Light & Wonder Inc

NASDAQ:LNW

Earnings Call Transcript 2021-Q3

[Operator]

Good day, and welcome to the Scientific Games Third Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mr. James Bombassei. Please go ahead.

[James Bombassei, executive]

Thank you, operator. Good afternoon, everyone. During today's call, we will discuss our third quarter 2021 results and operating performance, followed by a question-and-answer period. With me today are CEO, Barry Cottle; and CFO, Connie James.

Our call today will contain certain statements that include forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements 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 release issued earlier this afternoon, the materials relating to this call posted on our website and our filings with the SEC.

We also will 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 as well as in the Investors section on our website.

On September 27 of this year, we announced that we had entered into a definitive agreement to sell our Sports Betting business to Endeavor. And on October 27, we announced that we entered into a definitive agreement to sell our Lottery business Brookfield Business Partners. We expect to complete these transactions during the second quarter of 2022, subject to the applicable regulatory approvals and customary closing conditions.

Beginning in the third quarter of 2021, we reflected these businesses as discontinued operations in our consolidated statements of operations and reflected the assets and liabilities of these businesses as held for sale in our consolidated balance sheets for all periods presented.

We are reporting our results of continuing operations in 3 business segments: Gaming, SciPlay and iGaming. iGaming is our former Digital business segment, excluding Sports Betting. Amounts and disclosures referring to combined include both our continuing and discontinued operations.

On July 15, we made a proposal to acquire the remaining 19% interest in SciPlay that Scientific Games does not currently own. We cannot comment further on the proposal at this time.

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 at scientificgames.com. Supplemental reference slides are available on our Investor Relations website to help facilitate your review of the company's results, including an earnings presentation and historical recap business segment information.

Now let me turn the call over to Barry.

[Barry Cottle, executive]

Thanks, Jim. It's great to be speaking to you today. First, I want to welcome Connie as our CFO. She has hit the ground running and is already making a meaningful impact in our organization as we have successfully executed on a number of significant strategic actions since he took the helm.

What an exciting past 4 months this has been. We are making tremendous progress on our strategic pillars and our vision to become the leading cross-platform game company. We've optimized our portfolio, moving from a holding company to a streamlined content company, singularly focused on building great games fully cross platform.

Importantly, we are achieving our objective to significantly delever our balance sheet, enabling us to be more nimble and invest to grow. To recap our major milestones in the quarter, we have entered into definitive agreements to sell our Lottery and Sports Betting businesses for $7 billion in total consideration, providing us with a net cash proceeds of $5.8 billion that we will use to radically transform our balance sheet and shift us from being a debt to an equity story following their close, which is expected in the second quarter of 2022.

The great thing is we already have all the pieces in place to execute our vision and drive sustainable growth and profitability with Gaming, iGaming and SciPlay as our core. We have a head start with strategic moves we've made over the last several years, going all the way back to our acquisition of NYX back in 2018, which drove our leadership in online gaming.

Games are a huge market. People love to play games, and we are squarely pointed at a TAM of over $50 billion for social, casual and iGaming alone. The future is cross-platform. We know that players ultimately want a seamless experience as they toggle between land-based and digital, and no company can match our ability to achieve this vision. We have an unparalleled portfolio of hit franchises, world-class talent and a premium content engine.

We are taking a deliberate cross-channel approach to developing and managing our product so that players can engage with popular play and familiar mechanics, enhanced by our leading technology and platforms. And we are moving with newfound speed and agility enabled by our healthy balance sheet.

In parallel, we've been investing to grow, both organically and inorganically, in content creation, launching a new Las Vegas iGaming studio and acquiring Lightning Box and talent, recruiting the best-in-class game developers and expanding into adjacencies, including our recent acquisition of Authentic Gaming, our first move into the highly synergistic live-dealer space, and with SciPlay's acquisition of Koukoi as we expand in casual gaming.

While others are just beginning to explore the future of cross-platform play, we are well on our way with strategic steps we've taken that have allowed us to create a truly differentiated position to serve as a foundation for a true omnichannel experience. We are laser-focused on operational excellence and unlocking value, and I'll bet on our talented team every day to win.

Now turning to the business performance and the great progress we made in the quarter. We delivered strong consolidated results at our ongoing business with revenue up 25% and AEBITDA increasing 74%. With our continued focus on productivity, we didn't miss a beat, generating $187 million of cash from operations and $130 million of free cash flow on a combined basis. And we made great progress delevering organically, paying down $635 million of debt since October of last year, including our recent $135 million repayment, posting net leverage of 6.6x, a reduction of 4 turns since the beginning of the year.

In our North American gaming ops, we grew our premium installed base for the fifth consecutive quarter, which translates to a total increase of 20% over this period. And significantly, our premium installed base now makes up 42% of our total installed base, the highest percentage mix in our history.

