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Q1 2024 Light & Wonder Inc Earnings Call

Participants

Nick Zangari; SVP IR; Light & Wonder Inc

Matthew Wilson; Executive Vice President and Group Chief Executive, Gaming; Light & Wonder Inc

Oliver Chow; Chief Financial Officer; Light & Wonder Inc

Barry Jonas; Analyst; Truist Securities

Chad Beynon; Analyst; Macquarie

Rohan Gallagher; Analyst; Jarden

Ryan Sigdahl; Analyst; Craig-Hallum

Rohan Sundram; Analyst; MST Marquee

David Katz; Analyst; Jefferies

Jeff Stantial; Analyst; Stifel

Justin Barratt; Analyst; CLSA

Paul Mason; Analyst; Evans & Partners

Allan Franklin; Analyst; Canaccord Genuity

Presentation

Operator

Welcome to the Light & Wonder 2024 first quarter earnings conference call. (Operator Instructions)
I would now turn the call over to Nick Zangari, senior vice president of investor relations.

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Nick Zangari

Thank you, operator, and welcome, everyone, to our first quarter 2024 earnings conference call. With me today 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, followed by 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 on our website at ir filings with the SEC. 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 located in the Investors section of our website. As a reminder, this conference call is being recorded. A replay of this webcast and accompanying materials will be archived in the Investors section of our website.
With that, I will now turn the call over to Matt.

