our excellent debt from $8.9 billion at March thirty first to $4 billion submit the refinancing transactions. And our internet debt leverage ratio declined from 6.1 instances reported to an adjusted internet debt leverage ratio reflecting the sale of our lottery enterprise and refinancing transactions of three.7 instances an roughly 40% discount.

I am unable to emphasize sufficient what a major and elementary change that is for our enterprise and credit score profile. We had been in a position to put in place a brand new time period mortgage with a covenant-gentle construction take out a few of our current excessive-coupon debt and improve the weighted common lifetime of our debt to six.4 years. We noticed sturdy oversubscription for our new time period mortgage, reflecting our considerably strengthened monetary and credit score profile enabling us to drive favorable pricing.

And with the anticipated closing on the sale of our sports activities enterprise, we plan to take out extra of our excessive-coupon debt, which is predicted to place us squarely in our goal internet debt leverage ratio vary of two.5 to three.5 instances. No longer will we be burdened by the excessive ranges of debt and the related value to take care of it.

With the refinancing steps we’ve got taken, we estimate annual money curiosity financial savings of roughly $225 million on a run price foundation, a 47% discount. And constructing on what Barry stated, these are dynamic instances however we proceed to focus on what we are able to management and we have been proactive. We’ve taken numerous steps together with a 12 months in the past instituting a world provide chain. We have pushed efficiencies all through the enterprise with a particular focus on working capital and the money conversion cycle. And we proceed to leverage our offshore improvement facilities to optimize our value base. Collectively these initiatives are serving to us to offset the present inflationary setting and relaxation assured driving continued operational effectivity is a prime precedence.

Turning now to our enterprise segments. In gaming, income elevated 45% 12 months-over-12 months to $355 million with AEBITDA development of 60% to $171 million, outpacing income development and translating to AEBITDA margin enchancment of 400 foundation factors 12 months-over-12 months. The efficiency was broad-based mostly with double-digit share development in all 4 of our enterprise strains.

North America gaming operations income and RPDs proceed to tempo above 2019 ranges. And we’re seeing a robust restoration in our UK and European gaming operations companies, a testomony to the market resiliency and our improved product efficiency. We additionally set one other document for our North America premium gaming ops put in base combine at 43% of our whole put in base.

Game gross sales grew 87% versus final 12 months with alternative models almost doubling and on par with 2019 ranges. We anticipate each alternative and new opening gross sales to proceed to construct all year long, fueled by our extremely anticipated cupboard, the Kascada Dual Screen and Landmark 7000 stepper and a robust lineup of latest video games.

Our Systems enterprise grew 21% 12 months-over-12 months. And whereas this a part of the enterprise has skilled considerably of a slower rebound, we are actually seeing sturdy demand for our iVIEW 4 {hardware} and anticipate elevated deliveries within the again half of the 12 months.

Meanwhile, our desk video games enterprise momentum continues as we added extra subscribers to our reward program and grew our shuffler put in base sequentially, resulting in revenues rising 35% 12 months-over-12 months.

While we’re seeing continued sturdy demand for our merchandise, we proceed to navigate the provision chain setting which stays dynamic, noting that the affect has been principally restricted to the timing of supply. Looking forward, we really feel nice about our Gaming enterprise and the way it’s arrange for lengthy-time period success.

In iGaming revenues elevated 2% to $59 million, primarily pushed by development within the U.S. and the acquisition of Lightning Box and Elk Studios, U.S. revenues elevated by 63% versus the prior 12 months, pushed by sturdy authentic recreation launches.

AEBITDA was flat within the quarter reflecting our funding to launch Live Dealer in This fall and in addition to our improve in our first-occasion content material. Our AEBITDA margin was roughly 36% for the quarter, consistent with our expectations and reflecting these investments which ought to gasoline development within the again half of the 12 months and past.

Overall, our iGaming enterprise continues to have nice momentum with our authentic video games persevering with to drive sturdy efficiency, coupled with our upcoming entry into the quick-rising reside seller market within the U.S.

