Rohan Sundram: Thank you. That’s helpful.
Operator: The next question is from the line of David Katz with Jefferies. You may proceed.
David Katz: Hi. Afternoon, everyone. Nice quarter. Can we just talk about two things. One is not a will you or Welch question, but we have this $1.4 billion number out for next year. Can we just go back over the sort of building blocks to getting to $1.4 billion and allow us to decide 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 cash flow conversion. And Oliver, how you see that evolving as we get toward that $1.4 billion-ish number for next year? And even longer term, where can the cash flow conversion slide up? Thank you.
Matthew Wilson: Yes, I can’t have an earnings call without that question, David, the first in the $1.4 billion expected Barry to lead off with that. But yes, still very, very convicted. Obviously, we’ve been out telling the Street every earnings call, 1.4 as a number. If you speak to people here at Light & Wonder, it is our mantra. It is our north star, the thing 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 $1.4 billion. You won’t see any hockey stick in 2025. We see a nice kind of linear approach to getting to that 25 number. But a number of different pathways across all of these different businesses. I’ll let Oliver pectoris is very well versed on the pathways.
Oliver Chow: On the pathways of the $1.4 billion. Yes. Yes. Listen, I think to Matt’s point, nothing’s really changed in terms of the building blocks, too. 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 III markets, but the adjacent markets will be the critical component for us in gaming, and we’re making really great strides here to Matt’s point earlier in the call. SciPlay, we continue to see strong retention 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 tailwinds here as we head into — and I think from an iGaming perspective, we expect continued growth in the global 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 road map.
So all of that, coupled with the margin enhancement initiatives and the operational excellence that we’re focusing as an organization will help propel us to the $1.4 billion.
David Katz: Yeah. 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 cost, and that just gives us some buffer in the top line if we need it, not that we see it, but then also potential incrementality if that doesn’t materialize. So excited about the pathways and it’s clear and obvious to us…
Matthew Wilson: And then David, to your free cash flow question, yes, listen, 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 quarter’s 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 over the coming years. We are not going to compromise long-term growth to achieve a specific conversion rate. But as we scale, 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 our free cash flow increased 26% this past quarter versus prior year. And that is really reflective of just the strong earnings and the highly cash-generative businesses that we have, and we’ll continue to benefit from that over the coming years. So yes, we’re confident in being able to scale that over time.
David Katz: Thank you.
Matthew Wilson: Thanks, David.
Operator: The next question is from the line of Jeff Stantial with Stifel. You may proceed.
Jeff Stantial: Hey, good morning, Matt, Oliver, thanks for taking our question. Just one strategic question from us, 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 as we start to contemplate higher interest rates for longer? Thanks.
Matthew Wilson: Yeah, another great question. And obviously, one that comes into the frame when you get the balance sheet under control like we have. I would say two words characterize this management team 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 that we’ve done in the space over the last say, 2.5 years, things like the acquisition of ELK and Lightning Box, the iGaming studios. That’s squarely in line with our vision. I think another thing, if you look at the organic expansion of the R&D studios, I think it’s bringing Kelsy Foster online and building a campus around here in 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 our core.
We have a clear north star on who we are and importantly, who we’re not. I mean Scientific Games was this 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 games company. And we’ll 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 dealing with complexity as it relates to M&A. We’ve been through that with a live experience for the team here that comes with a level of chaos. 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 project that further on, but not in a huge hurry to do a flashy piece of M&A.
Jeff Stantial: Great. That’s helpful. Thanks, Matt. Congrats on a nice quarter.
Matthew Wilson : Thank you.
Operator: The next question is from the line of Justin Barratt with CLSA. You may proceed.
Justin Barratt : Hi, guys. Thanks very much for your time today. Matt, you just sort of touched on the balance sheet, but I was just wondering if you could expand. So look, your balance sheet should sort of continue to fill downwards 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 further buybacks beyond this sort of $750 million program? And then is there any chance that any form of dividend is reinstated near term?
Matthew Wilson: Yes. I’ll kick that off and then hand it to Oliver. I think the answer to that is yes to both of those things. I think the organization is on a growth trajectory. We want to continue that, look for ways to invest behind that, both organically and inorganically to continue that growth profile in perpetuity. We know that’s what investors are looking for. We also think when there’s dislocations in the share price, then 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. We’ll come back to the market and explain where do we go to from here. But buybacks at these levels still seem very opportunistic to us. But Oliver, anything to add?
Oliver Chow: Yes. No. I think largely speaking, 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 we’ll make at this point. In Q1, we’re now back at the midpoint of our targeted net leverage range, so between 2.5 times and 3.5 times. And 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 10b5-1 and just more systematic repurchases. Matt also mentioned organic investments. That is certainly areas of our highest returns that we see, and we absolutely see opportunities to continue to invest in talent and in the core business.
But yes, I mean, from a dividend point of view, we constantly engage and evaluate with the board and really the best use of capital 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 be something that we consider at some point down the line.
Justin Barratt : Thanks for that.
Operator: The next question is from the line of Paul Mason with Evans and Partners. You may proceed.
Paul Mason : Hi, team. Just wanted to ask about cross platform a bit. Your land-based business has got this great content that’s been coming out in DRAGON TRAIN and FRANKENSTEIN. It looks like some hot games on the horizon as well. Could you maybe talk a bit about like the timing of when we might see some of these social casino or gaming as well? Yes, thanks.
