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Subjects: EARNINGS, Conference Call, Webcast

Light & Wonder, Inc. Reports Second Quarter 2022 Results


Light & Wonder, Inc. (NASDAQ: LNW) (formerly known as Scientific Games Corporation) ("Light & Wonder," "L&W," or the "Company") today reported results for the second quarter ended June 30, 2022.

Barry Cottle, President and Chief Executive Officer of Light & Wonder, said, "We made great strides in the second quarter as we continued to execute on our vision and the transformation of our Company. 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. 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 organization.

"We now have all the pieces in place and are singularly focused on building great games fully cross-platform. We recently hosted our inaugural investor day and detailed a roadmap for taking market share and unlocking tremendous value in a $70 billion TAM. 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."

Connie James, Chief Financial Officer of Light & Wonder, added, "The pace and scale of the business and financial transformation over the past year has been incredible. This quarter was no exception as our teams successfully closed on the Lottery business sale and refinancing transactions. Collectively, these transactions have transformed our balance sheet, enabling us to end the quarter with a net debt leverage ratio(2) of 3.6x, 7 turns lower than where we stood at the beginning of last year. With our reconstituted balance sheet, we have the financial flexibility to invest in our largest growth opportunities to drive the business forward.

"With our strong financial profile, including a high mix of recurring and digital revenues, sustainable double-digit growth, and a strong cash flow profile we will generate significant excess capital. We are actively executing on our capital allocation priorities as we paid down $4.9 billion of debt in the quarter and repurchased $203 million of our shares, or 27% of our total buyback authorization, in just five months. As we look forward, we will continue to drive operational excellence throughout our organization creating a strong foundation for growth."

(1)

Principal face value of debt outstanding represents outstanding principal value of debt balances that conforms to the presentation found in Note 11 to the Condensed Consolidated Financial Statements in our March 31, 2022 and June 30, 2022 Form 10-Q.

(2)

Represents a non-GAAP financial measure. Additional information on non-GAAP financial measures presented herein is available at the end of this release.

 

BUSINESS AND STRATEGY UPDATE

SUMMARY RESULTS

We have reflected our Lottery business (disposed during the second quarter of 2022) and Sports Betting business as discontinued operations for all periods presented. Unless otherwise noted, amounts, percentages and discussion included below reflect the results of operations and financial condition of the Company's continuing operations, which includes its Gaming, SciPlay and iGaming businesses.

 

Three Months Ended June 30,

($ in millions)

2022

 

2021

Revenue

$

610

 

 

$

581

 

Net loss

 

(150

)

 

 

(51

)

Combined net cash (used in) provided by operating activities

 

(37

)

 

 

149

 

Capital expenditures

 

57

 

 

 

40

 

Non-GAAP Financial Measures

 

 

 

Consolidated AEBITDA(1)

$

212

 

 

$

232

 

Combined free cash flow(1)

 

(95

)

 

 

133

 

 

 

 

 

 

As of

Balance Sheet Measures

June 30,
2022

 

December 31,
2021

Combined cash and cash equivalents

$

971

 

 

$

629

 

Total debt

 

3,902

 

 

 

8,690

 

Available liquidity(4)

 

1,859

 

 

 

1,417

 

(1)

Represents a non-GAAP financial measure. Additional information on non-GAAP financial measures presented herein is available at the end of this release.

(2)

Constant currency revenue is calculated by translating current period non-U.S. denominated revenue using the prior year's currency conversion rate. Foreign currency impact on iGaming revenue for the second quarter of 2022 was $4 million. The management uses or refers to growth rates at constant currency so that the revenue results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons given significant mix of iGaming revenue is denominated in non-U.S. dollar.

(3)

Principal face value of debt outstanding represents outstanding principal value of debt balances that conforms to the presentation found in Note 11 to the Condensed Consolidated Financial Statements in our March 31, 2022 and June 30, 2022 Form 10-Q.

(4)

Available liquidity is calculated as combined cash and cash equivalents plus remaining revolver capacity, including the SciPlay Revolver.

 

Second Quarter 2022 Financial Highlights:

 

CONTINUING OPERATIONS BUSINESS SEGMENT HIGHLIGHTS

FOR THE THREE MONTHS ENDED JUNE 30, 2022

 

($ in millions)

Revenue

AEBITDA

AEBITDA Margin(1)(2)

 

2022

2021

$

%

2022

2021

$

%

2022

2021

PP Change(2)

Gaming(3)

$

390

$

367

$

23

6

%

$

179

 

$

194

 

$

(15

)

(8

)%

46

%

53

%

(7

)

SciPlay

 

160

 

154

 

6

4

%

 

41

 

 

48

 

 

(7

)

(15

)%

26

%

31

%

(5

)

iGaming

 

60

 

60

 

?

?

%

 

21

 

 

20

 

 

1

 

5

%

35

%

33

%

2

 

Corporate and other(4)

 

?

 

?

 

?

?

%

 

(29

)

 

(30

)

 

1

 

3

%

n/a

 

n/a

 

n/a

 

Total

$

610

$

581

$

29

5

%

$

212

 

$

232

 

$

(20

)

(9

)%

35

%

40

%

(5

)

PP - percentage points.
n/a - not applicable.

 

(1)

Segment AEBITDA Margin is calculated as segment AEBITDA as a percentage of segment revenue.

(2)

As calculations are made using whole dollar numbers, actual results may vary compared to calculations presented in this table.

(3)

The three months ended June 30, 2021 Gaming Business Segment Revenue includes $38 million U.K. FOBT VAT recovery ("the VAT recovery") received from certain U.K. customers related to a 2020 U.K. court ruling associated with overcharging of value-added tax for gaming operators that consequently reduced our net gaming revenues related to these customers and arrangements, also impacting Gaming Business Segment AEBITDA.

(4)

Includes amounts not allocated to the business segments (including corporate costs) and other non-operating expenses (income).

 

Second Quarter 2022 Key Highlights

LIQUIDITY

Earnings Conference Call

As previously announced, Light & Wonder executive leadership will host a conference call on Tuesday, August 9, 2022, at 4:30 p.m. EDT to review the Company's second quarter results. To access the call live via a listen-only webcast and presentation, please visit explore.lnw.com/investors/ and click on the webcast link under the Events and Presentations section. To access the call by telephone, please dial: +1 (844) 200-6205 for U.S. or +1 (929) 526-1599 for International and ask to join the Light & Wonder call using conference ID: 512562. A replay of the webcast will be archived in the Investors section on www.lnw.com.