Matthew Wilson

Thank you, Nick, and thanks to everyone for joining us today. Our first quarter performance market. Great start to 2020 for Aladdin, Wanda building on the momentum that we've created since we began our transformation journey and affirming our position as the leading cross-platform global gains company during the first quarter, our team did an outstanding job executing our strategy and meeting our financial and operating objective, however, will provide more details in his financial comments. We are extremely proud to deliver our 12th consecutive quarter of year-over-year growth in our sixth consecutive quarter of double digit revenue growth across all lines of business.
The gaming industry has proven to be resilient in today's macroeconomic environment with healthy consumer demand fueling our impressive growth. A strong result confirms that we are investing in all of our prices and in the right talent, providing innovative content, cutting edge technology that enhances applied experience and build a loyal customer about. We will continue to execute diligently focused on driving sustainable long-term growth, a lot and one that is all about the gap, our aspirations beyond just one brand or franchise.
We are fortunate to have a robust and diversified roadmap of engaging and dynamic game content for clients to enjoy across all of their fiber channel. With that, let's turn to our operational highlights for each business. In Gaming. We continue to make significant progress on our June and given the quality of products that we see as an inflection point Galia game of plate and the main takeaway, as many of you have heard, our Australian bond hedge franchise Dragon time has arrived in the US and we expect that to contribute gaming operations growth. I see it.
In fact, Dragon China debuted at the top new franchises for of IT titles in the top 10 indexing new premium lease gains on the auditor's report. Our commercial team is collaborating with our operator partners and being strategic replacement as we continue to optimize the floors performance while preserving the longevity of active units. That said, our North American premium installed base has grown for 15 consecutive quarters and now represents 49% of the North American in-store. Our base.
Just recently, we also launched our new large screen jumbo cabinet horizon, Dancing Drums, ultimately explosion, and it's off to a strong start. Our execution on losses titled is second to none. Monster Frankenstein continued to perform well on the charts with more pricing from the floor. We are prudent with Lawson spend for the disciplined focus on our Iowa, and it gives me the confidence that we will capitalize on the upcoming launches such as Squid Game in the near future on the games out jointly with broad-based strength across the board and achieved number one ship share in Australia for the first time ever in the company's history, we see opportunities outside of the traditional North American and Australian replacement market as we further deliver units into international opportunity and adjacencies such as shipments to Asia, specifically, Macau, Philippines, and South Korea.
In the quarter, the adjacent market, we are progressing well with the Oregon and Canadian VLT shipments with rolling thousand Georgia coin-operated amusement machine market, as well as various other video lottery Class two and historical horse racing market. We will continue working towards gaining share in the North American market on that affected our wide array of successful franchises such as blazing Triple 7.5 and will pass the call planning pause line Lincoln Delphi's on the systems and tables.
Our revamped strategy of enhanced collaboration driven by innovation is expected to provide sustainable momentum, further solidifying our leadership position with a focus on increasing recurring revenue stream by expanding system software and maintenance services and Table Products description as we continue to be the innovative thought later in this space.
Overall, we have strong conviction in games growth trajectory. We continue to build on our hardware brand and franchise extension with recent data showing a hit game happen even more past indexing as the number one overall neutral gain and loss one to occupy 12 out of the top 25 gain from the new premium late and wide area progressive CHOPS wells positioned to capture the opportunities ahead of us.
Turning to slide where our steady performance continues, as we delivered another record revenue quarter, up 11% year over year, driven by continued growth in our largest for games Jackpot Party, quickly fluff Delta's casino and 88 Fortunes slots. We continue to gain share in it stabilized and social casino market as we have for the last nine quarters, and I now have over 11% market share.
The investments we've made in our pipeline engine and user acquisition of bearing fruit, and the results are reflected in the strength of our portfolio of games. Meanwhile, average monthly revenue per paying user and average revenue per daily activities are once again reached new highs as we continue to execute on our prudent and sustainable monetization. Strategy on that has proven to work very well as we navigate seasonality in the business with favorable results.
The marketing campaign launched in the quarter, solidify our conviction of investing in opportunities which are expected to generate attractive payback period to fuel sustainable, long-term engagement and monetization. Slide 5 is the best in the industry in terms of user acquisition execution, which we've demonstrated consistently and outperformance. In addition to executing to our marketing blueprint. Some of our other growth initiatives include testing and scaling a new game and taking learnings to drive success for the next phase progression into AdTech. Most important leads.
We've made meaningful progress on our direct to consumer platform in the last six months with approximately 6% of revenue generated from this channel in the first quarter. Our focus here is to proceed deliberately showing a high quality user experience to encourage player engagement. Overall, we see this is a great long-term opportunity as we continue to refine the platform and scale it across the again with flybuys clear strategy and focus on roadmap execution, we are differentiating ourselves as one of the clear leaders in the space onto our gaming with a robust industry growth we saw in North America propelled us to another record revenue quarter.
Algiers platform delivered record gross gaming revenue volumes in the US and Canada as we saw year-over-year increases of 23% and 29%, respectively. This impressive growth was further accentuated that content strategy and roadmap. In fact, we continue to see stellar performance from our first-party content with Ultimate filing taxables, reflecting solid performance. Continuing the successes for that proven land-based franchise, Deltek studios and lining box continue to perform above expectations.
A testament to our OGS. platform providing valuable insights today, again, data price alignment with the acquisition of these high-performance studios. LCDO.s GGR is up 34% compared to prior year, driven by strong performance across pilots. two and Cygnus for funding book had a record JJ quarter with sequential growth of 12%, supported by strong launches from the standards do. Pfizer has also begun to scale with nine studios now live connected to 72 operated across 10 market as we continue to build on the accessibility and scalability of our gaming network slots.
Casino continues to be an important part of our overall, I can portfolio as we continue to invest and optimize our offerings. We continue to see progress and believe that our collaboration with operator customers for ultimately solidify long-term partnerships as we scale and expand the other regions in the future. I can use one of the fastest-growing segments in the gaming side as we continue to see within the US market in the quarter, we will continue to expand our content portfolio and cross launching a proven land-based and digital native games, along with enhanced capability and new features added to our existing offerings. Rounding out our robust organic portfolio to capitalize on legalization opportunities in the future.
With our unmatched market position and cross platform type of building blocks, one that has created a compelling value proposition. Our results clearly demonstrate that we are delivering the iconic content players want the ability to choose where and when they want to play. Their favorite might one day across our business units are industry leading talent and high performance culture, how the key to our past success and provide competence for our future.
We will continue to enhance our talent and invest in our culture to drive innovation and promote a lasting impact of our product offerings. Importantly, we will support our creative talent from strategic initiatives with disciplined R&D investments to drive long-term sustainable value. Above all, we focus on operational excellence as we continue to extend our market rates. And I want to thank the claim for their dedication to this, and I'm very excited about the momentum we are creating, and I look forward to the opportunities ahead for loved ones are from 2020 for best is yet to come.
With that, I'll turn to Oliver to review our first-quarter financial results.