In North American game sales, we've grown our replacement ship share by 400 basis points to 22% since 2019. And in Australia, we've nearly doubled our ship share since 2020, getting 14% in the third quarter. At SciPlay, their focus on payers and their live op strategy has sustained strong engagement and monetization metrics compared to pre-COVID levels with the average quarterly revenue running approximately 25% higher and the average monthly revenue per paying user approximately $10 higher than in 2019.

And at iGaming, U.S. revenue grew 109% compared to the prior year, and U.S. share increased 200 basis points to 27% in the quarter. Since the third quarter of 2019, we have increased the number of U.S. states where we are active from 1 to now 5 with our recent launch in West Virginia, and we have grown the amount of wagers processed through our iGaming platform from $9 billion to nearly $17 billion.

Now digging into the business segments in more detail. Gaming is making great strides, and while we know there's more growth to come, we continue to build on our strong foundation with another very successful quarter of execution as our strong game performance enabled us to grow share across the business. The North American premium ops market, the North American for-sale market and the Australian for-sale market, while maintaining our leading position in systems and tables.

In the quarter, Gaming delivered strong year-over-year growth in both the top and bottom line as well as sequential growth, excluding the U.K. FOBT recovery in Q2. Importantly, our success was fueled by the continued momentum in our product performance as we benefited from the rapidly growing footprint of Kascada cabinets, with over 5,000 units now on casino floors.

Our continued strong game performance from titles like Coin Combo and Dancing Drums Explosion as well as the overall strength in the U.S. market and ramp-up of key international markets. Our North American premium installed base grew for the fifth consecutive quarter, exceeding 2019 levels. And importantly, it's at its highest level ever as a percentage mix in the installed base. This is key as we look to drive continued growth and profitability in this important segment of the market. On top of this, North American sales showed a continued momentum with improving capital cycles in the U.S. market, and with our new products like Kascada enabling us to sell over 3,200 units and grow our ship share.

G2E was a resounding success, and we received extremely positive customer feedback on our games and products as well as our cross-platform approach. We've also made great gains in the Australian market this quarter with our product performance fueling our success. In Q3, we grew our ship share over 300 basis points to 14%, as we launched the new Kascada portrait cabinet and saw our game performance build with the continued success of Kraken Unleashed, and new games like Fat Fortunes and Coin Combo topping the ranks. In fact, we occupied the top 3 spots for game performance in the Queensland market for the first time ever.

Now turning to our systems business. We have a leading position with approximately 50% share of the North American market, and our cashless offering is currently live with 8 sites and nearly 14,000 EGMs, and our pipeline is building. Our systems offering is a key competitive differentiator, and we see it playing an important role in our long-term strategy as the land-based and digital businesses continue to converge. In this quarter, it was great to see momentum build in our table business, where we have a 25-year leadership position in card shufflers and other table utility products.

We saw active units built to end Q3 at 87%, which compares to less than 50% active at the beginning of the year. We have the most competitive portfolio of table game content and brands, including Ultimate Texas Hold'em, 3 Card Poker, Mississippi Stud and Let It Ride, while our bulk offering, a subscription-based bundled service, is seeing strong demand with over 400 customers already signed on. And our core ETG doubled its footprint in just the third quarter alone. With the debut of innovative table products at G2E, we are finding new ways to engage players as we continue to pioneer in this important segment.

Looking ahead, we feel great about our ability to continue to grow share in our North American Game Ops and for-sale businesses as well as our Australian business with the success of our new games and cabinets as well as a strong pipeline of product launches planned for 2022 and 2023. It is becoming clear each quarter that the substantial benefits of our gaming turnaround strategy positions us for success, improving our earnings potential and the ability to drive shareholder value.

Turning to SciPlay. We had a number of operational achievements in the quarter, continuing the momentum across key areas of the business. Since implementing Project All Star and Gold Fish, the game posted its fourth consecutive quarterly record and has huge momentum going into Q4. While Quick Hit, have hit the ground running with the launch of its new version and is up 30% since its relaunch in June of this year. In fact, with project All Star now executed across our top 3 games, we've seen those games grow revenue 45% on average compared to their performance prior to implementing. Momentum continued in payer metrics with ARPDAU $0.69, and a payer conversion of 8.5%, sustaining a quarterly record.

Importantly, monthly paying users and average monthly revenue per user remained well above pre-COVID levels. And while the quarter was slightly down, this was related to the performance of Jackpot Party caused by a temporary release in the game that was identified and corrected quickly. The good news is Jackpot Party has grown since August. And with Jackpot Party rebounding, we expect SciPlay to return to both year-over-year and sequential growth in the fourth quarter.

SciPlay is accelerating its evolution as it looks to expand its game pipeline and diversify its revenues, moving aggressively in the larger and faster-growing casual market. Solitaire Pets Adventure launched worldwide this month and Project X, enabled by the talented team of developers we welcomed with the acquisition of Koukoi Games, is running ahead of schedule.