About Light & Wonder

Light & Wonder, Inc. (NASDAQ: LNW) (formerly known as Scientific Games Corporation) ("Light & Wonder" or "L&W") is a global leader in cross-platform games and entertainment. The Company brings together over 5,600 employees from six continents to connect content between land-based and digital channels with unmatched technology and distribution. Guided by a culture that values daring teamwork and creativity, the Company builds new worlds of play, developing game experiences loved by players around the globe. Its OpenGamingtm platform powers the largest digital-gaming network in the industry. The Company is committed to the highest standards of integrity, from promoting player responsibility to implementing sustainable practices. To learn more, visit www.lnw.com.

You can access our filings with the SEC through the SEC website at www.sec.gov or through our website, and we strongly encourage you to do so. We routinely post information that may be important to investors on our website at explore.lnw.com/investors/, and we use our website as a means of disclosing material information to the public in a broad, non-exclusionary manner for purposes of the SEC's Regulation Fair Disclosure (Reg FD).

The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document, and shall not be deemed "filed" under the Securities Exchange Act of 1934, as amended.

All ® notices signify marks registered in the United States. © 2022 Light & Wonder, Inc. All Rights Reserved.

Forward-Looking Statements

In this press release, Light & Wonder makes "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies and can often be identified by the use of terminology such as "may," "will," "estimate," "intend," "plan," "continue," "believe," "expect," "anticipate," "target," "should," "could," "potential," "opportunity," "goal," or similar terminology. These statements are based upon management's current expectations, assumptions and estimates and are not guarantees of timing, future results or performance. Therefore, you should not rely on any of these forward-looking statements as predictions of future events. Actual results may differ materially from those contemplated in these statements due to a variety of risks and uncertainties and other factors, including, among other things:

Additional information regarding risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated in forward-looking statements is included from time to time in our filings with the SEC, including the Company's current reports on Form 8-K and quarterly reports on Form 10-Q and its latest Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021 on March 1, 2022 (including under the headings "Forward Looking Statements" and "Risk Factors"). Forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no and expressly disclaim any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

You should also note that this press release may contain references to industry market data and certain industry forecasts. Industry market data and industry forecasts are obtained from publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. Although we believe industry information to be accurate, it is not independently verified by us and we do not make any representation as to the accuracy of that information. In general, we believe there is less publicly available information concerning the international gaming, social and digital gaming industries than the same industries in the U.S.

Due to rounding, certain numbers presented herein may not precisely recalculate.

 

LIGHT & WONDER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2022

 

2021

 

2022

 

2021

Revenue:

 

 

 

 

 

 

 

Services

$

445

 

 

$

444

 

 

$

876

 

 

$

808

 

Product sales

 

165

 

 

 

137

 

 

 

307

 

 

 

226

 

Total revenue

 

610

 

 

 

581

 

 

 

1,183

 

 

 

1,034

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Cost of services(1)

 

92

 

 

 

96

 

 

 

182

 

 

 

183

 

Cost of product sales(1)

 

88

 

 

 

63

 

 

 

159

 

 

 

103

 

Selling, general and administrative

 

179

 

 

 

180

 

 

 

354

 

 

 

339

 

Research and development

 

56

 

 

 

48

 

 

 

109

 

 

 

93

 

Depreciation, amortization and impairments

 

107

 

 

 

96

 

 

 

215

 

 

 

193

 

Restructuring and other

 

42

 

 

 

30

 

 

 

78

 

 

 

51

 

Total operating expenses

 

564

 

 

 

513

 

 

 

1,097

 

 

 

962

 

Operating income

 

46

 

 

 

68

 

 

 

86

 

 

 

72

 

Other (expense) income:

 

 

 

 

 

 

 

Interest expense

 

(70

)

 

 

(119

)

 

 

(186

)

 

 

(240

)

Loss on debt financing transactions

 

(147

)

 

 

?

 

 

 

(147

)

 

 

?

 

Gain (loss) on remeasurement of debt and other

 

20

 

 

 

(7

)

 

 

27

 

 

 

18

 

Other income, net

 

2

 

 

 

13

 

 

 

7

 

 

 

20

 

Total other expense, net

 

(195

)

 

 

(113

)

 

 

(299

)

 

 

(202

)

Net loss from continuing operations before income taxes

 

(149

)

 

 

(45

)

 

 

(213

)

 

 

(130

)

Income tax expense

 

(1

)

 

 

(6

)

 

 

(4

)

 

 

(9

)

Net loss from continuing operations

 

(150

)

 

 

(51

)

 

 

(217

)

 

 

(139

)

Net income from discontinued operations, net of tax(2)

 

3,445

 

 

 

164

 

 

 

3,540

 

 

 

243

 

Net income

 

3,295

 

 

 

113

 

 

 

3,323

 

 

 

104

 

Less: Net income attributable to noncontrolling interest

 

4

 

 

 

4

 

 

 

6

 

 

 

10

 

Net income attributable to L&W

$

3,291

 

 

$

109

 

 

$

3,317

 

 

$

94

 

 

 

 

 

 

 

 

 

Per Share - Basic:

 

 

 

 

 

 

 

Net loss from continuing operations

$

(1.62

)

 

$

(0.58

)

 

$

(2.33

)

 

$

(1.55

)

Net income from discontinued operations

 

36.23

 

 

 

1.71

 

 

 

36.94

 

 

 

2.53

 

Net income attributable to L&W

$

34.61

 

 

$

1.13

 

 

$

34.61

 

 

$

0.98

 

 

 

 

 

 

 

 

 

Per Share - Diluted:

 

 

 

 

 

 

 

Net loss from continuing operations

$

(1.62

)

 

$

(0.58

)

 

$

(2.33

)

 

$

(1.55

)

Net income from discontinued operations

 

36.23

 

 

 

1.71

 

 

 

36.94

 

 

 

2.53

 

Net income attributable to L&W

$

34.61

 

 

$

1.13

 

 

$

34.61

 

 

$

0.98

 

 

 

 

 

 

 

 

 

Weighted average number of shares used in per share calculations:

 

 

 

 

 

 

 

Basic shares

 

95

 

 

 

96

 

 

 

96

 

 

 

96

 

Diluted shares

 

95

 

 

 

96

 

 

 

96

 

 

 

96

 

(1)

Excludes depreciation and amortization.

