Light & Wonder, Inc. ($LNW)

Good day, and thank you for standing by. Welcome to Light & Wonder First Quarter 2026 Earnings Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Rohan Gallagher, EVP of Corporate Affairs. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to our first quarter 2026 earnings conference call. Joining me today in Sydney are Matt Wilson, our President and CEO; and Oliver Chow, our CFO. During today's call, we will discuss our first quarter results and operating performance, where we will refer to our earnings presentation. This will then be followed by a question-and-answer session. Today's call will contain forward-looking statements that 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 the ASX. We will also discuss certain non-GAAP financial measures. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our earnings release and earnings presentation located in the Investors section of our website. With that, I'll now turn the call over to Matt to discuss the first quarter results and operational highlights on Slide 3. Thanks, Matt.

Thanks, Rohan. Hello, everyone. Thank you for joining the call today. Light & Wonder has proven to be adaptive and nimble, capitalizing on new opportunities through our cross-platform strategy. Importantly, we understand and remain focused on what fundamentally drives value in our business, and that is game performance. The evidence is clear. We continue to progress and execute at a high level based on internal and industry data we are seeing. Over the past several months, we have faced a number of external headwinds, including tariff pressures and more recently, geopolitical and macroeconomic uncertainty affecting end consumers. These are factors largely outside of our control, and we've managed through them with discipline. Despite some softness in the numbers, a more cautious consumer sentiment, uptick in inflation and the tariff impact, we were able to keep our margins steady and still expect a stronger back half performance. To summarize our results for the quarter, consolidated revenue and consolidated AEBITDA both grew year-over-year and margins expanded across every business segment. The combination of top line growth, margin expansion and improving revenue quality is the financial profile we are building towards. Our recurring revenue, which represented 73% of total consolidated revenue, grew 13% year-over-year, reinforcing the quality of our earnings base. North American installed base, excluding Grover, added over 2,550 premium units year-over-year, underscoring the continued momentum in gaming operations. Our unwavering commitment to cash enhancement and value remains with adjusted free cash flow of $207 million in the quarter, up 86% year-over-year, demonstrating the cash-generative power of our business as it scales. EPSa or adjusted earnings per share grew 7% to $1.45, reflecting continued cost discipline and the benefit of our ongoing share repurchase program. Across the enterprise, our business continues to benefit from a balanced mix of land and digital-based solutions, reflecting the strength and diversity of Light & Wonder's business model, high-margin, cash generative and omnichannel. Turning to Slide 4 for a high-level view of our consolidated results. You can see a business that is growing and generating more of its revenue from high-quality flow-through businesses. Gaming and iGaming drove the top line growth this quarter, underpinned by the strength of our content engine and continued operational momentum. AEBITDA margins expanded across every single business segment year-over-year. This reflects the executional prowess and disciplined focus on efficiency we have embedded across the organization. Additionally, Grover is also contributing as a high-margin recurring revenue stream within the gaming segment of our portfolio, which will improve over time as we continue to integrate and ramp up the charitable gaming business. The results we delivered reflect an omnichannel business with a strong structural moat, a content and R&D engine that continues to compound and an increasingly recurring revenue base. Those are the characteristics of a business built for durable long-term growth. Last quarter, we introduced a dashboard to present an annual update on the path towards our long-term targets. We received overwhelmingly positive feedback on our transparency in assessing the health of the business and therefore, providing this assessment you see here on Slide 5 for a quarterly status check on the business. As you can see, green reflects strong execution and performance on track or exceeding what we've guided to. Yellow indicates solid progress, but a potential watch point and red flagging areas where we are being transparent about a gap and have a clear plan to address it. Additionally, we split the metrics up into gray and green highlighted sections with the gray performance metrics highlighting the building blocks we've directionally guided to for our 2028 goals. The 2 new green rows introduced here are what we deemed essential to monitor this quarter. North American revenue per day, a metric that is critical in overall game performance and broader macroeconomic environment continues to trend positively, evidence that the significant investments and commitment we've made in developing our games and franchises are bearing fruit. Candidly, we're also flagging that SciPlay and the social casino industry are seeing some softness, and some of the metrics are not where we need them to be. However, we are seeing a modest improvement in our daily active users sequentially, which is a positive sign in the initial stage of stabilization with players returning to our platform. The team is hopeful that this will trend positively as we continue to invest in this important part of our cross-platform engine. Overall, most of this scorecard shows positive results. We recognize that there is still room for improvement across the organization, and our teams are working collectively to address them diligently and effectively with well-defined plans. This is the kind of business we are