Switching to our iGaming business. We are a leader in this space with a truly differentiated position, enabling us to grow our share today and in the future. Demand for the premium iGaming content is growing with an estimated $20 billion global TAM, and we sit right in the middle of it. We have the largest collection of must-have content with approximately 3,500 titles and the leading iGaming aggregation platform in OGS as well as the leading PAM.

The integration of our iGaming platform with the market leaders makes us a must-have for both content studios and operators. Our momentum continued this quarter as we achieved significant growth in our U.S. share, posted records for many of our original content launches, secured a number of new go-lives with leading operators and made a key acquisition with Authentic to compete in the nascent but fast-growing live-dealer space in the U.S.

As a testament to this, in the third quarter in the U.S., we continue to lead the market and take share, growing our U.S. revenue of 109%, while growing our share 200 basis points to 27%. International growth in Q3 was impacted by expected seasonality, but we anticipate a rebound in Q4 given normal seasonal GGR trends and with new territory launches.

Players love to play land-based franchises they know and love anywhere and anytime they want. And we have an unparalleled offering. This was underscored with our launch of Coin Combo Marvelous Mouse in August, which achieved record performance, fueling growth in our U.S. share and follows the successful land-based launch earlier this year.

On back of this, we recently launched our #1 land-based game, Dancing Drums Explosion, to strong performance. In fact, our original games generated approximately 40% of our GGR in the U.S. in the third quarter. Content is a key differentiator, and we made major strides expanding our original content capability as well as providing a foothold in one of the key growth verticals in iGaming.

We now have 6 iGaming studios, up from 4 at the beginning of the year, as we continue to ramp our original content capability and provide players with an even more immersive and engaging experiences. Importantly, we made a strategic move to enter the material and fast-growing live-dealer space, recently acquiring Authentic, which provides us with the team, the technology and an immediate ramp to market, combined with our proprietary land-based table brands and content to scale a live casino offering in the U.S.

We expect live-dealer to garner 30% of the anticipated $15 billion US iGaming TAM similar to its share internationally. As we sit here today, we couldn't be more excited about the long-term growth opportunity for our iGaming business with continued legalization, with our expanding original content capabilities and strong road map of upcoming land-based title launches and with our launch of live-dealer in the U.S. late next year.

So before I turn it over to Connie, I'd like to reinforce how great we feel about the progress we're making and the pace at which we're executing on our vision. Thanks to our strategic moves, both this year and over the last several years, with all the pieces in place today, giving us a tremendous advantage as we lean into our cross-platform strategy with speed.

Importantly, we're seeing a new energy and excitement in our organization as employees embrace our new vision and seek greater opportunities for growth ahead. I'm so proud of what the team has accomplished over the past quarter, and I'm truly excited about the future and our ability to deliver sustainable, profitable growth as we lead this industry.

Now Connie will speak to the financial results.

[Connie James, executive]

Thanks, Barry. It's great to be with you today, and I've had the opportunity to meet some of you. And for those who haven't, I look forward to connecting soon. First, I want to start by thanking our fantastic team for their commitment, hard work and passion over the last several months. We have world-class teams and they have accomplished a tremendous amount on the strategic front, all while continuing to successfully execute on the day-to-day.

We have an exciting path ahead about the Scientific Games as we look to unlock significant value. We are seeing our company come together and coalesce around the strength in culture that realizes the value we can create with our new vision and focus. We are moving quickly, announcing the sale of our Sports Betting and Lottery businesses, while layering in organic investments as well as the acquisitions like Authentic, Lightning Box and Koukoi.

You are quickly getting to see the shape as well as the pace and agility of our new organization. The divestitures put us on a clearly defined path to materially delever and provide us with the ability to invest for growth, both organically and inorganically.

Now let's turn to the quarterly performance. As Jim spoke about in the opening remarks, with the announced sale of Sports Betting and Lottery, we have classified these businesses as discontinued operations. In the quarter, we made great progress strategically, operationally and financially, and I want to highlight a number of key takeaways from our new business' consolidated results. We had strong momentum with consolidated company revenue up 25%, and we generated income from continuing operations of $100 million. For the quarter, AEBITDA was up 74% year-over-year, driven by Gaming and iGaming.

In terms of the balance sheet, we continue to make tremendous progress deleveraging organically, paying off the revolver with a $135 million payment in October and reducing net leverage to 6.6x. Our teams continue to focus on productivity, generating $187 million in operating cash flow and $130 million of free cash flow on a combined basis in the quarter.

Shifting to the business unit results. In Gaming, we continue to make great progress with strong year-over-year and sequential growth in the quarter. Revenue increased 47% year-over-year, and AEBITDA was up 123% to $172 million. The business also delivered sequential growth with revenue increasing 3% and AEBITDA up 10%, excluding the U.K. FOBT recovery last quarter. From a bottom line standpoint, the team continued their focus on driving productivity and efficiency, enabling them to deliver AEBITDA margins of 51% in the quarter and 50% year-to-date.