(2)

The three and six month periods ended June 30, 2022 include pre-tax gain of $4,568 million on sale of Lottery business.

 

LIGHT & WONDER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions except for common shares outstanding)

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2022

 

2021

Assets:

 

 

 

Cash and cash equivalents

$

928

 

 

$

585

 

Restricted cash

 

44

 

 

 

41

 

Receivables, net of allowance for credit losses $46 and $52, respectively

 

415

 

 

 

423

 

Inventories

 

129

 

 

 

98

 

Prepaid expenses, deposits and other current assets

 

126

 

 

 

88

 

Assets of businesses held for sale

 

106

 

 

 

497

 

Total current assets

 

1,748

 

 

 

1,732

 

 

 

 

 

Restricted cash

 

7

 

 

 

9

 

Receivables, net of allowance for credit losses $2 and $2, respectively

 

15

 

 

 

17

 

Property and equipment, net

 

205

 

 

 

213

 

Operating lease right-of-use assets

 

51

 

 

 

51

 

Goodwill

 

2,932

 

 

 

2,892

 

Intangible assets, net

 

837

 

 

 

946

 

Software, net

 

121

 

 

 

117

 

Deferred income taxes

 

93

 

 

 

349

 

Other assets

 

43

 

 

 

80

 

Assets of businesses held for sale

 

429

 

 

 

1,477

 

Total assets

$

6,481

 

 

$

7,883

 

 

 

 

 

Liabilities and Stockholders' Equity (Deficit):

 

 

 

Current portion of long-term debt

$

24

 

 

$

44

 

Accounts payable

 

164

 

 

 

204

 

Accrued liabilities

 

359

 

 

 

428

 

Income taxes payable

 

681

 

 

 

16

 

Liabilities of businesses held for sale

 

26

 

 

 

282

 

Total current liabilities

 

1,254

 

 

 

974

 

 

 

 

 

Deferred income taxes

 

143

 

 

 

35

 

Operating lease liabilities

 

40

 

 

 

40

 

Other long-term liabilities

 

158

 

 

 

170

 

Long-term debt, excluding current portion

 

3,878

 

 

 

8,646

 

Liabilities of businesses held for sale

 

42

 

 

 

124

 

Total stockholders' equity (deficit)(1)

 

966

 

 

 

(2,106

)

Total liabilities and stockholders' equity (deficit)

$

6,481

 

 

$

7,883

 

(1)

Includes $155 million and $150 million in noncontrolling interest as of June 30, 2022 and December 31, 2021, respectively.

 

LIGHT & WONDER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2022

 

2021

 

2022

 

2021

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

3,295

 

 

$

113

 

 

$

3,323

 

 

$

104

 

Less: Income from discontinued operations, net of tax

 

(3,445

)

 

 

(164

)

 

 

(3,540

)

 

 

(243

)

Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities from continuing operations

 

248

 

 

 

149

 

 

 

369

 

 

 

245

 

Changes in working capital accounts, excluding the effects of acquisitions

 

(73

)

 

 

(17

)

 

 

(145

)

 

 

?

 

Changes in deferred income taxes and other

 

2

 

 

 

4

 

 

 

6

 

 

 

4

 

Net cash provided by operating activities from continuing operations

 

27

 

 

 

85

 

 

 

13

 

 

 

110

 

Net cash (used in) provided by operating activities from discontinued operations

 

(64

)

 

 

64

 

 

 

44

 

 

 

162

 

Net cash (used in) provided by operating activities

 

(37

)

 

 

149

 

 

 

57

 

 

 

272

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(57

)

 

 

(40

)

 

 

(100

)

 

 

(75

)

Acquisitions of businesses, net of cash acquired

 

(8

)

 

 

?

 

 

 

(116

)

 

 

?

 

Proceeds from settlement of cross-currency interest rate swaps

 

50

 

 

 

?

 

 

 

50

 

 

 

?

 

Other

 

(4

)

 

 

8

 

 

 

(4

)

 

 

9

 

Net cash used in investing activities from continuing operations

 

(19

)

 

 

(32

)

 

 

(170

)

 

 

(66

)

Net cash provided by (used in) investing activities from discontinued operations(1)

 

5,654

 

 

 

(5

)

 

 

5,629

 

 

 

(32

)

Net cash provided by (used in) investing activities

 

5,635

 

 

 

(37

)

 

 

5,459

 

 

 

(98

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments of long-term debt, net

 

(5,032

)

 

 

(161

)

 

 

(4,882

)

 

 

(271

)

Payments of debt issuance and deferred financing costs

 

(36

)

 

 

?

 

 

 

(37

)

 

 

?

 

Payments on license obligations

 

(5

)

 

 

(12

)

 

 

(24

)

 

 

(24

)

Purchase of treasury stock

 

(152

)

 

 

?

 

 

 

(203

)

 

 

?

 

Purchase of SciPlay's common stock

 

(7

)

 

 

?

 

 

 

(7

)

 

 

?

 

Net redemptions of common stock under stock-based compensation plans and other

 

(8

)

 

 

(8

)

 

 

(33

)

 

 

(21

)

Net cash used in financing activities from continuing operations

 

(5,240

)

 

 

(181

)

 

 

(5,186

)

 

 

(316

)

Net cash used in financing activities from discontinued operations

 

(1

)

 

 

(4

)

 

 

(3

)

 

 

(8

)

Net cash used in financing activities

 

(5,241

)

 

 

(185

)

 

 

(5,189

)

 

 

(324

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(5

)

 

 

1

 

 

 

(6

)

 

 

?

 

Increase (decrease) in cash, cash equivalents and restricted cash

 

352

 

 

 

(72

)

 

 

321

 

 

 

(150

)

Cash, cash equivalents and restricted cash, beginning of period

 

670

 

 

 

1,065

 

 

 

701

 

 

 

1,143

 

Cash, cash equivalents and restricted cash, end of period

 

1,022

 

 

 

993

 

 

 

1,022

 

 

 

993

 

Less: Cash, cash equivalents and restricted cash of discontinued operations

 

43

 

 

 

74

 

 

 

43

 

 

 

74

 

Cash, Cash equivalents and restricted cash of continuing operations, end of period

$

979

 

 

$

919

 

 

$

979

 

 

$

919

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

$

102

 

 

$

106

 

 

$

219

 

 

$

229

 

Income taxes paid

 

14

 

 

 

6

 

 

 

23

 

 

 

13

 

Distributed earnings from equity investments

 

3

 

 

 

11

 

 

 

4

 

 

 

15

 

Supplemental non-cash transactions:

 

 

 

 

 

 

 

Non-cash interest expense

$

3

 

 

$

6

 

 

$

9

 

 

$

12

 

(1)

Three and six month periods ended June 30, 2022 include $5,659 million in gross cash proceeds from the Lottery business sale, net of cash, cash equivalents and restricted cash transferred.