Finally SciPlay continues to have sturdy momentum with one other nice quarter rising 5% on the highest line and delivering its second-highest income quarter ever. AEBITDA was $44 million with a margin at 28% within the quarter, consistent with our beforehand supplied steering.

SciPlay continues to put money into its metropolis engine and reside providers to drive future development and we’re seeing the advantages present by this quarter, with enhancements in key metrics together with payer conversion of 8.9%. With its sticky participant base, sturdy monetization metrics and low capital depth the enterprise continues to be extremely money-generative.

Now turning to our money circulation and capital allocation priorities, whereas free money circulation within the quarter benefited from the sturdy income development, this was greater than offset by larger working capital makes use of and considerably larger CapEx.

As anticipated, the rise in working capital was principally pushed by prices related to the strategic transactions in addition to investments to satisfy the rising demand from operators for our merchandise.

Post finalization of the divestitures which is able to collectively generate $7 billion of gross money proceeds we see free money circulation conversion persevering with to enhance as we profit from our sturdy development profile and the transformation of our steadiness sheet.

Importantly, as we outlined in our final earnings name, we’re taking a balanced and opportunistic method to capital allocation to boost shareholder worth, underscored by three key priorities.

The first, debt discount, to a goal internet debt leverage ratio vary of two.5 to three.5 instances which we’re quick approaching. The second, share buyback, returning substantial capital to shareholders with our $750 million share repurchase program. As Barry talked about, by the final week we’ve got bought $140 million of our share and we’ll proceed to be energetic purchasers of our shares at these ranges.

And third, disciplined funding in key development alternatives, prioritizing utilizing capital for buybacks, debt discount, and natural investments, except M&A delivers considerably higher lengthy-time period worth. We’ve lately made key acquisitions that are very capital-environment friendly and when married with our main positions and capabilities additional speed up our development technique.

Wrapping up, whereas we have achieved an amazing quantity this previous 12 months, we proceed to be laser-centered on operational excellence and drive continued momentum in our enterprise. We’ve made important progress delivering on our guarantees and we’re simply getting began.

With that we’ll flip it over to the operator on your questions.

Question-and-Answer Session


Thank you, Connie. We will now start the Q&A session. [Operator Instructions] Our first query comes from the road of Barry Jonas of Truist. Barry?

Barry Jonas

Great. Hi guys and thanks for taking my query. Can we dive a bit of deeper into the inflationary and macro setting? Some operators have famous seeing weak spot on the low finish. Curious, in case you’re seeing something as you look throughout your segments and that is both from an finish consumer or an operator perspective? Thanks.

Barry Cottle

Thanks Barry. Macro setting clearly is a query on lots of people’s minds, so I recognize you elevating that. There’s little question about it, the market may be very unstable in the mean time. However, in case you take a step again and taking a look at our sector and our efficiency particularly, we proceed to see elevated GGR ranges whilst lately as April. And I believe that is an actual testomony to the truth that gamers throughout the spectrum like to play video games.

And it really demonstrates I believe the sturdiness and resiliency of our enterprise. And we do this whether or not we’re taking a look at gaming, iGaming or social. We’re really seeing sturdy and rising GGR throughout these three markets. And the place we’ve got a view into the excessive finish and the low finish of the sectors, we’re seeing demand on all sides. This is an instance on SciPlay development in payers, not simply the income per payer which is available in on the excessive finish. So, we’re seeing demand throughout the spectrum of the market.

And look, I believe once more all this proves is our business may be very resilient to those numerous cycles. And all that stated, we’re clearly persevering with to observe however we stay assured in our capability to execute and develop the enterprise throughout the board.

Connie James

Perfect. And I – hello Barry, nice to see you. I would simply add one extra factor which I believe the sweetness about our enterprise is, we get actual-time information into what’s occurring. So in gaming for instance, I typically take pleasure in my morning espresso trying on the coin-in traits they usually simply proceed to stay sturdy. So as Barry talked about all indicators are pointed in the best path.