Importantly, there were several key underlying trends that drove growth in the quarter and give us confidence in the quality and the durability of Gaming's earnings potential. In North America gaming operations, growth was driven by improved product performance of games like Coin Combo, Dancing Drums Explosion and Ultimate Fire Link Power 4, driving the premium installed base to an all-time high of 42% of the overall mix.

We also continue to benefit from elevated GGR levels in an installed base that is now 90% active globally. In Gaming sales, we saw strong demand for our Kascada cabinet, driven by the increased depth and breadth of our game portfolio with games like Cash Falls and Dancing Drums Prosperity.

In both our Tables and Systems business, where we are a clear leader, we saw a ramp in the business. The North America tables business grew 64% year-over-year and is now 87% active, while the Systems business grew 21% versus last year. As we look at the Gaming business longer term, we see continued momentum in share growth in our key profit pools, enabling us to drive meaningful revenue and profitability and significant cash flow.

Focusing on SciPlay. The business continued to deliver a number of strong key payer metrics in the quarter, including maintaining record payer conversion of 8.5%. And while revenue was slightly down in the quarter, driven by Jackpot Party, the business returned to growth in October. We continue making great progress expanding into casual as SciPlay diversifies its business into the $20 billion-plus casual segment.

Now turning to iGaming. The business momentum continues with U.S. revenues increasing 109% year-over-year, the sixth consecutive quarter that the U.S. revenue growth more than doubled. Overall, the business grew revenue 6% and AEBITDA 13% versus Q3 of last year. As a reminder, last year, we had certain items in the number that impacted the underlying performance of the business from a comparison standpoint. If you exclude these impacts, our iGaming businesses revenue grew 13% year-over-year.

As Barry noted, international revenue and AEBITDA growth was impacted by seasonal trends, but we expect international to rebound in Q4. Longer term, given the industry tailwinds and our differentiated position and product offering as well as our plans to launch live-dealer in the U.S. next year, we anticipate sustainable double-digit growth in the business for years to come.

Let's now turn to our debt, net leverage and cash flow, a major focus area and where we continue to make meaningful progress. We made great drive strengthening and derisking the balance sheet, ending the third quarter with total debt of $8.8 billion, net debt of $8.1 billion and net leverage of 6.6x, which compares to net leverage at the beginning of the year of 10.5x. Our weighted average cost of debt was 5.1%, and we ended the quarter with $1.5 billion of available liquidity compared to $1.2 billion in the third quarter of last year. As a reminder, we don't have any maturities that come due until 2024.

Moving to cash flow, which continues to be a great story. We generated $187 million of combined operating cash flow in the quarter and nearly $0.5 billion year-to-date. These results drove the $130 million of combined company free cash flow in the quarter and $343 million year-to-date. This translates to a year-to-date free cash flow conversion rate of 35%. This is a continued testament how the organization is intently focused on driving value for shareholders.

In fact, we've been laser-focused on optimizing working capital, having reduced DSO significantly, largely in Gaming, enabling us to free up approximately $120 million in working capital over the past year. I'm excited to share with you our new business' financial profile. We expect the new organization will be a highly cash-generative business with double-digit organic top line growth and a high mix of digital and recurring revenue.

We are focused on large growing markets with strong tailwinds. Growth will be fueled by the recovering Gaming market and delivering best-in-class product, building continued share gains, strong growth in social casino and casual market as well as the proliferation of iGaming in North America.

In an increasingly converging world, as we launch games fully cross platform, we will benefit as we accelerate revenue growth and optimize our R&D. We will continue to be laser-focused on operational excellence and driving productivity to the bottom line.

Accordingly, we will see margin enhancement with AEBITDA growing faster than revenue and free cash flow growing faster than AEBITDA. We expect Gaming AEBITDA to exceed 2019 levels over the next couple of years as the market recovers, driven by continued share gains and our more streamlined organization.

With the $5.8 billion of net after-tax cash proceeds from the Lottery and Sports Betting transactions that we anticipate in Q2 of next year, we will quickly and substantially reduce our debt, lowering our cost of capital, which will translate into significantly reduced interest expense over time.

With the utilization of our $1.2 billion of NOLs with the divestitures and as we drive profit, we will become a full taxpayer. In terms of our capital structure and given the certainty of the proceeds and timing of our divestitures, we are focused on executing our plans to reconstitute our capital structure, including using a majority of our proceeds to pay down our debt portfolio.

Importantly, we have the financial flexibility and capacity to invest opportunistically, all within the context of a transformed balance sheet. We are focused on driving a balanced investment strategy that builds on the operational momentum of our businesses, while layering in targeted investments that we can scale for profitable growth.

We will prioritize internal organic growth opportunities as we focus on building great games, investing in our platform and targeting high-return capital investments. In terms of M&A, we will have a disciplined approach, continuing to assure that the potential targets fit within our strategy, enhance our competitive advantage, achieve our return hurdles and are accretive to value.

Wrapping up, I am proud of what our company and our team has accomplished this year and how we have delivered on our promises. With our singular focus and differentiated approach, we have a unique opportunity to engage players globally and deliver significant value to our employees, our customers and our shareholders.

