LIGHT & WONDER, INC.
The following discussion is intended to enhance the reader's understanding of
our operations and current business environment and should be read in
conjunction with the description of our business (see Part I, Item 1 of this
Annual Report on Form 10-K) and our Consolidated Financial Statements and Notes
(see Part IV, Item 15 of this Annual Report on Form 10-K).
This "Management's Discussion and Analysis of Financial Condition and Results of
Operations" ("MD&A") contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and should be read in
conjunction with the disclosures and information contained and referenced under
"Forward-Looking Statements" and "Risk Factors" at the beginning and in Part I,
Item 1A, respectively, of this Annual Report on Form 10-K. As used in this MD&A,
the terms "we," "us," "our" and the "Company" mean L&W together with its
consolidated subsidiaries. Unless otherwise noted, amounts, percentages and
discussion for all periods included below reflect the results of operations and
financial condition from our continuing operations, as further discussed below.
BUSINESS OVERVIEW
We are a leading cross-platform global games company with a focus on content and digital markets. Our portfolio of revenue-generating activities in our continuing operations primarily includes supplying game content and gaming machines, CMSs and table game products and services to licensed gaming entities; providing social casino and other mobile games, including casual gaming, to retail customers; and providing a comprehensive suite of digital gaming content, distribution platforms, player account management systems, as well as various other iGaming content and services. We also gain access to technologies and pursue global expansion through strategic acquisitions. We are incorporated inNevada . For more information on our corporate history, please see the General introduction to Part I, Item 1 "Business" of this Annual Report on Form 10-K above.
During 2022, we completed divestitures of the Lottery Business and Sports Betting Business and have reflected the financial results of the Divested Businesses as discontinued operations in our consolidated statements of operations for all periods presented.
Highlights and Recent Developments
Strategic Update
During the second quarter of 2021, with the support of our Board of Directors, we completed our strategic review and set forth our strategy to become a leading cross-platform global games company with a focus on content and digital markets. We established a strategic roadmap to drive long-term value that consists of: (i) growing our market share and leveraging our differentiated position, (ii) streamlining our organization, (iii) driving sustainable growth and maintaining a healthy balance sheet, and (iv) a disciplined capital allocation strategy. As a result of this strategy, during 2022 we completed divestitures of the Lottery Business and Sports Betting Business, which marked a major milestone in transforming and deleveraging our balance sheet. The Lottery Business was sold during the second quarter of 2022, for which we received approximately$5.7 billion in gross cash proceeds, and the Sports Betting Business was sold during the third quarter of 2022, for which we received approximately$0.8 billion in gross proceeds. Refer to Notes 1 and 2 for further information.
Effective
In
Acquisitions
During 2022, we acquired the following businesses to expand the portfolio and content for each of our three continuing business segments (see Note 10 for additional information):
•In March of 2022, SciPlay acquired Alictus Yazilim Anonim ?irketi ("Alictus"),
a Turkey -based hyper-casual game studio that expands the SciPlay business in the
casual gaming market.
•In April of 2022, we acquired Playzido Limited ("Playzido"), a dynamic content
creation platform provider and game supplier, which is expected to accelerate
the pace at which we can partner with game studios and operators to expand our
iGaming content offering.
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•In October of 2022, we acquired substantially all of the assets of House
Advantage, LLC ("House Advantage"), a leading loyalty and marketing software and
technology provider, which expands our Gaming systems offering with enhanced
loyalty capabilities.
Financings and Capital Market Transactions
On
OnFebruary 25, 2022 , our Board of Directors approved a share repurchase program under which the Company is authorized to repurchase, from time to time throughFebruary 25, 2025 , up to an aggregate amount of$750 million of shares of our outstanding common stock. Repurchases may be made at the discretion of the Transaction Committee of the Board of Directors through one or more open market transactions, privately negotiated transactions, accelerated share repurchases, issuer tender offers or other derivative contracts or instruments, or a combination of the foregoing. Since the initiation of the program onMarch 3, 2022 and throughFebruary 24, 2023 , we returned$413 million of capital to shareholders through the repurchase of 7.2 million shares of common stock.
Trends and Uncertainties
We have a number of trends and uncertainties that have impacted and may continue to impact our business and results of operations. Such impacts have in some cases been material and could be material in the future should they continue.
Our ability to execute on our strategic initiatives. We completed our strategic review, set forth our strategy to become a leading cross-platform global games company with a focus on content and digital markets and have established a strategic roadmap to drive long-term value (more fully described in in Part I, Item 1 above). Successful execution on our strategy might present unexpected challenges and uncertainties, including actions that will result in increased restructuring charges as we incur integration and optimization expenses to execute and facilitate our strategies, and it may be impacted by economic cycle uncertainties. COVID-19. While the COVID-19 pandemic had impacted our operating results during the first half of 2021, the operating results substantially recovered during the second half of 2021 due to the lifting of COVID-19 restrictions, such as social distancing and mask mandates. We continue to see some regulations in various international regions and overall economic and general uncertainty. Additionally, the COVID-19 pandemic has impacted supply chains in numerous industries, causing shortages of inputs/outputs, which in turn put inflationary pressures on the economy as a whole. Inflationary pressures may have an impact on discretionary income as people allocate more of their disposable income toward higher priced necessity goods and services, which could impact our customers. These circumstances may change in the future and such changes could be material. International operations and foreign currency. We face challenges related to expanding our footprint within international markets and the related process of obtaining regulatory approvals to provide services and products within these new and emerging markets. Our customers in theLatin America region operate in a difficult macroeconomic and political environment that has historically resulted in (a) a material reduction in revenue, (b) a reduction in the cash we have collected from these customers on previous sales and (c) charges for estimated credit losses. Additionally, our international operations provide a significant portion of our total revenue and expenses. Many of these revenue and expenses are denominated in currencies other than theU.S. Dollar. As a result, changes in foreign exchange rates, including the recent strengthening of theU.S. Dollar, may significantly affect our results of operations. A high level of competition, with competitor expansion. Our major competitors are expanding their product and service offerings with integrated products and solutions that compete directly with ours. For example, competition in our Gaming business segment is highly competitive and is characterized by the continuous introduction of new games, gaming machines and related technologies. Our iGaming business segment is facing challenges related to expanding our market share within new and emerging markets, while our SciPlay business segment continues to be highly competitive with low barriers to entry, rapid evolution, fragmented market and subject to changing technology, shifting needs and frequent introductions of new games, development platforms and services. See Part I, Item 1 of this Annual Report on Form 10-K and Business Segment Results below describing competition and factors impacting each of our business segments. Seasonality. Our results of operations fluctuate due to seasonal trends and other factors impacting all of our business segments, particularly Gaming and SciPlay businesses. See Part I, Item 1 - Seasonality of this Annual Report on Form 10-K. 48 -------------------------------------------------------------------------------- For additional trends and uncertainties impacting our business segments, refer below to Business Segment Results, specifically the Current Year Update section for each business segment. Reportable Segments We report our continuing operations in three business segments - Gaming, SciPlay and iGaming - representing our different products and services. See Notes 3 and 4 for additional information.