Barry Jonas

Great. Great. I actually recognize that coloration. And then simply as a observe-up I wished to the touch extra on provide chain. How a lot strain are you seeing value-sensible and can you move that by to prospects? And then I assume the opposite facet to produce chain are delays, has that impacted gross sales by hook or by crook?

Connie James

Sure. And joyful to take that one, Barry. There’s little question about it much like different industries and corporations we’re having some impacts on provide chain. But for us they’ve actually been timing in nature. I believe the excellent news is that, we had been actually proactive and instituted a world provide chain about 18 months in the past, bolstered the expertise to navigate by this. We’ve been in a position to drive some value efficiencies, which have allowed us to take care of numerous wholesome margins.

In phrases of previous what we proceed to focus on is constructing premium content material and cupboards. And based mostly off our ASPs, I believe you are seeing that these ranges proceed to be excessive. And in order that’s an actual constructive for us. And in relation to timing, I would not say, there’s one thing particular. There’s most likely one space that you’d have seen within the outcomes as – a few of our techniques alternatives, have shifted a bit of bit extra in the direction of the second half. But all in all once more we proceed to be proactive, and it is extra of a timing situation than anything that we’re seeing.

Barry Jonas

Have any rivals had some points that you’ve got been in a position to reap the benefits of?

Connie James

I am unable to essentially converse on behalf of the rivals. I believe we’re rather well positioned is that, we deliberate forward for the final two years for this second when it comes to the market coming again. We’ve leaned into a bit of little bit of working capital taking sure stock positions to be prepared for the turnaround. So once more we really feel actually good about our capability to satisfy market demand.

Barry Jonas

That’s nice. Thanks, Connie. Thanks, Barry.

Barry Cottle

Thanks, Barry.


Thank you, Barry. Our subsequent query comes from Ryan Sigdahl of Craig-Hallum. Ryan?

Ryan Sigdahl

Good afternoon. Congrats on the outcomes. And thanks for taking my query. Curious, if we are able to begin on the acquisition and possibly the way it’s complementary to OpenBet or aggressive. I assume, I’ve all the time considered the businesses which have their very own distant gaming server. They had been in a position to do direct integrations with operators versus utilizing an aggregator like open gaming. So I assume how is it complementary versus aggressive with that acquisition?

Barry Cottle

Absolutely. Ryan I’m assuming you are talking about Playzido. So Playzido is – by the best way we love the surface – the outsized affect that Playzido goes to offer for us. Playzido is definitely an open recreation improvement platform. So consider it as an RGS with some recreation body applied sciences. And what that permits us to do at scale is to quickly present personalized recreation improvement. So we are able to present personalized and unique content material for our main working companions, which they have been asking for.

So for us it was a extremely environment friendly solution to get into these capabilities instantly. These have been on our highway map for fairly a while, as a result of we have been participating with operators about customizing unique content material, which they wish to have on as part of their choices. And this allows us to create type of fairly frankly one of the best-in-class providing of this. So this plugs proper into OGS, and simply makes OGS that extra scalable and helps us herald a complete different kind of content material at scale and pace which we weren’t in a position to do earlier than. So it is an enormous win-win for us and for our working companions who’ve been searching for this content material.

Ryan Sigdahl

Maybe one observe-up on that, Barry. So is it primarily centered to the operator say DraftKings however MGM et cetera which are creating their very own content material to assist them do this higher and quicker, or is that this for content material creation type of third-occasion studios or each?

Barry Cottle

It will serve each, however it can clearly — the most important operators that you simply named had been — have been searching for this sort of content material and skill to offer differentiated choices within the market. And this was fairly frankly one of the best — type of finest-in-class platform that was on the market that was in a position to do it and type of the proper one plus one equals three right here is — as you understand OGS has — is distributed in each main operator some solely. So for us to plug it in there that mainly — it completely creates a good way to handle that — the most important operators which are searching for that. But for second events as effectively in the event that they wish to create issues off of their very own personalized recreation body, it opens it for that market as effectively.