We will move with speed and agility and always with an eye on operational excellence and driving productivity to the bottom line. It's great to see how much we have accomplished in such a short amount of time, and we're just getting started. I can't wait for a journey ahead.

I'd now like to open the line for questions. Operator?

[Operator]

[Operator Instructions] And the first question will come from Barry Jonas with Truist Securities.

[Barry Jonas, analyst]

I wanted to start with the Lottery sale. Do you feel that you guys have maximized proceeds there? And what were sort of the pros and cons with going down this path versus an IPO?

[Barry Cottle, executive]

Barry, thanks for the question. Before Connie jumps in, I just -- I'd like to say that this transaction was a great outcome of a great process and, I think, gives some context as to where this transaction takes us. Because on the heels of this deal, this has completely transformed us from a holding company to a unified company, streamlining our organization and singularly focused on a vision to become the leading cross-platform global game company.

And now with over $7 billion of proceeds, we can radically transform our balance sheet and at the same time, invest for growth. And the great news is we have all the major pieces in place, and we're moving with speed and urgency to continue to unlock significant value for our shareholders. And with that, I'll turn it over to Connie.

[Connie James, executive]

Great. Thanks, Barry. And Barry, great to be with you today. We explored multiple monetization path with the intention of creating competitive tension in the process, ultimately, to drive a great outcome, and that's exactly what we did. As we went through the decision criteria, there were really 3 areas that we honed in on. The first was a premium valuation, but importantly, also with consideration of timing and the certainty of proceeds.

The second for us was all about minimizing complexity and risk. What we learned one thing over the last few years is that the macro environment sometimes can be a bit difficult to predict. And the third was all about speed. We want to get and start to move very quickly on executing our vision in order to delever the balance sheet and provide that flexibility that Barry just spoke to. The sale to Brookfield really ticked all 3 of those boxes, and we're incredibly pleased.

It's really powerful when you look forward into Q2 next year. We're going to, for the first time, have the flexibility in order to delever and radically move forward with the balance sheet as an asset. So overall, we're really excited with the path ahead.

[Barry Jonas, analyst]

Great. And just a follow-up question. You guys have done a few small deals recently. And I was hoping to get a little more color on sort of your thoughts on synergies from these acquisitions. I guess, specifically, I'm interested in the Authentic Gaming deal? And how big of an opportunity you think live-dealer can become for Sci Games.

[Barry Cottle, executive]

Absolutely. I'll grab that one. Look, this is a great deal for us. It completes our digital portfolio. And it's a perfect fit for the organization that's highly synergistic and gives us a very competitive product in a very nascent but fast-growing part of the U.S. iGaming market we estimate or project to be up to 30% of the iGaming space. So it's a very important market.

And the perfect thing about this acquisition is what we get is a seasoned team, a competitive product. We get a robust technology that we know scale, with proven production capabilities. And then we get to marry that with the value we get to bring to it, which is our iGaming distribution through OGS, the proprietary table IP that we have, the great brands like Let It Ride, 3 Card Poker, and all that the kind of side bet technologies and IP that we've created. And then plus the deep casino operator relationships.

And so it's actually -- in a lot of ways, it's a real perfect marriage that creates a very compelling product offering for this market. And for us, kind of no matter how you look at it, it's also a very capital-efficient way for us to enter this market. And ultimately, the acquisition uniquely positions us as the only provider that has the combination of the land-based and iGamer operator relationships, the scale of innovative table content and now with Authentic, the live-dealer capabilities to capture these opportunities in the iCasino market going forward. So we're really excited about it.

[Operator]

The next question will come from John DeCree with CBRE.

[John DeCree, analyst]

Maybe, Barry, if I could jump on to the back of the last question and talk a little bit more about M&A. You've been a little active with tuck-in and haven't even closed on your transformative divestitures yet.

So wondering if the opportunities for you going forward once you get those big transactions over the finish line change? If you have your sights on being more active or looking at larger targets? I know Connie in her prepared remarks talked about being disciplined. But given where the balance sheet is going, it seems like you can be disciplined and also set the target quite a bit higher. So curious if there's some doors ahead that you're looking to go through once that balance sheet is shored up and you've got proceeds from those 2 transactions.

[Barry Cottle, executive]

Look, in fact, I think the great thing actually is we have every major piece in place that we need to win today based on the investments we've made over the last several years. You look at NYX and Authentic and the like, it really basically puts all the major pieces there for us. So going forward, we're going to take a balanced approach that builds on the operational momentum of our business today with organic as a priority.

All that said, we absolutely are going to -- we'll continue to scan the market for talent, games and adjacencies that will accelerate our vision. And the good news is, and I know we've spoken about this before, but we have -- we actually have a big advantage when it comes to approaching M&A in the sense that with our OGS, it enables us to scan the market to see attractive targets and trends and really help us look and dissect the market. And second, it enables us to provide instant distribution to any studio or game that we potentially acquire.

