Light & Wonder, Inc. (LNW) Q3 2026 Earnings Call Transcript

Operator: I will now turn the call over to Rohan Gallagher, Executive Vice President, Global Chief Corporate Affairs Officer.

Rohan Gallagher: Thank you, operator, and welcome everyone to our third quarter 2026 earnings conference call. Joining me today are Matt Wilson, our President and CEO, and Oliver Chow, our CFO. During today's call, we will discuss our results and operating performance and refer to our earnings presentation. This will then be followed by a Q&A session. Today's call will contain forward-looking statements, including statements regarding our future operations and financial results. These statements may involve certain risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For information regarding these risks and uncertainties, please refer to our earnings materials relating to this call posted in the Investors section of our website and our filings with the SEC and lodgments with the ASX. We will also discuss certain non-GAAP financial measures. Further information, including a description of each non-GAAP measure and reconciliations of historical non-GAAP measures to the most directly comparable GAAP measures, can be found in our earnings release and earnings presentation located in the Investors section of our website. With that, I will now turn the call over to Matt to discuss the third quarter results and operational highlights. Thanks, Matt.

Matt Wilson: Thanks, Rohan. Hello, everyone, and thank you for joining us today. This was an eventful quarter for Light & Wonder, with strong showings at AGE in Sydney and G2E in Las Vegas. We showcased our full suite of products as the industry's most comprehensive gaming solutions provider. Customers responded positively to our product and content roadmap. A recent Eilers survey ranked our game mechanics the most impressive at G2E, underscoring the strength and innovation of our game portfolio. We were also named one of the most improved showings of the year. As a supplier with greater scale and a deeper content portfolio than most of our peers, we see this as an endorsement that there is further room for us to grow and gain share. Beyond the show floor, that momentum is reflected in our financial results. Continued execution on our product roadmap and business operations enabled us to expand profitability, which drove higher cash generation, allowing us to pay down debt and further reduce our leverage. On slide three, you'll see how we progressed on our priorities this quarter. First, we expanded profitability and generated cash. Net income was $133 million, up 17% from last year. Consolidated AEBITDA was $383 million, up 2%. Adjusted NPATA was $163 million, up 7%, which translated to EPSA of $2.12, up 17% year-over-year. Our adjusted free cash flow was $181 million, up 21% year-over-year. That's a big part of our story. We're focused on expanding margins and converting more of our earnings into cash. Second, we deleveraged and paid down $156 million of debt this quarter, which brought our net debt leverage ratio to 3.3x. Importantly, Fitch also upgraded our rating to positive, reflecting our financial priority to deleverage. We're committed to getting below 3x leverage in the first half of 2027, and we're on track. Paying down debt lowers our interest cost, moves us towards an investment-grade leverage profile, and strengthens our position ahead of our 2028 maturities. Third, we scaled high-quality recurring revenue. Our North American gaming operations installed base, including Grover, was 49,750 units, with sequential net adds of 571 premium units and 205 Grover units. iGaming also had another strong quarter, with record revenue of $97 million, up 13%. Overall, this was another quarter where earnings grew, cash generation was strong, and we took one more step towards lowering our leverage. You heard me emphasize the importance of our recurring revenue growth, so let's now take a look at how our quality of earnings and cash flow have trended over time leading into this year. You can see here on slide four that recurring revenue has grown from 64% of consolidated revenue in 2024 to 67% in 2025, and importantly, 71% of the first nine months of the year, equivalent to approximately $1.7 billion. That mix widens our margins, makes our earnings more predictable, supports cash flow, and helps us run the business more efficiently, especially during industry headwinds. To the right, you can see that adjusted free cash flow grew from $318 million in 2024 to $545 million in 2025, and EBITDA to free cash flow conversion improved from 26% to 38% over that time. This year, we're building on that. Through nine months, we've generated $545 million of adjusted free cash flow, which is a 50% conversion rate, already matching the total cash generated in 2025. As recurring revenue becomes a bigger part of our business, we're seeing it show up in cash. That strengthens our free cash flow profile and gives us the flexibility to delever and invest back into the business. Turning to the business unit, starting with gaming on slide six. Gaming operations and machine sales grew year-over-year by 3% and 5% to $248 million and $199 million respectively, reflecting our existing content strength and robust product roadmap. Gaming operations growth was broad-based across our North American premium, Class II, and Grover fleet in both unit installs and game performance. Machine sales were in line with our forecast, weighted to the second half and towards the fourth quarter, with year-over-year growth in the third quarter. Systems and table products declined against elevated hardware and utility sales in the prior year. As noted last quarter, system sales are expected to be down in the mid-teens percent for the year, as we are at the back end of a hardware replacement cycle. AEBITDA was up 2% to $312 million. AEBITDA margin improved 100 basis points to 56% from over a year ago, driven by favorable revenue mix shifts, continued growth in our recurring revenue base, and ongoing operational efficiencies. Let's take a deep dive into the KPIs behind these numbers here on slide seven. In North America, our installed base was 49,750 units, up 5%, or roughly 2,470 units year-over-year. Excluding Grover, the base grew 3% to 36,974 units. Within that, our premium install base grew for the 25th consecutive quarter, adding 571 units sequentially. North American average daily revenue per unit was approximately $48, up 2% on volume growth and a favorable cabinet mix. During the quarter, we also saw solid performance in our Class II coin-in, along with net installs in this segment. Our relationships in the Class II markets enable us to explore opportunities in this space to further broaden our portfolio, providing premium games to these operators as their businesses continue to expand. While our game performance remains strong, we've also noted reports of macro softness across some regions and demographics. We expect yields to be largely in line with CPI as we continue to monitor these markets. On the sales side, we shipped over 8,900 new units quarterly, up 3% year-over-year, landing at the high end of our guided range of 8,500 units to 9,000 units for the quarter. We benefited from new and expansion units compared with prior year. Most importantly, our core North American Class III and Australian markets both grew year-over-year. Excluding rolling and RFP-based adjacencies in North America, Class III replacement shipments increased over 460 units in the quarter. We're also maintaining strong pricing momentum, with global average selling prices up 5% at approximately $20,600, reflecting favorable mix and pricing