 

LIGHT & WONDER, INC. AND SUBSIDIARIES

RECONCILIATION OF CONSOLIDATED AEBITDA - CONTINUING OPERATIONS AND

SUPPLEMENTAL BUSINESS SEGMENT DATA

(Unaudited, in millions)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

2022

 

2021

 

2022

 

2021

Reconciliation of Net Income Attributable to L&W to Consolidated AEBITDA - Continuing Operations

 

 

 

 

 

 

 

Net income attributable to L&W

$

3,291

 

 

$

109

 

 

$

3,317

 

 

$

94

 

Net income attributable to noncontrolling interest

 

4

 

 

 

4

 

 

 

6

 

 

 

10

 

Net income from discontinued operations, net of tax

 

(3,445

)

 

 

(164

)

 

 

(3,540

)

 

 

(243

)

Net loss from continuing operations

 

(150

)

 

 

(51

)

 

 

(217

)

 

 

(139

)

Restructuring and other(1)

 

42

 

 

 

30

 

 

 

78

 

 

 

51

 

Depreciation, amortization and impairments

 

107

 

 

 

96

 

 

 

215

 

 

 

193

 

Other income, net

 

(2

)

 

 

(11

)

 

 

(4

)

 

 

(17

)

Interest expense

 

70

 

 

 

119

 

 

 

186

 

 

 

240

 

Income tax expense

 

1

 

 

 

6

 

 

 

4

 

 

 

9

 

Stock-based compensation

 

17

 

 

 

36

 

 

 

32

 

 

 

55

 

Loss on debt financing transactions

 

147

 

 

 

?

 

 

 

147

 

 

 

?

 

(Gain) loss on remeasurement of debt and other

 

(20

)

 

 

7

 

 

 

(27

)

 

 

(18

)

Consolidated AEBITDA - continuing operations

$

212

 

 

$

232

 

 

$

414

 

 

$

374

 

 

 

 

 

 

 

 

 

Supplemental Business Segment Data

 

 

 

 

 

 

 

Business segments AEBITDA - continuing operations

 

 

 

 

 

 

 

Gaming

$

179

 

 

$

194

 

 

$

350

 

 

$

301

 

SciPlay

 

41

 

 

 

48

 

 

 

85

 

 

 

94

 

iGaming

 

21

 

 

 

20

 

 

 

41

 

 

 

41

 

Total business segments AEBITDA - continuing operations

 

241

 

 

 

262

 

 

 

476

 

 

 

436

 

Corporate and other(2)

 

(29

)

 

 

(30

)

 

 

(62

)

 

 

(62

)

Consolidated AEBITDA - continuing operations

$

212

 

 

$

232

 

 

$

414

 

 

$

374

 

(1)

Refer to the Consolidated AEBITDA - continuing operations definition below for a description of items included in restructuring and other.

(2)

Includes amounts not allocated to the business segments (including corporate costs) and other non-operating expenses (income), representing the current corporate cost structure that was not historically allocated to our business segments.

 

LIGHT & WONDER, INC. AND SUBSIDIARIES

CONTINUING OPERATIONS SUPPLEMENTAL INFORMATION - SEGMENT KEY PERFORMANCE INDICATORS AND SUPPLEMENTAL FINANCIAL DATA

(Unaudited, in millions, except unit and per unit data or as otherwise noted)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 30, 2022

 

June 30, 2021

 

March 31, 2022

Gaming Business Segment Supplemental Financial Data:

 

 

 

 

 

Revenue by line of business:

 

 

 

 

 

Gaming operations

$

163

 

 

$

181

 

 

$

155

 

Gaming machine sales

 

123

 

 

 

100

 

 

 

103

 

Gaming systems

 

60

 

 

 

52

 

 

 

51

 

Table products

 

44

 

 

 

34

 

 

 

46

 

Total revenue

$

390

 

 

$

367

 

 

$

355

 

 

 

 

 

 

 

Gaming Operations:

 

 

 

 

 

U.S. and Canada:

 

 

 

 

 

Installed base at period end

 

30,836

 

 

 

29,965

 

 

 

30,359

 

Average daily revenue per unit

$

45.86

 

 

$

44.58

 

 

$

43.39

 

International:(1)

 

 

 

 

 

Installed base at period end

 

28,966

 

 

 

31,412

 

 

 

29,762

 

Average daily revenue per unit

$

13.63

 

 

$

8.44

 

 

$

13.72

 

 

 

 

 

 

 

Gaming Machine Sales:

 

 

 

 

 

U.S. and Canada new unit shipments

 

4,009

 

 

 

3,221

 

 

 

3,382

 

International new unit shipments

 

2,479

 

 

 

1,751

 

 

 

1,914

 

Total new unit shipments

 

6,488

 

 

 

4,972

 

 

 

5,296

 

Average sales price per new unit

$

17,176

 

 

$

17,048

 

 

$

17,099

 

 

 

 

 

 

 

Gaming Machine Unit Sales Components:

 

 

 

 

 

U.S. and Canada unit shipments:

 

 

 

 

 

Replacement units

 

3,369

 

 

 

2,541

 

 

 

3,152

 

Casino opening and expansion units

 

640

 

 

 

680

 

 

 

230

 

Total unit shipments

 

4,009

 

 

 

3,221

 

 

 

3,382

 

 

 

 

 

 

 

International unit shipments:

 

 

 

 

 

Replacement units(2)

 

2,443

 

 

 

1,751

 

 

 

1,914

 

Casino opening and expansion units

 

36

 

 

 

?

 

 

 

?