So our goal is look to approach M&A smartly. With that financial rigor that you mentioned Connie said, absolutely, so that we achieve the return hurdle accretive to long-term shareholder value as we've done in the past. And I think, look, in recent history, we have a strong track record for success in M&A execution and driving returns you've seen with NYX, Don Best, SportCast. So look, I'm confident that we can continue to be disciplined and balanced in our approach going forward.

[John DeCree, analyst]

That helps. And if I could ask a follow-up on the iGaming business a little bit. I mean, a lot of focus on the U.S. rightfully so, given the market and how fast it's growing. But I'm wondering if there's opportunities internationally in iGaming as you continue to do that tuck-in M&A and ramp up your focus on providing more and top-quality content. If you could maybe characterize kind of where you see the international opportunities or if that will be a growth engine as well? Or if we really should just be focused on the U.S. right now?

[Barry Cottle, executive]

No, great question. First of all, obviously, the U.S. market is a huge greenfield market for us where we've established a leadership position that we continue to grow. We had a great quarter, again, with 109% year-over-year growth, and we've captured 2 basis points to 27%. But Europe is a big part of our business. And I think there is an opportunity for us to continue to look at regional and geographic opportunities from a content perspective.

And I think we can do that in 2 ways. One is, as we've talked about before in our cross-platform approach, leveraging our land-based IP into certain markets. If you remember, on the land-based side in the U.K., as example, we have close to 50% market share. And in that market share, you've got a content engine that's sitting there in the U.K. building franchises that we can take to market as well as more -- serving the regional flavors in those international markets through content as well and regional studios.

And as we have mentioned, we've grown our studio base from 4 to 6 in the digital space. And I think from an organic perspective, we have a real opportunity to grow, both internationally and in the United States.

[John DeCree, analyst]

Fantastic. And congratulations to you on the company again on all the massive strides you've made over the last couple of years kind of coming to a culmination here. Congratulations.

[Barry Cottle, executive]

Thank you.

[Operator]

The next question will come from Ryan Sigdahl with Craig-Hallum Capital Group.

[Ryan Sigdahl, analyst]

I want to dive a little deeper on Authentic as well. I guess the launch into the U.S. late next year, why wait a full year to bring that technology here?

And then secondly, how much opportunity do you think there is to expand the product offering. It appears like Roulette is a big part of their business today?

[Barry Cottle, executive]

Yes, absolutely. Great. Ryan, good to talk to you. Thank you. Great question. I'll take the product first. Out in the marketplace today, we have Roulette. We have Blackjack. We'll be launching Baccarat before the end of the year. And so we'll have a really nice portfolio of product that's relevant to both the U.S. and international markets on top of that. The road map will include our own SG-branded IP that I mentioned before. And from a product perspective, so we have ready-made product that covers the large categories to take to market with the technology product and everything that's at scale to do.

The way it works in the live-dealer space, as you might know, there's the digital technology platform piece and then there's also the live ramp-up piece of this that occurs in both casino individual tables as well as tables that can be broadcast across the casino environment. And that's the piece that you have to ramp up.

And so as we close the deal and are bringing the product to market, it's going to take a few months to a couple of quarters to get that piece ramped up in the U.S., which we will absolutely do. And then we'll obviously just would scale our investment according to the demand and revenue in the marketplace.

So again, it's really, honestly, it comes back to that perfect fit for us because they kind of build the piece that we didn't have, and we massively fill the piece that they didn't have. So it's wildly synergistic in that regard, and that's -- so we're really excited because we'll be able to get a product to market next year.

[Ryan Sigdahl, analyst]

Makes a lot of sense. One more for me. iGaming. You mentioned a lot of market share gains, north of 100% growth in the U.S., et cetera, et cetera. Although, overall, revenue was only modestly up. You mentioned seasonal trends. I guess, what was different seasonally this year versus last year?

[Barry Cottle, executive]

Yes, absolutely. I mean I think -- so first of all, we were up in the U.S. year-over-year and quarter-on-quarter. Europe is really -- which is, again, still the bulk of our business is -- has the seasonal impact that you saw in Q3. But you'll see obviously that we'll -- you'll see growth going forward as we exit that seasonal period going into Q4.

[Ryan Sigdahl, analyst]

A follow-up. What's different seasonally? I think of seasonality as the same year after year after year, so I still don't understand. Maybe we can follow up offline, too, if that's easier.

[Barry Cottle, executive]

No, no, no. Look, I would say this was more normalized. Here, you would normally see the seasonality. Last year, I would say, would be an abnormal year where you would probably -- you had the COVID bit of the business that made it less normalized. But in a normalized year in our iGaming market you typically see a seasonal impact in Q3.

[Connie James, executive]

Yes. And I just feel that there were some one-off items that were included in prior years that we normalized for this year. But overall, COVID, tailwinds that were included last year, which are now normalized into the seasonality, but great business and continues to drive growth for us.