building, one that executes with discipline, communicates with clarity and stays focused on the long-term targets we have set. I will now go into the highlights and details of each of the businesses for the quarter. Turning to Gaming on Slide 7. The results reflect the quality and diversity of what we've built with our R&D engine. Revenue grew 3% to $512 million, and AEBITDA increased 7% to $271 million year-over-year, with margins up 200 basis points to 53%. The margin expansion also reflects a richer revenue mix towards recurring revenue units in the absence of Grover in the prior period. Gaming operations grew 38% year-over-year, driven by continued premium installed base expansion on improved game performance within the portfolio as we continue to see strong coin-in trends and $43 million of contribution from Grover. Tables grew 24% with strong utility sales in North America and solid product sales across EMEA and Asia. I'm pleased with the progress we've made here with our revamped product road map and commercial strategy. We are well positioned to capture the global opportunities that will be available to us in this space. Gaming machine sales were down 25% and gaming systems declined 14%. These are largely timing and not demand driven with the seasonal sequential volume reset that follows a strong fourth quarter, underscoring the quality and durability of this business. Our pipeline is healthy, and we expect both to normalize as we move through the year into the second half when we ramp up the product launches. Pleasingly, we secured a number of systems contract wins recently, both in competitive replacements and long-term renewals across tribal, commercial and state-regulated gaming operators, a true testament to our expanded suite of capabilities and offerings driving the systems business. Let's now turn to KPIs on Slide 8. Gaming continues to build on a strong recurring revenue foundation with our North American installed base up 41% year-over-year to 48,600 units at quarter end. This also reflects 12,200 Grover units added to the footprint. Importantly, premium units have increased for 23 consecutive quarters and is now 56% of the total North American installed base with over 2,550 net adds year-over-year. It's worth noting that an operator-specific VLT to Class III conversion affected our non-premium unit count this quarter. Adjusting for that conversion, our premium installed base grew in excess of the 500 unit quarterly growth we had previously guided. Our blended average daily revenue per unit in North America grew 3% to over $48, inclusive of Grover units, driven by strong wide area progressive performance and coin-in against the backdrop of continued strength in industry-wide gross gaming revenue. Excluding Grover, North American installed base revenue per day was up 8% year-over-year, a meaningful indicator of the underlying business momentum. This is further reflected in our presence across multiple categories on the Eilers, WAP and premium lease charts with franchises such as Ultimate Fire Link, Huff N' Puff, Dancing Drums, among others, continuing to perform well. Globally, we shipped 7,200 of game sales units in the quarter. We continue to see strong momentum from non-adjacency replacements in North America with solid performance from our Piggy Bankin Break In and Super Hot Flaming Pots (sic) [ Big Hot Flaming Pots ] franchises. International sales were lower year-over-year due to the timing of shipments and hardware cycle in Australia as well as new and expansion units in the Philippines in the prior year. Our international pipeline remains robust, and we expect growth in this segment as orders are fulfilled later in the year with the launch of the Cosmic Jewel Screen cabinet in late Q2 and the regionalized roadmaps tailored for each of these regions. Average selling price held essentially flat at approximately $19,700, reflecting the pricing discipline and premium positioning of our portfolio. Looking ahead, we believe the setup for the second half unit sales is compelling, a strong content calendar, hardware refreshes that the market has been anticipating and a global pipeline we have high confidence in converting. Moving on to Slide 9 for an update on Grover. What you see here is an acquisition that is performing and benefiting from the established infrastructure we have here at Light & Wonder. Grover delivered $43 million in revenue for the quarter, driven by strong performance across existing markets and our entry into Indiana. We ended the quarter with over 12,200 units installed, up 660 units sequentially. We have added over 1,200 units to the Grover installed base since we closed the deal in the second quarter last year. That growth rate directly reflects demand for this product and the strength of Grover's local market relationships with the charities and end customers. Indiana is exciting and a market that's still in its early innings. Encouragingly, we saw unit economics scale and improve progressively throughout the quarter, similar to our prior experience entering new markets. Our strategy here is clear. We adopt an effective and prudent commercial approach by pricing our business reflective of our game content and customer service value points of differentiation. Historically, that has served us well as we've progressively grown the market and share over time across established markets. From an integration standpoint, we remain focused on deepening the alignment of L&W content, hardware and brands within Grover. Our first Light & Wonder title, Eureka Treasure Train was launched in Indiana with exceptional early results supported by strong player engagement across all denomination play, reflecting the broad appeal across our player base. We expect to bring a steady flow of Light & Wonder hardware and content to the market throughout the remainder of 2026. Content integration is at the core of our value creation thesis for this acquisition, bringing our world-class game development capability to a recurring revenue platform with exceptional unit economics. Looking at the map on this slide, you can see the growth