CONSOLIDATED RESULTS
The following presents information about our results of operations for the year endedDecember 31, 2022 compared to 2021. See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the 2021 Annual Report on Form 10-K for our results of operations for the year endedDecember 31, 2021 as compared to 2020. (in millions) Year Ended December 31, Variance 2022 2021 2022 vs. 2021 Total revenue $ 2,512$ 2,153 $ 359 17 % Total operating expenses 2,239 2,043 196 10 % Operating income 273 110 163 148 % Net loss from continuing operations before income taxes (163) (294) 131 45 % Net (loss) income from continuing operations (176) 24 (200) nm Net income from discontinued operations, net of tax(1) 3,873 366 3,507 nm Net income attributable to L&W 3,675 371 3,304 nm nm = not meaningful. (1) The year endedDecember 31, 2022 includes a pre-tax gain of$4,927 million on the sale of discontinued operations (see Note 2). Revenue [[Image Removed: sgms-20221231_g4.jpg]] All lines of business within our Gaming business segment continue to experience growth and increased demand, driving double-digit Gaming revenue growth in 2022. The increase in Gaming revenue was also due to the continued rebounding of operations since the COVID-19 pandemic adversely impacted early 2021 results. For example, machine and table product revenues have improved as many casino operators have resumed capital expenditures to accommodate full casino operating capacity. Additionally, 2021 Gaming operations revenue benefited from a$44 million U.K. FOBT VAT recovery ("VAT recovery") received from certainU.K. customers. The VAT recovery is related to a 2020 U.K. court ruling, associated with overcharging of value-added tax for previous services rendered to gaming operators, and consequently reduced our net gaming revenue related to these customers and arrangements. 49 --------------------------------------------------------------------------------
SciPlay revenue increased by
iGaming revenue increased by$14 million or 6% primarily due to continuingU.S. growth from the strength of our original content and increased player activity, coupled with revenue related to acquisitions completed in the second half of 2021. The growth was partially offset by the negative impact of foreign currency translation due to the strengtheningU.S. Dollar, which impacted revenue by$15 million and growth by 7%. Our 2022 consolidated revenues were impacted by$44 million of unfavorable foreign currency exchange impact compared to$28 million of favorable impact in the prior year. Operating expenses Year Ended December 31, Variance (in millions) 2022 2021 2022 vs. 2021 Operating expenses: Cost of services(1)$ 390 $ 365 $ 25 7 % Cost of product sales(1) 348 244 104 43 % SG&A 717 679 38 6 % R&D 218 190 28 15 % D&A 420 398 22 6 % Restructuring and other 146 167 (21) (13) % Total operating expenses$ 2,239 $ 2,043 $ 196 10 % nm = not meaningful. (1) Excludes D&A. Cost of revenue Cost of revenue for the year endedDecember 31, 2022 increased as a direct result of higher revenue as described above, driven by$104 million in higher cost of product revenue primarily associated with higher gaming machine sales, while increased cost of services was primarily driven by SciPlay, which increased$14 million compared to the prior year due to revenue growth.
SG&A
SG&A increased primarily due to higher SciPlay marketing spend of$37 million , higher salaries, wages and other compensation of$9 million in each of the Gaming and SciPlay segments, increased legal fees of$8 million , and higher other general and administrative expenses, partially offset by lower stock-based compensation expenses of$44 million driven by expense acceleration and new equity awards issued at higher fair values in the prior year.
R&D
R&D increased primarily due to higher salaries and benefits in the Gaming and SciPlay segments coupled with investments supporting ongoing growth.
D&A
D&A increased primarily due to approximately
Restructuring and other
The decrease in restructuring and other was primarily due to lower professional service, legal and other costs related to the strategic review and related transactions, partially offset by contingent consideration remeasurement charges of$21 million during 2022. 50 --------------------------------------------------------------------------------
Other factors affecting net income (loss) attributable to L&W
(in millions) Year Ended December 31, Factors
Affecting Net Income (Loss) Attributable to
L&W
2022 2021
2022 vs. 2021
Interest expense
favorable
impact of the
resulting in lower outstanding debt.
Loss on debt financing (147) - Loss on debt financing transactions in 2022 includes
transactions a $90 million charge associated with premiums paid to
redeem the 2025 Secured Notes, 2026 Unsecured Notes,
2026 Secured Euro Notes and 2026 Unsecured Euro Notes
(see Note 15).
Gain on remeasurement 27 41 Gains are attributable to remeasurement of the 2026 of debt and other Secured Euro
Notes and 2026 Unsecured Euro Notes and
reflect
changes in the Euro vs. the
foreign exchange rates. We redeemed our Euro Notes as
part of the April 2022 Refinancing.
Other income, net 11 33 The decrease
is primarily due to a
on sale of certain assets and as a result of
acquisitions included in the prior year.
Income tax (expense) (13) 318 The benefit in 2021 is primarily due to the release
benefit of the valuation allowance.
Foreign currency exchange (F/X)
Our results are impacted by changes in foreign currency exchange rates used in
the translation of foreign functional currencies into USD and the re-measurement
of foreign currency transactions or balances. The impact of foreign currency
exchange rate fluctuations represents the difference between current rates and
prior-period rates applied to current activity. Our exposure to foreign currency
volatility on revenue is as follows:
(in millions) Year Ended December 31,
2022 2021
% Consolidated F/X Impact on % Consolidated F/X Impact on
Revenue Revenue Revenue Revenue Revenue Revenue
Foreign Currency:
British Pound Sterling $ 155 6 % $ (12) $ 175 8 % $ 14
Euro 196 8 % (21) 129 6 % 7
Discontinued operations
As described above, we completed the Divestitures, received a total of
approximately $6.5 billion in gross proceeds and recorded a pre-tax gain on sale
of discontinued operations of $4.9 billion in 2022. The $786 million or 68%
decrease in 2022 revenue is primarily due to lower revenue from the Lottery
Business and Sports Betting Business as a result of their sales completed in the
second and third quarters of 2022, respectively. The gains on sales of the
Divested Businesses drove the increase in net income from discontinued
operations, net of tax, to $3,873 million , partially offset by the decrease in
revenue. Refer to Note 2 for further information on our discontinued operations.
BUSINESS SEGMENT RESULTS
The following presents information about our business segment results of operations for the year endedDecember 31, 2022 compared to 2021. See Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the 2021 Annual Report on Form 10-K for our business segment results of operations for the year endedDecember 31, 2021 as compared to 2020. The types of products and services from which our segments derive their revenues are further discussed in Notes 3 and 4. Certain financial information relating to our segments, including segment revenue, AEBITDA and total assets and certain financial information relating to our revenue derived from and assets located in theU.S. and other geographic areas is included in Note 3.