Oliver Chow

Thank you, Matt. I'm pleased to share that we started the year with strong overall performance, marking our seventh consecutive quarter of double-digit consolidated revenue growth and six consecutive quarter of double digit revenue growth across all three segments. Consolidated revenue increased 13% year-over-year to $756 million, driven by continued momentum across all businesses.
Operating income was $165 million in the quarter, an increase of 62% over the prior year, primarily due to the higher revenue and healthy margins, along with lower depreciation and amortization and lower restructuring and other cost. Consolidated EBITDA grew 13% to $281 million compared to the prior year period, resulting in a consolidated EBITDA margin of 37% for the quarter and robust top line growth and our commitment to maintain strong margins across all of our businesses.
Adjusted NPAT increased 22% year over year to $105 million of our businesses and healthy margins. I will note that we disclosed a reconciliation of adjusted and pad ag in our earnings press release, along with other financial details and our quarterly Form 10-Q filed with the SEC. Our results reflect the collective and collaborative work of our business units in gaming, we continue to deliver strong financial and key performance metrics, a true testament that we remain focused on executing our robust product roadmap and commercial strategy. Revenue in the quarter grew 14% year over year to $476 million, led by another quarter of strong global gaming machine sales and gains across gaming operations and systems.
EBITDA was up 13% to 232 million compared to the prior year, with profitability primarily driven by revenue uplift in the period. EBITDA margin was 49%, in line with prior-year levels as we maintain healthy margins through our ongoing margin enhancement initiatives while continuing to invest for future growth. Gaming operations. Revenue in the quarter increased 3% compared to prior year on continued growth in our North American installed base, primarily due to the successful launch of Dragon train in North America late in the quarter. Partially offset by declines in international markets related to the fleet optimization that we previously shared.
Importantly, revenue per day grew 4% in North America year over year, approaching $49 on continued performance of our license and proprietary games backed by our popular cosmetic neuro and cause Scott, a dual screen covenants. Global game sales were robust in the quarter with revenue up 30% year over year. North American and international replacement unit shipments increased 14% and 68% respectively for North America, driven by our ramp in adjacent markets. And international are driven by continued strength in Australia, new and expansion sales in the Philippines and South Korea, as well as replacement opportunities in Macau.
Additionally, average selling prices increased 6%, reaching approximately $20,000 in the quarter as we continue to place premium products into both the North American and international markets. In Systems revenue increased 9% year over year, primarily on higher hardware sales into existing and new customers. And lastly, Table products revenue was relatively flat compared to prior year.
Our results demonstrated the strength of our product portfolio and continued execution to strategy, which gives me confidence in our ability to maintain the strong momentum through the year as we expand into international and adjacent markets. In addition to further growth in the North American Class three market. Moving on to site plan, where we continue to outpace our peers with another record revenue quarter, once again, establishing ourselves as the industry leader in year-over-year growth in the social casino space.
For revenue in the quarter was up 11% year over year to $206 million on growth, underpinned by robust player engagement and monetization, leveraging our dynamic live ops side play engine across our portfolio of high performing games. But I'd like to mention that you may have seen a notable increase in our web in-app purchases and other revenue line with meaningful uplift in recent quarters.
Revenue from our direct consumer platform, which has progressed nicely as reported in this line item. This subsequently impacts growth in the mobile line item that we have. Several other data platforms report externally EBITDA increased 15% to $62 million year over year, with a EBITDA margin of 100 basis points to 30%, driven by continued revenue growth, partially offset by higher targeted and planned marketing spend, which has proven to be an effective cross strategy for SciPlay.
While there will be user acquisition costs are dynamic quarter to quarter, we will always take a prudent approach with a focus on long-term return and expect that margin will scale over time. Our monetization metrics continue to set new records with average revenue per daily active user, up 13% year over year to just over $1 on a steady base of 2.2 million daily active users. Average monthly revenue per paying user was nearly $114, an increase of 17% compared to prior year, while maintaining payer conversion above 10%.
We are pleased with the execution side play where we continue to see outperformance relative to the market. These favorable growth trends continue to be driven by our focus on engagement, retention, monetization and our cross-platform strategy. We are confident in our marketing blueprint were dollars further on high quality investment opportunities, generating meaningful returns to fuel sustainable long-term growth and profitability.
On-time gaming, where our offering and ecosystem continues to scale as the market continues to expand. Revenue in the quarter increased 14% year over year to a record $74 million, primarily driven by our strong content launches and US and international market expansion. Ebitda grew 9% to $25 million, largely not top line growth with an EBITDA margin remained healthy at 34%, trending in line with historical levels.
While we continue to invest in content and product development with a focus on future margin expansion wagers process through our I gaining OGS platform increased 10% from our prior year period to a record $22.4 billion on healthy levels of engagement. Overall, we expect to extend our momentum through our original content and regionalized roadmap, underpinned by scale and a well run that portfolio with our business is firing on all cylinders.
We will continue to evaluate processes for efficiencies, staying agile and nimble to adapt to changing environments to drive further operational excellence within the organization. This strategy has been to be effective as reflected in our healthy margins we achieved in the quarter as we continue to invest organically in the business. Importantly, our teams will continue to maximize the efficiency of our business through enhancing processes and automation opportunities and committed to driving sustainable long-term profitability through value-enhancing initiatives onto balance sheet and cash flow.
At the end of the quarter, we had approximately $1.2 billion of available liquidity, including Ford and 50 million of cash on hand. Notably, we received a one notch corporate family rating upgrade by Moody's in April on our strengthened balance sheet and meaningfully cash-generative business. Our consolidated operating cash flow was $171 million in the quarter, and free cash flow increased 26% compared to prior year to $93 million for reflective of a strong earnings, partially offset by less favorable changes in working capital and increases in capital expenditures.
With the strong performance in demand of our newly released games, we expect an increase in capital expenditures in the coming quarters as we continue to invest for sustainable growth. Continuous efforts to improve conversion rates will allow us to further scale annual cash flows over time. We remain within our target. Net debt leverage ratio range at 3.0 times at the end of Q1 was enhanced optionality around capital allocation is our business continues to grow.
During the quarter, we bought back $25 million of shares. In total, we have repurchased approximately 600 million or 80% of the $750 million authorized program. As we generate incremental free cash flow. We will be opportunistic as we see value dislocations in the market. Well having a programmatic share repurchase plan now in place with a streamlined business, we will continue to invest organically into growth initiatives for the long term.
We will consider M&A opportunities that are complementary to our core business and above internal return hurdles. We further develop and deploy a robust R&D engine across platforms. We remain diligent in our efforts to prioritize shareholder value through capital returns and strategic investments. Our team has done a tremendous job at executing the strategy, elevating like one or two, one of the fastest growing companies in the industry, underpinned by a healthy balance sheet and strong cash flows.
And importantly, we are doing so in an efficient way with a prudent approach to reinvesting back into the business without compromising top line growth and R&D, a key driver success here, and I wonder this quarter is just another proof point. As we continue on our journey to scale the business, I am confident in our ability to deliver on our roadmap and achieve sustainable growth towards our target and beyond.
With that, we will turn it over to the operator for your questions.