opportunity in front of us. Minnesota and Maryland remain priorities, and we are actively engaged in both. New Mexico is also a market that we are assessing while Alaska presents as an attractive opportunity pending legislation. The combination of Light & Wonder's content strength and Grover's operational reach creates a compelling growth platform, one that evolves our charitable gaming businesses into a single unified content and hardware ecosystem with significant potential across both current and future markets. Turning to SciPlay on Slide 10. We continue to see the social casino market under pressure in the quarter with preliminary industry estimates indicating a mid-single-digit year-over-year decline as reflected in SciPlay's lower revenue. Despite the softness, we delivered growth in the direct-to-consumer platform, posting a record $50 million and at 27% of SciPlay's revenue, up from 13% in the first quarter of last year. The diversity of our portfolio was also evident across several titles. Quick Hit and 88 Fortunes both grew year-over-year and Monopoly achieved its sixth consecutive quarter of revenue growth. The sustained performance of these franchises reflects the quality of our live ops engine and the depth of our meta capabilities across SciPlay. As for Jackpot Party, we are seeing the engagement improvements that we've been working towards. Play rates are tracking above the prior year. And importantly, our daily active users have stabilized and grew modestly quarter-over-quarter. The trajectory is moving in the right direction, giving us the confidence to lean back into UA investments as we move through the year. Engagement and monetization across the portfolio remain key focuses. We saw sequential growth in monthly paying users, driven by the new game economies we have deployed and targeted marketing investment and average monthly revenue per paying user grew 8% year-over-year to $126. Going forward, we remain committed to the initiatives that will return SciPlay to revenue growth, including launching new game features such as Side Bets and meta-quests, which are expected to further improve our monetization flywheel. Now on to Slide 11, where we delivered another strong quarter of revenue and AEBITDA growth in iGaming, extending double-digit momentum across the segment. Revenue grew 18% year-over-year to $91 million, and our AEBITDA grew 22% to $33 million, with margins expanding year-over-year to 36%. These results were driven by the proliferation of first-party content across our platform and the ongoing expansion of our partner network. Wagers processed on our content aggregation platform, OGS, grew 19% year-over-year to a record $29.9 billion. This quarter also marked the fifth sequential period of global first-party content GGR growth on OGS. First-party growth was led by the Huff N' Puff and Pirots series with Huff N' Lots of Puff ranking first and Pirots 4 ranking second globally. Additionally, 8 of the top 10 games across our network in the quarter were first-party titles, reflecting the durability of our franchise strategy and the strength of our omnichannel approach to content deployment. Third-party content growth was driven by Canada expansion, new market entries and continued momentum in Europe. The reliability and scale of our platform remains central to that growth, enabling us to connect an expanding network of studios to operators across the markets. You can see on Slide 12 that iGaming presents a compelling story with key growth opportunities as jurisdictions open up. The upcoming Alberta commercial launch represents a key expansion milestone, and Elk Studios is on track to receive licensing in Pennsylvania with launch expected in the back half of the year. We're also encouraged by Elk's strong early performance in South Africa, which reinforces our confidence in the new market entries. New market development remains a strategic priority with continued focus on South Africa, Brazil and the Philippines as we solidify our footing in the regions. On the content side, first-party momentum continues to build. The success of our Huff N' Puff and Pirots franchises provides a strong foundation, and we have a robust slate of franchise extensions and new games, including titles from The Wizard of Oz, Wonka and Big Hot Flaming Pots series slated for launch this quarter. The road map you've seen here reflects the breadth of the content pipeline across both our North American and European markets. Looking ahead, I'd like to note the recently enacted U.K. tax change will begin to pressure our growth trajectory starting in the second quarter and is expected to continue through the end of the year. We are actively managing through this with operators, and we believe new market opportunities will offset that pressure over time. Overall, we remain confident in our iGaming road map and the long-term growth potential this segment represents for the business. Before I hand to Oliver, I'd like to turn your attention to some of the slides we provided in the appendix. The gaming industry continues to demonstrate resilience, growing at mid-single-digit CAGR over the past 2 decades despite macro events. We continue to see strong GGR this quarter amid geopolitical uncertainty, and we are well positioned to capitalize on opportunities with a robust global road map. Additionally, the progression of our financial profile reflects the kind of recurring revenue business earnings base we are intentionally building, which is further accentuated through our buybacks, delivering significant value to shareholders. Importantly, we are staying ahead of the trend, working through our AI enablement program across technology, content and business operations. Our IP, data, regulatory approvals, customer relationships and proprietary platforms gives us a structural moat that I believe is genuinely difficult to replicate. We'll share more about the AI enablement programs around second quarter earnings in conjunction with AGE as we complete the foundational work. With that, I'll turn it over to Oliver to go through the financial highlights for the quarter. Oliver?

