Light & Wonder(LNW) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Light & Wonder reported Q1 2022 revenues of $572 million, a net loss from continuing operations, and $26 million net income attributable to L&W, driven by discontinued operations Consolidated Statements of Operations (Q1 2022 vs Q1 2021) | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Total Revenue | $572 | $453 | | Operating Income | $40 | $4 | | Net Loss from Continuing Operations | $(67) | $(88) | | Net Income from Discontinued Operations | $95 | $79 | | Net Income (Loss) Attributable to L&W | $26 | $(15) | | Diluted EPS from Continuing Operations | $(0.72) | $(0.98) | | Diluted EPS Attributable to L&W | $0.26 | $(0.16) | Consolidated Balance Sheet Highlights | Metric | As of March 31, 2022 (in millions) | As of December 31, 2021 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $496 | $585 | | Total Assets | $7,952 | $7,883 | | Assets of businesses held for sale | $2,075 | $1,974 | | Long-term debt, excluding current portion | $8,789 | $8,646 | | Total Liabilities | $10,089 | $9,989 | | Total Stockholders' Deficit | $(2,137) | $(2,106) | Condensed Consolidated Statements of Cash Flows | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $94 | $123 | | Net cash used in investing activities | $(176) | $(61) | | Net cash provided by (used in) financing activities | $52 | $(139) | - Effective April 28, 2022, the company changed its name from Scientific Games Corporation to Light & Wonder, Inc. to align with its new strategic vision[33] - The company completed the divestiture of its Lottery Business on April 4, 2022, for $5.6 billion in gross cash proceeds, with the Sports Betting business sale expected to close in Q3 2022, both reported as discontinued operations[34][35][36] - In March 2022, the SciPlay segment acquired Alictus, a hyper-casual game studio, for approximately $106 million in cash, expanding its presence in the casual gaming market[43] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transformation, including divestitures, debt reduction, and revenue growth driven by Gaming, SciPlay, and iGaming segments Business Overview and Recent Events The company is transforming into a cross-platform global game company through rebranding, major divestitures, debt reduction, strategic acquisitions, and share repurchases - Completed a major refinancing in April 2022, reducing the face value of debt by $4,957 million (from $8,910 million to $3,953 million)[129][180] - Completed the divestiture of the Lottery Business on April 4, 2022, receiving $5.6 billion in gross cash proceeds[129] - Returned $147 million to shareholders through share repurchases from the program's initiation on March 3, 2022, through May 9, 2022[129] - Acquired Alictus (hyper-casual games) in March 2022 and Playzido (iGaming content) in April 2022 to expand digital offerings[129] Consolidated Results Consolidated revenue increased 26% to $572 million, with operating income surging 900% to $40 million, driven by Gaming segment recovery and growth in SciPlay and iGaming Consolidated Results Summary (Q1 2022 vs Q1 2021) | Metric (in millions) | 2022 | 2021 | Variance | Variance % | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $572 | $453 | $119 | 26% | | Total operating expenses | $532 | $449 | $83 | 18% | | Operating income | $40 | $4 | $36 | 900% | - Cost of product sales increased by 75% to $70 million, directly related to higher gaming machine sales[137][138] - Restructuring and other costs increased 71% to $36 million, primarily due to professional services and other charges related to the divestitures[137][142] - Discontinued operations revenue increased 4% to $288 million, contributing to a 20% increase in net income from discontinued operations to $95 million[51][145] Business Segments Results All three segments contributed to revenue growth, with Gaming leading at $355 million (45% increase), SciPlay growing 5% to $158 million, and iGaming up 2% to $59 million Revenue by Business Segment (Q1 2022 vs Q1 2021) | Segment (in millions) | 2022 | 2021 | Variance | Variance % | | :--- | :--- | :--- | :--- | :--- | | Gaming | $355 | $244 | $111 | 45% | | SciPlay | $158 | $151 | $7 | 5% | | iGaming | $59 | $58 | $1 | 2% | | Total | $572 | $453 | $119 | 26% | AEBITDA by Business Segment (Q1 2022 vs Q1 2021) | Segment (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Gaming | $171 | $107 | | SciPlay | $44 | $46 | | iGaming | $21 | $21 | | Total Segment AEBITDA | $236 | $174 | Liquidity, Capital Resources and Working Capital The company significantly improved its capital structure by reducing debt by nearly $5 billion to $4.0 billion, with total liquidity of $1.21 billion and $94 million in operating cash flow Pro-Forma Debt Reduction from April 2022 Refinancing | Metric (in millions) | Principal Value as of March 31, 2022 | April 14, 2022 Refinancing Impact | Outstanding Principal Value Adjusted | | :--- | :--- | :--- | :--- | | Total long-term debt | $8,910 | $(4,957) | $3,953 | - Net cash used in operating activities from continuing operations was $(14) million, primarily due to unfavorable working capital changes, including timing of disbursements for strategic transactions and higher incentive compensation payouts[185][186][187] - Net cash used in investing activities from continuing operations increased by $117 million to $151 million, mainly due to the acquisition of Alictus[185][189] - Net cash provided by financing activities was $54 million, driven by $230 million in borrowings under the SGI revolver, partially offset by $51 million in treasury stock purchases[185][190] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rates and foreign currency, with $4.17 billion in variable-rate debt and mitigation through interest rate and cross-currency swaps - As of March 31, 2022, a hypothetical 1% change in interest rates on the $4,168 million of variable-rate debt would change annual interest expense by approximately $42 million[196] - In April 2022, the company entered into new interest rate swap contracts with a notional amount of $700 million to hedge a portion of its variable rate debt[198] - The company settled its cross-currency interest rate swaps in April 2022 as part of the refinancing, receiving approximately $50 million in cash proceeds[98][201] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of March 31, 2022[205] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[206] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, with $27 million in accrued liabilities and an estimated possible loss of up to $13 million in excess of accruals - Accrued liabilities for all legal matters were $27 million as of March 31, 2022[116] - For matters where a loss is reasonably possible and can be estimated, the current estimated range of possible loss is up to approximately $13 million in excess of accrued liabilities[117] Item 1A. Risk Factors No material changes in the company's risk factors from those disclosed in its 2021 Annual Report on Form 10-K - No material changes in risk factors from those disclosed in the 2021 10-K[209] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 0.9 million shares for $51 million during Q1 2022, with $699 million remaining available under the share repurchase program Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Number of Shares Purchased (in millions) | Average Price Paid per Share | Total Cost of Repurchase (in millions) | Approximate Dollar Value Remaining in Program (in millions) | | :--- | :--- | :--- | :--- | :--- | | 1/1/22 - 2/28/22 | — | $— | $— | $750 | | 3/1/22 - 3/31/22 | 0.9 | $59.10 | $51 | $699 | | Total | 0.9 | - | $51 | $699 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, debt-related indentures, and executive compensation agreements