Question and Answer Session

Operator

(Operator Instructions) Barry Jonas, Truist.

Barry Jonas

Hey, guys. I wanted to ask about side play. How are you thinking about the growth trajectory for here? And for DTC, you're at 6% now. How do you see that ramping and how high do you think you can get? Thanks.

Matthew Wilson

Yes, great question, Matt Wilson here, obviously are really proud of the exceptional results. Sciplay been able to orchestrate again, they just go quarter to quarter back-to-back have consistently taking share in the marketplace.
Really the only provider in the space is doing that. one of the things are really liked about this specific result. Was this the domestic diverse vacation and the result there was a contribution by all four of our big games Jackpot Party, quick hit slots, Goldfish 88 Fortunes for making meaningful contributions to the growth of this business in this last quarter. And I think that this gives us the confidence that we can take that playbook and expanded even further across more gains in our portfolio and other the teams working really hard to retool monopoly.
That's another gain if we see contributing to our results in the future. So it's very impressive. Thank God. They take phase another great example of how this team tackles big hairy problem. As you know, we are we kind of a new 23 to pilot that DTC were about 1% of revenues in 2023 in Q1 this year, like you mentioned, 6% of revenues coming through that platform.
We see industry peers as high as 2024, 25%. So that's really the goalpost that we need to get to over time. It will take some time. We'll see. We'll see it ramp up here in the second quarter and beyond that, yes, we see a long runway there having a successful day to say, from a revenue stream analog.

Oliver Chow

Yes. And just to build on that, it will continue to invest and deploy the SciPlay engine across the portfolio of games. And we're actually going to leverage data analytics to enhance player engagement and monetization prudently over time. There's also going to be further opportunities for us to lean into you way as we did in Q1 with just a continued focus on improved returns.
We saw strong returns on the ad spend that we did make in Q1. And so will further review that with the team and see if there's any other opportunities to drive LTVs over time. Yes. Maybe one final call after the software team. Obviously, headquartered out of Cedar Falls, Iowa. They've got a big team in Austin, Texas. They will have a huge TAM in Tel Aviv in Israel.
I had to put up this level of results over the last few quarters, given everything that that team has dealt with just couldn't be more proud from that same Assist, a testament to the character, their teamwork and the contribution there making. So just fantastic to have them back in the portfolio and really proud of the results and everything the software team has done.

Barry Jonas

Perfect. Thanks so much, guys. Appreciate it.

Matthew Wilson

Welcome. Thanks, Barry.

Operator

Chad Beynon, Macquarie.

Chad Beynon

Afternoon metal over. Thanks for taking my question. I wanted to drill down into into unit sales. So nice year-over-year growth that you've talked about. Some of these adjacencies over the past couple of meetings and earnings calls. Can you kind of flush that out just a little bit just in terms of where that opportunity stands with VLTs, COM., et cetera, and kind of what's ahead in 24 tax my question.

