Light & Wonder(US:LNW)2022-03-01 22:02Business Divestitures - The company plans to divest its Lottery and Sports Betting businesses, with the Lottery business expected to close by the end of March 2022 and the Sports Betting business in the second quarter of 2022, generating total proceeds of approximately $7.05 billion[29]. - The company announced its intention to divest its Lottery and Sports Betting businesses, with a definitive agreement to sell the Sports Betting business for $1 billion in cash and approximately $200 million in Endeavor Class A common stock[127]. - The Lottery business is being sold to Brookfield for a total consideration of $6.05 billion, which includes $5.825 billion in cash and an earn-out of up to $225 million based on certain EBITDA targets in 2022 and 2023[127]. Business Segments and Operations - The company reported that its continuing operations are segmented into Gaming, SciPlay, and iGaming, focusing on cross-platform content and digital markets[30]. - The iGaming segment provides a comprehensive suite of digital gaming content, including revenue from content aggregation platforms and remote gaming servers[44]. - SciPlay, a leading developer of digital games, generates revenue primarily from the sale of virtual coins, chips, or bingo cards, with plans to launch an additional casual game in 2022[42]. - The company has access to a library of over 1,500 iconic casino titles, enhancing its competitive position in the social gaming market[42]. - The company’s gaming products are installed in approximately 182 international gaming jurisdictions, with growth driven by new casino openings and existing casino expansions[35]. Competition and Market Challenges - The company faces intense competition in the gaming machine sector from major players such as IGT, Aristocrat, and Konami[37]. - The company’s SciPlay segment competes with major social casino game developers like Playtika and Zynga, as well as broader social game market competitors such as Activision Blizzard and Electronic Arts[43]. - The instant lottery products market is highly competitive, with principal competitors including IGT and Pollard Banknote Limited[49]. - The lottery systems business faces intense price-based competition, primarily from IGT and Intralot S.A.[50]. - The company competes in a highly competitive gaming industry, facing pressure from both traditional and emerging competitors[164]. Financial Performance and Strategy - The company aims to significantly de-lever its balance sheet post-divestitures, enabling organic and inorganic investments to accelerate growth and return capital to shareholders[39]. - The company recorded $48 million in inventory charges related to the Gaming business segment during the year ended December 31, 2020, due to the impact of COVID-19[124]. - The company has total available liquidity of $903 million as of December 31, 2021, which includes $638 million of undrawn availability under its revolving credit facility[147]. - Approximately 28% of the company's revenue for the year ended December 31, 2021, was derived from sales to customers outside the U.S.[135]. - The company may not have sufficient cash flows from operating activities to service all of its indebtedness and other obligations, which could impact financial stability[117]. Regulatory Environment - The company continues to monitor evolving regulations related to digital gaming, sports betting, and lottery sales, but cannot predict the timing or scope of these regulations[96]. - The 2018 DOJ opinion concluded that the Wire Act applies to all bets and wagers, impacting the company's iGaming, iLottery, and sports betting services[92]. - Regulatory requirements vary, but most jurisdictions require licenses and permits for the company and its key personnel[85]. - The U.K. Government is reviewing the Gambling Act 2005, with potential legislative changes expected in late 2022 or 2023[95]. - The company has developed procedures to comply with evolving gaming laws, but cannot guarantee that its activities will not face legal challenges[80]. COVID-19 Impact - The ongoing COVID-19 pandemic has led to decreased discretionary spending and consumer travel, negatively affecting the company's Gaming business, particularly in Participation gaming and iGaming segments[123]. - The company is experiencing supply chain challenges due to COVID-19, but believes it currently has an adequate supply of component parts[67]. - The company has experienced lower work efficiency and productivity due to COVID-19, which may adversely affect service quality and business operations[126]. - The company recorded inventory charges of $48 million in the Gaming business segment for the year ended December 31, 2020, primarily due to COVID-19 disruptions impacting future demand[133]. Human Resources and Diversity - The company employs approximately 5,600 persons worldwide as of December 31, 2021, with 2,500 employed domestically and 3,100 internationally[69]. - The company continues to invest in diversity, equity, and inclusion initiatives, including forming a Diversity, Equity and Inclusion Council[71]. Risks and Challenges - The company faces significant opposition in some jurisdictions to interactive social gaming, which could lead to restrictive legislation or increased compliance costs[87]. - The company may incur integration and optimization expenses to execute its new strategy and facilitate pending divestitures[130]. - The company faces risks related to foreign currency exchange rate fluctuations, particularly with the British Pound Sterling, Australian Dollar, and Euro[136]. - The company is subject to strict government regulations that may limit operations and affect growth potential in the gaming industry[121]. - The company may need to raise additional capital for significant acquisitions or to fulfill contracts, which could be challenging under current economic conditions[162]. Technology and Cybersecurity - The company relies on information technology systems for business operations, and any failures could adversely impact its reputation, results of operations, and financial condition[215]. - Cyber-attacks and data security incidents pose risks that could result in loss of sales, increased costs, and reputational harm, necessitating significant investments in data protection[219][220]. - The company may face challenges in developing new products and services due to potential infringement of intellectual property rights held by others, which could adversely affect its financial condition[221]. - The company relies heavily on third-party suppliers for components, and any disruptions could adversely affect its ability to fulfill customer orders and maintain financial performance[192].