from launches of COSMIC dual and LIGHTWAVE SOLAR. At G2E, we highlighted our planned and accelerated hardware releases, including the FIREBIRD and COSMIC halo cabinets, along with standalone and hybrid electronic table games. Our lineup includes both licensed and proprietary titles such as Kong: Skull Island Unchained, Back to the Future, Gremlins, and new entries into The Wizard of Oz franchise, as well as Dancing Drums, Big Hot Flaming Pots, and Dragon Trio, just to name a few. The investment we have made in our roadmap ensures minimal gaps between product launches going forward, keeping our foot on the accelerator to drive further market penetration and share gains. Importantly, the Eilers charts ranked us number one for having the highest percentage of top new core games, and our Ultimate Fire Link games were placed numbers one and three among top-indexing new premium leased and WAP games. That gives me confidence that we're ending the year strong, headed into 2027. Turning to Grover on slide eight. Revenue was driven by strong game performance and install base growth. We ended the quarter with over 12,750 installed units, up 205 units sequentially. That's nearly 1,500 more units than a year ago. Content remains our primary growth driver as we continue to integrate, with further game rollouts, progress in new jurisdictions, and a strong pipeline of leading title releases supporting ongoing growth across existing markets. We recently held our first Grover Best Games Workshop, where the teams collaborated on ways to enhance the player experience. The focus was on game segment strategy and updating multi-game menu features such as the tracks, jackpots, and displays, as we continue to evolve and refine the products to be market-ready across the charitable gaming space. On hardware, we are also planning Light & Wonder cabinet rollouts across select markets over the next 12 months. Grover remains a key growth driver. We will continue to focus on our expansion efforts in Indiana. More importantly, we are staying prepared and targeting to enter Maryland, which we believe can be a meaningful long-term driver for us. With a growing install base and a deepening content pipeline, Grover is becoming a solid contributor to our recurring revenue base. Moving on to SciPlay on slide nine. Third quarter revenue was $173 million, down 12% year-over-year. The social casino market remains under pressure, including from competition and aggressive spending from sweepstakes operators. Lower strategic user acquisition spend also brought fewer new players into our games, which contributed to the revenue decline. AEBITDA was down 6% to $67 million, and AEBITDA margin was 39%, up 300 basis points, primarily due to continued DTC expansion and operational efficiencies. DTC revenue was $53 million, up 33% year-over-year, and represented 31% of SciPlay revenue. Balancing engagement and monetization remains our key focus. Earlier this year, we made changes to make our games more player-friendly, which lifted engagement and grew our user base. While we saw green shoots, the cost to extend that momentum was not yielding returns comparable to other parts of the business. Heading into next year, we will be deliberate in how we sustain our payer base, focusing on achieving return-to-player equilibrium, redesigning features, and launching a new loyalty program, while putting the player experience ahead of near-term monetization. This will likely extend the near-term pressure we are seeing before we return to growth over the long term. Despite the softness, I am confident SciPlay's team's ability to execute, as evidenced by Monopoly's ninth consecutive quarter of revenue growth. We will focus on our marketing efforts there and work to replicate that success across the broader portfolio. I want to personally thank Josh Wilson for his many contributions at SciPlay. His leadership, vision, and commitment helped shape the business into what it is today. I am also pleased to announce that Matt Labbat will be stepping in as our new CEO of SciPlay. Most recently, Matt was head of Product Madness, where he grew that social casino business sustainably throughout his tenure. Matt brings deep experience and strong energy to the role, and we are excited about what lies ahead under his leadership. This transition allows us to review our business strategy, including our user acquisition investments, game economy performance, and cost structures. SciPlay remains a key channel for our land-based franchises, and we are focused on delivering sustainable profitability rather than quick fixes to ensure a healthy social casino vertical. Now onto iGaming on slide 10. We delivered a record quarter in both revenue and AEBITDA, driven by continued momentum in North America, first-party content proliferation, and growth in the partner network. Revenue grew 13% year-over-year to $97 million, and AEBITDA grew 9% to $37 million, with a 38% margin, down 200 basis points year-over-year, primarily reflecting revenue mix and growth investment costs. Wagers processed through OGS, our content aggregation platform, grew 13% year-over-year to another quarterly record of $31.7 billion. We also delivered our seventh straight quarter of sequential growth in first-party gaming revenue, or GGR, across the OGS network. In fact, eight of the top 10 games on OGS were first-party titles from the Pirots, Huff N' Puff, and Ultimate Fire Link families, with Pirots 5 ranking number one. Performance extends beyond Huff N' Puff, with broad-based strength across the portfolio. Over the last 12 months, new game GGR on OGS, excluding Huff N' Puff, is up 46%. One example is our first Ultimate Fire Link Triple Nova title, Desert Nights, which launched with FanDuel, is performing strongly and is now the number three game on OGS. Langley Street from ELK Studios is also off to a fast start. Third-party content also grew solidly, driven by North American network expansion and new markets as we continue to connect a growing network of studios with operators across our footprint. Our broad content portfolio continues to cement our leadership position, holding number one slot GGR market share according to Eilers. Turning to our iGaming regional update on slide 11. Our network scale continues to open markets for our content. In North America, we are entering the Florida market with our first game expected to launch in the fourth quarter. ELK Studios launched its first multi-state digital native game, Huff N' Puff CollectR, in the third quarter following Pennsylvania licensing. In Canada, Alberta is ramping following its July opening, and we expect the country to be a meaningful contributor to growth, supported by continued momentum in Ontario and other provinces looking to legalize iGaming. The beauty of our business is that we build our content once and deploy it globally, so we are ready to move quickly as new markets open. Looking ahead, I'd note two international headwinds. The first is the U.K. tax increase in April. Underlying business remains strong, and our market share has been resilient. The second is Brazil, where we have disabled all content after the government banned online gaming. Overall, we remain confident in our iGaming roadmap and expect this segment to continue to contribute steadily to our growth. To wrap up, we grew earnings, turned more of them into cash, and lowered leverage this quarter, with performance backed by our R&D engine and recurring revenue now 71% of our business. We're focused on finishing the year strong and getting below three times leverage in the first half of 2027. With that, I'll turn it over to Oliver to walk through the quarter's financial summary.