[Operator]

The next question will come from David Katz with Jefferies.

[David Katz, analyst]

I wanted to -- just one, focus on the gaming machine business, which arguably is a bit less dynamic. But given the people you brought in and given what appears to be opportunities within that. Should we think about that as a business that take share, growing top line or driving efficiencies or better profitability on the bottom line? Or how would we apportion both if the answer is all of the above?

[Barry Cottle, executive]

Okay. Great. Yes, let me -- I guess I'll start. I think it's a great question, David. I would, I guess, look at it a couple of ways. First of all, I think, in that market, you have really strong macro environment happening right now in the sense that you've got the recovery of COVID that is taking place on a global scale, which has a great flywheel right now and we believe will continue for a while.

And then with -- and then we sit in a very strong position within that as we've -- we're seeing incredible momentum in Gaming. And again, that cuts across our premium game ops, to game sales, to Australia. As we reported, we've continued quarter-on-quarter year-over-year gains with and capturing market share in each of those categories. So continued top line growth as we build great products and take share in a segment that has a high growth recovery cycle, which is really, really strong.

And I think, ultimately, it's also we're becoming more efficient because the new team, as you described, is not only making the major impact on the top line by focusing on the major profit pools and building great games and products with the talent and product road mapping and market segmentation that they've done. But they've also streamlined the business from a standpoint of the cabinet -- streamlining the cabinets and supporting those cabinets with really strong products that capture the addressable universe to keep them out on the floor. And so you're also seeing efficiency to it as well.

[Connie James, executive]

Yes. And I'll just build on that a little bit. We're seeing absolutely great momentum, as Barry just described. The team has a very detailed strategic plan, very nice for him to break down, by -- segment by segment. And so we're very confident in our ability to drive share gains over time.

Additionally, I think the quality of our product continues to improve, which will just accelerate that growth. Last year, we took out a significant portion, $50 million, in order to streamline the operation. And I'd say that we continue to look for ways to drive further efficiency. So to answer your question, we're going to see top line growth. We're going to see bottom line growth, and continue to make significant momentum.

[David Katz, analyst]

Understood. And as my follow-up, Connie, I just wanted to walk through -- because you gave quite a lot of information in your prepared remarks, I just wanted to walk through quickly some math and make sure that we have it right.

We're winding up with the neighborhood of $3 billion of debt. We're taking the gaming machine business and growing it at some appropriate rate. I seem to remember earlier on in one of the earlier releases, there was talk about growing the digital businesses to be equal in size to the gaming machine business, right, which is more like a double from where it is plus. And then it's a function of what kind of multiples we want to put on all that. Is that a fair way for me to take away from what you said?

[Connie James, executive]

Yes. I think that, in general, that's pretty aligned. We've spent a lot of time recently really stepping back as part of the strategic review to think about the shape of the organization and how we see that go forward. And so just to recap a bit more at a macro level, we expect to drive double-digit organic top line growth.

To your point, we're going to lean into digital and make that a larger part of our organization go forward, which naturally creates strong recurring revenues and cash flow. Overall, I'd say that we're going to continue to drive operational efficiency, which will also improve both that AEBITDA and that cash flow line.

And as Barry mentioned before, the great news is that if you look at our mix of digital versus land-based, we're sitting in that kind of, call it, high 30s, tickling 40%. And so we've already got a lot of momentum to get us to where we need, and with a really robust portfolio we have today, we've really got all the pieces to drive that even further in the future.

[Operator]

[Operator Instructions] Our next question will come from Jeff Stantial with Stifel.

[Jeffrey Stantial, analyst]

Congrats on a nice set of results here. I wanted to start on operator purchasing behavior in North America based on the U.S.-listed names of the reported earnings. It looks like the replacement market did tick up a bit here quarter-on-quarter. From that perspective, Barry, could you just frame how discussions with operators have trended over the past, call it, 6 months? Do you feel like appetite for deploying some capital to the slot floor is picking up? And if so, how does this play into your views on the cadence of a full-scale recovery in the replacement market?

[Barry Cottle, executive]

Sure, absolutely. I'll -- I guess I would start by saying is I don't know if you guys -- how many people went to G2E, but I think G2E was an amazing event. And quite frankly, one of the proudest moments I've had as the CEO here with the feedback buzz and energy that it showed. And there, we got a tremendous amount of positive feedback from our customers in terms of the products that we've put into the marketplace. And the sentiment that we got there with the recovery that's in place was the combination of our products and our approach to the market, et cetera, we gave -- gives us the confidence as we're looking forward and looking over the next 6 months and into 2022. And Connie, do you want to jump in as well?

[Connie James, executive]

Yes. I'd just echo that we are starting to see more optimistic tones from our operators and -- which is great. We have spent a lot of time behind the scenes building out a world-class portfolio. So we're excited to see the market recover because we're going to seize the moment to really drive share gains off the back of it.