Matthew Wilson

This is an exciting part of the gaming portfolio. I'm calling 2020 for the year of adjacencies within building towards this for a number of years, a lot of resources, what our R&D effort has gone into this and a really important part of our growth strategy for the gaming business.
There's a number of markets coming online in late 23 and then throughout 24, I think it's the continuation of the Illinois VGT market, which has been a great market for us for some time that's continuing to expand. There are excited about that. We see ourselves as a multi-quarter opportunity. We've shipped that, yes, a couple of quarters worth of gains as there's more to come with our. So there's a few Canadian VLT market that we have signed up and we'll transact with throughout 2024. As you mentioned, George Cohen's come online. We got further expansion in HR and 24.
We've got West Virginia VLTs. So it is really a layer cake of of opportunities. I think we typically think about adjacencies in a large tranches of gains in order to what we are actually seeing in our order book. Is these opportunities kind of layering on top of each other? I think if you look into the second quarter and third quarter, you'll start to see really strong contribution coming out, these adjacencies that coming through in a in a diversified way that really gives us a great pipeline.
So I think it sets up nicely. I think Siobhan and Nathan drain and the team's been working really hard to get us in this position and near 2020 for the year where we get some significant upside in those adjacent categories.

Chad Beynon

Thank you very much.

Operator

Rohan Gallagher, Jarden.

Rohan Gallagher

Not all of a good afternoon. Congratulations on the results and gaming operations. Obviously, the most profitable segment within the gaming space, probably a little bit frustrated with the lack of installed growth up until the last two quarters was timing to see that move will sometimes like Dragon churn performing exceptionally well here in Australia. Can you unpack that in terms of realizing your targets for FY 24, 25 place?

Matthew Wilson

Great question. I think the deck is stacked for for gaining us in 2024 for us. As you mentioned, we're seeing solid pipeline of opportunity here. I think we've just kicked off the 15th consecutive quarter of install-base growth. I think we're now reporting 49% of our installed base in that premium category. That's the one we can move. That's the most profitable segment with the most opportunity. As you know, the North American InfoBase is comprised of premium gaming, often those public markets. It's really that premium category we're looking to drive. And I see that happening.
So you can see that showing up in the Alt-A days are up 4% year on year in terms of RP Data that thanks to the premiumization of our install base. And I think we're very well positioned for the remainder of the year. I'll give you two data points that support that one overnight I'll is reported. There are quarterly fluff survey. If you look at the most anticipated games on that list, number one was Dragon train number two with squid GAAP number five was huff and puff money match.
And so yes, three of the top five, most and dissipated gained in terms of what operators are looking for a whole lot one against I think it was 52% of the total votes came from Lawson Winder product. So that just shows you the pipeline sets up really nicely for the remainder of the year.
Another data point, I'll give you 12 of the top drive new premium games on the recent survey would want again as well. So you can see the gains that are performing in our installed base are doing really well and then the gains in the pipeline highly anticipated. So I think the contribution across the breadth of product, including Dragon, trying really sets us up for a great year in 2024. I think you can expect a material pickup in installed throughout the remainder of the year.

Oliver Chow

And just to build on that, Matt, as we continue to scale our install base, especially on the for the premium side around, we will expect CapEx to scale as that installed base growth. So with the excitement that we're hearing from our customers around the product portfolio that Matt just mentioned, will continue to invest CapEx to meet meet the demands of the market are probably speaking. So we're in a great position, and this is the inflection point. We've been waiting for some very exciting.

Rohan Gallagher

Thank you, gentlemen.

Operator

Ryan Sigdahl, Craig-Hallum.

Ryan Sigdahl

Hey, Matt, over wanted to focus on international here a little bit. So continued strength in game sales outside of your core U.S. and Australian markets. It seems like your global platform is increasingly a powerful competitive advantage there. But if there's anything you can share whether it be in South Korea, Macau, Philippines, et cetera, what games and products are resonating for you guys?