Oliver Chow: Thanks, Matt. With the headlines covered, I will provide details on earnings, cash flow, balance sheet, and the outlook. Let's turn to slide 13 and our third quarter group results. Consolidated revenue was $824 million, down 2%, impacted by two specific areas of the business: the decline we saw at SciPlay and timing of system sales in the gaming segment, both highlighted last quarter. Top-line growth remains strong across the other parts of the business, particularly in our core recurring revenue segments. Net income was $133 million, up 17%, or $1.72 per diluted share, up 28% from $1.34 a year ago, driven by margin strength from our favorable revenue mix and ongoing operational efficiencies. Consolidated AEBITDA was $383 million, up 2%, reflecting continued execution across key focus areas and ongoing operational efficiencies, which drove consolidated AEBITDA margin up 100 basis points year-over-year. Importantly, we delivered adjusted NPATA growth of 7% to $163 million, benefiting from the consolidated AEBITDA growth, strong margins, lower interest expense, and lower stock-based compensation. EPSA growth was even stronger, up 17% to $2.12, compared with $1.81 in the prior year period. For the first nine months, consolidated revenue was $2.44 billion, up 1% year-over-year. Net income was $305 million, or $3.90 per diluted share, compared with $291 million, or $3.39 a year ago. Consolidated AEBITDA was $1.09 billion, up 5%, and consolidated AEBITDA margins rose 200 basis points to 45%, validating that our margin gains are building throughout the year, not just in one quarter. Adjusted NPATA was $435 million, up 7%, and EPSA was $5.56, up 18%, with both growth rates comparable to the quarter. Turning to the AEBITDA bridge for more details on slide 14. The $8 million year-over-year increase reflected growth in gaming and iGaming and lower corporate costs, partially offset by lower SciPlay contribution. Gaming AEBITDA rose $7 million with margin up 100 basis points to 56%. Growth was driven by our recurring revenue base, higher machine sales, and lower operating expenses. SciPlay AEBITDA was down $4 million, with lower revenue partially offset by lower costs and continued direct-to-consumer expansion. iGaming AEBITDA rose $3 million on continued first and third-party content growth from North American expansion and new markets, which more than offset the impact from the U.K. tax change. Corporate and other costs were $2 million lower than a year ago, driven by timing of legal costs, which offset higher technology and other operating costs. Going forward, we continue to expect corporate costs to be within our guided mid to high $30 million range. Growth in adjusted NPATA was primarily driven by an $8 million increase in AEBITDA. Depreciation and amortization was a $1 million headwind on higher depreciation from gaming operations assets. Lower stock-based compensation added $4 million, and lower interest expense contributed $4 million as we paid down debt. Income tax was a $5 million headwind on changes in worldwide income. Together, this increased adjusted NPATA by $10 million to $163 million. Turning to the nine-month bridge on slide 15. Consolidated AEBITDA increased $55 million over the prior year period. Gaming added $50 million, mainly from gaming operations and operational efficiencies. iGaming added $14 million from revenue growth flow-through, and SciPlay was down $5 million as the social casino market softened, partially offset by direct-to-consumer expansion. Corporate and other costs rose $4 million, reflecting investments in AI and higher legal fees earlier this year. Below AEBITDA, depreciation and amortization was a $15 million increase from the larger install base of gaming operations in Grover. Interest expense was a $14 million impact from higher debt from the Grover acquisition, and income tax was a $4 million benefit, leading to an adjusted NPATA increase of $29 million to $435 million. Our business continues to evolve into a highly cash-generative profile, as you can see here on slide 16. Net cash provided by operating activities was $236 million, up 28% from $184 million a year ago, reflecting strong underlying earnings, lower interest payments, and the absence of costs we incurred last year related to the Grover acquisition and our transition to an ASX sole primary listing. Adjusted free cash flow grew 21% on growing underlying earnings with favorable product mix and ongoing efficiencies, lower interest payments, and favorable timing of receivable collections and expenditures. We expect the strength of our complementary businesses and scaling recurring revenues, combined with our disciplined operational approach, will continue to support self-funded growth as we build towards sustainable long-term returns. As a reminder, free cash flow moves quarter to quarter with the timing of tax, interest, and working capital, and we assess it on a trailing 12-month basis. We delivered a 47% conversion rate against consolidated AEBITDA and 111% against adjusted NPATA, up from 40% and 97% a year ago. While our conversion rate was exceptional in the quarter, I would flag that timing will always be a factor, and we would not expect it to be linear quarter after quarter. This robust cash generation is what is reshaping our balance sheet. Cash we do not use to reinvest goes towards reducing debt, which reduces our interest costs and in turn supports the free cash flow we just walked through. That is the cycle we intend to keep building as we move toward a lower leverage profile and optimized capital structure, as you can see here on slide 17. Net debt leverage was 3.3x at the end of Q3, down from 3.4x last quarter, and we remain on track to be below 3x in the first half of 2027. The principal face value of our debt was $5 billion. We have no maturities until 2028, an average maturity of about 3.6 years with a 55% fixed and 45% floating mix, and an effective interest cost of 6.36% for the quarter. Available liquidity was approximately $1.1 billion as a result of debt repayments from our revolving credit facility in the quarter. Our capital allocation framework you see on slide 18 remains the same, investing with discipline in growth, optimizing our capital structure, and returning capital to shareholders. For now, we are prioritizing debt reduction. Starting with disciplined investments, we continue to target annual R&D and capital expenditures of roughly 17% of our consolidated revenue. We are focused on maximizing the return of every dollar invested in areas such as content and studio expansion, Grover, and AI. At the same time, we're reviewing spending where costs are high and returns are low. SciPlay is one example where we've assessed and redirected investments to games and other businesses until the UA spend return ratio normalizes. Regarding our capital structure, we repaid $156 million of debt in the quarter and are progressing towards our net debt leverage target, as I just mentioned. Fitch's upgrade of our outlook to positive reflects that commitment to deleveraging. Consistent with our deleveraging focus, we made no share repurchases in the quarter, leaving about $180 million under our authorization. Buybacks remain a permanent part of how we return capital to shareholders. Since our first program in 2022, we have returned $2.1 billion to shareholders, or about 27% of shares outstanding before we began. Separately, we commenced on-market purchases of CDIs, which are held in trust during the quarter, which equated to $30 million of CDIs to offset future dilution from vesting and exercise of equity rewards. This will be an ongoing feature of our capital structure and our commitment to active capital management. Now I'd like to provide a business segment update as we close out the year here on slide 20. Historically, the fourth quarter is the strongest for gaming, particularly gaming operations, and growth expectations for both North America and Grover remain the same. Regarding the sales cycle, I want to note that we had approximately 2,000 SSBTs in the fourth quarter of 2025 that are not replicable this year, and we expect systems revenue to be down mid-teens for the year. That said, I remain confident in the other parts of the gaming business with the positive feedback we received coming out of the gaming expos. For SciPlay, we assume below-market performance in the fourth quarter, and iGaming growth to moderate due to the international headwinds we discussed earlier, which we'll continue to offset with the robust content deployed throughout 2026. Regarding our fiscal year 2026 outlook, we expect consolidated AEBITDA growth to be towards the lower end of our previously announced range of mid to high single digits, supporting strong adjusted NPATA and EPSA growth. From a capital management perspective, we remain committed to going below three times leverage in the first half of next year. Despite the external headwinds we highlighted earlier in the year, we continue to invest and optimize our business for the future. Importantly, we control what we can, which is to build great games that players enjoy playing. We will continue to stay nimble, navigating dynamic macro environments, and communicate timing of sales to the market. Above all, we will never compromise the foundational R&D structure of the business to meet any short-term external expectation as we continue to work towards our long-term targets. Lastly, I'd like to thank the team and all of our stakeholders for their continued support. Operator, we'll now open up the call for questions.

