Light & Wonder, Inc. Reports Third Quarter 2022 Results

Delivered Strong Double-Digit Consolidated Revenue Growth of 20% Year-Over-Year

Completed Final Step to Streamline Organization with Sale of Sports Betting Business for Approximately $800 Million in Gross Proceeds

Principal Face Value of Debt Outstanding⁽¹⁾ of $3.9 Billion Translating to Net Debt Leverage Ratio⁽²⁾ of 3.1x, Squarely in Targeted Range

Returned $241 Million⁽³⁾ of Capital to Shareholders Through Share Repurchases, Representing 32% of Total Program Authorization

Light & Wonder, Inc. (NASDAQ: LNW) (“Light & Wonder,” “L&W,” or the “Company”) today reported results for the third quarter ended September 30, 2022.

Matt Wilson, President and Chief Executive Officer of Light & Wonder, said, “With the sale of the Sports Betting business, we have rapidly delivered on our promise to transform our business and streamline our organization. We have a unique collection of assets that are powered by games, technology, and our amazing teams. Our strengthened balance sheet puts us in a great position to build on our momentum and capture the incredible opportunities in front of us. With a sharpened focus and clear roadmap to win, we are executing on our growth strategy to drive share gains.

“The results this quarter reflect the tangible progress we are making strategically, operationally, and financially as we delivered strong double-digit topline growth and saw clear momentum across all of our businesses. At the center of our Company are a robust R&D engine and world-class teams, and I want to congratulate our teams on their continued energy and focus. With our strategy in place and with operational momentum building, we have an unrivaled ability to leverage our leading industry positions, evergreen franchises, and unmatched platforms to drive sustainable growth and significant shareholder value.”

Connie James, Chief Financial Officer of Light & Wonder, added, “What we have achieved over the last 18 months has been truly transformational as we redefined our portfolio of businesses and strengthened our balance sheet and credit profile, all while executing on our strategy to drive sustainable differentiation and growth. We have made tangible progress each quarter against our priorities, and this consistent and rapid execution is becoming a hallmark of our organization.

“With the proceeds from our Lottery and Sports Betting divestitures, we’ve significantly bolstered our balance sheet, enabling us to achieve a net debt leverage ratio⁽²⁾ of 3.1x, now squarely in our targeted range. With this significant milestone, we are now advancing our capital allocation priorities of returning capital to shareholders and investing in growth. As we enter the next phase of our journey, we will continue to focus on operational excellence and generating strong cash flows. I have great confidence in our team as we look to create tremendous value in this exciting next chapter for Light & Wonder and work towards driving sustainable growth and competitive differentiation.”

BUSINESS AND STRATEGY UPDATE

• Overall, the Company delivered on its strategic initiatives and balance sheet transformation with the completed sale of the Sports Betting business, which generated approximately $800 million in gross proceeds.
• Delivered double-digit topline growth, driven by continued strong momentum across Gaming and iGaming and record revenue at SciPlay.
• Continued expansion in high-growth digital markets, with record revenue at SciPlay, and iGaming growing 19% on a constant currency revenue⁽¹⁾⁽²⁾ basis year-over-year.
• Achieved net debt leverage ratio⁽¹⁾ of 3.1x, squarely within our targeted net debt leverage ratio⁽¹⁾ range of 2.5x to 3.5x, at September 30, 2022.
• Returned $241 million of capital to shareholders through the repurchase of approximately 4.4 million shares of common stock since initiation of the program on March 3, 2022, and through November 4, 2022, representing 32% of total program authorization.
• Completed leadership transition, with Matt Wilson appointed as President and Chief Executive Officer of Light & Wonder, continuing to execute on the Company’s strategic plan and financial targets provided at 2022 Investor Day.

SUMMARY RESULTS

We have reflected our former Lottery business (disposed during the second quarter of 2022) and Sports Betting business (disposed during the third quarter of 2022) 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.

Third Quarter 2022 Financial Highlights:

• Third quarter consolidated revenue was $648 million compared to $539 million, up 20% compared to the prior year period. Growth was driven by all lines of business, with double-digit revenue growth in Gaming demonstrating continued strong momentum. Revenue also benefited from year-over-year growth at SciPlay, which reached a quarterly record, while iGaming’s underlying businesses momentum continued despite 9% unfavorable impact of foreign currency translation.
• Net income from continuing operations was $20 million compared to $100 million in the prior year period. Net income decreased as prior year net income benefited from a $181 million income tax benefit as a result of the partial reversal of our valuation allowance on deferred taxes, which was partially offset by higher revenue and operating income as well as lower interest expense in the current period.
• Consolidated AEBITDA, a non-GAAP financial measure defined below, was $235 million, an increase of 16% compared to the prior year period, primarily driven by growth in our Gaming business.
• Combined net cash (used in) provided by operating activities was $(351) million compared to $187 million in the prior year period, which includes both continuing and discontinued operations. The current year cash flows were primarily impacted by $465 million in cash taxes paid related to divestiture of Lottery business, coupled with a $25 million SciPlay legal settlement payment during the quarter.
• Combined free cash flow, a non-GAAP financial measure defined below, was $(420) million, which includes both continuing and discontinued operations. The current year combined free cash flow was primarily impacted by $465 million in cash taxes paid related to divestiture of Lottery business, coupled with a $25 million SciPlay legal settlement payment during the quarter.
• Net debt leverage ratio, a non-GAAP financial measure defined below, declined 70% to 3.1x from the peak of 10.5x at December 31, 2020, squarely in our targeted net debt leverage ratio⁽¹⁾ range of 2.5x to 3.5x.

Third Quarter 2022 Key Highlights

• Gaming revenue increased 24% to $419 million compared to the prior year period, driven by robust 47% growth in Gaming machine sales coupled with continued growth momentum in Gaming operations. Gaming operations remained above 2019 levels with record North America premium installed base units and continued elevated average daily revenue per unit. Gaming AEBITDA was $202 million, up 17% compared to the prior year period.
• Gaming Operations revenue benefited from year-over-year growth in our North American installed base and average daily revenue per unit, driven by strong content performance and continued success of our Kascada and Mural cabinets. Our North American premium installed base has grown for the 9^th consecutive quarter, achieving a record 45% of our total installed base mix, while revenue per day remained at elevated levels. Additionally, we continue to see positive momentum with the launch of the Kascada Dual Screen and Landmark 7000, validating our continued investment in our R&D engine to drive our long-term growth.
• SciPlay revenue increased 17% to $171 million compared to the prior year period, achieving a quarterly revenue record. Growth was primarily driven by the core social casino business, which delivered strong payer metrics and once again outpaced the market and gained share, coupled with benefit from the Alictus acquisition. Payer conversion rates continue to be at an all-time high growing sequentially to a record 9.7%, while ARPDAU grew 16% year-over-year to a record $0.80 and AMRPPU continued at elevated levels. We continued to benefit from key investments that are driving strong engagement and monetization of our players.
• iGaming revenue increased 9% to $58 million compared to the prior year period, primarily driven by continued growth in the U.S. market, partially offset by approximately $5 million in unfavorable impact of foreign-currency translation due to strengthening U.S. Dollar, impacting revenue growth by 10 percentage points. The U.S market delivered 39% year-over-year revenue growth, driven in part by the strong launches of our land-based original content and growth in gross gaming revenue on our platform as we gained share. AEBITDA of $20 million was up 11% compared to the prior year period. AEBITDA margin remained flat due to the scaling of original content launches, as well as our acquisitions, offset by higher costs associated with continued investments supporting ongoing growth, including our upcoming launch of live casino in the U.S.
• House Advantage was acquired in October 2022, a leading loyalty and marketing software and technology provider, which will advance our Gaming systems offering with enhanced loyalty capabilities.

LIQUIDITY

• Combined net cash (used in) provided by operating activities was $(351) million compared to $187 million in the prior year period, which includes both continuing and discontinued operations. The current year cash flows were primarily impacted by $465 million in cash taxes paid related to divestiture of Lottery business, coupled with a $25 million SciPlay legal settlement payment during the quarter.
• Combined free cash flow, a non-GAAP financial measure defined below, was $(420) million, which includes both continuing and discontinued operations. The current year combined free cash flow was primarily impacted by $465 million in cash taxes paid related to divestiture of Lottery business, coupled with a $25 million SciPlay legal settlement payment during the quarter.
• Net debt leverage ratio, a non-GAAP financial measure defined below, declined 70% to 3.1x from the peak of 10.5x at December 31, 2020, squarely in our targeted net debt leverage ratio⁽¹⁾ range of 2.5x to 3.5x.
• Capital expenditures from continuing operations were $58 million in the third quarter of 2022.

Earnings Conference Call

As previously announced, Light and Wonder executive leadership will host a conference call on Wednesday, November 9, 2022, at 4:30 p.m. EDT to review the Company’s third 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: 015548. A replay of the webcast will be archived in the Investors section on www.lnw.com.

About Light & Wonder

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

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

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

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

Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including the Company’s current reports on Form 8-K 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.