Light & Wonder (LNW) Q4 2009 earnings summary

Executive summary

• 2009 was pressured by the global downturn, lottery contract repricings, unfavorable FX and held-for-sale and contract impairment charges; core lottery and gaming operations showed resilience.

• Cost and capital discipline improved: the Profitability Improvement Program delivered $24M of savings versus a $15M–$20M target, while lower capital spending supported stronger free cash flow.

Financial highlights

• FY09 revenue was $927.7M, down 17% from $1,118.8M; declines reflected contract repricings, FX and the shift of China ticket production to a joint venture.

• Operating loss was $0.03M versus $21.6M operating income in 2008; net loss was $39.9M, or $0.43 per diluted share, versus a $4.5M loss, or $0.05 per share.

• Adjusted EBITDA was $314.7M versus $360.5M; net cash from operating activities rose to $220.1M from $208.5M, and free cash flow was $108.5M.

Outlook and guidance

• Management saw early signs of improving industry trends entering 2010, but expected recovery to be gradual; it anticipated no large-scale lottery contract repricings over the next two years.

• China ticket growth was expected to rely on continued RMB20 ticket demand, retailer network expansion and better inventory availability; 2010 sales targets were adjusted to align more closely with provincial demand.

• The Sportech transaction was expected to close in H1 2010, subject to financing, regulatory approvals and other customary conditions.

• Sciplay and Playtech technology agreements were positioned to pursue online and land-based convergence; timing and returns depend on regulation, execution and market adoption.