Operator: Thank you. We will now begin the question-and-answer session. As a reminder, if you wish to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please limit yourself to one question. If you have any additional questions, please re-enter the queue. To withdraw your question, please press star one one again. Your first question comes from Matt Ryan from Barrenjoey. Please go ahead. Your line is open.

Matt Ryan: Thank you. I was just keen to get a comment on the driver of the rephrasing of the guidance, and also maybe if you could just hone in a little bit on the game sales component within the guidance, and maybe just talk about your previous expectations around adjacencies and expansions and whether that still holds.

Matt Wilson: I will kick off, Oliver, and I will hand to you just to kind of go through a bit of the bridge. Obviously, eight weeks left in the year, so required us to tighten the range. A lot of things change as you kind of get through the remainder of the year. I would say if I start with the parts of the business that have performed above our expectations, I think gaming ops continues to nicely add units quarter after quarter. Fee per days remains strong. I would say iGaming has been a strength of ours with continued 1 pp expansion. We are proud of the fact we are number one in slots in the U.S. now with really solid momentum. Grover is doing a fantastic job for us, just kind of almost metronomically adding 100-200 games per quarter. That is really exciting. Then on the core U.S. replacement market, I think that has performed kind of above our expectations. The areas that have a little bit underperformed, like in the last couple of months, I would say obviously SciPlay, challenge sector, no doubt sweepstakes have been deemed illegal, but they have not left the space. There is kind of more sweepstakes operators, offshore sweepstakes operators entering the category, which is providing headwinds to the category at large. I would say systems is in a rebuild phase for us. It is just coming off kind of the long tail of the hardware replacement cycle. So, we have got a new leader in the seat there to kind of reboot the growth for that category. There has been a bit of a delay in the international launch of COSMIC. We launched that in Australia back in May. We have just gone live this week actually in Macau with the COSMIC launch. Some delays on the Asia release of that platform. Just some exogenous things that have hit us over the last few months. I think Brazil, whilst not material, has been a headwind for us in shutting that market down. Some rapid increases in the cost of memory. All that to say, wanted to refresh the outlook with our eight weeks remaining. Just wanted to make sure we narrow the band and just give people a bit more clarity on where we see the year finishing up. Oliver, anything I missed?

Oliver Chow: Yeah, I think my only add to that, Matt, was pretty comprehensive, is we are cycling over a couple of tough compares from last year. We had 7,000 units from a North America game sales perspective last year. We are starting to see some of our adjacent markets start to ramp up, Matt, to your question. We are starting to see Canada VLT starting to ramp up here in the fourth quarter. I think it was going to be a more prominent fixture in our business as we move into 2027 and beyond. I think we have talked extensively about the systems, kind of mid-teens kind of downgrade in revenue just based on the hardware recycle, refresh recycle that we are kind of working through at the moment. I think those are a couple kind of domestic items that we are working through. There was also about 2,000 units in the U.K. last year, SSBT orders that is not going to repeat itself this year. I think there are a couple of headwinds that we are working through, but to Matt's point, we have got really good momentum in some of the content releases that we are providing. Our recurring revenue business continues to scale really nicely here as we head into the fourth quarter, and that is going to be a more prominent fix.

Matt Ryan: Thanks, guys.

Matt Wilson: Appreciate it, Matt.

Operator: Thank you. Your next question comes from Barry Jonas from Truist. Please go ahead, your line is open.

Barry Jonas: Hey, guys. Thanks for taking my question. As we look at consumer gaming trends here in the U.S., they seem pretty solid, but there's definitely some challenges in some markets around non-gaming, and public stock valuations, at least definitely for U.S. companies, have been weak year to date. I wanted to get your thoughts, how you think all this could translate to operator slot budgets and game ops allocations as we think about 2027. Thank you.