Matthew Wilson

Yes, another question. I think the international gaming category was a hero category for us. I think it's just one way where we are a significantly differentiated supplier in the space, given our global footprint and product diversity. Geographic diversity will not walk many of the competitors in the space. We have a very good testified business. This category was up from a units perspective, 45% year on year, 45% of just an amazing growth of that business. So hats off to Simon Johnson, who runs our international business, I think really to two-part story that's driving this number.
The first one is the I ended market, which I think is a fascinating case study in the out of the possible you have as a business, we have been a sub-10 percent player in that market for decades. We've been at this the nearly four years and all the inclination to this company. But whether it's valuable Shuffle Master All-Star game will Scientific Games. And yes, we're just really proud of that. Tania declaring on this earnings call. First time in company history, we were number one in the Australian market.
So I just don't get tired of talking about that level of success that anyone is listening on the line that played a role in that fight for how to add on I take it off to you is that just exceptional and we see there are many quarters in many years of runway to continue that growth trajectory.
I think probably the second element to that is the Asian market you mentioned. So I think really the Philippines expansion is in full force at the moment. You saw some of that in Q1, but a lot more to come through the remaining quarters of this year. And then the other big driver is Macau. So we're going to see a regulatory change take place here in the next 12 to 24 months, and we are 50% share player in that market to. So I think I set up really nicely, and I think you can continue to expect the international gaming segment segment to contribute in a meaningful way.

Ryan Sigdahl

Great job, guys. Good luck. Thank you.

Operator

Rohan Sundram, MST Marquee.

Rohan Sundram

From Jill and good afternoon, metal Lager and Sam and world on just the one for me in terms of how would you describe swap demand globally across the key markets from new customers? And how would you read the forward order visibility in these key markets as well?

Matthew Wilson

Thanks, Ron. Looking forward to seeing you next week? Yes. I think from a macro perspective, and if you just looking specifically at JGI. in North America, I think we observed like many did in the industry, a little bit of softness in January, weather related. And I think the remaining months of the quarter, we saw a bounce back in GGR and the industry has had a really solid numbers with well up on your pre-COVID level.
So I think that puts the industry on really solid footing. We have, from our vantage point, not seeing any changes in customer purchase behavior and the order book looks really solid. And I think there's two things driving that order book for us. one is improving gains. So again, back to the always report, we have the number one game in the core space in half and even more top-off span a variety of games from a variety of Studio is really driving that improvement in product quality.
So that kind of underpins the order book that we can say looking forward. And then the other one is this adjacent story we just spoke about. This is a discrete opportunities that are kind of well-capitalized, both from a government perspective and from a new market perspective. So a lot less volatile in terms of the pipeline. I would say around those adjacency for the combination of all those things gives us good confidence in the remainder of the year. The other international markets are in different places.
I think you're saying Asia rebound off the lows in the last year and really coming back to full strength. I think Australia is a consistent churn market that we're participating in there. So I don't I don't expect any radical changes there. But I think on balance industry is on solid footing. We what's the consumer and the macro very closely, but nothing in the end markets at the moment suggesting that there's anything to worry about the.

Oliver Chow

Yes. And just a quick couple of very quick. As you know, obviously, we do see solid data points from our coin and are trending pretty well here in the quarter. And so to mass color, we see we see that we see the GGR levels even in our our digital businesses as well, being pretty robust here in the quarter.
So to Matt's point, I think we don't see anything in the data points here that would suggest anything different. But that's why it's important for us as we start to think about margin enhancement and other initiatives that we're working through to be able to give us some flexibility over the balance of the year.

Rohan Sundram

Thank you. That's helpful.

Operator

David Katz, Jefferies.

David Katz

Hi, afternoon, everyone, and nice quarter. Can we just talked about two things. one was not a real you or what's your question, but we have this billion or number out for next year. We just go back over the sort of building blocks to getting to build $2 billion for where those building blocks and how they stack up as we get into next year. And the second part of the question is really around our cash flow conversion and Oliver, how you see that evolving as we just know toward that $1.4 billion ish number for next year and even longer term work on the cash flow conversion, quite frankly.