Thanks, Matt. This quarter once again demonstrates the disciplined execution of our strategic and operational initiatives across the organization. Turning to Slide 14 for the financial results. Consolidated revenue of $790 million was up 2% year-over-year, supported by growth in our recurring revenue businesses, creating earnings durability and meaningful margin enhancement. Net income was $52 million compared to $82 million in the prior year, primarily reflecting the following 2 items: First, restructuring and other costs were $54 million in the quarter, up $34 million, inclusive of $50 million of legal reserve contingencies, which impacted net income year-over-year growth by approximately 61%. Second, depreciation and amortization was $108 million, up $17 million year-over-year, reflecting the addition of Grover assets following the acquisition. Net income per share was $0.66 against $0.94 a year ago, reflecting the aforementioned legal reserve contingencies, which impacted growth by approximately 67%. From an adjusted NPATA perspective, the quarter came in at $115 million, primarily reflecting higher depreciation and interest expense associated with the Grover acquisition, partially offset by AEBITDA growth and margin expansion across all businesses. On a per share basis, adjusted NPATA per share grew 7% to $1.45, reflecting the continued benefit of our share repurchase program. Consolidated AEBITDA was $327 million, up 5%, which I'll walk through on Slide 15. The $16 million year-over-year increase is primarily driven by gaming, which contributed $17 million of growth, driven by North American gaming operations unit installs and revenue per day performance, inclusive of Grover. As mentioned, our upcoming hardware and content launch is expected to be a meaningful catalyst for second half performance. SciPlay AEBITDA was up $2 million, driven by continued DTC expansion and player base monetization. With stabilization in our player base, we will continue to target UA investments prudently to drive monetization. iGaming added $6 million of AEBITDA, driven by the continued expansion of first-party content margins and revenue growth. The U.K. tax increase will be a slight headwind to our iGaming AEBITDA margins in the second half of the year in addition to a moderated top line growth. Corporate was a $9 million headwind year-over-year, primarily driven by incremental investments to support our initial AI infrastructure build-out as well as elevated legal legacy costs that I mentioned last quarter. Moving forward, corporate costs should be in line with our historical run rate. From an adjusted NPATA perspective, the $16 million AEBITDA flow-through is the primary positive driver. Against that, higher depreciation and amortization of $7 million and interest expense of $13 million are largely associated with the accretive Grover acquisition. As Grover's earnings contribution scales and we continue to delever, we expect those headwinds to be more than offset over time. Lastly, income tax was a $7 million benefit on lower effective tax rate, driven by lower taxes on foreign earnings and reduced global withholding taxes. Turning to Slide 16 on cash flow, which speaks to the strength of our cash flow generation this quarter. Net cash provided by operating activities was $139 million compared to $185 million in the prior year period. The year-over-year variance is primarily attributable to the $137 million in payments to resolve legal matters and importantly, is not reflective of any change in the underlying operating parts of the business. Adjusted free cash flow for the quarter was $207 million, up 86% year-over-year, driven by the highly cash-generative nature of our business model, favorable timing of receivable collections and lower tax payments. Recognizing the timing around receivables as well as tax and interest cash payments associated with the quarterly reporting company, the stronger first quarter results should moderate into the second quarter. We remain focused on a trailing 12-month basis to assess the health of our free cash flow, which has improved progressively since the implementation of our cash enhancement initiatives. Capital expenditures in the quarter were $74 million, deployed effectively and strategically to drive long-term free cash flow growth, consistent with our focus on scaling recurring revenue across the business, including Grover growth investments. Turning to cash conversion. We achieved consolidated AEBITDA and adjusted NPATA to adjusted free cash flow conversion rates of 63% and 180%, respectively, in the quarter, a meaningful step-up from 36% and 95% in the prior year period. This improvement reflects both strong earnings growth and the continued execution of our cash generation initiatives, which will be a continued focus for us here at Light & Wonder. Moving on to our capital structure on Slide 17. Our net debt leverage ratio at the end of March stood at 3.4x, remaining within our targeted range on a combined basis. Notably, this was achieved despite the $137 million litigation settlement payments made during the quarter as well as ongoing purchases under our share repurchase program. This is a direct reflection of the continued margin expansion and strong free cash flow generation we delivered throughout the quarter. We're also pleased to see our improved credit profile recognized by S&P, who upgraded our corporate credit rating by 1 notch to BB in March. Turning to our debt profile. The principal face value of our debt at period end was $5.2 billion. As previously referenced, we successfully repriced our $2.1 billion term loan in January, reducing the margin by 25 basis points to 2% and generating approximately $5 million in annual interest savings. Our debt maturity profile remains long dated with an average tenor of 4.1 years, and our effective net interest rate for the quarter was approximately 6.32% with a 53% fixed and 47% floating debt mix. We continue to maintain ample balance sheet flexibility with $927 million in available liquidity to support growth initiatives and navigate uncertainties with the geopolitical conflict and inflation risks. As we look ahead, we remain actively engaged in evaluating opportunities to further optimize our capital structure should favorable market conditions arise. Shifting to our capital allocation framework on Slide 18. This speaks to how we're thinking about capital deployment as we move through 2026. Our approach remains consistent and anchored around the 3 pillars of our blueprint, optimizing our capital structure, returning capital to shareholders and investing with discipline in growth opportunities that will define our long-term trajectory. We remain committed to reducing leverage to below 3x during the first half of 2027. In parallel, we intend to accelerate share repurchases meaningfully in Q2, reflecting strong conviction that our stock is undervalued given the share price dislocation. With our robust underlying business and cash generation profile, we see a compelling opportunity to deploy free cash flow on share buybacks while reducing our leverage and remaining within our targeted range. Turning to shareholder returns. We bought back $22 million of shares in the quarter after strong buyback activity in the fourth quarter as we stayed prudent navigating potential broader environment risks. Since the inception of our 2 share repurchase programs, we have returned a total of $1.9 billion to shareholders in the repurchase of 24.6 million shares and CDIs, representing 25% of total outstanding shares prior to the program commencement. We have $314 million of remaining capacity under our current authorization, and our flexible capital structure enables us to deploy that balance sheet capacity in a way that balances both near- and long-term shareholder value. Lastly, on investments. We continue to allocate capital strategically across R&D and content development and growth initiatives spanning across our platforms. R&D and CapEx investments in the first quarter came in at 17.8% of consolidated revenue. Importantly, we continue to lay out the foundation of our AI infrastructure, which is expected to be a meaningful driver of efficiency and capability going forward. Taken together, these 3 pillars reflect a balanced and disciplined approach to capital allocation, one that supports both near-term financial performance and long-term value creation to our shareholders. Before we move to Q&A, I'd like to provide further clarification on how 2026 is going to shape up in addition to the guidance and modeling parameters provided at the beginning of the year on Slide 20. Subject to external uncertainties, including geopolitical developments and potential regulatory changes, we are forecasting mid- to high single-digit consolidated AEBITDA growth for 2026. I want to take a moment to walk through the key factors embedded in this guidance. We are absorbing approximately $40 million in headwinds from external factors outside our control, principally U.S. tariffs and the recently enacted U.K. iGaming tax changes. Additionally, we're carrying an estimated $20 million of impact on planned investment spend related to AI infrastructure and new market openings, including Grover and Indiana. These investments will support not only our 2028 targets, but also set us up for the long run. Lastly, we also anticipate approximately $10 million in legacy legal costs. Against that backdrop, we believe delivering mid- to high single-digit consolidated AEBITDA growth is a strong outcome and one that translates into another year of meaningful adjusted NPATA and adjusted earnings per share growth. On the shape of earnings through the year, we continue to expect the cadence to be broadly in line with 2025. This reflects the natural cyclicality of our industry and our customer CapEx intentions. Underpinning all of this is our growing recurring revenue base, which continues to provide resilience and visibility across the business. We remain committed to our long-term targets as referenced in the appendix as we navigate this ever-evolving macro and industry landscape diligently for sustainable growth. And now with that, I'll turn it over to the operator for your questions. Operator?