GAMING
Our Gaming business segment designs, develops, manufactures, markets and distributes a comprehensive portfolio of gaming content, products and services. We provide our Gaming portfolio of products and services to commercial casinos, Native American casinos, wide-area gaming operators such as LBOs, arcade and bingo operators in theU.K. and continentalEurope , and government agencies and their affiliated operators. 51 --------------------------------------------------------------------------------
The following table summarizes the primary business activities included in our Gaming business segment.
Services Product sales
Gaming operations Service revenues from gaming N/A
operations are derived from WAP,
premium and daily-fee Participation
gaming machines and other leased
gaming machines (including VLTs and
ETSs) and licensing arrangements.
Gaming machine sales N/A Sale of new and used gaming machines,
ETSs and VLTs, conversion game kits
and spare parts.
Gaming systems We provide services which include We offer CMSs that help our customers
installation and support of CMSs, improve communication with players,
including ongoing hardware and add excitement to the gaming floor
software maintenance and upgrade and enhance operating efficiencies.
services of customer CMSs.
Table products Revenue is generated from supplied Sale of table products (including
table products and services (including Shufflers) and PTG licensing.
Shufflers) and PTG subscriptions.
Gaming Operations
Our services revenue includes revenue earned from Participation games, other
gaming machine services and table product service arrangements. We categorize
our Participation gaming machines as (1) U.S. and Canada units and (2)
International units. The following are different types of Participation games
from which we derive our revenue:
•WAP Participation games: WAP Participation games are electronically linked
gaming machines that are located across multiple casinos within both single and
multiple gaming jurisdictions or across Native American gaming jurisdictions.
Players across linked gaming machines contribute to and compete for system-wide
progressive jackpots that are designed to increase gaming machine play for
participating casinos by giving the players the opportunity to win a larger
jackpot than on a non-WAP gaming machine. We are responsible for funding WAP
jackpots. We create WAP games using our proprietary brands and also using
licensed brands. We operate our WAP systems at commercial casinos in states
throughout the U.S. , where it is approved by the local regulatory bodies and in
certain Native American casinos.
•Premium and daily fee Participation games: We offer two categories of non-WAP
premium and daily fee Participation games: LAP and standalone. LAP games are
gaming machines that are located within a single casino and are electronically
linked to a progressive jackpot for that specific casino. Our LAP gaming
machines feature games including those offered as WAP and our proprietary brands
such as ULTIMATE FIRE LINK®, DRAGON SPIN®, ULTRA HOT MEGA LINK®, 88 FORTUNES®,
INVADERS FROM THE PLANET MOOLAH®, 5 TREASURES®, CASH SPIN® and DANCING DRUMS
EXPLOSION®. Our LAP products leverage both exclusive brand names and game play
intellectual property, and typically offer players the chance to win multiple
progressive jackpots, all of which tend to result in higher play volumes. We
also provide certain standalone Participation games that are not linked to other
gaming machines. Our standalone games feature titles under both licensed brands
and our proprietary brands. Our standalone Participation gaming machines
generally feature larger, more elaborate top-boxes and provide game play
experiences not possible on a single screen game or on gaming machines that we
sell.
•Server-based gaming: We provide wide-area gaming operators, such as LBOs, bingo
halls and arcades, a comprehensive package of server-based products and services
under long term contracts that typically include gaming machines, remote
management of game content and management information, central computer systems,
secure data communication and field support services. We are typically paid a
fee based on the Net win generated by these gaming machines (subject to certain
adjustments as may be specified in a particular contract, including adjustments
for taxes and other fees). Our business in this category is primarily based in
the U.K.
•VLTs: For certain customers, we provide our multi-game and single-game VLTs,
which include video gaming machines, mechanical reel gaming machines and video
poker games. Our VLTs may be operated as standalone units or may interface with
central monitoring systems operated by government agencies. Our VLTs are
typically located in places where casino-style gaming is not the only
attraction, such as racetracks, bars and restaurants.
•Class II and centrally determined systems: We offer video and mechanical-reel
gaming machines and VLTs for Class II and certain VLT jurisdictions where the
game outcome is determined by a central server system that we provide. These
Class II and centrally determined systems primarily operate in Native American
casinos in Washington , Florida , Alabama and Oklahoma . We receive either a fixed
daily fee or a percentage of the Net win generated by the gaming
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--------------------------------------------------------------------------------machines or VLTs connected to the central determination system and a small daily fee for the central determination system.
Gaming Machine Sales
The majority of our product sales are derived from sales of gaming machines and VLTs that use a combination of advanced graphics, mechanical reels, digital music and sounds and secondary bonus games. We also sell ETSs to either meet the needs of particular locations where live tables are not allowed or as productivity-enhancing solutions for other jurisdictions.
Gaming Systems
Our comprehensive suite of technology solutions provides gaming operations of every size with a wide range of marketing, data management and analysis, accounting, player tracking, security, loyalty and other applications and tools to more effectively manage their operations. Gaming systems products include the iVIEW® touch screen display, which facilitates the player experience, bonus features, customer service, and employee functions. Gaming systems revenues related to core system solutions are highly dependent on new installations. Gaming system revenues are also generated through ongoing hardware and software maintenance services and upgrades.
Table Products
Our table product sales are generated primarily from the sale of products designed to enhance table game speed, productivity, profitability and security. Our product offerings include various models of Shufflers to suit specific games.
We also offer Shuffler products under month-to-month arrangements that primarily contain fixed monthly rates or to a lesser extent Participation rates. These arrangements include service of the product with back-up and replacement products available at the customer's request. We license our PTG content to commercial, tribal and governmental casino operators typically under month-to-month arrangements based on fixed monthly rates or subscription arrangements to our PTG content library. PTGs, which are designed to enhance operators' table-game operations, include our internally developed and acquired PTGs, side bets, add-ons and progressive features. Our proprietary content and features are also added to public domain games such as poker, baccarat, pai gow poker, craps and blackjack table games and to electronic platforms.