Oliver Chow

Yes, kind of have an ExCo that question, David. First in the 1.4 expected barrier to lead off with that data yet feel very, very convicted. Obviously, we've been out telling the street every earnings call. 1.4 is the number that you speak to people hear a lot more than it is our mantra. It is our North Star to think we're all chasing collectively, and we feel very confident we can get there.
And I think this last quarter is another demonstration of operating momentum that puts us squarely on the trajectory to get to that RMB1.4 billion, Sandy hockey stick in 25. We see a nice kind of linear approach to getting to that, that 25 number, but a number of different pathways across all of these different businesses at all with respect to this is very well-versed on the pathways cap on the pathways and the porphyria. Yes, we do.
Listen, I think to Matt's point, nothing has really changed in terms of the building blocks to. So just very quickly from a gaming perspective, we've already talked about kind of the share gains we have in the core kind of Class three markets, but new adjacent markets will be the critical component for us in gaming. And we're making really great strides here to Matt's point early in the call SciPlay, we continue to see strong retention engagement engagement, and that's really driven by that SciPlay engine and the UA initiatives that we've consistently kind of put forth.
And we've really consistently outpaced our peers in these segments. So prudent monetization will always be kind of the key for us in strategy. And DTC. will also provide us some some tailwinds here as we as we head into 25. And I think from an organic perspective, you know, we expect continued growth in the globe markets, particularly here in the US. As you've seen really over the past few years, our strategy remains pretty consistent there, which is just keep on deploying proven content, cross-platform content and then really executing a very robust regionalized roadmap.
So all of that, coupled with you, no, the margin enhancement initiatives and operational excellence that we're focused on as an organization will while propel us to the 1.4, yes, that's one call out that I'd like to make is this combination of the team focused on growth, but doing it efficiently. So building a big pipeline of margin enhancement opportunity. This team does a fantastic job of optimizing costs. And that just gives us some buffer in the top line if we need it, not that we say it, but then also potential incremental incrementality if that doesn't materialize. So excited about the pathways, and it's clear and obvious to us.
And then David, to your free cash flow question. Yes, that's and that continues to be a key focus for us as a leadership team and as an organization. And we will see kind of conversion levels, especially here in free cash flow levels within the quarters kind of ebb and flow. There's some seasonality, obviously related to timing of tax and interest payments, especially here in Q2 as well as timing of working capital and CapEx investments.
But overall, we do expect our annual conversion rate to continue to trend favorably here of over over the coming years. We are not going to compromise long term growth to achieve specific her conversion rate. But as we scaled, we will continue to invest in CapEx, like I mentioned earlier, or R & D to really be key drivers for us as we move forward.
But you know, our free cash flow increased 26% this past quarter versus versus prior year. And that is really reflective of just the stronger earnings and a highly cash-generative businesses that we have and will continue to benefit from our benefit from that over the coming years. So yes, we're confident in being able to scale that over time.

Operator

Jeff Stantial, Stifel.

Jeff Stantial

Good afternoon, Matt, all of our thanks for taking my question. Just one strategic question from Matt. I'm curious to get your updated views on the M&A landscape really across all three of your segments. Are you seeing interesting acquisition opportunities out there? And if so, how have asking prices trended over the last year or so if we start to contemplate higher interest rates for longer?

Matthew Wilson

Yes. Another great question. And obviously, one that comes into the frame. When you get the balance sheet under control, like like what we have, I would say two words characterize this management team and Board over the last two years, it's really focused and disciplined. And I think that's really what this business transformation has all been underpinned by.
I think if you look at things we've done in this space over the last, say, 2.5 years, things like the acquisition of Elk and Lightning books, the gaming studios that's squarely in line with our vision. I think another thing if you look at the organic expansion, the R&D studios, I think it's bringing Kelcy foster online and building a campus around here and Reno.
That's another great example of what we're about and what we're interested in really looking at opportunities that are close to up our call. We have a clear Northstar on who we are an important who would not I mean, Scientific Games was is wildly diverse portfolio of assets across Lottery and Sports and content and land-based and digital. We've chosen clearly a content strategy. We want to be the leading cross platform, global gains company, and we will look and evaluate every M&A target that supports that mission and vision.
But we're not in a hurry to go and put a huge amount of complexity back into the portfolio. I think there's a number of people in the industry. You're dealing with complexity as it relates to M&A. We've been through that with them. The experience for the team here at that comes with the level of scale. So we've done a lot of work to clean up. It's kind of the operating businesses and get this squarely focused at our vision. So we'll look at assets that help us, Pam, you have to project that further on, but not in a huge hurry to do as a splashy pace of M&A.

Jeff Stantial

Great. That's helpful. Thanks, Matt. Congrats on that score.

Operator

Justin Barratt, CLSA.

Justin Barratt

Hey, guys. Thanks very much for your time today. But you just sort of touched on the balance sheet. I was just wondering if you could expand so some of your balance sheet could should sort of continue to fill downloads as you generate that improved free cash flow and then also maintain a level of buybacks. But how should we think about, I guess, the potential sale, the buybacks beyond this sort of $750 million program? And then is there any chance that any form of dividend is reinstated the term?

Matthew Wilson

Yes. I'll kick that off and then hand it to Oliver. I think the answer is yes to both of those things. I think in that the organization is on a growth trajectory. We want to continue that, look for ways to invest behind that, but organically and inorganically, to continue that growth profile in perpetuity, we know that's what investors are looking for.
We also think when this display stations in the share price than it's prudent for us as capital allocators to think about share buybacks, we intend to continue to execute through the remaining portion of the 750 million. I will come back to the market and explain where do we go to from here. But yet buybacks at these levels still same very opportunistic to us.
But Oliver, anything to add.