 

Total unit shipments

 

2,479

 

 

 

1,751

 

 

 

1,914

 

 

 

 

 

 

 

SciPlay Business Segment Supplemental Financial Data:

 

 

 

 

 

Revenue:

 

 

 

 

 

Mobile in-app purchases

$

138

 

 

$

136

 

 

$

140

 

Web in-app purchases and other(3)

 

22

 

 

 

18

 

 

 

18

 

Total revenue

$

160

 

 

$

154

 

 

$

158

 

 

 

 

 

 

 

In-App Purchases:

 

 

 

 

 

Mobile penetration(4)

 

90

%

 

 

88

%

 

 

90

%

Average MAU(5)

 

5.9

 

 

 

6.3

 

 

 

6.3

 

Average DAU(6)

 

2.3

 

 

 

2.3

 

 

 

2.3

 

ARPDAU(7)

$

0.74

 

 

$

0.72

 

 

$

0.74

 

Average MPU(8)

 

0.6

 

 

 

0.5

 

 

 

0.6

 

AMRPPU(9)

$

90.99

 

 

$

96.29

 

 

$

92.45

 

Payer Conversion Rate(10)

 

9.4

%

 

 

8.5

%

 

 

8.9

%

 

 

 

 

 

 

iGaming Business Segment Supplemental Data:

 

 

 

 

 

Wagers processed through Open Gaming System (in billions)

$

17.8

 

 

$

18.0

 

 

$

17.5

 

(1)

Excludes the impact of game content licensing revenue.

(2)

The June 30, 2021 reported amount of 1,751 for International casino opening and expansion units has been reclassified to the International replacement units to correct a misclassification in the prior year period..

(3)

Other primarily consists of advertising revenue which was not material for the periods presented.

(4)

Mobile penetration is defined as the percentage of SciPlay revenue generated from mobile platforms.

(5)

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.

(6)

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.

(7)

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.

(8)

MPU = Monthly Paying Users is the number of individual users who made an in-game purchase during a particular month.

(9)

AMRPPU = Average Monthly Revenue Per Paying User is calculated by dividing average monthly revenue by average MPUs for the applicable time period.

(10)

Payer conversion rate is calculated by dividing average MPU for the period by the average MAU for the same period.

 

LIGHT & WONDER, INC. AND SUBSIDIARIES

(Unaudited, in millions, except for ratios)

 

 

 

 

 

 

 

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO L&W TO CONSOLIDATED AEBITDA - CONTINUING OPERATIONS

 

 

Twelve Months Ended

 

 

June 30, 2022

 

March 31, 2022

 

December 31, 2020

Net income attributable to L&W

$

3,594

 

$

412

 

$

(569

)

Net income attributable to noncontrolling interest

 

15

 

 

15

 

 

21

 

Net income from discontinued operations, net of tax

 

(3,663

)

 

(382

)

 

(253

)

Net (loss) income from continuing operations

 

(54

)

 

45

 

 

(801

)

Restructuring and other

 

194

 

 

182

 

 

56

 

Depreciation, amortization and impairments

 

420

 

 

409

 

 

449

 

Goodwill impairment

 

?

 

 

?

 

 

54

 

Other (income) expense, net

 

(15

)

 

(24

)

 

9

 

Interest expense

 

424

 

 

473

 

 

503

 

Income tax benefit

 

(323

)

 

(318

)

 

(3

)

Stock-based compensation

 

90

 

 

109

 

 

56

 

Loss on debt financing transactions

 

147

 

 

?

 

 

?

 

(Gain) loss on remeasurement of debt and other

 

(50

)

 

(23

)

 

51

 

Consolidated AEBITDA - continuing operations

$

833

 

$

853

 

$

374

 

 

 

 

 

 

 

 

 

RECONCILIATION OF NET INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX TO AEBITDA FROM DISCONTINUED OPERATIONS AND COMBINED AEBITDA

 

 

 

 

Twelve Months Ended

 

 

 

 

March 31, 2022

 

December 31, 2020

Net income from discontinued operations, net of tax

 

$

382

 

$

253

 

Income tax expense

 

 

81

 

 

7

 

Restructuring and other

 

 

10

 

 

11

 

Depreciation, amortization and impairments

 

 

53

 

 

105

 

EBITDA from equity investments(1)

 

 

76

 

 

30

 

(Earnings) loss from equity investments

 

 

(38

)

 

9

 

Stock-based compensation and other, net

 

 

(43

)

 

4

 

AEBITDA from discontinued operations(2)

 

$

521

 

$

419

 

EBITDA from equity investments - continuing operations(3)

 

 

9

 

 

7

 

Combined AEBITDA(3)

 

$

1,383

 

$

800

 

 

 

 

 

RECONCILIATION OF PRINCIPAL FACE VALUE OF DEBT OUTSTANDING TO NET DEBT AND NET DEBT LEVERAGE RATIO

 

 

As of

 

 

June 30, 2022

 

March 31, 2022

 

December 31, 2020

Consolidated AEBITDA/Combined AEBITDA(3)

$

833

 

$

1,383

 

$

800

 

 

 

 

 

Total debt

$

3,902

 

$

8,833

 

$

9,303

 

Add: Unamortized debt discount/premium and deferred financing costs, net

 

51

 

 

77

 

 

104

 

Add: Impact of exchange rate

 

?

 

 

73

 

 

7

 

Less: Debt not requiring cash repayment and other

 

(3

)

 

(3

)

 

(7

)

Principal face value of debt outstanding

 

3,950

 

 

8,980

 

 

9,407

 

Less: Combined cash and cash equivalents(4)

 

971

 

 

582

 

 

1,016

 

Net debt

$

2,979

 

$

8,398

 

$

8,391

 

 

 

 

 

Net debt leverage ratio(5)

 

3.6

 

 

6.1

 

 

10.5

 

(1)

EBITDA from equity investments is a non-GAAP financial measure reconciled to the most directly comparable GAAP measure in the accompanying supplemental tables at the end of this release.

(2)

AEBITDA from discontinued operations, a non-GAAP measure, is derived based on the historical records and includes only those direct costs that are allocated to discontinued operations. See below for further description and disclaimers associated with this non-GAAP measure.

(3)

Combined AEBITDA consists of Consolidated AEBITDA - continuing operations, AEBITDA from discontinued operations and EBITDA from equity investments included in continuing operations. Refer to non-GAAP financial measure definitions below for further details.

(4)

Includes cash and cash equivalents of both continuing operations and discontinued operations, as the combined amount is available for debt payments.

(5)

Calculation of net debt leverage ratio does not include anticipated $665 million estimated cash taxes associated with the sale of Lottery business nor net cash proceeds associated with the pending sale of our Sports Betting business.