Ryan Sigdahl

Great. Makes numerous sense. One different one for me. So simply on the premium lease good to see you proceed to take market share there develop that blend. Steady progress 43% of the whole put in base combine this quarter. What’s your confidence in persevering with to develop that over the following a number of quarters and years? And is it logical to suppose that may get to north of fifty% as we glance out just a few years?

Connie James

Thanks Ryan. And glad to see you choose that up. It’s a part of our portfolio that we’re actually happy with. We’ve spent the final two years actually gearing up to verify we have wonderful merchandise and content material to scale this portion of the enterprise. Our final purpose right here is to drive share. We’ve been specific about that.

And I believe you are seeing that momentum occur in the present day. We see upward traits of ideally half of our put in base being premium in nature so loads of runway. And once more, we have simply received phenomenal merchandise to help that. And it is an space that I do know Barry is tremendous enthusiastic about. And Barry I do not know if you wish to contact on just a few of these merchandise.

Barry Cottle

Yes. Ryan, look, I couldn’t be extra enthusiastic about the place we sit in the present day when it comes to our product lineup and the product highway map we’ve got. If you take a look at it for the primary time, we’ll have a whole portfolio of worldwide merchandise that lower throughout all 4 essential segments. So, you’ve got received Kascada, who’s off to a massively quick begin; Mural as effectively; after which coming on-line Kascada Dual Screen which is available in the market now; after which Landmark 7000, which is popping out on the finish of the 12 months with — within the separate class.

So we cowl all 4 main classes, and it is backed by most likely our greatest utilization of main franchises up to now. So towards Kascada we have Quick Hits, Ultimate Fire Link, Jin Ji Bao Xi with Mural. We’ve received Monopoly, Willy Wonka, Wizard of Oz; on the Kascada Dual Gold Fish, 88 Fortunes; and we have — for LandMark7000 we’ve got our Legendary Blazing 7s — Triple 7s product popping out. So nice merchandise, nice video games all constructed by finest-in-class recreation designers most likely one of the best group of recreation designers we have had inside this group. So I like the place we sit in the present day as we glance out the remainder of the 12 months and into subsequent 12 months and I’m very assured that we’ll proceed to take share and develop the enterprise. Thank you. Ryan.


Our subsequent query is from Jeff Stantial of Stifel. Jeff?

Jeff Stantial

Hey, good afternoon everybody. Thanks for taking my questions. I wished to start out on Live Dealer if potential simply given we’re arising not too far off from a launch there. Barry, do you thoughts simply type of framing a bit of bit? Like what are a number of the investments moving into? Where are you at? And kind of how ought to we take into consideration the time line so that you can type of ramp the income contribution there when you do go reside in mid-This fall?

Barry Cottle

Yeah. Great query. I’m joyful to say that our first Live Dealer studio is scheduled to launch within the US in This fall. And what’s vital is we’ll be reside with the three main merchandise Blackjack, Baccarat, Roulette which characterize over 95% of the turnover within the US. In addition as part of our providing, we’re concentrating on some unique content material that leverages our greatest-in-class desk IP which is very customizable as effectively for the working associate. And we’re constructing out the studios and we’re on observe for that This fall launch. And that is why we’re so happy with our progress, particularly provided that Live Dealer is the quickest-rising a part of the iGaming market and is projected to be 30% of the US TAM.

Jeff Stantial

Understood. That’s useful. Thanks, Barry. Then possibly in case you do not thoughts, if I can simply observe up on a query earlier on the Playzido acquisition. So it feels like the true strategic add right here on your portfolio is on the personalized recreation improvement. Can you simply type of stroll by the choice level for an operator? Obviously, a few of them have been vocal that they’ve the intent or the will to type of construct their very own video games themselves with their very own inner workers. Is there nonetheless worth going this route for these operators? Are you concentrating on extra operators that do not have that inner recreation improvement workers and people type of capabilities? And type of how ought to we simply take into consideration the chance set and possibly how the operators take into consideration the worth add and the economics right here?

