Lottery business sale helps Light & Wonder slash debt in Q2

Light & Wonder sold its lottery business to private equity company Brookfield Business Partners in April for $5.8bn (£4.8bn/€5.7bn) in gross cash proceeds and approximately $5.0bn in net after-tax cash proceeds.

The sale is part of a wider strategy at Light & Wonder, whereby the group is in the process of streamlining its operations to focus on gaming. Under this plan, L&W has also agreed to sell its OpenBet sports betting business to IMG Arena-owner Endeavor. This was initially set to complete during Q2 but now is expected to close before the end of Q3.

L&W president and chief executive Barry Cottle said in an investor call the 2022 financial year is a “pivotal year” for the business as it switches its focus to gaming, adding that this will create greater value for shareholders.

“We have made significant progress transforming our company and succeeding on executing our roadmap, delivering a strong operating performance this quarter,” Cottle said. “With the lottery business sale and anticipated closing on the sale of our sports betting business by the end of the third quarter, we have achieved a significant milestone in the transformation of our organisation.

“We closed on the sale of our lottery business for $5.7 billion in gross cash proceeds, which we used to significantly de-lever our balance sheet as we continue to deliver on our promises.

“We now have all the pieces in place and are singularly focused on building great games fully cross-platform.”

Turning attention to the supplier’s performance in Q2, revenue was up 5.0% year-on-year at $610m, with growth across two of its three business segments.

Gaming revenue climbed 6.3% to $390m, driven by growth in gaming operations and helped by $38m worth of UK FOBT VAT recovery, while revenue from the SciPlay social gaming arm also increased 3.9% to $160m after the acquisition of Alictus.

Revenue from the igaming arm remained level at $60m in Q2, though the business noted significant growth in the US, with revenue in the country up 47% year-on-year. Light & Wonder also completed the acquisition of igaming content provider Playzido in the quarter, with the intent to expand its original igaming content offering.

Turning to costs, total operating expenses amounted to $564m, up 9.9%, while after also including $195m in finance-related costs, this left a pre-tax loss of $149m, compared to the $45m loss posted at the same point last year.

L&W only paid $1m in tax, resulting in a net loss of $150m, wider than $51m in Q2 of 2021. However, the lottery business sale resulted in an additional $3.4bn in net income, meaning overall net profit for the quarter was $3.3bn, compared to $109m in the previous year.

The group also noted adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for the quarter was down 8.6% to $212m, though the lottery sale meant its total debt was reduced from $8.7bn to $3.9bn.

Looking at the first half, revenue for the six months to 30 June was 14.4% higher at $1.2bn, with revenue from services and product sales both increasing year-on-year.

Operating expenses were 14.0% higher at $1.1bn and when also including $299m in other costs, pre-tax loss was $213m, wider than $130m last year. L&W paid $4m in tax, leaving an initial net loss of $217m for the half.

However, after accounting for income from the lottery business sale, net profit for the half reached $3.3bn, far higher than the $94m recorded in the previous year. In addition, adjusted EBITDA was 10.7% higher at $414m.

“We made great strides in the second quarter as we continued to execute on our vision and the transformation of our company,” Cottle said. “This quarter we made tangible progress against our strategies as we delivered strong operating momentum and topline growth in the quarter. 

“The success we are seeing this quarter is the result of the fundamental changes we have made throughout the business. Adding it all up, we couldn’t be more excited about the progress we are making and our path forward as the leading cross-platform global game company.”