 

LIGHT & WONDER, INC. AND SUBSIDIARIES

(Unaudited, in millions, except for ratios)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW - CONTINUING OPERATIONS AND COMBINED FREE CASH FLOW

 

 

Three Months Ended June 30,

 

 

2022

 

2021

 

 

Continuing Operations

 

Discontinued
Operations(2)

 

Combined(3)

 

Continuing Operations

 

Discontinued
Operations(2)

 

Combined(3)

 

 

Operations
(exc.
interest and
taxes)

 

Cash
interest
and taxes(1)

 

Total

 

 

 

Operations
(exc.
interest and
taxes)

 

Cash
interest
and taxes(1)

 

Total

 

 

Net cash (used in) provided by operating activities

$

143

 

 

$

(116

)

 

$

27

 

 

$

(64

)

 

$

(37

)

 

$

195

 

 

$

(110

)

 

$

85

 

 

$

64

 

 

$

149

 

Less: Capital expenditures

 

(57

)

 

 

?

 

 

 

(57

)

 

 

(5

)

 

 

(62

)

 

 

(40

)

 

 

?

 

 

 

(40

)

 

 

(13

)

 

 

(53

)

Less: Distributions from equity method investments, net of additions

 

?

 

 

 

?

 

 

 

?

 

 

 

?

 

 

 

?

 

 

 

1

 

 

 

?

 

 

 

1

 

 

 

15

 

 

 

16

 

Less: Payments on license obligations

 

(5

)

 

 

?

 

 

 

(5

)

 

 

?

 

 

 

(5

)

 

 

(12

)

 

 

?

 

 

 

(12

)

 

 

(4

)

 

 

(16

)

Add: Change in restricted cash impacting working capital

 

6

 

 

 

?

 

 

 

6

 

 

 

3

 

 

 

9

 

 

 

3

 

 

 

?

 

 

 

3

 

 

 

34

 

 

 

37

 

Free cash flow

$

87

 

 

$

(116

)

 

$

(29

)

 

$

(66

)

 

$

(95

)

 

$

147

 

 

$

(110

)

 

$

37

 

 

$

96

 

 

$

133

 

 

Supplemental cash flow information - Strategic Review and Related Costs Impacting Combined Free Cash Flows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disposition and other closing expenses

 

 

 

 

 

$

80

 

 

 

 

 

 

 

 

 

 

 

Accelerated cash interest payments and other payments related to April 2022 refinancing(4)

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

 

Professional fees and services supporting Strategic review and related activities

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

(1)

Represents cash taxes and cash interest paid on our existing debt, which has not historically been allocated to our business segments. We present this column to provide the impact of our debt structure for periods presented on our operating cash flows from continuing operations to provide greater comparability to cash flows generated by our continuing and discontinued operations.

(2)

Free cash flow from discontinued operations, a non-GAAP measure, is derived based on the historical records and includes only those direct cash flows that are allocated to discontinued operations. See below for further description and disclaimers associated with this non-GAAP measure.

(3)

Combined free cash flow consists of Free cash flow (representing Free cash flow from continuing operations) and Free cash flow from discontinued operations. Refer to non-GAAP financial measure definitions below for further details.

(4)

Excludes impact of interest savings anticipated as a result of April 2022 refinancing transactions of approximately $21 million.

 

 

Six Months Ended June 30,

 

2022

 

2021

 

Continuing Operations

 

Discontinued
Operations(2)

 

Combined(3)

 

Continuing Operations

 

Discontinued
Operations(2)

 

Combined(3)

 

Operations
(exc.
interest and
taxes)

 

Cash
interest
and taxes(1)

 

Total

 

 

 

Operations
(exc.
interest and
taxes)

 

Cash
interest
and taxes(1)

 

Total

 

 

Net cash provided by operating activities

$

253

 

 

$

(240

)

 

$

13

 

 

$

44

 

 

$

57

 

 

$

349

 

 

$

(239

)

 

$

110

 

 

$

162

 

 

$

272

 

Less: Capital expenditures

 

(100

)

 

 

?

 

 

 

(100

)

 

 

(30

)

 

 

(130

)

 

 

(75

)

 

 

?

 

 

 

(75

)

 

 

(28

)

 

 

(103

)

Less: Distributions from equity method investments, net of additions

 

?

 

 

 

?

 

 

 

?

 

 

 

?

 

 

 

?

 

 

 

2

 

 

 

?

 

 

 

2

 

 

 

5

 

 

 

7

 

Less: Payments on license obligations

 

(24

)

 

 

?

 

 

 

(24

)

 

 

(2

)

 

 

(26

)

 

 

(24

)

 

 

?

 

 

 

(24

)

 

 

(5

)

 

 

(29

)

(Less) add: Change in restricted cash impacting working capital

 

(1

)

 

 

?

 

 

 

(1

)

 

 

(6

)

 

 

(7

)

 

 

8

 

 

 

?

 

 

 

8

 

 

 

58

 

 

 

66

 

Free cash flow

$

128

 

 

$

(240

)

 

$

(112

)

 

$

6

 

 

$

(106

)

 

$

260

 

 

$

(239

)

 

$

21

 

 

$

192

 

 

$

213

 

 

Supplemental cash flow information - Strategic Review and Related Costs Impacting Combined Free Cash Flows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disposition and other closing expenses

 

 

 

 

 

$

80

 

 

 

 

 

 

 

 

 

 

 

Accelerated cash interest payments and other payments related to April 2022 refinancing(4)

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

 

Professional fees and services supporting Strategic review and related activities

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

(1)

Represents cash taxes and cash interest paid on our existing debt, which has not historically been allocated to our business segments. We present this column to provide the impact of our debt structure for periods presented on our operating cash flows from continuing operations to provide greater comparability to cash flows generated by our continuing and discontinued operations.

(2)

Free cash flow from discontinued operations, a non-GAAP measure, is derived based on the historical records and includes only those direct cash flows that are allocated to discontinued operations. See below for further description and disclaimers associated with this non-GAAP measure.

(3)

Combined free cash flow consists of Free cash flow (representing Free cash flow from continuing operations) and Free cash flow from discontinued operations. Refer to non-GAAP financial measure definitions below for further details.

(4)

Excludes impact of interest savings anticipated as a result of April 2022 refinancing transactions of approximately $92 million.

