Light & Wonder, a prominent name in the gaming device manufacturing industry, is witnessing a significant decline in leverage, a move that’s garnering positive feedback from financial analysts.
The company, listed on the New York Stock Exchange under the ticker LNW, has been commended by Fitch Ratings for its effective leverage reduction strategies, maintaining a “BB” credit grade with a stable outlook.
Key Developments and Financial Improvements
- Merging with SciPlay: A pivotal move in Light & Wonder’s strategy was its recent reunification with SciPlay, a leading social casino developer. This merger not only enhanced Light & Wonder’s market position but also bolstered its free cash flow (FCF) margins, surpassing those of its competitors.
- Leverage Profile: Despite the acquisition adding to the company’s leverage, Fitch Ratings acknowledges Light & Wonder’s robust FCF generation and strong liquidity, which align well with its “BB” rating. The company’s high involvement in the Gaming segment, though contributing to earnings volatility, doesn’t overshadow its financial prudence.
Debt Reduction and Financial Outlook
- Significant Debt Reduction: In 2021, Light & Wonder, previously known as Scientific Games, sold its lottery and sports betting units. These transactions, amounting to approximately $7 billion, significantly reduced the company’s debt and simplified its investment thesis.
- Focus on Growth Sectors: Post-debt reduction, Light & Wonder has been able to channel funds into faster-growing segments like iGaming, enhancing its market position.
- Future Leverage Goals: The company aims to further reduce its earnings before interest, taxes, depreciation, and amortization (EBITDA) leverage, projecting a decrease to 3.7x by the end of 2023. This aligns with its goal of reaching a leverage range between 2.5x to 3.5x.
Digital Expansion and Market Positioning
- SciPlay Acquisition Impact: The acquisition of SciPlay is a strategic step towards expanding in the high-growth digital gaming sector. This move has already shown promising results, with an increase in monthly payer users and a higher payer conversion rate, despite a decrease in monthly active users.
- Navigating a Competitive Landscape: While digital gaming is known for its competitive nature and earnings volatility, Light & Wonder’s strong FCF generation positions it well to mitigate these risks.
Conclusion: A Stable and Promising Future
Light & Wonder’s strategic financial maneuvers, particularly in reducing leverage and focusing on high-growth sectors, paint a promising picture for the company’s future.
With a stable credit outlook and a clear path toward further financial improvement, Light & Wonder is well-positioned to maintain its status as a leader in the gaming device manufacturing industry.