Current Year Update
During 2022, we experienced an increase in the demand for our Gaming products and services, and Gaming operations have exceeded pre-COVID levels. The increase in Gaming revenue was driven by all lines of our Gaming business year-over-year, including robust gaming machine sales growing 45%, coupled with continued growth momentum in Gaming operations, which benefited from slightly higher installed base forU.S. andCanada and higher average daily revenue per unit. During 2022, we demonstrated a significant breadth and depth of innovative new products that we launched and/or are scheduled to launch during 2023, including titles such as GOLDEN FIRE LINK™, DRAGON UNLEASHED®, ULTIMATE FIRE LINK EXPLOSION™, HUFF N' MORE PUFF™, GOLD FISH FEEDING TIME®, and BLAZING 777 TRIPLE DOUBLE JACKPOT WILD™, as well as platforms such as KASCADA® Dual Screen and LANDMARK™ 7000. While we continue to see strong and sustained demand entering 2023, we are actively monitoring any impact of inflationary pressures and macroeconomic uncertainty. We also continue to experience and expect supply chain volatility that could impact our ability to meet demand for our products and delay the timing of fulfillment and revenue recognition of these orders. InOctober 2022 , we acquired substantially all of the assets of House Advantage, a leading loyalty and marketing software and technology provider, which expanded our Gaming systems offering with enhanced loyalty capabilities. 53 --------------------------------------------------------------------------------
Results of Operations and Key Performance Indicators
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(in millions) Year Ended December 31, Variance
2022 2021 2022 vs. 2021
Revenue:
Gaming operations $ 635 $ 601 $ 34 6 %
Gaming machine sales 522 360 162 45 %
Gaming systems 255 204 51 25 %
Table products 189 156 33 21 %
Total revenue $ 1,601 $ 1,321 $ 280 21 %
F/X impact on revenue $ (27) $ 15 $ (42) 280 %
KPIs:
U.S. and Canada units:
Installed base at period end 30,630 30,514 116 - %
Average daily revenue per unit $ 44.74 $ 41.72 $ 3.02 7 %
International units(1):
Installed base at period end 27,126 29,375 (2,249) (8) %
Average daily revenue per unit $ 13.51 $ 9.34 $ 4.17 45 %
Gaming machine sales:
U.S. and Canada new unit shipments 16,890 11,876 5,014 42 %
International new unit shipments 9,913 6,327 3,586 57 %
Total new unit shipments 26,803 18,203 8,600 47 %
Average sales price per new unit $ 17,462 $ 16,833 $ 629 4 %
(1) Excludes the impact of game content licensing revenue.
Revenue
As noted above, Gaming revenue increased in 2022 as demand for our Gaming
products and services increased, and our Gaming operations have exceeded
pre-COVID levels. Increase in Gaming revenue was driven by all lines of our
Gaming business year-over-year, including robust Gaming machine sales coupled
with continued growth momentum in Gaming operations, which benefited from
slightly higher installed base for
Gaming Operations
Gaming operations revenue for 2022 demonstrated strong growth as a result of a
rebound in
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premium games, compared to prior year. Gaming operations installed base for U.S.
and Canada increased from 30,514 units in 2021 to 30,630 units in 2022, along
with increases in average daily revenue per unit of $3.02 , as we continue to see
rebounding in demand since the COVID-19 disruptions. The growth was also due to
higher average daily revenue per unit for International units, which increased
by $4.17 . Alternatively, International ending installed base units decreased
from 29,375 units in 2021 to 27,126 units in 2022, primarily due to the expected
closure of certain LBOs in the U.K. along with the reduction of certain
low-yielding units in Greece and Latin America . Gaming operations generated 40%
and 45% of total Gaming segment revenues for 2022 and 2021, respectively.
Revenue for 2021 benefited from a $44 million VAT recovery, as described above.
Gaming Machine Sales
Gaming machine sales revenue increased primarily due to higher sales of
replacement units globally as operator capital spending returned to more
normalized levels, an increase in casino opening and expansion activity in the
The following table summarizes Gaming machine sales changes:
Year Ended December 31, Variance
2022 2021 2022 vs. 2021
U.S. and Canada unit shipments:
Replacement units 14,531 10,385 4,146 40 %
Casino opening and expansion units 2,359 1,491 868 58 %
Total unit shipments 16,890 11,876 5,014 42 %
International unit shipments:
Replacement units(1) 9,647 5,681 3,966 70 %
Casino opening and expansion units 266 646 (380) (59) %
Total unit shipments 9,913 6,327 3,586 57 %
(1) The year ended
Gaming Systems
Gaming systems revenue increased primarily due to the COVID-19 disruptions early in the prior year, which resulted in fewer installations of new CMSs on fewer casino openings and expansions and lower hardware sales, systems maintenance revenue, and iVIEW installations.
Operating Expenses
The increase in operating expenses is primarily due to$118 million in higher cost of revenue associated with the increase in revenue as described above,$24 million in higher D&A primarily driven by accelerated amortization of legacy trade names, partially offset by fully depreciated assets related to prior acquisitions, and$52 million in higher SG&A and R&D costs.
AEBITDA
AEBITDA increased by$108 million or 16%, and AEBITDA margin decreased by 2 percentage points to 48%. These results were driven by strong growth in gaming operations, gaming machine sales, systems and table games businesses and were partially offset by the increased costs in the current year and benefit of$44 million related to the VAT recovery in the prior year, as described above. The decrease in AEBITDA margin was also due to the change in revenue mix as gaming machine sales demand continues to recover compared to a higher mix of gaming operations revenue in the prior year. AEBITDA margin was also impacted as the prior year benefited from the VAT recovery, as described above.
SCIPLAY
Our SciPlay business segment is a leading developer and publisher of digital
games on mobile and web platforms. SciPlay operates primarily in the social
gaming market, which is characterized by gameplay online or on mobile devices
that is social, competitive and self-directed in pace and session length.
SciPlay also operates in the hyper-casual market, which is characterized by
simpler core loops and more repetitive gameplay than casual games. SciPlay
generates a substantial portion of its revenue from in-app purchases in the form
of coins, chips and cards, which players can use to play slot games, table games
or bingo games. Players who install SciPlay's social games typically receive
free coins, chips or cards upon the initial launch of the game and additional
free coins, chips or cards at specific time intervals. Players may exhaust the
coins, chips or cards that they receive for free and may choose to purchase
additional coins, chips or cards in order to extend their time of game play.
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Once obtained, coins, chips and cards (either free or purchased) cannot be
redeemed for cash nor exchanged for anything other than game play within
SciPlay's apps. SciPlay generates additional revenue in the hyper-casual market
from the receipt of advertising revenue. Players who install SciPlay's
hyper-casual games receive free, unlimited gameplay that requires viewing of
periodic in-game advertisements.
SciPlay currently offers a variety of social casino games, including Jackpot
Party Casino , Gold Fish Casino , Quick Hit Slots, 88 Fortunes Slots, Monopoly
Slots and Hot Shot Casino . Our SciPlay business segment continues to pursue its
strategy of expanding into the casual games market. Current casual game titles
include Bingo Showdown, Solitaire Pets Adventure and Backgammon Live as well as
other titles in the hyper-casual market through the acquisition of Alictus,
including games such as Candy Challenge 3D, Boss Life and Deep Clean Inc. 3D.
During 2022, SciPlay launched seven hyper-casual games, including the top hits
Master Doctor 3D and Fade Master 3D, and continued development of Spellspinner:
Fantasy Quest, a casual game. SciPlay's social casino games typically include
slots-style game play and occasionally include table games-style game play,
while its casual games blend solitaire-style or bingo game play with adventure
game features and its hyper-casual games include many simple core loop
mechanics. All of SciPlay's games are offered and played across multiple
platforms, including Apple, Google , Facebook, Amazon and Microsoft. In addition
to its internally created game content, SciPlay's content library includes
recognizable game content from Light & Wonder . This content allows players who
like playing land-based game content to enjoy some of those same titles in
SciPlay's free-to-play games. SciPlay has access to Light & Wonder's library of
more than 1,500 iconic casino titles, including titles and content from
third-party licensed brands such as Monopoly and James Bond . SciPlay's access to
this content, coupled with years of experience developing in-house content,
uniquely positions SciPlay to create compelling digital games.
