PLAYSTUDIOS Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 2, 2023

There are 6 speakers on the call.

Operator

Greetings, and welcome to the PLAY Studios Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Sameer Jain, Head of Treasury and Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Thank you, operator. Good afternoon, and thank you for joining us for PLAY Studio's Q3 2023 earnings call. Joining me on the call today are our Chairman and CEO, Andrew Paschal and our CFO, Scott Peterson. Before we begin, Let me remind you that during the course of this call, we will make forward looking statements. These statements are based on our current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker 1

Please refer to our SEC filings for a discussion of the risks and uncertainties that may affect our future results. We will also discuss certain non GAAP financial measures during this call. These measures should not be considered as a substitute for financial results prepared in accordance with GAAP. Our results are prepared in accordance with GAAP and a reconciliation Comparable GAAP measures will be provided in our Q3 earnings release and in our SEC filings. With that, I'll pass the call to Andrew.

Speaker 1

Thank you, Samir, and welcome everyone to our Q3 2023 earnings call. Earlier today, we published Press release containing our financial results, along with commentary for the recently completed Q3. As always, our release contains considerable financial disclosures as well as our thoughts on topics we believe are pertinent to our company.

Speaker 2

I hope

Speaker 1

you had a chance to read the release, and if not, I'd encourage you to do so. Rather than rehash what's contained there, Scott and I will spend a few minutes highlighting some key developments and save the majority of today's time for your questions. Adjusted EBITDA and more importantly, EBITDA margins increased meaningfully versus year ago results. A number of initiatives to this, including our focus on operating efficiency and a more diversified business model that now sees nearly 25% of our revenues coming from higher margin advertising sales. We believe there's still more opportunities to improve our cost structure and optimize productivity, which will further improve margin gains going forward.

Speaker 1

As we've discussed before, our margins are a bit leaner due to our ongoing investments in new products, our Play Awards platform and other growth initiatives. However, it's our view that we can achieve margin parity with our peers as these efforts mature and contribute to our revenues. Our Play Games group continues to benefit from momentum in our growth portfolio with DAU and Arkdau increasing throughout the year. Player interest in Tetris remains high with many of the key performance metrics improving steadily. In addition to scaling our existing Tetris Prime product, we continue to advance the development of our new casual titles.

Speaker 1

With that said, I'm thrilled to share that we recently executed a new agreement with the Tetris Company, Extending our exclusive rights to this important intellectual property through at least August of 2029. With this renewed commitment, we can now confidently Lifted our advertising revenues and contributed to our inter network cross promotion, reaffirming our initial acquisition thesis. We plan to incorporate these tangents along with our My VIP program into the full collection of brand new products throughout the remainder of this year and there will be part of 2024. In doing so, we expect the portfolio as a whole will generate higher revenues in the coming year. We also remain committed to creating and publishing new games.

Speaker 1

As a result, we'll further diversify our portfolio, expand our player network and position the company for continued growth. Of course, crafting new games is more art than science and as such, the timing and ultimate success of each is hard to predict. Having said that, I'm happy to share that we're making solid progress with our new game initiatives and anticipate launching at least one new title within the next 6 to 12 months. The trends in our core portfolio remain consistent with the broader social casino industry. While we remain hopeful that the conditions will improve for the genre as a whole, We're undertaking numerous initiatives to drive organic growth, lift revenue and continue to expand margins.

Speaker 1

At the top of the list are the games we transitioned to new operating teams as part of our restructuring back in March. As a reminder, the teams overseeing these games now include key product leaders from Pop Slots, Our top performing social casino title. Given our experience, we continue to believe that both Myconomy and MyVegas can achieve meaningful improvements in payer conversion And spend per payer. Other initiatives focused on improving the performance of our core titles include enhancing our direct sales capabilities, New advertising products and improved capabilities with incentivized cross promotions. Now turning to Play Awards, We continue to advance the technologies, program features and benefits of our My VIP program and underlying platform.

Speaker 1

We're also making strides in our to launch our loyalty as a service solution to external partners and continue to believe loyalty will be integral to the mobile gaming industry's future. We remain enthusiastic about the as yet untapped potential of this unique strategic asset and look forward to more fully realizing its value. Before I hand the call over to Scott to discuss our financials, I wanted to reaffirm our interest and focus on M and A. We continue to actively games along with acquired game assets and I expect it to continue into the foreseeable future. We've been thoughtful stewards of our capital, opportunistically accumulating our own stock, while maintaining substantial cash reserves to enable strategic acquisitions.

Speaker 1

While the public markets will always be unpredictable, We'll remain focused on optimizing the returns for our shareholders. I'll now turn the call over to Scott to provide some additional comments. Scott?