Matt Wilson: Yeah, great. It's a recurring question, so it's something we obviously monitor very closely. Given the dynamic that you get from rising gas prices and kind of expanding broader inflation, can really have an impact on consumer discretionary. So, it's a logical question to ask. We see what you see in the broader macro environment. I think we've proven over the years to be agile. In 2025, early 2025, we got hit with tariff costs. As an industry, we found a way to kind of overcome that. We've seen rising input costs, but you can still see our margins expanding. As a team and as an industry, I think we find ways to kind of navigate around that. You zoom out, you look at the broader operator GGR, I think regionals remain strong and tribals remain strong, which is really kind of the lifeblood of our organization. Some of the destination markets are a little bit more mixed. I think it kind of emulates that K-shaped economy. The higher-end properties seem to be doing well. Some of the lower-end properties are struggling a little bit, which is kind of endemic of the broader economy. I would say those destination markets are a smaller percentage of our revenue base. What is most important for us is really that Eilers slot survey that came out yesterday, which looks at forward purchasing intentions. From a CapEx replacement cycle perspective, that rose from 6% to 6.8%. That is operators telling you, they are actively looking to potentially replace more of their floor going forward than they have done historically. Then the percentage of the floor that is premium gaming ops remains elevated at 15%. I think they are the two lead indicators that we really look at in terms of what are our customers intending to do for the next 12 months, and they both look very constructive. We watch that closely, but we think that is probably the best signal for what is going to happen in the broader market. Then our responsibility is to capture as much share of that as possible. We stay watchful and we remain nimble, but I think those two lead indicators are constructive for us as an industry.

Barry Jonas: Perfect. Thank you.

Matt Wilson: You are welcome.

Operator: Thank you. Your next question comes from Andre Fromyhr from UBS. Please go ahead, your line is open.

Andre Fromyhr: Thank you. Good morning. Just wondering if we could talk in the ops business about what's driven your revenue per day up 2%. That looks like it's slowed down a little bit from what we've seen earlier in the year. Previously you've separated out the impacts of Grover, but I understand you're now cycling, having already owned Grover last year. If you could just talk through some of the drivers of how it's got to 2%.

Matt Wilson: Yeah, it's the right question. This is our biggest business, probably the highest valued on a sum of the parts basis. We're proud of the momentum we've had in gaming ops over the last kind of three or four years, really driven by the quality of content and hardware. Another solid quarter of net adds for us, so 1,111 units in totality, all the ones for the quarter. That was a great result. 571 premium, which is above that 500 guide we've given you. 205 Grover, which we think is great organic momentum. Probably the hidden story here is really Class II, which we haven't spoken about as directly, but we're seeing some really fantastic results in the Class II install base, kind of adding premium games to the network, and we think that's a really fantastic opportunity for us going forward over a multi-year basis. So, excited about that. Yeah, we kind of signaled the yield would kind of normalize a little bit. We were kind of in the 5%-6% range over the last few years. We said it would get to more like CPI-led growth. That's really a function of mix more than anything. The industry is really transitioning more towards fixed-fee product, which you don't have that same kind of elastic upside when the games are performing well. I think it's the thing that's driving the category expansion. If you go back to 2019, it was 9% of casino floors. It's now 15%, which I think is a really fantastic thing for operators that are playing in that space. A big, robust, growing install base leads to predictability in revenues, which is great for us as a business, great for the investors on the line. So, yeah, we kind of called the normalization of that yield down to 2%-3%, or CPI as we called it. We still think that is industry leading. Our major rival has not been growing at those levels. They have been more flat, kind of year-on-year and quarter-on-quarter. So, yeah, we think we can sustain that type of yield growth. But importantly, we just want to keep adding more and more games every quarter and just have a big, robust install base. I would say on the Grover side, yeah, we have reduced the amount of visibility just on Grover for a few reasons. One is we are the only public supplier in the space, so us providing data points to our competitors does not feel like it puts us in a competitive advantage. I think lumping it into the broader gaming business and giving you more qualitative context around the performance of that business is the right thing for us to do from a competitive dynamics perspective. So I think that covered it in total. Yeah.

Andre Fromyhr: Thank you.

Matt Wilson: You are welcome.

Operator: Thank you. Your next question comes from Thomas Forte from Maxim Group. Please go ahead. Your line is open.

Thomas Forte: Great. Thanks, Matt and Oliver. Thanks for taking my questions. I have one question, two parts on SciPlay. I appreciate all the color. What metrics are you focused on before you would consider investing in user acquisition growth once again? Then second part, given the favorable trend when it comes to an increasing mix of higher margin direct-to-consumer revenue, how much flexibility does that provide you to invest in games and make other adjustments without putting a strain on margins?

Matt Wilson: Yeah, that's a great question. I'll use this as a bit of a catchall to get the points in about SciPlay that I want to make, and then Oliver's obviously stepped in nobly as our interim CEO, as we've been searching for a new CEO of that business. I will hand it to Oliver in a moment. I'll say from the outset, I want to thank Josh Wilson for his contributions to SciPlay. He's been with the business a very long time, nearly 20 years. Made a big impact on the business, leaves behind a great legacy. Businesses from time to time require a transition in leadership to bring fresh perspectives, and this is a very normal thing for us. We've done a search extensively across the industry, had a lot of really high-quality candidates to pick from, and we landed on a gentleman called Matt Labbat, who's been in the space for a long time, worked with one of our major competitors, who's been, if we're honest with ourselves, outperforming us. He brings a wealth of perspective, energy, history in the category, so we're excited to see what he can do for us in terms of just reinvigorating the team, the games, the portfolio. He's actually on the ground this week in Tel Aviv, working with the teams and reviewing the games. So, we see a bright future for SciPlay. We think it's an important part of our portfolio. It's another great way for us to sweat the investments in game content that we spend, and those investments are ramping, so an obvious way for us to redeploy those resources. The ability to A/B test with the B2C business gives us the leverage points to make even better games, which makes the ecosystem even better. I'll hand it to Oliver to make some comments. Obviously, he's been in the business in the last couple of months, for his perspective on the questions around ROI and user acquisition.