Current Year Update
Throughout 2022, SciPlay deployed significant updates across a number of their portfolio games, and it expects to deploy further updates to games in future years.
In March of 2022, SciPlay acquired privately held Alictus, a
2022 was another record year for total revenue, and SciPlay continues to see higher player engagement compared with the pre-COVID-19 time period. Our year over year total revenue growth was 11%. This result is primarily attributable to the revenue generated byJackpot Party Casino and Quick Hit Slots, coupled with the additional revenue generated following our acquisition of Alictus, and partially offset by a decline in revenue generated by Bingo Showdown. We believe that there is an opportunity for continued improvement of operating results in 2023 and beyond, as SciPlay continues to execute on its strategic game updates, enhanced analytics, international expansion, and an upcoming new game release.
Results of Operations and Key Performance Indicators
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(in millions) Year Ended December 31, Variance
2022 2021 2022 vs. 2021
Revenue:
Mobile in-app purchases $ 584 $ 537 $ 47 9 %
Web in-app purchases and other(1) 87 69 18 26 %
Total revenue $ 671 $ 606 $ 65 11 %
KPIs:
In-App Purchases:
Mobile Penetration(2) 90 % 89 % 1 pp nm
Average MAU(3) 6.0 6.2 (0.2) (3) %
Average DAU(4) 2.3 2.3 - - %
ARPDAU(5) $ 0.78 $ 0.71 $ 0.07 10 %
Average MPUs(6) 0.6 0.5 0.1 8 %
AMRPPU(7) $ 94.58 $ 95.26 $ (0.68) (1) %
Payer Conversion Rate(8) 9.6 % 8.5 % 1.1 pp nm
nm = not meaningful.
pp = percentage points.
(1) Other primarily represents revenue generated from providing advertising platforms with access to
SciPlay's game software platform, which facilitates the placement of advertising inventory, which was not
material for the periods presented.
(2) Mobile penetration is defined as the percentage of business to consumer SciPlay revenue generated
from mobile platforms.
(3) MAU = Monthly Active Users is a count of visitors to our sites during a month. An individual who
plays multiple games or from multiple devices may, in certain circumstances, be counted more than once.
However, we use third-party data to limit the occurrence of multiple counting.
(4) DAU = Daily Active Users is a count of visitors to our sites during a day. An individual who plays
multiple games or from multiple devices may, in certain circumstances, be counted more than once.
However, we use third-party data to limit the occurrence of multiple counting.
(5) ARPDAU = Average revenue per DAU is calculated by dividing revenue for a period by the DAU for the
period by the number of days for the period.
(6) MPU = Monthly Paying Users is the number of individual users who made an in-game purchase during a
particular month.
(7) AMRPPU = Average Monthly Revenue Per Paying User is calculated by dividing average monthly revenue by
average MPUs for the applicable time period.
(8) Payer conversion rate is calculated by dividing average MPU for the period by the average MAU for the
same period.
Revenue
Revenue increased as a result of average monthly paying users increasing from a
higher payer conversion rate, coupled with a $22 million increase in advertising
revenue following the Alictus acquisition.
The increase in mobile penetration percentage primarily reflects a continued trend of players migrating from web to mobile platforms to play SciPlay's games.
Average MAU decreased due to the turnover in users, and average DAU remained relatively flat due to higher player engagement. ARPDAU increased, while average DAU remained flat. AMRPPU decreased while average MPU increased due to the introduction of new content and features resulting in increased paying player interaction.
Payer conversion rates were at an all-time high in 2022 due to the growing popularity of SciPlay's games as SciPlay focused on live operations to enhance game play and engagement.
Operating Expenses The increase in operating expenses correlated with the above-described increase in revenue as a result of higher platform fees, resulting in$14 million in higher cost of revenue, coupled with higher marketing spend of$37 million , higher salaries and benefit costs (excluding stock-based compensation) of$15 million related to an increase in headcount, a$5 million increase in stock-based compensation, and an increase in D&A of$6 million due to additional amortization associated with intangible assets from recent acquisitions. The prior year included higher restructuring and other expense, primarily from the$25 million legal matter settlement charge related to the litigation that was brought inWashington State .
AEBITDA
AEBITDA increased slightly by$1 million due to revenue growth as discussed above, offset by the increase in operating costs resulting from increases in marketing spend and salaries and benefits. AEBITDA margin decreased by 3 percentage points to 28%, primarily due to the increase in operating costs as a result of increased investment in marketing. 57 --------------------------------------------------------------------------------
iGAMING
Our iGaming business segment provides a comprehensive suite of digital gaming content, distribution platforms, player account management systems, as well as various other iGaming content and services. The majority of our revenue is derived from casino-style game content, including a wide variety of internally developed and branded games as well as popular third-party provider games. These games are made available to iGaming operators via content aggregation platforms, including Open Gaming System, remote gaming servers and various other platforms. We also provide our OPS, a player account management system which offers a wide range of reporting and administrative functions and tools providing operators full control over all areas of digital gaming operations. The majority of our iGaming revenue is based on a Participation model. We continue to make progress on theU.S. licensing for launch of live casino and are on track to launch in early 2023, pending full regulatory approvals. Generally, we host the play of our game content which is integrated with the online casino operators' websites.
Current Year Update
We continue to expand our customer base and capitalize on growth in the European and North American markets by leveraging our industry leading platforms, content and solutions. Currently we have launched in sixU.S. states, and we are positioned to enter others as additional states legislate online gaming. We continue to make progress on theU.S. licensing for recent acquisitions including live casino,ELK Studios and Playzido, as well as invest in our ability to scale our own original land-based content offering in theU.S. We are on track to launch live casino in early 2023, pending full regulatory approvals. Additionally, we now have 21 operators live inOntario, Canada , following its change in iGaming regulation in the second quarter of 2022, which further increases our international market and growth opportunities.
Results of Operations
[[Image Removed: sgms-20221231_g11.jpg]][[Image Removed: sgms-20221231_g12.jpg]][[Image Removed: sgms-20221231_g13.jpg]] Overall, iGaming revenue increased by$14 million or 6% primarily due to continuing momentum in the U.S. market coupled with continued strong performance of businesses that we acquired in the second half of 2021. Revenue was impacted by unfavorable impact of foreign currency translation of$15 million due to strengthening of theU.S. Dollar, primarily against the British Pound Sterling and the Euro. The U.S. market delivered 47% year-over-year revenue growth, driven by the strength of our original content and growth in gross gaming revenue. Wagers processed through our Open Gaming System increased to$72 billion , despite unfavorable foreign currency translation impact. Operating expenses increased primarily due to higher contingent consideration remeasurement charges of$21 million in the current year. AEBITDA increased by$5 million or 7% primarily due to the increase in revenue described above. AEBITDA margin remained constant at 33% due to the scaling of original content launches as well as our acquisitions, which was offset by continued investments including our upcoming launch of live casino in early 2023, subject to full regulatory approvals.