Speaker 3

Thanks, Andrew. Good afternoon, everyone. In addition to today's press release, our Form 10 Q will be filed shortly. Please look to those filings for a comprehensive summary of our quarterly results. As Andrew mentioned, we were able to generate strong adjusted EBITDA performance again this quarter.

Speaker 3

As a reminder, Raynium was acquired in October of 2022 and wasn't part of our company in the Q3 last year. Both DAU and MAU in the quarter were heavily skewed by the inclusion of Raynium. 4th quarter results will be more comparable and a full annualization will happen in the Q1 of 2024. Excluding Raynium, organic growth in DAU and MAU was up Double digit percentages versus a year ago. This growth was driven by our casual portfolio that more than offset the declines in our core social casino users, which we believe are in line with the industry.

Speaker 3

These declines translated to lower paying users and lower DPU this quarter. Excluding the impact of our advertising driven games, Tetris and Raynium, ArpDAU was up mid single digits. The growth in ArpDAI was broad based across our social casino portfolio. We ended the quarter with approximately $130,000,000 in No borrowings and full availability of our $81,000,000 revolver. We did not repurchase any shares during the quarter and continue to have $30,000,000 remaining in our stock repurchase authorization.

Speaker 3

Our broader capital allocation goals remain the same, investing in our games, Building and scaling play awards, pursuing strategic and accretive M and A and investing in our public equity. Looking ahead, we are adjusting our annual guidance given that there is only 1 quarter remaining in 2023. Our adjusted EBITDA guidance increases to $60,000,000 versus the previous range of between $55,000,000 $60,000,000 We are tightening our full year revenue guidance to be between $305,000,000 $315,000,000 Versus prior guidance of between $305,000,000 $325,000,000 As discussed last quarter, our guidance assumes a pickup Spending to support our growth and development gains as well as continued industry and economic stress. I will now turn the call back to Andrew for some closing remarks.

Speaker 1

Thank you, Scott, and thanks to everyone participating in today's call. While not without its challenges, I'm very encouraged by the progress We've made this year and I'm quite optimistic about the many developments underway. Our efforts to increase profitability are working and I believe we're on a path to margin parity with our peers. Our growth portfolio is adding meaningfully to our total revenues, and I expect the contributions to grow into 2024. I'm also excited about new games and development, and I'm that 1 or more of them will be in the marketplace in the coming year.

Speaker 1

Alongside these internal efforts, we continue to scour the market for acquisitions that can accelerate our growth and expand our overall opportunity. Before I conclude the call and take your questions, I want to address the ongoing conflict in Israel. As you know, we have a significant presence in the region with a number of our playmakers based in Tel Aviv. Like the rest of the world, we were horrified by the events on October 7 and profoundly saddened by what's transpired since. While we have comprehensive business Continuity measures in place and a collection of services aimed at supporting our employees during this turbulent and complicated time, Know that we'll continue to do everything possible to minimize the impact to our company and safeguard our team members and their families.

Speaker 1

And above all, we hope that someday soon these cycles of violence and suffering will land in an era of tolerance, justice and stability will come to this beautiful and sacred land. I'll now turn the call over to the operator to take your questions.

Operator

Operator? Thank you. A confirmation Our first question comes from the line of Ryan Sigdahl with Craig Hallum. Please proceed with your question.

Speaker 4

Good afternoon, Andrew, Scott.

Speaker 1

Hey, Ryan. Hi.

Speaker 4

I think, Scott, I didn't catch exactly what you've

Speaker 1

Give me just a second, Ryan. It was closer than flat.

Speaker 4

Yes, sure. If you want to look, I can keep moving.

Speaker 1

Yes, that's okay. But the answer, it was pretty close to being flat quarter over quarter.

Speaker 4

Okay. Sure. Then you mentioned a focus on and you have been making good progress in the margin expansion, focused on getting to margin with peers, can you do that without a reacceleration in revenue growth or do you need some of these growth initiatives to really hit to get there?

Speaker 1

Well, there's 1 or 2 things, right? I mean, we have a number of initiatives that are in their development stage, right, where we're investing Substantially, that aren't contributing at all to revenues. So as they mature, they're either going to contribute to revenues and result in that margin expansion Or they're not going to work, in which case we as a company have a strategic choice to make to redeploy that capacity into new development efforts that will drive future growth Or to adjust the cost structure of our business in order to achieve what we believe to be more mature margins. When we kind of look at and evaluate our business and we look at the core portfolio, we are at margin parity with our peers, Even burdening it with the overhead, the more G and A and other expenses outside of that portfolio. And so really our margins are compressed by The investments we're making in our new development opportunities and then of course the investments we continue to make in PLAY Awards as a platform and its capabilities so that We can leverage it more fully as a service beyond just supporting our own products.

