Light & Wonder’s Third Quarter Shows Positive Effects of Strategic Focus on Casino Vertical

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Senior executives will often brag to investors about “focus,” “leanness,” or “concentrating on the core business.”

That’s been the message from Light & Wonder (L&W) this year. In this case, if the company’s Q3 financial results are any indication, the cliché seems refreshingly sincere.

At this time last year, Light & Wonder was still known as Scientific Games. At that time, its business spanned not only casino technology but also a sports betting platform called OpenBet, and global lottery services.

Over the past year, under the guidance of former CEO Bary Cottle and his successor, Matt Wilson, L&W has reinvented itself. The new company has decided that sports betting and lottery will be outside its wheelhouse. Disposing of those assets also became a means to lighten the burden of a highly-leveraged balance sheet.

In April, it completed the sale of its lottery operations to a subsidiary of private equity giant Brookfield Asset Management for $5.8 billion. In July, OpenBet went to US-based Endeavor Group Holdings for $750 million in cash and $50 million in Endeavor common stock.

At the time, Wilson described the company as:

Well positioned to execute on our growth strategy with a singular focus on building great games fully cross-platform.

Now, L&W is a pure-play casino supplier, and that strategy seems to be paying off. Its revenue is up 20% year-over-year, adjusted EBITDA is up 17%, and its debt leverage ratio is 3.1x, which the company says is in the range it was targeting.

Less is More for L&W

To bring Wilson’s vision to fruition, L&W needed to do more than sit on those significant proceeds. As well as paying down its debt, it has been aggressive in acquiring businesses that align with its new focus.

Here’s a timeline of the company’s acquisitions since its pivot:

  • August 2021: Game development studio Lightning Box, which sees a 57% jump in revenue due to integration into L&W’s OpenGaming platform.
  • November 2021: Live dealer casino provider Authentic Gaming. L&W announces plans (as yet unrealized) to enter the US live dealer market.
  • May 2022: Another game developer, Playzido.
  • October 2022: Customer loyalty solutions provider House Advantage.

Based on the early returns, L&W’s transformation seems to have succeeded. It has gone from an overleveraged, broadly-focused gaming company to a leaner provider of content and tech solutions for the casino industry.

A Big Third Quarter for L&W

July to September was an important period in L&W’s evolution. For one thing, it closed the $800 million OpenBet sale, infusing the business with fresh capital.

During the third quarter, company-wide revenue rose by 20% year-over-year to $648 million. That growth was powered by strength in the retail gaming division, up 24% to $419 million in revenue. Sales of gaming machines rose 47% as the brick-and-mortar industry rebounds from the pandemic.

Perhaps surprisingly, growth was slower for the iGaming division, at 9%. This division includes OpenGaming, through which L&W aggregates games from a wide range of studios – now including Lightning Box and Playzido – to partners in the US and Europe. L&W says the US market is the primary growth driver here, which is unsurprising given that US online casinos increased their total revenue 30% over the same period.

Adjusted EBITDA, which excludes one-time gains and charges – like the proceeds from OpenBet and $465 million in cash taxes paid as part of the sale of the lottery business – rose 16% to $235 million.

Most importantly, the company looks well on its way to reining what was once a crippling debt load. Though the company still carries nearly $3.9 billion of long-term debt, that’s less than half the $8.6 billion it was saddled with one year ago.

Finally, as part of a program it launched in March, the company bought back 4.4 million shares of its own stock in Q3 at an average price of $54.77. Share buybacks generally make investors happy. The day after the release of Q3 results, L&W shares rose nearly 7% to $57.20. As of the time of Nov 15, they are trading at around $64, up over 30% in the past month.

Given all of this, who can blame Wilson for gushing a little?

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.

About the Author

Emile Avanessian

Emile is a one-time banker turned freelance writer. He previously worked in equity research and as a member of the Financial Sponsors Group with Goldman Sachs, where he worked on numerous casino- and gaming-related projects. His written work has focused largely on sports (NBA basketball and European soccer) and sports betting. Emile currently also writes for Squawka and Urban Pitch. His work has also been published in The Los Angeles Times, The Blizzard, Yahoo Sports, SI.com, and ESPN.

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