RECENTLY ISSUED ACCOUNTING GUIDANCE
For a description of recently issued accounting pronouncements, see Note 1.
CRITICAL ACCOUNTING ESTIMATES
Information regarding significant accounting policies is included in Note 1 and
in the relevant sections of applicable Notes. As stated in Note 1, the
preparation of financial statements in accordance with
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make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. Management bases its estimates on historical experience and on
various assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates. We believe that the
estimates, assumptions, and judgments involved in the following accounting
policies have the greatest potential impact on our consolidated financial
statements:
•Business combinations;
•Revenue recognition;
•Goodwill, long-lived and other intangible assets - impairment assessment;
•Gain on sale of discontinued operations;
•Income taxes; and •Legal contingencies. Business Combinations As described in Note 10, we account for business combinations in accordance with ASC 805. This standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination, with certain exceptions for contract assets and contract liabilities in accordance with ASC 606. Determining the fair value of assets acquired and liabilities assumed requires management judgment, the utilization of independent valuation experts and often involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. Any changes in the underlying assumptions can impact the estimates of fair value by material amounts, which can in turn materially impact our results of operations. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these fair values, we could record impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate D&A expense. If our estimates of the economic lives change, D&A expense could be accelerated or slowed. For example, for the acquisitions completed during 2022, if the intangible assets useful lives were extended by two years, the total annual depreciation and amortization would decrease by approximately$2 million , and if the useful lives were shortened by two years, the total annual depreciation and amortization would increase by approximately$3 million .
Revenue Recognition
Our revenue recognition policies described in Note 4 require us to make significant judgments and estimates. The guidance requires that we apply judgments or estimates to determine the performance obligations, the stand-alone selling prices of our performance obligations to customers, and the timing of transfer of control of the respective performance obligations. The evaluation of each of these criteria in light of contract-specific facts and circumstances is inherently judgmental, but certain judgments could significantly affect the timing or amount of revenue recognized if we were to reach a different conclusion than we have. The critical judgments we are required to make in our assessment of contracts with customers that could significantly affect the timing or amount of revenue recognized are: •Contracts with multiple promised goods and services. Because we enter into contracts with customers that involve promises to transfer multiple products and services, the determination of the distinct performance obligations in contracts with multiple promises requires significant judgment. Our total gaming systems revenue that often contains multiple promised goods and services was$255 million for the year endedDecember 31, 2022 , or approximately 10% of consolidated revenue, a portion of which would not be recognized if we had reached a different conclusion. •Determination of stand-alone selling prices. The guidance requires that we determine the stand-alone selling price for our goods and services as a basis for allocating the transaction price to the identified distinct performance obligations in our contracts with customers. Because we often bundle the selling price for multiple promised goods or services, the determination of a stand-alone selling price or the relative range may require significant judgment. Our total gaming systems revenue that could be subject to this judgment and thus allocated to distinct performance obligations differently was a portion of$255 million for the year endedDecember 31, 2022 , or approximately 10% of consolidated revenue. 59 --------------------------------------------------------------------------------
We allocate goodwill to reporting units based on the reporting unit expected to benefit from the business combination. We evaluate our reporting units on at least an annual basis and, if necessary, reassign goodwill using a relative fair value allocation approach. We determined that we have six reporting units: Gaming, U.K. Gaming ,Casino Management Systems , Table Products, SciPlay, and iGaming.Goodwill is tested for impairment at the reporting unit level (operating segment or one level below an operating segment) annually onOctober 1 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit.Goodwill is reviewed for impairment using either a qualitative assessment or a quantitative one-step process. If we perform a qualitative assessment and determine that the fair value of a reporting unit more likely than not exceeds the carrying value, no further evaluation is necessary. For reporting units where we perform the quantitative test, we are required to compare the fair value of each reporting unit, which we primarily determine using an income approach based on the present value of discounted cash flows and a market approach, to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, we recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit's estimated fair value. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Performance of the qualitative goodwill assessment requires judgment in identifying and considering the significance of relevant key factors, events and circumstances that affect the fair value or carrying amount of the reporting units. Such events and circumstances that we have considered include macroeconomic conditions, industry specific and market considerations, and reporting unit-specific factors such as overall actual and projected financial performance, among other factors. We also considered the results from the most recent date that a fair value measurement was performed as a part of a quantitative goodwill assessment and specifically the cushion between each reporting unit's fair value and carrying value. The estimates used to calculate the fair value of a reporting unit as a part of a quantitative goodwill assessment change from year to year based on operating results, market conditions, and other factors. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment, if any, for each reporting unit. We performed our annual goodwill impairment test as ofOctober 1, 2022 using a qualitative assessment for all of our reporting units. Based on the results of our qualitative impairment assessment, we concluded that it is more likely than not that the fair values of each of our reporting units substantially exceeded their respective carrying values (greater than 20%) and there were no reporting units requiring further assessment. As a result of deterioration in business conditions in 2019 and COVID-19 disruptions in 2020, we performed a quantitative goodwill impairment test for our U.K. Gaming reporting unit (part of our Gaming business segment) during the first quarter of 2020, and as a result of that analysis, we recognized an impairment charge of$54 million , which is the amount by which the carrying value exceeded the estimated fair value. Refer to Note 11 in the Consolidated Financial Statements and Notes (Part IV, Item 15) of our 2021 Annual Report on Form 10-K and Note 10 in the Consolidated Financial Statements and Notes of our 2020 Annual Report on Form 10-K for key estimates and assumptions used in the 2020 discounted cash flow analysis of the U.K Gaming reporting unit. As ofDecember 31, 2022 , the carrying amount of goodwill related to our U.K. Gaming reporting unit was$108 million , and based on the last quantitative test performed on this reporting unit in 2021, the fair value substantially exceeded the carrying value.
Long-lived Assets and Finite-lived Intangible Assets
We evaluate the recoverability of intangible assets and other long-lived assets
with finite useful lives by comparing the carrying value of the asset group to
the estimated undiscounted future cash flows that we expect the asset to
generate if events or changes in circumstances indicate that these assets are
not recoverable. Any impairment is measured as the amount by which the carrying
value of the asset exceeds the estimated fair value. The fair value is
determined using a discounted cash flow approach where projections of future
cash flows generated by those assets are discounted using an estimated discount
rate. Significant judgment is required to estimate the amount and timing of
future cash flows and the relative risk of achieving those cash flows. We also
make judgments about the remaining useful lives of intangible assets and other
long-lived assets that have finite lives. While we believe our estimates of
future operating results and projected cash flows are reasonable, any
significant adverse changes in key assumptions (i.e., adverse change in the
extent or manner in which an asset or asset group is being used or expectation
that, more likely than not, an asset or asset group will be sold or otherwise
disposed of before the end of its
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useful life) or adverse changes in economic and market conditions may cause a
change in our evaluation of recoverability or our estimation of fair value and
could result in an impairment charge that could be material to our financial
statements.