Oliver Chow: Yeah. Thanks, Matt, and great to hear from you, Tom. I think from my perspective, I'll start by saying I've been very impressed with kind of the broader leadership team as well as all the SciPlayers. I think through this transition, it's never easy to go through a leadership change, but I think what I've seen over the last month and a half, is really the passion and the engagement levels that gives me a lot of confidence as we move forward. We haven't been sitting idly as we're waiting for the new CEO, for Matt Labbat to start. We have started to kind of rethink, Tom, all things SciPlay. So personnel, how do we look at game execution, capital allocation? So how can we reassess ROI, to your point, in terms of some of these UA? We know that CPIs are increasing in this marketplace, especially as we head into the fourth quarter. Seasonally, it is the highest CPI quarter for us. But with sweepstakes and other kind of headwinds in the marketplace, we do have to kind of relook at that. So, that's on the agenda for us here in the near term. I think we will continue to kind of find ways to invest prudently into the SciPlay engine. But more importantly, how do we bring new games into the ecosystem? I think we've lost some of our innovation over the last couple of years. So, can we bring a Huff N' Puff IAP game into the marketplace, and then how can we invest behind that over the long term? I'm extremely excited to kind of work alongside Matt Labbat and get his fresh perspective, but it's going to be a bit of a journey for us, Tom, so we'll work through that over the coming months.

Thomas Forte: Great. Thanks, Matt. Thanks, Oliver.

Matt Wilson: You are welcome.

Operator: Thank you. Your next question comes from David Fabris from Macquarie. Please go ahead. Your line is open.

David Fabris: Great. Hi, Matt. Hi, Oliver. I have a question on market expansion opportunities in land-based. It would be good to hear your comments and thoughts on Chicago VGTs and Pennsylvania skill. I know both markets have not been approved or open yet, but can you talk about the opportunity if they do go live? It would be good to understand if you have product to serve those markets and how it performs. Then second to that, just on Grover, I think New York might be opening very soon, and are there any other states that we should be watching that are likely to open? I think Alaska might have been one that has been mentioned. Yeah, it would be great to hear your thoughts across those questions.

Matt Wilson: Yeah, a lot to unpack there. Obviously, the elections yesterday kind of throw a bit of a new lens on what that could mean for state legislatures. We are looking at that closely. We have the best in the business, a guy called Howard Glaser, who leads those efforts for us. He is very close to the trials and tribulations of what the changes in government can potentially mean for our end markets. The two big ones that you mentioned earlier, Chicago, I guess the late-breaking news as of today, we have heard Chicago is now approving applications for locations, venues to start taking games. That is now a very real and live opportunity. I saw your note yesterday, Fabris, I read every one of them, saying that Accel has been including that opportunity in their forecast. Chicago is a very real opportunity. There is a range of different forecasts out there around the potential market size, anywhere from 6,000-10,000 are numbers that I have heard. It is probably somewhere in that realm is the reality. The answer, do we have a product available? Yes. It is the same product we have been shipping for the last 15 years into the Illinois VGT market. It is a lift and shift from Illinois VGT into Chicago. We have been a 40%, 50% share player in that space. This is a very real opportunity for us, one that will start to include in our forecast very late this quarter, but then 2027, Chicago looks like a pretty sizable opportunity for Siobhan and the gaming team. I would say Pennsylvania is probably a little bit further afield. Obviously, we talked about at G2E, that pending flip to those skill-based games becoming illegal. We thought maybe there would be an emergency piece of legislation that could find a way to legalize that skill-based market. That did not happen. From what we understand, the Democratic governor in that space is a proponent of gaming to fund the programs that they want to fund. Potentially, you might see something active in that space in 2027. We do not forecast or build plans around things that we do not control, so it is just something we watch very closely. If you remember, we entered both Georgia COAM and Nebraska skill-based, which Georgia COAM is a very large market. Nebraska is a smaller market, but both strategically interesting for us. That same game type is the thing, is the skill-based product that goes into Pennsylvania and Virginia and other skill-based markets. We have a product available. If it regulates, we will enter. Our stance on this is we are pro-legalization of gaming in regulated forms, in taxable forms, in all their variants. When historical horse racing opened, we were the first to enter that. When iGaming opened, we were quick to enter that market. If skill-based regulates, we will enter that market. It is something we watch closely and something we have built a product and a capability set for. Beyond that, lots of opportunity in the charitable space. The next big thing for us, we mentioned in the pre-record, was Maryland. There are two markets in Maryland, an existing charitable gaming market, and then there is a government-run charitable gaming route. We are actively pursuing both of those opportunities. Maryland is probably the next shoe to drop for us as it relates to the charitable space. New York is working through the regs. Howard Glaser, who I mentioned earlier, is working hand in glove with Brian Brown to try to shape the regulations in a way that fits our product requirements. Beyond that, Alaska got close in the last session, potentially could happen in 2027. There is lots of industry analysis and advice on this, which I would point you to, but we stay active and watchful in this space and ready to capture our share of any potential further market expansion.

David Fabris: Perfect. Very detailed responses. Much appreciated.

Matt Wilson: That is welcome.

Operator: Thank you. Your next question comes from Liam Robertson from Jarden. Please go ahead. Your line is open.

Liam Robertson: Thank you. Morning, guys. Just one on Grover. I mean, I appreciate it is still early days, but can you give us a sense of how the Light & Wonder titles are performing versus the incumbent Grover content? Maybe a second part to that, just how should we be thinking about the selective hardware rollout? I mean, can you give us a sense of the markets you are targeting next?