[Operator Instructions] And our first question comes from the line of Andre Fromyhr of UBS.

Just wondering if we could start talking about the drivers of the ops business. So from an installs and fee per day perspective. So in terms of reconciling what we've seen in the quarter, we've seen 650 premium, 660 Grover. But maybe you could talk through the drivers of the non-premium. Is that solely explained by New York VLTs coming out? And then with reference to the outlook, you've held the $500 per quarter guidance. Is that true every quarter? Or is that something we should think about as sort of the average through the year?

Yes. Fair bit to unpack there. I thought the underlying gaming ops performance by premium gaming ops was another solid quarter for us. Like you said, 650 net adds fee per day, up 8% year-on-year. So I thought that continues to be a powerhouse of the business and performing very well. We've guided to more than 500 a quarter throughout the year, and you can expect that from us. It will be a fairly consistent cadence of delivery from that business. It's all underpinned by the number of great performing titles we have that you can see on the Eilers chart. So yes, that's -- I would say that from all the businesses, that's the best performing business we have is the gaming ops premium lease. So we're very happy with that. Grover has had another great quarter, both organically in existing states and then we're in Indiana now, as you know, and scaling there nicely. We just launched our first Light & Wonder game on the Grover platform, and it's off to a very good start. That's kind of a third or fourth tier brand for us. So kind of plays through on the thesis that our content on the Grover platform is a recipe for success. So you'll see that playing through. Yes, the noise in the number candidly, was completely New York Lottery. That was a casino that switched from a VLT market. It's been a VLT market for over a decade. We knew this was coming. We actually thought it was going to come 2, 3, 4, 5 years ago. It finally happened. So they finally have Class III casinos in New York. So puts and takes there. Obviously, a good thing for us on the for sale side. They're a big tables customer for us going forward. So opportunities on both premium leased for sale tables, but a net drag on that non-premium lease footprint. Obviously, lower -- much lower fee per day. So the revenue flow-through is not as dramatic as the loss in units. But something we've forecasted, something we knew was coming, something that's kind of in our plan. It's in our guide. It's in our full year guidance number. So yes, I'd say that's the best way to kind of frame up the leasing footprint and the noise that you see in the number. It is that specific New York Lottery transfer over the Class III.

And just to follow up on that. So the loss of those VLT units, you said that was supportive for your outright sales. Did you pick up any Class III ops installs in what replaced those? Or was it all outright?

Yes. There were some premium gaming ops in stores, and there'll likely be more down the line. Some of those VLTs will be kind of repurposed into other locations in the market. So yes, it's an evolving landscape. Yes, something that's not unique to us. All of our major competitors have the same set of removals and conversions to Class III typical casinos. So yes, there's opportunity in that market going forward, notwithstanding that we did see that reduction from a VLT perspective.

Yes. And I think just one add to that is if you think about it from a '26 perspective, it will be a net positive from us in that specific customer. Remember, this is just one customer across 700 plus that we have across the entire U.S., but it should be a net positive for us in '26.

Yes. And Matt, you mentioned the 8% underlying yield growth. Just wondering if you could unpick the drivers of that. How much was a mix effect versus the underlying GGR performance or the commercial side of things as well?

Yes, a combination of better performing products, and that's evidenced by the Eilers chart. You see that coming through month after month. It's really 2 major suppliers that dominate that category at the moment, which is fantastic. And then yes, GGR is holding up nicely in the face of a lot of geopolitical risk, surging gas prices, a number of different factors that could be hitting the U.S. consumer, but they're powering right through it at the moment. It's something to watch closely. But you look at the fee per day numbers, you look at the reported GGR, it looks like the market is holding on very well in the face of some we have pretty challenging headwinds from a geopolitical perspective.

[Operator Instructions] We will now take our next question, and our next question comes from the line of Barry Jonas of Truist.

I was hoping you could talk more about the visibility you have in terms of the top line environment today and maybe just how you're thinking about the top line growth necessary to hit your '26 and for that matter, '28 AEBITDA targets?

