Executive Summary / Key Takeaways

• Light & Wonder is successfully executing a transformation strategy to become a leading cross-platform global games company, evidenced by 16 consecutive quarters of consolidated revenue growth and double-digit AEBITDA expansion.
• The company's differentiated technology, particularly its R&D engine and platforms like SciPlay's monetization engine and the iGaming Open Gaming System (OGS), provides a competitive edge and fuels growth across its diversified segments.
• Strong financial performance in Q1 2025, with revenue up 2% and AEBITDA up 11%, demonstrates operational efficiency and margin expansion across Gaming, SciPlay, and iGaming, despite macroeconomic uncertainties and specific segment headwinds.
• Strategic initiatives, including the recently completed Grover Charitable Gaming acquisition and ongoing investment in high-return R&D and CapEx, are expected to drive future growth and contribute to the reiterated target of $1.4 billion consolidated AEBITDA by 2025.
• While facing risks such as litigation (including ongoing IP disputes), macroeconomic pressures (tariffs, inflation), and international market volatility, LNW's diversified portfolio, strong balance sheet, and focus on operational excellence position it to navigate challenges and continue generating free cash flow for reinvestment and shareholder returns.

A Transformed Gaming Powerhouse

Light & Wonder, Inc. (NASDAQ:LNW) has undergone a significant transformation, shedding non-core assets like its lottery and sports betting divisions to sharpen its focus on becoming a premier cross-platform global games company. This strategic pivot has centered the business around three core, complementary segments: Gaming, SciPlay (social casino), and iGaming. This focused approach, underpinned by a commitment to content creation and digital markets, has been the engine driving consistent financial and operational momentum. The company's ability to leverage its extensive library of game franchises and technological capabilities across these distinct, yet interconnected, verticals forms the bedrock of its investment thesis.

The competitive landscape in the gaming industry is dynamic, featuring major players like Aristocrat Leisure (ALL), Everi Holdings (EVRI), and International Game Technology (IGT), alongside numerous smaller or regional competitors and digital disruptors. LNW positions itself as a diversified provider, competing across land-based gaming machines, casino systems, table products, social casino games, and iGaming content and platforms. While some rivals may hold larger market share in specific niches (e.g., ALL in global slots, IGT in lotteries), LNW's strength lies in its cross-platform strategy and the ability to deploy successful content and technology across multiple channels, aiming to capture share in a market that continues to see healthy gross gaming revenue (GGR) levels, particularly in North America.

A critical differentiator for Light & Wonder is its investment in and application of proprietary technology and a robust R&D engine. This isn't just about building games; it's about creating interconnected platforms and leveraging data analytics to enhance player engagement and operator efficiency. The SciPlay segment, for instance, benefits from the "SciPlay Engine," a proprietary platform designed to optimize player engagement and monetization through dynamic live operations and data-driven insights. This technology has contributed to SciPlay's consistent outperformance relative to the broader social casino market and record monetization metrics like Average Revenue Per Daily Active User (ARPDAU) and Average Monthly Revenue Per Paying User (AMRPPU). In Q1 2025, SciPlay's ARPDAU grew 5% to $1.06, while AMRPPU increased 3% to $116.96, reflecting the effectiveness of these tools in driving payer interaction and value.

In the iGaming segment, the Open Gaming System (OGS) platform serves as a powerful content aggregation and distribution engine, connecting over 85 partner studios and 570 operator brands. This two-sided network facilitates the rapid deployment of both third-party and LNW's own first-party content, including popular land-based franchises adapted for digital play. The strategic focus on cultivating high-margin first-party iGaming content, leveraging proven land-based hits like "Huff and More Puff," is expected to drive share gains. The OGS platform processed $25.2 billion in wagers in Q1 2025, a 13% year-over-year increase, demonstrating the scale and growth of this digital ecosystem. The company is also developing new technologies like cross-platform marketing jackpots, aiming to overlay technology on content to drive engagement and improve outcomes for operators. While precise, directly comparable quantitative metrics for all competitor platforms are not always publicly detailed, LNW's consistent GGR growth on its platform and success in securing tenders, such as the Finnish lottery's PAM and aggregation platform, indicate a competitive technological offering.

The company's R&D investment extends to its Gaming segment, focusing on developing hit game franchises and innovative cabinet hardware. The success of titles like "Huff N' Puff," "Ultimate Fire Link," and "Dancing Drums," alongside new cabinets like the COSMIC and HORIZON series, fuels both Gaming operations (leased machines) and Gaming machine sales. This continuous product refresh cycle is vital for maintaining market relevance and driving installed base growth. The promotion of Nathan Drane to Chief Product Officer, overseeing content across all segments, is intended to further streamline R&D and accelerate the deployment of successful franchises across land-based, social, and iGaming platforms, amplifying the R&D engine's return on investment.

Performance Reflecting Strategic Momentum

Light & Wonder's financial performance over recent quarters underscores the effectiveness of its strategic execution and operational focus. The company achieved its 16th consecutive quarter of year-over-year consolidated revenue growth in Q1 2025, reaching $774 million, a 2% increase from the prior year period. This growth, while modest in Q1, was accompanied by a significant 11% increase in consolidated AEBITDA to $311 million, resulting in a consolidated AEBITDA margin of 40%, a 300 basis point expansion year-over-year. This margin improvement reflects both a favorable revenue mix and the impact of ongoing margin enhancement initiatives across the business.