Matt Wilson: Yes. We are just starting to scale the content. As we mentioned on the last call, we are putting in some kind of third-tier, I would suggest, brand that we could really trial and maybe error, like some of the math profiles. These are very different games from a backend perspective, as you can appreciate. They are driven off these e-pull tab style of math. We figured that out. We have got a great game designer in Kellen Dale, who is leading our efforts there. He has worked historically on things like porting our Class III games to historical horse racing, VLT markets, so he is very familiar on how to adapt our IPs for these new end markets. We are excited about that. You will start to see some of our big known brands hitting those markets, albeit they are kind of reconfigured for the charitable gaming space. So they will be unique in terms of the math profile for those end markets. So you will start to see the big brands like Huff N' Puff and Ultimate Fire Link hitting the market towards the end of this year. Then you will also start to see some of our better cabinetry show up, COSMIC, which has been a phenomenon for us in the Class III space. You will start to see that in select markets like Virginia, Kentucky, and we will go market by market just to make sure that we have got the appropriate amount of resources to cover the existing install base, but then also adding kind of new complexity. Yeah, I would say 2027 is the year where we really start to ramp Light & Wonder content and hardware into the space. So far, it has been a unit install story, which has been fantastic. We have added over 1,500 units to the install base since we took ownership not so long ago. I think the next chapter will be more install base growth, but you will start to see some yield optimization from more and better content coming out on the route. We are pretty excited about what that can do for us in 2027.

Liam Robertson: All right. Thanks, Matt.

Operator: Thank you. Your next question comes from Mark Wilson from Royal Bank of Canada. Please go ahead. Your line is open.

Mark Wilson: Thanks very much, Matt and Oliver. Matt, just coming back to SciPlay, when does Matt Labbat actually start in the seat?

Matt Wilson: Believe it or not, he is in Tel Aviv this week. We announced him two hours ago. He is already on the ground working with the teams in Tel Aviv. He will spend next week back in the U.S. with us, working through a bit of a whistle-stop tour of all the different locations, all the different games. He is a quick study. He was with Product Madness for an extended period of time, led that division for our competitor. He can very quickly do a side-by-side of what is working, what needs to improve. I think we are in very capable hands with Matt and looking to see a turnaround plan for SciPlay. He is excited about the opportunity. He is already seeing some things that excite him, and I think a big part of that is the team. He's inheriting a fantastic team across Cedar Falls and Austin and Tel Aviv, so inherits a fantastic talented leadership group and extended leadership group that he can work with to get these games back on track to where we need them to be.

Mark Wilson: Great. Thanks. Just the comments about delays in CapEx timing for your customer base, can you just elaborate upon that? What you're sort of seeing in the market, and is this sort of one or two major customers, or it's a little bit more broad-based?

Oliver Chow: Yeah. I think as we kind of work through the balance of this year, clearly we'll work with our operating partners. If you read the Eilers latest survey, it seems like we're still in pretty good shape from a CapEx timing point of view. But of course, as we head to the end of the year with, as Matt mentioned, some of the uncertainties potentially across the broader markets, we'll continue to monitor that. But I think, broadly speaking, we feel pretty good about kind of the timing of capital.

Matt Wilson: Yeah. There was one major shift in CapEx for an adjacency that rolled out of 2026 into 2027, so that's really a rollover of one of the big adjacent VLT markets. But beyond that, I think the broader Class III replacement, as indicated by that slot survey, is in a good spot.

Mark Wilson: Yeah. No, it was quite encouraging. Okay. Thanks. Thanks very much.

Matt Wilson: Thanks, Mark.

Operator: Thank you. Your next question comes from Adrian Lemme from Citi. Please go ahead. Your line is open.

Adrian Lemme: Good morning, Matt and Oliver. I was interested as we look out to FY 2028, you've again reiterated that $2 billion target for AEBITDA. Visible Alpha consensus is forecasting much less than that, sort of a bit less than $1.8 billion. When you break it down to the earnings drivers, like what area do you think the market is underappreciating here, please?

Matt Wilson: Yeah. I mean, great question. Look, I will be blunt in the first response here that we have not performed to expectations this year, both internally and externally. However, we still do see a path to the $2 billion number. I mean, what is most important, I think, for investors is we operate in several large, growing, recurring revenue markets, and we have got strong and improving market positions. Very healthy opportunities for us in front of us. As a management team led by me, we believe in doing big, bold, ambitious things. We did that when we set the $1.4 billion target and worked hard over the space of three years to get there. There is a long and winding road and multiple pathways to get there, and we see it the same way with this $2 billion. Things are evolving. Obviously, SciPlay is performing a little less than we expected. Systems is the same, but gaming ops and Grover and iGaming ahead of where we expected to be. We refresh our plans every year, and so we are in the process of doing that again. I think importantly, $2 billion is not the end goal for us, the same way $1.4 billion was not the end goal for us. What is important to us is investing for the future, and we have got years and years of growth in front of us, so we will not be making short-term decisions about investment profiles to generate a short-term number. We will invest the appropriate amount of money to drive the business over the long term, but we do see a pathway to get there, albeit it is changed from where we have been just a year ago.

Adrian Lemme: Appreciate that, Matt. Can I just clarify, do you think there is still a path to get there without making further acquisitions? Do you think you can get there organically, or you are looking to sort of top up with this?

Matt Wilson: Well, we have always said we will take every opportunity to deliver to that goal, and if we do an acquisition, that would be something that would accelerate it or push it beyond. We have got things like AI in the hopper. We have got these new markets we just discussed. So, there are pathways that we have to explore to get there. We understand we are a long way from where consensus is at the moment. We still think that the consensus numbers still a great growth outlook for a company. We will be pushing to do something quite further north of consensus, but it is an evolving landscape, as you know, and the markets are a fickle place, and things can hit us from an exogenous perspective like they have with Brazil or tariffs or you name it. But we are constantly kind of revalidating our pathways on a constant basis and preparing the path ahead, and that is what we will do in this instance as well.

Adrian Lemme: Thanks, Matt.

Matt Wilson: You are welcome.

Operator: Thank you. Your next question comes from Justin Barratt from CLSA. Please go ahead. Your line is open.

Justin Barratt: Hey, guys. Thanks for the opportunity. My question today is just on free cash flow, so maybe a bit more focused towards Oliver. Can you just talk about what is driving the benefits to the free cash flow print today? Just noting a bit of commentary around timing of receivable collections and expenditures. Is that meaningful, and could that unwind and be a bit of a headwind for free cash flow going forward? Thank you.