Refer to Note 11 for our fourth quarter 2021 change in estimate related to the
useful lives for certain of our legacy trade names triggered by corporate-wide
re-branding.
Gain on Sale of Discontinued Operations
We applied the derecognition guidance in accordance with ASC 606 and ASC 610 as applicable to determine the gain on sale of the Divested Businesses. This involved evaluating the sale contracts for the distinct assets and liabilities (or disposal groups) promised to the counterparties as well as consideration transferred to us, which primarily included cash and marketable securities measured using Level 1 inputs as categorized in the fair value hierarchy under ASC 820. The pre-tax gain was measured as the difference between the consideration transferred and the carrying amounts of the disposal groups and recorded when the disposal groups were derecognized upon transfer of control. The gain on sale of these businesses resulted in significantU.S. federal, state and foreign tax expense. Tax expense on the gains was determined in accordance with applicable jurisdictions, as further explained under the critical accounting estimate for Income Taxes below. Refer to Note 2 for more information on the disposal of our discontinued operations.
Income Taxes
We are subject to the income tax laws of the many jurisdictions in which we
operate. These tax laws are complex, and the manner in which they apply to our
facts is sometimes open to interpretation. In establishing the provision for
income taxes, we must make judgments about the application of these inherently
complex tax laws.
Despite our belief that our tax return positions are consistent with applicable
tax laws, we believe that taxing authorities could challenge certain positions.
Settlement of any challenge can result in no change, a complete disallowance, or
some partial adjustment reached through negotiations or litigation. We record
tax benefits for uncertain tax positions based upon management's evaluation of
the information available at the reporting date. To be recognized in the
financial statements, a tax benefit must be at least more likely than not of
being sustained based on technical merits. The tax benefit for positions meeting
the recognition threshold is measured as the largest benefit more likely than
not to be realized upon ultimate settlement with a taxing authority that has
full knowledge of all relevant information. Significant judgment is required in
making these determinations, and adjustments to uncertain tax positions may be
necessary to reflect actual taxes payable upon settlement. Adjustments related
to positions impacting the effective tax rate affect the provision for income
taxes. Adjustments related to positions impacting the timing of deductions
impact deferred tax assets and liabilities.
Our income tax positions and analysis are based on currently enacted tax law.
Future changes in tax law could significantly impact the provision for income
taxes, the amount of taxes payable, and the deferred tax asset and liability
balances in future periods. Deferred tax assets generally represent tax benefits
for tax deductions or credits available in future tax returns. Certain estimates
and assumptions are required to determine whether it is more likely than not
that all or some portion of the benefit of a deferred tax asset will not be
realized. In making this assessment, management analyzes and estimates the
impact of future taxable income, available carry-backs and carry-forwards,
reversing temporary differences and available prudent and feasible tax planning
strategies.
We have recorded valuation allowances in certain jurisdictions to reduce our
deferred tax assets to the amounts that are more likely than not to be realized.
Should a change in facts or circumstances lead to a change in judgment about the
ultimate realizability of a deferred tax asset, we record or adjust the related
valuation allowance in the annual period that the change in facts and
circumstances occurs, along with a corresponding increase or decrease in the
provision for income taxes.
Legal Contingencies
We are subject to certain legal proceedings, demands, claims and threatened
litigation that arise in the normal course of our business. We review the status
of each significant matter quarterly and assess our potential financial
exposure. If the potential loss from any claim or legal proceeding is considered
probable and the amount can be reasonably estimated, we record a liability and
an expense for the estimated loss. If we determine that a loss is reasonably
possible and the range of the loss can be reasonably estimated, then we disclose
the range of the possible loss. Significant judgment is required in the
determination of whether a potential loss is probable, reasonably possible, or
remote and in the determination of whether a potential exposure is reasonably
estimable. Our accruals are based on the best information available at the time.
As additional information becomes available, we reassess the liabilities and
disclosures related to our pending claims and litigation and may revise our
estimates. Potential legal liabilities and the revision of estimates of legal
liabilities could have a material impact on our results of operations, cash
flows and financial position. For discussion of our legal proceedings, see Note
20, which is incorporated by reference into Item 3 of this Annual Report on Form
10-K.
61
--------------------------------------------------------------------------------LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL
Cash and Available Liquidity
As ofDecember 31, 2022 , our principal sources of liquidity, other than cash flows provided by operating activities, were cash and cash equivalents, including SciPlay cash and cash equivalents (for our SciPlay business segment), and amounts available under the SciPlay Revolver (for our SciPlay business segment) discussed further in Note 15. The following table summarizes our cash and available revolver capacity as ofDecember 31, 2022 and 2021: Revolver capacity drawn or committed to Cash and cash Revolver letters of (in millions) equivalents capacity credit Total L&W (excluding SciPlay) $ 584$ 750 $ (12) $ 1,322 SciPlay 330 150 - 480 Total as of December 31, 2022 $ 914 $
900
L&W (excluding SciPlay and businesses held for sale) $ 221$ 650 $ (12) $ 859 SciPlay 364 150 - 514 Businesses held for sale 44 - - 44 Total as of December 31, 2021 $ 629$ 800 $ (12) $ 1,417 Sources and Uses of Liquidity During 2022, we drew and repaid a total of$280 million under LNWI's revolving credit facilities, including the prior revolving credit facility and the LNWI Revolver. As ofDecember 31, 2022 , the LNWI Revolver is undrawn and available. Total cash held by our foreign subsidiaries was$142 million as ofDecember 31, 2022 as compared to$180 million as ofDecember 31, 2021 , which included discontinued operations. We believe that substantially all cash held outside theU.S. is free from legal encumbrances or similar restrictions that would prevent it from being available to meet our global liquidity needs. Our Gaming operations generally require significant upfront capital expenditures, and we may need to incur additional capital expenditures in order to retain or increase market share and continue our product investments. Other capital requirements for the near term primarily include debt principal and interest payments and also include purchase obligations and supply contracts, license agreement minimum guaranteed payments and lease obligations. We expect to pay required principal and interest payments on our debt in 2023 totaling$24 million and$284 million , respectively. Under our certain debt agreements, we are required to use a portion of the proceeds received from the Divestitures to reinvest in our business and/or make payments towards our outstanding senior notes by the end of 2023. Additionally, the Divestitures generated approximately$674 million of net cash taxes, after usage of tax attributes. We paid$641 million of these taxes during 2022, and we expect to pay the remaining$33 million during 2023. Our ability to make payments on and to refinance our indebtedness and other obligations depends on our ability to generate cash in the future. We may from time to time repurchase or otherwise repay, retire or refinance our debt, through our subsidiaries or otherwise. Such activities, if any, will depend on prevailing market conditions, contractual