Yes. Obviously, a little softer quarter than you have come to expect from us. And I would say that 1 quarter doesn't make a full year guide and certainly doesn't make a 3-year guide. So if I kind of go down the line in terms of unpacking the businesses, and I'll give you like an honest assessment of kind of where we're at and what drove some of the softness in the quarter. Like we said, I think the powerhouse of the businesses continues to be gaming ops, which is if you could pick one to perform at peak, that's the one you pick. It's the one you ascribe the highest valuations to, and it's the part of the business we've been really focused on growing over time. So comfortable with where gaming ops is. I think from a U.S. for sale perspective, I'd say like in the core Class III replacement market, we had a great result in the first quarter. It looks like a 25% share number in that category was a little softer on adjacencies. Those things can be quite cyclical, as you know. So lower Canadian VLTs and Oregon VLTs. These are large kind of RFP-driven parts of our business that can drive some cyclicality. So I'd say in U.S. for sale, comfortable with where the Class III replacement number is, but then you'll likely see a pickup in adjacency sales throughout the remainder of the year. International sales is really the drag on the quarter, as you can probably see in the numbers. Obviously, Australia share has really fallen off a cliff leading into the launch of a new cabinet. This is pretty typical in markets. The customers don't want to be buying the old cabinet when the new one is on the horizon, and we try to be transparent with customers when new cabinets are coming. Fortunately, the cavalry has arrived. It launched the Cosmic Jewel Screen launched earlier this week, actually in New South Wales. So that will be the catalyst for us to return to normalized share levels in Australia. We've got a really good product line up there. And we were probably well overdue for a new cabinet refresh in this market. I'm in Sydney at the moment, but this market, you really see a surge in share when you launch a new cabinet. The good news is we launched the Cosmic Jewel screen in the U.S. in November last year, and it's off to a great start. It's lighting up the charts in the U.S. So we're confident that, that cabinet is of a quality that can really drive share in the Australian market. The same is true in Asia. We were overdue for a cabinet launch there. It launches next week at the Macau Gaming Show. So that -- again, that should be a catalyst for the international sales segment to pick up and make a solid contribution throughout the remainder of the year. If I look at Grover, it's a nice scaling recurring revenue business. It's added another 660 units. We've added the new games from Light & Wonder on the platform. So you'll see that continuing to grow throughout the year. That will be a great top line driver for us. I mean the iGaming business had a great quarter, I thought, and that's a business that continues to scale over time, notwithstanding there's some tax implications there from a U.K. perspective, which I think Oliver spoke about in the prerecorded remarks. And then probably the other drag on the top line at the moment it has been SciPlay, we'll be honest about that. I mean the entire category was down kind of mid-single digits in 2025. It's a market that's in maturity, I would say. We don't make excuses for that. We intend to drive growth through that business over time. That's what the team has signed up to do. And I think you can see at the AEBITDA line, a nice tick up in the direct-to-consumer composition. So all that to say, in aggregate, gave us confidence, notwithstanding quite a dramatic global backdrop to come out and say, you can expect from us to single -- mid- to high single-digit AEBITDA growth over time. But hopefully, that color commentary gave you a bit of context about the different operating parts of the business.

Yes. And maybe, Barry, just to add to that, if you look at, we said this on the prepared remarks, but if you look at the shape of '26, we expect that, again, to be very similar to '25. So if you look at '25, 22%; '24, '26, 28% from a quarterly phasing perspective, I would expect that to be fairly similar. And then to Matt's point, I mean, obviously, the headwinds that we're working through the U.K. taxes, the tariff pieces that we've been very open about in terms of some of the details there, some of the investments that we're going to make in terms of AI to get us to stronger outputs here over the next 3-plus years. Those are areas that we'll focus in on and obviously try to mitigate as we move through.

We will now take our next question from the line of Matt Ryan of Barrenjoey.

I was just picking up on some of the comments, I think, Oliver, you are making about the acceleration in the buyback in Q2. And just sort of wanting to bring that back, I believe, to maybe Barry's question about visibility and whether those things are tied together. In other words, as you're ramping your recurring revenue base, presumably, your confidence levels through the next few quarters is going up. So just if you could comment on whether that's correct and whether that's possibly a motivator behind being a little bit more aggressive on the buyback?

Yes. I think -- thanks, Matt. We've positioned ourselves really well here over the past couple of years from a capital allocation perspective. If you look at the free cash flow outcomes that we've provided over the last, I would say, a couple of years, we've scaled every single quarter on a trailing 12 months. That's kind of the commitment that we've made. And that certainly gives us a lot of flexibility as we head into the next year. First -- I think first and foremost, just given the dynamic global environment that Matt kind of mentioned, I think first and foremost, we'll continue to kind of focus on the pieces that we know are going to drive outcomes for us. So obviously, the organic investments will be critical for us. We'll be aggressive here given the [Technical Difficulty] I think as we think about the next 3 quarters, the intention is to see this aggressive Q2 number. We still believe we can do both buybacks and delever at the same time. And so our commitment is [Technical Difficulty] the range by the end of this year and below the middle end of the range by the first half of next year. So we think we can do both [Technical Difficulty] generations that we've proven will support that.

We will now take our next question from the line of Rohan Sundram of MST Financial.

Yes. Just the one for me. Oliver, just tying into Matt's question around debt. Sorry, you're cutting out, but I appreciate the commitment towards lowering the gearing less than 3x by first half '27. But can I confirm, is there an outlook for debt reduction in that period? And are you able to give an ETA for when you would like for the group to be at the low end of the target range?