Oliver Chow

Yes, I think largely speaking, you know, we're going to continue to execute to the blueprint from a capital allocation perspective. And there's really not a whole lot of, I would say, structural changes that will make at that at this point in Q1, we're now back at the midpoint of our targeted net leverage to Matt's point share buyback will absolutely be a key focus for us as we now put a programmatic plan in place, and that's including the potential of tools such as 10b5 ones and just more systematic repurchases. That also mentioned organic investments that are certainly areas of our highest returns that we see.
And we absolutely see opportunities to continue to invest in talent and the core business. But yes, I mean, from a dividend point of view, we constantly engage and evaluate what the board on really the best use of capital and and uses of our funds to enhance shareholder value. Currently, we have no plans to deviate from our capital allocation blueprint, but over the next several years. Sure, dividends, can it can be something that we consider at some point down the line.

Operator

Paul Mason, Evans & Partners.

Paul Mason

I just wanted to ask about cross platform or with your land-based business has got this great content that's been coming out of your Dragon train for against on looks like some hot games on the horizon as well of. Could you maybe talk a bit about like the timing of we might see some of these social casino and gaming as well?

Matthew Wilson

We have things. Yes, I think this is really our company at its best. Like I said earlier, we chose a strategy of being a content company and then having three businesses in the portfolio that all fit of that same idea of building great franchises and taking it across these three channels. Dragon trends have fantastic example. Started in Australia is muted premium gaming ops in the US. You'll see it in the social casino space in June, and you'll see shortly after that in the gaming space.
So really trying to cut down the lag time between building again the first time in and deploying across these three channels. We have a CTO, Victor Blanco, who's working on a platform, a GDK. platform called cabin, which will allow us to do it again, one-time type that game very efficiently and effectively across all three channels. That's an investment that we're making. It's been worked out at the moment, not overweight to production. But when we get that to get it, they will update the investment community. But this is a key to our thesis that we build great games. We take them across these these franchises.
We also have, for the first time some gains coming back to the otherwise that coming from the social casino space onto a land-based gaming floor. It is very exciting. And then also, we have the other data going out all different ways across the ecosystem. So A/B testing games, rapid asset testing. So yes, we really started to match rate in the way we're leaning into those cross-platform opportunities. And you'll start to see a shorter and shorter lag time between again being built in one channel and being deployed in another.

Operator

Allan Franklin, Canaccord Genuity.

Allan Franklin

Do you guys offline morning depending where you're at, but I just wanted to touch on the margin dynamics, please appreciate some steady performance in that quarter for each of the business groups. And also just noting first quarter can be seasonally low. Just thinking about the margin margin progress over the course of the year, please?

Matthew Wilson

They have higher hail and great, great to hear from you. Yes, I was very pleased with the results here in Q1. We continued to post very healthy margins, benefiting from our continued focus on efficiencies and the team could really continues to execute really well here in gaming. Our supply chain and cost initiatives have really helped maintain our strong margins. And going forward, as we further scale our gaming operations installed base, we should continue to see margin scale with that over time.
Sciplay, there will be UA opportunities that will be available to us as we continue to take a prudent approach as we have this quarter through the campaigns that you all may have seen. But we are laser focused on long term, sustainable top and bottom line growth. And as we mentioned earlier, DTC. will be a key factor for us in margin expansion within SciPlay.
And then in terms of I gaming margins, we expect them to be fairly steady as we continue to expand on our original contents. While we continue to invest in Live Casino over time, we do expect margins to expand in that business as we scale with with more jurisdictions coming online. So we'll have a multitude of opportunities to expand margins over time that we know we're staying laser focused on our margin enhancement initiatives in all our lean management, our rollout, where we're now just under test robotic automation processes, share and shared services, and it really starting to scale. Our offerings are overall. So yes, we continue to see opportunities to grow margins while still investing back into the business.

Operator

There are no additional questions waiting at this time. I would now like to hand the conference over to Matt for concluding remarks.

Matthew Wilson

Great. Thank you. About two years ago, we transformed from a constrained company is Scientific Games into light and wonder with a bold new vision, differentiated strategy as we approach the one-year anniversary of our secondary listing on the ISX., we are getting recognized as one of the fastest growing companies in our industry, backed by world-class people. First culture to each. And every one of you do you happen to be a part of the surety. You want to thank you for your dedication as we continue to build upon the solid foundation we have. He I'm incredibly proud to be part of this process and look forward to further accomplished this with all of you along the way. Thank you again for joining us.
That concludes the Light & Wonder when the 25st quarter earnings conference call. Thank you for your participation.