restrictions and other factors, and the amounts involved may or may not be material. If we need to refinance all or part of our indebtedness at or before maturity, we cannot assure that we will be able to obtain new financing or to refinance any of our indebtedness on commercially reasonable terms or at all. OnMarch 1, 2022 , our Board of Directors approved a share repurchase program under which we are authorized to repurchase, from time to time throughFebruary 25, 2025 , up to an aggregate amount of$750 million of our outstanding common stock. Since the initiation of the program and throughFebruary 24, 2023 , we repurchased 7.2 million shares of common stock at an aggregate cost of$413 million . OnMay 9, 2022 , SciPlay's Board of Directors approved a share repurchase program under which it is authorized to repurchase, from time to time throughMay 9, 2024 , up to an aggregate amount of$60 million of its outstanding Class A common stock. Since the initiation of the program and throughFebruary 24, 2023 , SciPlay repurchased 3.0 million shares of Class A common stock at an aggregate cost of$42 million . In the event we pursue significant acquisitions or other expansion opportunities, or conduct significant repurchases of our outstanding securities, we may need to raise additional capital, either through the public or private issuance of equity or 62 -------------------------------------------------------------------------------- debt securities or through additional borrowings under our existing or additional financing arrangements, which sources of funds may not necessarily be available on terms acceptable to us, or at all. If we do not have adequate liquidity to support these activities, we may be unable to obtain financing for these cash needs on favorable terms or at all. For additional information regarding our cash needs and related risks, see "Risk Factors" under Part I, Item 1A. SciPlay is subject to a tax receivable agreement ("TRA") which provides for the payment by SciPlay to L&W of 85% of the amount of tax benefits, if any, that SciPlay actually realizes (or in some circumstances is deemed to realize) in connection with increases in the tax basis of assets ofSciPlay Parent Company, LLC , over which SciPlay is the sole manager, in connection with the SciPlay IPO, redemption or exchanges of membership interests or certain distributions and other tax benefits related to SciPlay's making of payments under the TRA. At this time, we do not expect SciPlay to declare or pay any cash dividends or be required to make any such payment other than tax distributions and certain cash distributions related to the impact of taxes pursuant to the TRA. Payments totaling$4 million were made for the year endedDecember 31, 2022 . Cash Flow Summary (in millions) Year Ended December 31, Variance 2022 2021 2022 vs. 2021 Net cash (used in) provided by operating activities from: Continuing operations$ (425) $ 304 $ (729) Discontinued operations 44 381 (337) Net cash (used in) provided by operating activities (381) 685 (1,066) Net cash provided by (used in) investing activities from: Continuing operations (252) (347) 95 Discontinued operations 6,368 (95) 6,463 Net cash provided by (used in) investing activities 6,116 (442) 6,558 Net cash used in financing activities from: Continuing operations (5,460) (655) (4,805) Discontinued operations (3) (24) 21 Net cash used in financing activities (5,463) (679) (4,784) Effect of exchange rate changes on cash, cash equivalents and restricted cash (6) (6) - Increase (decrease) in cash, cash equivalents and restricted cash$ 266 $ (442) $ 708
Cash flows from operating activities
Year Ended December 31, Variance
($ in millions) 2022 2021 2022 vs. 2021
Net income $ 3,697 $ 390 $ 3,307
Less: Income from discontinued operations, net
of tax (3,873) (366) (3,507)
Adjustments to reconcile net (loss) income from
continuing operations to net cash (used in)
provided by operating activities from
continuing operations 643 479 164
Changes in working capital accounts, excluding
the effects of acquisitions (863) 143 (1,006)
Changes in deferred income taxes and other (29) (342) 313
Net cash (used in) provided by operating
activities from continuing operations $ (425) $ 304 $ (729)
Net cash provided by operating activities from continuing operations decreased
in 2022 primarily due to cash tax payments related to the Divestitures coupled
with unfavorable changes in working capital, partially offset by a $277 million
increase in earnings. The changes in our working capital accounts for the year
ended December 31, 2022 were primarily driven by the following:
•$641 million in cash taxes paid related to the Divestitures;
•$25 million paid by SciPlay for the legal matter settlement related to the
litigation that was brought in
63
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•$35 million unfavorable change in receivables due to timing of collections and
higher billing primarily associated with strong growth in Gaming business as
well as timing of collections from SciPlay platform providers;
•$65 million unfavorable change in inventory due to timing of orders and shipments as well as higher inventory purchases in order to limit supply chain impacts and support future sale levels;
•$49 million unfavorable change in accounts payable and accrued liabilities primarily as a result of the timing of expenditures (including costs associated with the strategic review and related transactions), which was partially offset by lower interest payments; and
•$40 million unfavorable change in other current assets and liabilities primarily related to increases in various prepaid expenses and timing of contract assets and liabilities.
Net cash provided by operating activities from discontinued operations decreased primarily due to lower earnings in 2022, which included only a partial period for the Lottery Business and Sports Betting Business that were sold during the second and third quarter of 2022, respectively, coupled with approximately$87 million in direct transaction costs associated with closing of the Divestitures.
Cash flows from investing activities
Net cash used in investing activities from continuing operations decreased primarily due to fewer acquisitions completed in 2022 than had been completed in 2021, as described in Note 10; the settlement of our cross-currency interest rate swaps, in which we received approximately$50 million in cash proceeds; the sale of Class A common stock of Endeavor Group Holdings, Inc., which we received from the divestiture of the Sports Betting Business, for$48 million ; and$6 million in SciPlay proceeds from matured investments. The decrease in net cash used in investing activities was partially offset by higher capital expenditures. Capital expenditures are composed of investments in systems, equipment and other assets related to contracts, property and equipment, intangible assets and software. Net cash provided by investing activities from discontinued operations increased primarily as a result of the receipt of$6.4 billion in gross cash proceeds from the Divestitures, net of cash, cash equivalents and restricted cash transferred.
Cash flows from financing activities
Net cash used in financing activities increased primarily due to theApril 2022 Refinancing debt transactions, in which we repaid approximately$7.0 billion in senior notes (including redemption premium) and outstanding borrowings under the LNWI Term Loan B-5 and received$2.2 billion in proceeds from the issuance of the LNWI Term Loan B. Additionally, the increase was due to purchases of our outstanding common stock and SciPlay's Class A common stock, under their respective repurchase programs described above, as well as taxes paid related to net share settlement of equity awards. During 2022, we purchased$405 million of our common stock, and our subsidiary SciPlay purchased$37 million of SciPlay's Class A common stock. The increase in net cash used in financing activities was partially offset by net repayments of$535 million under LNWI's revolving credit facility (prior to theApril 2022 Refinancing) in the prior year.
Credit Agreement and Other Debt
For additional information regarding the LNWI Credit Agreement and other debt, interest rate risk and interest rate hedging instruments, see Notes 15 and 16 as well as Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk."
Off-Balance Sheet Arrangements
As of
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