Cash generation perspective. Obviously, as we move and as we drive these outcomes, we will move to the middle again that will imply certain levels of our expectation right now, and this is where we are [indiscernible] that and then we will reevaluate. I think gives us a lot of -- given the cash generative nature of our business. 2.5, 3.5 is our range. I think if you imply kind of what our outputs are going to be from a '28 perspective, that's a lot of cash. That's going to be a lot of dry powder. That will certainly give us a lot of flexibility as we move to the 3-year guidance.

And our next question comes from the line of Justin Barratt of CLSA.

I just wondered if we could go back to the gaming ops business, Matt and Oliver, and in particular, Grover, a really strong quarter there. I was wondering if you're willing to break out, I guess, the net adds that you've got in Indiana versus, I guess, non-Indiana. Talk a little bit more about the competitive intensity in Indiana. And then I guess the broader question is, can we expect 600-plus net adds from your Grover business per quarter going forward?

Yes, a business that we're really happy to talk about. Obviously, it's proving to be a fantastic bit of M&A, and we seem to be the rightful owner of that. The team is doing a fantastic job, has not missed a beat since joining Light & Wonder in terms of operational prowess, but then you add that the context of our content on their platform, it's just -- it's proven to be a great combustible combination. I would say the underlying business is adding games at the same rate it has since we've owned it. And then Indiana has been incremental. We haven't given the exact breakout of Indiana versus the core operating markets. But yes, I would say the underlying organic markets are performing at the same level. And it's early innings in Indiana. We see the ability to scale there over time, both by placing more games in these existing locations. We've had a few competitive replacements already just off the back of our strong service locations that haven't added games yet. So that will continue. We've guided at not quite 600 level, but I think we've said we can do more than 300 units a quarter for Indiana. That will kind of ebb and flow, but it will be a consistent, repeatable set of net adds quarter after quarter. There's still lots of runway in existing markets and in Indiana. And then I said in the prerecorded remarks, New Mexico is a market that's coming online. We've got New York as a potential market. We've got Maryland. We've got Minnesota. There's some legislative activity in Alaska. So I mean, multiple kind of vectors of growth for us with Grover. We're just thrilled as part of the portfolio and lots of growth runway from here.

It seems like we have some technical issues [Technical Difficulty] broken record here, but clearly, just given the highly cash generative nature of our own businesses, we will -- our intention is to move towards the middle end of the range by the end of this year, again, below the range by the mid part of next year. So we'll continue to kind of evaluate our debt structures here. I think broadly speaking, I'm very happy with how we've improved our capital structure over the last couple of years. If you look at what S&P just did in upgrading us to a BB rating, obviously, there's still a lot of work to be done, but I think there's going to be a good balance of us being very aggressive [Technical Difficulty] below the end of the range by kind of mid next year, and then we'll reevaluate the business from there.

We will now take our next question from the line of David Fabris of Macquarie.

Just to follow up on Grover. I'd be really keen to understand what's happening within Indiana. I mean there's articles out there quoting the Indiana Gaming Commission suggesting there's 2,500 e-pulls in the market since it opened. So I'm curious if that market number is correct, and let's presume half of your installs of the 650 went into that market, your competitor has significantly more market share. So curious to understand whether that article is correct and whether you can improve market share from here or what's happening within Indiana specifically?

Yes. Look, great question. We're off to a good start there. It is early innings. I would say we're a little bit below where we typically would be when the market gets to full stabilization in terms of share. This has happened in lots of the markets that we operate in. Our view and Grover's view has been over time is to win off the back of great game performance and great service and not off deteriorating unit economics. So we want to make sure we're maintaining the right fee per day that we're making the appropriate investments for the appropriate returns. So over time, in markets like Ohio, Kentucky, we've really gotten to reasonable market share position over time by playing the long game on game performance and service. So I don't know if that market -- that note you said is completely accurate, but we're a little bit below where we would be once the market gets to full maturity, but we've got a plan to get back to where we have been consistently and doing it in a way that protects unit economics.

Got it. But you wouldn't be -- I mean, is it easy to displace units that have been by the competitor? It takes a while. I mean they've committed the capital to put those machines into their venues. It's not like you can walk in there and start displacing them pretty quickly.

We've already done it, David. So it's happening right now, 2 months into the market being live. So it's -- it's active. These are charitable locations. So you have to protect the relationship through the way that you service them as opposed to legal action. These are veterans organizations. So it's really about the level of service and game performance you deliver as opposed to long-term contracts that lock things in.

And David, just to add to that, it's not necessarily capital intensive for these customers. It's a recurring revenue business. And so for those that don't have those long-term contracts, we certainly have the ability to go in with our customer service with our high-quality content to go and convert like we've done in the states that we participate in today.

And our next question comes from the line of Kai Erman of Jefferies.

Just following up from Andre's earlier question on the impact of the VLT change in New York. Could you please help give us a steer on the kind of underlying results in gaming ops installs and outright sales in the U.S. kind of excluding the sort of benefit from that one location? And as a follow-on to that, given the lower fee per day units dropping out, your gaming margin at 53% seems to be sort of better than kind of expected in that low 50s. Could you talk about maybe the drivers of that and your outlook for gaming margins for the rest of the year?

