Light & Wonder(LNW) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (unaudited) This section presents unaudited consolidated financial statements, detailing the impact of business divestitures and debt refinancing Consolidated Statements of Operations Highlights (in millions) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $648 | $539 | $1,830 | $1,572 | | Operating Income | $89 | $34 | $175 | $106 | | Net Income (Loss) from Continuing Operations | $20 | $100 | $(197) | $(38) | | Net Income from Discontinued Operations | $315 | $87 | $3,855 | $329 | | Net Income Attributable to L&W | $328 | $182 | $3,645 | $276 | Consolidated Balance Sheets Highlights (in millions) | Metric | As of Sep 30, 2022 | As of Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $2,048 | $1,732 | | Total Assets | $6,246 | $7,883 | | Total Current Liabilities | $802 | $974 | | Long-Term Debt | $3,874 | $8,646 | | Total Liabilities | $5,014 | $9,989 | | Total Stockholders' Equity (Deficit) | $1,232 | $(2,106) | Condensed Consolidated Statements of Cash Flows Highlights (in millions) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(294) | $459 | | Net Cash Provided by (Used in) Investing Activities | $6,144 | $(206) | | Net Cash Used in Financing Activities | $(5,213) | $(492) | | Increase (Decrease) in Cash | $625 | $(242) | - The company completed the divestiture of its Lottery Business in Q2 2022 for $5.7 billion in gross cash proceeds and its Sports Betting Business in Q3 2022 for $796 million in gross proceeds ($750 million cash and $46 million stock) These are reported as discontinued operations[36][53] - In April 2022, the company completed a major refinancing, reducing the face value of its debt by approximately $5.0 billion, from $8.9 billion to $3.95 billion[91][218] - During the nine months ended September 30, 2022, the company repurchased 3.7 million shares of its common stock for $203 million Its subsidiary, SciPlay, repurchased 1.4 million shares of its Class A common stock for $18 million[122][123] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic transformation, including divestitures and debt reduction, and analyzes consolidated and segment financial performance Recent Events and Strategic Execution - The company is executing a strategy to become a leading cross-platform global games company, focusing on content and digital markets[153] - Key strategic actions in 2022 include changing the company name to Light & Wonder, completing the divestitures of the Lottery and Sports Betting businesses, reducing debt by nearly $5 billion through refinancing, initiating a $750 million share repurchase program, and making strategic acquisitions like Alictus and Playzido[155] Consolidated Results of Operations Consolidated Revenue Growth (YoY) | Period | 2022 Revenue (M) | 2021 Revenue (M) | Growth | Growth % | | :--- | :--- | :--- | :--- | :--- | | Q3 | $648 | $539 | $109 | 20% | | 9 Months | $1,830 | $1,572 | $258 | 16% | - Operating income for Q3 2022 increased 162% to $89 million from $34 million in Q3 2021 For the nine-month period, it increased 65% to $175 million[158] - Interest expense decreased significantly to $68 million in Q3 2022 from $120 million in Q3 2021, reflecting the favorable impact of the April 2022 refinancing and lower outstanding debt[171] - A pre-tax gain of $4.93 billion was recorded for the nine months ended September 30, 2022, from the divestitures of the Lottery and Sports Betting businesses[158][172] Business Segments Results Segment Revenue - Q3 2022 vs Q3 2021 (in millions) | Segment | Q3 2022 Revenue | Q3 2021 Revenue | YoY Growth % | | :--- | :--- | :--- | :--- | | Gaming | $419 | $339 | 24% | | SciPlay | $171 | $147 | 17% | | iGaming | $58 | $53 | 9% | - Gaming: Revenue growth was driven by a 47% increase in gaming machine sales and continued momentum in gaming operations Total new unit shipments rose 45% YoY in Q3 to 7,259 units[178][181] - SciPlay: Revenue growth was fueled by strong social casino player engagement and the Alictus acquisition The payer conversion rate reached a record high of 9.7% in Q3 2022, up from 8.5% in Q3 2021[193][198][202] - iGaming: Revenue growth was driven by the U.S. market, which saw 39% YoY revenue growth in Q3 This was partially offset by a $5 million unfavorable foreign currency impact[208] Liquidity, Capital Resources and Working Capital Cash and Available Liquidity as of Sep 30, 2022 (in millions) | Category | Cash and Cash Equivalents | Revolver Capacity | Total Available Liquidity | | :--- | :--- | :--- | :--- | | L&W (excluding SciPlay) | $978 | $738 | $1,716 | | SciPlay | $299 | $150 | $449 | | Total | $1,277 | $888 | $2,165 | - Net cash used in operating activities was $294 million for the first nine months of 2022, a decrease of $753 million from the prior year, primarily due to unfavorable working capital changes, including a $465 million tax payment related to the Lottery divestiture[219][220][221] - Net cash provided by investing activities was $6.1 billion, driven by $6.4 billion in gross cash proceeds from the divestitures[219][225] - Net cash used in financing activities was $5.2 billion, primarily due to the repayment of $6.98 billion in debt as part of the April 2022 Refinancing, offset by $2.2 billion in new term loan proceeds[219][226] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its variable-rate debt, mitigated by interest rate swap contracts - As of September 30, 2022, the company had $2,195 million of variable-rate debt A hypothetical 1% change in interest rates would change annual interest expense by approximately $22 million[231] - In April 2022, the company entered into interest rate swap contracts with a $700 million notional amount to hedge a portion of its variable rate debt, effectively fixing the interest rate on that portion[232] - As part of the April 2022 Refinancing, the company settled its cross-currency interest rate swaps for approximately $50 million in cash proceeds and discontinued its net investment hedge on the redeemed Euro notes[233][234] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures are effective as of September 30, 2022[237] - No changes in internal control over financial reporting occurred during the three months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[238] PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 16 for detailed legal proceedings, including ongoing antitrust claims and a recently settled Washington State matter - For a full description of legal proceedings, the report refers to Note 16 in the Condensed Consolidated Financial Statements[239] - The Washington State matter, previously accrued at $25 million, was fully paid and settled by SciPlay during the third quarter of 2022[139] Risk Factors No material changes in risk factors were reported from those disclosed in the company's 2021 Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the company's 2021 10-K[240] Unregistered Sales of Equity Securities and Use of Proceeds No stock repurchase activity occurred during the three months ended September 30, 2022, despite an ongoing share repurchase program - The company reported no stock repurchase activity during the three-month period ended September 30, 2022[241] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[242] Mine Safety Disclosures This item is not applicable to the company - Not applicable[243] Other Information The company reports no other information for this item - None[244] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, agreements, and CEO/CFO certifications - The report includes a list of filed exhibits, such as amendments to agreements, retention letters, and CEO/CFO certifications (Rule 13a-14(a) and Section 906)[246]