Barry Cottle

Sure. This acquisition really delivers what they’re searching for. So what our companions are searching for is unique and customised content material that they will supply to their gamers. That’s the only real purpose why they’re trying to get in that area as a result of our operators wish to differentiate their providing with UI/UX with advertising and merchandising and with product. And we’re in a position to with — notably with this acquisition of Playzido at scale ship a number of the finest video games constructed by one of the best recreation designers on the earth, however ship it in a personalized unique method. And that addresses precisely what our main operators are searching for. So this was really hitting lifeless on with a section of the market that we are able to really play in and supply higher than anybody else.


Thank you, Jeff. Next query is from Chad Beynon of Macquarie. Chad?

Chad Beynon

Hi. Good afternoon. Thanks for taking my query. It seems that we have seen a pleasant enchancment inside the slot alternative market in North America from you and your rivals. I used to be questioning in case you might simply type of broaden when it comes to the place you suppose the market is versus 2019 and extra importantly, if the operators that you simply’re partnered with proceed to anticipate to repurchase or substitute new orders as we type of get by 2022. You talked about a number of the actually good content material and product that you’ve got within the pipeline, however simply making an attempt to determine the place the purse strings are? Thanks.

Connie James

Sure. And thanks for the query. Thanks for being with us in the present day. Overall, I’d say that we’re listening to actually optimistic tones. I believe we heard that on numerous the earnings name earlier this week when it comes to the market rebounding. The thrilling information to your level is within the quarter we noticed our recreation gross sales return to considerably near 2019 ranges, which I believe is only a nice signal of CapEx cycles persevering with to return.

Again, all the time cautiously optimistic. But proper now with what we’re seeing in a number of the macro traits that Barry supplied earlier, we anticipate type of CapEx to begin to return again to regular in the direction of the top of this 12 months and totally recovered by 2023 particularly within the North America market I’d say that is considerably comparable while you take a look at our European companies in addition to Australia I believe has received some nice momentum behind it. So once more cautiously optimistic however traits are positively moving into the best path.

Barry in case you wished so as to add something?

Barry Cottle

Yeah. Look I might simply say in case you step again and suppose by the technique that we rolled out we have been prioritizing the three largest revenue swimming pools within the market; primary, premium recreation ops, North America recreation gross sales, and Australia. And in case you look a 12 months in the past to the place we’re at in the present day, we’re significantly better positioned. We’ve seen dramatic progress and success. And as I discussed earlier, I believe we’ve got the strongest product lineup throughout each sectors of recreation gross sales and recreation ops than we have ever had. And so we’re very bullish with the place the market goes the operators and the way they’re perceiving the market and our capability to once more take share and develop our enterprise on this area.

Chad Beynon

Great. Thanks. And then relating to cashless initiatives and acceptance, you famous the power with iVIEW 4. Can you speak about any current successes that you’ve got had on this section? And ought to we anticipate additional acceptance from a regulator and extra importantly an operator standpoint as we get by 2022? Thank you.

Barry Cottle

Yeah. So we’re more than happy the place we stand. As you talked about I believe the actually sturdy demand on iVIEW 4 I believe we’re at now 60% of our addressable base there. Huge piece of that’s pushed by the momentum that we’re seeing now in cashless. And we’re actually happy with the place we stand relative to the place. We have a number one place with 50% of the share on techniques and our cashless supply is now reside with 9 states and 15,000 EGMs. And our pipeline is simply persevering with to construct.

And so — and along with that we launched our AToM product, which is a cashless product that covers the desk enterprise. So once more we’re in a extremely excellent spot. We have a number of casinos within the pipeline each from a deal but in addition in execution mode rolling out. And so we’re very assured with our providing. And we’ve got as I discussed earlier than an unmatched place to ship this for our companions.