Yes. So I think broadly speaking, we continue to show, and this is why we introduced kind of a more specific premium KPI to kind of bifurcate some of the noise that's going to be inevitable in this print. And Resorts World is still kind of working through their transition. So there's still some to go. So I think broadly speaking, I think Matt made this comment earlier, we would expect, call it, that 500-plus units from a premium point of view. That clearly has given us ample room and growth in our RPDs, and we expect that to trend in those directions for the balance of this year. And then if you think about premium right now, that's about 56% of our North American installed base, and that's going to continue to kind of scale up here as we move through the rest of the year. I don't know, is there anything else, Matt, you would add to that? Did that answer your question? I'm happy to...

Yes. I think just understanding -- obviously, you've heard the fee per day benefit of those coming out. But just the outlook for margins going forward, like do you think there's going to be more fee per day mixed benefits throughout the year? Or are there any other things that's going to be driving that gaming margin as we move throughout the rest of the year?

Thanks for the reminder on that. Yes. No, I was very pleased with, obviously, our margin execution, just broadly speaking, across the business. Gaming specifically, obviously, with the recurring revenue mix this quarter, obviously, we're going to have a bit of an uplift relative to the guide that we provided. As we kind of get into the second, third, fourth quarter and game sales become a bit more prevalent, obviously, we're working through things like tariffs, et cetera, that should, I would say, normalize. But our expectation is to scale gaming margins sustainably as we move forward. And that's all part of the margin enhancement initiatives that we put forward. A lot of the things that Anthony Firmani and the team are working towards, those are areas we'll continue to kind of on the manufacturing side to get appropriately. So yes, I would expect margins to continue to move sustainably north from here, and that's going to be the expectation that we have as a broader company.

And our next question comes from the line of Adrian Lemme of Citi.

Just wanted to focus on SciPlay. We've seen a material slowdown here in earnings growth this quarter compared to prior quarters, and that's despite DTC penetration again increasing very strongly. Looks to me, it's partly due to higher costs. So my question is 2 parts. Is the higher cost simply due to the higher UA investment you mentioned earlier? And secondly, is this UA needed just to minimize the loss of revenue? Or do you think you can actually flatten out or even get back to some top line growth in this business, please?

Yes. Great question. Maybe I'll kick it off and then, Matt, you can add to that. I think from our point of view, and Matt made some comments on this earlier. I think if you look at some of the underlying KPIs, it gives us a bit of comfort that we are stabilizing and moving in the right direction. So if you look at KPIs such as DAU, we had with slight growth sequentially quarter-over-quarter MPUs as well sequentially -- sequential growth. We saw [ ARPU ] grow nicely year-over-year. And so when you start to see those levels of KPIs and engagement, that's when we start to drive a little bit more, I would say, high return UA spend, and that's what you saw in Q1. Q4 is obviously a seasonally lower quarter for us in terms of that investment just given the CPIS during the holidays. So Q1 is typically when you would turn that on. And so as we start to see that momentum build, we want to be able to at the top of the funnel in terms of DAU, and that's what the teams are starting to kind of work through the balance of this year.

And our next question comes from the line of Liam Robertson of Jarden.

Just quickly one on the mid- to high single-digit AEBITDA growth outlook. Obviously, you've called out 500 bps of adverse impacts on external factors, strategic investments and the legacy costs. I appreciate the color there. Just within that, I'm keen to look at some of the aspects that might not repeat beyond FY '26. I mean it looks like legacy costs, they obviously won't repeat into FY '27. But then can you give us a sense of what else you expect to reverse in either FY '27 or '28, particularly maybe just within that strategic investments bucket?

I think the onetime pieces that you look at is, obviously, to your point, the legacy legals that we should start to lap over. I think some of the other investments in terms of AI, we're going to continue to kind of evaluate what the right investment levels are to drive the outcome. I think we're going to come back to the broader market here in the near term to give a little bit more detail on what we're going to be executing against and committing to from that program perspective here later this year. But I would expect we'll continue to kind of evaluate that. I think the one piece that you'll start to look at is the U.K. tax implications. I think that's -- once you lap that into next year, you'll start to get back to normalized growth that we would expect both at the top and bottom line from an iGaming point of view. So I think there are going to be some puts and takes this year. I think what I mentioned earlier in terms of margin holds true. Our expectation is to sustainably grow this margin here over not only this year, but through the '28 guide and beyond. And so that -- those are the areas that we'll continue to focus on over the next couple of periods.

And our next question comes from the line of Mark Wilson of RBC. We are not getting a response from Mark's line. So we have now come to the end of the question-and-answer session. I'll now turn the conference back to Matt Wilson for his closing comments.

Yes. I'd like to take the opportunity just to give a bit more context around the AI program that we've been working on, which we think is really exciting, and we think it's going to take a more meaningful and growing part of our investment thesis going forward. We're approaching this with urgency and discipline. We kicked off the AI initiative in 2025, really spearheaded by our CSO as in Chief Strategy Officer [indiscernible] outside thinking as well to kind of really validate some of our assumptions about what this could mean for our organization. We want to take a leadership position here. We spent hundreds of hours working on this program of work. It's been Boards sponsored. We made a significant investment in Q1, and we found capacity this year to invest within that envelope of the guide that we mentioned earlier throughout this call. It's very exciting. We've got 43 initiatives and work streams that we're working on across technology, content, SciPlay and our operating -- our operations. And we think it can make a very meaningful impact on our organization over time. We're really excited to share more about that with you around the Q2 earnings when we're going to come together in August around the AGE show, and you'll have our entire leadership group there.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.