 
RECONCILIATION OF EARNINGS FROM EQUITY INVESTMENTS TO EBITDA FROM EQUITY INVESTMENTS AND COMBINED EBITDA FROM EQUITY INVESTMENTS

 

Twelve Months Ended

 

March 31, 2022

 

December 31, 2020

 

Continuing Operations

 

Discontinued Operations

 

Continuing Operations

 

Discontinued Operations

Earnings (loss) from equity investments

$

5

 

$

38

 

 

$

3

 

$

(9

)

Add: Income tax expense

 

?

 

 

11

 

 

 

?

 

 

3

 

Add: Depreciation, amortization and impairments

 

1

 

 

31

 

 

 

1

 

 

31

 

Add: Interest income, net and other

 

3

 

 

(4

)

 

 

3

 

 

5

 

EBITDA from equity investments

$

9

 

$

76

 

 

$

7

 

$

30

 

Combined EBITDA from equity investments(1)

 

 

$

85

 

 

 

 

$

37

(1)

Combined EBITDA from equity investments consists of EBITDA from both discontinued and continuing operations equity investments.

 

Discontinued Operations

On September 27, 2021, we entered into a definitive agreement to sell our Sports Betting business to Endeavor Group Holdings, Inc. in a cash and stock transaction. On June 30, 2022, we entered into an amendment to the agreement, under which the cash consideration was reduced from $1,000 million to $750 million and the stock consideration was reduced from approximately 7.6 million shares of Endeavor Class A Common stock (valued at approximately $200 million as of the date of the purchase agreement) to approximately 2.3 million shares of Endeavor Class A Common stock (valued at approximately $50 million as of the date of the amendment and based on the volume weighted average price of Endeavor Class A Common stock in the twenty days before the date of the amendment). The amendment additionally waives the closing condition requiring regulatory approval by the Nevada Gaming Control Board and extends the agreement date to December 30, 2022 if certain conditions to closing are not met by September 27, 2022. The sale of the Sports Betting business is expected to be completed in the third quarter of 2022, subject to applicable regulatory approvals and other customary closing conditions. On October 27, 2021, we entered into a definitive agreement to sell our Lottery business to Brookfield Business Partners L.P., which was completed during the second quarter of 2022.

Accordingly, the financial results for our Lottery business and the Sports Betting business presented in the Consolidated Statements of Operations presented herein have been reclassified to discontinued operations and prior period Lottery and Sports Betting businesses balance sheet balances have been reclassified to the Asset and Liabilities held for sale lines on the Condensed Consolidated Balance Sheet presented herein in accordance with Accounting Standard Codification 205-20, Presentation of Financial Statements - Discontinued Operations.

We report our operations in three business segments?Gaming, SciPlay and iGaming?representing our different products and services.

Non-GAAP Financial Measures

The Company's management uses the following non-GAAP financial measures in conjunction with GAAP financial measures: Consolidated AEBITDA (representing continuing operations), AEBITDA from discontinued operations, Combined AEBITDA, Free cash flow (representing continuing operations), Free cash flow from discontinued operations, Combined free cash flow, EBITDA from equity investments included in discontinued operations, Net debt and Net debt leverage ratio (each, as described more fully below). These non-GAAP financial measures are presented as supplemental disclosures. They should not be considered in isolation of, as a substitute for, or superior to, the financial information prepared in accordance with GAAP, and should be read in conjunction with the Company's financial statements filed with the SEC. The non-GAAP financial measures used by the Company may differ from similarly titled measures presented by other companies.

Specifically, the Company's management uses Consolidated AEBITDA to, among other things: (i) monitor and evaluate the performance of the Company's continuing operations; (ii) facilitate management's internal and external comparisons of the Company's consolidated historical operating performance; and (iii) analyze and evaluate financial and strategic planning decisions regarding future operating investments and operating budgets.

In addition, the Company's management uses Consolidated AEBITDA to facilitate management's external comparisons of the Company's consolidated results from continuing operations to the historical operating performance of other companies that may have different capital structures and debt levels.

The Company's management uses Net debt and Net debt leverage ratio in monitoring and evaluating the Company's overall liquidity, financial flexibility and leverage.

As described in this earning release, the Company divested its Lottery business and is in the process of divesting its Sports Betting businesses and as such, historical financial information for these businesses is classified as discontinued operations, as described above. The Company's management believes that Combined free cash flow is useful during the period until the disposition occurs as it provides management and investors with information regarding the Company's combined financial condition under the structure as of June 30, 2022, including for prior period comparisons, as the Company is finalizing the divestiture and transforming its strategy.

Additionally, Combined free cash flow provides greater visibility into cash available for the continuing operations to use in investing and financing decisions as this cash flow remains available for such decisions.

The Company's management believes that these non-GAAP financial measures are useful as they provide management and investors with information regarding the Company's financial condition and operating performance that is an integral part of management's reporting and planning processes. In particular, the Company's management believes that Consolidated AEBITDA is helpful because this non-GAAP financial measure eliminates the effects of restructuring, transaction, integration or other items that management believes are less indicative of the ongoing underlying performance of continuing operations (as more fully described below) and are better evaluated separately. Management believes that Free cash flow and Combined free cash flow provide useful information regarding the Company's liquidity and its ability to service debt and fund investments.

Management also believes that Free cash flow and Combined free cash flow are useful for investors because they provide investors with important perspectives on the cash available for debt repayment and other strategic measures, after making necessary capital investments in property and equipment, necessary license payments to support the ongoing business operations, adjustments for changes in restricted cash impacting working capital and taking into account cash flows relating to the Company's equity investments.

Additionally, management believes that AEBITDA from discontinued operations and Free cash flow from discontinued operations provide useful information regarding the Company's operations that are in the process of being divested and provide the impact of those businesses on the overall financial results for the periods presented as they currently remain under the current structure of the Company. These non-GAAP measures are derived based on the historical records and include only those direct costs that are allocated to discontinued operations and as such do not include all of the expenses that would have been incurred by these businesses as a standalone company or other Corporate and shared allocations and such differences might be material.

Consolidated AEBITDA (representing AEBITDA from continuing operations)

Consolidated AEBITDA, as used herein, is a non-GAAP financial measure that is presented as a supplemental disclosure of the Company's continuing operations and is reconciled to net income (loss) from continuing operations as the most directly comparable GAAP measure, as set forth in the schedule titled "Reconciliation of Net Income (Loss) Attributable to L&W to Consolidated AEBITDA - Continuing Operations." Consolidated AEBITDA should not be considered in isolation of, as a substitute for, or superior to, the consolidated financial information prepared in accordance with GAAP, and should be read in conjunction with the Company's financial statements filed with the SEC. Consolidated AEBITDA may differ from similarly titled measures presented by other companies.