[Jeffrey Stantial, analyst]

Okay. Great. Very helpful. And then for my follow-up, I was hoping to talk to the casual gaming side of SciPlay for a bit. Obviously, considerable TAM to attack here, but I was hoping you could talk a bit more on how you see that opportunity fitting in strategically to your remainco gaming content-led growth strategy.

[Barry Cottle, executive]

Absolutely. As you said, the great thing about the games -- the casual game space, huge TAM, $20 billion. There's really no dominant player or a game that you have to deceit to go after that. And there's strong synergy with the social casino because, quite frankly, they're very similar. They're very similar in terms of the core game mechanics that drives success in that marketplace. You have a simple core loop, whether that core loop is a slot, a puzzle or a card game, and then you surround it and drive player engagement and monetization through a meta game, a social loop, a progression loop, a live events loop, a monetization loop. So there's all the expertise and engines built in the side play organization that have been really refined over the last few years can then be applied to that casual space.

There's also a tremendous amount of player overlap as well. And so the -- so there's a tremendous synergy between side play and the casual space. And then ultimately, as we build successful casual games and draw audiences, we have the possible funnel back into the business as well as building great franchises that, again, could be pulled backwards throughout the organization. And so we see tremendous upside in that business and a real opportunity over the next several years.

[Operator]

The next question will come from Chad Beynon with Macquarie.

[Chad Beynon, analyst]

Wanted to start on your Australian market share momentum that you talked about here with the Kraken series. I know that's been a market that's been tough to break into or at least get to kind of a ceiling market share level. Do you believe this is sustainable? Is this just the beginning of kind of a multiyear market share gain opportunity? And how should we think about, yes, kind of what's in front here, just given what you're able to talk about earlier.

[Connie James, executive]

Chad, Connie here. And I love this question. We've been spending a lot of time, as Barry mentioned, really thinking about what are the process pools and how we win in each of those. And we believe that the Australian market is a really exciting area for us to drive further share gains as you're starting to see.

It was interesting, probably about 12 months ago, we held our first best games workshop in Australia, putting all the brightest minds within R&D to really figure out how do we hone in and start to drive momentum in that market. And really what you're seeing today are the fruits of those labors. So with a portfolio like Kraken, also Fat Fortunes coming out and Coin Combo, we're just really well positioned to continue to grow. So I think it's the beginning of an amazing journey ahead for us as we make momentum in that market.

[Chad Beynon, analyst]

And then separately, given your current systems market share position, in addition to your unique omnichannel PAM and iGaming platforms that you talked about and you obviously didn't divest. Can you talk about how one may drive the other or -- and kind of how these could work together in the converging world -- the converging omnichannel world?

[Barry Cottle, executive]

Yes, absolutely. Great question. So if you think about it, the systems CMS and the player account management are very similar in their functionality in terms of managing authentication, player wallet, et cetera. One does it on the land-based side. The other 1 does it on the digital side.

But in the increasing demand that we're seeing in convergence, it's important, and we're hearing from our operators that it's important that they want a 360 view of their player and the ability to manage that player regardless of whether they're playing in the casino or outside of the casino, tying loyalty points across the board, being able to communicate.

And I think given the fact that we have world-leading PAM, and we have the systems business that you said, puts us in a unique opportunity to bring the 2 together to provide a land-based digital CMS/PAM solution that will provide that capability to operators as the world starts to converge.

[James Bombassei, executive]

Operator, we have time for 1 more question.

[Operator]

Yes, sir. The next question will come from Zach Silverberg with Berenberg.

[Zachary Silverberg, analyst]

So in your presentation, you discussed enhanced margin and cash conversion moving forward. So can you discuss the margin and free cash flow expansion opportunities that you're seeing on the cost side?

[Connie James, executive]

Sure. I'd love to take that question. As we lean forward and look at the organization, where it's all predicated upon as continuing to deliver strong organic double-digit growth. And as we continue to lean into these areas such as digital and content, we know that those will have high yields, which will ultimately allow us to drive AEBITDA at a rate faster than revenue and then also cash flow at a rate faster than AEBITDA.

And so working your way down into -- also when you think about our transformed balance sheet, all of a sudden, we're going to have lower interest costs, which will also help drive productivity to the bottom line. So all in all, that's kind of the shape as you look forward. It's an aggressive great deal for us.

[James Bombassei, executive]

Great. Thank you, Orlan. Now I'm going to turn it over to Barry for some closing remarks.

[Barry Cottle, executive]

Thanks, Jim. Thanks, everyone, for joining us for today's call. We are very excited about how we have accomplished what we have accomplished this past year, and how we are transforming our company for the future. We have all the pieces in place today to execute on our vision and drive sustainable growth and profitability.

We are singularly focused by building great games fully cross platform. While the others are just beginning, with the strategic actions we have taken, we are well on our way. We have a truly differentiated position with the talent, the franchises and the platforms to build a true omnichannel experience. And with that, I want to thank you for your support.

Thank you, everyone, for joining us. Now I'll turn it back over to the operator.

[Operator]

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.