Speaker 1

So I think that addresses your question. We're either going to enjoy the benefits of these investments or we're going to Adjust our overall cost structure or we're going to redeploy that capacity into other future opportunities that we think are going to drive growth.

Speaker 4

Helpful. Yes, I was giving out the structural margin of the business excluding all those growth initiatives, which you answered. My last question, you mentioned You've been testing the waters on external parties and partners using Play Awards. You mentioned it in the press release, the growth driver now. Curious kind of how that pipeline is progressing, what you're hearing, and then maybe any timeline around when we might hear something more formalized?

Speaker 1

Yes. I mean, I think it's still premature for us to kind of speak more specifically to what the overall shape of that opportunity looks like. And we've talked Our vision, which is to provide loyalty solutions to other key strategic partners or players in the industry, We've had a number of conversations. The feedback generally is pretty constructive and positive. I mean, they see it as a really unique Asset, and particularly given the dynamics of the industry today and how difficult it is to acquire players, Retaining them becomes all the more important.

Speaker 1

And so a loyalty program is really aimed very specifically at Retaining players over a longer period of time, as a result, driving up LTV. So early feedback, People appreciate and see the value of it. And we're in the early stages of just qualifying what does that mean. So how to really support A third party partner with not only the underlying technology solution, but all the other services that it might provide. And so it's been super helpful because it's refined our thinking, and it's helped us understand how to better approach Exploiting that opportunity.

Speaker 1

So again, I would characterize the conversations as still being quite preliminary, but really instructive for us.

Speaker 4

Great. Thanks, Andrew, Scott. Good luck, guys.

Speaker 1

Awesome. Thanks, Ryan.

Operator

Our next question comes from the line of David Pang with Stifel. Please proceed with your question.

Speaker 5

Thanks everyone. Can you talk about the puts and takes on guidance, which implies a Fairly wide range in 4Q revenue. And what gives you confidence in your EBITDA outlook given this revenue range?

Speaker 3

I mean, we did tighten the bandwidth of our revenue. So, 305 to 315, midpoint at 310, we felt that was The appropriate thing given the general uncertainty that we experience in the market, which that again, that's why we reduced it. From an EBIT perspective, We've been pretty consistent with our EBITDA projections and we just kind of leaned it in to be a single number. We've already kind of accounted for the additional UA that we expect to spend in the Q4. So Did I answer the question?

Speaker 3

Yes.

Speaker 1

Hi, it's here.

Speaker 3

Just a

Speaker 1

big clarity on EBITDA, just remember, it also includes quite a bit that from the expense side, which we do have probably a lot more control over. Also like the mix shift that you can sort of see towards the casual games, etcetera. So there's probably a little bit more of a line with that as opposed to the revenues, which are, as Scott mentioned, much more based on how the broader economy is doing, how the category is doing. So, That's why there's a little bit more precision in that number than the revenues.

Speaker 5

Got it. And separately, how do your Players engage with play awards during periods of economic weakness or uncertainty?

Speaker 1

They become more active in the rewards program because they're playing games for free And accumulating all of these real world benefits that they then get to take advantage of. So we're in A tighter, more distressed economy and people are being a little more frugal, they take greater advantage of the program.

Speaker 5

Great. And just lastly, on the initiatives that you ran for solitaire, what were Some of the key learnings from that?

Speaker 1

There's a lot of opportunities still within solitaire as a game category, at least With our execution of it and we think across the broader casual portfolio that we have. So the things that we're doing that Are impacting the fill rates of kind of our various impressions and new ad products that We're being very careful on how we insert them into the products, are translating to revenue lift. And so those as we prove them out in one game, we believe That can be pulled through and extended to the others. And there's a whole roadmap of other features and developments, Some of which are very subtle and some of which are pretty material, like the introduction of the IDIP loyalty program to those products. So And that's why we feel like it's been a great source of growth over the past couple of quarters and we think it will continue to be.

Speaker 1

You'll recall too, David, when we purchased Brainium, we talked a lot about the synergies that were available that we just weren't able to Quantify at that point, so I think what you're seeing now is that there was always a plan in place, but we've obviously with the restructure like a lot of stuff happened in the interim since we bought the company roughly a year ago. So we're finally starting to address a lot of those opportunities that we saw at the point of purchase. So We've had a long time to think about this and we're just starting to implement it now. I would say not only think about it, but we've been implementing Back end capabilities that allow you to deliver a lot of the core aspects of a loyalty program. So There was quite a bit of just infrastructure work that we had to do and put in place in service of now launching the My VIP program into those products And that's what's coming up here shortly.

Speaker 1

That good? David, you good?

Speaker 5

Oh, yes. Thank you.

Speaker 1

Okay. Awesome. All right.