Consolidated AEBITDA is reconciled to Net income attributable to L&W and includes the following adjustments: (1) Net income attributable to noncontrolling interest; (2) Net income from discontinued operations, net of tax; (3) Restructuring and other, which includes charges or expenses attributable to: (i) employee severance; (ii) management restructuring and related costs; (iii) restructuring and integration; (iv) cost savings initiatives; (v) major litigation; and (vi) acquisition costs and other unusual items; (4) Depreciation, amortization and impairment charges and Goodwill impairments; (5) Loss on debt financing transactions; (6) Change in fair value of investments and (Gain) loss on remeasurement of debt and other; (7) Interest expense; (8) Income tax expense; (9) Stock-based compensation; and (10) Other income, net, including foreign currency (gains) and losses, and earnings from equity investments. AEBITDA is presented exclusively as our segment measure of profit or loss.

AEBITDA from Discontinued Operations

AEBITDA from discontinued operations, as used herein, is a non-GAAP financial measure that is presented as a supplemental disclosure for the Company's discontinued operations and is reconciled to net income from discontinued operations, net of tax as the most directly comparable GAAP measure, as set forth in the schedule titled "Reconciliation of Net Income from Discontinued Operations, Net of Tax to AEBITDA from Discontinued Operations." AEBITDA from discontinued operations should not be considered in isolation of, as a substitute for, or superior to, the consolidated financial information prepared in accordance with GAAP, and should be read in conjunction with the Company's financial statements filed with the SEC. AEBITDA from discontinued operations may differ from similarly titled measures presented by other companies and is presented only for purposes of calculating and reconciling Net debt leverage ratio.

AEBITDA from discontinued operations is reconciled to Net income from discontinued operations, net of tax and includes the following adjustments: (1) Restructuring and other, which includes charges or expenses attributable to: (i) employee severance; (ii) management restructuring and related costs; (iii) restructuring and integration; (iv) cost savings initiatives; (v) major litigation; and (vi) acquisition costs and other unusual items; (2) Depreciation, amortization and impairment charges and Goodwill impairments; (3) Income tax expense; and (4) Stock-based compensation and other, net. In addition to the preceding adjustments, we exclude Earnings from equity investments and add (without duplication) discontinued operations pro rata share of EBITDA from equity investments, which represents their share of earnings (whether or not distributed) before income tax expense, depreciation and amortization expense, and interest expense, net of our joint ventures and minority investees, which is included in our calculation of AEBITDA from discontinued operations.

Combined AEBITDA

Combined AEBITDA, as used herein, is a non-GAAP financial measure that combines Consolidated AEBITDA (representing our continuing operations), AEBITDA from discontinued operations and EBITDA from equity investments included in continuing operations and is presented as a supplemental disclosure. Combined AEBITDA should not be considered in isolation of, as a substitute for, or superior to, the consolidated financial information prepared in accordance with GAAP, and should be read in conjunction with the Company's financial statements filed with the SEC. Combined AEBITDA may differ from similarly titled measures presented by other companies and is presented only for purposes of calculating and reconciling Net debt leverage ratio.

Free Cash Flow - Continuing Operations

Free cash flow, as used herein, represents net cash provided by operating activities from continuing operations less total capital expenditures, less payments on license obligations, less contributions to equity method investments plus distributions of capital from equity investments, and adjusted for changes in restricted cash impacting working capital. Free cash flow is a non-GAAP financial measure that is presented as a supplemental disclosure for illustrative purposes only and is reconciled to net cash provided by operating activities, the most directly comparable GAAP measure, in a schedule above and representing Free cash flows of our continuing operations.

Free Cash Flow from Discontinued Operations

Free cash flow from discontinued operations, as used herein, represents net cash provided by operating activities from discontinued operations less total capital expenditures, less payments on license obligations, less contributions to equity method investments plus distributions of capital from equity investments, and adjusted for changes in restricted cash impacting working capital. Free cash flow from discontinued operations is a non-GAAP financial measure that is presented as a supplemental disclosure for illustrative purposes only and is reconciled to net cash provided by operating activities from discontinued operations, the most directly comparable GAAP measure, in a schedule above.

Combined Free Cash Flow

Combined free cash flow, as used herein, represents a non-GAAP financial measure that combines Free cash flows from continuing operations and Free cash flows from discontinued operations and is presented as a supplemental disclosure for illustrative purposes only.

EBITDA from Equity Investments

EBITDA from equity investments, as used herein, represents our share of earnings (loss) (whether or not distributed to us) plus income tax expense, depreciation and amortization expense (inclusive of amortization of payments made to customers for LNS), interest (income) expense, net, and other non-cash and unusual items from our joint ventures and minority investees. EBITDA from equity investments is a non-GAAP financial measure that is presented as supplemental disclosure for illustrative purposes only and is reconciled to earnings (loss) of equity investments, the most directly comparable GAAP measure, in a schedule above.

Net Debt and Net Debt Leverage Ratio

Net debt is defined as total principal face value of debt outstanding, the most directly comparable GAAP measure, less combined cash and cash equivalents. Principal face value of debt outstanding includes the face value of debt issued under Senior Secured Credit Facilities, Senior Notes and Subordinated Notes, which are all described in Note 15 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 and in Note 11 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, but it does not include other long term obligations of $3 million primarily comprised of certain revenue transactions presented as debt in accordance with ASC 470. In addition, principal face value of debt outstanding with respect to the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes (paid off as of June 30, 2022) were translated at the constant foreign exchange rate at issuance of these notes as those amounts were payable at the original issuance amounts in Euro. Net debt leverage ratio, as used herein, represents Net debt divided by Consolidated AEBITDA for current period and Combined AEBITDA for prior period (as defined above). The forward-looking non-GAAP financial measure targeted long-term net debt leverage ratio is presented on a supplemental basis and does not reflect Company guidance. We are not providing a forward-looking quantitative reconciliation of targeted long-term net debt leverage ratio to the most directly comparable GAAP measure because we are unable to predict with reasonable certainty the ultimate outcome of certain significant items without unreasonable effort. These items are uncertain, depend on various factors, and could have a material impact on GAAP reported results for the relevant period.


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