Barry Cottle

Thank you Chad.

Jim Bombassei

Operator, we’ve got time for another query.


Okay. Our final query comes from the road of Zach Silverberg of Berenberg. Zach?

Zach Silverberg

Hi, good afternoon guys. So I observed that SciPlay had lately appointed three new Board of Directors. Just curious if there will probably be any affect on the technique for the section shifting ahead in gentle of the information?

Barry Cottle

The extra administrators to the Board, was really to help and to bolster the technique that SciPlay is pursuing. SciPlay has nice momentum now leaning in and rising their social on line casino enterprise constructing their new pipeline of video games getting into the informal area and creating their SciPlay engine. And the group of leaders this all-star group of parents that we have introduced on to the Board present a deep stage of business experience that we imagine assist SciPlay to get to the following stage. And all of them have broad and completely different views that they will add to the worth of the staff. And so, we expect it was the best transfer on the proper time to get a staff in to assist us construct a diversified world recreation firm.

Zach Silverberg

Got you. And you guys simply purchased again $140 million in shares with the inventory at a close to 52-week low. I imply are you able to simply discuss in regards to the cadence of share buybacks over the following few quarters with the place your steadiness sheet is at?

Barry Cottle

Sure. First of all, I’d love to simply replicate how nice it’s that we are able to have this dialog in comparison with the place we had been a 12 months in the past. And as we have talked about earlier than we have developed a framework on capital administration and Connie will discuss a bit of bit extra in regards to the shareholder repurchase. But as a reminder our priorities for capital allocation are: primary to pay down debt to create a wholesome steadiness sheet and put us in that 2.5 to three.5 instances; quantity two, share repurchases, which we’re inserting emphasis on our share buyback program; and quantity three, we’ll proceed to make disciplined investments, each organically and inorganically, to make sure that we could be sustainable and worthwhile. But with any M&A that we pursue we should considerably outperform the returns from the repurchasing shares. Connie, do you wish to discuss a bit of bit extra about…

Connie James

The share repurchase? Yeah, positive. And glad to see you choose that up. It’s fascinating, as Barry talked about in a few of his opening remarks that these are dynamic instances and I imagine that that is additionally when numerous alternatives could be created. And the excellent news is with our monetary power and the expansion path that we see inside this firm, we are able to reap the benefits of dislocations available in the market like what we’re at the moment seeing and create great worth for our shareholders by shopping for again our inventory.

And that is precisely what we’ll do and what we’ve got carried out up to now. So, simply a few key highlights. We’ve been shifting with pace on this system. We applied a 10b5-1, which allowed us simply to maximise the variety of days we may very well be available in the market. And as Barry talked about, it can proceed to be a key pillar of our capital administration precedence, as a result of we see only a great alternative in the mean time for us to drive important shareholder worth.

Jim Bombassei

Great. Thanks. And we’ll flip it over to Barry for some remaining feedback.

Barry Cottle

We’ve made great progress this 12 months, delivering on numerous key guarantees, which have reworked our firm and positioned us to unlock important shareholder worth. With the closing of the lottery sale, we have streamlined our group and considerably strengthened our steadiness sheet, offering us with the monetary flexibility to put money into our future and return capital to shareholders.

We are actually singularly centered on constructing nice video games and franchises and deploying them throughout platform. Our place is unmatched and now we’ve got an unparalleled alternative for development. We are very excited in regards to the subsequent part of our journey and look ahead to discussing our key methods and the trail to drive shareholder worth at our upcoming Investor Day on May 17 in New York City. We hope to see you guys there. Thank you and – thanks on your time and help.

Jim Bombassei

Thank you everybody for becoming a member of our earnings name. I’ll flip it again to the operator.


That concludes the Scientific Games First Quarter 2022 Earnings Call. Thank you all on your participation. You might now disconnect your strains. games-company-lnw-ceo-barry-cottle-on-q1-2022-results-earnings-name-transcript

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