Operator

Our next question comes from the line of Greg Gibas with Northland Securities. Please proceed with your question.

Speaker 2

Great. Thanks, Andrew and Scott. Appreciate you taking the questions. Wondering if you could speak to the timing. You commented on some new formats to come Under the Tetris banner, wonder if you could just speak to maybe what some of those similar games or new formats would And then kind of the timing of those launches?

Speaker 1

Sure. I mean, our vision is that we're going to have a portfolio of Tetris products. Today, we have won our Tetris Prime product. It's really focused on the players that are Wanting the kind of more purest traditional players that want that basic form of Tetris. We've actually introduced some features that I think they even the basic gameplay kind of unique and different, and we're seeing how that translates to both scaling our audience and performance that we're seeing out of that product.

Speaker 1

We intend to then complement that game with several other Tetris products, Each of which is a bit more casual in its nature. And so as we shared when we first Stepped into the rights for Tetris and now that we have this longer term relationship, our belief is that there's an execution of Tetris That will make it a bit more approachable and appeal to the more traditional mobile casual and puzzle game audience. And that if we can arrive at a solution that appeals to that audience, well then there's the opportunity to Still of

Speaker 4

a production that would be

Speaker 1

a perfect complement to the Tetris Prime product. So we have a couple of different Game teams that are actively advancing what I would characterize as more casual version of a Tetris game. And then it is our intention To craft a version of Tetris that even more than prime really appeals to the purest That delivers the traditional purest form of Tetris. So that for those people that that's what they want to engage with and play, they'll get it. We'll of course Complimented with some of the other aspects of our unique value proposition like Play Awards.

Speaker 1

But we have a vision where we can see a world 12, 18 months from now where we have a portfolio of products from the classic Tetris game to these Casual alternatives that are rich with meta features and the mechanics make it a bit more approachable and easier to play and engage with. So that's what we have in mind.

Speaker 2

Cool. That's good to hear. And I wanted to follow-up on your previous comments related Your Tel Aviv studio. From, I guess, a high level, curious if there are any disruptions there? And I ask because I know

Speaker 5

that you

Speaker 2

recently Transitioned a few studios there and are working on improving some games at that studio. So just curious if there's whether it's an operational or financial I know visibility is tough, but curious if you are seeing disruption there.

Speaker 1

Well, we're certainly having to adjust to the current conditions. We don't anticipate Any real meaningful adverse financial impact, and that's because we have in place crisis management practices that we activated. In the case of our GAME portfolio, one of the primary things is to decentralize the leadership Such that each of the different products is directed and managed by people that, while they still have a very tight connection We've invested quite a bit in development capacity and production support out of markets like Belgrade, which is really a companion studio To our Televeat team and in Asia, which also serves to support from production perspective, a lot of the other products in our portfolio. So we're really not that dependent on the production capacity that's based in Tel Aviv. That capacity tends to be concentrated on just a few products.

Speaker 1

And there are a bunch of measures as I just alluded to that we've taken to ensure that we can maintain our continuity and support each of our products without any meaningful disruption. That's a fairly general description of what we put in place. There's obviously beyond that a very comprehensive and detailed plan by products Where the entire teams are mapped and there's kind of redundant capacity in other markets that we could And with all that said, I really want to highlight the extraordinary resilience on the part of our team that's in Israel. They care deeply about the company. They've obviously invested deeply in the products they're attached to And they feel this deep sense of responsibility to kind of support and maintain the business.

Speaker 1

And so even though there's this Extraordinary event that's happening there. As you can only imagine, it should be all consuming. They remain Really focused and supportive of all the company's efforts and very flexible as far as adopting and supporting whatever the solutions are that we think are appropriate For an unknown period of time. So I couldn't be more proud of that team and their overall mindset and, and of course, We're all deeply concerned about them and wanting to do everything we can to ensure that they have the flexibility to focus on their primary responsibilities, which is Their own safety and the stability of their families and security of their families. So it's complicated, but I think that we've got all the right This is in place to ensure that we can continue to operate our business.

Speaker 1

And as we sit here today, when we look at The performance across the portfolio, it feels like we're managing pretty well. So

Operator

I'd like to hand it back to Mr. Pascoe for closing remarks. Well, I would just appreciate those of

Speaker 1

you that have dialed in. Thank you for your continued interest in the company. We look forward to continuing to close out this year. We've had some pretty meaningful improvements in our Performance growth year over year, which we're excited about from an EBITDA perspective, a bunch of efforts that alluded to and touched that we believe we're going to drive top line growth in the coming quarters. And so we're just look forward to revisiting with you once we get on the other side of the New Year and Where we can talk more about those things.

Speaker 1

So again, thanks for tuning in and look forward to our next call.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

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PLAYSTUDIOS Q3 2023
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