Oliver Chow: Yeah. Thanks for the question. I think this, to me, was the highlight of the quarter. Just another strong quarter of cash generation across the board. Matt mentioned this on the prepared remarks, but if you look at where we were from a full-year perspective last year, we have now matched that through the third quarter. We continue to drive really strong growth here. In fact, we could be circling the mid-40s from a conversion rate before it is all said and done at the end of this year, which is very exciting. I know we have been talking a lot about that over the last couple of years, but I think for us, it is really a lot of the same key drivers that we have talked about. Recurring revenue, and that continues to scale quarter in, quarter out. I think iGaming is just another example of how we can continue to drive top line and margin growth for us, and then ultimately translate that into free cash flow. I think we have been pretty strong in terms of managing some of the puts and takes. We know there is always a bit of timing in terms of interest payments, so we expect fourth quarter to have some headwinds related to interest payments. But if you look at it from a full-year point of view, you hear me say this a lot, always look at free cash flow on a trailing 12-month basis. We are going to show really strong growth year-over-year. I think for us, we should continue to cycle through that, and we are going to continue to expand free cash flow outcomes over time. Whether it is inventory, whether it is working capital, those are things that we are continuing to monitor. I feel pretty good about our position as we move forward.

Justin Barratt: Thank you.

Operator: Thank you. Your next question comes from Rohan Sundram from MST Financial. Please go ahead, your line is open.

Rohan Sundram: Hi, Matt and Oliver. Thanks. Just one question from me, and it is around the debt reduction. It is encouraging to see the initial signs of it this Q3. How should we think about it in future quarters? Is the intention to ramp it up further, or just any color around the cadence and the like would be appreciated. Thanks.

Oliver Chow: Yeah. Thanks, Rohan. Great question. Yeah, I think from my point of view, what we communicated to the broader market last quarter remains intact. Our focus right now is to pay down debt and to delever, and we saw that in this past quarter. We paid down $156 million of the debt. We brought gearing down to 3.3x. We have absolute line of sight to call it the midpoint of that range by the end of this year, and we are fully committed to getting below three times by the first half of next year. So, given the free cash flow generation I just mentioned in the last question, I think that gives us a lot of optionality as we head into the first half of next year. We can continue to pay down a significant amount of debt. We're going to start looking at the B, pay down some of the B as well. I think this is a great place to be. If you look at our long-range plan, it's going to generate significant amounts of cash, and that's going to give us a lot of flexibility, liquidity as we head into next year. I think we're in a really good position heading into 2027.

Rohan Sundram: Thanks, Oliver. The commitment to achieve an investment-grade rating, does that imply 2.5x or better?

Oliver Chow: No, I think what we said is we want an investment-grade profile, and that, to me, is if you think about where we are right now, we got the S&P up to BB+. I think we'll evaluate what that looks like as we move forward. That's probably somewhere in that 2.5x range, to your point. But again, we'll get to below 3x in the first half of next year. We'll reevaluate our capital allocation priorities, and then we'll go from there.

Rohan Sundram: Thanks, Oliver.

Oliver Chow: Thank you.

Operator: Thank you. Your next question comes from Kai Erman from Jefferies. Please go ahead, your line is open.

Kai Erman: Thanks, guys. Just one from me. Matt, some of your comments earlier, you're quite positive on some of the momentum you've had from some of your new game launches, particularly following AGE, but more recently, G2E. I mean, how should we think about You've obviously kind of put full-year guidance, but talking about revenue specifically in gaming, is your expectation that we see acceleration of that revenue growth back to that kind of mid-single-digit area for gaming in the fourth quarter?

Matt Wilson: Yeah, fourth quarter's, like, we've got eight weeks to go, so I won't want to guide on specific parts of the business. I will talk about product momentum. G2E was an unbelievable show for us, probably the most deepest, broadest lineup we've had, led by Kong and Back to the Future, Gremlins, Willy Wonka, Wizard of Oz variants. Anyone that was there, it was a great display, so the team should be acknowledged and applauded for that. We also launched two new cabinets in HALO and FIREBIRD. We've got the number one cabinet in the for-sale market at the moment with the SOLAR cabinet. But I think what we should all be worried about more is, like, what are operators saying about us? And they voted us number one at the show on the back of the quality of our game mechanics. They also voted us the most improved scaled supplier in the market, which points to further ship share ahead. Their forward intentions on CapEx and ship share allocation looks really solid in the survey that came through yesterday, with the number one new core game supplier in the market. There is tons of momentum building for us. It is an exciting place to be, and operators are saying that, which is the most important thing. You can look at the Eilers survey and judge that for yourself. You will see an acceleration in the fourth quarter. There are some large new openings coming through, which are significant, which will drive that, and some big systems opportunities as well. But like I mentioned earlier, what is the most important thing is that we are setting this business up for years of sustained success. I think you are seeing the investments we are making in the content engine, led by Nathan Drane and the scaling studios, is showing lots of signs of great positive return on investment. And every dollar of investment we put into that content engine, it helps land-based gaming, it helps every region, it helps VLTs, skill-based market, it helps SciPlay, it helps iGaming, it helps Grover. So, tons of momentum building, and I think you will start to see that return to revenue growth coming through in the gaming business. And you will see it first and foremost in Q4, but sustained over the arc of time based on the back of the product investments we are making.

Kai Erman: Perfect. Thanks, Matt.

Matt Wilson: You are welcome.

Operator: Thank you. This concludes today's question and answer session. I will now hand back for closing remarks.

Matt Wilson: I appreciate the great questions and everyone joining the call today. Promising customer feedback and industry data gives us the confidence as we finish the year strong and head into 2027. We will stay focused on disciplined execution that drives strong cash flow, allowing us to reinvest in product innovation and talent while getting leverage below 3x, like we have committed to in the first half of next year. Before we close, I would point you to our 2025 Global CSR Report on our website, which details the measurable progress of our ESG program. I want to also thank our teams worldwide for their hard work and dedication, and our customers, partners, and shareholders for their continued support. We wish you and all of your families all the best as we head into the holiday season. Thanks for joining the call.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.