Looking at the segments, Gaming revenue grew 4% to $495 million in Q1 2025, driven by strength across all lines, including a 5% increase in Gaming operations and Gaming systems, and a notable 9% jump in Table products. Gaming AEBITDA increased 9% to $254 million, with the segment margin expanding to 51%. This performance was supported by growth in the North American installed base, although average daily revenue per unit in the U.S. and Canada saw a slight decrease, attributed partly to weather impacts. Gaming machine sales saw a modest 1% increase globally, with strong U.S. and Canada unit shipments (+30%) offsetting a decline internationally. The average sales price per new unit remained healthy at $19,996.

SciPlay revenue experienced a slight 2% decrease to $202 million in Q1 2025, primarily due to a decline in average monthly payers, although this was partially offset by increased monetization per paying user. Despite the top-line dip, SciPlay's AEBITDA grew 3% to $64 million, expanding its margin to 32%. This margin uplift was largely driven by the increasing contribution of the proprietary direct-to-consumer platform, which accounted for approximately 13% of SciPlay's revenue in the quarter and offers higher margins compared to third-party platforms. The segment continues to see strong performance from key titles, with Quick Hit Slots achieving its 13th consecutive record revenue quarter.

The iGaming segment continued its growth trajectory, with revenue increasing 4% to $77 million and AEBITDA growing 8% to $27 million, resulting in a 35% margin. This growth was fueled by momentum in North American markets and the expansion of the partner network on the OGS platform. The decision to discontinue Live Casino operations in Q1 2025, while incurring restructuring costs in the period, is intended to reallocate resources to higher-return initiatives within the segment and is expected to support future margin sustainability.

Financially, the company generated strong operating cash flow of $185 million in Q1 2025, up $14 million year-over-year, primarily due to increased earnings. Free cash flow for the quarter was $111 million, a 19% increase compared to Q1 2024, reflecting strong earnings and lower capital expenditures, partially offset by changes in working capital. The company maintains a healthy balance sheet, ending Q1 2025 with $134 million in cash and $960 million available under its expanded $1 billion revolving credit facility. The net debt leverage ratio stood at 3.0 times at the end of 2024, within the company's target range of 2.5x to 3.5x. Capital allocation priorities include reinvesting in R&D and CapEx, strategic M&A, and returning capital to shareholders through share repurchases. The company repurchased approximately 1.9 million shares for $167 million in Q1 2025 under its new $1 billion authorization.

Outlook and Strategic Horizon

Light & Wonder has reiterated its target of achieving $1.4 billion in consolidated AEBITDA by 2025, a goal management expresses high confidence in reaching. This outlook is supported by the expectation of continued growth weighted towards the second half of 2025, driven by visibility into the game sales funnel, the anticipated return to growth for the SciPlay Jackpot Party franchise, and ongoing momentum in iGaming and Gaming operations. The company also introduced a target adjusted NPATA range for 2025 of $565 million to $635 million, providing further financial context for investors.

A key strategic move reinforcing the company's growth trajectory is the recently completed acquisition of Grover Charitable Gaming. This transaction, which closed in Q2 2025, adds a leading provider of electronic pull-tabs in five U.S. states, bringing an attractive recurring revenue model and expanding LNW's presence in regulated land-based markets. The acquisition is expected to be funded through a combination of existing cash, the expanded revolver, and a new $800 million Term Loan A facility, with pro forma net leverage expected to remain within the target range. Management views this as a strategic growth driver, intending to deploy LNW's R&D engine and game franchises into this new adjacency. The recent legalization of e-pool tabs in Indiana is seen as an incremental tailwind for this business.

Beyond 2025, Light & Wonder sees a significant runway for continued growth. Opportunities include further market share gains across its core segments, expansion into new geographic adjacencies (such as emerging markets in Asia and the potential for iGaming legalization in additional U.S. states), and the ongoing benefits of its cross-platform strategy and R&D investments. The company is actively investing in new studios and talent to fuel product development well into 2026 and beyond, signaling a commitment to sustainable growth in perpetuity.

However, the path forward is not without risks. Macroeconomic conditions, including inflation, rising interest rates, and potential impacts from trade tariffs, could affect consumer discretionary spending and operator capital expenditures. While LNW is implementing mitigation strategies for tariffs and supply chain disruptions, these factors introduce uncertainty. The company is also involved in various legal proceedings, including significant IP and antitrust litigation, which could result in material liabilities in excess of accrued amounts. The integration of the Grover acquisition carries inherent risks, including unexpected costs or the inability to fully realize expected synergies. Furthermore, international operations expose the company to risks related to currency fluctuations, political instability (such as the conflict in Israel), and regulatory changes. The social gaming segment faces risks related to potential regulatory frameworks or opposition in certain jurisdictions.

Conclusion

Light & Wonder is executing a focused strategy to leverage its core strengths in content and technology across a diversified portfolio of gaming, social casino, and iGaming businesses. The company's recent financial performance, marked by consistent revenue growth and expanding margins, demonstrates the effectiveness of its operational excellence and strategic initiatives. The reiteration of the $1.4 billion AEBITDA target for 2025, supported by a robust product roadmap, ongoing R&D investment, and strategic acquisitions like Grover Charitable Gaming, provides a clear near-term financial objective. While macroeconomic headwinds, litigation, and international risks present challenges, LNW's diversified revenue streams, strong balance sheet, and commitment to innovation and operational efficiency position it to pursue its growth objectives and continue generating value for shareholders. The ability to translate its R&D prowess into compelling cross-platform content and leverage its technological platforms remains central to its competitive standing and long-term potential in the evolving global gaming market.